EIS, SEIS and VCTs: exclusion of energy generation

Finance Bill – in a Public Bill Committee am 2:30 pm ar 30 Mehefin 2016.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Photo of Rob Marris Rob Marris Shadow Minister (Treasury) 2:30, 30 Mehefin 2016

I beg to move amendment 135, in clause 28, page 2, line 42, at end add—

‘(7) The Chancellor of the Exchequer shall, within one year of the passing of this Act, publish a report giving the Treasury’s assessment of the effect of excluding energy generation from EIS/SEIS/VCT schemes on—

(a) the renewable energy sector,

(b) community energy projects, and

(c) the energy sector”.

With this it will be convenient to consider clause stand part.

Photo of Rob Marris Rob Marris Shadow Minister (Treasury)

I hope the amendment is fairly clear. It is a standard amendment of the sort we are all used to, requiring the Chancellor of the Exchequer to publish a report. There is concern that the leverage afforded by the three types of tax advantage scheme referred to in the clause will be completely removed if all energy-generation schemes are removed from those fiscal schemes. I appreciate that the risk factor of several types of energy-generation schemes has dropped so much that the use of such tax measures is no longer efficacious, because they are giving people a tax break for doing something that used to be very risky but no longer is—namely, the development of technology—but it seems a little strange to remove tax breaks for energy generation completely. Will the Minister say something about that?

Photo of David Gauke David Gauke The Financial Secretary to the Treasury

The clause makes changes to exclude all remaining energy-generation activities from the tax advantage venture capital schemes, thereby ensuring that the schemes continue to be well targeted towards high-risk companies and that the tax reliefs are in keeping with the original policy intent.

The venture capital schemes offer generous tax reliefs to encourage investment in small and growing higher- risk companies that cannot otherwise access finance. In recent years, there has been a significant increase in tax-advantaged investment in energy-generation companies. Such activities are generally lower risk, with predictable, reliable and regular income streams. The Government have previously made changes to exclude from the schemes those companies that have benefited from guaranteed income streams for the generation of energy. However, those exclusions have resulted in investment shifting to other forms of energy generation, rather than to the higher-risk investment that the schemes are intended to support. The changes made by this clause will ensure that the Government remain consistent in their approach by keeping the venture capital schemes targeted at higher-risk companies.

The clause will exclude all forms of energy generation from qualifying for the venture capital schemes, including the seed enterprise scheme, the enterprise investment scheme and venture capital trusts. The Government also intend to apply the exclusions to the social investment tax relief once it is enlarged. The measure is expected to yield £95 million annually from 2016-17 onwards, helping the Government to deliver on their commitment to tackle the budget deficit.

Amendment 135 would require a report to be published on the impact of the exclusion of energy generation from the venture capital schemes on the renewable energy sector, community energy projects and the energy sector. Such a report would need to be published within one year of the Bill becoming an Act. The Government provide a range of support for renewable energy, and that support will double over this Parliament, reaching more than £10 billion in 2020-21. That represents a sixfold increase in spend since 2011-12. The relief schemes I have mentioned serve a different purpose: to help smaller, higher-risk companies across a range of sectors to access the investment they need to grow and create jobs.

Energy generation is typically a lower-risk activity for which investment can be secured without tax relief. Allowing it to qualify for tax relief diverts investment away from the companies that need it most. In addition, from a practical perspective, companies that raised investment for the purpose of energy generation before its exclusion have up to two years to spend the money. A report in just one year’s time would therefore serve little purpose.

A report as suggested by the amendment would have little value from a practical point of view. The exclusion of energy from the venture capital schemes is a principled decision based on the lower risk profile of the activity. The Government therefore believe the amendment is unnecessary, and I hope it will be withdrawn.

Photo of Kirsty Blackman Kirsty Blackman Shadow SNP Spokesperson (House of Lords)

With all the changes the Government are making to the support of energy policy and with the lack of a pot 1—established technologies—contracts for difference round in the near future, does the Minister not feel that projects such as onshore wind are much less likely? This measure has to be taken in the round. It may cause problems because the Government are doing many other things that go against, in particular, onshore wind generation.

Photo of David Gauke David Gauke The Financial Secretary to the Treasury

Where I agree with the hon. Lady is that these things should be looked at in the round. The Government are committed to supporting the investment and innovation needed to achieve a cost-effective transition to a low-carbon economy while ensuring security of energy supply and avoiding unnecessary burdens on businesses and households. We are making great strides towards our commitments, with emissions down 30% since 1990. Support for renewables from taxpayers and bill payers will double over this Parliament, reaching more than £10 billion in 2020-21, as I mentioned. That is a sixfold increase in spend since 2011-12. We have more than trebled our renewable electricity capacity since 2010. In the round, the Government’s record is strong.

We are committed to supporting small and growing businesses. The presence of low-risk, asset-backed investments such as those described today crowds out investment in higher-risk propositions. It is right that the Government act to exclude such investors.

Photo of Rob Marris Rob Marris Shadow Minister (Treasury)

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 28 ordered to stand part of the Bill.

Clauses 29 to 32 ordered to stand part of the Bill.

Clause 33