HC Deb 24 June 1986 vol 100 cc277-83


'The Commonwealth Development Corporation shall be exempt from all taxes and imports imposed on bodies corporate in the United Kingdom.'.—[Mr. Bowen Wells.]

Brought up, and read the First time.

10.2 pm

Mr. Bowen Wells (Hertford and Stortford)

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

This recommendation was made to the Government in 1982 by the Select Committee on Foreign Affairs in the report on the Commonwealth Development Corporation. I should like to run through briefly the reasons why the Select Committee considered why this would be an advantageous position for the CDC.

The British Government taxes the CDC's profits in this country, and the host country in which the investment is made also taxes the CDC's operations, project by project or, alternatively, as a corporation as a whole within the country in which the investment is made. This means that there is a leaching of money, first to the host country. We might say that this is a sensible and proper arrangement whereby the Government, by facilitating the CDC's investment in that country, gain tax that they can use for social and political purposes, as they so decide. At the same time, it reduces the amount of money available to the CDC, and therefore to the country in which that investment is made, which can then be re-invested in profitable enterprises in that country and in other developing countries. When that money is repatriated to this country, it is again subject to British taxation.

Let me point out the extent to which the Commonwealth Development Corporation — a concessionary-funded organisation—is beginning to pay tax in this country. According to its annual report, in 1981 it had to pay £7.1 million in taxation; in 1982, £7.1 million; in 1983, £400,000; in 1984, £7.4 million; and in 1985, £3.8 million. That is money clawed back through taxation into the Government's hands, thereby reducing the amount available to the corporation to put into its reserves and reinvest in developments in the countries which the Treasury had agreed, when it made the investment in the corporation, should benefit from that investment.

In other words, there is the usual crazy position where, on the one hand, the Treasury gives money to the Commonwealth Development Corporation to invest in profitable enterprises overseas and, on the other, takes money from it in the form of taxation. The Treasury grabs back the money into its own hands for universal British public use. It is absurd that the Treasury should do that. The money should be left in the corporation and should not be taxed. The Treasury should allow the corporation to turn over the money for development purposes.

Let us consider the overall position of the Commonwealth Development Corporation regarding Government finances. Even if hon. Members do not take into account the taxation figures I have just cited, they will find that, in 1981, the Government gave the corporation £16.1 million, less principal and interest paid to the Government. In 1982, the amount was £5.1 million. In 1983, it was £10.9 million; in 1984, £36.7 million and, in 1985, £13.3 million. For that, the Commonwealth Development Corporation invested an enormous amount of money. Without boring the House with the figures, I shall just say that in 1985 alone, the figure was £106.4 million. Therefore, for an investment of £13.3 million in 1985, less the taxation paid to the Government of £3.8 million, the corporation invested an amount of £106.4 million in new projects overseas. The amount was £106.4 million in the year and £907.7 million total investment and committed at the year end. On a leverage of about £9 million, the corporation invested £106.4 million. That was a good record for the Government. It could have been increased by £3.8 million if the Government had not taken the taxation from the corporation.

Obviously, a host Government will not permit the Commonwealth Development Corporation to be tax-exempt in its own country if the effect of being tax-exempt in its own country adds to the tax take of the British Government. Clearly, the host country will seek to take the money from the corporation in the form of taxation so that less is given to the Treasury in this country. That seems to be a crazy position. It does not apply to the World Bank. I believe that the Commonwealth Development Corporation's investments overseas are equally as good and are of the same category as those of the World Bank.

The World Bank enjoys total tax exemption in the host country and in the United States where the headquarters of the Bank are situated. In that way, the World Bank is able to regenerate money and make more money available for development overseas.

The taxation system of the Commonwealth Development Corporation is one of the crazier — it is not the craziest — financial operations of the Treasury and the Overseas Development Administration. I urge that we make sense of the position. We should exempt the Commonwealth Development Corporation from taxation in this country on a reciprocal basis only. That is all that I put forward. If we exempt the Corporation from tax in this country, the host country in which the CBC is operating should also exempt the Corporation from tax in that country.

I have no doubt that the Minister has been briefed by the Treasury to respond to the new clause. The observations of the Government on the work of the Commonwealth Development Corporation were made in April 1983, in paragraph 16 of Cmnd. 8857, where it comments on the Select Committee's recommendation that the corporation should be tax-exempt in this country. Let us read this little bit of bureaucratic gobbledegook: The 1978 Act, which consolidated previous legislation relating to CDC, expressly provides that it is not exempt from tax liability"— as if that was a justification in itself.

