To ask Her Majesty’s Government whether they will consider allowing shares listed on the Alternative Investment Market to be eligible for ISAs.

One of the qualifying conditions for the inclusion of a share in an individual saving account is that the share must be officially listed on a recognised stock exchange. Shares traded on AIM do not meet this definition. The wider UK tax system distinguishes between listed and unlisted shares for tax purposes, and not just in the area of ISAs. AIM shares are unlisted and have been ever since the market was established. AIM shares benefit from other tax advantages, including the enterprise investment scheme, the possibility of inclusion in venture capital trusts and advantageous inheritance tax treatment.

First, I declare an interest as the holder of a number of shares in AIM-quoted companies. I am rather disappointed with the noble Lord’s reply. Surely, an ISA investor should be allowed to choose whether they invest in main-market companies or in AIM companies? Is it not nonsense that an ISA investor can buy an overseas stock, such as Kraft, to include in their ISA, or can invest in shares quoted on the Channel Islands Stock Exchange, yet be barred from the 1000-plus smaller-growth UK companies on AIM, which would appreciate ISA eligibility from a capital-raising point of view?

Those with whom we regularly consult on the ISA rules and the treatment of the AIM market are very clear that if AIM shares were to be included in ISAs, and AIM shares were therefore to lose the advantages that they currently have under inheritance tax procedures and inclusion in venture capital trusts, they would prefer to remain with the existing arrangement. Nineteen million people have ISA accounts; that is a considerable achievement in terms of increasing investment and tax-protected savings.

Why are AIM stocks not allowed in ISAs when they are allowed in self-invested personal pension schemes?

I think that I have already answered that question.

My Lords, the Minister may feel that he has answered the question, but I suspect that the majority of the House either did not hear his answer or did not understand it. It seems to some of us that there is an inconsistency in allowing these AIM shares to be eligible for SIPPs but not for ISAs. Can he explain why that is such a matter of principle?

I apologise if my earlier answer was not clear. The distinction is between whether the shares are on a listed and regulated stock exchange or not. AIM is not judged to be a listed and regulated exchange. Therefore, companies listed on AIM do not qualify for ISAs. The rules for self-invested pension schemes include the ability to invest in one’s own company, which is clearly a very different regime for an entirely different requirement.

Will the Minister not accept that, in the country at large, his remarks this afternoon will sound extraordinarily complacent? His Government’s economic policies have brought this country to the edge of ruin, and small and medium-sized companies are finding it difficult and expensive to find bank borrowings to fund their expansion. The only way for them to fill that gap now is equities, and for small and medium-sized companies to have this extremely valuable source of equity shut off must surely be a mistake. It must be right for us to encourage investment and savings as a way of getting ourselves out of the hole we are in. Why cannot the Minister see this?

I hope that I am never guilty of complacency over something as important as the performance of the economy, and the criticality of smaller businesses which are the lifeblood of a successful economy. That is why we have focused so much, through various schemes, on ensuring the flow of credit and finance to smaller companies. The noble Lord should recognise that AIM is a market for listed companies. At the time of listing, it is not in itself a source of new capital for investment. That takes place before, so buying a share of an existing company does not represent the flow of new funds into a business. There is a very clear distinction between the primary market and the secondary market.

My Lords, the Minister said that shares could be treated as eligible either for ISAs or for the others reliefs that he described. In practice, the other reliefs have on the whole become less valuable, in particular the venture capital trust reliefs. It is important to ensure that there is a lively market providing finance to small and medium-sized enterprises. Will the Minister look at this again?

My Lords, I am surprised that the noble Baroness says that venture capital trust tax incentives are in some way less attractive. It is possible for an individual to invest £200,000 per annum in a VCT for an up front income tax relief on investment of 30 per cent. I hope that in the Minister’s—

Oh!

I am sorry, I am referring to myself. I hope that in the Minister’s self-direction he both avoids complacency and at the same time remains open to ways in which we can further improve the system. One of the first things I did when I became a Minister was to ask officials to produce a report on the issue raised by the noble Lord’s question. Without wishing to fall into the trap of appearing complacent, I was persuaded by the answers I was given.

My Lords, how is it that figures from the Stock Exchange show that the amount raised by AIM-based VCTs has declined from £196 million in 2005-06 to only £6 million in 2008-09?

The noble Lord is probably aware that these things happen during a bad market.

My Lords, is the Minister not using a circular argument? Who decides what is a recognised exchange? Both AIM and the main Stock Exchange deal in listed shares. The Minister can change the rules quite easily. Why should one lot of quoted shares be treated differently from another?

My Lords, the decision on whether an exchange is recognised will fall within the question of whether it meets the definitions set out in the European directive on prospectuses.