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I wish to thank the Minister for his helpful explanation of the complex and crucial amendment that Commons Amendment No. 5 is, and for his co-operation at this stage and throughout the passage of the Bill. The main effect of the amendment, at least, is clear: as long as the Government hold the golden share, CDC is exempt from corporation tax, capital gains tax and income tax, but not from other taxes such as VAT and stamp duty, and from PAYE obligations.
I have laboured sufficiently the reasons why a tax-efficient status is essential to the CDC PPP, and I shall not detain the House on the matter further. However, I should still like to ask the Minister one question.
Although helpful to CDC, this tax arrangement is also very unusual, in that the exemption is given to an individual company rather than a category of entities. Is there a danger that this exemption represents the thin edge of the wedge? Is it not sufficient to say that CDC is unique? I am sure that other companies will attempt to argue that they are unique. If I am allowed to strike a provocative note, the National Lottery, for instance, is unique, serves good causes and would save substantial sums of money were it to be tax exempt. Will the noble Lord, the Minister, give assurances that the CDC exemption will not be treated as a precedent? I should be grateful if the noble Lord could answer my questions afterwards.
Amendment No. 5A would make tax exemption conditional on the Secretary of State's being satisfied that the CDC had followed its investment policy and the statement of business principles. The intention of the amendment is not to wreck the tax arrangement, but to entrench the CDC development purpose more securely. In another place the shadow Secretary of State argued forcefully that the development purpose was not satisfactorily entrenched. Furthermore, he argued convincingly that the investment policy and the statement of business principles do not embody the
In the future CDC will be unlikely to invest in hardwood forest plantations, as it did in the Cate d'Ivoire, or in setting up an avocado pear farm which will not produce any fruit in the initial seven years and will therefore earn no money, as Mr Bowen Wells clearly explained in another place. Over the last two years we can already detect the beginning of this trend in the composition of the CDC portfolio. Whereas the share of agribusiness is decreasing significantly, that of manufacture and commerce is increasing.
That trend will be particularly strong and its effects detrimental to the poor in large and diverse countries like India. There, CDC has invested in the first private sector Internet access provider. That will no doubt contribute to the development of the communications infrastructure that business needs to be efficient. However, what will it do for the rural population of Rajasthan, who do not even have electricity? When will the benefit of that investment reach them? It will never do so because they live in a different economy. Instead, that particularly poor region, which is well known for its stone and marble quarries, would probably benefit from investments in companies cutting and polishing stone, like Jaswal Granite, a South Indian company of which CDC owns 9 per cent. I believe that we shall see less and less of such investment in the future. How is that potential investment vacuum to be filled?
The Government argue that the focus of their development policies is poverty. They maintain also that CDC is one of their policy instruments. Therefore, CDC should have the same focus. However, that focus cannot be achieved by an investment policy and a statement of business principles enjoining CDC to look across countries alone. If the development focus is to be maintained, the assessment policy must encourage the poorer groups within particular countries. Will the Minister give assurances that the Government will undertake a review of the investment policy? In short, we are asking the Government to get the investment policy right and then incorporate it into the Bill.
The effect of Amendment No. 5B is to lengthen from seven to 10 years the transition period after the Government relinquish the golden share. This is a probing amendment. Aspects of the CDC's tax arrangement are particularly unusual and complex and we feel that the arrangement has not been sufficiently scrutinised in another place. What is the fundamental reason for the amendment? Once the exempt period expires, what do the Government envisage that CDC would do to maintain the effect of its unique tax status? The helpful briefing notes provided by the department suggest that provision exists to ensure that CDC,
I come now to the substantive aspect of the amendment. We are told that the period of seven years was chosen because it fits the average length of CDC's investments. Unfortunately, in practice, there are no averages. Is Inland Revenue trying to fit CDC's investments into a procrustean bed? How will the existing longer term investments, or those which are particular difficult to transfer, be treated after seven years? Is seven years not an arbitrary period of time?
We understand that that period of seven years was the outcome of negotiations. The Inland Revenue was looking for a figure of zero years but CDC was looking for a period of 12 to 15 years to accommodate its longer term investments. On these Benches, we believe that the transition period should be longer.
