Schedule 16 - Community investment tax rlief
Finance Bill
10:15 am
Mr Michael Jack (Fylde, Conservative)
I should like to ask the Financial Secretary a number of questions, but I want to say at the outset that I welcome anything that brings investment into what are defined in schedules 16 and 17 as ''disadvantaged areas''.
Paragraph 1 of schedule 16 refers to ''An individual or company'' and I am pleased that the schedule recognises the role of the individual investor. Forgive me if I have misunderstood, but it seems that an individual who wishes to take advantage of the relief can do so only by routing their investment through an approved institution. I should like to know why an individual who may want to make a personal investment into the sort of enterprise that is approved under schedules 16 and 17 might not do so in a straight line--that is, by putting the money into the activity rather than routing it through a financial intermediary. I may have misunderstood and perhaps the Financial Secretary can enlighten me.
I now turn to paragraph 4(2) of schedule 16, in which the phrase ''disadvantaged communities'' is first used. Again, I apologise if I have missed a point in this long and detailed schedule, but what is the definition of ''disadvantaged communities''? I ask that question because within potentially affluent areas there may be communities that are extremely disadvantaged which could benefit from the community-strengthening institutions that are to be invested in, which is one of the purposes of the measure.
The way in which the schedule is drafted gives it an urban feel, but what about rural disadvantaged areas? I am delighted that the body language of the Financial Secretary conveys that rural Britain may also benefit. When he replies, will he explain the definition because European Union schemes to help disadvantaged areas already have delineated zones. The Minister will be aware that there are often fearsome brushfire wars in the Government over where the boundaries of those zones are to be drawn. Changes have taken place since that was last done, and it is important that we have some indication of what disadvantaged areas are. Has the matter been settled, or can it be debated later?
Paragraph 5(3)(a) states that provision can be made by regulation
''for appeals to the Special Commissioners against refusals to grant accreditation''.
It is good that there is an appeals mechanism, but the idea that the provisions are so complex and so difficult that those involved in certain schemes will end up at a special commission hearing makes me question
whether the Treasury or the Government will give us a simple, easy-to-understand explanation that prevents people from taking advantage of sub-paragraph (3)(a). How will the intention be communicated to the investing community?
Paragraph 7 draws our attention to the fact that an
''accreditation has effect for a period of three years beginning on such day as may be specified''.
A project may last longer than three years, however, and my hon. Friend the Member for Arundel and South Downs referred to renewal. I should be grateful if the Financial Secretary would say a word or two about those who invest in, for example, a five-year regeneration project, but where the accreditation, in the initial sense, will last for only three years. If such projects are okay for the first three years and do the same thing in the last two years, would it not be sensible to have a little more flexibility and to proceed project by project, rather than having a fixed five-year period?
I am glad that the hon. Member for Wolverhampton, South-West (Rob Marris) mentioned credit unions and other micro-financial institutions at the community level, because my attention had been drawn to them by paragraph 8. I was delighted when the Financial Secretary said that the Economic Secretary was working on the issue, because those responsible may not want to fund community-based financial institutions through a loan security or a share.
Paragraph 13 is headed ''Pre-arranged protection against risks'' and makes it clear that projects will not be assisted if someone takes out cover against financial failure. The Financial Secretary made an interesting point, however, when he put the issue in a European context. Projects might attract finance from outside the United Kingdom, and it would not be unrealistic for those who provide the money to have a hedging arrangement to cover the financial risk involved in the currency transaction. Would such risk cover prevent a project from being agreed, given that it relates to a different kind of risk, involving a currency element? It would also be interesting to know how the European funds accessed by some projects might be treated under the proposals.
Paragraph 19(4) in part 5 contains words that need a little teasing out. It states:
''The investor is entitled to make a claim for relief for a relevant tax year if--
(a) it appears to him that the conditions for the relief are for the time being satisfied''.
That is an interesting formulation, because it implies that those on both sides of the equation could decide that the conditions were not satisfied. There will be uncertainty if an inspector comes along and says, ''I know that this was a flexible project, but you're not doing what you set out to do.'' Will the Financial Secretary sketch in how the test of whether the conditions are
''for the time being satisfied''
will operate? People would like to think that they will not be subject to all kinds of review once they have gone to the trouble of proving that the scheme is eligible for the three years, as set out in the Bill. I might
be exaggerating the import of those words, but some words of comfort from the Financial Secretary would be helpful.
I have a final, general, point. The measure restricts the amount of investment in residential accommodation that can be assisted—in fact, it expressly excludes it. I could hear business expansion scheme bells ringing loudly in the Treasury when that was drafted. It goes on to restrict the proportion of money that can be invested in property development and commercial property. That is an important area for clarification. In run-down inner-city areas, it is often property-based activity that generates extra economic activity. I am worried that the understandable caution of the Treasury, which previously had its fingers burned by venture-based activity such as business expansion, might be unnecessarily restrictive when property matters are considered.
It is a little disappointing that residential accommodation has also been eliminated. In either an urban or a rural situation, the generation of low-cost social housing might be the route to developing an area and to encouraging the kind of institutional development that the measure seeks to encourage, but which is now expressly excluded. Would the Financial Secretary be kind enough to enlighten us on how this part of the measure is to operate?