Finance Bill

The right hon. Lady shakes her head, but that is the case. Mike Warburton of Grant Thornton has indicated that about £300 million of investment in carbon trading schemes and wind farms will be put at risk by the Chancellor’s decision. I do not imagine that either the right hon. Lady or the Chancellor want that to happen. Several aspects of the relief seem completely arbitrary and bizarre. The first is the 10-hour limit for an active partner in an investment scheme—10 hours’ work per week is required to demonstrate that a person is a bona fide investor. That limit will exclude inactive partners from investing in a business. Many entrepreneurial individuals, such as those featured in the television programme, ““Dragons’ Den?, might invest in the form of a partnership structure and provide entrepreneurial flair and drive, as well as access to their time, but not 10 hours a week to oversee the business. I use that example because it will resonate around the House. A large number of business angels, operating in large and small groups, provide money and specialist advice to small businesses setting up on their own. Those individuals are increasingly tending to use the partnership structure, but they will be unable to do so in future because they will not be able to provide the 10 hours required to qualify. The second arbitrary aspect is the limit of £25,000 for eligibility for relief, even though many projects involve individual investments of substantially more than £25,000. I cannot imagine where that sum came from—it seems to have been magicked from thin air—but it will mean that such investments will be made only in tiny projects. The amount is unrealistic in terms of help for small businesses getting off the ground, and if the Government insist on retaining the regime the limit should be raised to a much more meaningful amount. I propose £1 million. Another aspect of the relief that will have a substantial impact on reducing business investment relates to the proposals for the venture capital trust industry. I understand from the Red Book that the provisions were imposed on the Government by the EU, but that it was done in a mealy-mouthed way. The Government have not stood up to the EU and have chosen to define the state aid rules inappropriately. There are 110 venture capital trusts in Britain. In 2005-06, they raised £750 million; in 2006-07, the tax year that has just ended, they raised only £110 million. The reason is that the measure was introduced in the last few weeks before the end of the tax year when most of the money comes in, so we can already see the impact of the proposal. Raising funds in that industry has ended because the amounts that can be invested in an individual company are too low. A substantial equity gap will be created between those who can invest £25,000 under the sideways loss relief limit and up to £2 million through a venture capital trust and the commercial, private equity development capital finance provided at the higher end. In conclusion, it is particularly damaging for venture capital trusts that the Government chose to interpret the EU state aid rules with a limit of 50 employees to define a small company, even though it was open to them to have chosen a limit of 250 employees as the medium company size. Why on earth did not they choose the larger number? It would have allowed far more companies to participate in venture capital trust investment in future and allowed the prospect of continuing a viable industry, which I fear the Government will shut down.