§ Mr. Norman LamontI beg to move amendment No. 50, in page 124, line 14, at end insert—
'(5A) In arriving at the value of any interest in land for the purposes of this paragraph—
- (a) it shall be assumed that there is no source of mineral deposits in the land of a kind which it would be practicable to exploit by extracting them from underground otherwise than by means of opencast mining or quarrying; and
- (b) any borehole on the land shall be disregarded if it was made in the course of oil exploration.'.
§ Mr. LamontI envy the Economic Secretary's speed in the progress of the amendments. I should be content simply to nod this amendment through, but I do not know whether the hon. Member for Birmingham, Hodge Hill (Mr. Davis) would be satisfied with that. Because points were raised in some detail in Committee, I felt that it would be right to amplify the proposed amendments, although I hope to do so as briefly as possible.
Amendment No. 50 concerns the restriction of building expansion scheme relief on investment in a company with a substantial holding of land and buildings. This restriction involves a test of whether more than half the net assets of a company are represented by land and buildings. If this test is failed, BES relief is restricted. The idea is that substantial holdings of land and buildings should provide an asset base on which finance can be raised and, therefore, BES relief is not needed.
Under the test, the value of any underground mineral workings would be taken into account, yet, because of the riskiness of this activity, the workings may not provide sufficient security on which to raise alternative finance. That point was drawn to my attention in Committee and I undertook to consider it. Having had the chance to do so, I think that an amendment to the rules is appropriate.
The purpose of amendment No. 50 is to exclude from the value of land and buildings in the test the value of minerals which would be extracted by underground workings. The value of any oil or gas is also to be excluded to prevent the oil exploration relief from being withdrawn as a result of the discovery of oil or gas. Any other value inherent in the land would continue to be counted in the ordinary way. At the same time, we are taking the opportunity to exclude from the test the value of any bore holes made in the course of oil exploration. Although we are advised that these are unlikely to have any intrinsic value, we thought it best to clarify the matter.
Amendments Nos. 72 to 80 merely extend the new oil exploration relief to Northern Ireland, for reasons which I hope are obvious.
§ Mr. Terry DavisThe Financial Secretary said that he envied his hon. Friend the Economic Secretary, who moved a series of amendments which went through on the nod. I, for my part, envied my hon. Friend the Member for Sedgefield (Mr. Blair) who was covering those amendments because he did not need to say anything or even find it necessary to rise from his seat. I intend to try to emulate my hon. Friend by quickly resuming my seat because we do not challenge the amendment.
§ Mr. HanleyI sincerely thank my right hon. Friend the Financial Secretary for putting his mind to an amendment which I proposed in Committee. The amendment is just and will help to give to those who try hard to provide employment in a difficult industry encouragement and the profits to enable them to grow. The private mining industry would have been severely hurt were it not for this measure. I hope that it will flourish and will be an inspiration to British Coal in its dealings in the future.
§ Amendment agreed to.
§ Mr. Norman LamontI beg to move amendment No. 51, in page 124, line 35, at end insert—
`(9) Where a company has ceased to be a qualifying company in consequence of the operation of this paragraph, section 62(6) of Chapter II shall apply as if the relief was withdrawn in consequence of an event which occurred at the time when the company so ceased to be a qualifying company.'.
Mr. Deputy SpeakerWith this it will be convenient to take Government amendments Nos. 52 to 55 and 61 to 71.
§ Mr. LamontOne of the Bill's proposals is that relief can be withdrawn from BES shares where there is a rights issue and either the rights are sold or the BES shares fall in value as a result of rights being taken up. The amendment ensures that these rules apply equally where the rights are to acquire different classes of shares or debentures. This follows similar rules for capital gains tax.
The alternative basis of valuation for the purpose of the land and building restriction starts with the value of the land and buildings at the time of the share issue, adds on the purchase cost of any other land and buildings and any expenditure on improvement, and deducts any consideration received for any disposals. As the Bill is drafted, it is not clear whether the rule works properly when the consideration is received some time after a disposal. Amendments Nos. 52 and 53 remove any doubt. Amendment No. 54 corrects a drafting error.
