Finance Bill

I support new clause 12, which seems helpful. It cannot be wrong to request information about a matter that is a little obscure and not especially transparent. I thus welcome the search for entitlement. The measure is brave, in a Sir Humphrey way, given that the Conservative shadow Chancellor gave a pretty robust defence of the tax privileges of private equity firms at their annual dinner. Some Conservative Members really know about the business. The hon. Member for Hammersmith and Fulham (Mr. Hands) wrote a toughly worded letter to the Financial Times last week in which he defended the status quo. I do not know whether the purpose of the new clause is to row back from that. However, as I understand it, the starting point of the Conservative party is that it wishes to defend the existing regime. On the other hand, there is some consensus that things are happening that need to be looked at again. I certainly interpreted the Economic Secretary’s comments, when he spoke at the London School of Economics at the beginning at March, as showing a willingness to consider at least the second issue raised in the new clause—interest relief. I am sure that the Economic Secretary will not mind me quoting what he said—in fact, I am sure that he will say it again:"““Today, I can announce that the Government will review the current rules that apply to the use of shareholder debt where it replaces the equity element in highly leveraged deals””." That is half of the problem that is described in the new clause, and I am sure that we would all agree about that. The meat of the problem, and the area that I think that we are debating, is the bit of the tax-privileged status of private equity that relates to taper relief. Of course, as the hon. Member for Fareham (Mr. Hoban) acknowledged, those concerned with private equity are merely one group of people who currently benefit from that relief, and I am inclined to ask, ““Why pick on them?”” After all, there are other groups who benefit from the relief in a similar way, and no more or less reputably. I read in the Evening Standard today that Madonna has just bought her sixth £1 million-plus house. I do not know what her tax status is; if she is a British taxpayer, she will presumably be able to benefit from taper relief, if she holds that property as an investment for a period of years. It is not just those with private equity who benefit from taper relief. To understand the nature of the problem that the hon. Member for Fareham raised, we need to go back to Parliament’s decision, in 1998, to introduce such an approach to capital gains tax. I think that I have the advantage of being the only person in the Chamber who took part in that debate; it was opened by the hon. Member for Coventry, North-West (Mr. Robinson), and the reply was given by the Conservative spokesman, the then Member for Arundel and South Downs, who left the House in unfortunate circumstances, and the right hon. Member for Wells (Mr. Heathcoat-Amory). As I remember it, I said pretty much the same as the Conservatives at the time, which was that we had a good system of capital gains tax, which was introduced by the noble Lord Lawson. It was simple and clear, and it applied the same rate for capital gains tax and for income tax. It was straightforward, so why introduce complicated taper provisions that could eventually be taken advantage of by the group that we are discussing and others? Several arguments were advanced. The first was that if we create a differential, and if there is a 40 per cent. rate on one hand and a 10 per cent. rate on the other—that is roughly the magnitude of the difference between income tax and capital gains tax—of course people will look for ways of exploiting that, and that is exactly what the British Private Equity and Venture Capital Association sought to do in its memorandum. If it had not done it, other groups would have done it in a different way. Moreover, the Conservatives and my party argued that there was no justification for the suggestion that the measure would change business behaviour. Indeed, what was forecast by the Opposition parties is exactly what has happened. Groups of people have taken advantage of that very generous provision, which, as the hon. Member for Fareham says, has cost more than £6 billion, and there is not a great deal of evidence that it has changed business behaviour in any way that has contributed to national economic welfare. It is absolutely right that we look afresh at the relief, not simply in relation to private equity, but in relation to the whole, large-scale, far-reaching and extremely generous tax concession. In my view, we should go back to the regime that applied in 1997, which was perfectly satisfactory. That is the basis on which we have argued for getting rid of the whole taper relief arrangement, rather than simply singling out the part of it that applies to private equity. I suspect that I would go a great deal further in reforming the system than the Conservative Front-Benchers would, but none the less, their new clause, which I understand to be probing and a pursuit of information, seems entirely sensible and worth supporting.