§ Mr. Batiste
To ask the President of the Board of Trade if he will make a statement on the implications for the United Kingdom of the European Commission decision of 9 March requiring the Government to secure repayment of £44.4 million of state aid plus interest from British Aerospace and the Rover Group.
§ Mr. Heseltine
British Aerospace plc yesterday paid to the Government the sum of £57.6 million made up as follows:
£ million Repayment of state aid received by BAe and Rover in 1988 in connection with privatisation costs and buying out minority shareholders 11.0 Repayment of state aid representing the interest that would have been paid between 1988 and 1990 by BAe had it not been allowed to defer (interest free) the payment of the purchase price of Rover 33.4 Interest on the above sums through to yesterday 13.2 Total 57.6
The Commission decision is intended to put BAe in the same position, after tax, as if it had not received state aid. Tax relief would have been available for interest of £33.4 million if it had been paid between 1988 and 1990. Tax relief would also normally be available for the interest of £13.2 million on a United Kingdom debt. BAe therefore now intends to investigate whether tax relief is available for both amounts. If relief is available on both sums at 33 per cent.—the current corporation tax rate—it will reduce the net cost to BAe by E11.0 million and £4.4 million respectively. The net cost to BAe of yesterday's payment would then be £42.2 million.
BAe has expressed concern that under United Kingdom law one or both of the amounts of £33.4 million and £13.2 million might not attract tax relief. If that were to be the case, BAe would have paid, and the Government would have received, up to £15.4 million more than the Commission envisaged. The Government understand BAe's concern and have also noted the opinion of the Advocate General that the Commission might reasonably assume that tax relief would be given on the payment of £33.4 million.
To ensure that the payment has the effect that the Commission intended, and that BAe is not disadvantaged by any difference between United Kingdom tax law and the tax assumptions made by the Commission, the Government have made arrangements to ensure that, if tax relief is not available in respect of the two payments, the company is returned to the same position as it would have been if it had not received the state aid. This would be done by transferring to the Inland Revenue, out of the sum received, an amount equal to the tax relief in question. That would then be set against BAe's tax liability. Details of the arrangements are in a note which is being deposited in the Library of the House. Both the European Commission and the Inland Revenue have been consulted about, and have raised no objections to, the proposed arrangements.