The Opposition broadly welcome clause 31 and its underlying intention. The additional anti-avoidance provisions in subsections (1) to (3) do not appear to cause any obvious problems and none have been brought to my attention. The further tweaks to the anti-avoidance regime provided in Government amendments Nos. 79 to 81 broadly appear to hit an appropriate target, so we will not be opposing those.

The relief granted by subsections (5) and (6) is welcome as far as it goes. I tabled amendment No. 83 to highlight a concern relating to the extent of the relief that those subsections provide.

Subsections (5) and (6) are aimed at correcting a problem with the anti-avoidance rules introduced by section 70 of the Finance Act 2006, which inserted sections 184A to 184F of the Taxation of Chargeable Gains Act 1992. An incidental effect of those rules was that they caught groups that had crystallised losses via de-grouping transactions taking place prior to the announcement of the 2006 Act measures in December 2005. Such de-grouping transactions are undoubtedly controversial, but they were considered acceptable at that time. The legislation could thus have operated retroactively to apply to transactions already undertaken prior to the announcement of the new measures.

Transitional measures were therefore included in the 2006 Act to prevent the rules from operating in that way and having that retroactive effect. In particular, the transitional arrangements were intended to cover the technique in use before December 2005 that allowed a group to crystallise loss on an asset that had fallen in value without actually selling the asset.

However, those transitional rules have since proved to be unduly restrictive. They included the condition that company B, which left the group as part of the relevant crystallising transaction, had to continue to be controlled by the principal company of the group that it had left. That denied relief under the transitional provisions in a number of cases, including when the company leaving the group had been sold to another group in an ordinary commercial transaction. It also denied relief where the company in question had been liquidated.

Another situation that was excluded from transitional relief was where the principal company of the original group was taken over or involved in a merger. Clause 31 amends the transitional arrangements in the 2006 Act so that they provide relief in a wider range of circumstances. They appear to be effective in extending the transitional  provisions in the 2006 Act to capital losses crystallised prior to December 2005, and the Opposition broadly welcome that move.

However, it had been expected that the extension of the transitional arrangements and the relief that they provide would allow relief in all affected cases since December 2005. Instead, clause 31(9) provides that the relaxation of the rules takes place with effect only from 21 March 2007. Therefore, any gains realised between 5 December 2005 and 20 March 2007 will not receive relief under clause 31.

Amendment No. 83 would remedy that problem by providing that the changes made in subsections (5) and (6) of clause 31 applied in relation to disposals made on or after 5 December 2005, rather than just to those made on or after 21 March 2007.

I shall refer to an example that would be an issue in these circumstances. A group entered into a crystallising transaction prior to 5 December 2005, with the result that company B within the group carried a loss. The group then made a capital gain between 5 December 2005 and 20 March 2007. Clause 31 would not allow the group to use the losses crystallised in company B to offset that gain, because it occurred prior to the implementation of the relaxation of the transitional arrangements. Amendment No. 83 would permit the crystallised losses to be used in relation to gains after 5 December 2005, rather than only those made after 20 March 2007.

I acknowledge that that is not a wide-ranging point—only a few companies would be affected—but it would be useful if the Minister considered whether the relief granted by the clause should be extended in the very limited way proposed by amendment No. 83.

I would like to make a further point on the clause and add a few final words on the amendment of section 184B of the Finance Act 2006. The Opposition believe that it would have been useful to have further clarification in statute of the test set out in subsection (1)(c) of section 184B regarding the main purpose, or one of the main purposes, of the relevant arrangement. We had an extensive debate on the main purpose test this morning, and I highlight the matter only to indicate yet another context where the test is used and questions must be answered.

I recall, in particular, that the Economic Secretary indicated that the Opposition had never previously raised concerns about the main purpose test, but I recall my hon. Friend the Member for Wycombe having raised similar concerns on the main purpose test last year, and I believe that it may have been considered on other occasions. The test is of concern to the Opposition. We see that in this context, just as we saw it in the context of this morning’s discussion.