Finance Bill

Public Bill Committee, 3 May 2001.

Standing Committee A

(Except clauses 1 to 3 and 16 to 53 and - schedules 4 to 11)

Michael Clark (Conservative, Rayleigh)

Before we commence our proceedings, I wish to make two announcements. First, I promised the right hon. Member for Fylde (Mr. Jack) confirmation of the ruling that I made a week ago regarding laptop computers and other such devices in Committee. I have checked with the Chairman of Ways and Means and the ruling that I made is correct. There has been no change to that ruling since last year. Laptop computers are not allowed in Committee.

Secondly, for the benefit of the Government Whip, I should say that the chuckwagon will be here at about 11 o'clock. I am sure that I do not have to remind him that it is necessary to remain quorate if members of the Committee wish to respond to the refreshments that will be provided outside the Room.

Graham Allen (Labour, Nottingham North)

On a point of order, Dr. Clark. I have been in intensive negotiations this morning with those in the Refreshment Department and understand that it will be convenient for them if the chuckwagon arrives between 10.30 and 10.45 am. The Department is short staffed, but because of our cross-party representations, it has agreed to provide refreshments at that time.

Michael Clark (Conservative, Rayleigh)

Thank you. The quorum situation has not changed—unless the hon. Gentleman has renegotiated that, too, which I very much doubt. There still needs to be 10 members of the Committee present in the Room. The quorum is 11, and that includes me.

Andrew Bennett (Labour, Denton and Reddish)

On a point of order, Dr. Clark. Will you express to the Chairmen's Panel hon. Members' considerable concern about the arcane ruling on laptop computers? I accept that any equipment in the Room should not interfere with the proceedings of the Committee, but it is a mystery why we cannot have such devices, given that they would make us more efficient in Committee.

Michael Clark (Conservative, Rayleigh)

A ruling was made a year ago in response to a point of order raised in last year's Finance Bill Committee by the right hon. Member for Fylde. The subject was discussed extensively with the Chairmen's Panel and the Chairman of Ways and Means and it was felt strongly by the Chairmen that the devices should be allowed in Committee, provided that they were used to help hon. Members understand the proceedings of the Committee better, not for letter writing and constituency work. Unfortunately, despite that strong recommendation, it seems that the ruling has not been changed. I shall therefore, on behalf of members of the Committee, ask the Chairman of Ways and Means once again to pursue the matter, so that we may come to a more acceptable ruling.

Michael Jack (Conservative, Fylde)

Further to that point of order, Dr. Clark. I raised the original point of order because last year's ruling was that no electronic devices should be brought into Committee. It so happens that, of all the electronic devices that may be within the curtilage of Committee Room 10, laptop computers were singled out as the electronic device that could not be used. In response to my letter, the previous Speaker very kindly said in a postscript that the matter should be looked at. I am most grateful to you, Dr. Clark, for again seeking a review of the matter by the Chairmen's Panel and others, perhaps with a view to a ruling for the next Parliament.

Michael Clark (Conservative, Rayleigh)

The right hon. Gentleman will realise that my previous ruling was against him—I am not using that word offensively. I was obliged to make it to conform with the rules of the House. I made representations on his behalf for the ruling to be changed.

David Taylor (Labour/Co-operative, North West Leicestershire)

Further to that point of order, Dr. Clark. The Select Committee on the Modernisation of the House of Commons, of which I am a member, has discussed the matter in detail, and continues to do so. It hopes, in the next Parliament, to offer recommendations to the House in relation to the use of laptops and other electronic devices. Many members of the Select Committee consider such reform to be overdue.

Michael Clark (Conservative, Rayleigh)

I thank the hon. Gentleman for that explanation.

Clause 70 ordered to stand part of the Bill.

Schedules 22 and 23 agreed to.

Clause 71 ordered to stand part of the Bill.

Schedule 24 - Creative artists: relief for fluctuating profits

Oliver Letwin (Conservative, West Dorset)

I welcome schedule 24 as it offers the clearest possible exposition of averaging. It is a great improvement on the previous incomprehensible palimpsest, and I congratulate the people who drafted it.

I wish to raise three brief points with the Paymaster General. The first of them is a minor point. Paragraph 6(3) retains the taper for variations in annual profits of between 70 and 75 per cent. In the context of what is now a rational exposition of averaging, why is it necessary to distinguish that particular case? I have no preference between the two cut off levels: either 70 per cent. or 75 per cent. would satisfy me, if simple averaging were applied. The Chartered Institute of Taxation has made a similar point, and I can see no abiding reason for that sole remaining complexity. I do not intend to go to the stake about the matter, but I hope that the Paymaster General will consider dispensing with paragraph 6(3).

I hope that my second point is in order, Dr. Clark. Although the schedule is admirable, it relates exclusively to artists. Some of my constituents are artists but, as the Paymaster General will be aware, many more of them are farmers, who are also subject to averaging. That is a good thing—and, this year, averaging is, of course, especially important to them. However, averaging is not applied to their income in a way that an ordinary human being can understand, as their affairs are still mired in the old text. I do not claim that, if the new text were to apply to them, all my farmers would immediately sit down and read schedule 24, but at least their accountants would understand what was going on, which would be a major advance. It would be nice to have an assurance that in due course, they will be included.

Prospective averaging applies to the professions covered by the provision. I draw the Paymaster General's attention to paragraph 4(3), in lines 1 and 2 of page 213, which contains a provision for averaging years 1 and 2, and years 2 and 3. With a simple arithmetic example, I can determine that it is perfectly drafted, as it achieves exactly the right effect. However, some people—in this case, artists working on a commission that they know will be complete not next year but the year after, or farmers who know that there is nothing that they can sell in the coming year—have reason to know that their profits will be much affected in a coming year. Such people could fairly easily establish that with the Inland Revenue, and subsequent averaging would catch up with the fact in any event. In such circumstances, it would make sense to provide for prospective averaging.

I have previously asked the Paymaster General whether, specifically in relation to farmers, the Inland Revenue will now take a relaxed and generous attitude to provisional, or prospective, averaging. No provision is made for that. Have inspectors been given by the policy divisions of the Inland Revenue any guidance that would lead them to be generous in allowing provisional averaging? I cannot envisage how, in the case of artists, to which the schedule specifically relates, someone could go to the stake on the issue, but for farmers, as the Paymaster General knows, it is a live issue; indeed, for some of them it is, economically, a matter of life or death.

I hope that the Paymaster General will reassure us on the questions of the application of the much clearer format to farming in due course and of provisional and prospective claims for averaging. Having said that, if all our tax legislation were as beautifully clear as the schedule, we would be in a much better position.

