Finance Bill

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Ruth Kelly: I remind the Committee that the generous business assets taper relief, which is available to all employees of companies, is designed to achieve productivity benefits. The relief encourages employees to hold shares in the company for which they work. That in turn leads employees to align their interests with those of the company and its owners. Clearly, we cannot obtain such benefits once employees have retired, or moved to employment somewhere else. No matter how closely their interests are aligned with their former company, there is no productivity gain to be had there. We had that debate earlier. On those grounds, we would have nothing to gain from the cost of the relief. As I explained earlier,

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in order to pay for that relief, other taxpayers would have to pay more in tax.

Of course, business assets taper relief is not all lost when an employee ceases to work for the company concerned. The ex-employee continues to obtain the benefit of business assets taper relief on a disposal in the following 10 years, if he or she does not qualify for business assets taper relief on other grounds—for example, if the company is an unlisted trading company.

I am not sure that amendment No. 30 helps the situation or does what the hon. Member for Arundel and South Downs wishes it to do. By focusing merely on the status at the time of acquisition, it means that an asset that was not a business asset at that time could never become a business asset. For example, those assets that were not business assets in 1998 but became business assets from 6 April 2000 thanks to the Finance Act 2000 reforms would now revert to being non-business assets. I know that the Opposition Members did not like the way in which those reforms took effect, but this amendment would not provide a solution to their concerns.

In addition, the amendment opens up an avoidance risk. A company might turn from trading to investing, and business assets taper relief would still be retained. The amendment fails to support the policy aim of encouraging employees to align their interests with those of their employer, is wasteful, and risks tax avoidance.

The hon. Member for Arundel and South Downs suggested that apportionment is extremely complex in some senses. I would like to reassure the Committee that the Inland Revenue has published tables detailing the apportionment fractions for an asset that was a non-business asset up to 6 April 2000, and an business asset from that point on. I hope that those tables will be help to reduce the complexity for individuals who seek to use them.

Mr. Field: I appreciate that the Government want to ensure that there is an alignment of interests, as the

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Economic Secretary rightly says. However, the concern is that at the time of the acquisition those interests may be very much aligned. As set out powerfully by my hon. Friend the Member for Fareham, it may be increasingly the case that acquisition, or options passed on, can only vest some years ahead. The provisions on the acquisition of such options may be being put into place for all the right reasons. However, as my hon. Friend rightly pointed out, if a company then gets taken over, an employee may find himself in very difficult situation several years down the line before he is able to develop the option.

The Chairman: Order. It is becoming a speech now.

Mr. Field: I was wondering whether it was getting close to 1 o'clock.

Ruth Kelly: Opposition Members have raised a variety of situations in which people lose out through no fault of their own. Of course, there will always be situations that are complex. In the legislation, we have sought to put things as simply as possible. I have explained the rationale behind the clause, and on those grounds I suggest that the Committee rejects the amendment.

Mr. Flight: I was interested to note that the Economic Secretary repeated the trading versus investment argument referred to earlier, and automatically subscribed to the argument that there is something wicked about investment, which a company desperately needs, and something virtuous about trading in relation to business assets. Capital gains tax arrangements have become a nightmare for citizens, and have been so structured it will be quite tricky for us to reform them in due course. We still think that that is a serious issue.

It being One o'clock, The Chairman adjourned the Committee without Question put, pursuant to the Standing Order.

Adjourned till this day at half-past Four o'clock.

The following Members attended the Committee:
Benton, Mr. Joe (Chairman)
Boateng, Mr.
Burnett, Mr.
Chope, Mr.
Cruddas, Jon
Cunningham, Mr. Jim
Curtis-Thomas, Mrs.
Davey, Mr. Edward
David, Mr.
Field, Mr. Mark
Flight, Mr.
Grayling, Chris
Harris, Mr. Tom
Hendrick, Mr.
Hoban, Mr.
Jack, Mr.
Kelly, Ruth
Luff, Mr.
Luke, Mr.
McKechin, Ann
Marris, Rob
Pond, Mr.
Primarolo, Dawn
Ryan, Joan
Smith, Mr. Andrew
Smith, Angela
Southworth, Helen
Sutcliffe, Mr.
Wright, David

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