I beg to move amendment 10, in clause 7, page 3, line 8, at end add—

‘(3) The Treasury shall review, within six months of Royal Assent, the impact that changing the allowance under section 51A of CAA 2001 from £100,000 to £25,000 and back to £250,000 has had on small and medium-sized enterprises and business confidence, and a place a copy of this review in the Library of the House of Commons.’.

With this it will be convenient to discuss the following:

Clause stand part.

That schedule 1 be the First schedule to the Bill.

It is a pleasure to be back in Committee under your chairmanship, Mr Amess. Clause 7 and the incredibly complex schedule 1 increase the annual investment allowance for businesses to £250,000 for a temporary period of two years, as announced in the 2012 autumn statement. Rather oddly, given that the measure will be enacted in this Finance Bill, the provisions of clause 7 took effect on 1 January 2013, as opposed to from the start of the tax year or the accounting period for most companies. I will return to the significance of that point.

Although welcomed by many, the announcement of the increase in Labour’s annual investment allowance came not long after the Government’s earlier decision by to reduce it significantly. Chopping and changing in this way risks further destabilising business confidence to invest.

We are keen to see a proper review of the size and numbers of businesses that benefit from the measure, given the somewhat conflicting information that has been provided by the Chancellor about those benefiting from the annual investment allowance in recent years. That is why amendment 10 calls on Her Majesty’s Treasury to undertake a review of the impact of the increase in the AIA on small and medium-sized enterprises. It should take into consideration the impact of the previous reduction and the subsequent increase, which, according to the explanatory notes to the Bill, has been introduced with a view to

“providing an additional, time-limited incentive for businesses (particularly small and medium-sized businesses) to increase, or bring forward, their capital expenditure on plant or machinery.”

The amendment is intended to enable us to ask the Government seriously to review and consider the impact of the continual and, many have said, somewhat erratic changes in the annual investment allowance and what impact that may have had on business confidence.

I am not sure what the hon. Lady’s direction of travel is. I understand her first point: she does not like the chopping and changing. No businesses like that at all, but is she saying that there should be a review, or that there should have been a review before the increase in the allowance was implemented, or is she saying that after a year we should stop and there should be a review?

The hon. Lady talks of small and medium-sized businesses, as I do and other hon. Members on both sides of the Committee do. She will know that £25,000 is a small amount when one is deciding whether to make an investment, but £250,000 allows companies to invest in a reasonable amount of capital expenditure. The issue today is that we need to get this money on the ground and working as fast as possible, not wait another three months, 12 months or 24 months.

I thank the hon. Gentleman for that intervention. If he reads the amendment, he will see that it clearly says a review will be undertaken

“within six months of Royal Assent” being given to the Bill. It would be a review, in the future, of the impact of chopping and changing. Labour introduced the £100,000 level for annual investment, recognising its value in stimulating the business investment that the hon. Gentleman agrees the allowance can bring.  The review would look at the impact of slashing that to £25,000, which had a limited impact on encouraging businesses to invest, as the hon. Gentleman eloquently said—he rather made my point for me, and I thank him for that. The intention is that the review would take proper stock of the impact of chopping and changing the policy by reducing the level from £100,000 to £25,000 and then increasing it to £250,000.

The case was indeed made for my hon. Friend on the allowance. At the time of the 2010 emergency Budget, the Chancellor told us that it would not really be a problem to make the reduction, because 95% of businesses invested less than £25,000 anyway and that was why he was making the cut. Clearly, three years ago, the Chancellor was not convinced of the measure in the Bill. If he had been, the economy might be in a better state now.

My hon. Friend makes an important point, which I will go into in more detail. There has been some confusion, and the Chancellor, in particular, has certainly put some conflicting information out there about the impact of this measure on boosting investment, particularly in areas of the economy that the Government have expressed a commitment to rebalancing.

I might be able to provide some guidance to the hon. Lady. I recently looked at some research from a team at Lombard, a subsidiary of RBS, which has noted that there has already been a 15% year-on-year increase in investment, spurred by the likes of the automotive supply chain, in which production in the UK has hit a four-year high and car exports have registered a record high. Ultimately, growth is about confidence. One problem with the amendment is that the Opposition are talking down positive news. We really have to talk up investment, and that is about confidence. The amendment is counter-productive from that perspective.

