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Session 2007 - 08 Publications on the internet General Committee Debates Finance Bill |
Finance Bill |
The Committee consisted of the following Members:Alan
Sandall, James Davies, Committee
Clerks
† attended the
Committee
Public Bill CommitteeTuesday 20 May 2008(Morning)[Mr. Jim Hood in the Chair]Finance Bill(Except clauses 3, 5, 6, 15, 21, 49, 90 and 117 and new clauses amending section 74 of the Finance Act 2003)10.30
am
Mr.
Mark Hoban (Fareham) (Con): On a point of order,
Mr. Hood. It is a pleasure to serve under your
chairmanship this morning. Last Wednesday, the
Treasury kindly sent members of the Committee explanatory notes on
several schedules to which amendments have been proposed. In the main,
it is easy to compare the explanatory notes with the amendments
as tabled. However, it is not possible to link to the explanatory notes
several amendments that have been tabled to schedule 17, which we might
debate this afternoon. Can the Treasury supply members of the Committee
with information that cross-references the explanatory notes and the
amendments, so that those who wish to participate in the debate on life
assurance taxation can do
so?
The
Chairman:
I thank the hon. Gentleman. That is not a point
of order, although I am sure that the Minister heard what he said and
may well
respond.
Clause 28Enterprise
investment scheme: increase in amount of
relief
Question
proposed, That the clause stand part of the
Bill.
Mr.
Hoban:
The clause increases the limit for enterprise
investment schemes from £400,000 to £500,000. It is one
of a series of changes that have been made since the scheme was
introduced in 1993. The limit was increased to £150,000 in April
1998, to £200,000 in April 2004, and to £400,000 in April
2006. Can the Minister advise the Committee why the Treasury increased
the limit to £500,000, not to any other amount? The scheme is
covered by European Union state aid rules and the clause makes it
clear that the increase is subject to approval by the EU. When
will clearance be given, and has it been applied for to date? What is
the reason for the delay between clearance being applied for and its
being granted? There is some ambiguity about the meaning of paragraph
10 of the explanatory notes, which
states:
“The
EIS has been notified to the European Commission as a State aid, but
not yet approved.”
Does that mean that the increase to
£500,000 has yet to be approved or that the scheme itself has
yet to be approved? It is important for the Committee to know that.
Have the Government commissioned research on the effectiveness of the
relief in stimulating investment in high-risk
businesses?
The
Exchequer Secretary to the Treasury (Angela Eagle):
As for
the hon. Gentleman’s point of order, we will certainly see if we
can do anything in advance to assist the Committee’s
proceedings. I am not sure when we are due to discuss schedule 17, but
if we can make the explanatory notes more clear, we will do
so.
It may help
the Committee if I set out some background to the clause. The
Government are committed to encouraging entrepreneurship, innovation
and growth among smaller, higher-risk enterprises and to improving the
United Kingdom as a place for businesses to start up, invest and
expand. Venture capital schemes, including the enterprise investment
scheme are important tools. They contribute to the Government’s
wider policy of improving access to finance for small companies and
tackling the so-called equity gap suffered by smaller companies
struggling to obtain the finance that they need to grow into
sustainable, profitable enterprises. As the Chancellor of the Exchequer
said in his Budget speech, we need to do more to help small and
medium-sized enterprises gain access to finance.
With that in mind, as the hon.
Member for Fareham rightly pointed out, the clause increases the annual
amount of investment on which income tax relief is available under the
enterprise investment scheme from £400,000 to £500,000.
As he suspected, that increase is subject to state aid approval and
will apply only from 2008-09, once it has been brought into effect by
Treasury order. To date, the enterprise investment scheme has helped to
raise around £6.1 billion, invested in 14,000 small or high-risk
companies. The increase in the annual investor limit is
intended to stimulate further investment in such companies by offering
a greater incentive to business angels and other individuals,
particularly in the light of current financial market disruption. I
might point out that the increase has been well received by industry.
For example, the CBI confirmed that it
welcomed
“the uplift in
thresholds for the enterprise investment scheme which should encourage
more investment in growth
companies.”
The
hon. Gentleman asked if the scheme has been notified to the European
Commission. I can confirm that it has, but it has not yet been
approved. The change described here must also be approved before it can
come into effect. When that happens, the proposal is to make it
effective from 6 April 2008 by means of a Treasury order. The scheme
and the increase have both been notified, and approval is awaited for
the combined
package.
Question
put and agreed to.
Clause 2
8
ordered to stand part of the
Bill.
Clause
29
ordered to stand part of the
Bill.
Schedule 11Venture
capital
schemes
The
Chairman:
With this it will be convenient to discuss the
following amendments: No. 83, in
schedule 11, page 212, leave out line
32.
No. 84, in
schedule 11, page 213, leave out lines
1 to 5.
No.
85, in schedule 11, page 213, leave out
line 16.
No. 86, in
schedule 11, page 213, leave out line
20.
No. 87, in
schedule 11, page 213, leave out lines
27 to 31.
No.
88, in schedule 11, page 214, leave out
line 4.
No. 89, in
schedule 11, page 214, leave out line
8.
