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Lord Redesdale: I take the opposite approach from that taken by the noble Baroness, Lady Rawlings. I believe that 25 per cent. would be a good figure. I ask the Minister whether, without the 25 per cent. holding, the guarantees that have been put in place at the moment would hold true in the face of other investors holding a larger percentage? Would the golden share have any meaning if the Government held less than 25 per cent? Further, what would be the negative outcome to the CDC in its operations abroad if private investors believed that the Government were divesting themselves of these shares and pulling out of something which was so successful?
Lord McIntosh of Haringey: For the first time we have a disagreement on a political issue rather than simply differences as regards having confidence in the Government's intentions or interpretation of the legislation. I profoundly disagree with the noble Baroness as regards the suggestion that it should be possible, without legislation, for the Government to reduce their percentage shareholding below 25 per cent. I gave my reasons for that in part when I responded to the noble Baroness's speech on her Amendment No. 3, which appeared to say the opposite; namely, that we should have continuing assurances that the Government will maintain their firm interest in the Commonwealth Development Corporation after the public/private partnership has been established.
I also disagree with the noble Baroness about the purpose and effect of the golden share. The golden share does not mean that the Government will take the largest share of the risk; the golden share will ensure that the ethical investment policies, which are the fundamental basis of the CDC and will remain so, are enshrined in legislation, and are protected and cannot be changed without the will of Parliament. It is one thing to have a golden share, but it is another to convince investors that we are also willing to put our money where our mouth is. For the Government to put a significant minimum into these investments--which are defined by the memorandum and articles of association of CDC plc--and in order to attract the private investment we want, we think it is necessary both to insist on investment policies and to maintain a substantial economic interest to enable the Government to continue to have a stake in
and benefit from CDC's future success. I am grateful to the noble Lord, Lord Redesdale, for what he said in that regard.In practice the 25 per cent. shareholding is significant, as the noble Baroness well knows. This is the point below which the golden shares can be redeemed by CDC without government agreement. That is in Article 11(F)(ii) of the draft articles of association. The golden share contains rights over a number of important areas such as investment policy and the right to appoint directors. We believe that the market would not respond positively if the Government's retention of such rights were not backed by this substantial interest in CDC through their ordinary shareholding.
Under company law, 25 per cent. is the level above which minority shareholders have the right to block unwanted changes in the articles of association, so it has a legal as well as an economic significance. I urge the noble Baroness to think again about this matter, on which I am sorry to see that we disagree. I believe that the attraction for private shareholders must be based on a real commitment by government--not only the negative commitment of the powers conferred by the golden share, but also the positive commitment of government investment in the new CDC. In those circumstances I urge the noble Baroness to withdraw the amendment.
Baroness Rawlings: I thank the Minister for his explanation, but I am still not convinced. I feel that the golden share will still enable the Secretary of State to dictate policy: for a private investor investing in a company this automatically changes the aspect of the investment. Secondly, I do not feel that the 25 per cent. holding would necessarily give the investor confidence that the Government are taking this seriously. For the moment, I should like to come back to this on Report. Meanwhile, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
4.15 p.m.
Lord Redesdale moved Amendment No. 7:
After Clause 26, insert the following new clause--
(" . This Act, other than this section and section 27, shall not come into force until the Secretary of State has--
(a) prepared a report on the liability of the Corporation after registration to corporation tax; and
(b) laid the report before the House of Commons.").
The noble Lord said: It was difficult enough to table this amendment to any part of the Bill so I hope that the Minister will not use the "petty drafting" argument in this case. This is, I believe, the central amendment of the Bill and although I am speaking to Amendment No. 7 which stands in my name, I also support Amendment No. 9 in the name of the noble Baroness, Lady Rawlings.
The purpose of the amendment, which concerns tax, is not political in the sense of "party political", although anything to do with tax obviously has a political
It was suggested that the CDC would have to make a return of around 15 per cent. Although that has not been set down anywhere, I believe that that is the figure that is being discussed. If the CDC is forced to repatriate its profits to this country and is then asked to pay corporation tax, that will eat into its profit margin of 15 per cent quite considerably. What level of return could be obtained if corporation tax were payable? Other companies in this field avoid this pitfall by going offshore. Is it possible for the CDC as regards its future role vis-a-vis government investment to be based offshore? I find that hard to believe. However, if that is not the case, the Government will be forced to make special tax provision for the CDC. I realise that the Treasury is loath to establish a tax precedent for any individual corporation in case other companies see a loophole. However, I believe that the CDC is unique and that an exception should be made to the usual rule.