I thank the hon. Gentleman for his comments. I think he knows that the performance of manufacturing has not been as strong as it should and could be. We have still not seen the march of the makers leading us into a new generation of manufacturing in this country. He talks about confidence, but that is not reflected in the message I am getting from businesses—certainly those in my region, but also those I speak to around the country. That confidence is what the Opposition are interested in safeguarding and projecting in the future.

The amendment is in no way intended to undermine confidence or talk down business. It is intended to do completely the opposite—to focus on the impact that chopping and changing business policy has on business confidence and to take stock for the future of how the undermining of business confidence can be prevented. Many business sources have confirmed my fears that this chopping and changing undermines confidence. As the hon. Gentleman knows, and as the hon. Member for Braintree said, uncertainty about the future and  about Government policy is one of the most destabilising forces for business and business investment. That is the point we are looking to reinforce.

The north-east is fortunate that, over the past couple of decades, Nissan has planted itself in the region and grown its business. Nissan exports a huge number of cars to the European Union from the dock at Jarrow. The problem, however, is that one of Nissan’s major shareholders is Renault. If we were to withdraw from the European Union, I am convinced that Renault would have no hesitation in withdrawing the Nissan investment from Washington and Jarrow and taking it back to France.

My hon. Friend makes a powerful point. I enjoyed his analogy of Nissan “planting” itself in Sunderland, growing from there and sprouting the manufacturing of the Leaf, a new generation electric vehicle being produced in Sunderland. The region is very proud of that and proud to be a net exporter and a huge contributor to UK plc.

The point that my hon. Friend makes about the destabilising effect of the current debate on Europe is important. Generally speaking, the Government’s mixed messages undermine the confidence to invest in this country and for the future. We know that businesses are sitting on stockpiles of cash because they are uncertain about the future, and the Government are failing to give them confidence in terms of economic stability going forward. There are also questions about whether we are going to be in the European Union and whether we are going to have trade deals with the US. Who are our friends here and who are our competitors? We have an uncertain environment for business at the moment.

Going back to the annual investment allowance, it might be helpful briefly to consider the background, which will set the scene for our amendment. The allowance was announced as part of the 2007 Budget by the former Chancellor of the Exchequer, my right hon. Friend the Member for Kirkcaldy and Cowdenbeath (Mr Brown). It was introduced as part of a package of reforms to enhance Britain’s international competitiveness, encourage investment and promote innovation and growth.

The allowance replaced first-year capital allowances and was introduced initially at a level of £50,000. It was made available to businesses regardless of size and regardless of their legal form. It meant that, in any given year, 100% of expenditure spent on general plant and machinery, other than cars, up to the £50,000 limit could be offset against taxable profits. The measure took effect in April 2008 and was very much aimed at targeting support on all businesses to invest for growth.

As referenced in the Opposition’s amendment 10 today, the previous Labour Government announced their intention to double the investment allowance at the March 2010 Budget as part of a series of measures intended to:

“support startups and small and medium-sized enterprises (SMEs), position the UK as a leading centre for research and innovation, and ensure that the UK is equipped with skills for growth and the infrastructure it needs to be successful in a low-carbon economy.”

I am surprised the hon. Lady quoted that speech on the Budget, because that must go down as one of the longest statements of hubris that we will ever find if we go back and read the economic forecasts. In  that year’s Budget speech, the then Chancellor set out that he was making other changes to the capital allowances regime, including reducing the rate from 25% to 20% and taking away tax relief on investment in industrial buildings. Does the hon. Lady now regret those changes?

Following the 2010 Budget, we had a general election that brought in the Conservative-Liberal coalition, which has led us into stagnant growth and paltry growth rates since that time, so I am surprised that the hon. Gentleman seeks to reflect on what has been a very sorry period of poor economic growth, with confidence to invest at an all-time low.

The March 2010 Red Book went on to state:

“In order to provide further cashflow support and an incentive to increase business investment, the Government will increase the threshold of the AIA to £100,000 for expenditure incurred from April 2010.”

Interestingly, given our deliberations on clauses 203 to 212 of the Bill’s general anti-abuse rule, which were considered on the Floor of the House at Committee stage, the Red Book also stated:

“The Government will introduce a targeted anti-avoidance rule from 24 March 2010 to ensure this measure is focused on support for genuine business investment.”

