Lord Lee of Trafford
To ask Her Majesty’s Government what progress they are making in considering whether shares quoted on the Alternative Investment Market should be eligible for ISAs.
Lord Lee of Trafford
I declare an interest as an owner of shares in a number of AIM quoted companies.
The Commercial Secretary to the Treasury (Lord Sassoon)
My Lords, the Government are considering this question and welcome representations from interested parties. They will set out their approach in due course.
Lord Lee of Trafford
I am grateful for that Answer. I had hoped that the noble Lord might achieve instant popularity by giving a rather more positive Answer, but we obviously welcome him with his considerable City experience. At 30 April, 1,250 shares were quoted on the Alternative Investment Market with a total capitalisation of £64 billion. The Stock Exchange believes that capital raising would be much easier if AIM shares were made eligible for ISAs. In broad terms, a decision by the Government would be tax-neutral. Given that shares quoted on the Channel Islands Stock Exchange are eligible for ISAs, does the Minister agree that it is time that the Government changed their decision and gave investors the choice?
Lord Sassoon
I agree with the noble Lord that there are 1,250 companies on AIM, but of those about 750—60 per cent—have a market capitalisation of less than £25 million. I also remind your Lordships that the purpose of the ISA was to hold mainstream products, so there is a tension between the very many smaller companies on AIM and the fundamental purpose of an ISA. The Government have a number of schemes for assisting the capital raising of smaller and medium-sized companies. I have not seen any evidence that it would be materially easier for those companies, albeit that there clearly would be some effect at the margin, if AIM shares were included in ISAs.
Lord Bilimoria
Does the Minister, whom I congratulate on his appointment, recognise that this is an anomaly? AIM was set up, I think, under a Conservative Government in the 1990s to encourage investment into small and medium-sized enterprises, into growing companies. Surely the Government realise that we have to encourage that investment. Why should this be disallowed? AIM is a recognised exchange run by the London Stock Exchange. Do the Government not want to encourage investment when growth is desperately needed in the economy?
Lord Sassoon
As has already been pointed out, AIM has been enormously successful, with 1,250 companies listed. The money raised on AIM has helped more than 3,100 companies. Since the start of the market £67 billion has been raised at admission and through further fundraising, which includes more than £16 billion raised by 1,800 smaller UK companies. AIM has been very successful in helping the financing of the smaller and growing market.
Lord Myners
Does the Minister agree that increasing capital gains tax is more likely to decrease innovation, enterprise and job creation than improve them?
Lord Sassoon
I thank the noble Lord for his question and I was wondering when we would get some more of the candour shown in yesterday’s remarks. I know that the question of capital gains tax is of interest to many noble Lords. The coalition Government believe that the tax system needs to be reformed to make it fairer and simpler, and that is why we will increase the personal allowance for income tax to help lower and middle income earners. To fund this, we are carefully considering the various options for taxing non-business capital gains at rates closer to those applied to income while ensuring that there are generous exemptions for entrepreneurial business activities. Reforming CGT will ensure that those seeking to avoid paying income tax by converting their income into a capital gain will pay their fair share of tax. Further details on the coalition Government’s proposals will be provided at the Budget.
Lord Forsyth of Drumlean
My Lords, in welcoming my noble friend to his new position, could I ask him to look at this again? The noble Lord, Lord Myners, indicated in the last Parliament that this issue was the subject of a review and that we might get a response in due course. How long is “in due course”? Does not my noble friend agree that small and medium-sized businesses are the key to expanding prosperity and jobs in our country? Making this small change—which as the noble Lord said is an anomaly—will open up the possibility of investors being able to invest, and being “all in this together”, to create a recovery in our country. Surely we need a response.
Lord Sassoon
First, I regret that I cannot say why the previous Government made no progress on their promised consultation. As I have said before, the new Government, who have not been in office for very long, are considering this question and we will set out their approach in due course. In the mean time, I stress that we welcome the views of interested parties. I should also stress that we are looking at a whole range of issues related to SME financing, which I agree is an extraordinarily important matter. The range of issues relates as much to bank lending and keeping the flow of credit going as it does to raising equity.
Lord Eatwell
My Lords, I begin by welcoming the noble Lord to the Front Bench and saying how much I am looking forward to our discussions in the coming months. Given that holding AIM shares is a standard device for the avoidance of inheritance tax, do the Government plan to change inheritance tax legislation to ensure that AIM ISAs do not provide a double tax advantage?
Lord Sassoon
I am grateful to the noble Lord for his welcoming remarks, and for pointing out the advantages that AIM shares carry. That allows me to make the point, for those who would like to see AIM shares included in ISAs, that the consequential could be that AIM shares, if one follows through his logic, would lose some other benefits, principally that of inheritance tax relief benefit.
Lord Newby
My Lords, within 10 days we are going to have a Budget which will contain much more complicated issues than this which the Government will have to take time to look at and reach a decision on. For this purpose, can I suggest to the Minister that his definition of “in due course” might mean the next Budget day?
Lord Sassoon
I wish I could say “in due course” in another way. However, I can only reconfirm my previous Answer.
Lord Christopher
My Lords, I declare an interest as chairman of a small investment management company that markets ISAs. Does the Minister agree that there is another side to the growth coin—the risk to potential investors? The number of people who invest today without really understanding what they are doing is extremely worrying. We have seen plenty of examples of irresponsible marketing and I hope that the Minister will take into account the views of the FSA on risk, which should be made clear to potential investors.
Lord Sassoon
I am grateful to the noble Lord for pointing this out. When ISAs were introduced in 1999, they were intended to be for mainstream investment products so that they would be well regulated and investors would be protected from too much risk as well as having easy access. I take the noble Lord’s point.