John Burnett (Liberal Democrat, Torridge and West Devon)

Averaging for farmers has a long and, as I am sure Labour Members will agree, distinguished origin. It was introduced by the 1978 Labour Government, at the behest of Lord Jim Callaghan. I hope, therefore, that my words will find sympathy with Labour Members, as I believe that they will Conservative Members and my own hon. Friends.

I join the hon. Member for— [Interruption.]

Oliver Letwin (Conservative, West Dorset)

West Dorset.

John Burnett (Liberal Democrat, Torridge and West Devon)

I join the hon. Member for West Dorset (Mr. Letwin) in a plea for simplicity—

Oliver Letwin (Conservative, West Dorset)

I apologise for being slow to respond. I was merely amused by the hon. Gentleman's reference to his hon. Friends, as the Liberal Democrat Benches are currently empty. Does he agree that averaging is an interesting case of a good measure that received cross-party support when it was proposed?

John Burnett (Liberal Democrat, Torridge and West Devon)

Absolutely. I believe that the proposal had support from the then Liberal party as well as from the Conservative and Labour parties. Unfortunately, it had been complicated—not, I suspect, at the behest of this House, although it obviously got through.

My plea is for simplicity. Inland Revenue press release BM 12 refers to matching this relief to that for farmers, so it is not entirely irrelevant to consider what has happened to farming over the years. Let us have a simpler system.

I would like to drop a hint to Treasury Ministers. Not many farmers have made a profit over the past five years, so the relief for them is not exactly substantial, especially in the light of that collapse of farm incomes and profit. I hope that Treasury Ministers will consider a one-off right to average over the past six years for agriculture in its present parlous condition, given the huge burdens being suffered.

Dawn Primarolo (Labour, Bristol South)

I shall deal first with the style of the rewrite of section 96 of the Income and Corporation Taxes Act 1988. Hon. Members referred to the scheme that operates for farmers. Schedule 24 is written in the tax law rewrite style because it introduces the new scheme for creative artists, which has been widely welcomed by the Committee and by representative bodies. The rewrite arose out of the need to deal specifically with creative artists. The scheme that it succeeds was not well used, no doubt because of its complexity.

I hear what the hon. Member for West Dorset (Mr. Letwin) says when he asks why we did not rewrite the provisions for farmers, and the tax law rewrite project is examining that. However, we are simply replacing one scheme with another as opposed to an update—it would merely be a rewrite of what is working well for farmers. None the less, I am sure that we would all agree that the tax law rewrite style is vastly superior. I take the point about rewriting the scheme for farmers. We did not do that on this occasion, as will be appreciated by the hon. Members for West Dorset and for Torridge and West Devon (Mr. Burnett)—I can get the county, but I always hesitate over whether or not it is west, for which I apologise. We have been focusing on other issues; especially with regard to the difficulties farmers are experiencing with foot and mouth disease. This part of the Bill is not the place to deal with farmers' difficulties. I have listened carefully to the points made by hon. Members about what measures are necessary to assist farmers and I will certainly examine them.

The tapering is quite straightforward. The Chartered Institute of Taxation made a similar point—without the tapering a cliff-edge would be created between those entitled to averaging and those who are not. The same tapering rules are in use for farmers and have been used without difficulty, notwithstanding the points that the hon. Gentleman made about other difficulties that farmers are experiencing. Again, the Government are always prepared to examine arguments, but we were not persuaded on this occasion. None the less, I shall bear in mind the points made by the hon. Gentlemen.

On provisional claims, the hon. Gentlemen answered their points themselves, because averaging is a composite claim affecting two years, not just one. Therefore, to adjust liabilities on the second year on expectation—before the tax year was completed—would bring complications, if not unfair treatment, compared with other methods. The averaging principle, which we all agree is good, is therefore the right one to operate. The provision has been widely welcomed. It is narrow and specific in its application to creative artists, but, none the less, I shall consider again the points made by the hon. Gentlemen. On previous Finance Bill Committees on which I have served, Dr. Clark, you have that seen that I keep my word. When I promise to consider something again, I do so, and the Government would, of course, make the necessary judgments.

John Burnett (Liberal Democrat, Torridge and West Devon)

I am extremely grateful to the Paymaster General for the points that she has made. I merely want to remind her that expectation of profits and losses is part and parcel of the self-assessment system.

Dawn Primarolo (Labour, Bristol South)

I take the hon. Gentleman's point. I am trying to take a short cut through a debate on which we do not disagree. As I said, I shall look at some of the points made, but I must consider the balance across the tax system in terms of how other taxpayers are treated. Even though slightly different methods are used in different circumstances, it has the same result for all taxpayers. I acknowledge that the hon. Gentleman has made interesting and fair points, but I think that he will appreciate that they are not part of our current discussion. In good faith, I have taken his points on board.

Oliver Letwin (Conservative, West Dorset)

I am grateful to the Paymaster General for those comments. I know from experience that she means what she says in that regard.

First, I want to put on record a point about the taper. Although I do not regard it as deeply significant, perhaps the Paymaster General will reflect on it. It is perfectly true that the absence of a taper will create a cliff edge—that is evident to anybody. The general principle behind the Government's attitudes to a large number of tax and quasi-benefit tax credit issues is that they would like to avoid cliff edges. The Government, and, indeed, the Chancellor, are keen on relatively slow tapers. However, every taper has two features, and one appears here, alone, which is rather complicated. I do not want to over-stress the point with hyperbole—it is not the end of the world, and it is not that complicated—but it complicates a schedule that is otherwise blissfully simple. In the case of tax credits, the complexity multiplies manifold.

Secondly, by avoiding a cliff edge, tapers cause prolonged but reduced agony. I hope that the Government will reflect on the proposition that it is often better to have simplicity allied to a sudden 100 per cent. marginal rate applying over a tiny patch of terrain than, for example, the prolonged 55 per cent. withdrawal rate in relation to the working families tax credit, which stretches over a large terrain. That is a tiny example of the general phenomenon, and I do not want to claim, as it would be untrue, that artists are facing a massive disincentive in relation to this. However, the complexity is introduced even here. There is a general Inland Revenue or Treasury predisposition to avoid cliff edges. Somewhere in a permanent secretary's training book, it says, ``Avoid cliff edges''.

Dawn Primarolo (Labour, Bristol South)

Fall off and be hurt.

Oliver Letwin (Conservative, West Dorset)

Yes. The manual should be rewritten to read, ``Seek cliff edges to avoid prolonged and complex tapers.''

Dawn Primarolo (Labour, Bristol South)

The debate is extremely interesting. It concerns the hon. Gentleman's wider point, which is to ensure that balance, complicity and equity are proportionate. Some taxpayers may be sacrificed by ignoring the cliff edge on the basis that they make up a small number. That is interesting in terms of how a Government would approach the simplification of tax and it tends to cause tension in any debate about tax changes. I fully appreciate that it is the job of the Opposition to raise such points, however small the group that may be disadvantaged and we shall refer to that in later clauses.

