Orders of the Day — Finance Bill

House of Commons, 28 July 1997.

LOW CANCER-RISK PART-RENEWABLE BLENDED DIESEL

Michael Spicer (Conservative, West Worcestershire)

I beg to move, That the clause be read a Second time.

Betty Boothroyd (Speaker, West Bromwich West)

With this, it will be convenient to discuss the following amendments: No. 33, in clause 11, page 7, line 26, at end insert—

Michael Spicer (Conservative, West Worcestershire)

To be completely safe, I must say that I am president of the Association of Electricity Producers, although that is a very indirect interest. In fact, I have no interest relevant to the new clause. I tabled the new clause on behalf of a constituent and it is the second time that I have raised the matter on behalf of that constituent. The purpose of the new clause, which is quite long, is to give fuels whose fumes can create cancer the treatment that exists in tax law for fuels that produce high-sulphur emissions or those that produce heavy carbon dioxide emissions. The fume dealt with in the new clause is produced by polycyclic aromatic hydrocarbons, known as PAH. Can the Government confirm that the PAH content of fuel emissions is cancerous in its effects? There have been many studies of those emissions and the clear indication is that they are cancerous, but it would be good to have confirmation from the Government that that is the case. I am very much aware that no Government would agree to a new clause that was specific to any company's interest; that would be quite wrong and would involve hybridity. The new clause, however, has been couched precisely with that point in mind and would have a completely generic application if accepted by the House. The new clause deals with a process that blends refined rapeseed oil with low-sulphur diesel. That generic technique, which is now well established and can be used by anybody who wishes to do so, would, because it meets a gamut of objectives in terms of cleaner air, benefit from the new clause. Are there other ways in which to achieve those objectives? During points of order, we heard that the Government, on the "Today" programme, said that their way in which to deal with road pollutants was not to build any more roads. Presumably, if we did not have roads, we could not have cars. That seemed to be the way in which they intended to deal with these problems. The new clause is another way, and it is well established. Clean air objectives have been dealt with through the tax system. The previous Finance Bill introduced the inducement to reduce high-sulphur fuels, and there is a discriminatory tax arrangement designed with that in mind. If the Government are serious in their attempts to reduce pollutants from fuels, they should give some priority to dealing with emissions that may be cancerous. Do the Government accept that the PAH content in fuel is cancer bearing? Will they confirm the assurance given by the previous Administration, that there would be a full review of all detrimental emissions from fuels and that a full review would be made of the Government's approach to noxious emissions? I hope that we shall not end up with some emissions being dealt with through the tax system while other more dangerous emissions are ignored. As we have used the tax system in the past to deal with the problem, there is an onus on the Government to explain carefully, if they decide not to accept the new clause, what they intend to do about dangerous emissions and what their general policy is on the taxation of noxious emissions. Do they accept that a distortion in the system that produces tax disadvantages for certain types of emission and not for others is the correct way in which to proceed?

John Swinney (Scottish National Party, North Tayside)

I listened carefully to the remarks of the hon. Member for West Worcestershire (Sir M. Spicer); I wish to take up amendment No. 33, in the name of my hon. Friend the Member for Galloway and Upper Nithsdale (Mr. Morgan). The amendment is designed to provide a mechanism to enable the Government to vary the proposed increase in petrol duty, to compensate for the increased costs that will be suffered by those who live in rural areas. The issue has already been discussed, but it is important that the Government should have the opportunity once again to reflect on the proposals that are set out in the amendment. The costs of the additional increase in petrol duty introduced by the Budget would increase the burden on those who live in rural areas by about £60 a year. That is on top of the £300-a-year increase that was introduced by the previous Conservative Government, through their commitment to an increase in petrol duty by an additional 5 per cent. on top of inflation. The new Labour Government have added to that burden, and we seek through amendment No. 33 to encourage the Government to take a step back from the previous commitment. There is an undeniable case that rural areas are disadvantaged in this instance, and I shall provide some information on the subject. The Highlands and Islands development board, in one of its publications in 1987, argued that a car in a remote area may be both highly unreliable and barely affordable but nevertheless essential to survival and any households without a car in remote areas, must be at a severe disadvantage. The study went on to examine the greater dependency of people in rural areas on the use of a car. It showed that on average 57.5 per cent. of households in Scotland had access to a car, whereas in the highlands and islands, which is the principal rural area in Scotland, the average was 68.5 per cent. It was 68.3 per cent. in Grampian and more than 70 per cent. in the northern isles. It is interesting to contrast those figures with the dependence on and utilisation of public transport in rural areas. The contrast makes the burden clear. It is estimated that in the United Kingdom 3.66 per cent. of the population travel to work by train and 9.85 per cent. travel to work by bus. In the highlands and islands, 6.6 per cent. travel by bus and 0.65 per cent. by train. Access to public transport in rural areas is not as good or convenient as in city and urban communities. It is clear that in rural areas the burden of petrol duty is much greater than elsewhere, and dependence on the car is much more significant in all respects. Over the weekend, I conducted a number of surgeries in the highland Perthshire area of my large rural constituency. Complaints and problems were brought to my attention by those who were seeking to use public services such as nursery education and primary school facilities, or other public services that involved substantial car journeys. One lady was contemplating travelling 300 miles each week to take her young child to a nursery in Dunkeld. The increased burden that will be brought about by the proposed increase in duty will be formidable for that lady. Given the impact of increased transport costs in rural areas, people who live there are faced with a considerable burden. In many constituencies in the north of Scotland, local businesses, post offices, general stores and other small shops supporting life in the rural areas are haemorrhaging away, because of the spiralling costs of obtaining produce and supplies for sale. The Government have suggested that the increase in petrol duty is being imposed on the wisest advice in respect of the environment. Certainly, travelling around London it is clear to me that there is a huge environmental problem caused by the over-use of cars and by the congestion that they cause. It is, however, unfortunate that the Government have tried to justify the increase in petrol prices on environmental grounds. It will punish rural areas even though it is dressed up as an environmental measure. The Government need to pursue a long-term environmental strategy. Indeed, some of its details may have been announced by the Deputy Prime Minister during the past few minutes—who knows? Such a strategy will have to tackle congestion, among other issues, but it must not do so at the expense of fragile rural areas, not just in Scotland, but in England, Wales and Northern Ireland. Petrol prices are already high in those areas. My last piece of evidence comes from an analysis published in the Petroleum Times Energy Report, which shows that the average price per litre of unleaded petrol in Scotland was 61.76p in June 1997; whereas the average price in England was 58.6p. That clear disparity of price is only exacerbated by the heavier dependence in rural areas on the use of the car. I urge the Government at this late stage in the passage of the Finance Bill to think again about that measure because of the damage that it will undeniably do to already fragile rural communities.

David Heathcoat-Amory (Conservative, Wells)

rose—

Geoffrey Clifton-Brown (Conservative, Cotswold)

rose—

David Heathcoat-Amory (Conservative, Wells)

Would it be in order, Madam Speaker, for me to speak at this point?

Betty Boothroyd (Speaker, West Bromwich West)

Yes.

David Heathcoat-Amory (Conservative, Wells)

In no way do I want to inhibit my hon. Friend the Member for Cotswold (Mr. Clifton-Brown), who I know has other points to make, just as he did in Committee. I want to speak to the amendment in my name, No. 26, which we were not able to debate in Committee because of the operation of the guillotine. We did touch on the increase in hydrocarbon duty—but not on the biggest effect that it will have on people in business: the fact that these large increases are to be introduced not from the usual date of the Budget, which is November, but from 2 July. That represents an extra five months' duty; it went partly unnoticed at the time of the Budget, but it has certainly been noticed by the victims of that large tax increase in the weeks since. The fact is that, on the day of the Budget, the Chancellor imposed a 4p-a-litre tax increase on all who use road fuel—for those still used to gallons, that means an 18p-a-gallon increase. That represents a 6 per cent. increase above and beyond the rate of inflation, which is higher than what had been planned by the previous Government. When we were in government, we signalled that there would be an annual real increase in duties, to show what our intentions were. We did so for environmental reasons, and to give the automobile industry a chance to design fuel-efficient engines and equipment to meet the challenge of extra hydrocarbon duties. Without any warning or mention in the manifesto, however, the new Government have increased petrol and diesel duty by 6 per cent. in real terms; most significantly, they have brought forward the increase by five months. Taken together, those two factors will raise an extra £730 million this year. The Government have, without warning, imposed a three quarters of a billion pounds extra tax increase through that petrol and diesel duty hike. Since Budget day, there has been an immediate increase for all motorists. I emphasise the word "immediate" and shall return to it, to contrast it with a number of relief measures that the Government have carefully postponed. All the pain is immediate, while some of the relief is delayed. This tax increase affects not only all motorists but anyone who relies on transport of any sort. I shall deal with the effect on rural areas in a moment.

Andrew Bennett (Labour, Denton and Reddish)

Does the right hon. Gentleman accept that the previous Government were very keen to persuade motorists to use their cars less, and that their strategy was to increase fuel duties? If he does not agree with such increases, how does he suggest that we persuade the world to stop global warming and achieve the targets for reducing CO2, emissions?

David Heathcoat-Amory (Conservative, Wells)

The hon. Gentleman raises a matter which goes a little wide of the debate. I would love to engage with him in a wider environmental debate, but that would be out of order. People are indeed fairly attached to their cars. There is much evidence that increases in fuel duties do not necessarily lead people to switch to public transport, which is perhaps what lies behind the hon. Gentleman's question. The point that I am making, and with which I do not think the hon. Gentleman would disagree, is that yes, we did have a policy of increasing fuel duty, but the reason why the new Government have raised the rate of increase and brought it forward by five months has less to do with environmental aims than with raising money. The effect of the increase on rural areas was outlined by the hon. Member for North Tayside (Mr. Swinney), and I agree with much of what he said. I represent a rural area, and a car is frequently not a luxury but a necessity for people living there. We must remember that not only cars but trains and buses will be affected by the increase in duty—in other words, public transport will also be hit. I know from first-hand experience in my constituency that many people are already regretting taking at face value Labour's promise, made during the election campaign, not to raise taxes. The big and immediate effect of the increase is on transport, but domestic heating will also be affected. The Government have made much of the fact that they are cutting the rate of VAT on domestic fuel by 3 per cent., but the timing is interesting. That cut, modest as it is, does not come into effect until September. We discovered in Committee that there is a significant clawback of that benefit from low-income groups in particular—there will be a lower uprating of pensions and other benefits next April because of the cut in VAT. The modest benefit does not come into effect until September; why, therefore, have the Government brought forward to the date of the Budget itself the increase on heating oil which will affect many of the same people? In summary, people are already being affected by many of the tax increases introduced by the Chancellor on Budget day. He announced 17 tax rises in general, but only one was promised in the manifesto. He did indeed promise us a windfall tax when in opposition, but when he was making plans for the windfall tax, he must have been making plans for the other 16 tax increases, including this huge extra burden on motorists and others.

Ivor Caplin (Labour, Hove)

Will the right hon. Gentleman tell the House how many of the previous Government's 22 tax rises were in the 1992 Conservative party manifesto?

David Heathcoat-Amory (Conservative, Wells)

We dispute the hon. Gentleman's arithmetic in calculating 22 tax rises. He alleges that there were 22 tax rises during our five years in government, but perhaps he would like to reflect on the fact that, in their first four or five weeks, the Labour Government have introduced 17 tax rises. If they continue at that rate, we shall be well into three figures by the next general election. The Prime Minister, before the general election, promised not to increase tax. On 21 September 1996, his exact words were: We've no plans to increase tax at all". More recently—in January 1997—the Chancellor of the Exchequer said: It's my aim to get the burden down for ordinary people". The Chancellor has since discovered that ordinary people use transport. Even if people do not use their own car, they use public transport, and both forms of transportation have been affected by the Government's tax increases. Many people heat their homes with oil, and many have pensions—which I shall not elaborate on now, because I realise that we shall debate that issue tomorrow. So-called ordinary people have been hit by 17 tax increases.

Geraint Davies (Labour, Croydon Central)

Does the right hon. Gentleman agree that there is a danger of the economy overheating and that, given that danger, the fuel tax is very welcome within the Budget's balanced portfolio of changes? Will he tell the House what changes, if any, the Conservatives would have made to fuel duty?

David Heathcoat-Amory (Conservative, Wells)

I tell the hon. Gentleman straight that we would not have produced this Budget and, therefore, would not have introduced the huge extra increase in duty on heating oil, petrol and diesel. If he is right and the economy is overheating—the Chancellor of the Exchequer has said that it is—it is all the more surprising that the Chancellor did not try, as a general Budget strategy, to take money directly out of consumer expenditure. We know—as does the hon. Gentleman, because he was a member of the Standing Committee that considered the Bill—that the Chancellor's main tax-raising measure affected not current consumer expenditure but pension funds, thereby hitting long-term savings and not current consumer expenditure. If reducing such expenditure was the Chancellor's strategy, he went about accomplishing it in a pretty stupid way.

Dawn Primarolo (Labour, Bristol South)

The right hon. Gentleman has been going on about heating oil and price increases. Does he accept that kerosene is the predominant heating oil, and that the Budget did not increase excise duty on it?

David Heathcoat-Amory (Conservative, Wells)

No; the hon. Lady is a little out of date. Kerosene—or paraffin, as it is sometimes called—is no longer the predominant heating fuel of those on benefits. Just as many of them, if not more, use heating oil for heating their hot water or—with central heating—their homes. As from Budget day, the duty was increased. The hon. Lady has not answered the curious conundrum whereby she is happy to delay until September the VAT reduction on domestic fuel, whereas the Chancellor made the duty increase on heating oil effective on Budget day—thereby emphasising a point that I have already made.

Andrew Bennett (Labour, Denton and Reddish)

Will the right hon. Gentleman give way?

David Heathcoat-Amory (Conservative, Wells)

I shall give way once more to the hon. Gentleman.

Andrew Bennett (Labour, Denton and Reddish)

Are not those crocodile tears? How many people on low incomes does the right hon. Gentleman suggest are running central heating at this time of year? Does not he expect most of them to turn off their central heating system between now and September?

David Heathcoat-Amory (Conservative, Wells)

Yes, I do. However, it may come as news to the hon. Gentleman that many people use the same fuel for heating water. They take baths, they wash their hands and they heat water for cooking. I am amazed by the ignorance sometimes displayed by Labour Members about how so-called ordinary people live. All the extra costs affect people now. As we sit in the Chamber, the additional tax on fuel is affecting our constituents, and I am surprised that the hon. Gentleman is apparently unaware of that. The tax increase on petrol, diesel and various oils does not just affect individuals; it is a massive extra cost to industry. Industry is the main user of diesel. Most lorries, buses and trains use diesel, which has increased in price by more than 9 per cent. Directly or indirectly, that affects the price of just about everything that is transported. It is a big extra industrial cost, as well as affecting individuals who use buses and trains. It also affects competitiveness. We have been promised a White Paper, a review or discussion document about competitiveness in the British economy. The Government could have made a start by not increasing the burden on the competitive sector of the economy through large tax increases. The trade sector of the economy has been most squeezed since the election as it is exposed to international competition. In particular, the export industries and the manufacturing sector have been hit by the strength of the pound. They will also suffer most from a direct tax on one of their most important raw materials. That has no doubt contributed to stock market movements since the Budget. Shares in the financial and banking sectors, the retail sector and importers have increased in value, while those in manufacturing industry, the engineering sector and exporters are relatively low, as those industries have been hit by the Chancellor's monetary policies and the tax rises since Budget day. There is also a general effect on inflation and the retail prices index. That further twist to inflation has not yet been reflected in the RPI. However, between the date of the election and now there has been an increase in the actual or signalled rate of inflation. That is hardly surprising, as one of the first things that the Chancellor did in office was to weaken his inflation target. We had a target of 2½ per cent. a year or less. My right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke), the previous Chancellor, had met that target by the time we left office. The incoming Chancellor weakened the target to 2½ per cent. plus or minus 1 per cent. That sent a signal to the world that he would tolerate higher inflation. In addition, he failed to damp down any consumer boom that he identified in the economy—another missed opportunity—and increased inflation by his action in the Budget. The duty increase has still to feed through into the economy.

Jacqui Smith (Labour, Redditch)

Does the right hon. Gentleman accept that it is not the toughness of the inflation target that is most important, but the toughness of the action taken to achieve it, and that in many ways my right hon. Friend the Chancellor has already shown his willingness to take tough action, particularly through the independence that he has given the Bank of England in monetary matters?

David Heathcoat-Amory (Conservative, Wells)

I quite agree with the hon. Lady that it is no good having a target unless one is tough about meeting it. Having set a looser inflation target, the Chancellor signalled that he would be rather relaxed in his efforts to meet it by producing an inflationary Budget. The figures are quite eloquent. A report in the Financial Times says that, according to the Office for National Statistics, the Budget will add a further 0.79 percentage points to the 'all-items' retail price index". The same article points out that the last Budget of my right hon. and learned Friend the Member for Rushcliffe added only 0.39 percentage points to the index. So there we have it. The Chancellor not only weakened his target, but set about breaching it. The Budget forecasts in the Red Book project a breach of the inflation target. The Chancellor accepts in his arithmetic that he will not—

Geoffrey Clifton-Brown (Conservative, Cotswold)

Does my right hon. Friend agree that a judicious blend of fiscal and monetary policy is needed to meet the inflation target? Relying purely on fiscal policy could advance a possible recession, by creating the need to increase interest rates too high for the demand in the economy. We are heading in that direction.

David Heathcoat-Amory (Conservative, Wells)

I agree with my hon. Friend. I am not a Keynsian, but I accept that fiscal policy has a part to play. It should not work in the opposite direction to monetary policy. Although interest rates should bear the main strain of keeping inflation under control, the lesson from countries such as Germany is that success comes from having a low-inflation culture, in which all the levers of economic management—fiscal policy and monetary policy—point in the same direction. We have not achieved that under the new Government. The separation of fiscal policy, which remains in the Treasury, from monetary policy, which now goes to the Bank of England, has within it the seeds of a considerable bust-up. The Budget was not in tune with the inflation target laid down by the Chancellor, even though—I repeat—that target is looser than the one that he inherited. My concluding point concerns the effects on public services of the tax increase, particularly the fact that it is being brought forward by five months. From the day of the Budget, all services that use transport will cost more. There is a 4p-a-litre increase for all police cars, all ambulances, all school buses, all meals on wheels, the national health service and social services. All those services are already experiencing higher costs. There is no extra money for that. The Chancellor has almost made a fetish of the fact that his cash targets remain the same. It is true that, for the financial year starting next April, he has raided the reserve to allocate some more money to two items of public expenditure—education and health—but there is nothing for law and order, local government or any other public services. For the current financial year, which ends next March, there is not a penny piece of extra public money to fund services, even though—again, this is all in the Red Book—they face the inflationary consequences of the Budget.

Quentin Davies (Conservative, Grantham and Stamford)

My right hon. Friend is touching on an important point. Is there not a serious danger of the public being bamboozled? They have been led to believe that the increases from the contingency reserve for health and education next year will buy more teachers, doctors or operations, adding to the output of those public services. It has not been explained to the public that a significant portion of that money will go on increased fuel costs and the consequences of the minimum wage—costs imposed on those services by the Government.

David Heathcoat-Amory (Conservative, Wells)

My hon. Friend puts it very well. What the Chancellor has done—the fuel increases are just one part—is to increase the cost of all public services while providing no extra money. That is a real expenditure reduction, which is already occurring. The House should accept not just my word but that of the House of Commons Library, which has produced some very interesting figures that show that there is a real public expenditure reduction of £3 billion in the current financial year, rising to £5.25 billion next year. That is because of the extra inflation that the Chancellor is now projecting—part of which he has caused as a result of the Budget—which is colliding with the fact that there is no extra cash.

Rudi Vis (Labour, Finchley and Golders Green)

Will the right hon. Gentleman comment on the International Monetary Fund report concerning the Budget?

David Heathcoat-Amory (Conservative, Wells)

There is nothing that I would like to do more, but I do not know whether the Chair would allow such a diversion into the IMF report. I shall just say that the IMF spotted the fact that we have incipient overheating on our hands, yet the Chancellor chose not to use the Budget as an opportunity to correct that through fiscal tightening. To go on a little from the IMF report, the only way in which he did attack consumers directly was in the most inflationary way possible, by the immediate increases in indirect taxation. I do not think that the hon. Gentleman will derive much comfort from the IMF report to counter what I have just described. There we have it. We saw on Budget day a large and immediate tax increase levied on motorists of all sorts, especially those in rural areas, who will have to bear the increase without any way of switching to other forms of transport—notwithstanding the fact that many of the alternative forms of transport, such as buses and trains, are also hit by the duty increase. We have seen how the increase works through into higher industrial costs and damages competitiveness, especially in the sector most exposed to world competition, which is trying to export. We have also demonstrated that, by feeding through into general inflation in the public services, unmatched by any extra cash to compensate, the increase will have a highly damaging effect on public expenditure in the years ahead. For all those reasons, I invite the House to support amendment No. 26, which seeks at least to limit the damage, by pushing back to November the increase in hydrocarbon duties. The amendment will not halt the damage completely, but at least it will bring some respite to the hard-hit sectors that are the first but not the only victims of the new Labour Government.

Geoffrey Clifton-Brown (Conservative, Cotswold)

I wish to speak to amendment No. 26, which was tabled by my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) and relates to the timing of the fuel duty increases. They would, of course, have been enacted in November, rather than almost five months earlier in the July Budget. A 6 per cent. increase in fuel duties introduced five months early probably amounts to an increase of about 7 or 8 per cent. in real terms on a year-on-year basis. That is a pretty swingeing increase in fuel duties in one year. The increases hit particularly those in rural areas and, more particularly still, poor people in rural areas who have to rely on their cars to obtain the absolute necessities of life at, for example, the post office or their local doctor's surgery. Those who are relatively affluent will not be deterred from using their cars. The Government should be implementing a mixture of "carrot" and "stick" measures. They should be trying to encourage people through fiscal measures such as those in clause 11—some of which are to be welcomed, as I shall briefly explain—as well as encouraging people and heavy goods on to public transport. In my constituency, we have opened two rural stations and I am battling to open a third. We should press for such measures to encourage the use of public transport. Another initiative in my constituency is a community bus. The scheme is organised by the community and funded by various Government bodies and through fund raising. The bus is driven by a rota of volunteers, and its schedule is tailored to the needs of the community. The scheme has expanded and now runs three or four buses, having started with one. Sadly, the swingeing increase in fuel duty will increase the scheme's running costs. I ask the Financial Secretary to exempt good community schemes from future increases in fuel duty or allow them to claim a rebate, because we should encourage them. The increase in fuel duty is 6 per cent. in real terms, or 6 per cent. plus inflation. If we assume that the rate of inflation over the longer term is some 3 per cent., the increase is some 9 per cent. That means that fuel duties will double, in nominal terms, in seven years; that is a swingeing increase. I urge the Financial Secretary to consider the effect that the increase will have on poor people, especially those in rural areas. As I have said, I welcome some aspects of clause 11, especially the encouragement of ultra-low-sulphur diesel. Through fiscal and other measures, we should be able to encourage—in a reasonably short time—all diesel users, including heavy goods vehicle drivers and car drivers, to switch to low-sulphur diesel. We all know the effects of the sulphur pollution that belches from the back of unserviced HGVs and cars, and it is possible to see the particulates and the white smoke and to smell the sulphur. We should encourage a universal switch to ultra-low-sulphur diesel, through fiscal measures, as we did with unleaded petrol. Ten years ago, the market for unleaded petrol was around 10 per cent. Today, it is some 90 per cent. There is now no case for super-unleaded petrol, as the hon. Member for Denton and Reddish (Mr. Bennett) knows because he was a member of the Environment Select Committee which considered it. An environmentally friendly clause 11 would have introduced a differential in the rate of duty on ordinary unleaded petrol compared with super-unleaded petrol. Such a measure could be considered for a future Budget. My right hon. Friend the Member for Wells mentioned the inflationary effect of clause 11. One reason behind amendment No. 26—to delay the increase in fuel duty—was to try to mitigate that effect. The increase in fuel duty will have an effect on the price of all service and delivery goods. Huge numbers of motor cars, vans and HGVs will experience an increase in costs. Whether that is inflationary in the long or short term, when it eventually feeds through into the economy, is a matter for speculation. The notes on clauses suggest that the measure, which will raise some £300 million extra, will push inflation up in the short term by 0.25 per cent., but if duty goes up year on year, the cumulative inflationary effect will be much greater. That must be taken into account. It is all very well to tax the motorist out of existence, but certain sectors of society will be especially adversely affected, including the poor in rural areas. It is all very well for an urban-dominated Government to ignore those people, but those who live in rural areas are often some of the poorest in the land. They depend on their motor cars as a necessity and the Government have a duty to consider their plight in future Budgets.

