Clause 54 - Trading profits etc. from securities: taxation of amounts taken to reserves
Finance Bill (except clauses 4, 5, 20, 28, 57 to 77, 86, 111 and 282 to 289, and schedules 1, 3, 11, 12, 21 and 37 to 39)
3:15 pm
Mr Quentin Davies (Grantham and Stamford, Conservative)
My hon. Friend shows what a good Chief Secretary he will be. He is already concerned about the revenues of the Inland Revenue and, with his usual expertise and insight, immediately puts his finger on a potential loss of revenue that the Government apparently have not even considered. That was a very valuable contribution to our debate. I hope that his question will be subsumed in mine and we shall get an answer to that from the Economic Secretary if we get an answer to nothing else.
Debt equities concern Governments, too; they have been a feature of the restructuring of the debt of third-world countries. I thought that there was a consensus in the House in favour of restructuring the debt of over-indebted, poor and developing countries. If bank X holds several billion dollars' worth of the loans of a highly indebted country and is prepared to swap them into shares in privatised utilities in those countries, why should we introduce into our tax system a disincentive or barrier to that? We should be told whether the clause introduces such a disincentive.
Another aspect of the matter is securitisation. Subsection (4)(b) makes it clear that loan relationships are excluded. Therefore, if a bank has advanced a loan, that has nothing to do with this issue. However, it might decide to securitise the loan, and to hold some of the resulting loan in the form of debt securities and sell others of those debt securities to other institutions. Would it, by dint of that transformation, change against its interests or, as my hon. Friend suggested, in its interests and against the interests of the Inland Revenue? Would it change the tax nature, the tax treatment or the taxability of what is actually the same economic reality—an underlying debt asset, a debt instrument held by a bank? That would be perverse, and certainly contrary to any economic rationality. I should like an assurance that that is not the effect of the clause.
Perhaps my last two points are connected. There is often a considerable secondary market in the debt of countries that have a dubious credit rating, the value of whose debt is volatile. Take Argentina or Brazil: it is amazing how the value of their debt goes up and down. Sometimes it is quoted at a discount of 50 per cent. or 30 per cent., and sometimes it is 20 per cent. It can go all over the place. Substantial amounts of apparent trading profit could be created if there were to be the slightly perverse implementation of the clause which I fear, and in such circumstances considerable differences could be made to the tax position of a bank as a result of securitisation.
Those are some of the questions that arise from the clause, and I should be grateful for a sober, calm, reasoned, informative and helpful response.