§ Mr. Wickendenasked the Chancellor of the Exchequer whether, further to his answer of 4 July to the hon. Member for Dorking, a proportion of future tap stock issues will be made on lower interest, shorter redemption terms; and why it would be inappropriate in relation to the general structure of corporation tax to treat interest on such tap stock issues as franked investment income given that, whilst to do so would not necessarily reduce the cost to the Exchequer of related borrowing, such cost would not, under normal circumstances, be increased.
§ Mr. LawsonThe Government remain ready to issue short-dated stock in circumstances in which it is deemed appropriate to do so on cost or other grounds. To treat interest on gilt-edged stocks as franked investment income would be to treat them as dividends. Dividends received by a company are not normally subject to corporation tax, on the ground that they are paid out of profits which have already been so subject. It would be inappropriate to treat gilt interest in this way, and there would be no certainty that the consequent revenue forgone would be matched by the savings to debt interest costs arising from the opportunity to issue stock on more favourable terms. Total Exchequer borrowing costs might therefore be increased.