Orders of the Day — Finance (No. 2) Bill

House of Commons, 27 April 1998.

CORPORATION TAX: DUE AND PAYABLE DATE

Peter Lilley (Conservative, Hitchin and Harpenden)

I beg to move amendment No. 2, in page 15, line 25, at end insert— 'Provided that a draft of the first set of regulations made under this section shall be laid before Parliament and the regulations shall not be made until the draft has been approved by resolution of the House of Commons.'. This is a tax-raising Bill: it adds to the taxes raised by the previous Finance Bill introduced last July, and the bulk of those taxes fall on business and on the savings available to businesses to finance their investment. Before the election, the Chancellor repeatedly promised that, apart from the windfall tax, the Labour party's programme would not require any extra taxation at all. The Labour party went out of its way to claim that it would be friendly to business in particular, to try to allay the fear business rightly had of a Labour Government. Labour gave us a test to judge its tax policies. Labour's manifesto stated: How and what governments tax sends clear signals about the economic activities they believe should be encouraged or discouraged, and the values they wish to entrench in society. That is the test that we can use to establish, on the basis of their tax record so far, what activities the Labour Government wish to discourage and what values they wish to oppose in society. What is clear is that business has been singled out for extra taxation; almost all the extra taxation introduced so far falls either directly on companies or on savings that will finance business and investment. We want confirmation from the Government today that it is their intention deliberately to send clear signals that the economic activities they believe should be discouraged are the activities of business and of saving for the purpose of financing investment, because it is on those activities that they have loaded all their taxes.

Barry Gardiner (Labour, Brent North)

If the Government are seeking to punish businesses, why do we now have the lowest ever rate of corporation tax for small businesses?

Peter Lilley (Conservative, Hitchin and Harpenden)

Because the Government have raised taxes massively with their right hand and given back a small amount with their left hand. Perhaps I should say it the other way round; it is, of course, the left hand that raises taxes, and a very small amount is being given back in the form of a lower corporation tax rate. In total, nearly £20 billion is being raised from the business sector as a result of the extra taxes introduced in the Government's two Budgets—and that is after allowing for the reduction in corporation tax rates announced in both Budgets. That is why we say that there is an extra load on business. We should like the governing party to be more frank and honest about what it is doing. That £20 billion burden on business means that business has £20 billion less to invest, £20 billion less with which to generate jobs and £20 billion less with which to enhance the growth potential of the British economy. 5 pm Clause 30 introduces a quarterly payment system for corporation tax. It is an unplanned baby, conceived by accident in July 1997. Its progenitors were thinking of other things when they brought it about. They had not thought what, nine months later, would flow from their actions. They thought that they were simply abolishing tax credits—an enjoyable activity for socialists, because it was a stealthy way in which to raise a huge amount of tax from savers and companies—but one thing leads to another. Abolishing credits in July 1997 meant that foreign income dividends had to go in the Finance Act 1997. That meant that advance corporation tax ceased to be tenable, and, during the summer, the Government decided that that, too, had to go. Then they realised that they had to replace that with a quarterly payment system on corporation tax, which they announced in November 1997; and because they got that wrong, too, they had to revise it in March 1998. We welcome the mitigation of the measures announced by the Government in November 1997, and the improvements for small companies that were introduced when they finally brought this child to birth in March. However, like the Confederation of British Industry, we condemn the overall impact of the Government's changes on the cash flow of the company sector, and of major companies in particular. According to the Government's figures, clause 30 will raise £6.8 billion from companies this Parliament. The accompanying 1p rate cut in corporation tax will return to companies just £1.7 billion of that £6.8 billion. The net impact of the clause on corporate sector cash flow will be £5.1 billion. I should be grateful if the Paymaster General would confirm that figure now, or when he gets back to the Dispatch Box. He may not be listening, but can he confirm that the net effect of the clause is to lift £5 billion from the cash flow of the corporate sector and take it to the Treasury, as a result of bringing forward payments that companies would have to make, through the advance system of corporation tax payments, on all their profits? Let us have no more from the Labour party about the supposed reductions in corporation tax because of changes in the corporation tax rate, such as those that the hon. Member for Brent, North (Mr. Gardiner) just mentioned. Let us have a clear statement today that, when the Prime Minister denied that there was any increase in corporate taxation, he was misinformed and was, therefore, misinforming the House. Let us have a clear admission that the Government are adding further to the burden of business, on top of the previously announced taxes, on top of the high interest rates that have been introduced in this Parliament and on top of the crippling exchange rate, all of which are already precipitating manufacturing into recession. These burdens of taxation will make it spread all the more rapidly to the rest of the business sector.

