Clause 49

Finance Bill – in a Public Bill Committee at 5:45 pm on 22nd May 2007.

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Research and development tax relief: definition of SME etc

Question proposed, That the clause stand part of the Bill.

Photo of Adam Afriyie Adam Afriyie Conservative, Windsor

I had not wished to speak on this occasion, but I want to re-emphasise the point that we have a great opportunity in this clause to denominate in sterling, not in euros. I did not find the Financial  Secretary’s previous answer in any way satisfactory or reassuring, given the hundreds and possibly thousands of businesses that will be at those thresholds. I wonder whether he can reflect a little longer and give a reasoned answer as to why we are denominating in euros rather than in sterling, which seems to cover every other aspect of the Bill. I understand tradition and convention, but will he give a clear answer as to why he wants to perpetuate that uncertainty for those businesses?

Photo of John Healey John Healey The Financial Secretary to the Treasury

If the hon. Gentleman studies the provisions covering the research and development tax reliefs and the vaccine research relief, he will see that some of the qualifying criteria that we use for companies are established at the European level. As he will appreciate, not only do we have to take into account the size of a company, based on the definitions of small or medium-sized companies and large companies, but, where turnover or similar criteria or tests apply, we have to use the European set standard, which is denominated in euros.

The reason we have to take account of those criteria is that, in order to put in place a tax relief system such as the one that we have for research and development, it must receive clearance under the state aid rules. In other words, we are restricted in our ability to introduce direct support to firms for particular activities and policy purposes in the UK, in order to ensure that it is consistent with state aid rules. That is the established process within the European Union, to which we signed up as part of our membership of the Union and the single market. Where the European Commission exercises its judgment in setting criteria, it denominates in euros. We have transferred that approach into our domestic legislation, and have done so from the start.

As I said on clause 48, we are making what are, in essence, minor or technical amendments to the operation of the tax reliefs. Therefore, it is not appropriate to revisit questions about the integral design of the approach that we have established for R and D tax relief since 2000.

Question put and agreed to.

Clause 49 ordered to stand part of the Bill.

Clause 50 ordered to stand part of the Bill.