I realise that this is not a situation that has passed the Government by and that the Government will consider this matter carefully. I hope that the Minister can give us some indication of the Government's thinking on the issue of tax. I hope that he can enlighten us on that matter because if the Bill is to proceed through the Chamber without this matter being resolved the CDC will be flawed. It will not be a success and the laudable aims that are set out in the Bill will not be achieved. I beg to move.
Baroness Rawlings: I fully support the noble Lord, Lord Redesdale, on Amendment No. 7. In speaking to this amendment I should like to speak to Amendment No. 9. As he so rightly said, this is the most important of all the amendments. The effect of Amendments Nos. 7 and 9 is to make the coming into force of the Act conditional upon achieving for CDC an advantageous tax status or permission to go offshore.
Again, this is not a wrecking amendment. The Bill would not be wrecked by the amendment but by the failure to solve the tax issue. The purpose of the amendment is twofold. First, the amendment reflects our conviction that it is imperative for the success of the partnership that the CDC is tax efficient. The Minister agreed with this point at Second Reading. However, we differ on the importance we attribute to such a status.
The Minister seems to believe that the CDC experience and expertise, as well as the Government's shareholding, will be sufficient to provide comfort to private investors especially in the context of growing interest in ethical investment. Like the noble Lord, Lord Redesdale, I suffer from cynicism. I believe that private investors will look primarily at results. Unless the tax status is advantageous it will be difficult significantly to improve the current downward trend of the CDC's returns while maintaining the development focus in the current economic conditions. Indeed the Minister appears to be at odds with the Secretary of State, who in another place said that if we do not solve
I wholeheartedly agree with the Secretary of State. Because of the importance which we ascribe to the tax issue, we feel that it is prudent to solve it at the outset. If a solution is not found with the Treasury and the Inland Revenue, we fear that it may be impossible to attract sufficient private investors. If this is the case, the project is seriously at risk. In such circumstances, would the Government abandon it?
At Second Reading, I asked a whole range of questions on the issue to which the Minister gave such economical answers that we were really none the wiser. Has the Treasury vetoed the proposals of the Secretary of State to create a new category of organisations as regards tax and investment funds? If that is the case, what other avenues have been explored?
Lord McIntosh of Haringey: I fully recognise the importance of these two amendments. I do not in any way intend to underestimate them, or indeed to criticise the drafting or the motives of those who have tabled them because the amendments have been tabled out of a genuine desire to help to achieve what the Government wish to achieve from this legislation. I am grateful to both the noble Lord and the noble Baroness for the way in which they have proposed these amendments.
The noble Lord, Lord Redesdale, said that this change would not work if the Bill passed through this House in its current form without assurances on taxation. I have to disagree with him on that. It would not work if the Bill passed through Parliament without some taxation provisions, which I fully acknowledge are not available at the moment. I had hoped that by the time we reached Committee stage we would have something definite and final to say about the way in which this problem will be solved, but, as it is, I do not believe that I can do more than read out the current state of play.
The CDC needs to be tax-efficient if it is to be able to achieve its goal of investing in developing countries using private capital raised within the context of a competitive private investment market dominated by offshore funds. I think that noble Lords opposite will agree with that. In order to compete directly with offshore funds for private capital for investment in its area, CDC would need to provide a similar return. Again, I think that noble Lords would agree with that. A material UK tax charge within CDC would make this less achievable. The Secretary of State for International Development has said publicly--the noble Baroness has reminded us of this--that it is politically unacceptable for CDC to go offshore.
The Department for International Development, the Treasury and the Inland Revenue are working together to produce a tax solution that will encourage investment in the poorest countries through the CDC public/private partnership. Parliament will have the opportunity to scrutinise any proposals. I cannot go any further than
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