Finance Bill

I remind the House that I have included in the Register of Members' Interests the fact that I am a director and a shareholder in a small company, but I do not wish to draw on that experience for the purpose of these remarks. I support what my hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond) said about the need for the Government to listen carefully to those who say that the new capital gains tax regime is not as supportive of employee shareholding as it could be. I fully accept that the Government were well intentioned in wishing to get the main headline rate of capital gains tax down. I think that everyone in the House, with perhaps a few exceptions, is in agreement that that was a good thing to do. We were becoming very uncompetitive with the headline rate that we had, and it is good that the general rate is being reduced. However, it is most unfortunate, rather like the unfortunate idea of abolishing the 10p tax band to pay for the welcome lower rate of standard income tax, that in tidying up to try to pay for this measure, some of the rather good reliefs and opportunities that had been offered to entrepreneurs and to employee shareholders by the Government in previous Budgets were swept away, making the regime far less attractive. If I may draw on a personal experience from my past, I was involved in chairing a company that was financed by private equity where the incentive packages to individuals in the company were most important in driving recovery, profit and success for that investment. My experiences of that model and of talking to others who had been involved in private equity, including constituents of mine, persuaded me that there is a definite correlation between the success of British enterprise and the ability to reward and encourage people at all levels of an organisation with employee shareholdings so that they can participate in that success. I am therefore pleased that my hon. Friend tabled amendment No. 88, which would adapt schedule 7D so that some of the less generous terms that appear to be reflected in the reform of capital gains tax could be removed. Like him, I think that EMI is a good scheme, and I look forward to hearing the Minister explain how it might rest if his amendment, or something like it, were not introduced during the remaining proceedings on the Bill. Hon. Members on both sides of the House have come to understand how important small businesses, and smaller business led by people who wish them to grow rapidly, are to a successful enterprise economy. The Government's introduction of the taper relief and the 10 per cent. rate for enterprise undoubtedly gave a considerable fillip to enterprise and meant a bigger population of smaller companies were able to grow more rapidly with people getting that direct incentive, which was then not going to be taxed at nearly such a penal rate as if the capital gains tax regime had remained unamended. I hope that the Minister will take some pride in what the previous Chancellor did for enterprise and venturing in that earlier regime, which was one of the best things that he ever did. I hope that she will accept my compliments in the spirit in which they are intended. It would be a tragedy if a subsequent Budget started to demolish some of that good work, perhaps inadvertently or because of cheese-paring. I will be interested to hear what the Treasury arithmetic is on all this. The first-round consequence of reducing a rate of tax may well be to reduce the amount of tax collected, but the second or third-round consequence of a more favourable capital gains tax regime may well be to generate more revenue. That would have been my conclusion had the then Chancellor reduced the overall rate, leaving in place the more favourable rates for enterprise. However, there is a danger that the disincentive effect of the cheese-paring with the smaller enterprise rates will offset the possible good effects of the lower overall rate, so that the estimates that we might otherwise have had of rising revenue from greater success will be nipped in the bud or we will find ourselves short-changed. I hope that in responding the Minister will understand that we are, as the Government were prior to this reform, very keen on these promotional measures, particularly for employee shares, which can be extremely important. I would like her to share some of the thinking about the arithmetic behind these measures. There is always the danger that a crude concentration on first-round effects to try to offset revenue loss will do much more damage in the medium to long term because it will limit growth in the British economy and limit the growth of any smaller companies, and we will end up with less revenue.