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Baroness Royall of Blaisdon: My Lords, it has been decided that there will be only about 40 outcomes and
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Taxation: Private Equity Firms
3.07 pm
Lord Barnett asked Her Majesty’s Government:
Lord Davies of Oldham: My Lords, there is no specific tax treatment for private equity firms. All taxes are kept under review as part of the Budget process. Two reviews are under way in this area. The first is a review of shareholder debt, announced on 8 March 2007. Another review is looking at the tax treatment of employment-related securities, including carried interest. An update on both reviews will be provided at the Pre-Budget Report 2007.
Lord Barnett: My Lords, I thank my noble friend. I am sure that he recognises how important it is to be careful here, as this could affect lots of other companies than just private equity firms. There must be hundreds if not thousands of companies borrowing to invest in a way that will help them and the country at large. I declare a small interest in a small company, not a private equity firm. As I am sure he will recognise, it is crucial that we do nothing to endanger that investment—for which a lot of money is borrowed and interest charged—continuing as a tax deduction, otherwise that investment could be jeopardised. Can he assure us that nothing in these reviews will include anything to disallow interest as a tax charge for companies investing for the benefit of themselves and the country at large?
Lord Davies of Oldham: My Lords, I am grateful to my noble friend for introducing a note of balance in what have been some fairly tempestuous times regarding these issues. He is absolutely right that there is no specific tax treatment for private equity firms and that we must be concerned about the taxation of interest, which is accounted as a business cost, in circumstances where all major countries adopt exactly this strategy. It would be very ill advised for this country to adopt a different position.
Lord Blackwell: My Lords, given the importance of the international competitiveness of tax rates on business, will the Minister ensure that the reviews that he mentioned take account of the comparative rates of taxation on private equity investment in other countries? Also, what loss of revenue to the Government might ensue if capital moved overseas as a result of a change in tax rates?
Lord Davies of Oldham: My Lords, I assure the noble Lord that the Treasury review will be comprehensive, covering all aspects. From my answer a moment ago, he will recognise that we are all too well aware of the significance of our taxation regime in terms of international comparators.
Lord Newby: My Lords, notwithstanding what the noble Lord, Lord Barnett, said a few minutes ago, is
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- “in this country, the exchequer loses out. The chancellor should be thinking again about the tax revenue he loses”,
on interest payments. Would the Minister draw that statement to the attention of his colleagues in the Treasury?
Lord Davies of Oldham: My Lords, it is not necessary to draw the attention of the Chancellor and the Treasury to that statement, because it was included in my notes in preparation for today’s response. We need to have a fully rounded picture of the situation, in circumstances where we recognise public anxiety. The House will appreciate that the private equity industry has a case to answer, which it has not always done advantageously in the recent past. A fully rounded picture will be sought by the Treasury before any decisions are taken.
Lord Hoyle: My Lords, does my noble friend agree that there is something wrong when someone admits that his cleaner pays more tax than he does himself? Surely that needs to be looked at.
Lord Davies of Oldham: My Lords, one of the significant figures in private equity drew attention to that, and it certainly needs to be looked at. As I indicated, we need to look at the question of business taxation in the round. However, my noble friend is absolutely right—there is public anxiety about the present position, which is why the issue is subject to review.
Baroness Noakes: My Lords, does the Minister agree that some of the tax incentives utilised by private equity were designed to support and encourage real venture capital? If he agrees, can he explain why investment in early-stage companies has declined from 10 per cent in 1998 to 2 per cent in 2005?
Lord Davies of Oldham: My Lords, our taxation system is meant to encourage such venture capital and, as the noble Baroness will recognise, aspects of private equity development reflect that. The overall position, which she will be all too well aware of, is that over the last decade investment in business in this country—a reflection of low interest rates and of the strength of the British economy—has led us to produce an economy that is the envy of much of the world.
Lord Hamilton of Epsom: My Lords, is Jon Moulton right when he says that he is paying less tax than his cleaning lady, or does he mean that he is paying a lower rate of tax? If he is paying at 10 per cent when she is paying at a much higher rate, I suspect that the 10 per cent on which he is paying tax comes to a lot more than his cleaning lady’s tax.
Lord Davies of Oldham: My Lords, we all assume that we are talking about rates of taxation and that the basic returns that Jon Moulton was referring to were somewhat greater than the earning capacity of one of his cleaners.
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Lord Barnett: My Lords, is my noble friend aware that the new Chancellor rightly said recently that there should not be a knee-jerk reaction to some of the rather oversimplified criticism that we have read about? Will the Minister assure us that the reviews will contain no plans that have the unintended consequences referred to by the Chancellor?