I am looking forward to how the Opposition will approach the debate on equity and simplicity. None the less, the hon. Gentleman is not making a huge point. He does not want to go to the stake on the issue, and nor do I. I am grateful for his comments and I shall consider the matter again. He is right to say that we want to avoid cliff edges, when possible, but we must decide the point at which we say that, unfortunately, some people are subject to the best result, but that this is the best that we can come up with. That will vary in different debates, but the hon. Gentleman's general point is fair and I note what he said.

Question put and agreed to.

Schedule 24 agreed to.

Clauses 72 to 75 ordered to stand part of the Bill.

Clause 104 ordered to stand part of the Bill.

Clause 76 - Taper relief: assets qualifying as business assets

Howard Flight (Conservative, Arundel and South Downs)

I beg to move amendment No. 34, in page 49, line 38, leave out `Those' and insert—

`In subsection (7) of section 76 of the Finance Act 2000 for ``6th April 2000'' substitute ``6th April 1998''.

(3) These'.

Michael Clark (Conservative, Rayleigh)

With this we may take amendment No. 35, in page 49, line 39, leave out `amendments made' and insert `provisions brought into effect'.

Howard Flight (Conservative, Arundel and South Downs)

We welcome clause 76, in general, which extends business taper relief to non-trading companies because of the problems with the definition of trading companies and because greater moral worth is not necessarily attached to trading than to non-trading companies. I suggest gently that to be in accordance with the tax law rewrite, subsection (2) might be better read if it made reference to the dates on which the amendments would have effect rather than referring back to previous legislation.

Our amendments reflect that the extension still has the complexities of different dates between the start of taper relief and the start of business relief. Taper relief rules apply from April 1998, but the new rules on business assets came into force only in April 2000. The result is that many people who acquired assets before April 2000 on terms which then did not qualify for business asset taper, but which now do, have a less favourable as well as a different tax situation from those who acquired business assets after April 2000. In many cases, they may end up paying more capital gains tax, rather than less. The amendments seek to address and cure that problem and to get rid of the considerable tax complexity that results from the two different dates.

There is a view that it might be more satisfactory, in due course, to have a workable statutory definition of qualifying companies for the purpose of business assets. In addition, there are still investors who are not employees and those who hold more than 10 per cent. We would continue to argue for an amendment to the trading company definition that is based wholly or mainly on purpose, rather than on activities, as at present.

Dawn Primarolo (Labour, Bristol South)

I remind the Committee of the policy background of the arrangements in the clause. Two principles govern access to the more generous business assets rate of capital gains tax taper relief. The first is to encourage desirable investment by compensating for risk in, for example, unlisted trading companies. The second is to encourage employees to align their interests, so to speak, with those of the company for which they work, through share ownership.

As the hon. Gentleman explained, the purpose of amendments Nos. 34 and 35 is to backdate to 6 April 1998 the benefits of the new definitions of business assets that were included in the Finance Act 2000 and, in particular, the benefits in clause 76. There are several reasons why I do not wish to do that: it would produce no increase in productivity or benefit to the economy; it relates to past behaviour; and it would be expensive, with substantial deadweight costs.

The changes that the Government made last year provided real and positive encouragement to entrepreneurial investment and greater employee share ownership. Our aim is to provide the right conditions to boost productive business activity. The amendment would not achieve that. It provides no encouragement for the future, but seeks instead to reward past activity. Therefore, the hon. Gentleman will not be surprised that I am not attracted to it.

The amendments would be extremely expensive. I am sure that the hon. Gentleman would agree that a cost of some £300 million during the next three years for activity that has already occurred would not be considered a good investment, by any stretch of the imagination. In my view, that expenditure would be wholly wrong. I understand the hon. Gentleman's argument, but the Government are not attracted to it.

In addition, the amendment would require us to revisit closed tax assessments and would direct money away from the new enterprise economy, rather than providing incentives for growth. Those are real problems. I think that the hon. Gentleman agrees with our changes, but wishes that we had made them last year, so that the benefit would have accrued over that time. I am sure, however, that he appreciates that it would not be—dare I use the word?—prudent to use £300 million to reward what has already happened. Therefore, if the hon. Gentleman presses the amendment to a vote, I ask the Committee to reject it.

Howard Flight (Conservative, Arundel and South Downs)

I thank the Paymaster General for her clear exposition of the Government's stance. We have only £8 billion in spending reductions to play with, so if we find ourselves in power, I accept that £300 million is a mature sum of money.

John Burnett (Liberal Democrat, Torridge and West Devon)

The hon. Gentleman will recall the lengthy discussions that we had on this point last year. Does he agree that the philosophy behind taper relief is that it rewards length of time of ownership? In other words, the longer one has the asset, the more relief one receives. His amendment would ensure that individuals were not disadvantaged for complying with that philosophy. They will have held the asset for a long time, so they should enjoy the same benefits as do people who acquired the asset after April 2000.

Howard Flight (Conservative, Arundel and South Downs)

I thank the hon. Gentleman for his comments. I agree only to the extent that taper relief is allied with business relief. The broad concept relates to those people who work hard for a business, make it succeed, acquire a manager-owner mentality and so on. A mixture of business relief and taper relief is designed to achieve that.

The argument about longevity of holding by itself is much more questionable. Indeed, many economists would argue that it causes considerable economic distortion, and that the Government's attempt to change the capital gains tax regime purely in that context is economically misconceived. There is, however, a straight trade-off between money and fairness. There is a considerable and justifiable feeling of unfairness among longer-serving employees, who will end up paying more on their shares in the company, even though they almost certainly worked just as hard before April 2000 as they have done since. That has largely been the nature of employee share-ownership.

The argument about fairness and, overall, about creating employee ownership in companies is consistent with the amendments and with the case that we argued last year. However, the Government have made it clear that they will not give way, for the reason that has been given. On that basis, I beg to ask leave to withdraw the amendment.

Mr. Burnett rose—

Michael Clark (Conservative, Rayleigh)

I wonder whether the hon. Member for Arundel and South Downs (Mr. Flight) would care to withdraw his amendment after the hon. Member for Torridge and West Devon, whom I meant to call before, has spoken. If I may say so, the hon. Gentleman did not rise quite as promptly as I would have wished.

John Burnett (Liberal Democrat, Torridge and West Devon)

I apologise, Dr. Clark. You are quite right that I should be quicker off the mark.

I hope that the hon. Member for Arundel and South Downs agrees that the Government's philosophy—I am not questioning its merits or otherwise—is to reward length of tenure of ownership. It seems to me this year, as it did last year, that discriminating against those who have held the assets for longer flies in the face of that philosophy.

