HC Deb 14 July 1981 vol 8 cc995-1001

'(1) Subject to the provisions of this section, shares subscribed for, issued to, held by or disposed of for an individual by a nominee shall be treated for the purposes of this Chapter as subscribed for, issued to, held by or disposed of by that individual.

(2) Section 51(1) above shall not apply where the amount is subscribed as nominee for an individual by the person or persons having the management of an investment fund approved for the purposes of this section by the Board ("the managers of an approved fund").

(3) Any shares issued to the managers of an approved fund as nominee for an individual shall he treated for the purposes of section 51(4) above as shares in respect of which relief has been claimed (whether or not claimed in fact).

(4) The managers of an approved fund may be treated for the purposes of section 51(5) and (6) above as the claimant in respect of shares issued to them as nominee for an individual.

(5) Section 61(1) above shall apply to the managers of an approved fund as it would apply to an individual if relief had been given to him in respect of the shares held for him as nominee by the managers (whether or not given in fact). '.—[Mr. Peter Rees.]

Brought up, and read the First time.

The Minister of State, Treasury (Mr. Peter Rees)

I beg to move, That the clause be read a Second time.

Mr. Deputy Speaker (Mr. Bryant Godman Irvine)

With this it will be convenient to discuss Government amendment No. 79, and amendment No. 81, in clause 51, page 40, line 9, at end insert 'Provided that where two or more individuals acting as a syndicate or through a broker or other intermediary subscribe for shares in two or more companies, the foregoing requirement of this subsection shall be deemed to be satisfied if the total amount subscribed by each individual is £1,000 or more and the total subscribed by them collectively for the shares of each company is also £1,000 or more, but so that the Board may make regulations under this section prescribing conditions subject to which this proviso shall operate'.

Mr. Rees

Amendment No. 79 is a paving amendment for the new clause.

During the debates in Standing Committee there was a keen debate on clause 51 and particularly on the lower limit of £1,000 which was set for any investment by an individual taxpayer. I explained to the Committee that it was purely administrative reasons that had led the Government to set that lower limit. Cogent arguments were deployed on both sides of the Committee. I particularly recall that of my hon. Friend the Member for Croydon, South (Sir W. Clark), the Opposition arguments and those of the Liberal Party. I cannot recall whether the Social Democratic Party contributed to that debate, but no doubt it did. I was persuaded by the merits of those arguments. I felt that the administrative convenience of the Inland Revenue—that is something that we should take into account—should take second place on this occassion to the advantage of enabling smaller investments to be made in business start-ups and to enjoy tax relief.

As a result, we have produced the new clause. In due course we shall reach Government amendment No. 80, which will reduce the lower limit from £1,000 to £500, which was the limit pressed on us in Standing Committee.

The new clause is, however, of a rather more specialised nature. It will abolish the lower limit where a taxpayer invests in a business start-up through an investment fund with a separate manager and trustee. It will enable such funds to be set up and to be professionally managed. They will be enabled to invest for the individual members of such a fund in a much wider range of start-ups.

I should emphasise, however, that, apart from the lower limit rule, the other rules which must be met by the individual taxpayer if he is to qualify for relief will still have to be met by him even though he invests through a fund. There are, however, two administrative provisions which will enable matters relating to the apportionment of reliefs to be determined between the Inland Revenue and the manager of the fund.

It will obviously be for the convenience not only of the Revenue but for the manager of the fund and the individual investor that those overall matters should be determined broadly without reference to the individual taxpayer, which I am sure will be for his convenience.

I believe that this will be a very useful enlargement of the range of provisions designed to encourage business start-ups. It will enable individual taxpayers to participate through professionally managed funds. I hope, therefore, that it will channel an increased flow of capital into business start-ups and generate increased business activity and, ultimately, new jobs.

On that basis, I commend the new clause and Government amendment No. 79.

Mr. Robert Sheldon

We look at the new clause with interest because, although we fully accept and welcome the hon. and learned Gentleman's revised view of what the lower limit for investment ought to be—from £1,000 to £500—which follows precisely the Opposition's amendment in Committee, we are a little anxious about some of the other aspects of it.

