Clause 28 and schedule 9 are technically detailed. Before dealing with the arcane details of company law and what constitutes ordinary and preference shares under schedule 9, I want to speak briefly to clause stand part and to establish some of the background to the measure.
As I understand it, the clause has been triggered by the financial crisis seen in the banking sector in the past 18 months. A ministerial statement in December last year flagged up the change to group relief and preference shares, saying that
The first proposed legislative change will better identify who are the real equity holders in a business, for group tax purposes. This change to the group tax rules will apply to all companies. In particular, when banks and other financial institutions issue certain preference shares in order to boost their Tier 1 capital base in the form approved by financial regulators this change will ensure that their existing group structure, for tax purposes, is not broken. These preference shares are shares that carry a right to a fixed dividend or a dividend at a fixed rate, but in order to satisfy the regulatory requirements the issuer may have the right to pay a lower dividend in certain circumstances.
Schedule 9 deals with those circumstances.
The change will mean that such preference shareholders will no longer be treated as equity holders for group tax purposes solely because that regulatory requirement is met. My understanding is that the Government want to enable groups to claim group relief when banks issue preference shares to shore up their tier 1 capital, even if those preference shares do not meet the classic fixed-rate definition. The written ministerial statement said that the changes
will apply retrospectively for accounting periods beginning on or after 1 January 2008.[Official Report, 18 December 2008; Vol. 485, c. 126-127WS.]
I would like to make some more detailed comments on the schedule, but I would be grateful if the Minister could confirm that that statement is the genesis of schedule 9 and that the change relates not only to the financial crisis, but to broader issues around the definition of shared capital.