Will the Minister outline what similar measures the Government will be taking, or whether the targeted approached adopted by the previous Labour Government will continue to apply to the temporary annual investment allowance? I would be grateful if the Minister commented on that.

From April 2008, under Labour, businesses were able to offset 100% of expenditure in any given year on general plant and machinery, up to a limit of £50,000, against taxable profits. From April 2010, that was increased to £100,000. We know the story from there. The coalition came to power, and we had the Chancellor’s so-called emergency Budget in June 2010, which announced to great fanfare that the annual investment allowance would be reduced to £25,000 from April 2012.

As my hon. Friend the Member for Nottingham East commented, the Chancellor sought to reassure us that the impact of the reduction from £100,000 to £25,000 would in fact be very limited because, in his words,

“Over 95 per cent of businesses will continue to have all of their qualifying plant and machinery expenditure fully covered by this relief.”

In other words, the Chancellor believed in June 2010 that only 5% of firms were receiving any benefit from the annual investment allowance. Indeed, HMRC’s tax information and impact note stated:

“Over 95 per cent of businesses are expected to be unaffected as any qualifying capital expenditure will be fully covered by the new level of AIA (£25,000).”

But it went on to clarify that

“between 100,000 and 200,000 businesses will have annual capital expenditure of over £25,000”,

and they would therefore be affected by the decision. In the Chancellor’s terms it is only 5% of businesses, but in anyone else’s terms it is a significant number of firms, which no doubt directly employ, or potentially employ, a significant number of people while indirectly supporting the employment of many others through their supply chains.

It is useful to remind ourselves of some of the views expressed at the time about the decision that the Chancellor took. The Institute for Fiscal studies commented that the losers from the cut

“would be those firms with capital intensive operations—with long lasting equipment and machinery—that currently benefit most from the capital allowances. While this is likely to apply more to firms in the manufacturing and transport sectors it may also be true to for some capital intensive service sectors firms.”

A senior economist at the manufacturers association the Engineering Employers Federation stated:

“Reducing the corporation tax rate over time was in principle the right course of action. But financing it, in part, by cuts to investment allowances will be a heavy price to pay, especially for smaller companies. It might be a positive signal for large companies, but not for their suppliers.”

In his evidence to the Treasury Committee on the June 2010 Budget, John Whiting, then tax policy director at the Chartered Institute of Taxation, and now director of the Office of Tax Simplification, expressed his concern that the cut would particularly hit medium-sized firms.

So we had the June 2010 Budget, which cut the annual investment allowance to £25,000 from April 2012. We then had two autumn statements and two Budgets before, lo and behold, the Chancellor announced in the autumn statement 2012 that he would increase the annual investment allowance—the one he had cut to £25,000—to £250,000 from January 2013.

It might be helpful if the Minister explained what changed between the June 2010 Budget and the 2012 autumn statement. I think some of us know the answer, but it would be helpful if he could provide some clarity on that point. What happened to business investment in the intervening period that drove the Chancellor from a position where he felt able to slash the annual investment allowance in 2010, because more than 95% of businesses were expected to unaffected, to announcing in 2012 that he was increasing it to £250,000?

Let us recall what the Chancellor said about the decision in the 2012 autumn statement. He said he was increasing the annual investment allowance because:

“It is a huge boost to all those who run a business and who aspire to grow, expand and create jobs.”—[Official Report, 5 December 2012; Vol. 554, c. 881.]

That surely means, does it not, that his decision to slash the annual investment allowance just two and a half years earlier was therefore the opposite: a huge blow to all those who run a business, who aspire to grow, expand and create jobs.

The Chancellor and the Minister cannot have it both ways. Either the annual investment allowance supports growth and business expansion or it does not. It would seem that the coalition has now come round to our point of view on the issue, believing that it is important to back businesses that want to grow, innovate and boost employment.

I should be grateful if the Minister clarified the number and size of businesses that are expected to benefit from the increase to £250,000, particularly given the clear statement that the intention is particularly to incentivise small and medium-sized enterprises and bring forward their capital expenditure.

The estimate in the HMRC tax information and impact note is that about 90,000 businesses that spend more than £25,000 a year on qualifying plant and machinery will benefit from the change. For comparison, I remind hon. Members that between 100,000 and 200,000 businesses were estimated to have capital expenditure of more than £25,000 in 2010.