John Swinney (Scottish National Party, North Tayside)

The previous Government increased petrol duty, which had a damaging effect on rural communities. Did the hon. Gentleman oppose that?

Geoffrey Clifton-Brown (Conservative, Cotswold)

I am not sure what the hon. Gentleman is talking about. He is probably talking about Norman Lamont's 1992 Budget. If he will clarify his question, I will answer it.

John Swinney (Scottish National Party, North Tayside)

The previous Government increased petrol duty by 5 per cent. over and above the inflation rate. The present Government have compounded that by increasing it by a further 1 per cent. The measure introduced by the last Government had a very damaging effect on rural areas.

Geoffrey Clifton-Brown (Conservative, Cotswold)

We can argue about semantics. We raised the duty by 5 per cent. The figure is now 6 per cent., but, in real terms, it is up to between 7.5 and 8 per cent., and each percentage rise causes a little more damage. I ask the Government to consider the effect that is caused over a period. This is a fairly swingeing increase—but I do not want to be provoked into speaking at length. The Government could consider innovative ways of encouraging people to use public transport, on a "carrot" rather than a "stick" basis. In any of our major cities, queues of cars with only one occupant belch out smoke from unwarmed engines. Fiscal measures to encourage people to share cars could be introduced, along with a host of measures to encourage the return of heavier goods to the railways. Some innovative suggestions have been made. Perhaps we could give special fiscal concessions to the drivers of lorries that, by means of special wheels, can go straight from the roads and on to the railways without the need for cross-handling of goods. I have seen that working effectively in north America. There could be a uniform business rate holiday for firms that were prepared to sign a 10-year contract providing for all their heavy goods to be transported on the railways instead of the roads. I should be happy to write to the Financial Secretary to the Treasury, or to the Minister of Transport, describing some of the suggestions that have been made.

Kali Mountford (Labour, Colne Valley)

The hon. Gentleman may be surprised to learn that, in my constituency, most people with low incomes do not use cars at all, but depend on public transport. The West Yorkshire passenger transport executive provides free transport for pensioners and disabled people who require it.

Geoffrey Clifton-Brown (Conservative, Cotswold)

The hon. Lady's area must be very different from mine. In many small villages in my area there is only one bus a week, and anyone with an urgent appointment with the doctor or an urgent need to claim benefit would still be waiting.

David Heathcoat-Amory (Conservative, Wells)

Has my hon. Friend taken account of the fact that, as a result of the Budget, the cost of bus services will rise? The extra fuel increase must be borne not just by private motorists—who, of course, are of no concern to Labour Members—but by bus companies and other operators. They will have to raise their prices, which will drive the hon. Lady's constituents and others off the buses. Either they will be unable to travel at all or they will have to try to obtain lifts in private cars.

Geoffrey Clifton-Brown (Conservative, Cotswold)

I agree. As my right hon. Friend said in his speech, if public service costs are to be increased without there being a commensurate increase in public sector grant, the cost will inevitably fall on the consumer. One of my predilections is listening to Jimmy Young on the way from my constituency to London. Anyone who listened to his programme this morning will have heard people telephoning the programme saying they did not use public transport because of the cost. One lady who lived in Edgware, or some such London borough, tried to give up using her car for a month, but had to start using it again because the cost of public transport was even higher than that of the car. How daft can the Government get? I do not want to be further provoked into making a long speech. I have made my points, and I hope that the Government will consider them carefully when drawing up next year's Budget.

Quentin Davies (Conservative, Grantham and Stamford)

I was struck by the extraordinary way in which the Government are trying to justify this increase in duty. They seem to be using two arguments, and they are in a frightful muddle. The first argument was that it was a good idea to take the opportunity of the Budget to increase consumption taxes. Indeed, if consumption is rising at an unsustainable rate and the economy is in danger of overheating—the analysis made by the Government in their Red Book—it might be sensible to take advantage of a Budget to reduce consumption spending. The Government have demonstrated, however, that that argument is not available to them because the major tax rises that they introduced were, first, on companies and the corporate sector—the windfall tax—and, secondly, on savings, with the abolition of the dividend tax credit, which will have exactly the opposite effect in so far as it reduces the return on savings—and, thus, the inducement to save—and so increases consumption. People will save less and spend a greater proportion of their disposable income. 4.30 pm A Government who tax savings cannot coherently argue in the same Budget and Finance Bill that the increase on tax on hydrocarbon fuels is a measure to reduce consumption. If there were not already sufficient inconsistency between that argument and the attack on savings through the abolition of the dividend tax credit, the Government are at the same time reducing value added tax on domestic fuel. So they are reducing a consumption tax on a hydrocarbon fuel with one hand, while increasing a consumption tax on such a fuel with the other. There is no rhyme or reason about this Government and this measure.

Geraint Davies (Labour, Croydon Central)

Does the hon. Gentleman agree that the reason for that inconsistency is wanting, on the one hand, to stop or limit the environmental damage caused by exhaust fumes and the use of cars and, on the other, to help poor, elderly people to keep warm and to stop them dying of hypothermia during the winter? There is no inconsistency from our point of view.

Quentin Davies (Conservative, Grantham and Stamford)

I have dealt with one inconsistency—that of claiming that it is necessary to reduce consumption through this increase in tax on hydrocarbon fuels while increasing consumption spending by a slightly greater reduction in another tax on another set of hydrocarbon fuels and, at the same time, attacking savings to a considerable degree, which will only reduce the savings ratio and increase consumption. There is no rhyme or reason. No doubt that is why the hon. Gentleman did not produce that argument in his intervention. He obviously agrees with me that the Government cannot credibly use that argument because they are in a state of complete contradiction over it. So he used the other argument, which I was coming to—environmentalism. It is said that it is environmentally friendly to increase carbon taxes because that reduces emissions into the atmosphere of carbon dioxide and, indeed, of other substances, some of which might be toxic. I am very much in favour of using taxes to reduce the ill effects of environmental pollution. That is a good principle. It was taken a long way, under the distinguished period in office of the previous Administration, by a distinguished Secretary of State for the Environment. Nevertheless, there seems to be another major confusion in the Government's attitude. This tax is being increased and there are attempts to use the tax system to push people to use diesel fuel. As has been said, using the tax system to increase the relative inducement to consumers to go for unleaded fuel has brought about the perversity of super-unleaded petrol, which contains a high element of benzene, which is a nasty carcinogen. That is hardly an environmentally friendly consequence of using the tax system to try to bias consumers' choice of petrol. There are the references to diesel, but there is increasing evidence that the effects of diesel fuel use are environmentally harmful, in that fine particles of diesel fuel in the atmosphere are absorbed through the lungs into the system and never really discharged. Medical evidence therefore suggests that, from the environmental or public health viewpoint, it is not a terribly clever idea to increase diesel consumption. For the Government to justify bringing forward taxes on environmental grounds, we need a reasoned, coherent and systematic account of how the Government believe public health is negatively impacted by the use of different hydrocarbon fuels and what set of tax measures is likely to produce the optimal use of such fuels. We have not had that; we have had only piecemeal measures, justified by a mixture of electoral demagogy and last-minute financial pressures. Those measures are then masked by high-sounding general principles relating to the environment or to the fiscal management of demand in the economy. Those arguments are completely bogus and those principles are not being coherently or honestly applied.

Andrew Bennett (Labour, Denton and Reddish)

Did the hon. Gentleman make that criticism of the previous Government?

Quentin Davies (Conservative, Grantham and Stamford)

I have indeed made my points about benzene in super-unleaded fuel and the environmental impact of diesel fuel on a number of occasions, in the House and in Committee, under both the current Administration and the previous Administration. With the consent of the hon. Member for Denton and Reddish (Mr. Bennett), I intend to go on making these points until I feel that the Administration are listening to them. I hope that they will be addressed. They deserve to be addressed and I hope that the Financial Secretary will address them when she replies to the debate, because they go to the heart of the rationale of the new clause. I represent a rural constituency—Grantham and Stamford, which is a large part of south Lincolnshire—and I am intensely conscious of the disproportionate burden placed on rural populations by any increase in hydrocarbon duties. I have to say to my hon. Friend the Member for Cotswold (Mr. Clifton-Brown) that not only does it place a burden on people in the conduct of their private lives—going to school or to the doctor—but it places a burden on employment by increasing the costs of employment. One of the positive features of the modern world is greater mobility. Because they have cars, people can now take jobs not merely within walking or bicycling distance, as was the case some 50 years ago, but within a range of 10, 15 or 20 miles, depending on how good the road system is. That must be good for the economy, because it maximises the opportunity to use people's talents in the economy; and it is good for individuals, because they have a wider range of job opportunities. Anything that increases the costs of mobility reduces that mobility, as night follows day. One must be conscious of that. Against all that, I accept entirely the environmental arguments. There is a double environmental argument relating to hydrocarbon fuels: they are non-renewable and it is sensible, over time, to try to economise in their use; and there are serious issues relating to atmospheric pollution and carbon dioxide in the atmosphere.

Geraint Davies (Labour, Croydon Central)

It seems that the hon. Gentleman's argument is leading towards a suggestion that any state intervention through charging excise duty on fuel is a fundamental constraint on freedom. He seemed to be proposing that we should cut all tax on fuel to enable people to make the maximum use of motor vehicles across Britain, without any limit, in the name of freedom. He has made only a passing reference to the environment. Where does the hon. Gentleman stand? Does he not agree that when the Government consider public opinion, a balance must be struck? I believe that the Government have struck the right balance in favour of public opinion.

Quentin Davies (Conservative, Grantham and Stamford)

I always enjoy the hon. Gentleman's interventions on my contributions, and I have listened to a number of them in Committee. Most of them are attempts to caricature my position, but that particular intervention does not caricature it; indeed, it does not relate to my remarks at all. Under no circumstances did I take any of the lines that the hon. Gentleman has attributed to me. I have always argued that a balance must be struck. I am extremely conscious of the burden placed on my constituents by any hydrocarbon fuel duties. On the other hand, as I have now had to repeat several times during my speech, as a result of interventions, I recognise a strong environmental case for hydrocarbon duties, which take a disproportionately high share of total consumption taxes. If I did not believe that, they should not be subject to excise duties at all, but simply to VAT. We have singled out those fuels, together with alcoholic drinks and tobacco, for special forms of consumption tax. I accept that principle, which was also accepted by the previous Government. If we are to strike the correct balance, it is important that the Government should set out the parameters of the equation. They should explain what they are specifically trying to achieve in terms of the environmental impact of the taxes and, therefore, what levels of tax are appropriate for particular types of hydrocarbon fuel. That argument has not been made. The Government seem to govern us from watertight compartments. When Treasury Ministers defend the hydrocarbon duties they do not engage with the environmental arguments that are used to justify, spuriously, the fiscal measures introduced. That is not good enough. If the public are to be asked to pay a disproportionate burden of taxation through hydrocarbon duties, they are entitled to be given a clear and coherent account from the Government of the exact environmental purpose of those taxes. They should inform the public how those hydrocarbon fuels have been selected for tax with regard to their particular environmental attributes, positive or negative.

Dawn Primarolo (Labour, Bristol South)

The increase in hydrocarbon taxes signals the Government's commitment to the environment. It is intended to raise sufficient revenue and achieve sustainable economic growth while protecting the environment. To answer the point raised specifically raised by the hon. Member for Grantham and Stamford (Mr. Davies), that duty is designed to ensure that road users cover the economic costs that they impose as well as help to reduce harmful emissions. In particular, the duty will help to achieve the target that the Government have set themselves to try to reduce carbon dioxide emissions by 20 per cent. by 2010. The measure will contribute 2.5 million tonnes towards that target. To pick up on the points raised by the hon. Members for Grantham and Stamford and for Cotswold (Mr. Clifton-Brown), which relate to new clause 4, this Government, in common with the previous Government, must continue to make assessments of the fuels used and their polluting nature. We must judge the impact of those fuels on health and the environment. The Government must consider the mechanisms available to them to encourage greater fuel efficiency and, therefore, less pollution.

Michael Spicer (Conservative, West Worcestershire)

I am glad to hear what the Minister has said in answer to the points raised by me and my hon. Friend the Member for Grantham and Stamford (Mr. Davies) about a thorough, comprehensive review. If that is what is proposed, what would be the deadline for such a report and when would it be published? In the absence of such studies, how can the hon. Lady say that the new tax has a specific relationship either to economic costs, towards which, as she knows, the motorist pays far more than he gets back, or environmental costs?

Dawn Primarolo (Labour, Bristol South)

The previous Government's use of hydrocarbon taxes showed that they led to an increase in efficiency and a reduction in pollution and carbon dioxide emissions. For instance, I am sure that the hon. Gentleman is well aware of the debate surrounding leaded and unleaded fuel and the successful strategy of using the tax system to encourage the growth in unleaded fuel consumption. This is the second year in which the hon. Member for West Worcestershire (Sir M. Spicer) has tabled such a new clause. It represents special pleading on behalf of a single product, ecodiesel. As he has already said, he is using the clause as a means of discovering the extent of the Government's intentions. Although we appreciate the environmental argument for blended diesel fuels, we took full account of the available products when setting the rate for the ultra-low-sulphur diesel. The problem is that if new clause 4 were accepted, it would create a need for a product that would have to be imported. The balance we have struck on the ultra-low-sulphur diesel has the advantage that the current definition of such a fuel means that the United Kingdom industry could immediately produce such oil if it chose to do so. The hon. Gentleman has also asked about the Government's intentions. I am afraid that there are no definitive studies that can tell us about the exact polluting properties of all the fuels. Our knowledge of them continues to develop in line with scientific knowledge. We will, however, continue to review the case for tax incentives for environmentally friendly fuels, in line with our statement of environmental intent which was announced by my right hon. Friend the Chancellor at the Budget. Such assessment will continue and, each year, the Government will make a judgment on how best to use the carrot-and-stick approach, as described by the hon. Member for Cotswold, to enhance and develop fuel efficiency and to protect the environment. The hon. Member for Grantham and Stamford was a little confused in his arguments about the environment. Information gained from the experience of the previous Government reveals that the use of tax incentives has helped to develop fuel efficiency and reduce pollution. They will also help this Government to achieve their target. I shall now respond to what the hon. Member for North Tayside (Mr. Swinney) said about the impact of the measure on rural motorists. The requirement for the total cost of motoring to be borne by the motorist will apply in urban and rural areas, but he specifically identified the problems that people living in rural areas have with increased costs—in particular, the price of petrol is higher. The Government are very sensitive to the needs of the rural areas and we are aware of car dependency, but it is not the place of the duty system necessarily to take that into account. The hon. Member for North Tayside knows that the Government are committed to reducing car dependency and encouraging greater use of public transport, and that the Deputy Prime Minister has announced his intention to publish a White Paper in the spring that will seek to address those problems. The White Paper will pick up on the points that the hon. Member for Cotswold made about seeking new partnerships with local authorities and the development of community transport schemes. I am sure that the Deputy Prime Minister will be delighted to receive representations from the hon. Member for Cotswold, who made a very positive contribution, supporting the Government's strategy to achieve their environmental objectives. Amendment No. 33 proposes that a lower duty be levied in rural areas than in urban ones. The hon. Member for North Tayside probably knows that, because of the way in which duty rates are charged on oil producers, such a system would be impossible to administer fairly. Once the fuel had left the oil producer, how would we determine whether it was destined for rural or urban use or whether people who purchased it rurally would use it entirely rurally? The Office of Fair Trading, responding to the Trade and Industry Select Committee investigation of 1996, has now launched an inquiry into petrol retailing, including the effects of possible predatory pricing. It will also study the impact on rural areas, because if there is a problem there, it will be a much wider problem than the rate of duty. I hope that the hon. Member for North Tayside will want to follow that investigation very carefully. I remind the hon. Member for North Tayside that there are many influences on rural businesses other than road fuel duty. The preliminary results of a Scottish Office study suggest that transport costs, in relation to the value of output, are no greater in the highlands than in central Scotland or other parts of the United Kingdom. The issue is therefore the pricing of companies in rural, as opposed to urban, areas. It is important that people seek out more efficient ways of using their car and more fuel-efficient technologies for their cars, but that problem will not be solved overnight. The Government very much have in mind the express desire of the electorate that the Government should take positive steps to protect the environment; in doing so with these duties, there are extra costs to be borne.

John Swinney (Scottish National Party, North Tayside)

I am sure that many people in the rural community that I represent would reiterate that they share the concern that we all feel about the environment, but I believe that rural communities are also waiting for signs that the Government understand that their circumstances are very different from those in urban areas. Some of the—undoubtedly effective—initiatives to improve public transport in other areas are meaningless to communities where buses come once a week.

Dawn Primarolo (Labour, Bristol South)

I confirm to the hon. Gentleman that the Government are very concerned about the experience of people living in rural communities, the absence of public transport and the problem of access to shopping. Those are far wider issues and need to be viewed in the round. The Government are committed to doing that in their study on public transport and, for example, in following closely the outcomes of the study being undertaken by the OFT. However, there must be a balance: motorists must bear more of the costs that they create on the environment. The targets for the reductions in carbon dioxide emissions and pollutants in the atmosphere are crucial to that. In amendment No. 26—a rather confused amendment—the Conservatives cannot make up their mind whether they are in favour of measures for the environment. They seem to want to oppose the measure simply because the Government suggested it. As I said, it reflects the Government's decision to place the environment at the core of our objectives for the taxation system, by discouraging environmental pollution by road users. It will contribute significantly towards the carbon dioxide savings necessary to meet the Government's targets. Those targets will be discussed at Kyoto in December, when the Government are prepared to envisage substantial cuts in carbon dioxide emissions. The convention for duty increases coming into force has always been 6 pm on the day of the announcement. The aim is to limit the disorder in the marketplace, and traders are used to dealing with it in that way. These proposals balance the Government's need to reach our environmental objectives with the need to create revenue for the Government as part of the balanced approach to the Budget, ensuring that we have a deficit reduction plan—something which Opposition Members sorely neglected to formulate when they had the opportunity to do so. I ask the House to reject the amendments.

David Heathcoat-Amory (Conservative, Wells)

I believe that my hon. Friend the Member for West Worcestershire (Sir M. Spicer) may reply on new clause 4. However, given that we are also discussing amendment No. 26, which is in my name, I shall respond briefly—although it is difficult to respond to the Financial Secretary to the Treasury because she did not answer any of the points made by Conservative Members. I have seldom heard such an inadequate and evasive response. She read out parts of her brief, all right, but she did not answer the points that we raised in debate.

Andrew Bennett (Labour, Denton and Reddish)

On a point of order, Mr. Deputy Speaker. It is highly unfair to criticise my hon. Friend for not replying to some of the points of the debate, as the hon. Member for Cotswold (Mr. Clifton-Brown), who made some substantial points, did not even stop to listen to the reply.

Michael Lord (Deputy Speaker, Central Suffolk and North Ipswich)

That is not a point of order for the Chair.

David Heathcoat-Amory (Conservative, Wells)

All that the Financial Secretary did in response to the matters that we raised was to say that our amendment was confused. It is not at all confused; it is quite simple. We are saying that the Chancellor promised an emergency Budget to implement a windfall tax, and we expected precisely that. Instead, he introduced a 100-page Finance Bill, including this huge and unexpected hit for all who transport goods, drive cars or vehicles of any type or use heating oils. Our message could hardly be clearer. We believe that the date of any increase should be returned to what it was in the original Budget statement in November 1996, which we understood that the Government had taken over. They took over all our expenditure targets. We assumed that, in the absence of anything to the contrary in the Labour manifesto, Labour would take over the projected revenue increases as well, with the single exception of the windfall tax. We were wrong about that and so were the British people. What the hon. Lady has not dealt with is the fact that this big increase in duty has a large and damaging effect on the individuals whom we represent—we went into that in some detail—and on industrial costs, with which the House should certainly deal. The Government say that they are interested in competitiveness, but they do nothing about it. It also has a damaging effect on the retail prices index, which has gone up as a direct result and which affects the economy generally, and on public services. The hon. Lady did not even attempt to defend the Government, who have reduced real expenditure on public services by £3 billion this year. That figure comes from independent sources and it is interesting that the hon. Lady did not attempt to contradict it. We can therefore take it that it is an established fact that public expenditure in real terms will fall by £3 billion in the remainder of the current financial year and by £5.25 billion in the next financial year. I do not want to worry Labour Members. They may not have thought that they had come into the House to increase public expenditure, but I am sure that they did not expect to have to defend a real reduction in public expenditure. That is what we have established, and the Minister is entirely silent on it. In the light of the wholly inadequate response to the points raised, I signal that we shall press the amendment to a vote when we reach that part of our proceedings.

Michael Spicer (Conservative, West Worcestershire)

The Minister raised two arguments against new clause 4, one of which is certainly inaccurate and the other probably is. First, she argued that the product would be imported. This country has plenty of rapeseed and a large blending industry, so how does she know that the product would have to be imported? It was a strange argument for her to put forward. Secondly, she argued that it was product-specific. The new clause makes it clear that it is impact-specific, not product-specific. It simply asks for exemptions for products whose emissions can cause cancer, so I do not understand why the hon. Lady had to draw on that argument. The Minister said nothing specific about the review. She talked in general terms about the cross-impact of all forms of emissions and their cost on the environment. As she has now promised the House that there will be a report, will she be more specific about when the report will be issued and what its general scope will be? At least we shall have elicited that from her. Now that the Bill has raised petrol duties to such an extent, I should have thought that the Financial Secretary could at least hold down to the present level the duties on the products mentioned in the new clause. That would please some Labour Back Benchers because it would have the effect on the environment to which I alluded, and which she accepts, but would also have a desirable effect on the renewable industry, which would have an extra market. The Government take little notice of what their Back Benchers think. I appreciate that in return they get little response from them. Labour Back Benchers sit mute for most of the time, except when they are making maiden speeches, and they find even that difficult to do. I accept that the Minister can ride roughshod over her Back Benchers, but I should have thought that this measure, at least, would please them. Given the Minister's view, I will let the Opposition vote down the measure, to show at least that the Government's actions are different from the rhetoric that they espouse outside the House.

