Finance Bill

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Mr. Boateng: Let me begin by addressing two philosophical points that have been flung up by the contributions of the right hon. Member for Fylde and the hon. Member for Arundel and South Downs. For the second time today, Opposition Members have suggested that we might have gone down the grant road and have asked why we did not. That represents a fundamental misunderstanding of what we, as a Government, are about. Where regeneration is concerned, history teaches us that grants by themselves are not enough. They literally do not do the business. We are about encouraging the flow of private and commercial capital, with the disciplines that that can bring through the community development finance sector, and the enterprise that it can stimulate. We have learnt—successive Governments have tried it—that grants do not have the same effect. That is why we have chosen our route.

In response to the hon. Member for Fareham, I indicated a number of other things that we are doing to assist the growth of the community development finance sector, when appropriate, some of which involve public expenditure. The Phoenix fund involves an element of public expenditure, which is right and proper. If the sector is to grow and mature, however, it must increasingly be able to attract sustainable private investment.

The community investment tax credit offers community development finance institutions the opportunity, but—I now turn to the point made by the right hon. Member for Fylde—it is no use pretending that growing businesses in disadvantaged areas do not need support. The entrepreneurial spirit is written off by all too many folk, yet all right hon. and hon. Members must know that even in the most

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disadvantaged and run-down areas, whether urban or rural, people with good ideas, get-up-and-go and drive still find themselves unable to gain access to capital.

Sometimes, however, it is not only a question of finance, which is why we have chosen this route. Businesses in disadvantaged communities that cannot access mainstream finance also need specialist business support. We have decided to use CDFIs because, with the best will in the world, they will be generally much better placed to deliver than individuals. That is the reason for the bar on individuals. To meet the point made by the right hon. Gentleman, individuals will be able to invest through the enterprise investment scheme.

Mr. Jack: I was putting my remarks forward in the spirit of the Bill's drafting. Is the Financial Secretary happy, for instance, that the lottery has made a grant of £120 million for the regeneration of Wembley stadium?

Mr. Boateng: Oh please! I am not going to fall for that, Mr. Gale. I would soon be out of order were I to share with the Committee my views on Wembley stadium--tempted as I have been, I have kept a complete omerta in relation to that subject on the Floor of the House and in Committee—save to say that the stadium is in my constituency.

I want now to deal with some of the more detailed points raised this morning.

Roger Casale (Wimbledon): Before my right hon. Friend leaves the philosophical discussion and turns to the details, may I suggest that in today's world we cannot hope to turn around disadvantaged communities only with grants or handouts. We need to look for more imaginative policies. We need to empower people to transform their communities and to give them support, but we also need to put in place measures that will encourage everyone in the community to contribute. We live in a different world from that of the previous Conservative Administration, and we need more imaginative policies such as those suggested by the Government.

Mr. Boateng: I could not agree more.

Chris Grayling: Will the Financial Secretary give way?

Mr. Boateng: I am looking at the approaching hour and I am keen to make some progress. I wish to deal with the specific points raised by the hon. Member for Arundel and South Downs and as many of the points raised by the right hon. Member for Fylde as I can in the time available. The first response is to both their questions, but is especially relevant to the point raised by the right hon. Member for Fylde, who went about the dangerous business of interpreting my body language. The body can deceive, as the hon. Member for Arundel and South Downs knows only too well.

The Paymaster General (Dawn Primarolo): What do you mean?

Mr. Boateng: Well, expectation does not always match reality.

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If the right hon. Member for Fylde interprets my body language correctly, he will know that the Government believe that disadvantaged communities are not simply to be found in urban areas. There are pockets of rural disadvantage that have languished for many years, and this Government have, with a passion, set about tackling rural disadvantage. That is why we have adopted a scheme that will serve rural areas as much as urban areas. Geographic communities in qualifying areas, either electoral wards or postcode areas, will be selected on the basis of indices of multiple deprivation for England, Scotland, Wales and Northern Ireland. The percentage of each index that will qualify has not yet been finalised. For CDFIs that serve non-qualifying areas, the accreditation process will provide the opportunity to present evidence of disadvantage. For thematic communities, it would be for the CDFI to justify why the community is especially disadvantaged, with reference to published statistics and other evidence relating to characteristics such as age, gender, ethnicity and disability.

Mr. Iain Luke (Dundee, East): Can the Financial Secretary confirm that, in Scotland, the disadvantaged areas will be those that are classified as social inclusion partnership areas under Scottish Executive definitions of deprivation?

