Finance Bill

[back to previous text]

Mr. Flight: Amendments Nos. 23 and 29 make the same point as amendment No. 17, which relates to enterprise management incentives. In all three areas, the maximum prescribed limits are already modest, and in the case of EMIs and enterprise investment schemes, they have lost in real value by a year's modest inflation. The extension of the scope for EMIs is greatly welcomed; it is mainly dealt with in schedule 14, but that does not address the low personal limit or the low corporate value limit. Over time, unless the limits are specifically increased, the amounts become worth less and less in real terms. The amendment is designed in essence to index the limit; it is based on section 257C of the Income and Corporation Taxes Act 1988, which allows the indexation of personal tax allowances with rounding up to the nearest £100; the suggested figures of £10,000 and £100,000 are equivalent roundings, given the size of the original personal EMI limit and the original corporate value limit.

Amendment No. 23 prescribes similar proposals for enterprise investment schemes and the suggested figures are equivalent roundings, given the size of the original amounts. Likewise, in amendment No. 29 the suggested figures are equivalent roundings given the original size proposed in the Bill for corporate ventures.

Mr. Timms: It might be helpful to point out that the amendment reminds us of the value of the low inflation that we are currently enjoying. Inflation has been at historically low levels for several years.

There is value in having easily remembered round numbers rather than numbers that are slightly changed each year in line with inflation. There are several examples of measures introduced by the previous Government in which indexation was not provided for. I would not agree that indexation should automatically be applied whenever any measure of this kind is introduced. For example, the minimum amount directly invested by an individual in a company in a tax year that can qualify, under the enterprise investment scheme, for income tax relief is £500. If amendment No. 23 were accepted, if the retail price index were 2 per cent. higher than it was last September, that sum would rise to £510 next year, which would not constitute a significant gain for anybody.

There are some minor drafting errors, on which I shall not dwell. There is confusion about what should be done with the £1,000 de minimis amount that applies where, under the corporate venturing scheme or the enterprise incentive scheme, an investor receives value back from the company in which he or she invests. Amendment No. 23 proposes that the sum should be uprated for enterprise incentive scheme income tax relief but does not include a Treasury order to achieve that. None of the amendments deals with the corresponding de minimis provisions for enterprise incentive scheme deferral relief and the corporate venturing scheme. The amendments deal with asset size tests for the enterprise incentive scheme, the corporate venturing scheme and the enterprise management incentive scheme, but leave untouched the corresponding test for the venture capital trust legislation, which needs to keep in step with those for the enterprise incentive scheme and the corporate venturing scheme. Even if the principle were one that we should accept—which I do not think it is—several loose ends would need to be addressed.

We keep all the figures under review and will continue to do so; if at any time we are persuaded that there is a case for changing them, we will do so. That happened in 1998, for example, when we relaxed the gross assets test used for the enterprise incentive scheme and for venture capital trusts; the upper and lower figures were both raised by £5 million, which preserved a difference of £1 million between the amounts while increasing the lower amount by 50 per cent. That is a good example of an inappropriate indexed rise. For the reasons that I have set out, I ask the Committee not to introduce automatic indexation.

Mr. Flight: I take the point about the untidiness of indexation. I should like to put words into the Minister's mouth and ask him whether the Government intend that, over time and by one-off rounded increases, the real values relevant to the enterprise management scheme, the enterprise incentive scheme and, as he points out, venture capital trusts and corporate venturing, should at least be kept up over time.

Mr. Timms: The hon. Gentleman says that he would like to put words into my mouth. I cannot own the words that he proposed. All that I can say is that we will keep those matters continuously under review in regard to the enterprise investment scheme, the corporate venturing scheme and the enterprise management incentives. When there is need for a change, we will not hesitate to make it.

Mr. Flight: In the light of that answer, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Mr. Flight: I beg to move amendment No. 18, in page 147, line 37, at end insert—

    `The gross assets requirement

In paragraph 16 (the gross assets requirement), in sub-paragraph (1) and (2) in each case for ``£15 million'' substitute ''£20 million''.'.

    jf4ÝĖThe ChairmanĖ: With this it will be convenient to take the following amendments: No. 22, in schedule 15, page 152, line 11, at end insert—

    (3) In subsection (6A) of section 293 (value of relevant assets), in paragraph (a) for ``£15 million'' substitute ``£20 million'', and in paragraph (b) for ``£16 million'' substitute ``£25 million''.'.