Either the Chancellor got his figures wrong when he made the decision to slash the annual investment allowance, or there has been a disturbing drop—of between 10,000 and 110,000—in the number of companies investing more than £25,000 since 2010. We need to ask whether that is down to the Chancellor’s decision to slash the annual investment allowance, or whether it is a result of his and the Government’s catastrophically failing economic plan—or, whether, indeed, it is a combination of both.

When he announced the increase in 2012, the Chancellor stated that the

“capital allowance will cover the total annual investment undertaken by 99% of all the business in Britain.”—[Official Report, 5 December 2012; Vol. 554, c. 881.]

Does that in effect mean that the change will benefit about 4% of businesses in the country, or did he get his figures wrong there, too?

We need a great deal more clarity about the impact of the measure, in relation to the number and size of the firms—particularly small and medium-sized enterprises—that will or will not benefit. That is why the amendment would require a review of the impact of the various changes in the annual investment allowance since the coalition came to power.

Of course, those changes have been erratic, to say the least. Cutting the allowance from £100,000 to £25,000 and then increasing it to £250,000 does not exactly inspire confidence in the Government’s long-term approach and strategy for supporting businesses with growth and investment.

Andrew Gotch of the Chartered Institute of Taxation commented on the increase announced in the 2012 autumn statement:

“This is a very generous increase that will be warmly welcomed by many small businesses...However, we note that it is only a temporary increase. Business would really welcome some stability in this area. In recent years the allowance has fallen from £100,000 to £25,000. Now it will rise to £250,000 before, apparently, coming back to £25,000. Businesses like certainty above everything and the chopping and changing of the AIA has been a problem.”

The Institute of Chartered Accountants in England and Wales, although it supports the increase in the annual investment allowance, has said:

“We are less enthusiastic about the frequency of the change to this amount and consider the different calendar dates now being used are an unnecessary complication.”

I am sure that we would all agree that at the present critical juncture in our stagnating economy what businesses most need are long-term stability and certainty. That would give them the confidence to invest and make plans for the future. If they are to dig us out of this economic mess—of the Chancellor’s own making—and to create the new jobs that we desperately need as unemployment rises again, with youth and long-term unemployment at disturbingly high levels, it is vital that they help power our flatlining economy back into growth. We need to give confidence to business to invest.

What assessment has the Minister made of the impact of the constant chopping and changing on business confidence? Does he accept that it is vital for the Government to think strategically about how they support business in this country? Given the completely unpredictable nature now of the annual investment allowance, could he state on the record today whether the two-year temporary increase will remain in place until January 2015 as announced in the 2012 autumn statement? That would at least, if nothing else, give a short-term level of certainty to the businesses looking to take advantage of it.

We need confirmation that the Minister and the Government—particularly the Treasury—take seriously the impact of their policy decisions on business confidence. That is why our amendment proposes a review of the impact of the various changes to the annual investment allowance on business confidence since the coalition came to power. That would help persuade us, the business community and the general public that the matter is being taken seriously. I suggest that Government Members should have no qualms supporting the amendment, given that that should be our main focus at this time.

Finally, I want to comment on the complexity of the changes introduced by clause 2 and schedule 1. The Association of Taxation Technicians warned earlier this year that

“chopping and changing of capital allowances will lead to error, confusion and higher professional costs for small businesses”.

The ATT neatly summarised the potential problems caused by this temporary increase, in particular the fact that it runs from January 2013 to January 2015, rather than over companies’ usual accounting period.

“Under the Government’s proposals the annual investment allowance limit is being increased for the two-year period between 1 January 2013 and 31 December 2014 from £25,000 to a headline figure of £250,000.

“However, in reality, the actual limit on qualifying expenditure from 1 January 2013 can be less than £25,000 depending on the firm’s accounting year end and the level of its qualifying expenditure incurred before 1 January 2013.

“As the annual investment allowance limit was only reduced from £100,000 to £25,000 from 1 April 2012, the combined effect of that reduction and the proposed temporary increase is that within a period of just 39 months, there can be as many as seven occasions when the precise dating of expenditure determines how much tax relief the business will get each year on its capital expenditure.”

I apologise, Mr Amess, if that complicated analysis is giving a headache to hon. Members. I have no doubt that it will give a headache to many businesses and their accountants seeking to use the annual investment allowance.

