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Finance Bill

As a mere equity investor and equity analyst, I have followed the discussion with some difficulty, but it seems to me that private equity funds and venture capital funds are always typically structured by way of limited partnerships. The partners are effectively unrelated and the lending arrangements are traditionally third party. If I understand my hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond) correctly, amendment No. 16 is designed to deal with some particular concerns. The first is that there are a number of changes in the legislation being badged as anti-avoidance measures, although they seem to be based on a model that the private equity industry has traditionally agreed with the Revenue. Secondly, unless the amendment is accepted, it seems that there will be additional uncertainty for the industry, and the current wording will catch a wider range of transactions than initially envisaged. As has been said by others, the venture capital and private equity industry has been hugely beneficial, and if the tax framework is altered in the way suggested, it could become less attractive for inward investors. The Revenue’s concerns seem to be that in some cases borrowing and interest charged have been excessive, and could accrue relief beyond a reasonable commercial return. The new rules seem designed to catch a wider range of transactions than initially envisaged by the phrase ““acting together””. The rules seem to place a higher compliance burden on banking and finance operations. There are many relationships in which a private equity division of a bank has an arm’s-length relationship with its corporate lending side, and there are many cases illustrating the fact that a lending bank can be involved with private equity investors, and another arm of the bank could also be involved. If all bank debt is to be subject to transfer pricing rules, there will be an even greater growth of the compliance industry. As I understand it, the amendment is intended to limit the provision to situations in which the lender has an equity interest in the underlying business, so we should seek to address only a limited number of arrangements—those in which the borrowing company obtains a benefit from the investor in paying a higher borrowing charge, by reducing the borrowing company’s tax bill. That practice does not happen widely, so it is important that we should not change or damage the tax treatment specifically created to assist the private equity and venture capital industry. The previous regime was created so that that industry would know what its limitations and rules were, and the change to the rules in the Bill would have an impact on that. The Government’s aim seems to be to stop interest accruing on shareholder funds to owner-managed companies where interest is not paid—meaning that there would be an excessive benefit. The amendment is designed to regularise and clarify the rules to ensure that properly structured private equity and venture capital arrangements long agreed with the Treasury would not be caught by measures branded as anti-avoidance. By tightening the legislation as my hon. Friend suggests, greater certainty would be granted to the industry. My hon. Friend the Member for Chipping Barnet (Mrs. Villiers) was concerned about the competitive threat to the industry and to Britain as an attractive location for inward investment, and as a basis for private equity and venture capital houses. I hope that the Government will accept the amendment.