RATE OF DUTY ON SPIRITS

Margaret Ewing (Scottish National Party, Moray)

I beg to move amendment No. 32, in page 5, leave out lines 27 to 29. New Members may not be aware of my long-standing interest in the whisky industry, but I represent the part of the United Kingdom with the largest number of distilleries per square mile. I therefore follow with great interest the significance of any change in taxation and duty as it affects employment in my area. The industry is vital not only in Moray but throughout Scotland and the United Kingdom. May I insert an element of humour into the debate? On Saturday I visited Dufftown highland games. Dufftown is known as a town founded on seven stills. A story that is reputed to have emerged from the games over the years is that the annual raffle for a gallon of Grant's Scotch whisky became a matter of great concern when the bottle isappeared at one stage and was never recovered. Bodyguards now guard the raffle stall whenever the games are held. I bought a raffle ticket, but so far I do not seem to have been lucky because I have had no information about it. On a more serious note, we should consider the employment aspects of the industry. Some 71,300 people in the United Kingdom depend on the Scotch whisky industry, according to a prestigious report produced by the Fraser of Allander Institute. That is three times the number of jobs dependent on computer manufacturing and four times the number dependent on the pharmaceutical industry. In Scotland, 14,000 direct Scotch whisky jobs support 47,460 jobs in our nation. Anyone reading those figures will realise that I am discussing a serious aspect of the economy as a whole, and the opportunities for employment that it offers. The amendment seeks to stop the increase of duty on spirits as from 1 January 1998. During the Budget speech on 2 July, the Chancellor of the Exchequer said: I have … decided to review all alcohol and tobacco duties. While that review is under way, inflation-only rises for alcohol will take effect".—[Official Report, 2 July 1997; Vol. 297, c. 311.] So many reviews are now taking place that we must address the immediate impact of some of the decisions that have been taken. As someone who has lived her life in politics as a democrat, I always welcome reviews, but, as people are saying in Scotland recently, the Government now have more reviews than there usually are at the Edinburgh festival fringe. According to my latest count, there are just short of 40 reviews and no date has been set for their finalisation. Having raised duty, albeit on an inflation-only basis, the House has not sent a good message to this vital industry. VAT and duty on Scotch whisky amount to two thirds of the retail price of a bottle of Scotch. When taxes rose in 1992 and 1994, the home market and tax revenues fell; when taxes were held steady in 1993, and cut in 1995 and 1996, revenues improved. The Scotch whisky industry does not need such an increase at this time. I have long argued in the House that there should be a level playing field in terms of taxation on spirits. It is only fair at this stage to mention William McKelvey, convener of the all-party Scotch whisky group, who retired through ill health at the last election. He and I, and various other hon. Members, regularly met the Paymaster General and others to argue this case strongly. The single European market has done nothing to help the Scotch whisky industry, which is discriminated against in the context of duty on wines and beers, yet the industry earns more than £2.2 billion a year to offset the balance of trade problems faced by successive Governments. The amendment would send out a clear message to the Scotch whisky industry that the Government have taken on board the importance of the industry. The increase should not be brought in on 1 January 1998, but should be postponed until a review has taken place. When the Financial Secretary responds to the debate, will she advise me what steps have already been taken to implement the review, and with whom the Government are consulting—whether with the Scotch Whisky Association, the various organisations involved in the whisky industry, or the all-party group, which has been re-established and is one of the most effective groups in the House? Can she give me some details? When will the review be forthcoming? The whisky industry wants to know whether new Labour has a new message for an old and traditional industry.

Phil Sawford (Labour, Kettering)

Thank you, Mr. Deputy Speaker, for allowing me to make my maiden speech in the closing stages of this important debate on the Finance Bill. Maiden speeches must come somewhere, and a debate on alcoholic liquor duties seemed as good a place as any. It is a great privilege for me to be in the House representing the Kettering constituency. I was born in the constituency and have lived there all my life. It is where my home is and where my heart is. It is where I have raised my family and taken an interest in community affairs for the past 20 years. I very much appreciate the support that I have been given by local electors, and I recognise my responsibility to the people of the constituency. The Kettering constituency covers an area of more than 400 sq miles set in the heart of rural Northamptonshire and includes the whole of the borough of Kettering and a large part of the Daventry district. Kettering is the main urban centre, but the constituency also includes the smaller A6 towns of Rothwell, Burton Latimer and my home town of Desborough, in addition to some 50 villages and hamlets. The area has excellent road and rail links. The A14 or M1-A1 link road puts Kettering firmly at the crossroads of England. Combined with the midland main line rail service, that provides many benefits and opportunities for commercial expansion. The constituency has a bustling commercial centre noted for its success and diversity. It also has many historic and picturesque villages which preserve the charm and tranquillity of a traditional rural community. The need to balance new development with conservation has been an important feature of local planning issues for many years. There are many tourist attractions in the Kettering area—Boughton house, Rockingham castle and Wicksteed park, to name but a few. We also have the Triangular lodge, where it is said that the gunpowder plot was conceived and planned—not everyone from the Kettering area came to the House with honourable intentions. That cannot be said of my predecessor, Mr. Roger Freeman, who represented the constituency for 14 years. Through that period, he rose to the dizzy height of Cabinet Minister. While my talents and natural abilities have yet to be fully recognised, my immediate goal is to represent the constituency with the dedication and commitment shown by my predecessor. Roger Freeman was a very hard-working Member of Parliament. In my dealings with Roger over the years, he was always extremely polite, courteous and helpful. Despite our political differences, I found him a good and decent man to work with. I know that some of my hon. Friends have had a little difficulty in paying tribute to their predecessors, but I have no such difficulty with Roger Freeman. Having given the customary thumb-nail sketch of my constituency and paid tribute to my predecessor, I shall move on to the business in hand and paint a different picture of the concerns and issues in Kettering. Beyond the picture postcards and thatched cottages, there is another picture. In this light, I welcome the Budget proposals. In my constituency, there is great concern about the future of the national health service. Indeed, only last week it was announced that the area health authority is facing a deficit this year of several millions of pounds. This has serious implications for local services throughout the coming winter and over the coming year. The local further education college is also running a deficit budget. I have already had meetings with management and staff representatives to discuss their financial difficulties. Redundancies ae being discussed. 5.15 pm I have visited many local schools and have seen at first hand the appalling state of disrepair caused by the lack of investment in school buildings. That is having a detrimental effect on staff and pupils. In Rothwell, a small town with a population of 7,000, mobile classrooms are a feature of all the schools. It is possible for children in that town to spend their entire school life being taught in what are basically wooden huts. In some of the central wards of Kettering, youth unemployment is more than 25 per cent. It is perhaps no coincidence that those areas also have the highest crime rates, and that the crime rates have doubled over the past few years. I am proud of the area that I represent and privileged to be a Member of Parliament, but I cannot ignore the problems in the community. I welcome my right hon. Friend the Chancellor's Budget proposals, which reflect the people's priorities. The additional £1.3 billion for schools' capital spending over the next five years from the windfall tax and the £1 billion for current spending will provide some of the resources that our schools need to raise standards. The extra £1.2 billion for the NHS will begin to improve patient care and restore public confidence in our health service. I welcome the additional funding for breast cancer announced a few days ago by my right hon. Friend the Secretary of State for Health. The welfare-to-work provisions announced in the Budget offer new hope and opportunities for young people, lone parents and the long-term unemployed in my constituency. I welcome my right hon. Friend the Chancellor's commitment to a fairer tax system, with the reduction of VAT on fuel to 5 per cent., which will benefit more than 17,000 pensioners in the Kettering constituency. The Government must ensure that the resources are available to meet all those needs. With reference to the amendment, I understand why the hon. Member for Moray (Mrs. Ewing) should table such a proposal, but the amendment offers no suggestion about where the necessary resources might be raised. Of course the Budget is a tough one. None of us expected to come to the House and make easy decisions. All Budgets must have a tough edge. It could be argued that the Chancellor picked up the poisoned chalice from the previous Government. We need a balanced Budget. The Chancellor will look for extra resources to put into health and education. The amendment would have been improved if it contained suggestions about how any shortfall could be made up if it were accepted. In the Budget, the Chancellor of the Exchequer set out a clear statement on economic stability. For the first time in 18 years, we have a Budget for all the people. It honours our pledges and reflects the desire for change that was so clearly demonstrated by the people of Britain on 1 May. I welcome this opportunity in my maiden speech to congratulate my right hon. Friend and his Front-Bench Treasury team on the Budget, and I look forward to the days when I do not have to visit crumbling schools, when the people whom I represent have their faith in the NHS restored, and when we can get to grips with youth unemployment and crime in our communities, and make Britain a better place.

Charles Kennedy (Liberal Democrat, Ross, Skye and Inverness West)

It is my pleasure, in following the hon. Member for Kettering (Mr. Sawford), to congratulate him on his maiden speech and to wish him well in his career in the House. The House will have noted the generous spirit in which he paid tribute to his predecessor. I know his constituency reasonably well, having made one or two campaign forays there, but I can reassure him that I do not expect to make any more in the immediate future. Speaking as a Scot, the only thing that disappointed me, as the hon. Gentleman would expect, about his speech was his unwillingness to support the admirable amendment moved by the hon. Member for Moray (Mrs. Ewing). In the spirit of Scottish politics at the moment, I am happy to say yes, yes to her amendment. In wishing the hon. Member for Kettering well, I assume that, with his maiden speech now on the parliamentary record, he is not proposing to have a career in the Scottish Parliament, as and when it comes about. He may find that the voters there are less generous in their response to his comments than I am. On behalf of the Liberal Democrats, I am happy to give our support to the amendment. The points made by the hon. Member for Moray about the importance of the whisky industry at local and especially rural level, as well as about the huge contribution it makes to the national Exchequer were telling. For many years, all of us involved in the all-party group have made those points in discussions with successive Treasury Ministers. Over recent years, we have been encouraged to find some resonance from the Treasury in terms of recognising, as the hon. Member for Moray pointed out, not only the local importance of the industry in areas such as ours, but the massive contribution it makes to the public purse for the United Kingdom as a whole. It has been encouraging to see that point being taken on board which is why it was dispiriting, if I can use that term, that an uprating was announced in the Budget. We feel that it is out of kilter at this stage. First, the local importance of the industry is well understood throughout Scotland. Secondly, we had been making progress on the duty on whisky and the change is a setback. The change is all the more ironic because the Chancellor of the Exchequer is a Scot who represents a Scottish constituency. Thirdly, the change will bring us back to the problem that has bedevilled the whisky industry for too many years. There has been an unfair playing field in terms of the difference in the tax take from whisky and from other alcoholic drinks. We have been trying to make progress in the direction of fairness, but the changes takes us some way back from that. In due course, we shall see whether the argument about the elasticity of demand holds sway. It may be that, some way down the track, the ultimate tax take will decrease as a result of the increase in duty because consumer habits will be moved in other directions. The Chancellor may find that the increase proves to be counter-productive because it does not result in the income that he anticipates and because it is a further disincentive for the interests of the Scotch whisky industry as a whole. I am happy to support the amendment, which will find a warm and wide echo in Scotland. I hope that it will commend itself to the House.

Rudi Vis (Labour, Finchley and Golders Green)

In making my maiden speech, I am most grateful for the advice that you, Mr. Deputy Speaker, gave me earlier today. I represent Finchley and Golders Green. It is a tremendous honour to represent Finchley; I usually wait a little while before saying "Golders Green". That is not quite the way in which I want to put it; I will come to my predecessors in a moment. I have listened to quite a number of maiden speeches, including the one made by my hon. Friend the Member for Kettering (Mr. Sawford). When considering all the good maiden speeches, I tried to make a distinction between those hon. Members who spoke without notes and those who spoke with notes. My view was that if they were of equal value, I would go for those speeches made without notes. I intended to be in the emulation business, but when I considered the matter in the days prior to my speech, I felt that my emulation would compete strongly with my human frailty—in this case, specifically, my forgetfulness. I thought, "Who will win between emulation and frailty?" I wrote my speech, but I have forgotten my glasses so whatever I have written down, I cannot read. I have in front of me a number of sheets covered with very large letters to remind me of some of the highlights. I can tell hon. Members that they have now missed the best speech in the House for a considerable time. They will, unfortunately, now not hear it; they will hear only a short summary. I am very sorry about that. I have a few comments to make about my predecessors. My constituency is Finchley and Golders Green, and I do not make a joke about Golders Green. Finchley is proud to have the Hampstead Garden Suburb, Golders Green and Childs Hill wards embroidered on to it. We always had to work hard, especially when Mrs. Thatcher was Prime Minister, to come a decent second. The problem with standing in the Prime Minister's constituency is that 10 or 20 other parties also field candidates. As it costs only £500 to stand as a candidate, those parties pay a low price for television coverage. We always worked hard to come a good second to Mrs. Thatcher whom we never thought we could unseat—and so it turned out. Her own party did it for us. My immediate predecessors were Mr. Hartley Booth, who represented Finchley, and Mr. Marshall, who represented Hendon, South. These two guys fought it out against one another and because one bussed in rather more supporters than the other, it was Mr. Marshall who won the selection. I distinctly remember reading in all the local newspapers that he would be the next Member of Parliament for Finchley and Golders Green. We had a good fight. Both those gentlemen are honourable gentlemen and I have always been treated extraordinarily nicely by both of them. Mr. Marshall was a hands-on man in many ways; he knew an enormous number of his constituents. I do not think I can equal him in that respect, especially in terms of my Jewish constituents; I honour him for his relationship with the Jewish community. I will do my best to emulate that part of my predecessor although there are other parts of him that I would not wish to emulate. Mr. Hartley Booth was a slightly different kind of man; he was a grand design man. He did not know all that many of his constituents, but he was a very thoughtful man and I honour him as my hon. Friend the Member for Kettering honoured his predecessor. Both are very honourable men, but there is one difference between my two predecessors. They both had considerable outside interests, but they did not entirely overlap. It is more difficult to refer to Mrs. Thatcher. I have been in local government for many years. Every time Mrs. Thatcher came to the constituency, she would invite me to see her. She was unfailingly charming and could always remember far more than I could remember, even if I had prepared myself. She would always say hello and remember people's names. I have enormous respect for her, but, fortunately for her perhaps, I must say that there my Thatcherism stops. I have never had any desire to emulate any of her policies. I believe that she will go down in history as a remarkable woman, most of her remarkableness being bringing this nation to its knees. I must, however, remember with warmth her invitations to me. There is a difficulty, as I have explained, and I am definitely not a Thatcherite in a political sense. The House will know that my constituency is in the London borough of Barnet. I shall not say much about its infrastructure because I am not much into that. It is seen as a wealthy borough, and as a result we have never had the benefit of an SRB—a single regeneration budget grant. Yet Barnet is among the 10 poorest boroughs in dealing with housing the homeless. In future, we may get an SRB. The difficulty for an area such as Barnet and for the constituency that I represent is that there is enormous wealth enjoyed by those living only a few hundreds yards away from grave poverty in tower blocks. 5.30 pm During the middle 1980s, I was a member of the local planning committee. The committee was engaged in considering planning permission for a home in the Bishop's avenue, and the price of the property became £12 million. It was not more than 300 or 400 yd away from tower blocks where 60 per cent. of the residents were unemployed and living in considerable poverty. That is an example of the difficulty that we face in Barnet. Overall average incomes in Barnet are quite good—they are above average, in fact—but poverty is high. It is appalling in some instances, as it is in many other areas of the country. The remarkable feature of my constituency is not its infrastructure but the wealth of the people. The most beneficial feature of representing a constituency such as Finchley and Golders Green is its demanding nature. There are important one-issue groups. There are so many people in my constituency and in others, both black and white, who make their areas rich by their individual contributions, and I hope to represent my constituents as best I can. There are identifiable groups, sometimes with one issue, to which I am especially warmly disposed, including those in my constituency who come from Cyprus, both from the Greek sector and the Turkish. I hope that my right hon. Friend the Foreign Secretary will be pressing forward with a resolution of the Cyprus problem so that Cyprus might become one of the friendly nations in the European Union while at the same time impressing Turkey to stand off and to give Cyprus a fair chance as an independent nation. I am impressed by the briefings that I have had from several colleagues. I thank especially my hon. Friend the Member for Tooting (Mr. Cox), who has been helpful to me in further explaining the case for Cyprus. There are many people of the Jewish faith in my constituency. Indeed, there is a Jewish community, and I have been interested in it for many years. I know how dangerous it would be on some occasions to say anything more about what is not necessarily a homogeneous community. That being so, one must be extremely careful in making any statements about it. Many members of the community, however, are worried about the middle east. I am pleased that my right hon. Friend the Foreign Secretary will try to make Europe more interested in attempting to establish peace in the middle east, and that is only to be welcomed. In the western part of my constituency, Cricklewood, there are many people from Ireland, especially Northern Ireland. I am aware of their thoughts and concerns. I am in awe of my right hon. Friend the Secretary of State for Northern Ireland because of the work that she is doing to obtain peace. Also in my constituency are many people who come from the Indian sub-continent, and we are pleased that they are with us. I have read the amendments carefully, and some of them, including the one that is before us, are of merit. I have no doubt that they will be considered by my right hon. Friend the Chancellor of the Exchequer and his Treasury team. The House often considers amendments that relate to only a few people and deal with causes that the Chancellor of the day has not addressed. Most of the amendments that are before us today congratulate in their own way the Finance Bill as a whole. On that basis, I offer my warm congratulations to my right hon. Friend the Chancellor.

David Heathcoat-Amory (Conservative, Wells)

It is my pleasure to congratulate both hon. Members who made their maiden speeches in the debate. We were initially slightly puzzled as to why they chose to break their silence in a debate on spirits, but any misgivings were soon put to rest by the quality and sobriety of their speeches. The hon. Member for Kettering (Mr. Sawford) spoke with great feeling about his constituency. He is right to observe that, despite the prosperity and peace of our constituencies, there are pockets of deprivation. The hon. Gentleman is evidently determined to use his first few years at least to tackle that. We wish him well in that endeavour. We appreciated his genuine and sincere tribute to Roger Freeman, whom we on the Opposition Benches greatly miss. We were delighted, too, by the hon. Member for Finchley and Golders Green (Dr. Vis). I suggest that he continues to mislay his glasses when he speaks. His contribution contained a nice balance between substance and spontaneity. We hope to hear a great deal more from both hon. Members during finance debates as well as others. Conservative Members will be supporting the hon. Member for Moray (Mrs. Ewing) in the sense that we argued vigorously in Committee for a reduction in the duty on spirits. To that extent, it may be that the hon. Lady's amendment lacks ambition. I believe that she wishes only to remove the increase in duty from 1 January 1998 while we argued strongly for an overall reduction. It was one of the few issues that were given a full hearing in Committee, unhampered by the timetable motion. We were prevented by the Chairman, however—I believe that it was Mr. McWilliam at the time—from sampling the product. He issued a stern injunction that only water or medicines could be consumed during Committee sittings. Even our attempt to have whisky classified for medicinal use was ruled out of order. Our appetite for the drink was partly removed, however, by the information that we received from the Economic Secretary, who told us that north of the border whisky is frequently mixed with Irn Bru—a terrible punishment for whisky, as Irn Bru is nasty enough even on its own. We had time to examine the issue in the round. We asked—this echoes the hon. Member for Moray—that if we are to have a review of spirit duties, including their effect on consumption and shopping patterns, why announce now that there will be an increase in duty taking effect form the start of next year? The proposal surely pre-empts or prejudges the outcome of the review. Just as the Red Queen in "Alice in Wonderland" called for the verdict first and then the evidence, the Government are apparently announcing what is to happen and then consulting about what ought to happen. We agree that there are serious issues to do with cross-border shopping and the smuggling of alcoholic drinks—the Conservative Government grappled with those issues when in office—so perhaps it would be wise to look into the problem again. However, it is unwise to signal in advance that rates of duty are to rise. With a strong pound, the temptation to smuggle alcoholic drinks in from the continent is already increasing. Indeed, that constitutes another case for continuing our reductions in duties on spirits—to counter the threat of illegal smuggling, not to mention the legitimate cross-border shopping that goes on. The latter may not always matter to spirits manufacturers, as it is the same whisky which tends to be brought back from Calais, but legitimate shopping abroad damages our off-licence trade and other drinks retailers. We wanted the Government to continue the trend begun by my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke), who in the previous two Budgets reduced spirits duties by 4 per cent.—adding up, over two years, to a 13 per cent. real cut in spirits duties. Among all spirits, of course, whisky is the most prominent one to be manufactured and sold here. What is more, we wanted to help the industry. I believe that I heard the hon. Member for Moray say that the export industry is worth £2.2 billion per year—a large sum, and a great tribute to the Scottish companies concerned as we know that they meet discrimination in many overseas markets, where the duty on home-produced spirits is way below that on imported whiskies. When the British Government take that point up with the Governments concerned, they are often told that it is true, but that the United Kingdom itself imposes much higher duty on alcohol in the form of spirits than on other forms of alcohol.It therefore behoves us to move slowly towards putting our own house in order. That, in turn, reinforces the case for a slow, but steady reduction in spirit duties combined with a freeze on other alcohol duties. We have urged the Government to continue the trend that the Conservative Government began. For the reasons that I have outlined, we have a lot of sympathy with the amendment and we believe that so far the Government have not explained their position.

Dawn Primarolo (Labour, Bristol South)

I welcome the maiden speech by my hon. Friend the Member for Kettering (Mr. Sawford), and his kind words for his predecessors. He graphically described the Labour Government's inheritance from the Conservatives: youth unemployment, underinvestment in the national health service and in education, and the growing problems of crime. He addressed the House with confidence and we look forward to hearing him speak again—with or without glasses, if indeed he wears them. My hon. Friend the Member for Finchley and Golders Green (Dr. Vis) made an amusing speech in which he, too, mentioned his predecessors. If he is capable of that good a speech without his glasses, we look forward to hearing one from him when he has them on. The right hon. Member for Wells (Mr. Heathcoat-Amory) asked again some of the questions that he asked at length in Committee. It is certainly time we put our own house in order with regard to the problems of smuggling, cross-border shopping, criminal activity and the evasion of excise duties. The reason why we need to grapple with those problems now, of course, is that the Conservatives failed to do so over 18 years: their lectures about the problems facing the alcohol industry therefore sound rather hollow. 5.45 pm As for the two cuts in spirits duties made by the previous Administration, I remind Conservative Members that when they lost the vote on VAT on fuel while trying to increase it from 8 to 17.5 per cent., they too increased the duty on spirits. By way of justification, they said that that was done to defend revenue: the money had to come from somewhere. Similarly, my right hon. Friend the Chancellor of the Exchequer has introduced an inflation-only rise to protect the revenue. The hon. Members for Moray (Mrs. Ewing) and for Ross, Skye and Inverness, West (Mr. Kennedy) asked about the review. The hon. Member for Moray discussed the importance of the scotch whisky industry to Scotland and the whole of the UK, and we agree that the previous Government's two duty cuts were not fully passed on in the prices to consumers, or in clearances of the product. If the industry is truly serious about dealing with the problems that it faces, it can meet the Government more often via the partnership that we are offering with respect to the review of alcohol duties. The hon. Member for Moray asked when the review would be completed. The press release makes it clear that the date is 31 December 1997. It is hoped that the review will inform future Government decision making. It will cover direct and indirect effects, health, law and order, competition law, commercial fraud, smuggling and cross-border shopping. It will also assess the impact of a wide range of factors on those issues, including the single market, pricing structures, tax rates, transport costs, marketing, changing consumer tastes and competition law. These terms of reference have been sent to the trade associations, including the Scottish Whisky Association and other representative bodies wishing to make representations to the Government. We have invited them to meet us urgently so as to push the review forward as quickly as possible. The only way to tackle the problems that the hon. Lady described, and to bring about the security that she rightly sought for the Scottish whisky industry, is Government involvement in a partnership from which a balanced strategy emerges. There needs to be a balance between the interests of alcoholic drinks producers and of the Government as the collector of taxes: we need to defend the revenue. I maintain that an inflation-only increase is reasonable. Now that the industry is being offered the chance to achieve, with the Government, a long-term strategy that deals once and for all with the difficulties that we faced every year under the Conservative Government and which we continue to face. The strategy must balance revenues and duties against the costs of drinks to the consumer; it must also take into account both the protection of jobs and the maintenance of law and order. I hope that the hon. Lady will agree that the Government have laid out a sensible way forward.