Howard Flight (Conservative, Arundel and South Downs)

I accept, as night follows day, that that is a logical argument. However, I reserve our position on the principal argument for longevity of ownership. I think, however, that everyone agrees that share ownership by employees is economically and personally successful and desirable.

I stand by the comments I made earlier, and I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 76 ordered to stand part of the Bill.

Schedule 25 - Capital gains tax: taper relief: business assets

Howard Flight (Conservative, Arundel and South Downs)

I beg to move amendment No. 42, in page 217, leave out lines 11 to 14 and insert

`the trustees of the settlement'.

This is a simple drafting amendment. As drafted, the words are redundant. Having both sub-paragraph (2)(i) and (ii) is unnecessary. The words:

``(ii) any one or more of the persons who at that time were the trustees of the settlement''

must surely automatically include all the trustees. Therefore, all that needs to be retained is sub-paragraph (2)(i) since for capital gains tax purposes trustees are a single body, and if one trustee is a member of a partnership, so are all trustees.

I should be grateful for an opportunity to comment on other aspects of schedule 25 in a brief stand part debate.

Dawn Primarolo (Labour, Bristol South)

I recognise that the hon. Gentleman was simply trying to simplify the text of part of schedule 25. Unfortunately, amendment No. 42 would knock a hole in the relief we are trying to give. If right hon. and hon. Members can bear with me, I shall touch on trust law and the differences between the law in England and Wales and in Scotland, which is pertinent to this point. I realise that the hon. Gentleman was trying to achieve a straightforward simplification, but it creates problems.

There are a variety of circumstances in real life to which the tax law must adapt. I can illustrate one reason for the complexity of much tax law, which we all criticise at times. At present individuals may claim business asset taper relief if they use assets in their own trade or in a trade carried on by a partnership, of which they are a member. Trustees of a settlement may also claim business asset taper relief on assets that they use in a trade they carry on. However, they may not claim that relief on assets that are used in a trade carried out by a partnership of which they are a member. The hon. Gentleman has accepted that. We want to extend business asset taper relief to them in those circumstances. Throughout the United Kingdom individual trustees, acting in that capacity, may be members of partnerships. Even if all the trustees are members of a partnership, they will normally be partners as individuals. In Scotland, however, the trustees of a settlement as a body may be members of a partnership. The two sub-paragraphs are designed to cover both cases. The amendment would confine the extension of the business asset taper relief to those cases in Scotland in which trustees as a body were members of a partnership, because references to the ``trustees of a settlement'' in capital gains legislation are references to the body of trustees.

That is a complicated point, but I presented it as clearly as I could. The wording covers both eventualities. I do not believe that the hon. Gentleman intended to confine relief to specific cases, and I appreciate that he was trying to undertake a simplification. I hope that he will now see that the situation is more complicated than it first seemed, and the proposed new schedule should remain intact—and I hope that he will withdraw the amendment.

John Burnett (Liberal Democrat, Torridge and West Devon)

I have one small point. If trustees act in their capacity as trustees and qualify for relief, may they be in partnership with either a limited company or a limited liability partnership, and still receive relief?

Dawn Primarolo (Labour, Bristol South)

I am freely prepared to admit that, rather than respond now, I will need to write to the hon. Gentleman about that. I hope that hon. Members will forgive me for that; I try not to do that in Committee, and I will ensure that the letter is circulated to all Committee members. Of course, if the hon. Gentleman is unsatisfied with the answer, he may come back to me.

John Burnett (Liberal Democrat, Torridge and West Devon)

I am exceptionally grateful to the Paymaster General for her kind offer.

Howard Flight (Conservative, Arundel and South Downs)

I thank the Paymaster General for a most clear exposition of an obscure point involving English versus Scottish law, and she is right that I do not want to disqualify any party from business relief. However, that point and other issues readily demonstrate the need for a simplification of capital gains tax and a reduction in the rate; the Conservative party is pledged to that. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That this schedule be the Twenty-fifth schedule to the Bill.

Howard Flight (Conservative, Arundel and South Downs)

Although the issue was debated last year and the relevant amendment has not been selected, I want to raise again the unfairness of the way in which the new business asset rule affects people who retire or leave their employment through no fault of their own. The Paymaster General will argue that, as with synchronising business and taper relief, the policy is driven by revenue considerations. It does not need to be so driven. When people leave or retire, they sell their shares in the business for which they have worked, to maximise their enjoyment of the combined business and taper relief. Therefore, revenue is not at stake. Would it not be much fairer at least to consider amending the rules so that there is a sort of freezing of the status of the shares by reference to when they were acquired and how long they have qualified for business and taper relief at the time employees leave or retire, and for them to benefit from whatever that is whenever they sell them? It is somewhat unfair to force people to sell when they retire or are thrown out—and that, effectively, is what the tax regime does at present.

Dawn Primarolo (Labour, Bristol South)

That was discussed at length last year both in Committee and on the Floor of the House. I will not go through the entire debate again. I simply remind the hon. Gentleman that the purpose of the business asset taper relief on employee shareholdings is to promote productivity by aligning the interests of employees with those of the company for which they work. The benefit therefore cannot arise in the case of people who are no longer working for the company, whether that is because they have retired or because they have moved on to another job.

Business asset taper relief for non-employee investors is designed to encourage investments in productivity and to enhance trading companies by compensating for risk. If the companies cease to trade and become companies that exist only to hold the director's personal assets, or if the risk falls away, the special relief is no longer justified. That is the central case of the changes that the Government have made to date. I entirely accept that the hon. Gentleman will continue to make this point, because it feeds into a much wider point about the taper relief. However, despite the eloquent way that he advances his case, the Government are still not persuaded.

Howard Flight (Conservative, Arundel and South Downs)

Whereas there was a logic to the argument for continuing with the complex rules over different starting dates for business and taper relief, the logic that the Paymaster General cited does not stand up in relation to the type of change that we feel it would be fair to make. The time period will have been duly rewarded during the period of employment. The only practical effect of the rules as they are would be that people would inevitably sell when they ceased to be employed—and that may not even be in the interests of the company for which they have been working. At the bottom of the heap there is some decent clothing in relation to arguments about revenue. I do not see that there would be any loss of revenue, but that is not a reason to oppose the entire schedule.

Question put and agreed to.

Schedule 25 agreed to.

Clause 77 - De-grouping charge: transitional relief

Howard Flight (Conservative, Arundel and South Downs)

The clause covers fairly complex territory and its provisions are, in the main, welcome. I have had some difficulty in understanding the technical note about subsection (6). What are the circumstances in which a section 179 charge will arise when a company holding a previously transferred asset leaves a worldwide group less than six years after the transfer of the asset within an old UK-only capital gains tax group?

