Clause 32 - Group relief: meaning of “normal commercial loan”

Finance Bill – in a Public Bill Committee at 6:45 pm on 12th June 2012.

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

Photo of Rachel Reeves Rachel Reeves Shadow Chief Secretary to the Treasury

Clause 32 extends the definition of “normal commercial loan” to include loans that carry a right to conversion into shares or securities in quoted companies that are not connected to the company issuing the loan. I understand that that means that the group status of the company will not be affected if it issues that type of loan, because the holders of such loans are not considered to hold equity in the issuing company.

I have some specific questions for the Minister. First, will the change in definition have any knock-on effects for the commercial banking sector, and any impact on consumers, both individuals and small businesses, who take out loans as a matter of course? I presume the answer is no, but I would appreciate clarification on that point.

Secondly, if the holders of the loans covered by the clause will not be treated as equity holders, does that have any implications for the amount of risk that they hold and therefore the cost of the loans? Thirdly, will the Minister enlighten hon. Members as to how many such loans are made annually? What impact is clause 32 likely to have on the number of loans issued? Fourthly,  what are the revenue implications of clause 32 and, specifically, what types of business are most likely to be affected in terms of both the size and the type of business they conduct?

Photo of Peter Bone Peter Bone Conservative, Wellingborough

Did you wish to speak, Mr Hamilton?

Photo of Fabian Hamilton Fabian Hamilton Labour, Leeds North East

I think, Mr Bone, that I have perhaps made the points that I wanted to raise.

Photo of Mark Hoban Mark Hoban The Financial Secretary to the Treasury

This is quite a helpful clause. It is not meant to tackle evasion or some loophole. It is meant to encourage different forms of lending and to enable a situation where a lender can choose, rather than having their debt repaid in cash, to have it repaid through the issue of share capital. That is quite helpful, particularly given some of the challenges that businesses face in achieving funding. The current rules work against that in the sense that there is a risk that the issuing company may be de-grouped as a consequence of somebody else having a beneficial right to those profits. This is facilitating finance rather than working against the interests of businesses.

As the hon. Lady rightly suggested, the answer to her first question is no. With her second question she raised the capital treatment of this in the context of Basel II and then clearly Basel III and CRD4. With your agreement, Mr Bone, I will write to the hon. Lady on this. It is a technical, complex point, and I would want to come back on that. Her third question was whether this will help business. I think it will. I do not believe it will have an adverse impact on other groups. The tax impact note suggests that there is no adverse impact on small businesses. I think potentially it will help businesses. I think it will help to improve administrative processes, for example, for the issuer. It makes it easier to enter into this sort of loan agreement. It has no revenue implications and the tax impact note makes that point. I think it is a measure to be welcomed, which I think is the spirit in which she engaged in scrutiny of this clause.

Question put and agreed to.

Clause 32 according ordered to stand part of the Bill.

Ordered, That further considered be now adjourned.—(Greg Hands.)

Adjourned till Thursday 14 June at Nine o’clock.