Ross Cranston (Labour, Dudley North)

Is it not the case that the quarterly system of corporation tax payment operates in the United States, Germany, France, Australia, Canada, Japan and a host of other countries, and that we are simply coming into line?

Peter Lilley (Conservative, Hitchin and Harpenden)

I was just about to say that we have no objection in principle to a quarterly payment system; it is the use of that system, by arranging the transition to bring forward into this Parliament payments that previously would have been made years ahead, that is so iniquitous and devious. If the hon. Gentleman had had the courage to admit that it was being done to raise extra taxation rather than to smooth spending over the year, I should have had more respect for him and the Labour party. We have no objection to a system of quarterly payments—something like that became inevitable once credits, foreign income dividends and the advance corporation taxation system on dividends went—but we object to it being used as a back-door method of increasing taxes on the business sector by stealth.

Dale Campbell-Savours (Labour, Workington)

In the right hon. Gentleman's view, could we have had reduced revenue coming into the Exchequer while we had the reduced interest rates that the right hon. Gentleman has been calling for? Could we have had both together?

Peter Lilley (Conservative, Hitchin and Harpenden)

I believe that, if we had encouraged, not discouraged, saving, it would have made it easier for the Bank of England to achieve a given inflation target with less emphasis on high interest rates and high exchange rates. By not taking steps to encourage consumers to save, but allowing the burden of taxation to fall on business and savings, the Government have exacerbated the problems that they diagnosed when they came to power. Our amendment No. 1, which has not been selected for debate, would have required the Government, in introducing a quarterly payment system, to ensure that it did not result in any net take-out of companies' cash flow. It would have ensured that the effects of the system were fiscally neutral, and that the Government adjusted the timings and the transition period to ensure that. As amendment No. 1 has not been selected, we shall vote against clause 30, and I shall invite the Committee to join us. Apart from the fact that clause 30 raises taxes by stealth, the most objectionable feature of the Bill and the clause is that they rely on the wholesale use of regulation-making powers, so that the Government can introduce complex but important measures in a way that cannot be amended, and which, in many cases, will not even be debated. Hardly any of the key parameters of the new system of corporation tax payments are spelt out in the Bill. The Institute of Directors rightly protests: The dates on which tax is payable and any associated penalties are fundamental matters, which should be dealt with in primary legislation:' They are not. Why have not the Government spelt out in primary legislation the key parameters of the system that they are introducing, to allow hon. Members the opportunity—preferably on the Floor today, but if not, later, in Standing Committee—to examine and consider the proposals. and to reflect in that debate representations from outside the House about the detailed proposals?

Ross Cranston (Labour, Dudley North)

Will the right hon. Gentleman give way?

Peter Lilley (Conservative, Hitchin and Harpenden)

I shall continue with this point, if I may. It is essential that we find out the Government's intentions, or that we ascertain that, in this respect, too, they have not yet thought out their plans, just as, when they announced the abolition of tax credits, they had not thought that it would make necessary a new system. Is it further evidence of their botched, muddled failure to think through their taxes when they make their announcements? I shall happily give way to the hon. Member for Dudley, North (Mr. Cranston). If he is true to his duty as a Back Bencher, he will want to debate such measures in detail rather than pass them on the nod in the contemptuous way in which the Government sideline Parliament whenever they have the opportunity.

Ross Cranston (Labour, Dudley North)

I thank the right hon. Gentleman for giving way again. Did he in his long experience, including at the Treasury, never propose legislation containing a regulation-making power?

Peter Lilley (Conservative, Hitchin and Harpenden)

I cannot remember proposing a clause containing 11 separate regulation-making powers. Not a single detail of the Bill has been spelt out or published previously so that the Committee would know what regulations would be made under the clause. The amendment would ensure that Parliament saw drafts of the regulations and voted on a resolution before the regulation-making process was completed. Labour Back Benchers are numerous and could use the time on their hands to good effect by considering legislation properly and in detail, which is what their constituents sent them to Parliament to do, rather than letting Ministers bypass them and Parliament by taking general regulation-making powers that suggest that they do not even know what they intend to do. We shall listen intently to the Paymaster General for evidence that he knows what he intends to do any more than he and his colleagues did when they started the process nine or 10 months ago.

