§ Mr. Formanasked the Chancellor of the Exchequer when certificates of tax 569W deposit began to operate; to what quantities these tax deposits have risen; and whether he has any evidence that companies are arbitrating between bank loans and such deposits.
§ Mr. John Garrettasked the Chancellor of the Exchequer if he will investigate the extent of borrowing by companies to invest in tax reserve certificates; and if he will make a statement.
§ Mr. Denzil DaviesThe present scheme of certificates of tax deposit was introduced on 6th October 1975. The cumulative value of deposits received by the Inland Revenue from the date of introduction to 22nd November 1977 is as follows:
£ million Actual 835 Applied against liabilities or encashed 77 Still held 758 It is not possible to link sources of company funds, including borrowing from banks, to specific uses. Some companies may have chosen to use funds accruing to buy certificates of tax deposit, rather than reducing their indebtedness, purchasing other financial assets, or adding to their bank deposits. Moreover, some companies may have increased their borrowing with a view to purchasing these certificates. But the amount involved is unlikely to be large; the interest rate differential between certificates of tax deposit and competing instruments has been relatively small, and it has now been reversed by the recent increases in short-term interest rates. Purchasers are able to earn the full rate of interest—currently 6 per cent. on new purchases—only if the certificates are used to discharge their tax liabilities; if surrendered for cash they earn the lower rate of 4 per cent.