Margaret Ewing (Scottish National Party, Moray)

I join those hon. Members who have congratulated the hon. Members for Kettering (Mr. Sawford) and for Finchley and Golders Green (Dr. Vis) on their maiden speeches. I am very glad that they chose a debate on such an interesting subject to make their exciting and interesting speeches. Both spoke with great panache and style, and I look forward to hearing future contributions from them. When the hon. Member for Finchley and Golders Green said that he had forgotten his glasses, I thought that he might have found the missing gallon bottle of Grant's whisky to which I referred. He was probably looking for another type of glass, but I nevertheless congratulate him. The hon. Member for Kettering said that every Chancellor had to take tough decisions in a Budget, and that is true, but in this context it is important to remember that increases in duty reduce income to the Treasury. The Scotch Whisky Association said: Prior to the 1995 tax cuts, spirits sales at home were falling and tax revenues diving—to the tune of a £123 million shortfall. In 1996, following the tax cut, the market revived and stabilised, and home sales began to climb. Even with annual cuts of 4 per cent., it would still take 14 years for the Scotch whisky industry to reach parity with other alcoholic drinks. What may sound like a plea by the Scotch whisky industry for a reduction in price is in fact an attempt to increase the competitiveness of a very important export which is also a very important home product. The Scotch whisky industry has 200 export markets, as the right hon. Member for Wells (Mr. Heathcoat-Amory) mentioned, and 140 of those markets exercise tax discrimination against the Scotch whisky industry. If we constantly raise domestic tax and duties on Scotch whisky, what message does it send to the people whom we have been trying for years to persuade to grant us a level playing field? The Financial Secretary said that the tax hike and the subsequent reduction were due to the defeat of the previous Administration in relation to VAT on fuel. Prior to the then Opposition moving, as they have now in government, to reduce VAT on domestic fuel to 5 per cent., my party introduced a similar amendment. The hon. Lady said that our amendment was a cynical ploy because its aim could not achieved. It is not very fair to continue with that line of argument since we have a strong record of arguing for a cut in VAT on domestic fuel. We thought that it was petty spitefulness by the previous Chancellor of the Exchequer, the right hon. and learned Member for Rushcliffe (Mr. Clarke), to hike duty on Scotch whisky as a result of our actions.

Dawn Primarolo (Labour, Bristol South)

The hon. Lady will remember that the House had just agreed to a reduction in VAT to 8 per cent. Had her party pushed for 5 per cent., we would have lost everything and ended up with 17.5 per cent. across the board. When the then shadow Chief Secretary said that he thought that the hon. Lady's party's amendment was cynical, he was referring to the fact that her party had put at risk the 8 per cent. by its parliamentary posturing.

Margaret Ewing (Scottish National Party, Moray)

The hon. Lady should think a bit more seriously about parliamentary posturing. We had done our homework—if only her own party and members of the then governing party had taken a different stance, we could still have managed to achieve our aim at that time. It is very sad that such an attitude is always displayed by Front Benchers. I intend to press the amendment to a Division. If the review to which the Financial Secretary has referred is to be completed by 31 December 1997, why on earth do the Government intend to increase the duty automatically on 1 January 1998? If it is a genuine review, surely the increase in duty should be postponed and the issue analysed more thoroughly. I do not find the hon. Lady's answers acceptable; nor do I have any indication of the dates of meetings that she mentioned with the Scotch—not Scottish—Whisky Association. I draw the Financial Secretary's attention to a document which must have been available to her. It is from the Scotch Whisky Association and is called "New Partnership, New Labour, New Opportunity: a Report for the New Government 1997". It concludes by urging the Government to adopt the strategic objective of equal duty per degree of alcohol content for all alcoholic drinks and to reduce the duty on spirits at the first opportunity. As the response that we have received does not imply that that will happen, I shall press the amendment to a Division.

MORTGAGE INTEREST PAYMENTS

David Heathcoat-Amory (Conservative, Wells)

I beg to move amendment No. 27, in page 10, line 12, leave out '1998–99' and insert '2003–04'.

Michael Martin (Deputy Speaker, Glasgow Springburn)

With this, it will be convenient to discuss amendment No. 28, in page 10, line 14, leave out '1998–99' and insert '2003–04'.

David Heathcoat-Amory (Conservative, Wells)

The clause will reduce mortgage interest relief from April next year. It is a tax-raising measure. There are other specious excuses attached to it, but, in essence, it is a way of raising another £900 million in the next financial year—1998–99—rising to £950 million in the following year. The 10.7 million people who have borrowed money to buy their homes will be affected directly and adversely. There was nothing about that in the Labour manifesto. We knew that the Government were bringing forward an emergency Budget to implement the windfall tax, but there was no hint that they would also raise taxes on petrol and diesel, which we have dealt with, on pension funds, which we shall deal with tomorrow, and on home owners and all those with mortgages. The tax is being imposed at a time of rising interest rates. We have had three interest rate rises since the election. The Chancellor has given away the power to fix interest rates, but the responsibility for monetary policy rests with him. There is speculation that a fourth rise may be imminent. The cost of higher interest rates so far on the average borrower is £20 a month. That will rise once more if the Bank of England raises interest rates again. On top of that additional burden on borrowers caused by interest rate rises, the cut in mortgage interest relief will add nearly a further £10 a month for someone with a loan of £30,000 or more—which is the majority. One of the spurious reasons brought forward for this tax increase is that it is said to be a way of dampening down a housing boom. It is true that house prices in the south-east are rising strongly, but that supposed boom has not yet reached my constituency or many parts of the north of England. If the economy is in danger of being destabilised by a housing boom, the Chancellor should cut this interest relief immediately. Instead, it is to take effect from 6 April next year. If that is his aim, it is not very clever to have such a long delay between the identification of the supposed need and the implementation of the policy. The restriction on mortgage interest relief is also probably regressive. It is commonly supposed that any such restriction hits the better-off disproportionately. That is no longer the case, because the tax rate allowable has already been restricted to 15 per cent. The time is long past when the main benefit was enjoyed by the well-off or those paying higher rates of income tax. The Institute for Fiscal Studies has observed that, proportionately, the bottom 10 per cent. in income are damaged as much as the richest 10 per cent. That adds to the picture that is already building up that the entire Budget is regressive. That has also been observed by the IFS. Taking into account all the tax changes, particularly all the increases in indirect taxation, the poorest 10 per cent. have suffered the most. We hear about the concern of new Labour for the disadvantaged and the least well-off, but that is not carried through in the Budget, which has the reverse effect. In the opinion of the IFS, the restriction in mortgage interest relief to 10 per cent. will damage the poorest. That is somewhat of a surprise. The IFS says: Losses at the bottom end of the income distribution are larger than one might first expect, which reflects the low incomes of mortgagers in these poorer groups making their proportionate losses relatively large. These groups are mainly the short-term unemployed, for whom income support does not cover the increase in their mortgage payments. It would be possible to compensate this group by changing the income support rules to cover their mortgage interest payments, as is the case for the longer-term unemployed. We wait to see whether the Government will act to prevent that regressive effect, by bringing forward changes in the income support rules. If they do not, we can conclude only that they do not mind the regressive nature of the measure or of the Budget as a whole. We conclude that this measure is a tax-raising measure—no more, no less. It is one of 17 tax increases that we have noted in the Budget. Our amendments push the relief restriction to beyond the next general election, so that, if the Labour party were to choose next time to fight on a platform of that further restriction, the electorate would have a chance to vote against it accordingly.

Liz Blackman (Labour, Erewash)

On the heralding of the measure in our manifesto, can the right hon. Gentleman tell us whether the previous Government heralded in their 1992 manifesto the subsequent reduction in MIRAS?

David Heathcoat-Amory (Conservative, Wells)

The point that I was making, which I notice the hon. Lady did not dispute, was that if the measure has a macro-economic rationale, it is undermined by the fact that the suppression of the alleged housing boom will not take place until the boom is all over. Therefore, by implication, she agrees with me about that. I do not know whether the hon. Lady attended our earlier debates, but we had some predictably barren exchanges about various tax increases in various Parliaments, during which it was established beyond doubt that, even if one accepted that we put through 22 tax increases—which we dispute—it compares with 17 that her Government have already brought forward in their first few months of office. We noted that if the Government continue at their present rate, there will be well over 100 increases before they face the electorate again. She would therefore be most unwise to get into any competition about who has put through the most tax increases. The Opposition believe that the measure is unnecessary and does not have a macro-economic justification, and that its effect will be surprisingly regressive. For those reasons and because we do not believe that an extra £1 billion raid on home owners is justified, we shall—I hope—be pressing the amendment to a Division.

Teddy Taylor (Conservative, Rochford and Southend East)

I have always tried to avoid making political points, particularly about Budgets, because I appreciate that Governments have a difficult job in trying to balance the books. Although I am sure that the Labour party and its members have the best of intentions, I hope that the Minister will bear it in mind that their policies—sadly, probably because of one of those strange coincidences—often seem to hit the poorest hardest of all. In Southend-on-Sea, where I live, house prices have risen for what we could call the up-market houses in the small number of up-market areas. On the other hand, there has hardly been any price increase at all for houses of £50,000 and less—and there are many of them. In some areas, there has actually been a fall in house prices. The sad fact is that the Government's proposal will have the same impact on a house owner, regardless of whether the house is worth £200,000, £300,000 or only £40,000. It will therefore make no difference to someone who is on a high salary or has lots of money, but have a rather devastating effect on those on low incomes who have a low-priced house. The second worry is that the measure comes after several increases in interest rates. It worries me hugely that, because of the collapse of confidence in currencies in other EC countries, it seems that the Governor of the Bank of England will be constantly putting up interest rates, causing more difficulty and problems for those on low incomes. With successive rises in interest rates and the mortgage interest relief proposal, there is a real danger that, once again—I believe in 1998 or 1999—there will be a serious problem of falling house prices and rising unemployment. I hope that the Government will be reminded that that is a real problem. It is not a conspiracy of the Labour party; it has been forced on us—sadly—because of circumstances outwith our control. I have seen horrific examples of misery among people in my constituency who are dealing with negative equity. If we create negative equity once again, which we shall if we continue to pile burdens on home owners, we shall be making a grave mistake. I hope that the Government will think carefully about whether reducing MIRAS to 10 per cent. is a mistake, especially bearing in mind the interest rate increases, which will continue. In general, I feel rather depressed about the economic situation. When the previous Government were in office, everyone made the great mistake of being too optimistic and of feeling that, somehow, everything was going okay. There is a real danger concerning the value of the pound, which seems likely to rise further simply because, as the Governor of the Bank of England told the Treasury Committee, there is a lack of confidence in the currencies of countries preparing to join the euro. In addition, although we might find that unemployment figures look better because of the special work force scheme that is being introduced, unemployment could rise again. If we have such a problem with unemployment at the same time as several rises in interest rates and a hole in the tax arrangements, we could be in danger of making a bad problem worse. That is why the amendments tabled by the official Opposition to delay the reduction are wise and prudent. I appreciate that there is no great point of principle to advance, as what the Government are proposing is exactly what the previous Government did, but on different figures. There is only an issue of tactics and what is right for people who are finding life very hard. I hope that the Government will bear it in mind that, because the House of Commons is located in London, there is always a temptation to think of housing in relation to London and parts of the south-east generally. There is no doubt that, in London, there have been huge rises in house prices and things are going well, but, sadly, 30 miles away from London, it is remarkably different. I hope that the Government are preparing for a fall in house prices, when a great deal of unnecessary misery will be created.

Quentin Davies (Conservative, Grantham and Stamford)

Clause 15 raises two issues which, as we go through the Bill, seem to be its hallmarks. The first is coherence and competence and the second is honesty or straightforwardness with the electorate. One can make an extremely respectable economic argument for abolishing MIRAS altogether. It is a distortion of the market. The tax benefits have applied to loans taken out for one specific purpose only. That is not, however, the argument that the Government are making. One could make an argument for taking the opportunity of this Budget to reduce the value to the borrower of mortgage interest tax relief, on the grounds that the economy is overheating and that consumption is expanding at an unsustainable rate, which is clearly what the Government believe, judging from their analysis of the economy in the Red Book. The Government would be in some difficulty over advancing such an argument because, if they were to do so, it would be logical for the general burden of the Budget to have a negative impact on consumption spending—whereas, in fact, the Budget is pretty neutral about consumption spending. The reductions in consumer disposable income that will be caused by the reduction in MIRAS and the increase in certain excise duties will effectively be counterbalanced by the reduction in VAT on domestic fuel and additional welfare spending. The Chancellor himself, when I put the question to him in the Treasury Committee—I had to put it to him half a dozen times to get a straight answer—conceded that the Budget is virtually neutral in its effect on consumption. Some £1 billion net will be taken out of consumption which, as I pointed out to him, is only 0.15 per cent. of gross domestic product and will not have an economically significant impact. The Budget will, however, have an economically significant effect on savings. When the economy is overheating, a sensible Budget stance would be to favour savings or to bear down on consumption, or a mixture of both. Both those directions would get the economy to the same destination. Instead, the Government have imposed an unprecedented levy on savings, by removing dividend tax credits. Therefore, the Government cannot justify the reduction in MIRAS by either of the two arguments that would give it some degree of intellectual respectability. The Government, once again, have made a proposal without a sound and convincing rationale. In short, the measure looks hasty, ill thought through and inconsistent with the rest of the Budget. It is also inconsistent with the Government's analysis of the state of the economy, and it is incompetent. What else is a Budget with all those characteristics? The second issue that the measure raises is that of honesty and straightforwardness with the public. The Government have given us a lot of rhetoric about being straight and honest. That sounds appealing and attractive and I applaud them for it, but in practice they fought the election criticising the Conservative Administration for introducing taxes in contradiction of their electoral pledges. However, I do not want to go back over that ground, which has been well trodden in previous debates on tax policy, because I would be out of order. The Labour party said that it would set new standards of straightforwardness with the electorate, but the opposite is the case. It fought the election without mentioning that it intended to reduce the value of MIRAS, which was highly relevant to everybody with a mortgage. As we know, this country has a high rate of owner-occupation, largely as a result of Conservative Governments since the war and, especially, in the past 18 years. We now have more than two thirds—some 70 per cent.—of the population living in owner-occupied accommodation.

Geraint Davies (Labour, Croydon Central)

Will the hon. Gentleman give way?

Quentin Davies (Conservative, Grantham and Stamford)

I would be disappointed if the hon. Gentleman did not want to intervene in my speech. I would think that I was doing something uncharacteristically wrong. I am delighted that the tradition we have established is being observed, and I give way with pleasure to the hon. Gentleman.

Geraint Davies (Labour, Croydon Central)

Did the Conservative party announce in its election pledges the two cuts in MIRAS that it introduced? If it did not—and I can advise him that it did not—is it not sheer hypocrisy that the hon. Gentleman is spouting?

Quentin Davies (Conservative, Grantham and Stamford)

I am always flattered to be treated in these debates as if I were sitting on the Front Bench. It is a privilege to defend the record of the previous Government, whom I greatly supported in almost everything they did. The cuts to which the hon. Gentleman referred were made some years after the general election. It is one thing, when economic circumstances change considerably—as they did during the previous Parliament—to decide to make a sensible move that is explained at the time, and another to introduce measures within weeks of an election. Indeed, the Labour Government originally intended to have a Budget in the first 10 days of June, so they must have known in May what they proposed to do. They knew perfectly well that they intended to reduce the value of MIRAS, but they withheld that material fact from the electorate during the campaign.

Shaun Woodward (Conservative, Witney)

Given that the hon. Member for Croydon, Central (Mr. Davies) has accused my hon. Friend of hypocrisy—

Michael Martin (Deputy Speaker, Glasgow Springburn)

Order. The hon. Gentleman did not accuse another hon. Member of hypocrisy, because I would have stopped him if he had. He accused a political party of hypocrisy, and that is different.

Shaun Woodward (Conservative, Witney)

I am grateful for the correction, Mr. Deputy Speaker. When the Prime Minister was Leader of the Opposition, he mentioned the blows dealt to home owners by cuts to MIRAS in a speech to the Labour housing conference on 5 March 1996. He said: the effect … was to add to insecurity, to destroy confidence in the housing market and to make people much more wary of buying and selling homes. Does my hon. Friend have a view on hypocrisy in the light of that comment, which was made only a year ago?

Geraint Davies (Labour, Croydon Central)

It is disturbing that the Prime Minister could have forgotten about such a speech a few months later when he was framing the Budget. I shall not use the word hypocrisy because I would be ruled out of order, but such behaviour has a sad tendency to undermine the public's confidence in the integrity of the political process. We owe it to ourselves, our constituents and this place to try to make our actions consistent with our announced precepts.

Geraint Davies (Labour, Croydon Central)

Does the hon. Gentleman agree that the Prime Minister made those remarks in the context of the highest levels of negative equity that we have seen and of more repossessions than the highland clearances? It would have been silly to cut MIRAS then, but we are now in a different situation, with the economy overheating and the housing market fast recovering. Therefore, a marginal touch on the brake is sensible and consistent with that contextual change, and the intervention by the hon. Member for Witney (Mr. Woodward) was wrong.

Quentin Davies (Conservative, Grantham and Stamford)

There are two answers to that. The first is that the Prime Minister made the remarks to which my hon. Friend the Member for Witney (Mr. Woodward) has rightly drawn the House's attention within a year of the election. It is not plausible to suggest that the context is now so different, unless the hon. Member for Croydon, Central (Mr. Davies) wants to argue that the mere fact that Labour has come to power, and the consequent prospect of irresponsible management, have undermined confidence in the financial markets, so interest rates have to go up. The second point is that it is not open to the hon. Gentleman to argue for the cut on general principles. If it is a general principle to avoid distortions in the economy, that would be true this year, last year, 10 years ago and in 20 years' time. Therefore, by definition, the Prime Minister should have made that point clear when he was Leader of the Opposition. It is in the nature of principles that they are constant, so that point could have been no less a principle in 1996 than it is now. The public will not be fooled. They will remember all Labour's rhetoric when it said, "The Tories put up taxes, but we will not." The public will know that that was fundamentally false. They will remember all the rhetoric from the Labour party about honesty in public life and they will see the shabby contrast between that rhetoric and the reality. They will not forgive the Labour party, and nor should it be forgiven.

Shaun Woodward (Conservative, Witney)

The hon. Member for Croydon, Central is clearly not acquainted with the facts. By 1996, negative equity had changed significantly. Is he aware of the remarks made in 1995 by the then shadow Chief Secretary to the Treasury? He described the Conservative party's changes to MIRAS as two Tory tax increases … These latest tax hikes hit as the Tories continue to argue". I find it odd that the Labour party could describe such measures as tax increases in 1995, but does not acknowledge that the measure that it is now introducing is undoubtedly a tax increase. Moreover, I do not think that it was in the manifesto.

Geraint Davies (Labour, Croydon Central)

My hon. Friend is remarkably well informed about the Labour party's unattractive record on the whole matter. I was about to say "dishonourable", Mr. Deputy Speaker, but you would have ruled me out of order. It is indeed unacceptable to use one form of language to describe a measure introduced by a Conservative Administration, and to use a completely different form of language to describe exactly the same phenomenon when it appears under a Labour Government. The reduction in MIRAS either is or is not an increase in taxation. It is certainly a reduction in the disposable income of mortgage borrowers—there can be no conceivable doubt about that—but, while we understand the use of the phrase "an increase in taxation", those who use it must be consistent, and continue to refer to an increase in taxation when they themselves take such action. I do not think that anyone can quarrel with such logic, and it is sad that the Labour Government are not willing to follow it through. In other circumstances, the measure could have been defended reasonably and, I think, convincingly. The way in which the Labour Government have introduced it, however, raises serious questions about their competence, about the consistency of their Budget measures and about the appropriateness of the aggregate effect of the Budget—that is, the Budget stance as a whole as it affects the present state of the economy. There is a clear contradiction—to which I have drawn attention in debates on other clauses—between the diagnosis and the proposed prescription.

Geraint Davies (Labour, Croydon Central)

Does the hon. Gentleman recall that, in 1995, the then Government cut MIRAS twice, during a period in which interest rates were going up and there was a good deal of negative equity, along with a good many repossessions? That continued, albeit to a lesser extent, into 1996, when the present Prime Minister made his comments. In that context, the decision was wrong; but, at a time when the economy is overheating, and when greater consumer buoyancy and confidence are reflected in the markets, is not the change in MIRAS right and consistent?

Quentin Davies (Conservative, Grantham and Stamford)

The hon. Gentleman clearly did not listen to the intervention of my hon. Friend the Member for Witney, who knows a good deal about the subject. He has pointed out that at the relevant time, in 1995—and the same has been the case for some years—negative equity was falling. It has fallen to a remarkable extent, year on year. The hon. Gentleman's argument collapses when confronted with reality, as so many Labour arguments have appeared to do during today's debate. Let me return to the central principles that underlie so much of this ill-thought-through Budget. As I have said, this issue raises major questions about the Government's competence and the appropriateness of the Budget as a whole. It also poses an enormous question mark—one which should greatly embarrass the Government—over their straightforwardness with the electorate. Is it possible to listen to Labour Ministers' public statements, to take them seriously and to think that they will be reflected in the Labour Government's actions in a few months or, indeed, a few weeks? The answer, clearly—and sadly for the reputation for integrity of politics in this country—is no. My hon. Friend the Member for Witney has a whole list of quotations from the last few months, which make it plain that the electorate were misled by the Labour party, when it was in opposition, about what the party proposed to do in a number of respects, but specifically about MIRAS. We must all feel sad about that. I hope that members of the Labour party, and specifically its representatives in the House—Front Benchers and Back Benchers alike—feel a degree of embarrassment and sadness, because that is the appropriate response to a measure of this kind. Before I became a Member of Parliament, I used to earn my living in the City. Serious penalties were imposed on anyone who, for example, engaged in a capital-raising exercise—floating a company, or raising a rights or debt issue—and made misleading statements about his or her long-term intentions with regard to the management of the business, the use of the money to be raised or the factors that were likely to have an impact on the company's profitability or its ability to service the loan. Those were serious matters. Had any statements been made in previous months or years that needed to be corrected, they would have had to be corrected explicitly in the prospectus, so that potential investors reading it were not deceived about the true intentions or views of those who were asking for their money. That principle is taken very seriously in the financial markets, and thank goodness it is.

Geraint Davies (Labour, Croydon Central)

Will the hon. Gentleman give way?