Malcolm Bruce (Liberal Democrat, Gordon)

The right hon. Member for Hitchin and Harpenden (Mr. Lilley), who leads the Conservative Treasury team, has worked himself into a synthetic stour about the clause. The Government's basic proposals have been out for consultation for several months, and, although hon. Members are entitled to ask for clarification of the legitimate concerns to which the right hon. Gentleman referred, I do not get the impression that there is enormous fulminating opposition to a measure that most business people acknowledge as reasonable in principle. The Government's claim to want to open up the Budget process to greater debate, consultation and transparency is a genuine issue, however. The Chancellor announced the abolition of advance corporation tax and the introduction of quarterly payments in his pre-Budget statement, but did not say that there would be a substantial cash flow benefit. The Paymaster General will have to acknowledge that there will be a net flow of funds into the Treasury in the lifetime of this Parliament, and of the order of that to which the right hon. Member for Hitchin and Harpenden referred. In the interests of transparency and genuine debate, the Chancellor should have been more forthcoming about the cash flow benefit that the Government would achieve compared with the overall effect of the reduction in tax rates. The measure will have a more severe impact on some businesses than on others. As regulations will be made, the Minister should say whether variations or adjustments will take account of the skewed revenue flows of some businesses, which could make quarterly payments a hardship. Most ordinary taxpayers who pay tax as they earn appreciate that paying tax substantially in arrears is beneficial because a company has use of the money on which it is liable to pay tax for a considerable period before paying it. The Paymaster General should give hon. Members guidance, because it is difficult for some businesses to determine the outcome on which they would pay tax. Some businesses will pay additional tax over and above their liability, so it would be useful to know what negotiation and flexibility there may be in calculating quarterly rates to take account of variations. 5.15 pm My plea to the Government is to follow through what I accept as a sincere intention to have a more genuine, open debate about taxation priorities. They have not got the balance right yet, and I had hoped for more consultation on other issues in the Bill. In their first Budget and in the pre-Budget statement, the Government introduced two substantial taxes on the corporate sector from which they have benefited substantially in revenue flows without being up-front in the Red Book or in overall projections, which would have enabled us to have had the sort of debate to which we are entitled. The Government would help hon. Members and business if they set out the real effects of the tax changes and how the balance between personal taxation and business taxation will settle. The Paymaster General cannot be surprised that there is criticism of and cynicism about the fact that the Government thought that they could get away with substantial extra taxes on business while standing by their assurance that they would not increase the basic or higher rates of income tax. He and hon. Members will know that my party takes a different view and believes that both rates should have been increased by an agreed amount for specific purposes. [Interruption.] We have said specifically what we would do. The Paymaster General may not have read our publication, though it must have been passed to him many times. I shall repeat what it says, at the risk of detaining the Committee—even the Prime Minister would benefit from reading the Official Report occasionally. We proposed a rate of 50 per cent. on personal incomes in excess of £100,000 and an additional 1p on the standard rate of tax to fund a reduction in tax for people on lower wages by raising thresholds and extra investment in education year on year throughout this Parliament. Labour Members would do themselves and their party good if they accepted my argument.

Dale Campbell-Savours (Labour, Workington)

Will the hon. Gentleman give way?

Malcolm Bruce (Liberal Democrat, Gordon)

Not until I have finished this point. The Government are on record as saying that they want genuine public debate, but they are not happy when other people hold a different view from theirs and they do not always explain the full implications of their policy changes, let alone the forward projections.

Michael Martin (Deputy Speaker, Glasgow Springburn)

Order. The hon. Gentleman is going wide of the amendment. Government policies are not being debated; there is an amendment before us.

Malcolm Bruce (Liberal Democrat, Gordon)

I accept your ruling, Mr. Martin. The amendment asks for a statement of impact, and I am balancing the argument. The Government should state the net effects of the changes and their forward projections.

Dale Campbell-Savours (Labour, Workington)

The hon. Gentleman said that 1 p should be put on the standard rate of tax and that the rate should be 50 per cent. on incomes of over £100,000 to fund a lower threshold and education spending.

Malcolm Bruce (Liberal Democrat, Gordon)

I take your strictures, Mr. Martin. I may have strayed somewhat, but I think that the Paymaster General has got the drift of my argument. The right hon. Member for Hitchin and Harpenden said that he wanted detailed regulations because he was concerned about the impact of the change and the Government's lack of transparency in introducing it. I do not think the amendment very practical; when the Conservatives were in government, we had debates on similar amendments, only they were tabled by the opposite quarter. I hope that, from now on, the Government will recognise the need for people to know the precise impact of measures on their businesses, as well as the likely impact on the national finances. In the interests of open government and of wider debate, it would help us to have more information from the Paymaster General.

