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Finance Bill

I very much regret that the Liberal Democrats failed to put down any amendments, and that is that. There is concern that without our amendment No. 2 the taxation of OEICs and unit trusts would not be parallel. OEIC tax law currently allows separate sub-funds of OEICs to be taxed as though they were separate OEICs. Given that without the amendment the taxation of OEICs and unit trusts would not be parallel, the provision amends the law to enable all authorised unit funds to have separate sub-funds, to be taxed as stand-alone funds, thus fulfilling the original intention when OEICs were introduced. The UK fund management industry manages about £276 billion, with substantial investments by life insurance companies and pension funds. Many accounts are held in retail funds. When considering the amendments we must be mindful of the sustainability and competitiveness of the industry. The regulations that will be made under clause 18 are likely to cause the fund management industry to make changes in its systems that could be expensive and time-consuming and may outweigh the possible benefits. Simply put, the tax treatment of funds under fund management is crucial in the UK and our financial services industry must have clarity and fair treatment. I should like to bring to the attention of the Committee the view of the Association of Investment Trust Companies on tax treatment, given that clause 18 seeks to rationalise it. I shall send more details to the Minister, if I may. In the view of the association, the Finance Bill would enhance the ability of authorised unit trusts and OEICs to invest tax efficiently in bonds. There seems to be an anomaly, however. Investment trust companies invest in shares and securities to provide a capital return for their shareholders. They allow investors to gain cost-effective access to a diversified portfolio of shares and securities and expert fund management. There seems to be a problem of equivalence in the tax treatment of AUTs, OEICs, and ITCs. I would be grateful if the Minister could respond to that point. If we change the taxation treatment of income received by investment trusts by reducing the taxation rate from 30 to 20 per cent., there is a need to consider whether we should alter the tax treatment of dividends paid by the investment trust and received by corporate members.