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Lord Monro of Langholm: I strongly support the amendment moved by the noble Lord, Lord Bassam. As an old sparring partner of the noble Lord, Lord Howell, I know he would not have introduced this amendment without most careful thought and consultation with the Sports Council and the CCPR. I am quite sure at heart he is right that this was an anomaly which probably crept in with much enthusiasm from the Treasury in the 1993 Act. But now is the moment to redress that and give the sports enthusiasts throughout this country all the money they are entitled to.
Lord Glentoran: I have one last addition to that. I declare an interest: I am a Millennium Commissioner. It would be wrong to say that this would be irresponsible, but it would perhaps not be the ideal way of using funds. People will wish to expend the funds rather sooner than they might, whereas if they were left earning and accruing interest until a more appropriate time, when certain situations in a grant were more appropriate to fund, it would be better.
Lord McIntosh of Haringey: As my noble friend Lord Bassam said, this is a complex issue. I hope your Lordships will forgive me if I try to explain the financial arrangements for the sports councils' share of the good causes money. The share of the National Lottery proceeds allocated to each of the four national sports councils is paid into the National Lottery Distribution Fund, along with the shares of the other distributors. The money earns interest, and each of the sports councils receives a share of that interest in proportion to their balance in the fund. This interest is not subject to tax.
The sports councils then request money to be paid from the National Lottery Distribution Fund into their bank accounts as they need it to meet grant commitments. They normally make a request once a month to meet grants that will be paid in the coming month. During the time between the money being paid from the National Lottery Distribution Fund to the sports councils and its being paid to the grant recipients, it earns interest in the sports councils' own bank accounts. This interest is subject to tax because the sports councils do not enjoy tax exemption as charities do, for example. I note from what my noble friend Lord Bassam says, that it is not the intention of the sports councils to seek charitable status. It is pretty clear that they would not be able to do so.
I should stress that it is only the interest that is subject to tax and not the principle. Indeed, it is my understanding that the tax liability on the interest amounted to only £30,000 in 1995-96 and only £74,000 in 1996-97. My noble friend said he would no doubt be told that there are ways of minimising the tax without obtaining tax exemptions, and of course we do want the sports councils to maximise the amount of lottery money they are able to distribute to sports projects. However, I have to say to him, even though he anticipated it, that the best way of achieving this is not to exempt them from taxation but to ensure that the money is not paid
Lord McIntosh of Haringey: I want to make only two more points. The first concerns why NESTA has tax exemption when the Sports Council does not. Secondly, I want to refer to the claim which noble Lords made of double taxation.
All public bodies, no matter how worthy, are subject to tax unless, like charities, they have been exempted, and sport is not a charitable purpose. The tax concessions for NESTA in Clause 22 do not set a new precedent for lottery-funded bodies. NESTA is unique for a number of reasons. First, it is a public body with activities similar to those of a charity. Secondly, unlike all other lottery-funded bodies, it will rely for its income on interest earned on an endowment, which would normally be taxable. Thirdly, again like other lottery-funded bodies, it will be under a duty to seek contributions to its own funds from other sources. Taken together, these three characteristics make a unique case for exempting NESTA from tax on its investment income and bequests and for allowing NESTA to qualify for Gift Aid and covenanted giving. The sports councils are not in a similar position.
A number of noble Lords have said that this is double taxation and it is an anomaly. Lottery duty on ticket sales is designed to be revenue neutral and compensate the Exchequer for taxes lost elsewhere (for example VAT, from substitution of expenditure by the lottery). Lottery money held in the National Lottery Distribution Fund is not taxable, as I have explained. Lottery funds drawn down by the sports councils and held in interest-bearing accounts are not taxable, only the interest that they earn. This is consistent with the principles of taxation for bodies that are not exempt from tax.
In summary, the amounts of money are very small, taxation is only on the interest, and only on the interest on that part of the money which is between drawing-down from the National Lottery Distribution Fund and being paid out to the organisations who are receiving the grants. It is better to improve cash management rather than to create what would be an additional anomaly, which would be to exempt a non-charitable body from tax. I am therefore bound to resist the amendment.
Lord Redesdale: Before the noble Lord, Lord Bassam, responds to the Minister, I do not remember hearing the argument when the 1993 legislation went through that the tax on the ticket was to compensate for tax not taken elsewhere. Was that put forward in 1993?
Lord McIntosh of Haringey: I do not know, but I imagine so. If it was not put forward, it was clearly an omission. If it was not put forward, I shall write to the noble Lord. If he does not hear from me, he will assume that I am right.
Lord Bassam of Brighton: In the face of such powerful arguments, it becomes me to withdraw the amendment. While I am encouraged by the Minister's comments that the recipient body should be encouraged to better cashflow management, it would be nice to think that further discussions could be held on these points. I feel they should be. Perhaps some assistance to better cash-flow management could be engendered by having more flexibility about the way in which the draw-down operates. There is merit in having some further discussions around that point.
On the NESTA issue and the question of the lack of similarity between the sports councils and NESTA, I can accept two, but not all three, of the arguments that the Minister makes. Perhaps this requires some further consideration as there are points of similarity. On the double tax question, I am obviously a great fan of the Treasury and good taxation, and I can see the benefits of having a robust taxation system. Perhaps double taxation is robust taxation; I do not know. I would not wish to comment much further on that point. It is something which merits some consideration in the future. Perhaps it is an anomaly which also requires to be interrogated further. With those comments, I beg leave to withdraw the amendment.
Page 32, line 45, column 3, leave out ("and, in paragraph (a), the words "or (as the case may be) from meetings of the committee without the committee's consent"").
The Committee adjourned at twenty-six minutes past six o'clock.
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