No. 28, in schedule 16, page 170, line 11, at end insert—

    `The gross assets requirement

In sub-paragraph (1)(a) and sub-paragraph (2)(a) of paragraph 22 (gross assets requirement), for each reference to ``£15 million'' substitute ``£20 million'', and in sub-paragraph (1)(b) and sub-paragraph (2)(b) of that paragraph for each reference to ``£16 million'' substitute ``£25 million''.'.

    jf4ÝĖMr. FlightĖ: Amendment No. 22 raises a parallel issue in relation to EIS investment, and amendment No. 28 in relation to venture capital investment. All three amendments make the point that the gross assets requirement is, at £15 million, particularly modest. We debated that issue at some length in last year's Finance Bill. Enterprise management incentive schemes cost around £10,000 to set up. One reason for their disappointing take-up has been that they are simply not commercially viable for small businesses. It would therefore make sense to increase that limit from £15 million to £20 million to provide a more vital dynamic for the smaller new end of the economy. Given that, sensibly, an attempt is made to synthesise some of the provisions relating to EIS and CVS, we similarly propose an increase to £20 million in relation to EIS qualification and corporate venturing.

Mr. Timms: The aim of the targeting rule is to restrict the enterprise management incentives, the enterprise investment scheme and the corporate venturing scheme to small companies. The amendments to EIS and CVS are for an increase in the gross assets requirement from the present £15 million before the investment and £16 million after it, to £20 and £25 million respectively. Those schemes aim to encourage equity investment in small companies. They are targeted in that way because smaller companies experience the greatest difficulty in raising start-up finance and funds for growth and development.

Extending the size of companies that can qualify would divert funds away from the small higher risk companies that the schemes are intended to support, thereby undermining the effectiveness of the schemes and potentially significantly increasing the cost to the Exchequer. Similarly the proposal for a 33 per cent. increase in the limit for enterprise management incentives would undermine the policy of EMI, which is to focus on helping smaller companies recruit and retain the key employees whom they need to make them grow.

We keep those requirements under review. The growth asset requirement at its current level was introduced as recently as 1998 for EIS, and just last year for corporate venturing and management incentives. It would be too soon to consider such a big increase in the requirements for these schemes given that they are aimed at small companies. I do not agree with the hon. Gentleman's comment about low levels of take-up. The level of take-up has been very encouraging in all cases. Taken together, the amendments would significantly increase costs. They would undermine the carefully designed aim of the schemes and create an unwelcome disparity with the legislation for venture capital trusts, which uses the same test. I hope that the hon. Gentleman will not press the amendments.

Mr. Flight: The intent is that the same rule should apply as appropriate across the whole venture capital patch. There is not only the issue of the original real value having been eroded by inflation, relating back to our last debate, but that a study of the venture capital and the new business sectors reveals that there is little logic in having a line drawn at £15 million. It will depend upon the nature of the business how much capital is required, and so on. It would be in the economic interest to bring a slightly wider range of companies within the bailiwick of these tax incentives.

I will not press the amendment to a vote. We have raised the points before and the Government do not want to give way. I hope, in view of the Minister's previous comments, that he is also willing to say that the sizes are limits that the Government will keep under review.

Mr. Timms: We do, of course, keep all these matters closely under review.

Mr. Flight: I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

12 noon

Mr. Flight: I beg to move amendment No. 19, in page 147, line 37, at end insert—

    `Excluded trades

(1) For paragraph 19 substitute—

    jf15Ý``19. The following are excluded activities—

    (a) advertising and publicising the policies of Her Majesty's Government;

    (b) the conduct of surveys or polls as to the opinions of members of the public (or any section of them) on any subject (whether by interview in person or by telephone or through the medium of a group discussion focused upon any particular subject);

    (c) estate agency;

    (d) consultancy as to the arrangement of objects or artefacts within any living space (where based upon the principles of any non-European philosophy);

    (e) fashion modelling (the provision of individuals engaged wholly or mainly for the purpose of displaying, whether or not to the public, items of clothing); and

    (f) the publication of newspapers (including magazines or other periodicals, but not journals of a technical or scientific nature).''.

    (2) Leave out sub-paragraph (2) of paragraph 19 and paragraphs 20 to 26 inclusive.'.

Previous Contents Continue

House of Commons home page Parliament home page House of Lords home page search page enquiries ordering index

©Parliamentary copyright 2001
Prepared 1 May 2001