Clause 56 - Community investment tax relief

Finance Bill – in a Public Bill Committee at 10:00 am on 23rd May 2002.

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Photo of Mr Howard Flight Mr Howard Flight Conservative, Arundel and South Downs 10:00 am, 23rd May 2002

I beg to move amendment No. 28, in page 38, leave out from beginning of line 39 to end of line 9 on page 39 and add—

'(3) Schedules 16 and 17 shall come into force on 1st April 2002.

(4) For the purposes of subsection (3), Schedule 16 shall have effect in relation to—

(a) investments made on or after 17th April 2002, and

(b) claims made in a year of assessment ending on or after 17th April 2002.

(5) For the purposes of subsection (3), Schedule 17 shall have effect so that—

(a) paragraphs 2 to 4 shall have effect for years of assessment ending on or after17th April 2002, and

(b) paragraph 5 of Schedule 17 shall have effect for accounting periods endingon or after that day.'.

The amendment addresses the same issue as has been raised previously. It would commence the community investment tax with the provisions on 17 April 2002, rather than a day to be appointed in the future. Perhaps it is for the same EU reasons that a day has not been specified, but we should like to understand the Government's thinking.

Photo of Mr Paul Boateng Mr Paul Boateng Financial Secretary, HM Treasury, The Financial Secretary to the Treasury 10:15 am, 23rd May 2002

The clause introduces the community investment tax credit, which is a tax incentive to increase the flow of private investment in disadvantaged communities. The incentive is one of the Government's responses to recommendations by the social investment taskforce, which reported to the Chancellor in October 2000. We are enormously indebted to Ronnie Cohen and others on the taskforce for the work that they have done, which has enabled us to introduce measures in this way. The aim is to increase the supply to communities of development finance, which should act to stimulate enterprise, boost employment and reduce social exclusion. We want to target not only a wide range of businesses but the social enterprises that can play such an important part in providing premises and other facilities to under-invested communities.

Existing community development financial institutions are a vital connection between capital markets and enterprises in disadvantaged areas. They act as intermediaries channelling capital to enterprises that are too small or not sufficiently mainstream to be financed from the usual sources. CDFIs themselves can face difficulties in gaining access to capital: a failure that the community investment tax credit is designed to address. The hon. Gentleman's amendment is designed to probe why we have introduced the measure in the way that we propose, and would bring the legislation into force from 1 April.

For similar reasons to those that I gave the Committee to reject the hon. Gentleman's last amendment, I urge them to reject this one. We have drafted regulations dealing with CDFI accreditation, which have been published by the Small Business Service. Comments on those and supporting administrative processes have been invited, and the use of an appointed day order will give us the opportunity to consider fully any emerging points before the scheme is introduced. Because of the way that the taskforce went about its work, which was rooted in the experience of the venture capital industry that helped us develop the proposal, one of the great strengths of the scheme is that at every stage we have moved with the full support and involvement of the industry and those who are being supported and encouraged in making investment decisions that will benefit them and the wider community.

Photo of Mark Hoban Mark Hoban Conservative, Fareham

There was an announcement in the Financial Times last week or the previous week that indicated that the Treasury had

invested £20 million alongside a further £20 million from the venture capital sector, including Apax which is chaired by Sir Ronald Cohen. Is that funding intended to go into a CDFI, or is it additional funding?

Photo of Mr Paul Boateng Mr Paul Boateng Financial Secretary, HM Treasury, The Financial Secretary to the Treasury

I will come to the hon. Gentleman's specific point in a moment because there are several initiatives in that area, including the Phoenix fund, and I do not want inadvertently to mislead the Committee in terms of where the funds are going. This particular proposal stands on its own merits, irrespective of any identified funds that might be used in such a way. I will get back to the hon. Gentleman on that specific tranche of resource.

We are anxious to ensure that we take into account the representations made by business concerning the accreditation regulations. I do not want us to be inhibited in that by being required—as we would be—to bring the tax credit into immediate effect. We are in the course of discussions with the European Commission on state aid issues before the legislation comes into effect. I want to be confident that we have secured that before bringing the clause into effect, as I was on the previous occasion.

It is important that we have a dialogue with the Commission, not least because in relation to the rest of Europe we have an opportunity to lead the way in the development of disadvantaged areas through partnership with the private sector. I want to ensure that the Commission is on board and supportive, and that our proposals can be emulated elsewhere in the European Union. We are confident of a positive outcome, but the discussions must take place.

The hon. Member for Fareham (Mr. Hoban) raised a point about the specific fund and, although I have a different sum, I think he was referring to the Bridges community development venture fund, which was launched by my right hon. Friend the Chancellor and my right hon. Friend the Secretary of State for Trade and Industry on 14 May. That £40 million fund aims to address market failure in the provision of venture capital to deprived areas. It complements the measure by providing larger amounts of equity capital to businesses with high growth potential suitable for venture capital investment.

The Phoenix fund is a £96 million fund run by the Small Business Service, which invests in organisations working to provide better access to business support and finance in deprived areas. Some of that supports capacity building in the CDFI sector and, again, the CITC will help to capitalise that.

With that assurance, I hope that the Committee will give the clause a fair wind. It is an exciting development, linking the combating of social exclusion with the promotion of enterprise in some of our most disadvantaged areas.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

Can my right hon. Friend the Financial Secretary say whether the clause and schedule apply to co-operatives and credit unions, which I and many Labour Members are keen to encourage?

Mr. Boateng: We are taking a range of other measures specifically to support co-operatives and credit unions, in which my hon. Friend the Economic Secretary takes a particular interest. It would certainly be open to the Co-operative bank, other co-operative societies and credit unions that hold resources in this area to participate in this initiative when they have brought their specific proposals within the general accreditation rules. The provision is not aimed specifically at co-ops and credit unions, but, subject to the accreditation rules, they will be able to participate. My hon. Friend the Economic Secretary is working with the co-operative movement and credit unions on a number of specific initiatives that will assist them and other mutuals.

Photo of Mr Howard Flight Mr Howard Flight Conservative, Arundel and South Downs

I thank the Minister for his explanation. When the provisions covering CDFIs are put into effect, I am sure that the Government will make it clear in any announcement that these are not new or additional provisions, but the final implementation of proposals in the Budget.

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 56 ordered to stand part of the Bill.