No. 90, in
schedule 11, page 214, leave out lines
15 to 19.
No.
94, in clause 30, page 15, leave out line
6.
No. 95, in
clause 30, page 15, leave out lines 13 to
17.
Mr.
Hoban:
This group of amendments probes schedule 11, which
amends the rules for the schemes and carves out the three areas of
shipbuilding, coal and steel. The explanatory notes to the schedule
indicate that the carve-outs have been prompted by EU state aid rules,
which specify the circumstances in which aid can be given to those
industries. Schedule 11 cites three documents to justify that position:
for shipbuilding, the framework published in the Official Journal of
the European Union on 30 December 2003; for steel, the guidelines
published on 4 March 2006; and for coal, article 2 of “Council
Regulation (EC) No 1407/2002”, which was published on 23 July
2002. One question that immediately springs to mind is why the
Government have taken so long to implement the regulations, since they
have been part of EU rules for between two and six years.
I particularly want to discuss
the amendments on the coal industry, which would remove the coal
industry from the excluded activities in schedule 11. When I looked at
the Council regulation, it appeared that it would still be permissible
for aid to be given to the coal industry through venture capital
schemes. For example, article 5 of the regulation deals with aid for
accessing coal reserves, whereby aid for initial investment can be paid
until 31 December 2010. It appears that under EU rules a VCT could
invest in a company seeking to open up new coal reserves or exploit
existing reserves until the end of 2010. However, the Government,
through the changes in the schedule, seek to prevent that. When energy
security is an issue—that is referred to in the
regulation—we should be considering how best to exploit our
domestic reserves. Some hon. Members will doubtless think about the
environmental impact of mining more coal, but we currently have
coal-fired power stations. Several people are looking to build new
stations using clean coal technology. If nothing else, it could be
argued that we should mine more coal. Why has coal been excluded from
schedule 11 when, according to the Council regulation, coal mining
could qualify for aid and it might be possible to encourage VCT schemes
to invest in exploiting new or existing reserves of
coal?
Angela
Eagle:
The amendment probes the schedule’s
exclusion of shipbuilding and coal and steel
production. As is clearly set out in the text of the Budget, that is
necessary to meet European state aid regulations so that we can get
approval for the three venture capital schemes and enterprise
management incentives. We
will thereby be able to continue to enable smaller, higher-risk UK
companies to receive vital funding across the full range of industry.
They will be able to use the investment management incentives to help
recruit and retain staff. The Committee will no doubt remember that
last year’s changes to the venture capital scheme were
introduced for the same reason. The state aid and notification process
is ongoing and, I hasten to add, it is going well. However, it
became clear in the course of our negotiations that the additional
exclusion in the schedule was necessary to demonstrate the
scheme’s compliance with state aid for risk capital guidelines
and for
EMI.
We
believe that, in practice, the exclusion of shipbuilding and coal and
steel will have a minimal material impact. Analysis shows that fewer
than 10 companies in all three sectors have used the venture capital
scheme for the last 14 years, and no coal production companies have
ever used the enterprise management incentives scheme. To date, about
£1 million has been invested in companies in these sectors
across the enterprise investment scheme, venture capital trusts and the
corporate venturing scheme. To put it in context, that represents 0.01
per cent. of the funds raised under the tax-based venture capital
schemes. Despite evidence of what happens in practice, we were obliged
to put this matter on a legal footing by explicitly excluding those
trades, and that is the purpose of the schedule. It is important to
remember that state aid controls mean that British companies can
compete fairly because their European competitors are being prevented
from receiving unfair subsidies as well. There is a prize to be gained
by successfully achieving state aid notification and approval for our
schemes.
Mr.
Hoban:
Does the Exchequer Secretary recognise that the
rules set out in the EU Council regulation come into force on 31
December 2010? We seem to be having early adoption in the UK whereby in
other EU member states aid can be granted similar to that which is
prevented from being granted in the
UK.
Angela
Eagle:
It is important to remember that the
context for these exclusions is small start-up
companies, and there are other capacities within EU laws for these
industries to gain
support.
Stewart
Hosie (Dundee, East) (SNP): The Exchequer Secretary argued
that the exclusion is necessary for EMI schemes and I do not doubt
that. She said that there is a requirement to put this on a legal
footing and I am sure that that is true. She is also right that there
are other schemes for start-up
companies.
I am not
sure whether it has happened yet, but there is a determination to use
carbon capture and storage with coal-fired power stations. There is a
possibility that low-sulphur coal mines will be reopened. There may be
new entrants to the market who wish to do that. Given that, and given
the possibility of future energy shortages, will it be possible to
revisit this issue if new entrants want to use CCS and low-sulphur coal
and reopen existing
fields?
