HL Deb 02 March 1999 vol 597 cc1553-8

3.10 p.m.

Report received.

Clause 18 [Minimum Crown share-holding]:

Lord McIntosh of Haringey moved Amendment No. 1:

Page 8, line 19, leave out ("section") and insert ("Act").

The noble Lord said: My Lords, in moving this amendment, I shall speak also to Amendments Nos. 4 and 5. These three amendments all affect paragraph 14 of Schedule 2. That paragraph deals with a technical point arising from the Companies Act 1985. It excludes the Secretary of State from the Companies Act definition of shadow director for certain purposes. Those are the purposes set out in paragraph 14(2) of Schedule 2. That serves to ensure that certain administrative and other obligations of the Companies Act, which would be time-consuming and unnecessary in the context of a public/private partnership, will not arise.

The purpose of Amendments Nos. 1 and 5 is to extend the duration of the provisions of that paragraph of the Bill. The main change is made by Amendment No. 5. As drafted, paragraph 14 of Schedule 2 provides that the exclusion of the Secretary of State from the obligations I have mentioned lasts for as long as the Commonwealth Development Corporation is wholly owned by the Crown. By changing the wording of paragraph 14(1), Amendment No. 5 would have the effect of extending the duration of that exclusion so that it would last for as long as the special share was held by the Crown.

Amendment No. 1 is merely consequential on Amendment No. 5. As drafted, the Bill uses the expression "special share" only in Clause 18 and so the definition in Clause 18(2) applies only to that clause. Since Amendment No. 5 would introduce the same expression into Schedule 2, it is necessary to amend Clause 18(2) so that the definition applies to the whole Bill; in other words, to Schedule 2 as well.

The reason for extending the duration of the provision is to put beyond doubt for as long as the partnership between CDC and the Government exists the question of whether the Companies Act obligations which I mentioned earlier arise. The provision is essentially intended to remove the possibility of unnecessary regulatory burdens being placed upon the public/private partnership; and to provide clarity as to the Companies Act obligations which apply to the person involved in the partnership. The provision should therefore last for as long as the public/private partnership continues.

Amendment No. 4 ensures that the Treasury is brought within the scope of the provision. As a result of the Bill requiring Treasury consent to certain actions of the Secretary of State, together with the Treasury's involvement with the decision-making processes in relation to CDC, the Treasury, as well as the Secretary of State, may risk falling within the definition of shadow director in relation to the CDC or an associated company. Therefore, it is appropriate that the exclusion should apply to the Treasury also, for the reasons to which I referred earlier. I beg to move.

On Question, amendment agreed to.

Clause 21 [Treasury consent]:

Lord McIntosh of Haringey moved Amendment No. 2:

Page 9, line 19, at end insert— ("( ) making an order under section 1(3),").

The noble Lord said: My Lords, Clause 21 ensures that the Secretary of State can take certain financial steps under the Bill only with the Treasury's approval. This amendment adds a further action to the list contained in that clause. It ensures that the Secretary of State can make an order providing for the allotment of shares on CDC's registration only with the consent of the Treasury.

The making of that order, relating as it does to CDC's financial restructuring, falls within the province of the Treasury. I beg to move.

On Question, amendment agreed to.

Clause 25 [Interpretation: general]:

Baroness Rawlings moved Amendment No. 3:

Page 11, line 23, at end insert— ("(3) With the exception of this section this Act shall not come into force until the Secretary of State has laid in draft before the House of Commons an order contained in a statutory instrument making such provision relating to the tax liability of the CDC as will encourage private sector investment in it, and the order has been approved by resolution of that House.").

The noble Baroness said: My Lords, in Committee, we questioned a number of aspects of this Bill. It represents for the first time ever the practical application of private/public partnership, a rather nebulous idea. We are still sceptical about the PPP concept. It appears to presuppose that the only successful route is the third way that between the public and private sector. However, tertium non datum. I understand that a young progressive Government would wish to escape the stricture of Aristotelian logic. But we doubt the future success of the formalised third way.

