HC Deb 27 February 1995 vol 255 cc395-6W
Mr. Jim Cunningham

To ask the Chancellor of the Exchequer if he will make a statement on the implications of his plans to stop the tax loophole between companies in banking groups in respect of discounted securities on housing associations which are partly financed by the use of discounted securities.

Sir George Young

I assume that the hon. Gentleman has in mind the proposals at clauses 76 and 77 of the current Finance Bill. These are not directed solely at transactions between companies in banking groups, and I understand from representations that about a dozen housing associations have issued securities on discounted or indexed terms that they believe will be affected by my right hon. and learned Friend's proposal. It appears that these associations have given indemnities to the holders of their securities against the effects of changes to their tax treatment. It follows, if the clauses in question pass into law, that these borrowings and any further borrowings on similar terms will cease to offer reduced borrowing costs compared with more conventional borrowing. We have, however, proposed that existing borrowings by housing associations should not be subject to the new basis of charge until 1 April 1996. This will give the associations concerned a breathing space in which to rearrange their financial plans.

Mr. Jim Cunningham

To ask the Chancellor of the Exchequer what estimate he and the Secretary of State for the Environment have made into how much of the private finance raised by the housing associations has been achieved via the use of discounted securities.

Sir George Young

I understand from representations received and from press reports that about £130 million of borrowing in aggregate may have been raised by housing associations' issuance of discounted securities, and about a further £30 million by issuance of indexed securities which may also be affected by the measure I believe the hon. Gentleman has in mind. These figures total some 2.5 per cent. of estimated total private sector borrowing by housing associations.

Mr. Jim Cunningham

To ask the Chancellor of the Exchequer if he has had discussions with the Secretaries of State for Health and for the Environment, following the Department of Health's approving the use of discounted securities for a housing association to finance low-rent accommodation for student nurses and junior doctors in 1989.

Sir George Young

My right hon. and learned Friend took the views of ministerial colleagues fully into account in deciding to extend a degree of transitional protection to existing borrowings by housing associations.

Mr. Jim Cunningham

To ask the Chancellor of the Exchequer if he will make it his policy(a) to amend his proposals to exempt housing associations in his proposed plan to curb tax avoidance with discounted securities and (b) to issue advice to the Housing Corporation and other relevant bodies on alternative means to raise private finance.

Sir George Young

We have proposed amendments to this year's Finance Bill granting a degree of transitional relief for existing borrowings by housing associations. For the future, these bodies already know of alternative means of raising private finance to those affected by our Budget proposals, and have used them for the overwhelming majority of their borrowing.

Mr. Jim Cunningham

To ask the Chancellor of the Exchequer what discussions he has had with the Secretary of State for the Environment about ensuring that housing associations' issue of discounted securities will not be affected by any action to curb tax avoidance in respect of discounted securities between subsidiaries in a banking group.

Sir George Young

My right hon. and learned Friend's proposal is not directed solely at transactions between subsidiaries in a banking group, and it is appropriate that securities issued by housing associations should come within its scope if they have the relevant characteristics. We have, however, concluded that it is appropriate to extend a degree of transitional protection to existing borrowings by housing associations.

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