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Session 1997-98
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Standing Committee Debates
Finance (No. 2) Bill

Finance (No. 2) Bill

Standing Committee E

Thursday 4 June 1998

(Morning)

[Mrs. Gwyneth Dunwoody in the Chair]

Finance (No. 2) Bill

(Except Clauses 1, 7, 10, 11, 25, 27, 30, 75, 119 and 147)

10.30 am

Mr. Michael Fallon (Sevenoaks): On a point of order, Mrs. Dunwoody. I raised a point of order at the beginning of Tuesday's proceedings to which I have not received a reply, perhaps inadvertently. The draft regulations on clause 87 have yet to be circulated to the Committee. Given that we may discuss that clause today, it would be helpful if they were made available.

The Chairman: I call Mrs. Liddell.

The Economic Secretary to the Treasury (Mrs. Helen Liddell): Thank you, Mrs. Dunwoody. I am grateful to the hon. Gentleman for returning to the matter. I intended to reply on Tuesday to his point of order, but the opportunity did not arise. The draft regulations for clause 87 will be published at the end of June.

Mr. Fallon: What?

Mrs. Liddell: The hon. Gentleman should reflect on his party's actions when they were in power. The Government will publish the regulations at the end of June, and they will be subject to full consultation. They will not take effect until April 1999 at the earliest, allowing ample time and scope for detailed consideration. Such practice is normal, but it is in marked contrast to that which prevailed under the previous Government.

Mr. Fallon rose

The Chairman: Order. This is not a point of order for the Chair. It has been raised and a reply has been given to it. However, for the moment I shall allow the hon. Gentleman to continue.

Mr. Fallon: I contend although not wholly optimistically that this is a matter for the Chair, Mrs. Dunwoody. The Committee cannot properly consider clause 87 precisely because it is the draft regulations, not the clause, which define personal portfolio bonds. When we consider the clause, we shall not know what we are debating.

The Chairman: I understand the hon. Gentleman's worry. However, the same can be said of every statute that empowers the making of regulations.

Mr. Gibb rose

The Chairman: I must again make it plain that the matter is not one for the Chair and I shall not therefore take any more points of order.

Schedule 13

Changes to EIS etc

Mrs. Liddell: I beg to move amendment No. 143, in page 237, line 10, at end insert

    "Trustees: anti-avoidance

    . (1)Paragraphs 13 and 15 above shall have effect in relation to the subscription for shares by the trustees of a settlement as if references to the individual subscribing for the shares were references to

    (a)those trustees;

    (b)any individual or charity by virtue of whose interest, at a relevant time, paragraph 17 above applies to the settled property; or

    (c)any associate of such an individual, or any person connected with such a charity.

    (2)The relevant times for the purposes of sub-paragraph (1)(b) above are the time when the shares are issued and

    (a)in a case where paragraph 13 above applies, the time when the value is received;

    (b)in a case where paragraph 15 above applies, the time when the loan is made.".

I hope that today's proceedings are long and fruitful, and that the tone of the debate and the room temperature remain similarly moderate.

The amendment will correct a minor technical defect in provisions that bring reinvestment relief and the existing enterprise investment scheme together in the new, unified EIS.

Where chargeable gains are invested in companies and the tax on the gain is deferred under the new EIS, a number of provisions will protect the relief from being exploited. Two such rules will prevent abuse of the scheme where the investor receives value from the company or a loan is made to the investor on terms that are linked to the investment. They will ensure that relief is not available in circumstances where the investor's money is effectively returned. Equivalent provisions have always applied for reinvestment relief.

The amendment will provide for the two anti-avoidance measures to take effect where the investment is made by a trust and the loan or value is received by a beneficiary rather than the trustees. There is a corresponding fine-tuning provision for reinvestment relief, but it was overlooked when schedule 13 was drafted. Failing to close the gap in the new EIS provisions would provide trusts with tax-saving opportunities that could bring the scheme into disrepute. It is clearly desirable that the amendment be made.

Amendment agreed to.

Question proposed, That this schedule, as amended, be the Thirteenth schedule to the Bill.