There are other state corporations and state-owned companies and private sector bodies whose overseas activities parallel CDC's in many respects. Now we see the bureaucrat and the administrator at work. We cannot exempt the CDC for fear of the implications for other state corporations. There is no other state corporation that is in any way the same as the CDC. It is an absurd argument. No other corporation is charged with investing overseas, to stimulate private investment in viable and profitable projects overseas. Therefore, that statement is absurd. I should be grateful if those who were responsible for that sentence could at least realise that hon. Members are not quite so foolish as they take us for.

Paragraph 16 continues: Exemption would require complex legislation There is a threat to this House.

and would be technically and practically difficult to administer. They are dealing with one corporation, and they cannot administer that. Is that not an extraordinary recognition of failure and inability on the part of the tax authorities?

Even my own tax returns, which are not uncomplicated are much simpler than exempting the CDC from tax in this country, but, that is the sort of gobbledegook we are given in the House, and we are expected to take it. I say "expected to take it", but there has been no response from the Overseas Development Administration. So far as I know, the Treasury may have been saying something, but of course the House is not privy to those discussions.

No doubt, if I raised the matter in a late, late-night debate, or early in the morning, there would be a peremptory reply from an overtired Minister, who would say that this is our reply and just accept it. But I do not believe that we should just accept it. The paragraph continues: The Inland Revenue keeps CDC's interests in mind when negotiating double taxation agreements. These agreements would become more difficult to secure if separate arrangements were made for individual bodies. The Government does not therefore accept that giving special exemption from UK corporation tax would, in a broader view, be to the UK's advantage. That sort of weak excuse is not acceptable to the House or to the country. If we gave the money and Parliament voted the money to be invested by CDC overseas in profitable investments which then returned to the corporation dividends and any profit, and the capital was repaid to the Government — I have shown that in the figures — surely it would be a sensible and simple measure for the Treasury to accept the new clause CDC would then be exempt from tax in this country, and would be directed by the Minister to make certain that in investment agreements with the host countries tax exemption would be negotiated on a reciprocal basis, on the basis of the permission given by the Treasury to do so, if it also waived its concern. In that way we would make available, as does the whole Bill, additional non interest-bearing resources to CDC for work for which Parliament and the Treasury decided the money should be given.

10.15 pm
Mr. Tom Clarke (Monklands, West)

Like the Standing Committee, the House has reason to be grateful to the hon. Member for Hertford and Stortford (Mr. Wells) for enabling us to discuss a measure that invites us to consider the role of the CDC itself. In that spirit, I shall ask the Minister some questions in the hope that they will clarify a few of the issues that stem from the new clause.

The hon. Member for Hertford and Stortford referred to the World Bank. I had not envisaged that the CDC and the World Bank fulfilled precisely the same function, and it would be interesting to know whether the Minister shares my view.

In what measure does the CDC spend public as well as private money? To what extent is the money that the CDC invests in various projects designed to secure a return on capital, and to what extent is it in a sense competing at more reasonable rates with private capital? I am really asking what sort of animal we are talking about. Is the modern CDC a hybrid that is designed to implement Government aid and development policy without there being any financial return for the United Kingdom? Alternatively, are we talking about a corporation that has an increasingly mixed portfolio, containing both aid projects that are comparable with those in the private sector with which it may be competing?

We need to know how the Minister perceives the CDC's status and function before we can consider the proposals put forward by the hon. Member for Hertford and Stortford, and it would be helpful if the Minister could answer some of those points.

The Minister for Overseas Development (Mr. Timothy Raison)

The hon. Member for Monklands, West (Mr. Clarke) seemed to use the new clause as a vehicle for raising the whole question of the function and scope of the CDC. I should have thought that that was stretching the wording of the new clause a bit far.

However, the Bill does not envisage a dramatic change in the CDC's role. Its functions and objectives are pretty well known throughout the world. The Bill is useful in that it strengthens the CDC's ability to carry out those functions, but it does not represent a major change. The CDC bears some comparison with the World Bank. After all, they are both important development organisations in their different ways. One of the characteristics of the CDC is that it operates in the developing world. But it does not operate as an aid agency pure and simple in terms of giving away money in support of good projects. It is proud of its tradition of getting a good return on investment. In other words, it is looking for financially viable projects. We do not think that that will change.

