Finance Bill

The hon. Gentleman is right that it is appropriate to clamp down on specific schemes that are set up to avoid the rules. I have no argument with that, but it is not the point that I am trying to make. The point that I am seeking to demonstrate—I shall give one or two examples—is that many bona fide commercial activities between partners will be constrained and, frankly speaking, stopped by these measures. Those activities should not be stopped and the solution should be to introduce alternative measures, such as perhaps a clearance or other mechanism, which may already exist in other areas of the tax code, to allow them to take place. Hon. Members have mentioned the farming industry. Many farms are run as partnerships between members of the same family and the partnership structure is used to allow interests to change over time as the younger generations come in and the older generations retire. The interests of the partnership can be altered through the life of the partnership, and that is an attractive way of managing affairs. New partnerships are often set up when a new member of the family begins to participate. Unfortunately, farming follows the biblical pattern—I know that, as a farmer myself—and some years one makes a loss. One can often have losses in the early years of a new partnership. It would be wrong for such activity to be made non-deductible when one would have to pay tax if one were lucky enough to be making profits in the early years of a new farming partnership. Another example is the biotech industry, a high risk industry in which some individuals may be prepared to take significant risks with large amounts of money. That risk should be reflected and, if it goes wrong, individuals should have the chance to offset the losses on those substantial risks against their other income. Another example would be the hotel industry. When one sets up a new hotel, one generates losses in the early years while one builds up the room rate. I am aware of examples in which individuals have decided to go into business together as one of them alone cannot raise sufficient money to launch a hotel. People therefore group together in partnerships because it is a good structure.