Finance Bill

Yes. There is no controversy about that. In those Finance Bill debates, concern was expressed that the schedule might have an adverse impact on the venture capital industry. Consequently, a memorandum of understanding was drawn up to give guidance to make it clear that, on the basis of the proper application of the law to all taxpayers and investors, including the private equity industry, some of the fears expressed would not be realised. Clearly, since then the salience of and media interest in such issues have increased. That applies especially to the way in which business asset taper relief is available to taxpayers who make gains on business assets. The hon. Member for Twickenham explained the genesis of the business taper relief and his principled position on opposing it. I could describe his position as almost Lawsonesque in its consistency—the former Chancellor of the Exchequer Nigel Lawson strongly believed that capital gains should be taxed at 40 per cent., not a lower rate. He believed that any lower rate between the top rate of income tax and capital gains tax would lead inevitably to avoidance. I understand the Lawsonian views that the hon. Member for Twickenham expressed. I take them at face value, not simply because he needs the £5 billion or so to pay for the tax cuts that he wants to promise others. We have always perceived the purpose of the business taper relief as an important means of encouraging investment and rewarding serial entrepreneurs, business angels and venture capitalists, who are prepared to take risks in growing companies. We probably agree with Conservative Members about that. There are no special rules for private equity fund managers and we do not collect information on the specific tax reliefs that private equity fund managers receive. It is therefore not possible to identify the particular gains that are made on carried interest or to disaggregate the proportion of the cost of the overall relief, which is approximately £4.78 billion in 2006-07. If we produced the report that the hon. Member for Fareham requested, it would make less interesting reading than he might like. However, I believe that the hon. Gentleman raised the matter because he wants to know the direction of the review. As he knows, although an effective capital gains regime is vital to encourage enterprise and stimulate investment and entrepreneurship, it must also distinguish between employment reward and capital gains and ensure that a proper balance is struck. Indeed, the shadow Chancellor made the same point when announcing his review last week. He said:"““As leading members of the private equity industry acknowledge, if it looks like income then it would be peculiar not to tax it like income… But if it looks like genuine risk-taking and entrepreneurship then we should do everything to encourage it.””" I agree with that sentiment. That is why we are currently reviewing the taxation of a range of employment-related securities, which private equity and non-private equity companies alike use to ensure that the distinction is correctly drawn. If it reassures the hon. Member for Fareham and makes it easier for him to withdraw the motion, I assure him that we will provide an update on that review, too, at the time of the pre-Budget report. I shall make sure that, while avoiding excessive bureaucratic duplication and even more reports, we provide such an update on those issues at the time of the pre-Budget report. On the issue of corporate tax deductions for interest payments, I can confirm that the goal of the Treasury review that I announced earlier this year is to determine whether the rules that apply to private and non-private equity investments alike are working as intended. That review is looking at the way in which the rules are working in the light of market developments but, as I said in my March speech, the deductibility of interest as a business expense for tax purposes is a fundamental principle of our tax system. We are not reviewing the basic principle that interest should in general be treated as a business expense and is deductible for taxable profits for companies in any form of ownership. However, we aim to ensure that where shareholder debt replaces the equity element in high-leverage deals, it does so consistent with our intention that interest on debt should be tax deductible. Equity, however, is treated differently, to make sure that we are as consistent as possible in our aim of providing a level playing field. As I said, the review will be published at the time of the pre-Budget report. The hon. Member for Fareham wondered whether or not Government Members were sending mixed messages about private equity. From the Treasury’s point of view, we have sent a clear message: we believe that private equity can play an important role in the economy by driving change, and by promoting employment and investment. There are some bad private equity deals, however, in exactly the same way that there are some poorly performing public companies. It is much better to look at the conditions to support long-term investment than take a particular view on private equity. I responded to an Adjournment debate introduced by a potential leadership candidate— that candidacy did not last very long—on those matters, so we have debated those issues fully in the House. I do not think that Ministers or the Treasury have sent mixed messages, but the same could not be said of Opposition Members. The shadow Chancellor’s review was reported by the Financial Times on 22 June under the headline, ““Tories back higher taxes for private equity””. The article continued:"““The Conservatives have signalled they would support higher taxes for private equity executives, increasing the political momentum for a clampdown this autumn.””" The BBC website reported:"““Mr. Osborne’s inquiry appears to blur the traditional left-right political divisions, with the Tories appearing to be tougher on the super-rich than Labour.””" In his speech earlier this year to the British Private Equity And Venture Capital Association—I think that that the hon. Member for Twickenham referred to that—the shadow Chancellor said:"““Listen to the critics and you would think that the only winners were a secretive bunch of millionaires. But the real winners are the millions of people with pensions invested in the funds that invest in you…The importance of your contribution to our economy is, I believe, rightly reflected in the tax treatment that you receive…I will speak up for your industry and the wealth it creates. I will not make any moves that discriminate against the private equity industry.””" Perhaps we should reconsider our position—perhaps a report should be published, although the shadow Chancellor’s report will be issued before the pre-Budget report, so there will be plenty of time to reflect on its findings. It is often said that the Opposition parties are good these days at spin, but either they have contradicted the shadow Chancellor’s speech in March or the FT misunderstood the story. In any case, given the number of reports that have been published, I do not think that we will gain enlightenment from a further report. Instead, I encourage hon. Members to look forward to the report by the Treasury Committee with interest. We will respond on all those matters at the time of the pre-Budget report. On that basis, I suggest that the House reject the new clause.