Schedule 33 - Venture capital trusts

Finance Bill – in a Public Bill Committee at 11:45 am on 18th June 2002.

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Photo of Mr Howard Flight Mr Howard Flight Conservative, Arundel and South Downs 11:45 am, 18th June 2002

I beg to move amendment No. 233, in page 459, line 29, after ''company'', insert—

''(irrespective of whether some or all of those shares are retained or cancelled)''.

Photo of Joe Benton Joe Benton Labour, Bootle

With this it will be convenient to take the following amendments: No. 234, in page 459, line 38, after ''company'', insert—

''(irrespective of whether some or all of those shares are retained or cancelled)''.

No. 235, in page 459, line 40, at end insert—

''(2A) For the purposes of this Part of this Schedule there is also a merger of two companies (''the merging companies'') if—

(a) each merging company issues shares to members of the other merging company, and

(b) the shares issued to the members of each merging company are issued—

(i) in exchange for their shares in that company (irrespective of whether some or all of those shares are retained or cancelled), or

(ii) by way of consideration for a transfer to the company issuing the shares of the whole or part of the business of the other merging company.''.

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

I begin, with modesty, by saying that this measure is one thing in the Finance Bill that my representations over two or three years may have had some little hand in achieving.

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

I thank the Paymaster General.

My point is a small but important one. Venture capital trusts have been quite a useful, well-ordered and well-structured vehicle for getting money for new enterprises. I forget how long they have been going, but I think that it is about five years. It is inevitable that some have done well and some less well, that some are very viable and others have become less viable. As time goes by, there is an issue of how the whole matter is to be sorted out and tidied up. Not, I think, by intent, but in the original drafting, VCTs could not invest in the securities of other VCTs. Such investments were non-qualifying investments, so the natural market processes of mergers and takeovers was prevented. The time is now due for that to be able to happen and I greatly welcome the fact that clause 107 and schedule 33 address that issue.

The three amendments are not hugely fundamental to the main point, but seek to draw the definition of merger slightly more widely, to allow as many commercial situations in that territory to be covered as is reasonably possible. They would extend the fairly limited definition of merger in schedule 33(10) to cover situations where shares in one VCT may be cancelled or retained and where a merger arrangement involves both VCTs issuing shares to shareholders in the other VCT.

The Minister might say that the schedule as drafted intends to cover all forms of fair and reasonable restructuring, so I repeat that, while this is not a major point, it would be a pity, having got to this stage, not to cover all relevant reasonable situations for VCT restructuring.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

I congratulate the hon. Member for Arundel and South Downs on his tenacity in pursuing that point through various Finance Bills. Those who can affectionately cast back their minds to the Finance Act 2000 will recall the hon. Gentleman raising that point and the then Economic Secretary to the Treasury giving an undertaking that we would consider it. A working group was formed to look at the issue and come forward with proposals. There has been extensive discussion with the venture capital trust industry on providing for the arrangements in the clause.

Two routes have been provided, and the third route offered by the amendment was never raised in discussion by the industry. Quite late on, the Law Society of England and Wales proposed a third route, which the amendment follows, to achieve the intentions of the clause. The third route is not necessary and, to be honest with the hon. Gentleman, we have simply not had time to look carefully at the possibilities that it might provide. At the present time, I am more than a little nervous that inadvertent avoidance that was not intended in other interactions with the tax system might be possible.

I assure the hon. Gentleman that what the amendment seeks to provide is already provided. None the less, we will continue to look at that area to give the proposals proper consideration, but at this stage I am not prepared to amend the Bill when the routes are already provided. Given that he has been successful in the past by our allowing the Inland Revenue to go away and look at an amendment, I hope that on this occasion he will accept that we have not had time closely to look at the amendment, which we do not think is necessary. If he withdraws it, however, I shall certainly make sure that it is covered properly and that a detailed response is sent to the Law Society.

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

I thank the Paymaster General for her comments and I agree with what is provided, which would allow most venture capital trust consolidations of which I can think to occur. However, I am glad to hear her commitment that she and the Revenue will consider whether the issue is sufficiently material to address. On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Schedule 33 agreed to.