Lord Davies of Oldham: My Lords, that is the case. Before the recent furore, the former Economic Secretary, Ed Balls, referred to the need for a balanced position. The private equity industry feels that it has had a bad press in recent weeks, for reasons that we can recognise. It has undertaken to set up an independent working party under Sir David Walker to develop a voluntary comply-or-explain code so that its case can be better presented to the public. At present, only the adverse position has been identified and, as my noble friend indicated, that ought not to lead to immediate reaction from the Government, nor will it.
Business
3.14 pm
Lord Davies of Oldham: My Lords, with the leave of the House, at a convenient time after 4.30 pm, my noble friend Lord Adonis will repeat a Statement on children, schools and families, which is being made in another place.
Regulatory Reform (Game) Order 2007
The Minister of State, Department for Environment, Food and Rural Affairs (Lord Rooker): My Lords, I beg to move the Motion standing in my name on the Order Paper.
Moved, That the draft regulatory reform order laid before the House on 24 May be approved. 11th Report from the Regulatory Reform Committee. Considered in Grand Committee on 3 July.—(Lord Rooker.)
On Question, Motion agreed to.
Regulatory Reform (Financial Services and Markets Act 2000) Order 2007
Lord Davies of Oldham: My Lords, I beg to move the Motion standing in my name on the Order Paper.
Moved, That the draft regulatory reform order laid before the House on 24 May be approved. 11th Report from the Regulatory Reform Committee. Considered in Grand Committee on 3 July.—(Lord Davies of Oldham.)
On Question, Motion agreed to.
Local Government and Public Involvement in Health Bill
3.15 pm
The Parliamentary Under-Secretary of State, Department for Communities and Local Government (Baroness Andrews): My Lords, I beg to move that the House do now again resolve itself into Committee on this Bill.
Moved accordingly, and, on Question, Motion agreed to.
House in Committee accordingly.
[The LORD SPEAKER in the Chair.]
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Clause 53 [Power of council to alter years of ordinary elections of parish councillors]:
Baroness Hamwee moved Amendment No. 88:
The noble Baroness said: The business managers should provide the mover of the first amendment after Questions with some standard form of wording that would show all the proper courtesies but allow the House a moment to show how much noble Lords support the development of local government in England and Wales. I hope that is the right formula. Many years ago, when I brought the controller of a BBC radio channel into the Chamber, he looked at the microphones and said, “It must be quite interesting mixing the sound in here”. This is probably an example of that; the volume of my microphone seems to have been turned up.
The amendment is grouped with Amendments Nos. 89 and 90, in the name of my noble friend Lord Greaves. Clause 53 provides for elections for parish councillors to be held in years when there are also elections of district councillors in the same place. I can understand that there would be reasons for having the two sets of elections on the same day, such as cost, convenience and turnout, but there are also good reasons to separate them. Where the parish is the “parish pump” type, beloved of those who write certain types of fiction, and not political, one can understand that cost and convenience would outweigh other considerations.
However, not all parishes are small or apolitical. Where there is a lively local political scene, it would not necessarily be desirable to hold the two sets of elections at the same time. It is useful for voters, first, to be able to show that they understand that this is a different election and, secondly, to reflect shifts in the political mood as the years go by. The two elections can be a useful counterpoint to each other. I have tabled this amendment so that the Government can explain their thinking and to ask them to confirm that in this instance “district” includes a unitary authority. I beg to move.
Lord Greaves: My Amendments Nos. 89 and 90 are rather more modest in ambition than my noble friend’s, but they cover two important things. My noble friend raised a very important matter about parish councils which will underlie quite a lot of what we say on the next part of the Bill: the great variety and difference there is between the different bodies called parish councils or the larger ones called town councils. Some are large, with a large budget, and function like a town council; others are small, covering a village community or even a community with no obvious village, and operate very differently. They operate under the same law and the same rules, but, as my noble friend pointed out, they can differ greatly. Amendment No. 89 would simply insert the duty of a district council to consult parish councils before it took any action under this clause. It seems reasonable that, if your elections are to be moved from one year to another, you ought to be asked first what you think about it. That ties in with what my noble friend said about choice.
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Amendment No. 90 is very specific and would apply in very few circumstances. Nevertheless, I can envisage circumstances in which the year of an election, under the Government’s proposals in this Bill, would be moved from one year to another and there would be a choice. For example, if a district council was moving back from whole-council elections to electing itself by halves every two years, the parish council election date would probably have to be moved under the Bill. There would be a choice of two years in which to do that. It seems reasonable that, under those circumstances, what the parish council thinks should prevail.