10.45
am
Angela
Eagle:
It is important to realise that there are other
opportunities for getting investment into those industries, and I do
not demur from the analysis of the
hon. Member for Dundee, East regarding the potential
for innovation in clean coal technology. I would agree with that
analysis. We have to remember that the UK has the most efficient coal
industry in Europe, but until July 2002, European Union rules
prevented the Government from supporting viable investment
projects. Since its launch in 2003 under the regulations on state aid
to the coal industry, the coal investment aid scheme administered by
the Department for Business, Enterprise and Regulatory Reform has made
awards of £58.5 million. In 14 years, less than £1
million has been invested using those schemes. The plain fact is that
companies that need state support for developing the worthy things that
we all wish to see with respect to clean coal technology, tend
to be larger and established. They are not small, innovative, start-up
businesses. In 14 years, before it became clear from our negotiations
with the EU that those industries had to be excluded from the state aid
schemes, partly because other EU state aid is available in those
sectors, almost none—in fact, only 0.06 per cent.—of the
money under these venture capital schemes had been used in the
sector.
Mr.
Peter Bone (Wellingborough) (Con): Is the Exchequer
Secretary arguing that we cannot do this because of EU regulations, or
because of a decision by the Government, as it does not affect many
companies?
Angela
Eagle:
I am arguing that it is because EU rules preclude
us from doing it. If the amendments were passed, it is clear from our
negotiations that we would fail to get state aid notification from the
EU, and we would lose all three schemes, with all their benefits. That
is absolutely clear. What I was hoping to do with the figures for those
three sectors over the past 14 years was to reassure hon. Members that
those exclusions will not produce a great effect. That overlap existed
prior to our negotiations on state aid rules. The European Commission
has made it absolutely clear that the coal industry must be excluded.
The amendments, if passed, would jeopardise all the schemes, which I am
sure is not the aim of the hon. Member for Fareham. He said at the
start that they were probing amendments, and I take him at his
word.
Mr.
Hoban:
The Exchequer Secretary referred both in this
debate and the previous one to the negotiations with the European
Commission about the schemes. Is she saying that the only
barrier to the schemes obtaining formal notification from the
Commission is the exclusion of those three industries, or are there
other issues that have been debated? If there are other issues, would
she outline those to the
Committee?
Angela
Eagle:
That is not the only barrier, but it is an absolute
barrier. The Commission has made it clear that if we do not exclude
those three sectors no state aid notification will be granted for the
schemes, which would destroy them and produce the related negative
effects. I am sure that the hon. Gentleman would agree with me that not
being able to run the schemes would have a negative effect on our
ability to support those companies that find themselves in what is
known as the equity gap—in the middle of start-up and growth.
There are other issues, some of which crop up in
subsequent clauses, so I do not want to go into great detail now. I can
assure the hon. Gentleman that the negotiations are ongoing. We are
confident that we will be able to get state aid, and we are working
through the issues as the European Commission raises
them.
Mr.
Hoban:
I am grateful for that clarification, which
addresses some of the points that we will raise later. Would the
Exchequer Secretary explain what the consequences would be if we did
not receive approval for the schemes? Would the impact be
retrospective, for
example?
Angela
Eagle:
In theory, it could be retrospective to the
beginning of the schemes, and it could require us to chase
every grant that had ever been given to a company. I do not wish the
Government to find themselves in such circumstances and I hope that the
hon. Gentleman agrees.
It is in the interests of all
our start-up companies that we maintain the schemes and the benefits
that they convey. That is why we are working to avoid the worst-case
scenario. If the changes to the schemes are not introduced, we risk a
Commission investigation under article 88.2 of the EC treaty, which
could lead to our having to withdraw the scheme or the associated
tax reliefs and engage in what is known as aid
recovery—reclaiming all the money, going all the way back. I
cannot think of anything that I would rather the Treasury did not have
to spend its time doing, which is why we are trying to be as helpful as
we can in the negotiations for state aid.
I am sure that the amendment is
a probing one, and that given the explanations that the hon. Member for
Fareham has received about why certain sectors have been excluded, as
well as their tiny presence over the years in this particular scheme,
he will be sufficiently reassured to withdraw
it.
Mr.
Hoban:
I am grateful to the Minister for responding in
such detail to the amendments, which are indeed probing amendments. She
has helpfully shone a light on the process that we have to go through
to get the schemes approved by the Commission. I hope—and I am
sure that she will do so—that she will take a robust approach
with the Commission. I share her view that it would be a dreadful waste
of time and resources to try to chase up all the companies to recover
the money, and it is important, therefore, that the schemes receive the
approval that they need from the Commission. For people investing in
those schemes, that process creates uncertainty in some respects,
because the goalposts keep shifting, almost from year to year. I do not
want to move on to the next group of amendments, but in previous years,
£1 million was invested in schemes that are now excluded, and
there may be other changes, which creates uncertainty about
what is appropriate when managing the future development of a scheme.
In light of the explanation that the Committee has received from the
Minister, I would not wish to impede the approval of these schemes by
the Commission, so I beg to ask leave to withdraw the amendment.
[
Interruption.
]
Amendment, by leave,
withdrawn.
Schedule 11 agreed
to.
The
Chairman:
Before I call the next group of amendments, may
I tell hon. Members that I can hear murmuring in the Committee?
If I can hear murmuring, hon. Members are not in order, and I ask them
to pay attention to whoever is addressing the Committee. If they wish,
hon. Members may take their jackets off.
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