Commenting further on the problem, the ATT’s president, Yvette Nunn, explained:

“These proposals are well intentioned but will be very problematic for small firms in particular. The arithmetical complexities involved will lead to error and confusion and result in increased professional costs for businesses and an unnecessary diversion of HMRC resources into policing the cliff edges at the critical dates.

“The majority of SME businesses spend far less than £250,000 every year. For them, it would be far simpler for the old £100,000 annual limit to run through to 31 December 2014. In that way, there would be only one cliff edge. So we are urging the Government to allow businesses to elect out of the confusing varying limits and into a flat limit of £100,000 a year from April 2012 for the whole affected period. We think that this would work well for businesses, HMRC and the economy.

“Small firms and entrepreneurs are the life blood of the economy. Encouraging these businesses is vital for Great Britain. If it looks too complicated to start and manage a business then we will deter the innovation and enterprise we need to get our economy motoring again.”

Any Members who have spoken to small and smaller-sized medium businesses in their constituencies will know that if things look too complicated, businesses will not take advantage of the available allowances. That is why we have tabled our amendment—so that the Government take seriously our concerns about not just the chopping and changing, but the complexity on the ground for small and medium-sized businesses up and down the country.

We have only to look at the explanatory note to clause 7 and schedule 1, which runs to 10 pages and which I am I sure all Members have studied, to comprehend how complex the changes will be for many businesses. Indeed, the Chartered of Institute of Taxation commented:

“The extreme complexity of the transitional rules may, for many businesses, negate the intended cash flow benefits of the increased AIA and could trip up some businesses, who might understandably assume that allowances are time apportioned.”

I would greatly appreciate hearing the Minister’s response to the concerns so well articulated by the ATT and the Chartered of Institute of Taxation when he addresses our concerns about the clause. I would be grateful if he outlined what steps, if any, the Government have taken to mitigate the confusion caused by the change and how it has been introduced. Indeed, how confident is he that the change enacted by clause 7 will result in the Government’s intended consequences?

When I look at clause 7, schedule 1 and the explanatory notes, I am extremely grateful to the Government, because they make me feel 12 years younger. You may ask why such a lengthy piece of rule making would make me feel 12 years younger—it is because 12 years ago I was leading a team of people encoding HMRC tax rules so that submissions could be checked electronically as they came into the Revenue. One of the things we found was that in at least one case regarding expenses and benefits it was not possible to submit a valid tax return. The rules were incompatible with one another, so when I look at these rules, I worry that by the time everything has been encoded and checked, we may find that it is vastly too complicated.

Could the Government have done more to raise the allowance to this level while making it all much simpler? I realise that they inherited a hugely lengthy tax code that ballooned under the previous Government, but it is time for tax simplification, much as my former colleagues would curse me for saying so because it would take away some of their work. This is a great time—[Interruption.] I think that flat taxes are perhaps for another day, although I am grateful to hon. Friends for their suggestion. However, I wish that the Government would take a good look at the issue and see whether it is possible to do something simpler, although I appreciate that that may be something for the next Bill.

It is a pleasure to serve under your chairmanship, Mr Amess. We are both supporters of the Caravan Club, my mother and father are both supporters, and we look forward to the day when 1 Parliament street becomes a Caravan Club site. I support you in that campaign, sir.

I refer to amendment 10. I do believe that one of the great innovations has been the annual investment allowance created by the Labour Government. For all the trashing of the reputation of my right hon. Friend the Member for Kirkcaldy and Cowdenbeath (Mr Brown), it was a very good innovation. It encouraged people to invest in plant and machinery, create jobs and bring about the type of growth that we were looking for.

The allowance was originally set at £50,000. It was a capital allowance that offered tax relief at 100% of the qualifying expenditure in the year of purchase, excluding cars. When the Chancellor presented his first Budget in 2010, he reduced it to £25,000, saying that most people’s expenditure was under £25,000 anyway. Now we have come back here again and he has put it up to £250,000. Those of us who were sometimes fortunate to work in the banking industry—it was sometimes unfortunate, depending on how people thought of us—know that unless someone has worked in business banking and put a bank loan together, they do not know how difficult that is. That is a problem in society generally. There are all sorts of factors, and people can attack banks all they want, but at the end of the day banks need to make profit. They do not want to risk that profit by lending to a company they are not sure about.