Baroness Morgan of Drefelin: I congratulate the noble Baroness, Lady Hamwee, on speaking through quite a challenging moment. I am very glad that we have been able to have this debate now. Before I turn to the amendments, let me confirm to the noble Baroness that “district” includes unitaries.
The Government are opposed to the amendments tabled against Clause 53 and 45. Current standard practice is that parish council elections are held in the same year as the elections to the district ward within which they are situated. This is to reduce the costs and administrative burdens on electoral administrators. Amendment No. 88 would allow the date to be set for a year different from that for the district ward elections, which would increase costs and administrative burdens. We are therefore opposed to this amendment.
On Amendment No. 89, we do not consider that central government needs to be prescriptive on the consultation procedure that the district council follows. I mentioned that approach earlier in Committee. The aim of devolution is to trust democratically accountable local authorities to act reasonably and to consult those parties which they consider to be interested. We do not believe that provision specifying these specific consultation steps needs to be made in the Bill. However, the point made by the noble Lord, Lord Greaves, is perfectly reasonable. Making an amendment which would allow the parish council’s view to prevail on this issue is not acceptable. We are devolving responsibility to local authorities. The aim is to reduce the administrative burden and costs for electoral administrators, and therefore the district council must decide. There would also be a considerable risk that a political group controlling a parish council might choose an election year that would suit its electoral prospects.
In relation to Amendment No. 90, we have retained the power in the Local Government Act 2000 so that if in the future, for example, the vast majority of councils in England operated whole-council elections, the Secretary of State would be able to move the remaining few councils to achieve a uniform pattern across England. The amendment would prevent the Secretary of State from doing that in the future under any circumstances. We are clear that the power to change electoral cycles should generally be devolved to local authorities. However, we believe it is important that the Secretary of State retains a power that in particular and, I stress, exceptional circumstances he or she may use in the future to change, by order, a council’s electoral cycle to that of whole-council elections. I hope that the noble Baroness will consider withdrawing her amendment.
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Baroness Scott of Needham Market: Why do the Government think that a parish council is potentially too politically charged to choose its own election date, whereas central government does it all the time?
Baroness Morgan of Drefelin: I thank the noble Baroness for that intervention. I was trying to think of one of the most extreme examples of where a parish council choosing that process would be undesirable.
Baroness Hamwee: I thank the noble Baroness. The answer to my amendment seems to be that that is what we do now. I do not have any sense that the Government have considered the alternative scenario that I put forward, unless, following on from what my noble friend said, they think that parish politics might get too political and they feel that we had better ensure that that does not happen. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 54 [Amendment of existing provisions about schemes for ordinary elections]:
Clause 55 [Requests for single-member electoral areas]:
Lord Greaves moved Amendment No. 91:
“( ) A county council in a two-tier area that has at least one electoral division which returns more than one councillor shall within six months of the coming into force of this Part make a request under subsection (1) for a review of any such division or divisions.”
The noble Lord said: This amendment does not need a great deal of discussion, but I thought that it was worth running through what appears to be a wish by central government to encourage more local authorities to move towards single-member, as opposed to multi-member, wards. This is certainly associated with a wish that local authorities that elect every year by thirds, or three years out of four by thirds, should move to whole-council elections every four years.
I am not sure that central government should be taking a view on whether single-member or multi-member wards are good or bad. It seems to me that that should basically be left to local discretion. However, a number of issues arise from it which come from tradition as much as anything else, and it is a tradition based on sensible things. Large county councils with large county divisions have traditionally had single-member electoral divisions. That has worked because they are large both in area and often in terms of the number of people in each ward and each division, and a single-member division is therefore sensible.
3.30 pm
On the other hand, there has been a move fairly recently to increase the number of county electoral divisions that elect two county councillors, often resulting in large and sprawling divisions. The authorities ought to be asked to look at that, although the decisions should be basically local.
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In large or small urban authorities, multi-member wards are a good idea, whether the elections are by thirds or whole-county elections, because they provide people with a choice of councillors. Councillors are not infallible, although sometimes some of them think they are. Sometimes it is good to have a choice of who represents you in your ward. Sometimes that involves different parties, but even if it is the same party, some people may be very good while others are hopeless. People go through bad patches in their lives; they may be ill and unable to serve the people as well as they might have done previously.
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