First, we welcome the business start-up scheme in so far as it will give money to new businesses. We believe that it has been heavily oversold by the Government. By comparison with recent bankruptcies that have arisen directly from the Government's policies, the damage being done to small businesses far outweighs anything that the Government can do to redeem the wrongs by such methods as this scheme. But, in so far as they assist small firms to get started with fresh funds, we welcome such schemes.

4.45 pm

The hon. and learned Gentleman has not dealt with the question of cost to the Revenue. I should think that that cost would be fairly sizeable, given the enthusiastic welcome that has been given to the new clause. We shall be starting a number of investment funds. The new clause will deal with "approved" funds. I should like to question the basis of the approval. How will these funds be approved? Who will vet and supervise them? Who will be responsible for this area?

We are dealing with a number of individual taxpayers who could be persuaded to part with considerable sums—considering that these new investment funds are a new form of popular savings. A number of schemes have been established in various parts of the country to make use of some people's redundancy money. A number of fraudulent cases have arisen, which can only cause dismay and regret to those who see such redundancies leading to the loss even of the redundancy pay of those concerned. This could become a very useful way for a number of less reputable firms and people banding together to obtain that kind of money. We shall need to have a number of provisions made to handle this part of this new problem. What is the Minister doing in that respect?

The original purpose was likely to be limited, as was set out by the original cost. How far has this cost increased as a result of the new clause, and what cost is attributable to the investment fund? I should have thought that if it is to warrant the new clause, it is likely to be very considerable. I know that this will be subject to large margins of error. Nevertheless, the Treasury must make this kind of estimate to be able to assess its importance and the cost to the Exchequer.

Sir William Clark (Croydon, South)

My hon. and learned Friend the Minister will recollect that we had a long debate on these matters in Standing Committee. I subsequently withdrew the amendment that I moved, on the assurance that my hon. and learned Friend would introduce something on Report. I am delighted, and I welcome the new clause.

The right hon. Member for Ashton-under-Lyne (Mr. Sheldon) said that the start-up scheme had been oversold. I do not think that the scheme has been sold sufficiently. Here we have an opportunity. I remind the House that this sort of tax concession is unique in the Western world. If we are to get business-moving again and to get our savers a little more business oriented, it is this sort of scheme which will spark off that additional investment.

I welcome the limit of £10,000, as the House does. But that is all very well for someone who has a lot of money to invest. If people have that sort of money, obviously they have at their fingertips the expertise, from accountants, advisers and so on, to see whether or not a small business is worth investing in. Those who receive redundancy money are in no position to decide upon the merits of the small business in which they may wish to invest. I am delighted that the Government have reduced the limit of investment from £1,000 to £500. My hon. and learned Friend will no doubt confirm my assumption that the minimum investment in the investment fund will be the £500 as mentioned in amendment No. 80.

Like the man with £10,000 who can obtain all the expertise he needs, even the small man should have the opportunity to invest in industry. I suggested in Committee that there should be some syndication whereby investors could band together and obtain a manager with the expertise to go into whatever business might be suitable. New clause 27 covers all the points that I tried to make.

I wish to discuss administration as it affects the Inland Revenue. If a small investor puts £500 directly into a small business it will put a tremendous burden on the Inland Revenue. At the end of the assessment year for that taxpayer an adjustment has to be made. There has to be an investigation to see whether it is a proper business. If, however, the money is channelled through an investment fund, as suggested in the new clause, the fund managers could easily give a certificate saying that the money invested had been reinvested in the businesses covered by the clauses dealing with the start-up scheme. I do not believe that the right hon. Member for Ashton-under-Lyne need have any qualms or worries about the investment funds. It is easy to introduce regulations to control the activities of the investment funds. They work well in relation to unit trusts. There need not be too much concern about fraudulent practice. I am sure that the Government will make certain that the investment funds are strictly controlled and regulated.