Dawn Primarolo (Labour, Bristol South)

The clause clarifies the transitional rules—[Interruption.]

Michael Clark (Conservative, Rayleigh)

Order. I do not mind conversations in Committee, but if hon. Members wish to speak they should move closer to each other rather than shouting across the Benches.

Dawn Primarolo (Labour, Bristol South)

The clause clarifies the transitional rules for the de-grouping charges, including those in the Finance Act 2000. The clause is designed to ensure that there will be no de-grouping charge where, after 1 April 2000, a company holding an asset previously acquired from another member within the group prior to 2001 is transferred out of the old group but remains within the worldwide group. The de-grouping rules apply where a company leaves a group holding an asset previously acquired from another group member in the previous six years.

The transitional rules will ensure that in such circumstances, an asset transferred outside the UK group after 1 April 2000 would not trigger a de-grouping charge, provided that the asset remained within the worldwide group. The Inland Revenue subsequently received representations that on one reading of the legislation—hence the changes—a de-grouping charge would be unintentionally triggered in certain circumstances. The modernisation of the group chargeable gains rules was welcomed last year and the clause will ensure that no de-grouping charge will be triggered in the circumstances that I have described. It has been widely welcomed.

I think that I have covered the issue of de-grouping. If not, the hon. Gentleman might like to make his point again. He seeks the assurance, which I can give him, that the clause tidies up the issue that we promised to tidy up.

Howard Flight (Conservative, Arundel and South Downs)

I thank the Paymaster General for that due tidying up.

Question put and agreed to.

Clause 77 ordered to stand part of the Bill.

Clause 78 - Attribution of gains of non-resident companies

Howard Flight (Conservative, Arundel and South Downs)

I beg to move amendment No. 36, in page 51, line 13, leave out `tenth' and insert `quarter'.

Michael Clark (Conservative, Rayleigh)

With this it will be convenient to take the following amendments:

No. 37, in page 51, leave out lines 16 to 22 and insert—

`(b) a chargeable gain accruing on the disposal of an asset which was acquired for bona fide commercial reasons and whose acquisition or disposal does not form part of a scheme or arrangements of which the main purpose, or one of the main purposes, is avoidance of liability to income tax, capital gains tax or corporation tax,'.

No. 38, in page 51, line 37, leave out `three' and insert `six'.

Howard Flight (Conservative, Arundel and South Downs)

We return to territory that is familiar from last year's Finance Bill. At Report stage of that Bill, the Opposition thought that we had persuaded the Paymaster General to accept the reasonableness of some of our key points on the provision. The Paymaster General instituted a process of inquiry, and the measures in the clause are an endeavour to be helpful.

I wish to raise two points before addressing the amendments. First, the clause appears to apply to some important businesses that did not know about the consultation process in due time; it was over before they could have their say. Secondly, the basic point of principle is that the underlying legislation had been introduced to block a particular tax so that a certain capital gains tax avoidance scheme, which I described last year as the Belgian wheeze, could not occur. I am sure that the Government's intent is not to damage or disadvantage the bona fide commercial interests of British groups or employee trusts or charities. The amendment increases the de minimis level from 5 per cent. to 10 per cent., which is helpful, but it does not address a situation in which 60 per cent. of an overseas closed company is owned by a particular shareholder and the 10 per cent. United Kingdom shareholder has no powers. A closed company is one that is controlled by five or fewer individuals, and I assume that the Government's 10 per cent. figure was conceived as being one fifth of the 50 per cent. needed for control. However, 10 per cent. is far too low to be a significant influence; a more credible level would be 25 per cent., as in most jurisdictions the shareholder has negative control and can block special resolutions and so acquire some power of influence.

Amendment No. 37 deals with slightly different territory. The part of clause 78 to which it relates is intended to be helpful, widening the range of assets that are exempted where tangible assets, used only for the purpose of a trade outside the United Kingdom, are replaced by any asset used only for the purposes of a trade outside the UK. However, there is a problem: section 13 of the Taxation of Chargeable Gains Act 1992 is an anti-avoidance section and, as we argued last year, surely it should be expressly confined to cases of tax avoidance. The amendment is based on section 137 of the same Act, giving clearance for reconstructions or amalgamations. The form of words will be familiar in many contexts; it has been widened to cover income tax, capital gains tax or corporation tax, to mimic the words in clause 78(4). Anti-avoidance measures should be fundamentally about purpose.

The changes in clause 78 to which amendment No. 38 relates are designed to be helpful in inserting new subsection (5A) of section 13, so that when a shareholder incurs a charge on an offshore closed company he will be permitted a subsequent credit against the repatriation of the proceeds of such gains. That would give taxpayers the ability to repatriate funds to meet the tax liability, and so to avoid double taxation. The problem is that the repatriation is limited to a period within three years of the end of the accounting period in which the gain occurred, or four years from the day on which the gain itself occurred. That could result in unfairness and double taxation, because it may not be possible for some shareholders to arrange for repatriation within the three or four-year period; that harks back to the situation in which there is 60 per cent. control by another party, but the Revenue can go back six years to assess tax liabilities on taxpayers. It means that a taxpayer might be ignorant of such a liability or unable to calculate it because of genuine compliance difficulties in overseas businesses that he does not control; the time limit under new subsection (5B) could thus expire before the Inland Revenue discovered the facts and made an assessment. It would be much fairer to extend the period for credit for repatriations to shadow the period in which the Revenue can make that assessment; a six-year period should be sufficient for the United Kingdom shareholder, one way or the other, to be able to repatriate the funds from closed companies that he does not control.

Michael Jack (Conservative, Fylde)

I support my hon. Friend, who has given a clear and reasoned exposition. I want to discuss amendment No. 37. At the heart of the matter is the concern that closed companies might be used for tax avoidance purposes. My hon. Friend was open in referring to a possible device, but the device is visible and known about, and its purpose is understood.

My hon. Friend observed that, following last year's representations, the Inland Revenue consulted on section 13, but the consultation exercise was not distributed as widely as it should have been. One company, Grosvenor Estates, expressed interest last year, but was not directly informed about the consultation, even though it had a material interest in the substantive provision and the amendments. If that is the extent of the consultation exercise, one wonders how enthusiastic the Government were about it.

Let us focus on Grosvenor Estates, a closed company. For greater accuracy, I obtained a copy of its annual report. If one did not know that it was a closed company, one could thumb one's way through this attractively produced document and conclude that Grosvenor Estates had every characteristic of a public limited company. The company invested substantially in areas such as Liverpool, and in Preston, in my part of the world. Making profits on its capital assets at home and overseas is an essential part of its activities.