However, in this particular case, we all want to see the continued success of the CDC/PPP—I apologise for so many acronyms. There are three fundamental elements which are crucial to the CDC's success: the balance sheet structure, the timing of the offer to the private sector and, last but not least, its tax status.

I do not believe that it is necessary to return to the first two elements with amendments. It is in the Government's interests to get the balance sheet and the timing right, as the Minister indicated in Committee. I take this opportunity to thank the Minister for his co-operation, understanding and, especially, for his clarity and candour in relation to all the previous points raised. Perhaps the Minister will help me once more by assuring us that, first, the CDC will be endowed with a strong balance sheet containing the right proportion of equity and loans so that it is attractive to private sector investors; and, secondly, that the offer of the CDC shares to the private sector will not be rushed, given the challenge of increasing returns without betraying the spirit of the development purpose. Of course, the respect of the latter is ensured by the memorandum and articles of association.

However, we feel we must return to the third and most important matter—that of the CDC's tax status—with an amendment. I should state at the outset that I am most grateful to the Minister for alerting me to the fault in the drafting of my original amendment. The effect of the redrafted amendment is to make the coming into force of the Act conditional on achieving for CDC tax liabilities which will be attractive to the private sector. I trust that the new wording is acceptable.

The amendment reflects our conviction that it is imperative for the success of the partnership that the CDC is tax efficient. Only through new tax-efficient provisions will the current downward trend of CDC's returns improve. Only if the returns improve will the CDC attract a sufficient number of private investors to make it a genuine PPP.

As the tax issue is so crucial, I feel that it is prudent to solve it at the outset. In a Written Answer given on 16th February, the Minister said: The Government have agreed the broad principles for a tax solution that will provide the Commonwealth Development Corporation Public Private Partnership (PPP) with the required tax efficiency".—[Official Report, 16/2/99; col. WA 74.] I hope that this debate will give the Minister the opportunity to expand on that important and welcome statement and that, having acknowledged the importance of the issue in Committee, he will be able to go further and accept the substance of the amendment. I beg to move.

Lord Redesdale

My Lords, I support the amendment. I begin by congratulating the noble Baroness, Lady Rawlings, on the reworking of the amendment because it is one which is extremely difficult to draft. This amendment comes from two amendments which were tabled separately in Committee. Having moved one of those amendments, I realise how difficult it is to achieve an amendment which meets the high criteria set out by the noble Lord. It may be that there are some problems with the wording of this amendment.

On these Benches, we support the initiative being taken in proposing a public/private partnership on the basis that it will, it is hoped, increase the amount of work that the CDC does on development in the developing countries, which can only be good. The issue, however, that has caused so much concern is that of tax. By tabling the amendment, we are putting forward our concerns that this issue has not been addressed.

In Committee, the Minister said that it was unlikely that he would be able, at this stage of the Bill, to come forward with a definitive solution to the problem. However, by accepting the amendment he would be acknowledging that there is a problem. I hope that when those in another place come to scrutinise the Bill they will be given the opportunity to consider proposals put forward. If they draft amendments, such amendments will come back to this House and we shall be given a second opportunity to scrutinise this point.

I hope very much that the noble Lord will accept the amendment. I specifically say that because in the seven years that I have been a Member of this House, I have never yet tabled an amendment that has been accepted.

Lord McIntosh of Haringey

My Lords, I am grateful to both the noble Lord, Lord Redesdale, and the noble Baroness, Lady Rawlings, for the way in which they dealt with the amendment. I confirm that we are very much on the same side in what we want to achieve from the Bill. I am afraid that the noble Baroness lost me with her Aristotelian logic. I was brought up in a much more rigid school where symbolic, mathematical logic was the order of the day. I hope that philosophy teaching is less rigid than it was when I was at university. I shall study to understand the import of what she said.