There are two problems with increasing the annual allowance. The first is that businesses do not work in a vacuum, or over planning periods of a year or 18 months. They often work on planning periods of five or 10 years. This temporary increase is only for two years. What does that say to businesses who want to invest in plant and machinery or expand, as we all want them to do? What do they do with their planning and where do they go next? Those questions need to be answered. They work on a five-year cycle, so they would say, “In two years, we can claim this tax relief, but what happens three years beyond that?” Both we and business need that certainty before we go on with the increase.

The second problem is that we have two dates. My hon. Friend the Member for Newcastle upon Tyne North quoted Andrew Gotch of the Chartered Institute of Taxation, who said:

“we note that it is only a temporary increase. Business would really welcome some stability in this area. In recent years the allowance has fallen from £100,000 to £25,000. Now it will rise to £250,000 before, apparently, coming back to £25,000. Businesses like certainty above everything and the chopping and changing of the AIA has been a problem.”

What can we do? When I spoke previously in the Finance Bill Committee, I said that we could do nothing to change it; the Bill was going through, whether we liked it or not. The law does not allow us to make any amendments, but we can bring about a review. If we do that, we can answer our questions about business stability and moving forward.

I will not take up too much of the Committee’s time, because I can see that we are heading towards lunch, but I will pick up on the point made by the hon. Member for Wycombe, which is in the south somewhere; I am sure I have seen it on a map. The problem is that the explanatory notes are dry and complicated. My worry is that if we asked most business people whether they had a wish list, they would say that they wanted one thing—lower taxation. Okay, we are lowering  corporation tax—I say that quietly, because I do not want to praise the Government to much—but the other thing that business people want is simplicity. They do not want red tape; they want to cut through it, but the explanatory notes are extremely complicated. I previously worked in business banking, and I have read them four or five times and cannot make head nor tail of them.

We need stability, and that is why the Government should not just see the amendment as a Labour amendment and vote it down. I hope that they will look at bringing about a review, because there is so much complexity and instability. There have been so many changes, and we need to think about the message we are sending out. The Chancellor is chopping and changing so much, and we need to understand the rationale. Why, if he said in 2010 that the majority of businesses were investing less than £25,000, does he want to increase it to £250,000? We need those answers, and they will not come through Budgets, comprehensive spending reviews or finance Bills; they will only come through a review of the specific policy. I hope that the Minister will look favourably on setting up such a review so that we can know that rationale.

We have heard from a number of hon. Members, so I will get straight down to it. Clause 7 and schedule 1 increase the annual investment allowance from £25,000 to £250,000 for two years from 1 January 2013. The clause is designed to stimulate growth in the economy by providing an additional time-limited incentive for businesses to invest in plant and machinery. It has been warmly welcomed by business representative groups such as the CBI, the EEF, the British Chambers of Commerce, the Institute of Directors and the Federation of Small Businesses.

The changes made under clause 7 and schedule 1 enable companies and unincorporated businesses, regardless of their size, to reduce their taxable profits effectively by 100% of their expenditure on qualifying plant and machinery, up to £250,000 in each of the years 2013 and 2014. That effectively accelerates the tax relief on expenditure between the current threshold of £25,000 and the new maximum limit of £250,000. The clause will increase the net present value of capital allowances to investors in plant and machinery, and will provide a valuable cash flow benefit likely to be of most help to small and medium-sized businesses.

It is estimated that the new £250,000 annual investment allowance limit will cover the qualifying annual investment by 99% of businesses in the United Kingdom. Increasing the threshold of the allowance to £250,000 will directly benefit about 90,000 businesses that currently invest more than £25,000 a year on plant and machinery.

The Minister has again referred to the number of businesses that are likely to benefit from the increased annual investment allowance. What happened to the 100,000 to 200,000 businesses that were set to lose from the reduction that was announced in 2010?

Those businesses will all benefit from the increase, which is a lot more generous than the allowance that was in place in 2010 when the Government took office.

Raising the threshold will also encourage businesses that currently invest below £25,000 to increase their level of investment so as to benefit from the additional relief. Supporting businesses in that way will encourage them to take advantage of new technologies and new opportunities. The move has been backed by business bodies, several of which I mentioned earlier.

Amendment 10 would require the Treasury within six months of Royal Assent to review the impact on small and medium-sized enterprises and on business confidence of the changes to be effected by the clause and of the change to the annual investment allowance threshold made in the Finance Act 2011, and to place a copy of the review in the House of Commons Library.