I was asked whether the CDC was spending public as well as private money. It is, of course, spending public money. It does not spend private money—that is not its job. Nevertheless, it helps the private sector. An important part of its activities involves helping the private sector by operating in parallel with, or in support of, private sector schemes. It works in partnership with the private sector. Thus, this animal will not change dramatically as a result of the Bill.

My hon. Friend the Member for Hertford and Stortford (Mr. Wells) spoke about his new clause with his customary eloquence, bringing to bear his great depth of knowledge of the CDC, which he has known for a number of years. I am always happy to listen carefully to what he says. I realise that he has a point, that he has fairly made, which is that if the CDC did not have to pay tax, it would have more money to spend on its admirable activities. That is incontrovertible, and I cannot deny it for one minute. On the other hand, in a moment I will come to the reasons why we do not think it wise for the House to adopt the new clause.

There is one point on which my hon. Friend left me a little puzzled. He said that the new clause envisaged reciprocity, that is, that this tax exemption would apply only when the countries where the CDC was operating also applied a tax exemption. I cannot see anything in the new clause that indicates that this reciprocity would be there — it is certainly not stated explicitly. I do not understand how he thinks, if the new clause were accepted, his idea of reciprocity would be accepted.

Mr. Bowen Wells

My right hon. Friend is correct to be puzzled. When Back Benchers introduce new clauses I believe that they are at a severe disadvantage. My right hon. Friend will recall that he immediately criticises for technical deficiencies, advised by the well-briefed people in his Department, almost any new clause that is tabled. Certainly that is my experience from the Finance Bill. I therefore kept the clause as simple as possible.

I believe that my right hon. Friend and the CDC are perfectly capable of negotiating agreements with host countries administratively, saying, "Look, we are tax-exempt in Britain and we therefore expect you to give us tax exemption as the host country." It has to be an example set by Britain. We first have to take the action to exempt the corporation from the tax, and we then argue with the host countries whether they should do likewise.

Mr. Raison

My hon. Friend has given an explanation. On this occasion, it is not my advisers who have led me to believe that there is an oddity about the clause in relation to the way that he described it; it is all my own work. I am not sure that my concern is completely allayed by my hon. Friend. As I have always said, I do not believe in drawing on pure technicalities to overthrow amendments by hon. Members on either side of the House who have a real point to make. However, it seems to me, although I understand my hon. Friend's explanation, that this does not give the reciprocity to which he is attached.

Nevertheless, it is for other reasons, which my hon. Friend no doubt will regard as excessively bureaucratic, Treasury-minded and all sorts of other awful things, that I do not feel able to accept the new clause. It is not just that the tax treatment of the Commonwealth Development Corporation by the Government is in accordance with the policy of all previous Governments as far as I know—I would not rest the argument on that—but I think one is entitled to say that there is a valid distinction to be made between bodies such as Government Departments, which in a sense relate to the Crown and are immune from taxation, and other bodies that are subject to taxation.

The most obvious example that I would give of other corporate bodies subject to taxation is the nationalised industries, but there are others. These corporate bodies are treated for tax in the same way as companies in the private sector. They have an independent corporate existence, they are not mere creatures of the Government and I believe that the corporation would recognise this. In many cases, these corporations are in competition with the private sector. This may not be particularly true of CDC, but it is certainly true of other such corporate bodies. I think that my hon. Friend would be among the first to protest if public corporations automatically got some kind of privileged treatment in comparison with private companies.

Within this class of corporate bodies, there are many, such as the CDC, in receipt of concessionary funds or even subsidies from the Government. Many are in competition with private sector companies, and others such as the CDC operate overseas. I am sure that a number of those bodies would claim that they had distinctive merits and financial methods. Again, like our predecessors, we feel that it is more just as a general concept to subject all those corporations and companies to the same taxation. If we were to exempt the CDC from that normal practice, inescapably we would have endless claims from other bodies demanding the same privileged treatment.

An important point is that it would be very odd to tackle such taxation within the purview of this narrow Bill about the CDC. It has implications for other corporations, and the House would find it a rather peculiar way of going about its business to legislate under the auspices of this Bill.

I have acknowledged that if the CDC did not have to pay tax it would have a little more money to spend on its excellent work. However, the tax is not really a major burden. My hon. Friend gave a figure for taxation for 1985 that I do not recognise as valid. I think that the figure is £1.8 million as opposed to the £3.4 million that he suggested——

Mr. Bowen Wells

It is in the annual report.