The administrative saving to the Inland Revenue will be a bonus. My hon. Friends and I are grateful to the Government for taking the advice given by Conservative Back Benchers in Committee.

Mr. D. N. Campbell-Savours (Workington)

I should like to add my support and approval for the changes made by the Government. I supported the principle of the business start-up scheme in Committee. We have now a fairly major additional concession which enhances the scheme in a major way. I should like to feel that if it appeared over the next few months that people were abusing the concession the Minister would come forward to make the necessary changes and would not wish to hide what had happened until next year's Budget Statement.

In such a novel scheme there must be dangers that have not been anticipated by the Treasury and the Government. We do not know what they are. However, in every society, there are those who wish to exploit the law whatever form it may take, particularly law approved in the best spirit of Parliament. I hope that the Minister will watch closely the progress of this major concession and that if at any stage there is cause for anxiety, he will return to the House to make the necessary changes so that the concession is not discredited.

I should like to think that this time next year, even if parts of the Budget Statement have been discredited, this part will not be one of them and that hon. Members will be proved correct in regarding this scheme as being of considerable importance to the business community.

Mr. Richard Page (Hertfordshire, South-West)

I add my welcome to this imaginative addition to an already imaginative and unique scheme. I wish it well. I believe that it will be a tremendous boost to the starting of new and innovative businesses. As my hon. and learned Friend the Minister said, it will immediately allow a spread of risk for the small investor, permitting him to participate. It is an ingenious means of getting round the £500 bottom limit.

Perhaps more important, I see the new clause bringing about the creation of what is, in effect, a marriage bureau where investors and entrepreneurs can come together, one with the money and one with the ideas, to get the scheme off the ground and to get local joint ventures launched. This will be vital for the success of the start-up scheme. I recall saying on Second Reading that I hoped that the start-up scheme would bring about local investment in local firms. I believe that the new clause will focus people's minds on supporting local firms and turn them away from the existing remote forms of investment. It is only through the support of local firms and the small business sector that we shall strengthen the base of the country's economy.

Mr. Peter Rees

I am delighted that there should be such a unanimous welcome for these provisions, and, especially, the one that we are discussing. The only qualification that I could detect came from the right hon. Member for Ashton-under-Lyne (Mr. Sheldon), who clearly has to make a general political point. I take it that he approves of the provisions.

I was glad to hear the unqualified welcome of the hon. Member for Workington (Mr. Campbell-Savours) for these provisions. The Government will, of course, be monitoring closely the general provisions as well as these ones. We are concerned that the scheme should not be discredited by abuse. I am grateful to my hon. Friends the Members for Croydon, South (Sir W. Clark) and Hertfordshire, South-West (Mr. Page), who played a notable part in our debates in Committee. We like to think that the proposal will make an imaginative contribution to the general business scene. It will bring a flow of capital into the small business sector, generate activity and generate jobs.

The Government would be extremely concerned if what I may describe, without immodesty, as a well-conceived scheme were discredited by abuse. We shall be prompt to remedy any abuse that comes to our attention. I can give the hon. Member for Workington that assurance.

The right hon. Member for Ashton-under-Lyne referred to the basis for approval. I hope that it will be possible, in due course, as experience is gained, to publish guidelines. It may be for the convenience of the House and those who study our debates if I indicate the kind of factors that the Board of Inland Revenue will take into account. It will look to ensure that there is a bona fide management function to be performed by the manager and trustees. It will have regard to the expected number of investors. There would obviously be a certain caution in the Revenue's approach if it were found that there were only three investors. There might be a suggestion that the fund was not used for the primary purpose of the legislation.

The board will be concerned with the minimum amount required by the fund to be put up by each investor. It will perhaps be concerned with the spread of investments expected among qualifying companies. We imagine that the take-up in bona fide cases will be a wide spread of investments in a wide range of businesses. This will spread the risk of the individual investor and give him the greatest possible commercial assurance. I have to emphasise that the Board of Inland Revenue cannot guarantee the commercial viability of these particular investments. I am sure that the right hon. Member for Ashton-under-Lyne, with his considerable experience, would not expect it to do so.