In no way could that company be described as a tax avoidance device. In common with any publicly operating company, it seeks to minimise its tax liability, but it could not be characterised as a tax avoidance vehicle especially created for that purpose. In investing in the property activities that are still the subject of this section of the tax code, such a company finds it hard to understand why it is unfairly penalised when other companies carrying out other forms of activity are relieved of having to remit capital gains tax.

During the consultation exercise—amendment No. 37 refers to it—the Revenue rejected the proposition of getting round the difficulty by having a bona fide commercial motive test. Paragraph 7 of the summary of replies to consultation states:

``The Government is not persuaded that such a test would work in this area and considers it unnecessary with the proposal that any gains on trading assets should in future be excluded from a charge under the legislation.''

Let us concentrate on the words used to justify the Government's position, as challenged by amendment No. 37.

The Paymaster General will know that motive tests apply in other parts of the tax code. If my distant memory is right, manipulations of company shares require prior approval by the Revenue under section 802—such numbers were once seared into my memory, but have become a little fuzzy round the edges with the passage of time. Companies wishing to manipulate their share capital must have the specific approval of the Revenue, so in one part of the tax code there is an element of motive test—and there may be others. Will the Paymaster General tell us in detail—if not now, later—which parts of the tax code are subject to motive tests? If they are okay in one bit of the code, why are they not okay in another?

In the criminal law of this country there is always a juxtaposition between the actions of an accused person and his motives. For example, what was in the mind of a killer plays a key part in determining whether he faces a charge of murder or manslaughter. Again, there is an inconsistency in that the Treasury rejects the possibility of a proper motive test in this context, despite the fact that a motive test is an integral part of other areas of the law. I would be the first to sign up to measures to prevent people creating artificial tax vehicles for the avoidance of tax—such as, in this context, capital gains tax—but given the entirely correct position of a company such as Grosvenor Estates, I find it hard to understand why a greater effort has not been made to resolve its problem.

I can certainly remember in my time at the Treasury seeing some quite innovative and remarkable examples of people creating artificial vehicles—but dealing with those is part and parcel of the Inland Revenue's trade. It has a team of inspectors who can spot those things. If they can spot the ne'er-do-wells, they can spot the honest Joes. I am sad that the Government were not prepared to go the extra mile to see whether they could devise a way of sorting the wheat from the chaff and being consistent in the use of motive tests.

I sometimes find it hard to understand the distinction that is drawn. I congratulate the Government on going as far as ruling out companies that are in a legitimate trade, but that raises the interesting question as to what is illegitimate about investing in property. Let us consider the case of a closed company that is set up in north America to provide machinery, such as a service company manufacturing lifts, air conditioning equipment and the like. It could decide to go into property, and acquire some substantial property assets. It might, for example, end up with a large building, part of which could be let for normal letting purposes, with the rest being used for the wholly legitimate storage of its equipment.

If it became apparent that property was becoming a major part of the company's activity, someone in the Revenue would start asking questions. By definition there would have to be an examination—almost a mini motive test—to determine whether it qualified for the tax reliefs that are part of the substantive provision. Although that is a hypothetical example, it shows that that issue will not go away if someone takes advantage of the exemption in the principle provision, but that people who are legitimately involved in a property business are caught. Amendment No. 37 seeks to relieve them.

Howard Flight (Conservative, Arundel and South Downs)

It is ironic that we have just been considering a clause that widens business relief beyond trading companies, and the argument appears to have been accepted that economically and morally there is no logic for having separate categories of tax relief. What, therefore, is the logic of arguing so strongly for separate categories in this territory?

Michael Jack (Conservative, Fylde)

My hon. Friend summarises the situation well. I shall therefore cease speaking. I look forward to hearing the Paymaster General's response.

Dawn Primarolo (Labour, Bristol South)

In discussing provisions in last year's Finance Bill, provisions that were specifically designed to prevent substantial loss of tax to the Revenue through tax avoidance, the hon. Member for Arundel and South Downs (Mr. Flight) asked me to consider several points about a possible unintended effect, particularly on charities and pension funds. He supported the principle that anti-avoidance steps should be taken and did not dispute the fact that substantial avoidance was occurring.

It is important that Committee members remember exactly what the legislation addressed. It was a targeted and proportionate measure to deal with the significant amounts of tax that we were losing. The hon. Gentleman referred to ``the Belgian wheeze'', but many other schemes were employed, all of which focused on abuse of tax treaty exemptions. They all involved companies in which trustees were participators. The rules introduced by section 94 of the Finance Act 2000 were designed to ensure that such complex arrangements involving trusts did not pay and that there was no point to them. The rules went no wider than was absolutely necessary to stop tax avoidance. In a previous debate, the hon. Member for West Dorset talked about the balance between simplicity and equity, and we talked about the cliff edge, who is caught and the fairest way to proceed. This point falls squarely into that debate.

It has been suggested that people were not aware of the consultation, but I must be firm on that. The Revenue approached everyone who raised points on last year's legislation and all the main representative bodies. It assures me that the views of anyone who had shown an interest in the subject were taken fully into account, even if they came after the stated consultation programme.

The right hon. Member for Fylde referred to Grosvenor Estates. Again, the Revenue tells me that it was in contact with the company and its advisers from the start of and throughout the consultation process. I think that I am correct in saying that we have received no further representations since the Bill's publication. Let us be clear: the amendment is designed to change an anti-avoidance provision, on which there was agreement last year. The undertaking is specifically to consider the points that the hon. Gentleman raised.

Amendment No. 36 would remove many more UK residents from the scope of the legislation at section 13. It would do so by taking out those participants with an interest of 25 per cent. or less in gain rather than the 10 per cent. that the Government propose.

The clause as drafted represents the Government's considered judgment. I understand that representative bodies believe that there should be a substantial increase; we have doubled the current limit to 10 per cent., which is substantial by any standards. We can do that without creating any new opportunities for avoidance or seriously jeopardising the tax revenues. The review has produced some refinements and some benefits. It should also bring some welcome compliance savings for investors. However, it is not right to go further; it is a matter of judgment, but an increase beyond 10 per cent. would seriously risk providing opportunities for UK residents to avoid tax on their investments.

We are not talking about what companies do and whether their activities are legitimate but about tax planning or avoidance opportunities, which we are closing off. Anyone holding an interest of 10 per cent. or more in a company has a substantial stake in it and may be able to influence its activities and there is scope for unconnected people to band together to avoid the tax charge. The hon. Member for Arundel and South Downs was correct in what he said about the normal size for a closed company; we settled on 10 per cent. rather than 25 per cent. We have given an inch but the Opposition want to take a mile, which would undermine our purpose. I ask the Committee to reject the amendment as the clause as drafted is a reasonable relaxation.

