---

Finance (No. 2) Bill

I beg to move amendment No. 12, in schedule 14, page 76 [Vol II], leave out lines 1 to 13. The amendment probes the third element of the change to VCTs. Until the Finance Bill was introduced, investors in VCTs benefited from the full income tax relief, if they held their investments for at least three years. The Finance Bill lengthens that holding period to five years, which is one of three measures that could impact on the attractiveness of that form of investment in the VCT market and consequently the flow of funds into VCTs and therefore into small and growing businesses. Again, I shall quote Mr. Robert Drummond, who is a former chairman of the British Venture Capital Association:"““With the 30 per cent. income tax relief rate the Chancellor has found a compromise between maintaining the current level and returning to 20 per cent., but this change together with the increase in the minimum holding period from three to five years, appreciably alters the risk-reward profile of private equity investment by personal taxpayers.””" In the context of the interlocking web of proposals, Mr. Drummond is arguing that the holding period may have the impact of discouraging investment in VCTs. I can see the benefit for VCTs and companies that receive investment of increasing the holding period from three years to five years, which will give both the VCTs and the companies reassurance, stability and the ability to plan for the long-term. However, it is difficult to strike a balance, because one might end up with a scheme that is perfect for the interests of the companies and VCTs but that is not sufficiently attractive to investors. I seek an explanation from the Financial Secretary on why the five-year period was chosen—the next amendment proposes lengthening the holding period—before a VCT investor can gain the full benefit from the reduced tax relief.