RELIEF FOR INVESTMENT IN CORPORATE TRADES (Hansard, 11 May 1983)

§ Mr. Anthony Beaumont-Dark (Birmingham, Selly Oak)
On a point of order, Mr. Dean. Are we taking schedule 5 with clause 30?

The Chairman
No, we are going straight through in the order of the Bill.

§ Mr. Beaumont-Dark
In that case, I seek your guidance, Mr. Dean. I wish to talk about business expansion schemes. With all the legal terminology, we cannot understand any better than the Revenue what is really meant. Is it in order to discuss what is meant by quoted and unquoted companies at this stage, or should it be dealt with on schedule 5?

The Chairman
It is certainly not in order on clause 30, but I am sure that if the hon. Gentleman uses his ingenuity he will find an appropriate clause or schedule on which to make his points.

§ Mr. Ridley
Further to that point of order, Mr. Dean. Perhaps I can help. Clause 30 introduces schedule 5 which sets out the details of the business expansion scheme provisions. One of the details is that the scheme is restricted to unquoted companies. That may be the point that my hon. Friend the Member for Birmingham, Selly Oak (Mr. Beaumont-Dark) wishes to discuss. It is, of course, entirely for your judgment, Mr. Dean, as to whether you prefer my hon. Friend to raise the matter on clause 30 or on the schedule, but I think that he is in the right territory.

The Chairman
I am obliged to the Financial Secretary for that helpful comment. It might be tidier if the hon. Member for Birmingham, Selly Oak (Mr. Beaumont-Dark) raised his points now.

§ Mr. Beaumont-Dark
I am obliged to you, Mr. Dean, and to my right hon. Friend the Financial Secretary. I do not wish to delay the Committee, but one of the problems of the necessary but unseemly haste with the Finance Bill is that we shall achieve a Bill full of good intentions but giving rise to awful problems which I hope that the Government will sort out at leisure after 15 June when many of us hope to return.
The idea of the business expansion scheme was excellent and has been a great help to people starting up in business. The extension of the scheme to cover larger sums of money is also entirely good, but I do not understand the weird logic of the proposal. It shows that the Revenue does not understand what dealing is all about and what "dealing in" can mean. Despite the good intentions, this will be very bad law and will cause enormous problems. It will cause further difficulties for investors because the Government will be giving advantage to what are described as over-the-counter stocks. The term used to be "bucket shop". They are not all bucket shops now, but there are still a large number of them in the over-the-counter market.
As the House knows, I am a member of the stock exchange. The stock exchange very properly decided that it should try to help companies which did not wish to go through the full listing procedure. It also felt that investors 829 should be properly protected because of some of the scandals that had taken place. It therefore started the unlisted share market. Clearly, there is still a higher risk but the stock exchange successfully laid down extremely rigid controls on the way in which companies could be listed on the USM. Although such companies do not have a full stock exchange listing, they can be dealt in. In my view, the stock exchange rules are far stricter than those which might be enforced in a court of law. That is right, because the job of the stock exchange is to ensure that people are dealt with properly and fully.
Only last week we decided to get down to controlling licensed dealers in securities in the over-the-counter market. The Gower report rightly recommended that new controls should be introduced. The Government are now putting the cart before the horse and giving free rein to licensed dealers. There is no doubt that more people will wish to go to the over-the-counter market. The Government seem to have adopted the weird logic that if shares are not dealt in often they are not dealt in at all. Two weeks ago, a company was floated on the over-the-counter market for £350,000. This is the type of dealing that the Conservative Government are backing against the fully regulated market. The licensed dealer who placed the £350,000-worth of shares on the market was also the financial adviser to the company, the person who makes the market in that share and the largest shareholder to boot.
Anyone who does not realise that such dealings can lead to irregularities in the future does not understand what a market place is. The stock exchange would rightly not have allowed the situation to arise. Licensed dealers should be far more tightly controlled and they should have to provide a guarantee for their customers against people running off with their money. Yet today the Government seek to pass a measure giving the over-the-counter market an advantage compared with the stock exchange regulated market.
Frankly, I wish that we were in Standing Committee, because I would urge Minsters to think again about this. I prophesy that problems will arise if such an advantage is given to this rather weird market on the basis that shares are not dealt in at all because they are not dealt in very often. The stock exchange has gone to great trouble to ensure that the unlisted share market is properly regulated. To make sensible competition and control of sales impossible vis-a-vis quoted companies is quite wrong. Had there been the opportunity, I should certainly have voted against the provision and urged others to do the same. Now that my right hon. Friend the Financial Secretary and his officials understand a little more about the problems that are likely to arise, he may consider even now that the provision should be withdrawn and introduced in the next Finance Bill as there is no hurry about it. If he will not follow that sensible procedure, will he at least agree that this can be re-examined when the next Budget is introduced to ensure that we do not give advantage to those who could so easily lose investors' money which as a Government we wish to protect?