The purpose of amendment No. 37 is to replace the present exclusion for gains on assets used in overseas trade with an exclusion for gains on assets which were acquired for bona fide commercial reasons and not as part of an avoidance scheme. We covered that ground extensively in last year's debate when I made it clear why such a motive test was not appropriate in this area. Section 13 of the Taxation of Chargeable Gains Act 1992 as amended by the clause, is targeted solely on investment gains made by a non-resident, closely controlled company from which UK residents may benefit. It is absolutely right that those gains should be charged on UK residents as they arise in situations where there has been considerable avoidance activity in the past. It is right that those gains should be charged, irrespective of the motive for establishing the company. I cannot make the position clearer.

It is difficult to see how a motive test, which the hon. Gentleman is right to say exists in several parts of our tax legislation, could be made to work in this respect without rendering ineffective legislation that is tightly drawn and specifically to deal with avoidance. I am not persuaded by the arguments for such a motive test. I clearly explained the position to the Committee last year in the debate on the control of foreign companies.

The purpose of amendment No. 38—

Michael Jack (Conservative, Fylde)

For the sake of those who read the debate, and to understand where the Paymaster General is coming from, will she tell us how much tax would be at risk if the motive tests proposed in amendment No. 37 were enacted?

Dawn Primarolo (Labour, Bristol South)

I do not have the specific figure to hand. The anti-avoidance provisions last year resulted in substantial revenues—extremely large figures. We do not believe that a motive test is necessary. If a motive test were included, it would offer an opportunity to plan again and would completely undermine our attempts last year. Our arrangements would be nullified by the creation of different routes to avoid tax, and a similar amount of revenue would be at risk. Specifically, we are discussing a gain that should be taxed.

I know that I do not have an indication of the amount in the papers that I have with me, but if there is some way of quantifying it—I doubt it—I will let the right hon. Gentleman know. He has been robust and clear both in Committee and when he was Financial Secretary in the previous Government that avoidance is unacceptable. Anti-avoidance is a tool that the Government must use.

The purpose of amendment no. 38 is to increase the period in which the distribution of a gain can be made after the gain arises, in order for credit to be given for tax charged on the gain against the tax charged on the later distribution. The amendment seeks to increase the period from three to six years from the end of the accounting period in which the gain accrued. The amendment is another example of where we give the Opposition an inch and they want a mile.

In our view, the relaxation—it is a relaxation—that we are proposing hits the right balance. It goes further than the recommendations that were made in the Government's review. For example, the CBI—I believe that Opposition Members would accept that it is a group that represents business—suggested two years from the end of the accounting period of a non-resident company. We think that that might be a little tight in some cases and propose to take it further. To my knowledge, the only specific representation that was made about the number of years actually requested only two years; we are providing three.

Howard Flight (Conservative, Arundel and South Downs)

On the issue of time period repatriation, there is neither an avoidance nor a tax cost issue. To the extent that there is a time value of money, if people cannot repatriate their money for six years, it is worth less than after three years. The CBI made a straight from the pen suggestion. If there is a tax issue involved in the difference between three and six years, let us hear what it is. If there is not, I cannot see the point of the three-year rule.

Dawn Primarolo (Labour, Bristol South)

I would turn the point around on the hon. Gentleman. We write tax legislation to respond to Government policy in shaping direction and intentions. We also respond to practitioners and to the industry, where they specifically identify problems. What we do not do with tax legislation is think up a theoretical position and then write the legislation accordingly. We have consulted, points have been made to us with regard to the accounting period, and we have responded to that. The hon. Gentleman advances the case without telling us that there is a problem. It is not unreasonable for the Government and the tax authorities to work on the basis of the information supplied to us and our knowledge of operating the tax system, rather than saying, ``wouldn't it be nicer if'' and having no reason for such action. So, we have clearly consulted on the matter, we are not receiving representations, and we are not aware of specific issues in that area. Should any come to our attention, we would be prepared to consider them.

In response to the amendments, I have tried to explain the specific points that the Government sought to deal with last year. On Opposition points about consultation, we believe that there can be some relaxation, and every indication is that it is sufficient to solve the problems that were identified. Therefore I ask the Committee to reject the amendments on the basis that they would either destroy the original intent of Government legislation or make provisions that are not required. The Bill's amended provisions are a reasonable and measured response by the Government to the fair points made last year by the hon. Member for Arundel and South Downs.

Howard Flight (Conservative, Arundel and South Downs)

Without repeating my arguments, there is an important point of principle that it is perfectly correct and proper to take anti-avoidance measures. Equally, it is quite unreasonable of any Government or the Revenue knowingly to damage business interests where there is no avoidance. Therefore, although I congratulate the Minister on her robust defence, it strikes me that it is not entirely reasonable to have complete disregard for bona fide commercial situations that are unfairly treated as a result of robust anti-avoidance measures.

Amendment No. 38 is most important because the heart of it is that it is unfair for businesses to have to pay double taxation. If there is justification for particularly robust measures that may damage the innocent in order to stop the naughty, at least there should be a mechanism that prevents the innocent from being double-taxed.

The point lying behind the other two amendments is that, as I understand, one or two major groups are locked into minority shareholdings of between 10 and 20 per cent., where another party controls 60 per cent. Their ability to withdraw the money to pay the capital gains tax on which they are assessed is not at all self-evident or automatic. In order to be amicable, I ask the Paymaster General to consider again the three-year rule. I have consulted tax councils and do not believe that changing it would undermine the anti-avoidance measure. That is one area in which the inequity of unintentional double taxation could be prevented.

Dawn Primarolo (Labour, Bristol South)

Although the clause substantially extends the current period, it remains necessary to retain a reasonable time limit to ensure that relief is not given in cases in which distribution is unrelated to the gain. However, as always, we will continue to examine the issues. We need to know about the specific cases mentioned by the hon. Gentleman, in which people perceive that the rules affect them harshly. I do not expect him to tell us today, but I am sure that he would accept that it is impossible for us to be mind readers, as talented as the Government may be—if I could just get that in.

There may be cases in which representations are not being made and problems have not been identified. People may not like the fact that we have taken steps to close off the avoidance—some do not—but that is not an argument in favour of amendments to undermine the steps that we have taken. If there is no legitimate reason, we will move on and if there is, we should hear about it. We said that we would look at problems, we have contacted and consulted everyone, published the clauses and allowed for companies to comment and we do not have the responses, so I do not see what the hon. Gentleman expects of us. He may say that he expects the Government to take him at his word. As gracious as he is in Committee, I am afraid that that is not enough in this case. Serious amounts of money are at stake with regard to the anti-avoidance provision. I hope that, on reflection, he will feel that he has had an extremely wide-ranging and detailed debate this morning, and that he will not be inclined to press his amendment.