Quentin Davies (Conservative, Grantham and Stamford)

I hope that the hon. Gentleman will forgive me if I do not. I want to end my speech. I am sure that the hon. Gentleman will have every opportunity to catch your eye, Mr. Deputy Speaker, although the Labour Government have unfortunately left us with far too little time to consider clause 15 or any other clause. I do not think that I can be blamed for that, however much else I may be blamed for. The discipline to which I have referred—ensuring that responsible people do not deceive those whom they ask for support—does not seem to be observed in the Labour party. The Labour party came to the electorate during the campaign, made a good many criticisms of the Conservative Government—from which certain Labour policy priorities could be inferred—and made a number of commitments. It is clear that its commitments not to raise taxes were not observed, and that the inferences that might reasonably be drawn from its criticisms of the Conservative Government were wrongly drawn by the electorate. All the speeches and comments quoted by my hon. Friend the Member for Witney, which imply that Labour was opposed to Conservative progressive reductions in MIRAS, were fundamentally deceptive. Labour was not opposed to those reductions at all; indeed, it clearly intended to reduce MIRAS as soon as it came to power. I leave the final question to the Financial Secretary, who I assume will sum up the debate shortly. Do the Labour Government intend to abolish MIRAS altogether? There may be sound reasons for doing so, as long as such action is based on clear principles. If the Financial Secretary has that intention, will she now—belatedly, perhaps—be straightforward enough to tell the House and the country so? Will she say whether this is just the first tranche, and whether the intention is to get rid of MIRAS altogether in a year or two? Then we shall all know where we are, and it will be not only a victory for honesty in the Government but a great advantage for householders. Those who borrow by means of a mortgage, or intend to do so, will know where they stand. They will be able to make their family commitments without the fear that their assumptions will be undercut by yet another unannounced and unexplained U-turn by the Labour Government. If the Financial Secretary does not make it clear in this debate where she stands on that matter, but, in a year or so, defends the final removal of MIRAS to the House, she will not be able to get away with saying that it can be argued for on the basis of general principles. We shall say that it was disingenuous of her to argue one or two years before for simply a cut to 10 per cent. and not tell us that it was part of her long-term strategy to abolish MIRAS altogether. At least in this debate, may we have a greater measure of frankness than we have had from the Government so far on the issue?

Vincent Cable (Liberal Democrat, Twickenham)

The Liberal Democrats have supported Conservative amendments to Finance Bills on their technical merits on a good many occasions. There have been many such amendments, but this is not one. I listened with interest to the hon. Member for Grantham and Stamford (Mr. Davies) who, in his introductory remarks and his conclusion, made a cogent case for the phasing out of mortgage interest tax relief. There has been a broad consensus across all the parties that that should be done on its economic merits. The previous Government introduced the gradual erosion of the benefits of that tax relief, partly by cutting the rate from 25 to 15 per cent. and, more gradually, but equally effectively, by freezing the nominal rate at which interest was allowable. In real terms, with inflation, the benefits were gradually reduced. There were good reasons why that should have happened and why there should have been a consensus in the House that the phasing-out process should continue. The hon. Member for Grantham and Stamford made those points. MIRAS is a distortion in the market in favour of purchase and against both private and social renting. Moreover, it encourages house purchasers to treat their homes not simply as homes but as speculative assets. We recognise the political difficulties of dealing with the problem suddenly, dramatically and painfully, which is why we have all accepted a gradual phase-out. The Government are continuing that process and they should be encouraged to do so. The only contrary argument that could hold water is that this is a particularly bad time to phase out the relief. Actually, it is a good time because although interest rates are rising, they are relatively low, certainly in terms of what they were at the peak of the cycle. If there is a good time to do it, this is it. Moreover, as has been argued, the housing market is becoming overheated. As several hon. Members have said, that is an uneven process. The market is not a general, undifferentiated whole—bits of it are still depressed. As a general trend, however, that has to be dealt with and it is appropriate that it should be dealt with by, for example, the stamp duty measure. In addition, we are dealing with a broader economic context in that, as we have urged Labour Members to accept, there is a general overheating of the economy. The measure will take some consumer spending out of the economy. In our view, it will not be enough, which is why crucial public services are having to bear so much of the burden. If the measure were not enacted and consumer spending were not reduced in this way, the Bank of England committee that now looks at monetary policy would be forced to raise interest rates by even more than it will probably raise them within the next month or so, inflicting even greater hardship on manufacturing industry. We believe that that should be accommodated within the household sector, not by industry. The Government are right to do this—they have probably not done anything right enough in that respect. My only caveat is to reflect the spirit of the remarks made by the hon. Member for Rochford and Southend, East (Sir T. Taylor). As we all know, there is hardship in the housing market, which is why the Government should say how they propose to deal with that hardship—with low-income groups and people who still face repossession—when dealing with the amendment. We are well aware that the Government inherited a set of retrograde housing benefit regulations. The changes two years ago made it much more difficult for people with mortgages who were faced with redundancy to cope with the crisis. We hope that mortgage benefit will be dealt with much more progressively. That, coupled with a continuing phase-out of MIRAS relief, would be an appropriate and timely combination of policies.

Desmond Swayne (Conservative, New Forest West)

This MIRAS—this market-distorting tax relief—was designed precisely to encourage greater home ownership because of the socially responsible attitudes that went with that. In that respect, MIRAS has been remarkably successful. Throughout the period in which the subsidy has been available, home ownership has grown remarkably. So what has changed? Are we no longer willing to support that subsidy? Do we no longer want to encourage people to own their homes? In Committee, I found it extraordinary that Labour Members suddenly began to announce that they had always favoured the abolition of the relief in its entirety. When they were challenged on whether they had shared their enthusiasm with their electorate in their election addresses, the retort was that there was simply not enough space available in which to do so. Moving on to all the talk about the housing market, there is no housing market—there are a number of discrete markets that operate quite differently. As we have heard, there is still a severe problem at the bottom end of the market and these measures will most severely affect those living in that end of the market and trying to sell their homes or pay their mortgages. The £10 or so a month that it will cost the average mortgage payer is significant for precisely those people who are struggling and have to meet the extra £20 or so consequent on the increases in interest rates that have already taken place. The Prime Minister, as Leader of the Opposition, was reassuring the people who have such difficulties when he said at the back end of last year: We have no intention of raising taxes at all. They were reassured and they are the people for whom Labour used to speak. It is precisely those people on whom these measures will have the greatest and most adverse effect.

Howard Flight (Conservative, Arundel and South Downs)

The crucial point is that, just three months ago, the Labour party presented the electorate with the proposal that the ordinary person would not suffer an increase in taxation. This measure is an increase in taxation of £100 a year and it will particularly affect the ordinary young family. It comes at the wrong time. Interest rates may be low in nominal terms, but they are high in real terms and about to go higher. That £100 a year will become £250 with the rise in interest rates. The most important argument is this: when the previous Conservative Government reduced MIRAS, the reduction was mainly progressive. As tax allowability came down to 20 per cent., only the better off suffered. For people paying a 20 per cent. rate of tax, the reduction was entirely neutral. As has been pointed out, the reduction becomes acutely regressive as one goes below 20 per cent. I would have preferred us not to cut the relief from 20 to 15 per cent. when we were in government. Now, the boot is being put in on two fronts—higher interest rates and MIRAS—for less well-off, ordinary young families. Many of those are the very people who suffered negative equity. As my hon. Friends have said, frequently it is at the bottom end of the market that house prices have not recovered. There are huge regional differences. We have heard all this talk of housing boom, but, in general, the housing market has not recovered from the crash of the past eight years. The Labour Government propose to hit many young families because of the illusion that they are part of some economic machine of a housing boom that does not exist for them because they have only just recovered from negative equity. My hon. Friend the Member for New Forest, West (Mr. Swayne) asked the equally important question: do we wish to discourage home ownership? Going back the days of more generous interest relief on mortgages, the whole point of doing that was to encourage home ownership and the sense of social responsibility that went with it. What is left of that tax encouragement is pretty small, but it is relevant, not to the better-off, but to the less well-off and their families. The measure is just a cynical way of raising nearly £1 billion in tax and it comes at the wrong time. To impose it, not two or three years, but only three months, after the Government won an election in which ordinary people were made to believe that their taxes would not go up is wrong. The Labour party will pay at the next election for proceeding with this misguided increase in the taxation of ordinary people.

Shaun Woodward (Conservative, Witney)

I find myself at a loss to understand the point of clause 15. I am struck by the inconsistency in the Government's argument throughout much of the Bill; it is encapsulated in the hypocrisy and lack of consistency in clause 15. I and my constituents in Witney want to ask: why introduce this phasing out now and what its real significance? Is it a way of saying to people that the Government are going to phase out MIRAS altogether? If so, why have the Government not had the courage to say so or even to carry it through now? I find myself wondering about the rationale behind the reduction and I should be grateful if the Financial Secretary explained that rationale to the House. What is the purpose of taking this action now? Is it part of a phasing out of mortgage interest relief at source for home owners throughout the country? The onus is on the Government to own up, because the measure was not contained in their manifesto. In the manifesto, we read lots of wonderful glossy promises accompanied by lots of wonderful glossy pictures, but we see little mention of tax increases, yet the reduction in MIRAS is a tax increase. Labour promised to include in its manifesto all its intended tax increases: this measure was not in the manifesto, yet, within two months of Labour coming to power, in it comes. The reduction in MIRAS is a significant tax increase because it will hit something in the order of 10.5 million home owners. It will also hit many of those who are thinking of buying a home for the first time. About 400,000 people bought a home for the first time in 1995–96 and I remember that, when I bought my first home in 1983, MIRAS was a helpful tool for someone like me, who did not have any money or a financial background to rely on. It was a way of helping people like me to buy their own home. I firmly agree with my hon. Friends, especially my hon. Friend the Member for New Forest, West, that MIRAS was introduced to encourage home ownership. We have endured a difficult period of negative equity, although I have to correct the hon. Member for Croydon, Central (Mr. Davies) by pointing out that the heights of negative equity were reached in 1992–93 and had dramatically changed by 1995–96.

Derek Twigg (Labour, Halton)

If the hon. Gentleman believes that MIRAS was brought in to encourage home ownership, why did the Conservative Government—his Government—cut it twice?

Shaun Woodward (Conservative, Witney)

My point concerns the inconsistency and hypocrisy of the current Government's case. On another occasion, I should be more than happy to explain at length my views on reducing mortgage interest relief at source within a clear policy. I do not understand the Labour Government's rationale and I am seeking an explanation. In case the hon. Gentleman has not realised, he is now in government—he has to provide the answers for the 10.5 million people up and down the United Kingdom who will be affected by the change. It is terribly important that the Government understand that there is a limited period during which they can simply apportion blame to the Conservatives. The hon. Member for Halton (Mr. Twigg) needs to become accustomed to the idea that Labour Members must now explain why their Government introduce hypocritical measures.

Geoffrey Clifton-Brown (Conservative, Cotswold)

The thrust of my hon. Friend's speech is that the reduction in the rate of MIRAS will affect those at the bottom end of the housing market, especially first-time buyers. Surely it was right to restrict the relief to basic rate taxpayers, as we did. We took it away from those paying the top rate of tax, but left it for basic rate taxpayers. Does my hon. Friend agree that the reduction of the relief will force younger people to save for a longer period before making their first home purchase?

Shaun Woodward (Conservative, Witney)

My hon. Friend makes a series of important points and the hon. Member for Halton would do well to pay attention. The Chancellor said that he intended to dampen the housing boom—he was obviously aware of the boom in the south-east. However, I am conscious of the fact that the housing boom and changes in housing policy are occurring all over the United Kingdom and it is my view—I should be interested in hearing whether Treasury Ministers share that view—that we should know exactly what the impact of the reduction in MIRAS will be on people living outside the south-east. What will the impact be on people living in the north of England or in Scotland? What will the impact be on those living in houses at the bottom end of the market—the poorest people to have made the decision, which I firmly support, to buy their own home? I am at a loss to reconcile the Government's action with the Chancellor's statement that: I will not allow house prices to get out of control and put at risk the sustainability of the recovery."—[Official Report, 2 July 1997; Vol. 297, c. 313.] If the recovery is indeed at risk, that is not because of changes in the MIRAS rates, but because of what is happening to the value of the pound. The Chancellor will declare that it is not his decision to raise interest rates, but the House will not forget the day the Chancellor gifted operational control of interest rates to the Bank of England, without even so much as a reference to the House until after doing so. In future years, it will be all very well for the Chancellor to say, "It was not my fault", but it will be his fault, because it was his decision to give away operational control of interest rates and it is the level of interest rates that hurts home owners. As we are about to witness the fourth rise in interest rates in barely more than eight weeks since the Labour Government came to power, home owners will be hurt twice by the measure before us. For those who live in the north of England, Scotland and elsewhere in the United Kingdom, the measure is a cruel one, which will greatly damage those who bought their own home.

Derek Twigg (Labour, Halton)

On the issue of hurting home owners, would the hon. Gentleman care to comment on the hundreds of thousands of people who suffered negative equity and the hundreds of thousands of people who lost their homes under the previous Government? Whose fault does he think that was?

Michael Martin (Deputy Speaker, Glasgow Springburn)

Order. We are starting to stray from the amendment, which is about the MIRAS scheme and not about repossession.

Shaun Woodward (Conservative, Witney)

I am grateful, Mr. Deputy Speaker. It is important for members of the Treasury team to sit down and consider whether abrogating responsibility for operational control of interest rates is a good or bad idea at a moment like this. I have already explained the relevance of the clause to the interest rate rises. The truth is that interest rates will continue to rise in the next few months. Of course, this weekend some excellent advice was given by the general secretary of the GMB, whose knowledge of economic practices is exceptional. He advised on GMTV that the pound should be linked to the Italian lira because the markets might then think that the pound is not so strong. That is quite right, but unfortunately it has always been the practice of those on the Conservative Benches to be cautious of taking advice from that gentleman. The truth is that interest rates are the means by which people in this country can be hurt because, for most, the biggest expenditure of their lives is the purchase of their home. The proposal to cut MIRAS will hurt those people at a time when some are still recovering from a prolonged and difficult recession. The hon. Member for Halton may not have noticed that that recession occurred the world over and hit people in every western economy.

Derek Twigg (Labour, Halton)

What about black Wednesday?

Shaun Woodward (Conservative, Witney)

I will not comment on that, because I suspect that you, Mr. Deputy Speaker, would immediately rule that it was out of order and not relevant to the amendment. The hon. Gentleman must recognise that people do not understand the rationale behind the Government's decision. They need an explanation of whether the reduction in MIRAS is part of a policy to axe it. Home owners want the answer to that question. The Financial Secretary has made much in her speeches about the need for certainty and people's need to be able to plan. If one is making the biggest purchase of one's life, which represents the most important commitment that any family will make, one has a right to plan and a right to certainty. I do not understand whether the proposed reduction is part of a plan to abolish MIRAS. We have been offered no clear rationale for the Government's decision. Today, it has been said that the Government will look at the business of buying and selling houses. A cross-departmental review of house-selling practices will lead to legislation to regulate what has been described by hon. Members as the buoyant housing market. The Government will compile case studies of individual buyers and sellers. I dare say that the Savorets of Islington will provide a useful case study for the Government to examine. When they finish looking at that case, they will appreciate that those people were lucky enough to benefit from being able to buy a house worth £625,000 in Islington. The blunt truth is that the phased reduction of mortgage interest relief will not greatly affect those who are able to afford to spend hundreds of thousands of pounds on a house. For those trying to buy their first home, costing between £30,000 and £50,000, MIRAS makes the crucial difference—the difference between being able to buy a house or staying in rented accommodation. I am aware that, until quite recently, it was Labour policy to prevent people from buying their own homes. Apparently, that conviction was easily shed so that the Labour party could get into power. Now we search for the Government's new rationale towards home ownership. Is it something that they will encourage or punish people for? In the interests of clarity and honesty, I would greatly welcome hearing from the Financial Secretary whether the MIRAS reduction is a one-off or part of a policy to phase it out at source. When can the 10.5 million home owners expect that policy to be effected and completed?

Dawn Primarolo (Labour, Bristol South)

The Conservative Government cut mortgage interest relief six times—on a number of occasions when interest rates were rising. I do not recall hearing Conservative Members voice their concern for those who then found themselves in negative equity or who lost their homes because of the housing boom. I remind those hon. Members that, even with the recent increases in interest rates and allowing for the reduction in mortgage interest relief, payments on a typical mortgage of £50,000 are still £250 a month less than they were when the Conservative Government presided over the boom and peak in interest rates. Every hon. Member knows that those who own their own homes, or aspire to do so, are haunted by the prospect of a housing boom and the negative equity and the repossessions that go with that. The Government's measures on mortgage interest relief have been welcomed by the Council of Mortgage Lenders, which described the Budget package as prudent, and by the Halifax building society, which said that the measures would allow steady growth in the housing market. The difference is that, according to the Halifax index, house prices in the three months to June were up 2.1 per cent. on the previous three months and up 6.8 per cent. on a year earlier. Most commentators expect that there will be similar rises in the next year. Although those rises will be uneven, they will be spread across all the regions. The measures proposed by the Government on mortgage interest relief and stamp duty will apply a gentle brake on the housing market. They are also designed to provide it with some stability to avoid the boom over which the Conservative Government presided, with all the misery that went with it.

Geoffrey Clifton-Brown (Conservative, Cotswold)

The hon. Lady says that her Government have the monopoly on the care of those in negative equity. Surely every interest rate rise makes it all the more difficult for those in negative equity to earn their way out of it. The combined effect of the four interest rate rises since the election and the proposed reduction in MIRAS will make it even more difficult for those in negative equity to get out of it.

Dawn Primarolo (Labour, Bristol South)

I would not suggest for a moment that Labour Members are the only ones with a monopoly on care for those on low incomes. I was pointing out that, in government, Conservative Members were less vocal and their actions did not follow the prescriptions that they are now recommending to the Government. I am sure that the hon. Gentleman would agree that it is necessary to act on the housing market before matters get out of hand instead of waiting until they are completely out of control and then standing by, wringing our hands and saying how sorry we are. I accept that the impact of the MIRAS reduction will hit low-income families, but their mortgages tend to be low, so the impact will not be as great for them. It is essential for those families to have the security of the knowledge that there will not be a runaway housing market because the Government are taking prudent measures to ensure that that does not happen.

Shaun Woodward (Conservative, Witney)

The hon. Lady has yet again made much of security and certainty. Would she care to explain to hon. Members how tax changes, in particular the four increases in interest rates in three months, will add to people's sense of security and certainty?

Dawn Primarolo (Labour, Bristol South)

The increases in interest rates are a result of the mess that the previous Government left us to clear up. The previous Government did not take the advice that they were given before the general election, so it is necessary to act now. The electorate can rest assured in the knowledge that the Labour Government will take the difficult decisions to ensure economic stability. Amendment No. 27, which would delay implementation of the MIRAS cut, is ridiculous. As we have said, it is necessary to try to dampen down the housing market to protect those in the market and to ensure that those who aspire to home ownership can do so on terms that they can afford, in the knowledge that the market is slowing down. 7.30 pm Conservative Members make their proposals from the security of the Opposition Benches, not the reality of dealing with the economic circumstances. The Government will not shrink from taking the difficult decisions to protect stability, especially in housing. I recommend that the House votes against the amendments and supports the Government in their strategy.

David Heathcoat-Amory (Conservative, Wells)

These debates are settling into a familiar pattern: we ask the questions and the Financial Secretary cannot or will not answer them. However, it is not an entirely fruitless exercise because, from her silence and her failure to answer our points, we have established beyond dispute some important facts. First, clause 15 is a major breach of the tax pledges that Labour made at the time of the general election. Secondly, we have established that the measure is regressive. It hits the poorest 10 per cent. of people in the country more than the richest 10 per cent. Thirdly, the measure fails to deal with the supposed housing boom—if that was the intention—because it does not come into effect until 6 April 1998. Fourthly, it is simply a crude, tax-raising measure. It will net the Treasury nearly £1 billion a year extra and it will do so at a time when interest rates are and will be rising strongly. So borrowers, all 10 million of them, will be hit twice—by the increase in their mortgage contributions and by the withdrawal of, or further limitation of, tax relief. Above all—

Quentin Davies (Conservative, Grantham and Stamford)

Does my right hon. Friend agree that one of the most significant questions that the Financial Secretary was unable or unwilling to answer was whether the reduction in MIRAS should be regarded as one tranche in the process of the elimination of MIRAS or as a one-off exercise which would not be repeated?

David Heathcoat-Amory (Conservative, Wells)

Yes, my hon. Friend is right. I remember his specifically asking the Financial Secretary that question and she specifically refused to answer. I agree that her silence and her evasion on that subject are eloquent. We fear the worst. The Labour Government are breaking all their tax promises in their first Budget and are likely to continue to do so. That is the implication of what my hon. Friend asked. Above all, the measure is yet another imposition—a damaging and continuing one—on the ordinary people of this country, the borrowers, the people who try to think long, who borrowed money to build an asset of their own. They have been clobbered in the first Budget, in defiance of all those promises that were repeated not only by the Chancellor of the Exchequer, but by the Prime Minister, in the weeks before the general election. I shall therefore invite my hon. Friends to press the amendment to a vote.

WITHDRAWAL OF RELIEF ON MEDICAL INSURANCE PREMIUMS

Nick St Aubyn (Conservative, Guildford)

I beg to move amendment No. 1, in page 10, line 29, at end insert 'and'.

Nick St Aubyn (Conservative, Guildford)

The amendment raises some technical points but also some issues that are fundamental not only to clause 17 but to the whole way in which the Bill has been framed and forced through the House. On 16 July, my hon. Friend the Member for Daventry (Mr. Boswell) and I discussed a number of important cases of private medical insurance for which the intentions of clause 17 were not adequately clear. We identified three types of medical insurance. The first is verbal contracts entered into before the cut-off date mentioned in the clause—2 July—but where the confirmatory documentation had come after that date. The second is contract renewals, where an insurance company's client had agreed before 2 July the contract renewal of an insurance policy for another year, but where the contract came into effect after 2 July. The third type of contract, and by far the greatest number—in the case of one insurer, almost half of its business is written in this way—consists of annual contracts written as a series of monthly contracts. This method of writing insurance contracts has been approved by the Inland Revenue because it avoids some of the complications of the Consumer Credit Act 1974. It is an entirely legitimate and approved way of doing business, yet clause 17 is unclear about how such contracts would be treated. Would the relief end at the end of the next month and at the start of the next monthly contract, or would it carry through to the end of the series of monthly contracts? Those were the points which we put to the Financial Secretary to the Treasury. We did not ask for an immediate response. We understand that they are technical points. The hon. Lady was free to go away and think about the matter before clarifying to us what the clause was intended to do. But she wasted no time in putting my hon. Friend the Member for Daventry and me firmly in our place. She said that we simply had not read the clause clearly, and that if there were any doubts, the answers would be found in the explanatory notes from the Inland Revenue. My hon. Friend and I reread the clause and the explanatory notes, but I am sorry to say that we found nothing dealing with verbal contracts, nothing that resolved our concerns about contract renewals and nothing at all about monthly contracts. We were grievously misled, albeit perhaps unintentionally, by the words of the Financial Secretary. If one reads Hansard, there is no doubt that we were given assurances that the answers would be found, but they were not to be found. If ambiguous clauses are put together in haste, as part of a Budget put together in haste, it is no use complaining if others do not grasp the intended meaning of the clauses. When others ask for clarification of the meaning, it is not good enough to hide behind official documents and statements that do not answer the specific questions raised. I raised the matter with the Leader of the House, who told me in the Chamber that the correct forum for discussing it would be at a later stage in the proceedings on the Bill. So we are here tonight, in the correct forum to discuss how those important cases are to be treated. The assurances that I hope we will get from the Financial Secretary must depend of the credibility of her words. Will she take this opportunity to correct another misstatement that we heard on 16 July? In the process of dismissing our concerns, which still exist, the Financial Secretary said: There is no indication that those who have private medical insurance and receive relief will change their minds because of our decision."—[Official Report, 16 July 1997; Vol. 298, c. 417.] My hon. Friend the Member for Daventry pointed out that there had been a report recently from the Economists Advisory Group which made it clear that the withdrawal of the relief would have an effect on the numbers who take out private medical insurance. We know as the result of a letter from one of the insurance companies that the Financial Secretary had received a copy of that report in mid-May, yet she told us in July that there was "no indication" of the effect of the relief being withdrawn. Did the Financial Secretary utter those words because she failed to read that important report on the effects of withdrawing relief on medical insurance, or because she failed to remember what she had read in the report, or did she simply fail to tell us, even though she had read the report and she did remember it? Perhaps she will let us know in which sense she misled us on this vital point. There is an irony about clause 17 coming from a Government who claim to govern for the many, not the few. The irony arises from the clause, coupled with the relief on the rate of VAT on fuel. The combined effect of those two measures is regressive. Although the savings on fuel will benefit most those who spend the most on fuel, the study that I mentioned and others that I have received from insurance companies make it clear that—

Jacqui Smith (Labour, Redditch)

Does the hon. Gentleman agree that the definition of regressive taxation is based on the proportion of a person's income that the tax takes, not the absolute amount? Therefore, because VAT takes a larger proportion of the income of those on lower incomes, it is regressive. It is not the absolute amount but the proportion that matters.