The Government are fully committed to providing greater transparency on the impact of their tax measures. I am sure that Opposition Members will have already examined the tax information and impact notes that we published on 6 December relating to the clause. They included the Office for Budget Responsibility’s certified costing and the initial assessment expected economic impact of the measure. It recorded that accelerating relief on qualifying expenditure between £25,000 and £250,000 will provide an incentive, particularly to small and medium-sized businesses to increase and bring forward their investment in plant and machinery.

The published note also records that the measure will be duly monitored in the normal way through information collected from businesses and their tax returns. Clearly, full and systematic information from tax returns will not be available for some time, and certainly not within the six months of Royal Assent, which is the time scale envisaged by the review proposed in the amendment. Therefore, the amendment is not necessary. The Government keep all tax policy under review, with HMRC and HMT routinely monitoring the impact of such economic reforms on a case-by-case basis.

Given that the Minister believes that the review is not necessary, what assessment have the Government made of the change between 2010 and today that made it a good policy decision to slash the annual investment allowance to £25,000? What has changed since then and now, when it is about to be increased to £250,000? Presumably, the Government have carried out a full assessment, given that they do not believe that a review of this change is necessary.

I was just coming to that. We recognise that the change follows quite soon after the decrease in the annual investment allowance to £25,000 that was announced in the June 2010 Budget and implemented in the Finance Act 2011, which took effect from April 2012. The Government’s central position has not changed and remains that, in general, a lower corporation tax rate with fewer reliefs and fewer allowances will provide the best incentives for business investment, with the fewest possible distortions. That is why we have announced a further reduction in the main rate of corporation tax, as we discussed earlier, from April 2015 and is also why the current 10-fold increase in the maximum annual investment allowance is time limited rather than permanent. We feel strongly and recognise, however, that the particular challenges that businesses face in the current economic climate make positive action by the Government to  support and encourage increased investment in the short term both appropriate and highly desirable, which is why we are introducing the temporary measure.

Before I conclude, I want to turn to a couple of other points. The hon. Member for Newcastle upon Tyne North was right to mention the impact that the accounting period will have on the tax returns of businesses, particularly SMEs. We considered that, but we wanted the incentive to take effect as soon as possible, which is why it started on 1 January 2013 rather than waiting for the start of the new tax year. When we considered the impact, we first took into account the fact that many businesses use the calendar year for their accounting period, which makes the proposal quite straightforward for them. Obviously, those companies that do not use the calendar year will have to use a time-apportioned system, which is more difficult to calculate, but the benefits outweigh the extra burden, so it is a valid trade-off. It was the right course of action for the Government to take to ensure that the measure took effect as soon as possible.

My hon. Friend the Member for Wycombe and the hon. Member for Islwyn raised several similar points, focusing on the general complexity of the tax code as well as this particular measure. My hon. Friend the Member for Wycombe asked whether it was possible to simplify the scheme, and we looked at all the options and made it as simple as possible. It is in the Government’s interest to make tax incentives as simple as possible, so that as many companies as possible can take them up and increase investment. The hon. Member for Islwyn was right to mention the overall complexity of the tax code, which he will know from working with companies during his time in banking, but he will also know that the fastest expansion of our country’s tax code took place during the 13 years of the previous Government. At 11,000 pages, it is one of the longest in the world—longer than India’s—and it tripled in size under the previous Government. Therefore, if he truly is concerned, I urge him to ask his hon. Friends why they did that and why they damaged so many businesses.

In conclusion, we recognise the challenges that businesses face in this current economic environment, and the temporary increase in the annual investment allowance will help them to meet those challenges by supporting investment and growth. I therefore ask the hon. Lady to withdraw the amendment.

The Opposition feel that proper analysis of the issue is still necessary so that the Government have a better understanding of the long-term approach to supporting business investment. We need better to understand exactly which firms will benefit from the provisions of clause 7. That is what our amendment calls for, so we urge the Committee to support it.

Question put, That the amendment be made.

The Committee divided: Ayes 12, Noes 15.

Question accordingly negatived.

Clause 7 ordered to stand part of the Bill.

Schedule 1 agreed to.

Ordered, That further consideration be now adjourned. —(Greg Hands.)

Adjourned till this day at Two o’clock.