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Rob Marris: I do not think that I said to the Committee. I would not tell the hon. Gentleman that I am against share ownership schemes. I am fairly sure, looking at the record, that I did not say that. I said that most employees, albeit in many cases in an inchoate fashion, know that there is a price to be paid, and that price is tax. The hon. Gentleman tempts me to comment on Marx—I crave your indulgence, Sir Nicholas—but he should be wary of doing so. He seems to be advancing the proposal that it is a good idea that employees have shares, but if he reads Marx carefully, he will be aware of the theory of the declining rate of profit, whereby the employees will get less and less on those shares, so it might not be such a good idea for capitalists like him—but I digress.
I have been at pains to make the point that the thrust of the Conservative party's amendments seems to be: ''Yes, we're against tax avoidance and platinum sponges, or whatever we call the things for the catalytic converters, but really let's try to get a few back in through these amendments.'' That is what it
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looks like to me. There is a price to be paid and that price is tax. Schedule 2 seeks to address that, I think it does so well and I urge hon. Members to vote in favour of it.
Dawn Primarolo: Let me respond the points made by the hon. Member for Cities of London and Westminster and my hon. Friend the Member for Wolverhampton, South-West. The Government have consistently supported employee share ownership, which is why we have company share option plans, share incentive plans, save as you earn and enterprise tax incentives, which are all tax advantage schemes designed to assist employees. The schedule shows that the Government are not prepared to allow those tax advantages to be accessed through the back door of avoidance; they are in place and will remain there, they are not affected by the schedule, except that they are protected in that they will be used as they should be and the avoidance will be dealt with. I commend the schedule to the Committee.
Question put and agreed to.
Schedule 2 agreed to.
Clause 13 ordered to stand part of the Bill.
Clause 14
Income tax deduction for payments to organisations
Question proposed, That the clause stand part of the Bill.
Mr. Field: Sir Nicholas, clause 13 might have been lucky for you, but I am afraid that clause 14 will not be so lucky.
I should like to say a few words on clause 13 first, if I may. We welcome the Government's commitment to consulting the scientific research organisation industry on the manner in which the regulations are dealt with and we endorse the need for some clarification in statute.
Clauses 14 and 15 are designed to ensure that payments by the taxpayer to such organisations as are prescribed in clause 13 shall be tax deductible for income tax and corporation tax purposes. I have two questions on which I should be grateful for an answer from the Economic Secretary. First, why cannot the particular form of scientific research organisation be determined in this Finance Bill, notwithstanding the process of public consultation that is being undertaken? Secondly, what representations have the Government received that have persuaded them to amend the terms of the Income Tax (Trading and Other Income) Act 2005 so soon after it has been enacted? I appreciate that there is sometimes schizophrenic activity on the part of the Treasury, but it seems incredibly quick to have enacted a piece of legislation only a few months ago and now to seek to amend its terms in this way.
The Economic Secretary to the Treasury (Mr. Ivan Lewis): To respond directly to the hon. Gentleman's argument, there is consensus on the desirability of incentivising investment in science. This part of the Bill is designed to align the rules with our tax credits with which we are incentivising that investment.
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The hon. Gentleman asked for a definition of scientific research organisations. I understand that there are only nine SROs in the country. Historically, the Department of Trade and Industry has been responsible for them and we do not believe that it would be possible or desirable to be prescriptive about their definition at this stage in their development. Because the number of those organisations is relatively small, so we are anxious to consult them in some detail to ensure that we get the regulations absolutely right. We therefore did not think that it was appropriate in the Bill to be prescriptive in our definition.
Mr. Field rose—
Mr. Lewis: I shall give way to the hon. Gentleman so that he can remind me of the other point that he was making.
Mr. Field: In fact, I was grappling with my papers and am only glad that I did not pass them to the Clerk. The other question that I sought to ask in a characteristically articulate way was about the representations that the Government had received that had persuaded them that the terms of the 2005 Act should so quickly be revised.
