It is a pleasure to serve under your chairmanship, Mr Chope.

I am grateful for the various questions that have been raised by the hon. Member for Nottingham East. They ranged broadly over the debt cap and concerned Clause 11 and schedule 5, both of which I hope to address in my remarks, although we will deal with the Government amendments in a separate debate.

Clause 11 introduces schedule 5, which makes a number of changes to the worldwide debt cap legislation that was introduced last year. The basic working of the debt cap rules remains unaltered by such changes. The consultation with businesses and their advisers identified a number of situations in which the debt cap rules do not easily apply. The amendments made by the Bill can be divided into four main categories: to address mismatches between the worldwide and the UK measure of the same debt; to address the effect of the debt cap on securitisation companies; to deal with transactions that have the economic effect of loans but are not lending; and some miscellaneous, minor changes. The amendments will have effect from 1 January 2010, which was the start date of the debt cap rules. They are a response to ongoing consultation with a working group of interested parties and separate discussions with the private finance initiative industry.

I shall go through the schedule in more detail. Paragraphs 3 to 7 set out changes to the gateway test to which the hon. Gentleman referred. It is the initial calculation undertaken by the worldwide group each year to establish whether the debt cap rules apply. The main changes are the inclusion of financial arrangements that provide a return that is economically equivalent to interest and the exclusion of share capital. Paragraph 7 of the schedule removes a mismatch when different amounts are taken into account for the same liability by the worldwide group and a United Kingdom company. Paragraphs 8 and 9 amend the qualifying financial services group exemption and clarify the meaning of “financial instrument”. Paragraph 12 defines a group securitisation company and is one of the amendments that work to exclude securitisation companies from main debt cap rules.

Dual-resident investing companies are dealt with under paragraphs 13 to 16. Such companies are prevented from surrendering losses as group relief, and restricting the debt cap disallowance prevents them from using the disallowance to replicate the effects of group relief. The Amendment in the schedule prevents the group from voluntarily allocating a disallowance to a dual-resident investing company and ensures that a default allocation is made first to other group companies. Paragraphs 18 and 19 include as financing income guarantee fees paid or imputed between companies. Guarantee fees are already included as a financing expense. Paragraph 21 amends the test for group treasury companies so that it applies to each company separately rather than to the financing income of the companies that is being aggregated.

Paragraph 22 prevents certain distributions of profit by industrial and provident societies from being treated as financing expense or income. Paragraph 23 removes  a regulation-making power concerned with short-term debt, which was not practicable because it did not set up machinery to govern its use. Paragraph 24 adds relevant public bodies to those excluded from the debt cap rules. Paragraph 25 provides a new regulation-making power to amend the calculation of the tested expense or tested income amount if there is a mismatch between the accounts amount and the tax amount. Paragraph 26 clarifies the meaning of ancillary expenses in the available amount. The computation of the available amount is amended by paragraph 27, which excludes securitisation companies from the worldwide group while dealing with mismatches on interest and costs paid by a member of the worldwide group that is also a partner in a partnership.

Paragraph 28 provides a new regulation-making power to amend the available amount if there is a mismatch between the accounts amount and the tax amount. We shall return to that issue under the next group of amendments. Paragraph 30 excludes as the ultimate parent of a worldwide group limited liability partnerships and some collective investment schemes. Paragraph 31 amends the definitions of “UK group company” and “relevant group company” to accommodate securitisation companies. Paragraph 33 deals with companies that are party to capital market arrangements. It provides a regulation-making power so that such a company can jointly elect with another company to transfer its tax liability.

Paragraphs 36 and 37 provide that the commencement date for the amendments is 1 January 2010. Regulations made under the powers in paragraph 33 can apply only to tax liabilities due and payable after Royal Assent. A group may elect that certain amendments to the gateway test apply only prospectively. I hope that it was of help to the Committee for me to provide an outline of the schedule.

I turn now to some of the questions asked by the hon. Member for Nottingham East, such as whether any thought has been given to targeting passive income. It is worth highlighting the fact that the Government are looking more broadly at corporation tax reform. Later in the autumn, we will publish further details on possible areas of its reform. We might look at that among our consideration of many issues, and any further changes will be considered as part of that wider corporation tax reform programme. I note his concerns, and he will be aware that the Government are keen to reduce avoidance at every opportunity.

The hon. Gentleman also raised the issue of financial groups not being part of the debt cap rules. There are no plans to make further changes this year, but we will keep the matter under review. There is an issue with financial services companies and interest, because of course interest is part of what they do, as opposed to being merely a means of financing their own business. That is why there have always been particular complications in that area. As I have said, we do not intend to make any changes at the moment, but we will keep the matter under review.