Good morning, Mr Chope. What a pleasure it is to be back at the apex of our national debate on financial matters.

It is an honour to have the opportunity to talk about Clause 11, which refers to the financing costs and income of group companies. Hon. Members will be aware that the worldwide debt cap rules came into effect on 1 January 2010. They overhaul the taxation of multinationals, restricting the UK tax deduction for interest costs of UK companies that form part of a large group. Broadly, the purpose of the rules is to ensure that the aggregate UK corporation tax deductions for financing costs do not exceed a group’s external financing costs on a worldwide basis. As far as I can tell, the rules are primarily aimed at cash-rich, non-UK parented groups that fund their UK operations via debt, and UK-parented groups with upstream loans into the UK from overseas subsidiaries. Of course, as with many changes, other groups of companies may also be affected.

Specialist lawyers and accountants have pointed out that the debt cap rules will result in additional administration, or perhaps a significant change in tax costs for many large groups, although, quite rightly, it is a measure designed to guard against excessive debt funding of UK companies. Obviously, the measure was framed and devised when we were under a different Administration—a happier Administration under which the sun tended to shine far more frequently than it does today.

The application of the rules can be complex. I am told that the basic working of the debt cap remains unaltered from the 2009 changes. As I said, the changes take effect from the beginning of the calendar year, which is the start date for the debt cap rules as a whole.

The clause makes about 14 separate changes to the worldwide debt cap rules, perhaps the most important of which is the new addition to the proposal of a gateway test. In essence, if a group passes the gateway test, it will not suffer any restriction of interest expense due to the debt cap, and it will not have to prepare debt cap calculations. The gateway is passed when the net debt of the UK-resident members of the group is less than 75% of the group’s worldwide gross debt. However, the gateway test is limited in its application. For instance, it is unlikely to exempt wholly UK groups with intra-group debt from the rules.

Further changes are made in the clause, such as ensuring that when a UK figure is being compared with a worldwide figure, the same amount is included in both figures in respect of the same borrowing. There are exclusions for certain securitisation companies. Another change ensures that long-term arrangements that have the economic effect of loans are taken into account for the gateway test. Those arrangements have been made in the clause as well.

I understand that there are specific arrangements for industrial and provident societies, which are of particular interest to me. From my perspective, they are companies that the Treasury should encourage and support. Will the Minster tell the Committee what those differential arrangements for industrial and provident societies will be? As a Labour and Co-operative Member, I am particularly interested in those, and other Members might be similarly interested.

I gather that all but one of the rules will apply retrospectively, and issues always crop up when legislation applies retrospectively. Schedule 5, which is linked to the clause, contains a lot of detail. I will not dwell on the Government amendments to schedule 5, but they might address the concerns raised by organisations such as Deloitte, which is concerned that the amendments proposed under clause 11 and schedule 5 offer only a partial solution. Deloitte has been disappointed that Her Majesty’s Revenue and Customs has not addressed what it regards as some of the consequential issues regarding the retrospective nature of the legislation. What further areas of improvement might the Minister consider for future finance legislation, because the Government amendments might not deal with all the concerns that Deloitte has raised?

Given that the measure represents significant tax changes, I wonder whether there has been a regulatory assessment of the accountancy and legal advice costs to the affected companies. On balance, the changes are probably favourable rather than burdensome but, setting aside the net tax impact of the changes, company treasurers and directors of finance are bound to face a steep learning curve, so I wonder whether the provision has undergone a regulatory impact assessment, as used to be the case under the previous Administration.

Will the Minister consider passive income, which is when multinational foreign subsidiaries generate income from assets that are—arguably—UK assets, but are artificially located offshore for tax reasons? We are discussing the global movement of capital, and many of our constituents who have written to us recently about tax changes and tax avoidance in general might not know the intricacies of such arrangements. Whenever offshore tax sheltering is raised, however, they are interested. There might be a loophole here that the Treasury has considered in the past, and I should be grateful if the Minister sets out the thought he has given to targeting passive income.

My final question for the Minister concerns whether financial services groups are to be excluded from the debt cap rules. I understand that HMRC has accepted that the proposed legislation would be “unworkable” in respect of financial services companies. That raises an eyebrow, however, because if it is unworkable for one set of companies and in one set of circumstances, why is it not so for others? There was a rumour or suggestion—I do not know where I picked this up from—that there might be another attempt to produce legislation to  bring financial services groups into the debt cap rules. If so, when will that happen? Is such a measure likely to crop up as early as Report, or will it be for general future legislation?