Lord Redesdale: My Lords, we wish to speak to these amendments because it was not possible to do so at the last stage of the Bill. However, the Minister gave a comprehensive statement and he has already answered many of the questions which I wished to asked. Therefore, I shall not take up the time of the House.
On these Benches, we are glad that the CDC will not be going offshore as that goes against the fundamental principles of the nature of the CDC. I admit the idea that the CDC could somehow avoid PAYE would gladden the hearts of those working for it but I do not believe that it would receive a great deal of support from the Treasury.
The Minister set out quite clearly how he believes the CDC will operate and under what development criteria it will be bound. As the noble Baroness pointed out, there is a danger that the CDC will move away from investments in some of the poorer areas of the world. That would be extremely unfortunate.
However, as the Minister has set out his views quite clearly for Hansard, which are now on the record. Therefore, I do not believe that we need to press for a strengthening of the statement of business principles or the investment policy.
Many of the issues which we have raised are in relation to the unlikely event that the Secretary of State cashes in the golden share. I believe and hope that that will never be the case, even under a change of government. The amendments provide a belt-and-braces approach which was spoken to at great length in another place. But the assurances which the Minister has given this evening have helped to ease some of our fears.
Viscount Eccles: My Lords, I am grateful to the Minister for saying that CDC can have a wholly-owned subsidiary overseas even if it cannot be overseas itself. In its history, it has had a number of wholly-owned subsidiaries overseas.
I believe that I am finding some sort of a middle position here. As I see it, this Bill is an enabling Bill. I want to say briefly why that is so. A welcome aspect of the matter is the transformation of CDC from being a statutory corporation to being a plc, although one must shed a tear for what is almost the last of the statutory corporations.
The reason for this being a welcome measure is that the Act of 1948, which was implemented in 1947, has been tinkered with in respect of the way in which CDC could invest. It has never been radically altered and, of course, the world and its economy has moved on. The provisions of those original CDC Acts are extremely restrictive as to the way in which CDC can invest. Under the Companies Act, as a plc, it will be able to invest in a much more modern and effective way, even in the 70 per cent of the poorest countries and the 50 per cent which are in sub-Saharan Africa and Asia.
Many of the questions which the Minister has been asked arise from the fact that, as my noble friend Lady Rawlings said, the CDC is a sui generis. It is not like anything else and never has been quite like anything else. It has had to pick up gleams of opportunity and common sense from other organisations. It has picked up a lot of good tips from 3i, the IFC, from its European comparators, finance institutions and even from companies such as Unilever. Of course, its present chief executive comes from Shell and there is no doubt plenty of overseas experience from which it has benefited.
In essence, CDC is self-taught. It did not learn its trade from anywhere else. I am confident that, with the provisions in this enabling Bill, CDC will find a way through the next few years. I hope that it has another 50 years ahead of it. Its path as a plc is bound to be tortuous, as its chairman, the noble Earl, Lord Cairns, said in the House at Second Reading when he did not minimise the difficulties of operating effectively as a plc.
I believe that these amendments are relevant in that we need CDC to settle down to a consistent policy as a plc and to have plenty of time in which to do that in order to demonstrate its effectiveness. The Government have been ingenious, but they have also been experimental. The public/private partnership has yet to be proven. I believe it is doubly difficult to prove it in the case of CDC.
I am pleased that CDC will be converted from a statutory corporation into a plc, although the same results could have been achieved by amending the existing Acts. I am much more doubtful about whether the public/private partnership experiment, ingenious as it is, will succeed. Anything that gives CDC an opportunity of proving continuity of purpose and policy and of having longer in which to do it is welcome.
Lord Birdwood: In the closing minutes of the CDC's process of transition and in speaking to the amendment, I want to say that I have been lucky enough over the years to count CDC employees among the circle of my closest friends. I make a plea that the culture that has always pertained in CDC is not destroyed by the transition process. The men and women of CDC collectively have always put the welfare of the nations in which they work before their own welfare and before the concept of profit. When an organisation changes so profoundly its cultural foundations, as is the prospect today, those influences become fragile to those who work in it. I hope that the Minister can reassure me that that fragile culture can be reinforced by the process, rather than destroyed.
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