Nick St Aubyn (Conservative, Guildford)

If the hon. Lady will wait a moment, she will realise that the combination of measures is indeed regressive. Studies have shown that waiting lists will go up as a result of the measure. Some people will not be able to afford the premiums without the tax relief. They will go back to depending solely on the national health service, and when they need treatment, they will add to waiting lists. According to the report that I mentioned, an increase of 30,000 a year on waiting lists will be the first result of the measure, and those numbers will be concentrated. Everyone—not just the few, but the many—will have to wait longer if they want a hip replacement operation, cataract procedures, a coronary bypass or other operations commonly required by elderly people, many of whom never aspired to private medical insurance, but all of whom will be affected as those who had such insurance revert to reliance on the health service and add to the waiting lists.

Liz Blackman (Labour, Erewash)

Is the hon. Gentleman aware that insurance companies such as the Norwich Union already have advertisements in the newspapers stressing that there will be virtually no impact on their customers? They calculate that the impact will be virtually nil and that they will retain their customers.

Nick St Aubyn (Conservative, Guildford)

I am sure that the hon. Lady is old enough to know that one should not believe everything that one reads in an advertisement. However, if one is so under the spell of people who are in love with advertising, such a mistake is understandable. Many prominent insurance companies have written to me, to my hon. Friends and to others, making it clear that although they will try to mitigate the effect of the change by offering people restricted cover, which they can do on terms that do not substantially increase the premiums, the collective effect of restricting the cover means that certain expensive medical procedures will not be covered, and when those operations are required by some of their clients, they will have to be performed on the NHS. The burden on the NHS will be spread over the entire community, and the waiting lists for the entire community will increase. We should be in no doubt about that. Who will gain from the withdrawal of the relief and the loss of money for health spending? Those who will gain are those with the largest homes, who have the biggest heating bills. I think of people such as the Paymaster General. He has a very large house in my constituency, which is one of his many houses; I wish him well. It is, however, an irony that he is one of the people who will benefit the most from this combination of measures while other people, who are much poorer than he and who struggle to provide for their health needs through their health insurance policies, will no longer benefit. They regret that they will add to the burden on the national health service and they regret that, having provided for themselves for so many years, when they are most likely to need the help of their insurance policy, they will have to give up paying the premiums. That is a very sorry tale.

Ivor Caplin (Labour, Hove)

Will the hon. Gentleman tell the House how many people who have taken out such insurance will be affected? I have listened to him for 13 minutes now and he has not given us any facts.

Nick St Aubyn (Conservative, Guildford)

I can assure the hon. Gentleman that according to the Inland Revenue's own figures—indeed, those who read the explanatory notes will know this— about 600,000 individuals have policies. According to the industry, typically, the number of people affected by a policy is two so we are talking about upwards of 1 million people who benefit from medical insurance policies. The industry's further estimate is that withdrawing the relief entirely will mean that almost half those individuals will give up the health insurance that they have today. If the figures are even a fraction of that, the savings from abolishing the relief will be wiped out by the increased costs loaded on to the national health service. What makes this measure particularly painful for the health service is that none of the savings will be channelled into the health service. They will be channelled into a reduction of VAT on fuel. The manner in which the Financial Secretary has dealt with our objections has smacked of pride. The manner in which the clause has been introduced smacks of prejudice. I am afraid that not even Jane Austen could easily write a happy ending to this tale. Let us, however, try. Despite my criticisms of the Financial Secretary—I know that she is new to her post and I realise that it is difficult to get to grips with such a big job—I am grateful for her letter to me of 25 July. The letter, although it patronises me, is nevertheless helpful in clarifying the situation and I am only sorry that it did not come earlier. I should like to clarify one or two points in the letter and if the understanding I have reached is correct, having heard from her and from others in the debate, I may be prepared not to press some of my amendments. The first point that the Financial Secretary makes is that the transitional provisions of clause 17, which phase out the relief during the year as annual contracts come to an end, apply only where there is no contract in place before Budget Day. That is a very significant statement because the letter goes on to say that the relief is withdrawn … in respect of all contracts made on or after Budget Day. Contracts made before then are not affected. If I understand the Financial Secretary correctly, her letter means that the significant date is not the date from which the next contract runs, which might be after 2 July, but the date on which the contract was agreed. That is the type of contract we are talking about when we refer to telephone confirmations of contracts that were made before 2 July, but for which the documentary evidence was not completed until afterwards. The letter would appear to cover that. The letter also appears to cover the case where a renewal has been put through to a client of an insurance company and the renewal has been confirmed by the client before 2 July. The contract is made, but the start date of the contract may be some weeks after 2 July. The third and most important group, because it is the largest group of contracts about which we are concerned in our questions to the Financial Secretary, is monthly contracts. In her letter, the Financial Secretary states There is no suggestion … that monthly contracts are to be treated differently. The problem we have is that the way in which some monthly contracts are written by some insurers, including Prime Health, an insurer in my constituency and one of the largest, does not marry up with the way in which the clause is written. Since I and my hon. Friend the Member for Daventry raised the matter in the House on 16 July, Prime Health and others, I am delighted to say, have had verbal assurances from the Inland Revenue that all their monthly contracts, however they are written, will be treated like annual contracts and that the relief will continue until the end of the series of contracts is completed because they have been approved by the Revenue. That is extremely good news. There is, however, an extremely important principle here. Shall we see the regulation of taxation carried out by regulatory, bureaucratic fiat—by verbal assurances behind closed doors—or shall taxation rules be decided on the Floor of the House in open debate? That is what amendment No. 4 is about. Whether the matter is agreed by the Inland Revenue by verbal assurance or whether it is agreed here affects not only the certainty of the agreement, but the way in which we conduct business.

Nick Gibb (Conservative, Bognor Regis and Littlehampton)

Another, wider, point is that the verbal assurances were given to only one taxpayer. Those verbal assurances are needed by other taxpayers who face a similar problem. We are discussing a fundamental principle of the rule of law and my hon. Friend was absolutely right to table his amendments.

Nick St Aubyn (Conservative, Guildford)

I am grateful to my hon. Friend. I shall listen with great interest to what the Financial Secretary says in due course. I know that she is uncomfortable about the idea, but it may help her to realise that we feel that on two occasions, we were misled by her during the debate on 16 July. Opposition to the amendment would not only be highly misleading in the light of the assurances from officers of the Inland Revenue, but would, more importantly, for the reasons that I and my hon. Friend the Member for Bognor Regis and Littlehampton (Mr. Gibb) have explained, be an abuse of the process by which we determine statute on financial affairs in this Chamber. If the Financial Secretary is willing to accept the amendment and to give the assurances that we seek, all will be forgiven, all will be sweetness and light, and the insurance industry will have come to a happy understanding. The ball is firmly in her court.

Tim Boswell (Conservative, Daventry)

The whole House owes a debt of gratitude and admiration to my hon. Friend the Member for Guildford (Mr. St. Aubyn) first, for his pursuit of this matter in such detail, secondly, for his elegance and lucidity in bringing it to the attention of the House tonight and thirdly, for his pointing out the salient issues raised by the amendment. The purpose of the amendments has already been admirably explained by my hon. Friend. It is, essentially, to elucidate and, if possible, correct aspects of the Government's proposals on the implementation of the withdrawal of private medical insurance relief. Those issues, as well as the general ones, were the subject of exchanges in the House between the Financial Secretary and us on Wednesday 16 July. I shall come back to those points of detail later. On the wider issues of private medical insurance, suffice it to say, particularly as my hon. Friend the Member for Guildford has spoken most eloquently, that we simply do not believe that the Government have succeeded in proving their argument that there will be real savings to the Exchequer from these proposals. We believe that savings will be substantially nullified by a significant return of policyholders to the national health service. We believe also that those arguments are well advanced in the economists advisory group report. If there are savings, and even to the extent to which they are borne out in practice as a result of the Government's measures, there will be a loss of revenue to the Exchequer, an increased load on the NHS and ultimately a detriment to those who have to rely on the NHS because they currently hold no private medical insurance. Be that as it may, and given that the Government are bent on the withdrawal of private medical insurance, it is clearly desirable that the withdrawal of relief should be fair in its implementation and that every effort should be made to get things right. That is surely the right approach. Our earlier exchanges sadly revealed what is being seen to be the Government's characteristic approach to matters of detail. I do not know whether they adopt such an approach because they are careless of the consequences on individuals. Perhaps, to be less charitable, they are themselves uncertain of detail. If they are, I shall be charitable to them in this instance because I recognise that we are dealing with complicated issues. I have noticed more than once, however, during the passage of the Bill that we have been told by Ministers that it is all entirely clear—usually in the new clauses because not even a tax expert could possibly say it was perfectly clear from the Bill. Even my hon. Friend the Member for Bognor Regis and Littlehampton (Mr. Gibb) has had some difficulty with certain aspects of the Bill. Having been told that everything is perfectly clear, we poor souls have to admit that it is not entirely clear to us and that we still do not understand it. That was the way in which the Financial Secretary, for whatever reason, chose to respond to points made with a degree of modesty and diffidence by my hon. Friend the Member for Bognor Regis and Littlehampton and myself in Committee on the Floor of the House. Indeed, that is why we are returning to these matters this evening. I do not know how the occupants of the Treasury Bench saw their role as the Labour party in opposition. We, the present Opposition, however, are prepared, up to the limits of our ability, to tackle the Bill and to listen to advice and expressions of concern from professional persons, given the impact of the Bill. We shall then seek to query details and offer improvements. If I have one piece of advice for the Government, it is that they should not raise their hackles and assume on principle and in advance that all Opposition amendments are necessarily wrecking in nature and always wrong. Given the Government's haste in the sorry business of the Bill, we from time to time—I say this assuredly to the Financial Secretary—are trying to help the Government to get their legislation right. To be more accurate, perhaps I should say that we are doing our best to protect our constituents from the collateral damage that the Government's carelessness and haste have inflicted in general. It is in that context that the three detailed issues brought forward by my hon. Friend the Member for Guildford should be carefully considered. As my hon. Friend has explained, they relate to three specific categories of private medical insurance. First, there is the category of policy taken out in sequence as a series of discrete policies over 12 months, but not as one period with monthly payments. I believe that the reason for that approach in some instances may be the operation of consumer credit legislation. For all practical purposes, however, they are annual policies or, if we must so describe them, quasi-annual policies. The second category features those insurances that are covered by verbal contract without a confirmation in writing at any particular time, and certainly not at the time of the conclusion of the contract. The contract takes effect before it is confirmed in writing. The third category features those insurances where renewal has been notified by the policyholder in advance of the deadline of 2 July, but the contract did not enter into force until after that date. My hon. Friend the Member for Guildford has explained the details of these implications extremely carefully and I do not need to take up his arguments. I shall make three detailed comments, however, before inviting the Financial Secretary to consider the position with me. 8.15 pm My first point is that the arrangements that we are considering, which have been carried out over a period of years by Prime Health in Guildford and by other insurers elsewhere, were entirely normal within the conduct of their business. There is no question of avoidance action to frustrate the Revenue. Secondly, until the Chancellor's announcement on 2 July, there was a legitimate expectation on behalf of policyholders that their arrangements would stand until notified to the contrary. Certain undertakings had been entered into along with courses of action and there was the reasonable expectation that those would continue. As I said in Committee, there could be severe difficulties where contracts have been concluded, perhaps on a verbal basis, and tax relief withdrawn if the insurer were to hold the policyholder to a contract that he could no longer afford to maintain. Thirdly, despite the helpful efforts of the Financial Secretary to clarify the matter, there is still a degree of ambiguity in her letter. We need to return to it to ensure that the points that it incorporates are thoroughly nailed down. In the hon. Lady's letter of 25 July to all members of the Standing Committee, she writes: There is no suggestion that the contracts have to be in writing—this is a matter of general, not tax, law". Yet previously in that same letter she denied any intention of extending transitional relief: to verbal or monthly contracts or to contracts …commencing after 2 July. Against that background, I still do not feel that these matters are as clear as perhaps the House is entitled to wish or as the Financial Secretary will wish to claim. I begin to piece together from an analysis of the Financial Secretary's letter the following scene—I should be grateful if the hon. Lady would harken to it as I think myself through these matters. I ask her to confirm later whether I am right. First, I am sure that the Financial Secretary is right, although I am not a lawyer, that a contract is a contract is a contract, whether verbal or written. If there were a contract between an insurer and a policyholder, one taken out before 2 July when the Chancellor made his announcement and subsequently confirmed in writing, if it was not written at the time that it was taken out, that contract would stand and would attract tax relief for the period of the contract. As I understand the Financial Secretary's letter, the main thrust of the clause is about contracts concluded on or after 2 July and not about contracts taken out before that date. The hon. Lady is claiming, however, that she is giving helpful and additional transitional reliefs. The first would be in the instance of a new contract where the understanding was that the contract would be taken out but it had not been signed up to, for whatever reason. The hon. Lady is saying, possibly with the thought in mind that some such contracts may be real pre-2 July contracts but not nailed down in writing, that providing writing appears by 1 August and premiums are paid by the end of March 1998, they would qualify for tax relief for the current year. The second category comes within renewal. It takes up the point that my hon. Friend the Member for Guildford raised in terms of Prime Health. I am referring to a contract taken out ahead of Budget day but not coming into force until a few days thereafter. That contract would be honoured for tax relief purposes in the current year, as long as it was consecutive on a contract that was already in place. I apologise for these complications; I am certainly not trying to trip up the Financial Secretary. We are all anxious to get the legislation as right as we can. We are conscious, too, of Pepper v. Hart—hence the need for certainty in the debate. The third category to which my hon. Friend referred comprised monthly contracts, or as I call them, quasi-annual contracts. Perhaps the Treasury has some sort of administrative concession in mind. I should prefer an administrative concession to nothing at all. There are awkward precedents for extra-statutory concessions—the Revenue allows them from time to time—that are not eventually validated in substantive law later on. Such concessions are an uncomfortable way to relieve a problem: to whom should they be made, will they be extended equally to everyone, and so on? Furthermore, they cannot, by definition, be justiciable. I submit that the last of my hon. Friend's amendments would serve the purpose much better, and I hope that the Financial Secretary will refer to it in due course.

Geoffrey Clifton-Brown (Conservative, Cotswold)

Does my hon. Friend agree that extra-statutory concession is a far from satisfactory way of dealing with the matter? It would be far fairer to people over 60, many of whom are not especially au fait with complicated tax law, to set down clearly in statute what is involved, thereby allowing their insurance companies to inform them clearly of their position.

Tim Boswell (Conservative, Daventry)

My hon. Friend makes the point better than I could. It is, of course, better to be clear in the statute. If the Government are not inclined to do that, some concession is better than none—but I was going on to mention the importance of how the concession is implemented. How will it be notified to policyholders, many of whom are elderly and who may get confused—although many have a pretty good idea of what is going on? They will need to deal with their insurers, as they already do with the operation of relief at source. But they will need to know how this is to work, the more so if it is delivered by this roundabout route. The devil is certainly in the detail, and the Government cannot behave as if the detail does not matter. It clearly matters a great deal to policyholders and insurers; and in terms of the smooth operation of revenue law and of fairness as between individuals. We are still looking for greater clarification. It is the very least the Government can do for people who, even if the transitional arrangements are relaxed or at least clarified, will assuredly suffer in years to come from the principle behind these changes. We continue to oppose it.

Ross Cranston (Labour, Dudley North)

I have been provoked to rise by the speech by the hon. Member for Guildford (Mr. St. Aubyn), who made certain assertions to which I shall return later. In Committee, certain comments were made about the drafting of the Bill. On other occasions, I have been critical of the style of drafting that we use in this country, but clause 17 could not be a clearer statement of Government policy. As the Financial Secretary said in her letter of 25 July, the Bill's contents, including clause 17, must be interpreted against the background of general law—and the general law is quite clear about when a contract is made. A contract made orally and confirmed later in writing is made at the time of the oral agreement, so this is not a matter of deciding by "regulatory fiat"—the phrase used by the hon. Member for Guildford—nor is the matter very complicated. I was provoked, as I have said, by some of the extraordinary statements made by the hon. Gentleman. He claimed that 1 million people were involved, but the Conservative spokesman conceded that at most 550,000 people might be affected by the tax relief. On Second Reading, we made the point that that number had hardly increased since the relief was introduced. The hon. Member for Guildford also made the extraordinary claim that the abolition of this relief, combined with the relief gained from the cut in VAT on domestic fuel from 8 to 5 per cent., was regressive. On Second Reading, I described the extent of fuel poverty in the UK, quoting figures to show that those on lower incomes spend a much higher proportion of those incomes on domestic fuel than do those on higher incomes. So the VAT reduction has had a beneficial, progressive impact. Help the Aged has commented on the measure, saying that it will affect only 5 per cent. of people over the age of 60: Help the Aged is more concerned about seeing improvements to the NHS so older people will receive high quality, accessible and free health-care.

Tim Loughton (Conservative, East Worthing and Shoreham)

Not for the first time, there seems to be some incongruity in the hon. Gentleman's arguments. He is arguing against the amendment, which seeks to protect pensioners with monthly medical health insurance who would otherwise lose the relief immediately. The amendment is designed to allow them a fair phasing out, in line with others who hold annual policies. At the same time, the hon. Gentleman is taking us down the highways and byways of VAT on fuel. On the other hand, proposals elsewhere in the Bill would delay the RPI benefits of a reduction in VAT on fuel until the following year. His colleagues have rather craftily chosen the date of 1 September instead of later in that month. Would the hon. Gentleman care to be consistent?

Ross Cranston (Labour, Dudley North)

The Minister will reply specifically to the amendments in a moment. As for rolling monthly contracts—it will be a matter of looking at each contract separately. Is it an indivisible contract, or is it a series of separate contracts?

Tim Loughton (Conservative, East Worthing and Shoreham)

So that is a no?

Ross Cranston (Labour, Dudley North)

I am not sure I even understood the hon. Gentleman's question—

Jacqui Smith (Labour, Redditch)

That is because there was none.

Ross Cranston (Labour, Dudley North)

Earlier, my hon. Friend dealt very well with the non-regressive intent behind clause 17, combined with the reduction in VAT. Finally, even the hon. Member for Daventry (Mr. Boswell), on Second Reading, quoted the comments of Mr. William Laing, from the consultants dealing with these matters. He said that this tax relief—the hon. Member for Daventry did not quote the words exactly although he alluded to the report—was ridiculous and could not possibly be justified in terms of savings to the national health service. So all this spilt milk about the impact on the NHS is just so much hot air.

Tim Boswell (Conservative, Daventry)

I am grateful to the hon. Gentleman for giving way, or perhaps simply subsiding. The reason why I did not quote from Laing is that I quoted from the Economists Advisory Group study, which went into the arguments of Laing and his colleagues very thoroughly and in my view more than adequately exploded them.

Ross Cranston (Labour, Dudley North)

I am reminded of the particular point that the hon. Member for Daventry made on Second Reading. The report from the Economists Advisory Group shows that the abolition of the relief would mean at most 30,000 more persons using the NHS. That certainly does not stack up against the figure of 1 million mentioned by the hon. Member for Guildford.

Geoffrey Clifton-Brown (Conservative, Cotswold)

rose—

Ross Cranston (Labour, Dudley North)

I am about to conclude my remarks. The amendments are of no worth. My hon. Friend the Financial Secretary has already dealt in writing with the points that they raise and will no doubt repeat in a moment what she has already explained.

Nick Gibb (Conservative, Bognor Regis and Littlehampton)

The amendment would mitigate some of the crudities in the implementation of a very unjust and vindictive clause. When she winds up the debate, the Financial Secretary will no doubt claim that clause 17 is so important that the Government must dismiss the amendments out of hand. She will no doubt say that the Opposition have not presented a valid case showing that the tax relief introduced in 1990 increased the number of people over the age of 60 who took out medical insurance. She will say that, as a consequence, the Government have every right to ride roughshod over the House and to abolish the relief with no subtle amendments being accepted because the Government know best on this issue, as on everything else.

Jacqui Smith (Labour, Redditch)

Does the hon. Gentleman accept that it is not just the Government who know best? In 1991, the former Chief Secretary to the Treasury, Mr. William Waldegrave—who, sadly, is no longer with us—admitted that the relief on private medical insurance had not worked very well, was expensive to administer, and had not been taken up very widely.

Nick Gibb (Conservative, Bognor Regis and Littlehampton)

Although there was a lack of take-up among people in the higher tax brackets, which is why in due course the relief was removed from them, there has been an enormous take-up among people over 60 in the basic rate tax bracket. I will give some figures in a moment.

Tim Loughton (Conservative, East Worthing and Shoreham)

What we heard from the hon. Member for Redditch (Jacqui Smith) is just another outrageous version of short termism. The tax relief was introduced only in April 1990 and had hardly had a chance to get going.

