---

Finance Bill

This has been an important and interesting debate. The hon. Member for West Suffolk (Mr. Spring) began in his usual bullish way. He used the phrase ““better late than never”” and accused the Treasury of functional incompetence. How the Conservative Government would love to have been accused of the relative functional incompetence that the Treasury and my right hon. Friend the Chancellor have displayed under this Government! The lowest inflation, interest rates and unemployment in living memory would not be described by most objective observers as functional incompetence. As for the charge of better late than never, we are consulting industry representatives, as we want to be quite sure before we introduce regulations that we get them right. The hon. Member for West Suffolk raised a number of perfectly reasonable issues, which I shall try to address one by one. He was understandably concerned about the fact that funds would need to rebuild all their systems from scratch. We do not accept that, as the change is built on to the existing mechanisms operated by funds. It should therefore be a case of adapting the system rather than redesigning it wholesale. He was also concerned about the major cost of system changes and the way in which the funds will benefit from them. The powers that allow us to make regulations are enabling powers, and funds can still elect to make only dividend distributions. The changes allow funds to reduce their administration costs by offering a wider range of investments within an individual fund and to consolidate and streamline the number of funds on offer. That could lead to administrative savings for fund managers, and savings could be passed on to investors through lower fees. Fund managers will save substantial costs by no longer having to comply with the daily bond fund test. The hon. Gentleman raised the benefit for authorised investment funds. We would argue that the proposal is more attractive to investors, because more diverse investments can be offered. There would be a cost saving, and dividends and interest could be issued to reflect the nature of the funds. I shall try to address hon. Members’ concerns about the important issue of real estate investment trusts. The hon. Member for Eastleigh (Chris Huhne) was concerned about the use of secondary legislation. It is important to make it clear that clause 19 requires affirmative procedures to be followed when powers are used for the first time to introduce regulation. In those circumstances, the full detail of the measures will be scrutinised and debated by the House before they come into force. The hon. Gentleman raised the basic charging provision—the rate of tax—which is included in clause 16 and is subject to scrutiny by the House. The proposals provide for the rate of taxation to be applied to open-ended investment companies and would make that subject to primary legislation, rather than regulation. I hope that that addresses the hon. Gentleman’s concerns. The hon. Gentleman also raised the proposal to tax substantial investors in qualified investor schemes on the annual increase in the value of their units which, he said, amounted to a double taxation charge. That is not the case. The substantial investor will calculate a capital gain at a point at which the holding rule is triggered. The gain will then be held over until he disposes of the units. Each year, he will be subject to an income tax charge on any increase in the value of the holdings. The investor will not be subject to a further capital gains tax charge on income that has already been subject to an income tax charge. There is simply no double taxation in those circumstances.