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

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

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Photo of Rachel Reeves Rachel Reeves Shadow Chief Secretary to the Treasury 6:45 pm, 12th June 2012

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?