Schedule 16
Finance Bill
5:45 pm
Vincent Cable (Shadow Chancellor, Treasury; Twickenham, Liberal Democrat)
This is my first contribution to the work of the Committee. It is a tribute to the excellence and stamina of my hon. Friend the Member for Falmouth and Camborne that we have not had to make more use of those on the substitute’s bench.
These are probing amendments. Our understanding is that there is at present a restriction on the size of companies—from 250 to 500 employees—that can take advantage of the reliefs, and that the Government are imposing this restriction because of limitations set by the European state aid rules. In essence, the purpose of the amendments is to try to establish the Government’s thinking behind the legislation.
The state aid rules are summarised in a set of guidelines that were produced last year, “Community guidelines on state aid to promote risk capital investments in small and medium-sized enterprises”. We understand that the Government must comply with the rules, but we have some questions about them.
A quick reading of the European guidance suggests that Governments have a fair degree of flexibility in interpreting the rules. The first question is why the Government have interpreted the provision in such a restrictive way. Many medium-sized companies will be removed from the provisions on venture capital because of this legislation. Could the Minister explain why he had to interpret the European rules in this way?
It appears that the Government have set the maximum restriction, with a number of employees—50—that is below the present level. On the other hand, it appears that the number of employees has increased for R and D tax credits, which are also governed by European state aid rules. We are trying to understand why the rules should be interpreted in a particularly permissive way for R and D tax credits but in a more restrictive way for venture capital.
The Institute of Chartered Accountants in England and Wales is particularly perturbed by this measure because its judgment, which is based on its research, is that venture capital measures are more helpful than the R and D tax credit in encouraging innovation by this group of companies. The institute cannot understand why the Government have apparently moved in the opposite direction. They have reduced the range from 250, which is the normal threshold for medium-sized companies, to 50, which is the threshold for small companies. What in the guidelines required the Government to make that shift for these provisions but not for the R and D tax credits?
There may be perfectly good legal reasons for the wording in the schedule. We understand that the Government have to comply with the guidelines, but, given that the rules offer some flexibility, we wish to find out from the Minister why he has interpreted them in this way.