Mr. Fallon: There is one important point on which we need further clarification. In your absence on Tuesday, Mrs. Dunwoody, the Committee extracted from the Economic Secretary, by a dubious and second-hand route, a pledge to keep the liquidity of the alternative investment market under review. We were treated to an extraordinary sequence of events which you were well out of. The Paymaster General was spotted at the back of the Committee Room briefing the hon. Member for Paisley, South (Mr. Alexander). The hon. Gentleman, who until then had not taken much[Mr. Fallon] interest in the affairs of the alternative investment market, suddenly expressed concern about it.

Convoluted as that procedure was, it extracted from the Economic Secretary a commitment to keep the liquidity of the alternative market under review. That commitment is welcome, but will the limit of qualifying asset or the nature of the shares involved be reviewed during the passage of the Bill? Both those matters the limit of 10 million and the definition of shares are included in the primary statute. Or is it the case that the Government are keeping the matter under longer-term review and that we will not be able to return to it until we discuss a forthcoming Finance Bill? The Economic Secretary said on Tuesday that her commitment to keep the liquidity of the alternative market under review was specific. Her clarification of that would be helpful.

Mrs. Liddell: I will resist the attempt to participate in the hon. Gentleman's ham acting. Although he had a sabbatical from the House, he is perhaps more used to the behaviour of his party, in which Front-Bench Members do not fraternise with Back-Bench Members. In the new Labour party, we are all colleagues together. That must be why he took such offence at my hon. Friend the Paymaster General's speaking to my hon. Friend the Member for Paisley, South.

I am sorry if I did not make myself clear on the substantive point. I thought that I had been specific when I said that we would review the situation in relation to the liquidity of the market, but that there was insufficient time between now and the Report stage of the Bill to allow the important review to take place. We will consider what is happening to limits, but we will not be seeking supplementary action on existing shares this year.

Schedule 13, as amended, agreed to.

Clause 139

Abolition of certain other CGT reliefs

Mr. Gibb: I beg to move amendment No. 51, in page 131, leave out line 32.

I have been caught slightly on the hop, Mrs. Dunwoody.

The amendment would remove subsection 1(a), which relates to provisions on roll-over relief on re-investment. The paragraph will remove the advantages that existed under previous capital gains tax reliefs that enable companies to roll over any gains made on disposals of shares that they hold in unquoted companies. That will be enormously damaging for people who make risky investments in unquoted companies and will damage the Government's intention to encourage entrepreneurs to put their own money into enterprises, which, as the Government have said, will benefit the economy. Why have they decided to remove that valuable relief for entrepreneurs and angels when it has been so successful in the past? It seems to be part of the Government's discreditable aim to simplify and harmonise the reliefs into one, overall definition.

Mr. Tim Loughton (East Worthing and Shoreham): I am glad to be able to give my hon. Friend the opportunity to get his notes together. Does he agree that the Chancellor's announcement yesterday, supposedly to encourage the investment of large amounts of money in venture capital businesses the sort of businesses that will eventually qualify for the alternative investment market is at odds with the clause, in which the Government are discouraging the very same seedcorn of future successful, high-tech, high-risk British companies?

Mr. Gibb: My hon. Friend makes a valuable point. Despite their new labour epithet, the Government are again trying to pick winners. The best people to pick winners are entrepreneurs who invest their own money, not money belonging to other people such as taxpayers. There is nothing like putting their own money on the line to make people concentrate on the risk.

I urge the Government to think seriously about their repeal of this valuable capital gains tax relief because it enables people to invest in high risk enterprises, which is helpful to the economy. If they cannot accept the amendment, perhaps they will reconsider their strategy for encouraging entrepreneurs and table an amendment on Report. The clause that we debated on Tuesday and the clause before us show that the Government are out to get the small entrepreneur. They intend to abolish this relief and retirement relief. Such reliefs are valuable for entrepreneurs trying to set up businesses that provide jobs. All that we have seen from the Government is a ham-fisted attempt to harmonise the definition of reliefs with the consequence of damaging incentives for entrepreneurs to invest their own money.

There is no correlation between the definition of companies for venture capital trust purposes and EIS purposes. They are two different things and the Government should not try to harmonise the definitions. Their attempt to repeal the provision is reprehensible and I hope that they will return with an alternative proposal.

 
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