On amendments Nos. 51 and 64, when BES relief is withdrawn, an assessment is made to collect the tax. This bears interest from a specified date. As the Bill is drafted, this date is not clearly specified where relief is withdrawn following a rights issue or where the land and building restriction comes into effect. These amendments make clear the date from which interest starts to run.
Under the general BES rules, a company is allowed to carry on some exluded activities provided they do not amount to a substantial part of the trade, which, as a rule of thumb, is taken to mean about 20 per cent. of the trade. Amendments Nos. 55 and 61 ensure that the company's excluded activities are added together when deciding whether they amount to a substantial amount of the trade.
Amendments Nos. 62, 63 and 65 to 67 make it clear that the various rules which apply in respect of shares on which BES relief has been given do not apply after all that relief has been withdrawn.
§ Mr. BerminghamI am puzzled at times when rights issues become a disqualifying problem. I have raised this matter before and I do so again because rights issues are a good way of raising secondary capital. The method is often used by a company in its initial thrusting period when the initial investment has been used in the purchase of capital, plant and so on. I do not intend to oppose the amendment, although I warn the Government that I may oppose many other amendments.
1270 I ask the Government once again to consider rights issues. Often these are the rights issues to existing shareholders. Perhaps the Financial Secretary will assure me that, when it is necessary for a company to move from phase one to phase two of its development, it will not be prejudiced under the business expansion scheme by disqualification as a result of the rights issue.
§ Mr. LamontThe hon. Member for St. Helens, South (Mr. Bermingham) has made a fair point. There is, in a way, a bit of rough justice in the treatment of rights issues, although there is a purpose behind it. There is scope for people to use the BES in a way that is not intended.
As I understand it, the main purpose of the provision as drafted was to prevent a situation in which rights issues would be used to acquire different classes of shares and instruments such as debentures. Of course, a rights issue of an ordinary share might be a different matter. There is some merit in that argument. I shall look at this point, but I stress that I say that without any commitment. I have some sympathy with the hon. Gentleman's point. One must always bear in mind that the BES provides very generous tax relief, especially for high income earners, which can be compared to generous tax relief such as that on house purchase.
§ Mr. BerminghamI think that the Financial Secretary knows my philosophical approach to the BES. I am especially concerned that companies which are subject to the BES may be forced to shrink as a result of the wording of this provision. Does the right hon. Gentleman agree that there is a way around this problem? Perhaps there could be an exemption where the shares are issued to existing shareholders for the purpose of further investment in the company, and that can be certified by accountants to the company or by the Department of Trade and Industry or even by Inland Revenue. I tender that as a first-thought solution to the problem which involves great difficulty and unfairness.
§ Mr. LamontI shall look into the matter. I am reminded that when I made my opening remarks in explaining the amendments I referred to a situation in which rights issues were at a discount. That is where the only problem arises. I do not think that I made that clear when I was responding to the hon. Member for St. Helens, South (Mr. Bermingham). This situation is a little rough and ready. I say without any commitment that I shall consider the hon. Gentleman's points.
§ Amendment agreed to.
§ Amendments made: No. 52, in page 124, line 46, leave out from 'consideration' to first 'of' in line 47 and insert 'for the disposal by the company'.
No. 53, in page 125, line 1, leave out 'on the grant' and insert
'for the grant by the company'.
No. 54, in page 125, line 8, leave out (b) and insert (c)
No. 55, in page 127, line 18, leave out `to any substantial extent of' and insert
'of one or more of the following activities if that activity amounts, or those activities when taken together amount, to a substantial part of the trade'.—[Mr. Norman Lamont.]
§ Mr. Norman LamontI beg to move amendment No. 56, in page 127, line 43, after 'Kingdom', insert—
(bb) throughout the relevant period the company is solely responsible for arranging the marketing of the services of its ships.'.