The board will be concerned to see that each individual's investment is spread pro rata over the companies to be invested in, and that the fund does not—at any rate, knowingly—invest in companies with which individual investors are connected. I must emphasise that the basic conditions of the scheme that have to be satisfied if an individual taxpayer or investor is to obtain relief will apply as surely in an investment through one of these investment funds as it will to an investment by a taxpayer on his own.

The Inland Revenue will be concerned to see that the fund has no other business, that the managers are reputable and capable of handling the necessary administrative arrangements, that they should exercise voting rights on behalf of investors in relation to the individual companies invested in and, finally, that the individual investor should not be able to disinvest in one of the underlying investments rather than in another. If an investor wishes to withdraw, we would prefer that he does so entirely and does not discriminate between the underlying investments.. The essence of the scheme is that the fund itself should be well administered and that there should be ease of administration for the Inland Revenue. It should be treated somewhat as a unit trust or an investment trust. Those are the factores that will weigh with the Board of Inland Revenue, and I hope that the underlying good sense of the proposal will appeal to the House.

5 pm

The right hon. Gentleman asked whether I had a new figure for the tax cost of the business start-up scheme in the light of this new development. As I said in Committee, the figure of £50 million of tax cost is highly speculative. Obviously, we cannot say precisely what the take-up will be. We hope, as a result of the various amendments and new clauses that were tabled in Committee and which we are presenting for the House's approval on Report, that there will be a considerably increased take-up. The greater the take-up—and, of course, the greater the tax cost—the better pleased we shall be, because it will demonstrate that this is a worthwhile scheme, which it is generating additional business activity and, ultimately, additional jobs. On that basis, I hope that the House will welcome the new clause and the Government amendment.

Sir William Clark

Will my hon. and learned Friend answer a question about the investment fund? Is the £500 a minimum subscription?

Mr. Rees

No. There is no minimum subscription for each individual investor in each individual company. The spread of investments may be such, for example, that pro rata his share is £200. That will not disqualify the fund. The Revenue will be concerned overall to discover what will be the minimum or the maximum stake of an investor in the fund as a whole and what the managers' proposals will be for individual investments in the underlying companies.

Sir William Clark

I understand that, but an individual who invests directly in the business must invest £500 if amendment No. 80 is made. Will the minimum investment into the investment fund by an investor be £500? It would be unfair to make an investor put £500 directly into a business. He should also put £500 into the investment fund.

Mr. Rees

Of course, the £500 limit will apply, but below that I suspect that, as a matter of commercial reality, few managers would be prepared to set up a fund in which the individual investment was as small as £500. My hon. Friend is right to say that the £500 minimum limit would apply to an individual investor's investment.

Mr. Robert Sheldon

Is the hon. and learned Gentleman saying that the minimum that the fund is allowed to take from any investor is £500?

Mr. Rees


Mr. Sheldon

This is a good first draft, and I look forward to seeing the guidelines. However I want to ask the hon. and learned Gentleman about the expected number of investors. When one is attracting funds from the general public one needs to guard carefully against fraud. The problem with new forms of investment is that new forms of fraud can be introduced. I hope that the hon. and learned Gentleman fully realises the importance of what is being done here.

The hon. and learned Gentleman said that he cannot look to the commercial viability of the fund. I understand the problems that are involved. He says that the managers will have to be reputable. However, bearing in mind the limited size of the fund, he may find himself with a fair number of managers, each of whom will have to be assessed. I hope that he will regard his role here as an important one, because once he has given his imprimatur to the new fund the responsibility will lie heavily on his shoulders. He must be aware that a number of these funds will make use of the fact that they are approved to attract funds from the general public.

We are dealing with wholly new form of savings, and the failure of any such investment fund could cause disillusion and distress. I hope, therefore, that the hon. and learned Gentleman has taken into account these problems, because he did not seem to have done so. That may give added force to his kind suggestion to publish the guidelines. I hope that he will publish them at the earliest opportunity.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

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