Mr. Boateng: I would be surprised if most, if not all, of them were not covered by the definition, but we have been careful to avoid either taking the simple European route, which the right hon. Member for Fylde counselled me against, or using any simplistic existing grouping of the sort that my hon. Friend describes. That is why we are using indices of multiple deprivation and why the lists of qualifying area will be revised following any updates to each country's index of deprivation. Scotland will maintain its own index to ensure that it is kept up to date. Lists will be revised so that neither Scotland, Northern Ireland, Wales or England will miss out as the index of deprivation is developed.

Mr. Field: I welcome the Minister's comprehensive explanation of the issue of disadvantaged communities. However, like me, the Minister represents a central London seat, and he will know that, even in electoral wards, there are often great disparities. Therefore, might not those areas need to be broken down into smaller units, such as polling districts in electoral wards? Some of the most deprived polling districts in my constituency are in what are considered to be safe Conservative wards, and there is a risk that those small pockets will be swallowed by areas of relative affluence.

Mr. Boateng: It will be a surprise to the citizens of Wembley and the Welsh Harp ward to be described as living in central London. That is not how it feels to those of us who live there, but I certainly live in a constituency with pockets of deprivation amid wards of relative affluence, albeit it is in outer London. We are satisfied that our approach of assisting CDFIs that

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serve geographic, thematic and non-geographic disadvantaged communities will pick up those communities in most need. We have not wedded ourselves to an especially geographic definition, which is why I am satisfied that we will be able to pick up pockets of rural disadvantage too, as we need to tackle their problems.

Mr. Hoban: The issue is important to those of us who have mixed communities within the boundaries of relatively affluent postcode sectors or wards. Will the Financial Secretary give an idea of what might be the minimum population for a qualifying area?

Mr. Boateng: I am afraid that I cannot and will not at the moment. Final decisions on what areas qualify and the development of draft regulations are the subject of comments and representations that we are receiving from the community development sector. Decisions will be taken in time to meet our proposed timetable for the first round of accreditation, but our present intention is to base the definition on measures of relative deprivation. I shall write to the hon. Member for Fareham as our thinking develops, but I do not want to get into the subject of population size, as it will not assist at this stage of the argument.

For those who are interested in indices of deprivation, I shall say that it is generally accepted that those that we have—they are on 2001 for Northern Ireland, 2000 for England and Wales and 1998 for Scotland—need to be and are subject to review, but they have been designed to provide the best evidence possible of deprivation.

I will move on—hon. Members will excuse me, because we must make some progress—to some of the specific and detailed points made by the hon. Member for Arundel and South Downs, which have been of concern to the Law Society. Rather than go through each in turn, I would like to write to him specifically on them, which would save considerable time. However, I want to explain why the accreditation period is three years when the holding period for investment is five years. That general point needs addressing.

Experience from the Phoenix fund that supports the CDFIs suggested that three years was an appropriate time horizon for fund-raising and loan-planning activities on CDFIs. That period will be adopted for accreditation. It ensures that during the lifetime of any tax advantage investment, an accredited CDFI will have to apply for re-accreditation, thus deterring any possible abuse of the credit. No genuine CDFI that achieves accreditation, and then continues to function in the way suggested by the right hon. Member for Fylde and according to its published business plan, should have any difficulty in achieving further accreditation after three years.

An interesting point was raised about hedging and pre-arranged financial risks. Such risks are standard for commercial lending, so that should provide no bar to accreditation.

The right hon. Gentleman should not read too much into the involvement of the appeal commissioners. No great difficulties are expected. As he knows, the use of special commissioners is not unusual for tax measures

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because when there is even a remote possibility of dispute, some means must be provided to resolve the dispute.

The right hon. Gentleman is right to raise the question why we should allow any non-residential property development, on which we reflected for some time. We recognise that business and social enterprise cannot grow without suitable premises and other infrastructure. That has often been in short supply in the communities that we seek to help, which is why we decided to allow up to half the money that a CDFI raises through CITC to be invested in non-residential property development. CDFIs have been supportive of that approach to property.

We restricted property investment, however. During consultation, much interest was shown in the question and we had extensive discussion with CDFIs. The great danger that we had to take into account was that allowing too great a proportion of CDFI investments into property would create a distortion and make it difficult to raise money for anything but property. That is always the danger—the right hon. Member for Fylde is right. That is why I assented when he referred to the business expansion scheme, but many lessons have been learned from that, and learned the hard way.

A balance must be struck, and our proposals provide a fair and reasonable balance between the needs of investors, CDFIs and the enterprises that we seek to help. They strike a balance in terms of property and across the board, so I hope that the Committee gives them a fair wind.

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