HC Deb 12 December 1989 vol 163 cc635-8W
Mr. Gordon Brown

To ask the Secretary of State for Trade and Industry if he will now publish the final terms of the agreement between British Aerospace and the Government on tax, cash and assets.

Mr. Ridley

I have already written to the hon. Member explaining how I am handling requests for documentation relating to the sale of the Government's shareholding in Rover Group to British Aerospace.

I have placed copies of my letter in the Library of the House.

Mr. Gordon Brown

To ask the Secretary of State for Trade and Industry (1) if he will publish any notes or correspondence involving his Department over the tax affairs of British Aerospace;

(2) if he will publish the letters between his Department and British Aerospace on tax matters relating to the Rover deal.

Mr. Ridley

Tax matters of British Aerospace are for the Inland Revenue and would be subject to normal confidentiality rules; however, to assist understanding of this matter arrangements have been made exceptionally and with the agreement of British Aerospace to provide to the Public Accounts Committee and the Trade and Industry Select Committee copies of the exchange of letters between the accountants of BAe and the Inland Revenue which is referred to in the letter of 12 July 1988 from the then Secretary of State for Trade and Industry to the chairman of British Aerospace. Copies of this exchange are available in the Library of the House with my letter today to the hon. Member.

The Department of Trade and Industry of course has no direct locus in such tax matters and its dealings with British Aerospace on tax were therefore concerned with the contractual arrangements by which Rover Group was effectively denied the benefit of pre-acquisition carried forward trading tax losses in excess of £500 million to which Rover Group was entitled under the normal rules applying to United Kingdom companies. Contractual arrangements had also been inserted in the original conditional sale agreement in March 1988 by which the use of disclaimed capital allowances and capital losses were effectively ring-fenced within Rover Group; this restriction was lifted in the final terms so that the situation on these tax benefits was no more, and no less, restrictive than that determined by tax law.

Mr. Gordon Brown

To ask the Secretary of State for Trade and Industry if he will publish correspondence relating to the side-letter offered by the former Secretary of State for Trade and Industry.

Mr. Ridley

The side-letter on on-sale offered by the former Secretary of State in his letter of 12 July 1988 to the BAe chairman was finalised on 14 July and copies have been made available to the Public Accounts Committee and Trade and Industry Select Committee and placed in the Library of the House.

Mr. Gordon Brown

To ask the Secretary of State for Trade and Industry if he will publish the memorandum of understanding between the British Government and the European Commission over the sale of Rover.

Mr. Ridley

The Commission's decision under article 93(2) of the treaty of Rome in respect of the aid proposal to Rover Group in the context of its sale to BAe was published in theOfficial Journal of the European Communities on 28 January 1989.

Mr. Gordon Brown

To ask the Secretary of State for Trade and Industry if, in negotiations over the sale of Rover, he was made aware that British Aerospace would seek to accelerate use of tax losses through the creation of leasing companies.

Mr. Ridley

The Department was aware that this was one idea which British Aerospace was looking at, and one that it might seek to implement subject to normal tax law.

Mr. Gordon Brown

To ask the Secretary of State for Trade and Industry what discussions took place on launch aid for Airbus as part of the negotiations over the sale of Rover.

Mr. Ridley

There were no discussions on launch aid for Airbus as part of the negotiations over the sale of the Rover Group.

Mr. Gordon Brown

To ask the Secretary of State for Trade and Industry what discussions took place on military and civil contracts unrelated to Rover as part of the negotiations over the sale of Rover.

Mr. Ridley

In the negotiations over the sale of the Rover Group the only discussions about contracts unrelated to the Rover Group concerned the Columbus programme, as set out in my statement of 30 November (Hansard, columns 859–60).

Mr. Gordon Brown

To ask the Secretary of State for Trade and Industry what is the cash value of the deferred payment of £150 million for 20 months for the Rover Group; and at what rate of interest the value is calculated.

Mr. Ridley

Our most recent estimate of the net cost of deferring the £150 million consideration from the date of completion (12 August 1988) until the end of March 1990 is £22 million, calculated at a post-tax rate of interest in line with base rate. The £22 million estimate made at the time was a gross calculation which made no allowance for tax.

Mr. Gordon Brown

To ask the Secretary of State for Trade and Industry what was the estimate of the value to British Aerospace of the capital losses incurred by the Rover Group.

Mr. Ridley

The Government were not in a position to calculate what use British Aerospace might make in future of tax benefits arising from its acquisition of Rover Group and available to it under normal tax law; such valuations are highly subjective and dependent on assumptions of future taxable capacity of the enlarged British Aerospace group. The Touche Ross valuation commissioned and published by the NAO put a nil or negligible value on these losses.

Mr. Gordon Brown

To ask the Secretary of State for Trade and Industry what was the final amount of trading tax losses written off in the final agreement between British Aerospace and the Government.

Mr. Ridley

Rover Group's trading tax losses remain precisely what they are entitled to under normal tax law. However, the contractual sale arrangements between DTI and British Aerospace provide that if in post-acquisition tax computations Rover Group claims the benefit of pre-acquisition trading tax losses in excess of £500 million, such benefit will be 100 per cent. clawed back.

Mr. Gordon Brown

To ask the Secretary of State for Trade and Industry what was the Government's calculation of the tax benefits to British Aerospace of the final contract with British Aerospace.

Mr. Ridley

As I have explained in my letter today to the hon. Member, the Government were not in a position authoritatively to calculate the value to British Aerospace of tax benefits arising from its acquisition of Rover Group and available to it under normal tax law. Such values would depend on the extent and timing of taxable events in the future and estimates are highly subjective—as, is shown by the differing valuations of certain of these tax benefits discussed in the Comptroller and Auditor-General's report on the sale.

Mr. Gordon Brown

To ask the Secretary of State for Trade and Industry what was the value of the capital allowances pool from Rover that could be set against tax(a) in March 1988 and (b) in August 1988.

Mr. Ridley

The Government were not in a position to calculate what use British Aerospace might make in future of tax benefits arising from its acquistion of Rover Group and available to it under normal tax law; such valuations are highly subjective and dependent on assumptions of future taxable capacity of the enlarged British Aerospace group. The only change in treatment of the Rover Group capital allowance pool between the dates referred to was a contractual one. Under the March conditional terms future use by British Aerospace (where permitted under normal tax law) of disclaimed Rover Group capital allowances outside the Rover Group would result in the benefit being 100 per cent. clawed back by the contractual sale arrangements. Under the final terms of the sale this clawback was lifted.

Mr. Gordon Brown

To ask the Secretary of State for Trade and Industry whether any disclaimers of capital allowances were made by Rover within the statutory time limits.

Mr. Ridley

That is a matter for Rover Group. Such disclaimers are a normal feature of tax practice available to any company and the Inland Revenue's normal rules of tax confidentiality apply.