Nick Gibb (Conservative, Bognor Regis and Littlehampton)

I am grateful for my hon. Friend's intervention. Figures show that in 1990 some 400,000 individuals over the age of 60 then had private medical insurance. By last year, the number had increased to 600,000—an increase of 50 per cent. The Financial Secretary will therefore be wrong if she claims that the amendment cannot be accepted because the Opposition have provided no proof that the relief had any effect. During that period, there was no overall increase in the number of people of all ages taking out private medical insurance, which proves incontrovertibly that the relief enabled more people over the age of 60 to take out private medical insurance. Let us deal now with the issue of cost. The hon. Member for Dudley, North (Mr. Cranston) claimed that Age Concern is more interested in improvements in the health service than in giving tax relief to the mere 5 per cent. of the population who have private medical insurance, but how will abolishing the relief have any positive effect on resourcing the NHS? If anything, it will have a devastatingly negative effect on resourcing the NHS as the Government push more people into dependency on the NHS. According to the Red Book, abolition of this tax relief will raise £115 million. Grossed up, that figure corresponds to premiums of £500 million. If one assumes a claims-to-premium ratio of 80, as the industry does, it corresponds to £400 million of treatment costs. If one assumes, again as the industry does—and this is a conservative assumption—that if only one in three people give up their health insurance as a result of clause 17, that corresponds to £133 million-worth of medical treatment. Some people put the figure much higher, as my hon. Friend the Member for Guildford does on the basis of information that he has received. Even if we take out of those figures the hotel costs that private medical insurance covers—they are not regarded by the industry as particularly significant—there is at best only a break-even position between what the Government will save and what they will have to spend in providing health treatment for the people who have given up their private medical insurance. It is worse than that, however, because there is also a domino effect. As prices are increased generally for health insurance for the over-60s, more people will abandon that insurance, which in turn means that there will be fewer people to carry the burden of the risk, shoulder the costs and cross-subsidise one another. Even without the tax relief, prices will have to rise, which again means that even more people will have to leave their private medical insurance schemes. That tallies with letters that I have received from my constituents. In my constituency, 36.6 per cent. of the population are retired and a large proportion of them have private medical insurance. They have written to me in great numbers expressing concern about the proposed abolition of private medical insurance relief. It is absurd that the Government should be introducing such a measure at a time when we are concerned about an ever-aging population and when there are increasing demands on the NHS. It is a cruel and vindictive policy.

Liz Blackman (Labour, Erewash)

Can the hon. Gentleman explain why the proposal is so vindictive when the majority of taxpayers are paying twice—once for the NHS care that the majority receive and again for a relief that benefits the few?

Nick Gibb (Conservative, Bognor Regis and Littlehampton)

It is a tax break. It is the people who take out this insurance who are paying twice—once through their own taxes, although they rarely take up any benefit from that through the NHS, and again through their private medical insurance, which is what will cover their health care as and when they need it. The figures show that the proposal is vindictive. The Government are focusing the policy on a minority who have taken the trouble to pay twice. Let us consider the figures: 28 per cent. of all hip operations take place in the private sector, 20 per cent. of all heart conditions are treated in the private sector and 20 per cent. of all acute conditions are dealt with in the private sector. Yet the Government want to damage the private sector. That is what I mean when I say that the proposal is vindictive. It will mean that fewer people have the opportunity to have hip operations or to have their heart conditions and acute conditions treated.

Liz Blackman (Labour, Erewash)

The hon. Gentleman's notion of choice and opportunity is a little skewed. The majority of taxpayers pay once to avail themselves of NHS treatment, and again through their tax contributions, part of which go towards private medical insurance relief. The point is that the majority of people do not have that choice: only the few who can afford private medical insurance—which is topped up by the many—have that choice.

Nick Gibb (Conservative, Bognor Regis and Littlehampton)

The hon. Lady needs a lesson in mathematics, because tax relief on those premiums is worth only 20 per cent., whereas the claims-to-premium ratio is 80. Tax relief is therefore a fraction of the health care costs spent on people with private insurance who make claims to cover their treatment. All that will happen if the relief is abolished and people leave the private sector and use the health service is that an enormous deficit will be created. The only reason why the NHS will break even rather than have a huge deficit under the policy is that two out of three people will grin and bear it and pay more. But for that fact, the policy would have a devastating impact on the NHS. The policy will not do the health service any good, however, and it will lead to a further stretching of resources. The policy is vindictive. Only 10 per cent. of the population have taken out health insurance; yet the figures show that 28 per cent. of all hip operations and 20 per cent. of all heart operations are conducted in the private sector. As our population is growing ever older, why have the Government decided now to abolish the relief? The hon. Member for Erewash (Liz Blackman) spoke of extending choice and opportunity, but how have the Government extended choice and opportunity for people to take out private health insurance by making it more expensive? The previous Labour Government abolished grant-aided schools, and how did their action increase choice and opportunity for people on low incomes to send their children to public and private schools? The policy resulted in more exclusive education and provided fewer opportunities for middle and lower-income people. Abolition of private health insurance relief will have the same effect. The policy demonstrates the same old vindictive Labour politics of envy and will achieve nothing, saving no money and placing a bigger and unsustainable burden on the NHS. If relief were left in place, ever more pensioners would take out private medical insurance. There is no reason to believe that the trend from 1989 to 1996 of those taking out private medical insurance would not have continued, helping more people to receive more treatments in the private sector and relieving more of the burden on the NHS. That would allow more people who are dependent on the NHS to enjoy shorter waiting lists and to receive more treatments. The Government should accept our amendment, because it would mitigate at least some of the problems caused by the policy. The Government should also take a less high-handed and arrogant stance. Most importantly, the Government should stop reverting to their old-Labour type by abolishing a greatly needed tax relief.

Jacqui Smith (Labour, Redditch)

The hon. Member for Daventry (Mr. Boswell) described himself as "modest and diffident" in discussing amendment No. 1. To be fair, he attempted to discuss the minutiae of the amendment. The gaff was blown, however, by the hon. Members for Guildford (Mr. St. Aubyn) and for Bognor Regis and Littlehampton (Mr. Gibb), who made it quite clear that the intention of their group of amendments is not to deal with small anomalies but to have another go at the principle of removing relief on private medical insurance. Today, we have debated the principle of removing relief in greater detail than we did in the debate on Second Reading, in which I and several other hon. Members in the Chamber spoke. In this debate, Conservative Members have gone so far as to suggest that people who take out private health insurance are not so much exercising freedom of choice in the market as performing an altruistic function—helping the rest of us to get more out of the health service by spending their money on what they think is better service in the private sector. Such an assertion is ridiculous. Moreover, as I said in the previous debate, for Opposition Members to believe that the NHS can operate effectively only if people are bribed to leave it and to take out private medical insurance is an indictment of their views.

Howard Flight (Conservative, Arundel and South Downs)

If 600,000 people simply left the private sector and received treatment in the state health sector, a massive increase in NHS funding would be necessary and taxes would have to be raised. The very crude point is that people, to the extent that they take out private insurance, are saving the NHS a major bill.

Jacqui Smith (Labour, Redditch)

The hon. Gentleman's point is extremely crude, and it was dealt with on Second Reading when we said that, despite the introduction of relief on private medical insurance, there was no significant increase in the number of people over 60 taking out private medical insurance. Conversely, therefore, removing the relief—in order to use that money for something much more worthy—will not result in a flood of people returning to the NHS. The hon. Gentleman not only made a crude point: he was inaccurate in the facts. Conservative Members have made it clear that they are concerned only about the principle of relief on private medical insurance. As we said in the previous debate, trying to persuade people to take out private health insurance is not the way in which to defend the NHS—if that is what Conservative Members are interested in, although I doubt whether it is. Even if that were the best way of defending the NHS, the relief that we are debating has not proved to be particularly effective. As I said before, even William Waldegrave, the Chief Secretary to the Treasury in 1991, admitted that the relief was not especially effective. As Labour Members have said, and as the previous Government admitted, the relief was not effective because the Conservative Government removed it at the higher rate. The relief, therefore, is not only unjust but it does not work. Conservative Members should be honest. They are not concerned about the minutiae of the amendment.

Damian Green (Conservative, Ashford)

The hon. Lady persists in mentioning that William Waldegrave was Chief Secretary to the Treasury in 1991. He was not Chief Secretary in 1991. That throws some doubt on her argument, which she is basing on something that is not true.

Jacqui Smith (Labour, Redditch)

If he was not Chief Secretary, I apologise. Nevertheless, the Conservative Government's reduction at the top rate gives credence to the belief that they did not think that the relief was working. The basic point is that the group of amendments are not about the minutiae that the hon. Member for Daventry—but no other Conservative Members— mentioned. To be fair, in Committee Conservative Members often raised very boring, but legitimate, points on the minutiae of the Bill.

Shaun Woodward (Conservative, Witney)

I am struck by the hon. Lady's comments. I should like to ask her to clarify one matter for Conservative Members. Is she saying that she is against private medicine in principle—yes or no?

Jacqui Smith (Labour, Redditch)

At no point have I said that I am against private medicine. I said—I will repeat it for the hon. Gentleman, almost word for word—that if people choose to go into the private market to buy private medical insurance for themselves, that would be fine by me, but I do not believe that it is right—

Shaun Woodward (Conservative, Witney)

Will the hon. Lady give way?

Jacqui Smith (Labour, Redditch)

No. It is not right that the vast majority of taxpayers should fund the private decisions of a few people to buy private medical insurance, because the money could be used in better ways. The money saved could be used in a progressive, not regressive, manner by funding the reduction in VAT on fuel—which, as my hon. Friend the Member for Dudley, North (Mr. Cranston) pointed out, the hon. Member for Guildford said is not regressive. As we said on Second Reading, we have a clear choice: we can allow the many to subsidise the few in their private decision on private medical insurance, or we can use that money to reduce VAT bills for the many. The Government have made the choice, and Opposition Members will not get very far by haggling over the minutiae of the Bill as a cover for disagreeing with its principle.

Geoffrey Clifton-Brown (Conservative, Cotswold)

I am delighted to follow the hon. Member for Redditch (Jacqui Smith) who made a speech from good old Labour, which opposes choice in the health service or any of our other great public services. Old Labour would really like to abolish all private medical facilities. I would chastise my hon. Friend the Member for Guildford (Mr. St. Aubyn) as his amendment does not go nearly far enough. I would have tabled an amendment to extend tax relief for at least another 10 years—then we would have been getting somewhere. The acid test is whether the clause benefits the national health service. Patently, the national health service will suffer as a result of its implementation. I wonder whether Labour Members remember that one of the pledges on which they fought the general election was that to reduce NHS waiting lists by 100,000 people. Does the clause do anything to meet that pledge? No; it almost certainly makes it much more difficult to achieve.

Andrew Bennett (Labour, Denton and Reddish)

Will the hon. Gentleman give us an assurance that, this time, he will stay to listen to the answers to his questions? Some of us were a bit shocked that in an earlier debate he made a strong point but did not bother to remain in the Chamber to hear the answer.

Geoffrey Clifton-Brown (Conservative, Cotswold)

That is a petty point from the hon. Gentleman, who has attended hardly any of the Budget debates. He pops in to make silly interventions and then pops out again. That cannot be a sensible way to proceed.

Shaun Woodward (Conservative, Witney)

Had my hon. Friend remained in the Chamber, he would have discovered that a number of questions that had been put to the Financial Secretary, not least about whether the Government intend to scrap MIRAS next May—although that is now absolutely clear—were not answered. Had my hon. Friend been able to stay in the Chamber, he would have had rather an unsatisfactory time.

Geoffrey Clifton-Brown (Conservative, Cotswold)

I thank my hon. Friend for enlightening me. Perhaps that was a good reason not to remain in the Chamber—I did not expect to get any answers—but I should be most grateful if the Financial Secretary would give me one positive answer this evening. We know how much money the measure will raise, as the figure is in the Red Book. I should like to know what the net costs to the health service will be. We know that 13p in every pound paid out by PPP goes to the national health service. That amounts to about £220,000 a day or some £55 million a year. According to my local NHS trust, when private patients are treated in the national health service the marginal cost to the trust is about 20 per cent. That means that PPP alone is giving the national health service a profit of £11 million a year. Taking into account BUPA and all the other private health care providers, I suspect that the figure will equal, if not exceed, the £135 million that the measure will raise. What on earth is the point of introducing a Budget measure that will cost the country and the national health service money? It is political dogma and hypocrisy at its absolute worst. It is absolute nonsense. We have already heard from my hon. Friend the Member for East Worthing and Shoreham (Mr. Loughton) that 80 per cent. of medical insurance premiums are paid out in treatment costs. The private sector now treats 28 per cent. of all hip operations, 20 per cent. of all heart conditions and 20 per cent. of all acute conditions. It also treats a huge and increasing range of other ailments and conditions. As people are living longer and are more affluent, perhaps we should give them a little more encouragement to use the private sector. The people who will be affected by the changes are those at the margins; it will not be right hon. and hon. Members who will retire on a parliamentary pension, but those who, throughout their lives, have saved a little bit of occupational or personal pension who will either trade down their policies and buy less expensive and less extensive cover so that when something serious goes wrong such as a heart condition they will be forced back to the national health service, or cease taking out a policy. That is much more serious for the country as, come what may, those people will be forced back to the national health service. When people are living longer and the previous Government introduced measures to encourage people to take out private pensions, it seems perverse to proceed with this policy. There will be another serious effect on all private medical policies. As the numbers involved drop, the administration costs for those who are left will rise. When premiums rise because of the withdrawal of tax relief and the increased administrative costs, even more people will drop out of the private sector and the national health service will be further disadvantaged. I urge the Government to think carefully about the policy. It will hit a number of people at the margin, as has the reduction in MIRAS and the measures that affect savings accounts. All those measures will affect the middle classes—precisely the people who elected Labour to office. If the Government have any listening ear—which I doubt—I urge them to consider the measure very carefully.

Geraint Davies (Labour, Croydon Central)

We have heard a lot of hot air about the aims and objectives of the amendments in terms of clarity, fairness and helping the national health service. In my view, they represent a cynical attempt to frustrate the Government's efforts to bring about a fairer and more equitable system through the Budget measures relating to the health service and VAT on fuel. The facts are clear and simple. We are all aware of the distorted industry views that the Opposition have obtained from various lobbyists with vested interests. The Inland Revenue has published figures that the Opposition have failed to read or to recognise. Between 1990 and 1997, the number of private medical contracts increased from 350,000 to 375,000—an increase of less than 10 per cent.—and the number of people involved rose from 500,000 to 550,000. At the time, the Opposition, then in government, were doing everything they could to make the distribution of power and wealth less equitable, so it is surprising that the number of people using the private sector increased by only 10 per cent. It is clear from the statistics that the demand for private medicine is not elastic at the margins and that the saving that the Government make as a result of the Budget measures will not result in a mass exodus from the private sector. That is rubbish.

Nick Gibb (Conservative, Bognor Regis and Littlehampton)

If the hon. Gentleman insists on quoting those figures, should he not also quote the overall figures for people of all ages who had private health insurance in the period he mentioned? I suspect that those figures would show a fall in the overall number taking out health insurance, demonstrating that the relief has encouraged those over 60 to take out private health insurance.

Geraint Davies (Labour, Croydon Central)

I think that the overall figure has grown. The relief pays public money to people to do something that they would do anyway. They are quite capable of paying for the services and will continue to do so. It is a regressive relief, in sharp contrast to our stance on VAT on fuel. The reduction in VAT on fuel will help health, because fewer old people will die of hypothermia and cold-related diseases. That is a good investment in public health. I suspect that the Opposition really want a two-tier NHS in which some people are drained out to the private sector by bribing them with public money. That would undermine the universal stakeholding of the NHS and result in the atomised society that Lady Thatcher often spoke about. It would create an American-style system that costs more overall and leaves a large section of society with no health cover. That is their real agenda, but the British people saw through it. That is why we have a Labour Government and why we shall make these changes.

Shaun Woodward (Conservative, Witney)

We have heard much from the hon. Members for Redditch (Jacqui Smith) and for Croydon, Central (Mr. Davies) about principles. Principles matter a great deal. The hon. Member for Croydon, Central has made much of the importance of vested interests. He referred to the possible vested interests of my hon. Friends. I do not know what their vested interests may be, but my view is straightforward. When debating a health policy, we should always ask whether it will help the patient. We are all aware that the national health service will consume as much money as can be put its way. There is nothing wrong with that. When resources allow, we should make more money available to the NHS to make more patients better. I am sure that nobody disagrees with that. Labour Members have not addressed whether the clause will help patients. The NHS still has lengthy waiting lists. We hope to reduce waiting times, but the reality is that waiting lists exist. I do not approach these issues ideologically. In all cases, I apply the acid test. Will the clause help more patients to be treated more effectively and more quickly? The clause is the application of old-fashioned Labour ideology. We heard from the hon. Member for Redditch a gross dislike of the principle of private medicine. She suggested that the measure was a way of clearing up tax distortions to create a fairer medical system. Is it fair if the measure leads to an individual having to wait even an hour longer? Labour Members pooh-poohed private medical companies' suggestions that the measure will lead to people withdrawing from private medical insurance policies. It almost certainly will. Labour Members have made much of the suggestion that the changes in relief led to an increase of only 10 per cent. in take-up. Even if we apply the same standard and assume a decline of only 10 per cent. in the number taking up private medical policies, the money will still have to be found to fund those people. Where will the money come from? We all accept that NHS waiting lists are too long. In their manifesto and in election speeches throughout the country, Labour Members made much of the importance of reducing waiting lists yet, as sure as the sun will rise tomorrow morning, their policy will mean that waiting lists have to increase. They will increase because some people will decide that this measure is the straw that breaks the camel's back—the moment when, due to the loss of relief, they can no longer afford to continue the policy.

Liz Blackman (Labour, Erewash)

Several of my hon. Friends have made the point that the amendments are merely a smokescreen—and not a very good one—to hide Opposition Members' total opposition to the Government's policy. The hon. Gentleman is merely illustrating that point. I do not think that he has once touched on the amendments.

Shaun Woodward (Conservative, Witney)

The hon. Lady—if she would be kind enough to listen to the answer that she sought—is much concerned suddenly with not discussing the principle. She has suddenly been faced with the reality. She must realise that the statement is effectively, "No, we shall not in any way encourage private medicine." In the name of distortion removing, it is possible to remove tax relief from those who would seek to spend their money—and exercise their choice and freedom—on enhancing their medical coverage. Elsewhere in the Budget, however, the Government will provide as many tax reliefs as they like, such as in the film business. There is an obvious contradiction in the Government's policy. When it comes to pleasing their own particular sector, they are more than happy to provide any tax relief that is requested, but when it comes to looking after patients, due to their ideological principles, bang: down comes the scythe and they will not help people who wish to help themselves. The kernel is that the Labour party still believes in good old-fashioned Labour envy. It wants to remove the opportunities of those who have saved and remove the opportunities that come from freedom and choice. We see that in the way the Government will sponsor tax relief on films but remove it from those who wish to make proper provision for themselves in their old age.

Desmond Swayne (Conservative, New Forest West)

May I point out to Labour Members that it is precisely because we are so wholly opposed to the principle of the measure that we are attempting to secure, on the basis of the amendments, some narrow relief for the categories that have been described? I draw to the House's attention the extraordinary topsy-turvy world in which Labour Members appear to live. It has been suggested by a number of them that those who benefit from the relief are somehow getting something unfairly in comparison with other taxpayers. The word "subsidised" was used. The reality is the opposite. It is very simple, but I shall explain it for the benefit of Labour Members. Someone who is over 60 years old and therefore benefiting from this relief would, having paid their taxes throughout their life, be entitled to NHS health care. Indeed, even if they had not paid those taxes they would still be entitled to NHS health care. Should they find that they need, for example, a hip replacement operation, they would be entitled to apply to the NHS for the operation. However, this person applies instead to their insurance company and has a private health care operation. The Exchequer and the NHS therefore benefit from the fact that, although a person was entitled to make a claim and therefore incur a charge against the NHS, they have not done so, preferring to take advantage of payments that they have made throughout their life—certainly in the latter part of their life. Far from being smitten by a bill, the taxpayer has enjoyed a relief. In fact, with tax relief at 20 per cent., the general taxpayer has had something of a bargain.

Dawn Primarolo (Labour, Bristol South)

Follow that! I decided, before today's debate, to consult the book written by Nigel Lawson, now Lord Lawson, called "The View from No. 11", because I thought that he might have something to say about the introduction of relief for private medical insurance. He does, and very interesting reading it makes. On pages 616 to 617, he describes his opposition to the implementation of private medical insurance relief for the over-60s. He says that he was forced to introduce it by the then Prime Minister and that I duly introduced it, trying to conceal my embarrassment, in my 1989 Budget. Clearly, that embarrassment continues this evening as Conservative Members seek to defend a relief which, even when it was introduced, their own party seriously questioned—Conservatives questioned whether it was right to give a subsidy to people who had already decided to take out private medical insurance.

Geoffrey Clifton-Brown (Conservative, Cotswold)

rose—

Dawn Primarolo (Labour, Bristol South)

Perhaps the hon. Gentleman can tell me why taxpayers' money should be used to subsidise activities in which individuals had already decided to engage.

Geoffrey Clifton-Brown (Conservative, Cotswold)

As the Financial Secretary has read the excellent book by Lord Lawson so carefully, can she tell the House of any other lessons that she has learnt from it, which she intends to implement in future Budgets?

Dawn Primarolo (Labour, Bristol South)

None of that relates to this clause. To put the record straight, when the relief was introduced in 1990 by the Conservative Government, there were 350,000 contracts for private medical insurance in this category, covering some 500,000 people. There are now only 375,000 contracts, covering at most 550,000 people, and that clearly shows that the relief has subsidised action that people had already decided to take. Clause 17 has nothing to do with choice or forcing people to use the national health service. It is a question of how taxpayers' money is used to benefit the majority, not a tiny minority. This Government have already given £1.2 billion extra to the national health service, so we will take no lessons from Opposition Members about investment in it. The hon. Member for Guildford (Mr. St. Aubyn) first raised the question of contracts during our debate in the Committee of the whole House. I am not a lawyer, but I understand that a contract arises when an offer is made and accepted. Had the notes on clauses meant written contracts only, they would have said so. I did not seek to mislead the hon. Gentleman about verbal contracts. He raised the fear that companies that operate through telephone sales will lose out. I think—I shall say this very delicately, in case I affront the hon. Gentleman—that that fear springs from a fundamental misunderstanding of the terms of clause 17. The clause is silent on verbal contracts. If an eligible medical insurance contract has been entered into before 2 July, it will attract relief until it expires. That is verbal and written. I had no intention of misleading the hon. Gentleman; I simply assumed that he interpreted "contracts" in the same way as I do. This is not a matter for the Inland Revenue, but a matter of contract law. I cannot debate the niceties of contract law with the hon. Gentleman, because, as I said, I am not a lawyer, but that is the advice that I was given by the Revenue, and that was my understanding when I gave the hon. Gentleman the answer that I gave him in the previous debate.

Tim Boswell (Conservative, Daventry)

rose—

Dawn Primarolo (Labour, Bristol South)

Does the hon. Gentleman wish to intervene?

Tim Boswell (Conservative, Daventry)

I was only going to say, "So far, so good."

Dawn Primarolo (Labour, Bristol South)

That is a relief, although not one that costs a great deal of money. 9.15 pm The next issue that was raised related to contracts made before 2 July, but commencing after that date. An insurance contract can be written so that the period covered does not commence on the date on which the contract is legally entered into, but commences at some date in the future. Opposition Members referred to that. Clause 17 would not stop such contracts attracting tax relief, unless an insurance company tried to be too clever by half and entered into a contract before that date. The contract would then cover a period longer than a year, but it would not qualify for relief.

Nick St Aubyn (Conservative, Guildford)

The Financial Secretary is being very helpful. Will she make it absolutely clear, however, that if a contract renewal was agreed before that cut-off date of 2 July, but the natural period for renewal was a 12-month period beginning shortly after 2 July, the renewal would nevertheless attract relief for the full period?

Dawn Primarolo (Labour, Bristol South)

No, it would not attract relief for the whole period, because it would now be for a longer period than the 12 months. There would have been a false start, in that there would have been an attempt to sign a contract before 2 July, when the starting period was well after that date.