§ Mr. LamontThis year we are extending the business expansion scheme to companies engaged in ship chartering. The changes we propose are designed to ensure that the scheme is open just to companies actively engaged in chartering where there is some element of risk involved and that the benefits flow to British companies using British registered ships. For that reason, our proposals contain a number of conditions which must be satisfied if a company is to qualify under the scheme.
It has been put to us — the point was raised in Committee — that in one or two respects these conditions might impose unnecessary constraints. We have considered those points. The Inland Revenue has had useful discussions with the General Council of British Shipping. The amendments we propose here are designed to relax slightly the conditions where we think there is some scope.
One of the conditions is that ships may only be let out on charter for periods not exceeding 12 months. This is to ensure that the scheme is used for genuinely risky charters rather than for longer ones where the stream of income is steady and secure. In Committee I said that I would look at this again. We still think that the length of this limit is about right. But we have managed to find some scope for relaxation without reducing the element of risk.
Amendment No. 58 would allow the person chartering the ship—not the BES company—to have an option, or options, to extend the charter so as to make it run for a longer period than 12 months. This would allow extensions to be made in line with normal commercial needs but would ensure that the BES company could not minimise its risks by entering into long-term charter arrangements. In particular, this meets one of the concerns put to us by the GCBS. The amendment would also allow a new letting to be agreed during the life of the current letting, but not so as to fix the use of the ship for a period ending more than twelve months away.
As the rules are drafted, a company would have to meet the conditions in respect of all of its ships and charters. That goes further than the rules for other trades under the scheme, which can undertake some non-qualifying activities provided that they do not amount to a substantial part of its trade. We concluded that the same sort of flexibility ought to be available to ship chartering companies—for example, a company might already have charters which do not meet the conditions and so would have to wait until these are finished before the BES can be used. Amendment No. 57 would allow some non-qualifying charters provided that they do not amount to a substantial part of the trade.
It has also been put to us that BES companies would be put at a considerable disadvantage if they were unable to make use of some of the services of a specialist ship manager. It has been argued that obtaining crews would be difficult and that stores and repairs would be costly to obtain.
One suggestion is that the ban on the use of managing agents should be removed altogether. That was considered in Committee, and I made it clear that I saw difficulties in allowing a company to hand over the running of its ships totally to an agent because one would then have a tax relief which would be a financing measure, which would allow people just to invest in the assets. We have looked at this 1272 point further, as we would not wish to force a BES company to operate in a commercially disadvantageous way. Therefore, we propose to allow a company to use an agent to undertake certain functions. These are what are known oin the trade as husbandry and they include the supply of crew and provisions.
But the company would retain responsibility for the commercial management of the ship — for example, bunkerage and the loading and unloading of cargo. Amendment No. 59 makes that change, and amendment No. 56 requires the BES company to be responsible for marketing the services of the ship, arranging charters. I think that that strikes a fair balance between what was advocated in Committee and what makes sense within the scheme.
Amendment No. 60 deals with the subject of lettings within a group. There is a condition that charters must be arms length's bargains with unconnected persons. That ensures that the extension is riot refused. The reasons for that are obvious. However, there is not the same possibility of abuse where the connected companies are all members of the same group and where the parent of the group is a company qualifying under the business expansion scheme, as all the companies would have to meet the qualifying conditions of the scheme. That point was raised in Committee and I undertook to bring forward an amendment to deal with it.
§ Dr. McDonaldWe do not intend to oppose any of these amendments. We recognise that a number of them merely improve drafting and that some, as the Financial Secretary has made clear, tighten up the drafting. We consider some of these amendments, especially amendment Nos. 56 and 59, as anti-avoidance measures, so there is nothing to oppose here.
§ Amendment agreed to.