Mr. Lewis: I was just testing the hon. Gentleman. It is a consequential amendment to ensure that the position of contributors will not be unchanged. There would be an inconsistency if we did not make the change at this stage and individuals and corporate donors to SROs would be left in an invidious position. So in changing the rules to benefit the organisations, it is entirely right that we clarify and simply the rules that apply to individuals and companies that receive tax deductions as a consequence of their donations to those organisations.
Question put and agreed to.
Clause 14 ordered to stand part of the Bill.
Clause 15 ordered to stand part of the Bill.
Clause 16
Open-ended investment companies
Mr. Field: I beg to move amendment No. 13, in clause 16, page 14, line 39, at end insert—
'(4) In relation to an open-ended investment company mainly invested in interests or rights over land, the rate of corporation tax for the year 2005 and subsequent financial years may be determined under Regulations made under section 18 of this Act to be nil.'.
Chapter 3 relates to authorised investment funds. As the Committee knows, we discussed these matters in some detail on the Floor of the House, at least in relation to clause 18, which had several other aspects that cover the debates relevant to clause 16. I tabled the amendment because it deals with an area that was not discussed in such great detail.
Overall, the funds industry does not want to alter many of the clauses, but it would prefer that the proposed changes be made by primary legislation and not by statutory instrument. The Association of British Insurers has expressed several principled concerns in its representations to the Government. The ABI is concerned that the Government propose to
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extend significantly the power that allows them to alter critical areas of the taxation of life insurance companies by regulation rather than by primary legislation. It has expressed strong reservations about the proposals. As a general point of principle, the Conservative party accepts the ABI's view that it is inappropriate for changes to such a significant element of the tax regime for life insurance to be made simply by regulation. The worry is that the clause allows changes to be made without proper consultation or parliamentary scrutiny, and could result in badly thought through and unfair proposals becoming law. We strongly believe that significant changes to tax legislation should be made only by means of primary legislation.
The Government intend using their proposed regulation-making powers to address what they see as flaws within the current system. Again, the ABI accepts that the legislation needs to be reviewed. However, we believe that such a review should be part of a wider review of corporation tax reform in relation to the taxation of life insurance companies—we understand that that is scheduled for some time next year—rather than as a quick fix within the Bill. Without repeating the debate on schedule 2, there are also concerns that aspects of the Bill will have retrospective effect.
Amendment No. 13 addresses some of the issues that we discussed on the Floor of the House on 13 June. It should be noted that, despite several announcements by the Government on introducing tax legislation to give effect to real estate investment trusts, such legislation has not been introduced in this Finance Bill. That is due to problems involving the current method of taxation of overseas landlords, where rents paid to them are subject to a 22 per cent. withholding tax, except where the landlord has the prior agreement of the Inland Revenue. The concern is that REITs will, in effect, escape such a tax on paying distribution to an overseas landlord. However, many other countries have REITs and tax regimes for them. There is a genuine concern that the delay is causing the property fund industry to locate in countries other than the UK.
I am sure that the Minister will have thoughts on a solution. We have tried to highlight the problem that prevents such legislation being introduced following suitable consultation. The reason why the European Union has tried to impose a different regime is that the UK proposals are likely to be ruled illegal under EU law by the European Court of Justice. Our amendment enables one of the suggested solutions to be that tax is charged at nil in the REIT, with greater tax then due to arise on the investor in the REIT if it is so chargeable to tax.
Clause 16 on open-ended investment companies effectively transfers into statute the statutory instrument laid when OEICs could first be established under UK law. That should mean that OEICs will be taxed in the same manner as unit trusts: in other words, on income at 20 per cent., rather than in the manner applicable to other companies.
I hope that the Minister will be able to give some guidance on the Government's thoughts on clause 16.
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We could, I know, repeat much of the earlier debate, but many of the concerns that were set out on the Floor of the House on 13 June remain entirely relevant. There is grave concern within the insurance industry that much of the legislation in clauses 16 to 23 is being rushed through the House at a time when a little more sober reflection, given the timetabling of other amendments, would have made a certain amount of sense. I hope that the Economic Secretary has some thoughts on the matter.
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