Nick St Aubyn (Conservative, Guildford)

I beg to differ in regard to the interpretation that can be put on the hon. Lady's letter to me. In the normal course of business, some insurance companies—including one in my constituency, which told me about this—send out renewal contracts before the renewal date, and receive confirmation of renewal before that date. Those companies will, therefore, have received confirmation of renewal before 2 July, for a regular 12-month period that starts shortly after 2 July. I should have thought that, given that a genuine contract had been made for a regular 12-month period, it would be reasonable to expect such a contract to be given the normal relief.

Dawn Primarolo (Labour, Bristol South)

No, because the contract period starts after that date. The relief—and, following that, the transition—relates to contracts made before 2 July. May I now deal with what the hon. Gentleman said about monthly contracts?

Nick St Aubyn (Conservative, Guildford)

rose—

Dawn Primarolo (Labour, Bristol South)

May I just make this point? The hon. Gentleman asked when a contract was a monthly contract and when it was not, and how the Inland Revenue interpreted the position. The Revenue has had discussions with a number of insurance companies, and with the Association of British Insurers. They have made it clear that they consider the overwhelming majority of these so-called monthly contracts to be annual and, therefore, caught within the relief as it is proposed. It is possible, however, that there are 3,000 or 4,000 truly monthly contracts. The relief applies only for the period of the contract—the month—because that is the trigger. The point that the hon. Member for Guildford raised in connection with the company in his constituency is now well understood. This is not a concession from the Inland Revenue. It is how normal business is done with regard to those contracts. That information about the present situation has been made clear to the ABI and a number of other organisations.

Nick St Aubyn (Conservative, Guildford)

The hon. Lady said in her letter to me: the relief is withdrawn … in respect of all contracts made on or after Budget day. Contracts made before then are not affected. It seems from that statement and from my careful reading of it in conjunction with the Bill that, if a contract is genuinely entered into before 2 July, but the start date—for normal commercial reasons—is slightly after, it will be recognised. After all, it was made before the critical date of the Budget, without any cognisance of what the Budget might contain. It would seem unfair for people who have committed themselves to making payments with the benefit of the tax relief to find on Budget day that the contract was suddenly superseded. In the debate on 16 July, the hon. Lady may recall that I made an analogy with contracts for the exchange of property, in which case if the contract is exchanged before Budget day but completion happens afterwards, the old rate of duty applies. That is accepted on all sides. This is an analogous case. Perhaps the hon. Lady would like to answer that point.

Dawn Primarolo (Labour, Bristol South)

The renewal itself does not necessarily make a contract. This a grey area. If the policyholder agrees, that is okay, but it is not the normal course of events. A renewal is sent out and then the person concerned agrees it. That is not covered, and I think that that is the point the hon. Gentleman is making.

Tim Boswell (Conservative, Daventry)

I am grateful to the hon. Lady and I realise that she is doing her best and attending to these matters in detail. May I check on that last point? If she is saying that the renewal is not by itself a contract because the contract does not come into force until after the operative date, can the policyholder—the person who has taken out the new policy or the renewal—rescind that policy, given the change in circumstances? This is a critical issue. If people are trapped in contracts on one assumption and cannot fulfil them because of a change in the tax relief, it is particularly inequitable.

Dawn Primarolo (Labour, Bristol South)

That is the concept of a binding contract—an offer made and an acceptance. If a contract is made before, even if it starts after, 2 July, that is covered by clause 17. I was genuinely trying to explain that that is not an absolute, blanket rule. If the period of one year, which is the maximum for which relief is provided under the clause, is exceeded, all cases will not be covered. It is a combination—the contract and the 12-month period. I genuinely believe that the Government have been extremely generous in providing for transitional relief and the fair phasing out of the relief for those people, the overwhelming majority of whom have, until now, been receiving a relief—a subsidy—for action that they would otherwise still have taken. All the forecasts and the predictions about the likely impact—how many people will give up their insurance—are exactly that: predictions from the very industry that is seeking the preserve the relief, or subsidy, to the few. The Armageddon painted by Conservative Members simply does not bear scrutiny. The hon. Member for St. Albans—

Nick St Aubyn (Conservative, Guildford)

Guildford.

Dawn Primarolo (Labour, Bristol South)

I beg the hon. Gentleman's pardon—it has been a long day. The hon. Member for Guildford made his opening remarks on the basis, first, that I misled the House about contracts, and I have demonstrated to him that I did not; and secondly, that I said about the impact of the removal that there was no indication at the present time that people would cancel their insurance, and I stand by that claim. Already insurance companies are doing their best to ensure that they keep the business that they had before the relief and during the relief, and I have no doubt that they will maintain it after the relief is removed. The measure is fair, removing a privileged position from the few and ensuring that the resources are spent for the benefit of the many. I sincerely hope that the House will accept—

Tim Loughton (Conservative, East Worthing and Shoreham)

Will the Financial Secretary give way?

Dawn Primarolo (Labour, Bristol South)

I have already taken lots of interventions. I sincerely hope that the House will now accept that the proposals in the clause are fair, equitable and just to those who currently have a benefit that they should not have; and that they will enable those people to adjust to changes made to ensure that resources can be used instead for the benefit of the many and of the national health service.

Nick St Aubyn (Conservative, Guildford)

I am grateful to you, Mr. Deputy Speaker, for having allowed, in the debate on amendment No. 1, a much wider debate on clause 17. As a result of that wider debate, it must have been realised by hon. Members on both sides of the House that there is a real difference of opinion about the effect of the clause, not only on those who take out health insurance, but on the availability of the health service to all members of our society. The numbers involved have been a matter of dispute. Indeed, the hon. Member for Dudley, North (Mr. Cranston) questioned my competence when I was merely quoting an authoritative study from the Economists Advisory Group. The study clearly showed that where a tax relief is costed by the Revenue at £120 million rising to £140 million over the next few years, the amount of tax relief is 23p in the pound and the typical insurance cost is less than £700, it is easy to see how nearly 1 million people will be affected, either directly or indirectly, by the abolition of the relief. Those are the advisory group's figures, not mine; I know that other industry estimates quote smaller numbers.

Ross Cranston (Labour, Dudley North)

Will the hon. Gentleman give way?

Nick St Aubyn (Conservative, Guildford)

No—there is so little time. There is a wide range of estimates, but they all come up with big figures for those affected—upwards of half a million people and perhaps as many as 1 million. We can also be quite sure that there will therefore be a knock-on cost, which will be measured in tens of thousands, if not more, as a result of the withdrawal of the relief.

Nick Gibb (Conservative, Bognor Regis and Littlehampton)

Will my hon. Friend give way?

Nick St Aubyn (Conservative, Guildford)

Yes, I will give way to my hon. Friend.

Nick Gibb (Conservative, Bognor Regis and Littlehampton)

I just want to make an important point about the figures that the Inland Revenue has supplied to the Financial Secretary. Given that this is a relief applied at source, is it not the case that there tend to be inaccuracies in the Inland Revenue figures, because there is no necessity for such figures to be reported to it? The figures relating to MIRAS from the Inland Revenue are similarly inaccurate.

Nick St Aubyn (Conservative, Guildford)

That point is well made. The figures involved are speculative. The most speculative part of the project is the theory that there will be no cancellations of policies and no oncost to the health service.

Geraint Davies (Labour, Croydon Central)

rose—

Nick St Aubyn (Conservative, Guildford)

I will deal with the points made by the hon. Member for Croydon, Central (Mr. Davies) later. The hon. Member for Dudley, North has said that this is a matter of general law, which need not trouble the House. The whole point of our argument has been summed up in the words of the Financial Secretary, who said that there are grey areas in the law. That is why we sought clarification. When we found that there was no such clarification in the clause or in the explanatory notes from the Inland Revenue, we felt let down, at the very least. 9.30 pm The hon. Member for Redditch (Jacqui Smith) said that we regard the effect of the clause and the lifting of VAT on fuel as regressive, while she tried to argue that it was progressive. They say progressive, we say regressive, let's call the whole thing off. If they will not call the whole thing off, they should at least implement it fairly and squarely. In that respect, I thank the Financial Secretary for offering clarification on the matters about which we have diligently sought it. We have done so, not because we feel that we should instantly understand such matters—and if we do not, no one else will—but because major companies in the industry, including one that happens to be in my constituency, were genuinely concerned. They felt, according to the hon. Lady's words, that there were genuinely grey areas in the law. They were concerned that they could promote health insurance policies to their customers with the benefit of tax relief, only for those customers to find later in the year, when their tax inspector looked at their returns, that that relief was to be disallowed. What the Financial Secretary has said has clarified the issue greatly, but I am still concerned about her approach to monthly contracts. The information from the insurance provider in my constituency reveals that if the rules on monthly contracts are not interpreted in the most favourable way, upwards of 20,000-odd contracts which it has outstanding will be immediately affected. I note that the Financial Secretary shakes her head. I listened carefully to what she said about monthly contracts; she has assured us that no more than a few thousand at the very most might be inadvertently affected by the way in which the relief is phased out. The hon. Lady quoted Lord Lawson. It is always a pleasure to hear Labour Members quoting eminent Conservatives, but it is always disappointing that they are so selective in their quotations. I remember from the same book that one of its clarion calls was for clarity in tax legislation. That is what is lacking from clause 17. I fear that the hon. Lady has not read the entire book, but she appears to have gained the spirit from Lord Lawson that such clarity is needed in the clause. As a result of the process, we are grateful for achieving a measure of clarity. On that basis, I do not believe that it is necessary to put the amendment to a formal vote.

STAMP DUTY ON CONVEYANCE OR TRANSFER ON SALE

Tim Boswell (Conservative, Daventry)

I beg to move amendment No. 7, in page 47, line 32, after first 'of' insert '£1 for every £100 or part of £100 of the consideration up to £250,000, and at the rate of'.

Betty Boothroyd (Speaker, West Bromwich West)

With this, it will be convenient to discuss the following amendments: No. 8, line 33, after 'consideration;', insert 'in excess of £250,000'.

Tim Boswell (Conservative, Daventry)

We come now to stamp duty. For a Tory, there is a certain nostalgic affection for a tax introduced 303 years ago, which has been doing its business for the nation ever since with comparatively little fuss and very little scrutiny in this place. There is a certain nostalgia about a tax whose head legislation is the Stamp Duty Act 1891, updated, of course, by electronic systems for data, especially in relation to securities, and the stamp duty reserve tax—also, I believe, introduced by Lord Lawson—which will raise, according to Government proposals, more than £3 billion in the current year, and which, significantly, was last increased in 1974. I wonder which party was in power when stamp duty was last increased. By way of introduction, I have a short piece of advice for the Financial Secretary. When the Bill is out of the way, perhaps she will spare a little time to go down to Bush house and see the Stamp Office in operation. I had occasion to do so, on re-registering some of my children's securities. There are not many of those securities, but when the children reached the age of 18 the securities needed to be upgraded by a 50p stamp to put them in their own name. It was money well spent to see the people marking and stamping those documents. I am not sure that it raised much revenue, but it certainly is an interesting place to visit. I now come to the substance of our amendments, and of the important changes—so far undiscussed because of the guillotine—that the Government propose. Before the Budget, my attention was drawn to a positive flurry of three economic reports, which were submitted to the Chancellor and may have modestly influenced his thinking for the better. There were Miller and Scott on residential property, Barber and White on commercial property, and the Centre for Economics and Business Research on the overall economic impact. Collectively, they may have stopped in their tracks the slightly sillier ideas that the Government had to increase stamp duty to 6 or 7 per cent. If they did so, I am very pleased. A strange set of proposals for stamp duty has emerged, however. First, there is very little impact indeed on the residential property market. It seems likely that this proposal will affect 30,000 residential properties in a full year—between 1 and 1.5 per cent. of the residential property market, amounting to a full year yield of about £130 million. Arguably, therefore, the average cost per dwelling of those affected is about £4,000, which is a small impact on a small proportion of residential properties, by definition exceeding £250,000 in value. Interestingly, today's press reports make it clear that among those who pay the tax will be the Prime Minister, who has recently disposed of his property for rather more than £600,000, and will therefore pay £6,000 extra—but he need not worry too much because he has trousered a capital gain in excess of £200,000 on it anyway, and there is no windfall tax on those capital gains. At any rate, the Government cannot seriously argue that this set of proposals has a significant impact on the prices of residential property. If there were a boom, if there were over-heating—the evidence for that remains questionable—it would still represent a peashooter approach to tackling it. On the other hand, the true effect is felt in the commercial property sector. Interestingly, according to the Government's figures, three quarters of the revenue of stamp duty in the property sector is raised on residential property, but three quarters of the increase will affect the commercial property sector—one quarter of the market. Some 20,000 such properties will be affected annually. This is, therefore, yet another hit on business, and it is entirely consistent with the approach adopted by the Government elsewhere in the Budget. It is the sort of measure which gives rise to the International Monetary Fund saying, in a report which Labour Members have cited as positive for them, that something will have to be done about consumer spending elsewhere because the Government have not had the courage to tackle it now. That is a judgment which the Government need to take. Estimates in the surveys to which I referred are that, as pension funds and insurance companies own some £60 billion of commercial property in this country, stamp duty is likely to affect the valuation of their funds by an estimated £300 million alone on pension funds and a larger sum on insurance funds. It would therefore chime in nicely with the changes in advance corporation tax, which have seriously damaged those interests in the Budget. It is yet another indirect hit on the citizen through the medium of business. For that reason, if for no other, we criticise it severely and will oppose it tonight. My next point may be smaller, but is, none the less, significant. In their anxiety to shield the residential property sector, the Government have put a burden not merely on the commercial sector and real property but on other kinds of property transfer by document. For example, the Institute of Directors pointed out that stamp duty covers transfers of good will, intellectual property, of which I have some knowledge, and so forth. At any rate, the Financial Secretary may care to offer a figure for the breakdown of the impact between commercial property and the other kinds of property swept up by the clause. Our main concern and the substance of the amendments is the structure of the duty. It is interesting that the bulk of stamp duty is still raised from marketable securities, which attract—in current circumstances it is reasonable that they should continue to attract—a separate 0.5 per cent. rate of duty. Indeed, if the rate were to rise any higher, it would severely damage London's competitiveness as a financial centre. May I return to real property, which is the subject of the amendments? We now have an extraordinary situation. Under the old arrangements applicable until the Budget, there was a zero rate for properties under £60,000 and one positive rate of 1 per cent. thereafter. We now have an unchanged zero rate, but three positive rates: 1 per cent. for properties up to £250,000; 1.5 per cent. for properties worth between £250,000 and £500,000; and 2 per cent. for properties worth more than that, which applied to the Prime Minister. I admit that ever since the 1960s when I first became involved in taxation policy, I have always disliked the way in which the stamp duty system operates. It operates on a "slab" rather than a "slice" system. Tax is charged up to a certain threshold, and the rate is then increased for the whole of the charge thereafter—not for the first tranche with a different rate for the next tranche, but right through on the whole amount. That gives rise to some unsatisfactory effects. It may be another byproduct of the Government's haste in introducing their legislation this summer that they have been unable to redesign the system and come up with a smoother progression. My objections to the slab system are that, given that the rates are very small—1 to 2 per cent.—there is little progressivity within the slabs. Whatever the figures are between £60,000 and £250,000, whether the house is comparatively small or large, the charge is the same. 9.45 pm Given a low rate of, say, 1.5 per cent., the change in value between—I choose two arbitrary figures—a house of £275,000 and one of £276,000 would be £15 extra tax. That is hardly a material difference. The case is, however, entirely different at the margin, which is the substance of the amendments. If one moves across the margin into a new tax rate, it triggers the higher rate throughout the whole cost. The Institute of Directors, for example, pointed out that a move in value from £250,000 to £251,000 would move up the duty from £2,500 to £3,765. That is an extra tax not of £15 on exactly the same step as in the example that I quoted for a property of higher value, but of £1,265 on an increase in value of £1,000. That is a marginal rate of 126.5 per cent., by my calculation. If the property were on offer and the contract was made at £250,001, almost exactly the same tax hike would take effect, but the marginal rate would reach the stratosphere. In practice, of course—this is a bad sign for tax propriety—vendors, purchasers and their professional advisers will move heaven and earth at the marginal points to try to prevent the situation arising. All manner of deals will be done with the furniture or excluding the light bulbs to bring the value below the magic threshold. That is a bad way of conducting taxation. The Institute of Directors proposes a slice system. Although it is silent on the first £60,000, which is of course tax free at present, the taxable rate, as I understand the proposal, would be 1 per cent. on the first £250,000 of value, 1.5 per cent. on the next £250,000 of value, and 2 per cent. thereafter. Without access to the full Revenue figures, it is complex to work out the likely implications of trying to balance the revenue. I strongly suspect, particularly given the facts that I have mentioned, that we would be able to secure the same revenue with only small adjustments in the bands, and that the system would be a great deal fairer. The amendments show an unfairness in the structure of the stamp duty that the Government have introduced. We do not like the changes because they are skewed towards the commercial sector, as the Government have run away from taxing the personal sector. We would prefer the Financial Secretary to withdraw the proposals tonight. We will put that to a vote. In any case, if, given the exigencies of time, the Financial Secretary does not feel that she can adequately reply to the debate tonight, I hope that she and her advisers will go away and think about a better structure to operate in the future. There was no problem with the previous rates, but the changes that the Government have made by evolution from the traditional structure have created gross unfairness and will do significant damage.

Nick Gibb (Conservative, Bognor Regis and Littlehampton)

We have already seen an example tonight of old Labour emerging from behind the mask of new Labour, with its antipathy to medical insurance. With the doubling of the rate of stamp duty, we hark back to the era of the last Labour Government. The first Budget of that Government, on 26 March 1974, did precisely the same as the present Budget in doubling the rate of stamp duty from 1 to 2 per cent. Fortunately, in a subsequent Conservative Budget in March 1984, the rate of stamp duty was reduced again to 1 per cent. It has always been my view that stamp duty should be repealed. In today's society, there is no longer a role for stamp duty. It was my hope that the previous Government had as a long-term aim the ultimate abolition of this anachronistic tax. Labour Members may recall that in the 1990 Budget, the Chancellor began the process of abolishing stamp duty on share transactions, a move which was linked to the implementation of the TAURUS computer system in the London stock exchange. Alas, with the demise of that system, so went the abolition of stamp duty on share prices. I am, however, still hopeful that a future Conservative Government will get round to abolishing stamp duty on shares and on property transactions. This Government are moving in the opposite direction. They have begun their period in office by doubling the rate of stamp duty which will raise £240 million in 1997–98 and £490 million in 1998–99. It is another example of this Government scrabbling for every penny, oblivious of the damage to the wider economy that such measures cause. They are oblivious to the 0.06 per cent. fall in GDP as a result of this one measure and they are oblivious to the thousands of job losses it will cause, particularly in the construction industry. Those are facts, according to the Centre for Economic and Business Research which has shown that there will be a fall of 0.75 per cent. in private housing sector output as a result of this measure. The Government appear to be oblivious to all the indirect and unforeseen consequences of this one Budget measure, which is being implemented simply to scrabble extra millions for their long-term spending plans. As my hon. Friend the Member for Daventry (Mr. Boswell) said, stamp duty applies to business properties as well as to residential properties. It applies, for example, to the transfer of good will and to businesses whose sale or disposal requires transfer by document. Those documents have to be stamped with a rate of 1 per cent. and, now, some will be stamped with a rate of 2 per cent. This measure will hit the commercial sector disproportionately harder than the residential sector, yet we were told that it was introduced to help to dampen down the residential property market. Three quarters of all stamp duty is paid by the residential sector, but three quarters of the stamp duty increase will fall on the commercial side. The measure will distort business. Throughout much of the Budget, proposals are implemented for one purpose, but the results are completely the opposite. Although the Budget is meant generally to take the heat out of the domestic housing market, the abolition of tax credits on dividends receivable by pension funds, for example, will shift billions of pounds of investment from UK equities into the commercial and residential property sectors, thereby fuelling price increases. It will, therefore, have precisely the opposite effect from that intended. The increase in stamp duty is an attack on home ownership and it joins the other attacks on home ownership in the Budget. We have had the phasing down of MIRAS, we have had three interest rate rises in as many months, and now we have the increase in stamp duty. It is yet another of the many examples of distorting measures in the Budget. Clause 8, for example, will end the freezing of duty on beer. That will distort the market in beer and will lead to higher levels of smuggling. Clause 19 introduces a distorting measure with the abolition of ACT credits which will mean massive changes to the investment policies of pension funds and other institutions in the City. We have seen the distorting effects of clause 20; the abolition of section 242 relief will have an effect on open-ended investment companies. We have also seen the distorting effect of clause 30 with the abolition of tax credits for non-tax-paying individuals, whereas we are keeping tax credits for higher-rate and basic-rate taxpayers. There are also distorting effects in clause 42, with the implementation of temporary first-year allowances for only small and medium-sized enterprises. The amendment is designed to end the slab scale of the previous stamp duty regime. The intention behind it is the introduction of a rising scale of stamp duty measures so that we do not have yet another distorting measure. For example, if someone happens to be selling a house at a price that approaches one of the arbitrary sums imposed by the Government—£60,000, £250,000 or £500,000—there is an enormous difference when it comes to consideration of whether the contract should be one of those sums. Sellers and buyers will go to enormous lengths to recategorise the assets that are being sold, such as fixtures and fittings or, as my hon. Friend the Member for Daventry said, light bulbs or light switches. The Government's proposal will have an enormous distorting effect in the marketplace. The amendment will do much to reduce or eliminate one of the many distorting effects introduced by the Government in the Budget. I hope that it will be agreed to.

Alistair Darling (Labour, Edinburgh Central)

The hon. Member for Bognor Regis and Littlehampton (Mr. Gibb) having been signalled to resume his place by his colleagues, I shall make a few comments before we conclude this evening's proceedings. The hon. Member for Daventry (Mr. Boswell) made four points, one of which had some substance. I shall return to it briefly. First, he invited my hon. Friend the Financial Secretary to visit Bush house to watch the stamping process. As a legal apprentice, I watched documents being stamped on many occasions, and fascinating is not a word which I would use to describe the process. I would say, however, that the opportunity to get out of the office, especially on a nice, hot summer's day, was something which I and all my fellow apprentices used to welcome. Secondly, the hon. Member for Daventry said that we might have had more time to discuss these matters had it not been for the guillotine. I shall not pretend to be the best attender of debates in Standing Committee, because my other duties kept me elsewhere, but I have read the reports of the proceedings. If Conservative Members had not spent so much time discussing their Welsh mothers, tours of south America and various other discursions on Americanisms and other matters, there might have been more time to spend on the Bill. I have come to the conclusion, as have many of my right hon. and hon. Friends, that Conservative Members seemed determined never to finish consideration of the Bill because they wanted to claim that the guillotine was operating against them. It is said that there is no overheating in the economy, especially in the housing market. I suppose that that will always be a matter of judgment. Suffice it to say that we reached the judgment that action was necessary to encourage stability in the housing market. I think that we would have the support of many members of the public, bearing in mind the heavy price that the paid for the unsustainable housing boom that wa caused by the Conservative party's policies in the 1980s. We can agree to disagree, but we believed that action was necessary. Our proposal will raise valuable revenue. We do not shrink from the fact that that revenue is needed to finance the debt reduction programme that is necessary because of the large level of debt that we inherited from the outgoing Conservative Government.

Shaun Woodward (Conservative, Witney)

Will the Minister give way?

The rest of the debate is in Hansard.