Mr. Raison

I made the figure £1.8 million or £1.9 million for 1985. I stand to be corrected, but I was looking into the matter a few moments ago and I believe the figure to be £1.8 million. Against that, during the financial year 1985–86 the CDC received £41 million in concessionary loans from the aid programme, which is obviously a much more substantial sum. Therefore, the taxation does not really impose an onerous burden. In the discussions about the Bill, the CDC did not say to me that it wished the Bill to be used as a vehicle to remove the burden of taxation. I have not been pressured on that point.

If the House thinks for a moment or two about the sheer common sense of the matter, it will appreciate the force of the argument that this Bill is not really the way to tackle the taxation of such corporate bodies. I therefore ask the House to reject the new clause.

Mr. Bowen Wells

I thank my right hon. Friend for explaining why he will not accept the new clause, and I understand his reasons. He has to deal with the Treasury on this issue and, as he said, the Treasury is obviously frightened that there would be implications for other corporations. I am glad that we have had this opportunity to emphasise that, as parliamentarians, we do not agree with the Treasury making absurd and unnecessary complications in what is essentially a simple issue. I do not think that my right hon. Friend believes that it should do that, but he cannot say that and I understand why.

My right hon. Friend suggested that he wanted to treat the CDC as a nationalised industry. Are the ODA and the Treasury consistent in treating it as a nationalised industry in terms of investigation, monitoring and interest and capital repayments? In fact, their treatment is wholly inconsistent. If my right hon. Friend agrees that the CDC should be treated as a nationalised industry throughout the Civil Service, the CDC and the ODA budgets would benefit enormously. I shall not dwell on that point because it is one on which I have not been fully briefed. However, if my right hon. Friend investigates the matter, he will find that there are serious inconsistencies in the way in which the Treasurey treats the CDC.

My right hon. Friend argued that he did not want to include taxation in the purview of the Bill.

10.30 pm

The Select Committee made recommendations about the CDC in 1982, yet the House has not debated the corporation in the intervening period. Indeed, although it has been usual for the chairman of the CDC to have a motion proposed in the other place so that Parliament could discuss the CDC budget and the return on its money, that has not happened for a considerable time. Nor has a relevant Bill been promoted by the ODA or the Minister.

Back Benchers do not have the opportunity to influence Government policy decisions other than by trying to tack provisions on to Government measures. In Congress, such tacking on takes place all the time. In this country many measures would be improved if, when introduced, all manner of provisions could be tacked on to them. In a way, that is happening with this Bill in that it provides additional resources to the CDC, and I congratulate the Government on taking that step.

Mr. Tom Clarke

I found it necessary to ask the questions that I put earlier precisely because we have not had a debate of the type to which the hon. Gentleman refers. I was anxious to discuss the new clause in the context of the Government's thinking about the CDC. My impression so far in the debate is that the Government view the CDC as being between the World Bank and a nationalised industry.

Mr. Deputy Speaker (Sir Paul Dean)

Order. I have permitted a wide debate to take place, but I remind hon. Members that we are discussing a new clause which deals with taxes and imposts. We cannot debate the whole of the CDC in discussing the new clause.

Mr. Wells

I accept the wisdom of your ruling, Mr. Deputy Speaker, and I hope that the hon. Member for Monklands, West (Mr. Clarke) will take part in the Third Reading debate, which I confidently expect will succeed the Committee and report stages of the Bill this evening.

I hope that I am in order in referring to the World Bank, because the new clause relates to taxation treatment and the treatment of the CDC for tax purposes is different from that applied to the World Bank, although the only distinction is that the CDC undertakes the direct management of projects whereas the World Bank does not. In every other way, the CDC's operations are parallel to those of the World Bank. It is a smaller organisation which does its investment bilaterally— and, in my view, more sensitively and more effectively — but it is very similar to the World Bank.

That is why it should receive the same taxation treatment, both in respect of the host country in which the investment is made, and in this country, from which the original investment comes. To do other than that is ridiculous. The general public would agree if they were told, "Here is the Treasury giving money for development overseas, yet when the money returns it is taxed."

The Minister has explained his position and we, as parliamentarians, have explained why we do not accept the bureaucratic arguments he has been forced to adduce. We have brought the issue to the top of the filing tray, where I hope it will stay. I am confident — because of the existence of this measure—that the civil servants will think again, and I hope that before long the Minister will introduce a Bill to implement what we have suggested tonight. For the time being, I beg to ask leave to withdraw the motion.

Motion and clause, by leave with drawn

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