§ Mr. Ridley
I am sure my hon. Friend would not dissent from the proposition that this is a splendid and imaginative scheme which could be of immense benefit to the smaller and newer or expanding business. The scheme is unrivalled anywhere in the world. The last thing that I want to do is to withdraw the clause from the Bill. I pay tribute to the Opposition for their agreement that the clause 830 should be allowed to go forward. In due course much industrial activity and many jobs might hang on the scheme.
Even if there are defects in the scheme and points in the clause which would benefit from thorough debate, it must be better to allow the scheme to pass into law so that the investments can take place in certainty. Of course, in debates on a future Finance Bill, when we have an increased majority, it will be possible for my hon. Friend and my many new hon. Friends to put down amendments to make changes in the details of the scheme. If I am still here, I shall welcome those debates because I will be able to say that there is a justification for everything that we have put into the scheme, that it was Ministers who decided on these provisions and that Ministers will defend them, as I intend to defend the provision about which my hon. Friend has spoken.
This scheme is to encourage investment, first, in startup companies and, later, in small unquoted companies which are capable of expansion. There are many reasons why that investment did not happen in the past. It was safer and easier to invest in quoted stocks on the stock market. They benefited from the protection to which my hon. Friend referred. It was probably safer and easier to buy a house on a mortgage or to buy gilt-edged stock.
Of all the categories of investment, the most risky and dangerous was that of small commercial companies. The Government first set about encouraging investment in start-up companies with generous tax reliefs. Now we have extended the relief to all companies, old or new, which are perhaps too small to be quoted yet cannot have access to rights issues and capital raised on the stock market.
I think my hon. Friend will agree that this was the priority area to go for and that the same considerations do not apply with quoted companies as with unquoted companies. Their shares can be marketed easily and there is no difficulty in raising extra capital because they go to the market, whereas with unquoted companies, particularly small and unknown ones, there is great difficulty in finding someone to invest in them. Therefore, there was a great need to ease the process with tax relief.
The question is: where do we draw the line between the quoted and unquoted sector? I think that we were right to draw it short of the unlisted securities market, which raised about £50 million last year by rights issues and other methods for companies thereby quoting. It would have cost us a further £25 million to provide tax relief there, without any obvious increase taking place in investment. Companies can raise capital and go for rights issues or sell in the unlisted securities market without the difficulties that I have mentioned.

§ Mr. Beaumont-Dark
Even now the Minister has not got it right. All those things can be done in the over-the-counter market. The criticism the Minister seems to have of the unlisted share market is that it has been efficiently policed and properly conducted. If it had been a small, shambolic thing which had not done any good to the economy, it seems that the Minister would have given concessions such as he is willing to give to much less disciplined licensed dealers. I do not understand my right hon. Friend's logic.

§ Mr. Ridley
We are not giving a concession to a market.

§ Mr. Beaumont-Dark
My right hon. Friend is.

§ Mr. Ridley
We are giving a concession to investors in a certain class of company. We are giving them this concession for the very reason that my hon. Friend has stated. These are small and growing unquoted companies, about which not nearly so much is known and for which there is no policing by the stock exchange. My hon. Friend gave the example of a company which was floated the other day with £350,000 capital; I do not know what company that was, but it shows what the risks are. That is why tax relief is granted in a risky situation. It is not only risky in that way but much more in the sense that these companies are dark horses and it is not known which will survive and grow and which will fall.
We must draw the line somewhere. I believe that it is right to draw it after over-the-counter markets and before unlisted securities markets. I only hope that the passage of this legislation on to the statute book will be taken by all concerned as an earnest of the Government's real intent to provide risk capital relief at greater advantage than investment in any other area. This is the most risky area, where the greatest tax relief should be. I hope and believe that the tax relief will lead to a massive increase in the prosperity of small companies and in the jobs they provide.

§ Mr. Robert Sheldon
There is the danger of the lack of regulation that the hon. Member for Birmingham, Selly Oak (Mr. Beaumont-Dark) has pointed out. There are other dangers. There are so many points in this clause that should have been subject to the scrutiny of the Standing Committee that we were under great difficulty over whether to let it go through. Bearing in mind the value it could have for small businesses — a value which has frequently been overstated — we decided to let it go through because we hope to amend it in a subsequent Finance Bill