Michael Jack (Conservative, Fylde)

I thank the Paymaster General for the way in which she dealt with the debate, which has been helpful in giving us further insight into the risks that the Government see in the context of the anti-avoidance legislation. I am also grateful for her kind words about my efforts—in fairness supported by the then Opposition—to deal with serious tax avoidance.

However, for the record, I should say that it is not the Opposition's motive to undermine legitimate and proper efforts to safeguard the revenue. There are innovative, clever but sometimes misguided people out there who will try to drive a coach and horses through any chink in the tax legislation, and, ultimately, the honest taxpayers will have to pay the difference if substantial revenue disappears. The point that my hon. Friend the Member for Arundel and South Downs and I seek to tease out is that one is looking at where the shoe might pinch a little more tightly. Legitimate companies are clearly being caught by the legislation. I understand why the Paymaster General is unwilling or unhappy to go further, but if I take the tenor of her remarks correctly, perhaps the door is not completely closed on representations. If there is an opportunity to deal with the genuine concerns of those who have not so far benefited from my hon. Friend's amendments, they may have a hearing in the future.

Howard Flight (Conservative, Arundel and South Downs)

I too thank the Paymaster General for her comments. This is not the forum for exploring who is right and who is wrong in terms of adequate consultation. I will ensure that the practical case issues are brought to the attention of the Inland Revenue, especially in relation to amendment No. 38. It may well be the omission of certain parties not to have done so. On the understanding of intelligent perusal of the evidence provided, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Howard Flight (Conservative, Arundel and South Downs)

I beg to move amendment No. 39, in page 52, line 3, after `if', insert

`they are a trustee of a settlement for the benefit of persons named in paragraphs (a) and (b) of section 86 of the Inheritance Tax Act 1984, or'.

Michael Clark (Conservative, Rayleigh)

With this it will be convenient to take amendment No. 40, in page 52, line 3, after `if', insert

`they are a trustee of a settlement established for charitable purposes only, or'.

Howard Flight (Conservative, Arundel and South Downs)

These are partly probing amendments, particularly in the light of the Paymaster General's comments. The Government have taken the point on pension schemes and provided an exclusion but not for charities or bona fide employee trusts. Amendment No. 40 provides a definition that comes from section 86 of the Inheritance Tax Act 1984, and is clearly not a tax avoidance device for senior managers but a definition that relates to bona fide employee trusts. The probing aspect is to ask what, if any, were the anti-avoidance reasons for excluding charities and genuine employee trusts. If there were no good reasons, the amendment should be accepted prima facie because it is incorrect and unreasonable to exclude pension funds but not charities and genuine employee trusts.

Dawn Primarolo (Labour, Bristol South)

I will respond briefly to the amendments and ask the Committee to reject them if the hon. Gentleman wishes to press them to a Division. Both amendments deal specifically with the points that he raised last year on charities and pension funds. I am sure that he will agree that the relaxation that we introduced will go some way to addressing points made, for example by the right hon. Member for Fylde, about backseat partnerships and several other issues. We must examine the range of provisions to see why the amendments will suffer the same fate as previous amendments moved by the hon. Gentleman.

The consultation produced no cases to demonstrate that there were particular problems in the matter. Amendment No. 40 would exempt charities from the capital gains tax anti-avoidance provisions, but a letter from the Institute of Chartered Accountants of Scotland, which was sent to us after we had contacted everyone involved, said that it had trawled its members and discovered no relevant cases. The hon. Member for Arundel and South Downs believes that there might be a problem, but the charities are telling us that there will not.

There is one exception. It has been drawn to my attention that a small charity sent an e-mail last night, which queried an element in the provisions.

Howard Flight (Conservative, Arundel and South Downs)

Not guilty.

Dawn Primarolo (Labour, Bristol South)

I was going to ask the hon. Gentleman if he was acting under an alias.

Therefore, I cannot say that we have had no representations about the issue and, as such, that the amendments are unnecessary. We must examine the e-mail, but we still firmly believe that the problem raised by the hon. Gentleman does not exist. We are supported by the fact that no one, with the exception of that one late submission, is asking us to change the clause. The Revenue, as a reasonable agency, will consider those points; the charity might only need clarification. Therefore I reject these amendments, too. I now need to know what was the problem raised in the e-mail that we received last night.

To conclude, I assure the hon. Gentleman that it is not our intention to target bona fide charities, so amendments Nos. 39 and 40 are not necessary. I hope that he is satisfied that we have thoroughly considered what he said—even to the point of acknowledging that an e-mail that arrived the previous evening can be considered and responded to.

Howard Flight (Conservative, Arundel and South Downs)

Yet again, I thank the Paymaster General for the thoroughness of her consideration of the matter. I also repeat the comment that I made from a sedentary position—that the charity concerned has nothing to do with me. I know nothing about it.

I want the Paymaster General to clarify a simple point, to which there are two possible responses. One is that there are no known case studies of charities or genuine employee trusts that hold investments that could lead to their being unfairly taxed. The other is that the legislation as drafted at present would prevent them from being unfairly taxed in such circumstances. What is the Paymaster General's opinion?

Dawn Primarolo (Labour, Bristol South)

Apart from that e-mail, we have not received any indications of difficulties. Why would we want to change the legislation, when we do not have a problem with it? The organisations concerned do not believe that they are being unfairly treated, and the clause as it stands is targeted to meet their requirements.

Howard Flight (Conservative, Arundel and South Downs)

It seems to me that there is still an argument that a charity does not pay capital gains tax, so the legislation would not apply to it. I am unsure whether the Minister is proposing that argument, or simply saying that she does not know of any charities that happen to have invested in closed companies. There is an important difference between those two positions.

With regard to the amendments, the Paymaster General has made the point that before the legislation reaches the statute book the Revenue will now pursue the question of whether there will be problems for charities. On the basis of her comments, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 78 ordered to stand part of the Bill.

Graham Allen (Labour, Nottingham North)

We are doing well with regard to the programme motion and we have already covered the business that was designed for our afternoon sitting. I have discussed the matter informally with Committee members from all parties, and I found no go great desire among them to meet this afternoon—[Interruption.] Was there some objection to that? No? I think, therefore, that the appropriate form of words would be that the Committee, at its rising this morning, should adjourn till Tuesday next at 10.30 am.

Michael Clark (Conservative, Rayleigh)

Will the hon. Gentleman move that formally?

Further consideration adjourned.—[Mr. Allen.]

Bill to be further considered on Tuesday next at half-past Ten o'clock.—[Mr. Allen.]

Adjourned accordingly at nineteen minutes past Eleven o'clock till Tuesday 8 May at half-past Ten o'clock.