COMMODITY AND FINANCIAL FUTURES AND OPTIONS (Hansard, 16 July 1987)

§ Mr. Blair

I have a brief question on clause 81. It concerns the gains that are made on over-the-counter 1326 options and on the futures exchange. As I understand it, over-the-counter options mean the grey market in these options or in futures. The Economic Secretary will tell me whether that is right or wrong. Whereas these were previously taxed as income under case VI of schedule ID, they will now be taxed as capital gains, which is a more beneficial tax treatment for the investor. Is the Economic Secretary aware of the cost of that tax change? Will he tell us why this has been brought forward now, bringing the over-the-counter options in line with the law on other options, and why it was not done before?

§ Mr. Lilley

I am sure that the hon. Member for Sedgefield (Mr. Blair) was not intending to cast aspersions on the over-the-counter market by suggesting that it was grey. The distinction is between options carried out on a recognised exchange and those that are usually tailor-made and not regularly traded on an exchange but worked out for particular customers. There has been a distinction in the tax treatment between the two, partly because the tax treatment of traded options was related to the fact that they were traded on an exchange.

The hon. Gentleman asked about the cost. I understand that the cost of the change will be negligible. None the less, it will be beneficial to those who produce the tailor-made options. The reason for introducing this clause now is that it is possible to follow the provisions of the Financial Services Act 1986 in regulating these sorts of options and to use that framework to extend the tax treatment presently accorded only to those on exchanges to the tailor-made options as well. For that reason, the clause will not come into effect until the Financial Services Act regulatory framework is in force.