The noble Baroness asked whether I could assure her that the right proportion of equity and loans would be achieved to make the new CDC work properly. I can certainly give her that assurance. Even under its present regime, the CDC is already working very hard to reduce the proportion of its capital in the form of loans and to increase the proportion in the form of equity in preparation for the regime proposed by the Bill.

The noble Baroness asked for an assurance that we would not be rushed into the final stage of this process. I can give her that assurance also. Clearly, it is to nobody's advantage if we move to the market in the PPP, private/public partnership, format at a time when market conditions are unfavourable. We cannot anticipate now when that will be, but we shall certainly not be rushed into it.

I turn to the issue of taxation. The noble Baroness asked what tax regime is needed to attract sufficient private investment to provide the gearing which will improve the quantity and quality of the work that the CDC can do in developing markets. I can confirm that it is the Government's view that the CDC has to be tax efficient if it is to achieve its goal of investing in developing countries, using private capital raised in the context of a competitive private investment market dominated by offshore funds. As the House will know, it is the policy of the Government that we could not take the CDC offshore. It would be entirely inappropriate for an organisation of this kind to be located, for example, in the Cayman Islands.

The noble Baroness referred to my Written Answer of 16th February. I stated then that the Government have already agreed the broad principles for a tax solution that will provide the CDC public/private partnership with the required tax efficiency. Work is continuing on the details. However, I am sorry that such work has not been concluded to a sufficient extent to allow us to bring forward the necessary amendment to the Bill today or even at Third Reading.

We intend to introduce the necessary amendments to the CDC Bill at the appropriate time in the House of Commons. I make it clear that I refer to amendments to the CDC Bill rather than provisions in a finance Bill. That means that amendments introduced in the House of Commons will inevitably come back to this House for final decision. I can assure the House that there will be no move to Royal Assent without such an amendment or amendments being agreed by both Houses. Therefore, I think I can give both noble Lords the assurance they seek that we shall not conclude proceedings on the Bill without the tax solution which they and we require.

Amendment No. 3 would require the Secretary of State to lay before the House of Commons an order making provision as to the tax liability of the CDC, such provision as will encourage private sector investment in it, and to have that order approved by the House of Commons. The Government are not opposed to the sentiment behind the amendment. I hope I have made that entirely clear. However, we believe that secondary legislation would be the wrong way to make this kind of provision concerning tax. I well understand the difficulty experienced by those who framed the amendment. It is impossible to put an amendment into primary legislation which anticipates a provision which cannot yet be made. I appreciate that the advice from the Public Bill Office created great difficulties for them. I sympathise. However, I am sure they will understand that the proper way to make the necessary provision is by primary legislation and that is what we intend to do by tabling amendments to the Bill in the House of Commons.

With those assurances and expressing much regret to the noble Lord, Lord Redesdale, who wants an amendment on the statute book in his name—I am sure we can find a way of doing that—I urge the noble Baroness not to press the amendment to a vote.

Baroness Rawlings

My Lords, I wholeheartedly thank the Minister for his answer and assurances. I thank the noble Lord, Lord Redesdale, too, for his support. I congratulate the Government on finding an opportunity to include this matter. In particular, I appreciate the determination of the Minister in pursuing the matter with the Treasury and the Inland Revenue. I know that that is not an easy task.

The proviso attached to the tax rate also demonstrates the Government's commitment to PPP. I am sorry to hear that the Minister is unable to accept the amendment. However, as he has accepted the spirit of it, I shall withdraw it for the moment. No doubt we will return to it at a later stage. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Schedule 2 [Modification of Companies Act 1985, & C.]:

Lord McIntosh of Haringey moved Amendments Nos. 4 and 5:

Page 15, line 14, leave out ("the Secretary of State shall not") and insert ("neither the Secretary of State nor the Treasury shall").

Page 15, line 16, leave out ("Corporation is wholly owned by the Crown") and insert ("Crown continues to hold any special share provided for under the Corporation's articles of association").

The noble Lord said: My Lords, I spoke to these amendments with Amendment No. 1. I beg to move.

On Question, amendments agreed to.