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House of Lords

Tuesday, 11th November 2003.

The House met at half-past two of the clock: The LORD CHANCELLOR on the Woolsack.

Prayers—Read by the Lord Bishop of Derby.

University Spin-out Companies

Baroness Wilcox asked Her Majesty's Government:

    What effect the tax legislation introduced in the Finance Act 2003 will have on the development of "spin-out companies" in Britain's universities.

The Parliamentary Under-Secretary of State, Department for Culture, Media and Sport (Lord McIntosh of Haringey): My Lords, I understand that concerns have been raised with the Inland Revenue about the effect of Schedule 22 of the Finance Act 2003 on university spin-out companies. Officials met with UNICO, a professional association of university companies, in July to discuss and clarify the application of the new rules. UNICO has recently submitted a case study to the Inland Revenue. That will form the basis for negotiations, which will allow the correct tax treatment for spin-out companies to be agreed.

Baroness Wilcox: My Lords, I thank the Minister for that Answer. Does he agree that, as it stands, this tax measure is a massive discriminatory disincentive for our bright university innovators?

Lord McIntosh of Haringey: No, my Lords, far from it. Schedule 22 is a very necessary tax reform. It has to deal with a problem which in the past tax year amounted to no less than 1.4 billion of tax forgone. I believe that the analogy the noble Baroness, Lady Wilcox, would want me to make is with venture capital. The British Venture Capital Association has been involved in exactly the same negotiations as those we are now entering into with university spin-out companies. We have two memoranda of understanding, which I believe entirely satisfy the points raised by the Venture Capital Association. I am sure that we can do the same for university spin-out.

Baroness Warwick of Undercliffe: My Lords, I declare an interest as chief executive of Universities UK. Is the Minister aware that the Lambert's Review Summary of Emerging Issues states:

    "The number of spinouts in the UK has been increasing rapidly in the last five years, and is now higher than in both the US and Canada, as a proportion of research expenditure"?

Does the Minister share my concern that the complexity of legislation in this area may increase the costs of professional tax advice and undermine this excellent record of collaboration?

Lord McIntosh of Haringey: My Lords, I am very glad to agree with the noble Baroness, Lady Warwick, about

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the excellent reputation of university spin-out companies in this country and the fact that they are so successful. I am afraid that tax complexities exist with or without Schedule 22. The case study submitted by UNICO to the Inland Revenue, to which I referred in my Answer, is three inches thick—I wish it were not so—but it is not caused by Schedule 22.

Lady Saltoun of Abernethy: My Lords, what are spin-out companies?

Lord McIntosh of Haringey: My Lords, when universities or any educational institution—there are examples of schools doing this—have ideas which are capable of exploitation in the market, they set up spin-out companies to exploit such ideas and capabilities.

Lord Skelmersdale: My Lords, at the risk of displaying my ignorance, are not universities, like schools, charities? Therefore, is it not in order for the spin-out companies to covenant their profits tax free to the charity?

Lord McIntosh of Haringey: My Lords, spin-out companies are not charities. It is in order for them to do what they like with their surpluses or profits according to how they are set up.

Baroness Noakes: My Lords, it is encouraging that the Revenue is considering this issue with the university sector. Does the Minister agree that the law of unintended consequences was at work and it was not the Government's intention to tax those involved in university spin-out companies? Will he give an undertaking that the Government will reverse their mistake?

Lord McIntosh of Haringey: My Lords, I am very glad to welcome the noble Baroness, Lady Noakes, to her position and express my sorrow that the noble Lord, Lord Saatchi, is not facing me again. However, I do the best I can with what material is to hand.

Schedule 22 will work both ways. The purpose behind it is to ensure that the value gained from capital growth is not subject to income tax and national insurance contributions while at the same time ensuring that the value gained by reason of employment, including securities as part of a remuneration package, is subject to income tax and national insurance contributions. That was not clear; Schedule 22 makes it clear, and there is nothing to apologise for.

Household Debt

2.41 p.m.

The Earl of Northesk asked Her Majesty's Government:

    What is their view of current levels of household debt.

Lord McIntosh of Haringey: My Lords, the Government aim to provide a framework of macro-economic stability and awareness of financial issues

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within which people can make informed, responsible decisions about how much debt it is prudent to incur. The Government are alert to the risks but debt at present remains affordable. Households' total interest payments currently equate to 7.2 per cent of their disposable income, which compares favourably with the average of 9.4 per cent of disposable income between 1979 and 1997.

The Earl of Northesk: My Lords, I thank the Minister for that reply. Can he confirm that personal bankruptcies are currently running at their highest level since 1993 and that in September alone a record 10.7 billion was borrowed? It may be that stability has replaced prudence in the Chancellor's affections, but against a background of rising interest rates, are not current levels of consumer debt likely to have a destabilising effect on the UK economy in the coming months?

Lord McIntosh of Haringey: My Lords, I am not certain whether personal bankruptcies are at their highest level. I do not doubt what the noble Earl, Lord Northesk, says. But since the previous figure was 9,000—although every single personal bankruptcy is regrettable—it is not an overwhelming figure in macro-economic terms.

On the issue of the amount of household debt, perhaps I may point out that household wealth is increasing at a very much faster rate than before. It is 50 per cent higher than it was in 1997, with the result that wealth is six times the amount of debt in this country. I consider that to be a very satisfactory result.

Lord Borrie: My Lords, does my noble friend consider that present rates of interest charged by credit card companies are fair and reasonable, or does he think that they are extortionate and therefore illegal under the Consumer Credit Act 1974?

Lord McIntosh of Haringey: My Lords, I think that that question is considerably beyond the subject matter of the original Question. I would be prepared to say that the Consumer Credit Act is in need of review, and we propose to bring forward a White Paper on the subject before the end of this year.

Lord Higgins: My Lords, why are credit rating agencies, which have a significant effect on the level of household debt, still not complying with the provisions of the Data Protection Act more than five years after it was passed? Why are individuals not able to ensure that additional information is held by such credit rating agencies, so that they can assess more accurately the creditworthiness of that individual?

Lord McIntosh of Haringey: My Lords, again, I think that that is beyond the scope of the Question, but the noble Lord, Lord Higgins, draws attention to a serious issue. That issue was responded to by my noble

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friend Lord Sainsbury after a debate in this House on 21st October. I refer the noble Lord to my noble friend's answer.

Lord Oakeshott of Seagrove Bay: My Lords, is the noble Lord aware of the latest figures in the Bank of England quarterly bulletin about the most important single component of household debt, which is mortgages? In particular, has he seen a fascinating chart which shows that house prices have hit today's ratio of one-and-a-half times average incomes twice in the past 30 years—in 1973 and in 1989? Is the noble Lord aware that each time house prices fell by one-third in real terms? Does the noble Lord believe that mortgage borrowers, over the past year in particular, have taken informed and responsible decisions?

Lord McIntosh of Haringey: My Lords, I believe that in aggregate the situation on housing equity is satisfactory. As a proportion of the total housing assets, mortgage debt is now 25 per cent. In the years referred to by the noble Lord, Lord Oakeshott—1973 and 1989—the mortgage debt was a much higher proportion of housing value. That indeed was dangerous.

The Lord Bishop of Hereford: My Lords, although there is undoubtedly a problem of excessive household debt in some cases, does the Minister agree that one useful way of making lending available to disadvantaged people in a controlled and prudent way, and subject to good advice, is provided by credit unions? Do the Government have a policy of positively supporting credit unions? Can the Minister say whether the number of credit unions is in fact increasing?

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