§
Amendments made: No. 57, in page 127, line 46, at end insert—
'but where any of the requirements mentioned in paragraphs (a) to (c) above are not satisfied in relation to any lettings of such ships, the trade shall not thereby be treated as failing to comply with this paragraph if those lettings and any other activity of a kind falling within paragraph 6(2) above do not, when taken together, amount to a substantial part of the trade.'.
No. 58, in page 128, line 3, leave out from 'provision' to end of line 5 and insert—
'is made at any time (whether in the lease or otherwise) for extending it beyond that period otherwise than at the option of the lessee;
(aa) during the period of the letting there is no provision in force (whether made in the lease or otherwise) for the grant of a new letting to end, otherwise than at the option of the lessee, more than twelve months after that provision is made.'.
No. 39, in page 128, line 11, leave out from beginning to end of line 12 and insert—
`(i) for taking, throughout the period of the charter, management decisions in relation to the ship, other than those of a kind generally regarded by persons engaged in trade of the kind in question as matters of husbandry; and'.
No. 60, in page 128, line 29, at end insert—
'but this sub-paragraph shall have effect, in relation to any letting between the company in question and its subsidiary, or between it and another company of which it is a subsidiary or between it and a company which is a subsidiary of the same company of which it is a subsidiary, as if paragraph (b) were omitted.'
No. 61, in page 128, line 36, after 'investment', insert—
1273
'or of that activity and any other activity of a kind falling within paragraph 6(2) above, taken together'.
No. 62, in page 130, line 9, at end insert—
'and after the word "given", in each place, there shall be inserted the words "(and not withdrawn)".
No. 63, in page 130, line 10, after 'words', insert—
`(and not withdrawn)" there shall be inserted after the word "given" and the words'.
§
No. 64, in page 132, line 35, at end insert—
'Assessments for withdrawing relief
13A. In paragraph 14(2)(a), for the words "or 10(1)" there shall be substituted the words "10(1) or 16A".'.
No. 65, in page 133, line 27, at end insert—
'(2A) In sub-paragraph (3) after the word "given", in both places, there shall be inserted the words "(and not withdrawn)".'.
No. 66, in page 134, line 2, after 'given', insert 'and not withdrawn'.
No. 67, in page 134, line 13, after 'given', insert 'and not withdrawn'.
No. 68, in page 134, line 40, leave out 'ordinary shares in' and insert
'shares in or debentures of'.
No. 69, in page 134, line 44, after 'shares', insert 'or debentures'.
No. 70, in page 135, line 2, after 'shares', insert 'or debentures'.
No. 71, in page 135, line 4, after 'shares', insert 'or (as the case may be) debentures'.
No. 72, in page 137, line 20, after '1984', insert—
'or a Northern Ireland licence granted for the five year renewal term'.
No. 73, in page 137, line 20, after 'includes', insert 'in either case'.
No. 74, in page 137, line 23, after 'regulations', insert—
'or a Northern Ireland licence granted for the thirty year renewal term'.
No. 75, in page 137, line 24, after 'includes', insert 'in either case'.
No. 76, in page 137, line 26, after 'regulations', insert—
'or a Northern Ireland licence granted for the initial term'.
No. 77, in page 137, line 27, after 'includes', insert 'in either case'.
No. 78, in page 137, line 32, at end insert—
'or, in Northern Ireland, by the Department of Economic Development;
Northern Ireland licence" means a licence granted under the Petroleum (Production) Act (Northern Ireland) 1964 and incorporating the model clauses set out in Schedule 2 to the Petroleum Production (Licences) Regulations (Northern Ireland) 1965, and in relation to such a licence the references above to "the initial term", "the five year renewal term" and "the thirty year renewal term" shall be construed in accordance with Clause 2 of Schedule 2 to those regulations; and'.
No. 79, in page 138, line 12, leave out `(1)' and insert '(2)'.
No. 80, in page 138, line 14, at end insert—
'or under the Petroleum (Production) Act (Northern Ireland) 1964.'.—[Mr. Norman Lamont.]