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Finance Bill

The amendments relate to definitional elements of small and medium-sized businesses. They deal with the proposed Government change to schedule 9 of the Finance Act 1996 which makes an exception if the debtor company is a small or medium-sized enterprise. It is sensible to break up the amendments into three separate groups, starting with amendments Nos. 21, 22 and 23, which would disapply the exception. In schedule 8, the exclusion in paragraphs 2(3) and 3(6) of small and medium-sized enterprises from the latest interest rules in paragraph 2 of schedule 9 of the 1996 Act presumably acknowledges the fact that the private equity market provides valid support to start-up businesses as well as ailing companies that might otherwise fail. If that is the correct rationale—I am sure that the Minister will confirm that it is—do those rules produce satisfactory results? In our opinion, the definition of small and medium-sized enterprises derives from the annexe to the European Commission’s recommendation in May 2003. The application of that definition to private equities is complex, but in determining which enterprises are being measured we must consider private equity funds and all the investee groups that they control or over which they have significant influence. Those issues of control and significant influence are at the heart of our concern. The practical implication is that many private equity-backed groups are unlikely to fall within the definition of an SME, regardless of the size of the individual investment. We understand that that is not the Treasury’s intention, but I should be grateful for the Minister’s guidance. In addition, as the definition of a medium-sized company is relatively low, it will not assist the majority of ailing companies, which will be considered large for these purposes. Any unfavourable treatment of such companies would have a significant impact on the available funding and hence the prospects of those companies. I hope that the Minister can explain in detail why the Government have sought that criterion and whether, on balance, they accept that the size of the debtor company should not be a factor in their anti-avoidance proposals. Amendment No. 26 seeks to allow businesses, whether SMEs or otherwise, to plan carefully. It would prevent their qualification under the provisions from hinging on the vagaries of the currency markets. As the Minister is aware, the definitional thresholds for small and medium sized enterprises are based on euros in the Finance Act 1996, as amended.