Nick Gibb (Conservative, Bognor Regis and Littlehampton)

The hon. Gentleman describes the need for a wider debate on Finance Bills. May I take it from that that he and his colleagues will attend each and every sitting of the Finance Bill Standing Committee? During last year's one, they flitted in and out at whim, and I rarely saw the hon. Gentleman take part. Will he and his colleagues play the part of a proper Opposition this time round?

Malcolm Bruce (Liberal Democrat, Gordon)

On a point of fact, I was not a member of the Finance Bill Committee last year, so I would have found it difficult to take part. May we have some specific assurances from the Minister on how the regulations will affect the businesses that may encounter problems? Secondly, what will the overall impact of the regulations be?

Charles Wardle (Conservative, Bexhill and Battle)

Before the hon. Member for Gordon (Mr. Bruce) outlined the shape of a Liberal Democrat Budget, he seemed to chide the Minister gently for not disclosing the cash flow benefit to the Treasury of these changes. What my right hon. Friends and I object to are the cash flow disadvantages over the next few years to companies bigger than small and medium enterprises, or SMEs. I hope that the Minister will help to clarify a certain definition. When looking at clause 30 it has been helpful to look also at the glossy version of the Red Book, "New Ambitions for Britain". Paragraph 4.19 says that the Budget will exempt SMEs from quarterly corporation tax payments to improve their cash flows, but paragraph 4.18 implies that that refers to companies with 50 employees or fewer. The paragraph states that the Treasury says that 99 per cent. of the UK's 3.7 million businesses have 50 or fewer employees, and that those businesses account for 46 per cent. of jobs and 42 per cent. of aggregate turnover. That immediately precedes the point about exemption, but I believe that I saw in a press release at the time of the Budget a suggestion that the definition of a small company was one with profits of up to £300,000 before tax, and that a medium-sized company was one with pre-tax profits of between £300,000 and £1.5 million. I see the Minister nodding, but it would be helpful to have that clarified. It would be boring to have to wait for regulations which we may or may not have the chance to debate before finding out precisely who will benefit from the exemption. I should like to outline two types of management problem which might affect a large number of businesses in the transition period. I accept that quarterly corporation tax payments are made in many other countries. What concerns us today is the transition period, the hit on companies, and the hitherto hidden benefit which my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley) has so admirably disclosed. The Minister and other hon. Members with management experience will appreciate the examples that I am about to describe, but I hope that they will bear with me because it is important to illustrate what problems might arise in the next four years. My first example refers to the rapidly expanding company. Let us assume that it has got off the ground with great success. It has shot past the upper limit definition of an SME and has continued to expand rapidly. There is not a business person who does not know that the risk of company failure and receivership is at its greatest when companies embark on ambitious programmes of expansion without sufficient capital backing. Business history is littered with examples of entrepreneurs who got off to a good start with a great marketing idea for a new product that attracted sudden and rapid demand. That company buys in more raw materials and puts more into work in progress and finished stock. As it expands, it finds that it has more money tied up in accounts receivable—in debtors—and that its suppliers are still insisting on tough terms. The company does not have a history long enough for a good credit standing, so the terms of payment for raw materials are still tough. Moreover, the bank insists on a tough overdraft limit; doubtless, the company does not have a freehold property, so there is little on which to secure an overdraft. It is a familiar story. If companies in a period of rapid expansion are to risk becoming over-extended, cash flow is critical. Some of those companies will find that their overdraft limits are broken and that the banks are not tolerant, because they see little in the way of underlying assets. The companies will therefore be faced with receivership. Such circumstances are not uncommon. That type of company will now be spending more management time on dealing with quarterly assessments of corporation tax payments in months seven, 10, 13 and 16—more time dealing with inquiries just when they should be fighting to consolidate themselves on a new plateau of stability following their rapid success.

Geraint Davies (Labour, Croydon Central)

Is the hon. Gentleman suggesting that the taxpayer should bail out high-risk, fast-growth companies in circumstances when no high street bank would dream of doing so?

Charles Wardle (Conservative, Bexhill and Battle)

I am suggesting nothing of the sort. Indeed, I am saying that the banks take their fair share of risk. I also say that this is not the time for a Government who insist that they are business-friendly to impose further pressures on rapidly expanding companies. My second example concerns the established company with a remarkable success in export markets—there are many of them about. Because of the persistently strong pound, they find those markets eroded; whereupon, they do all the right things: trim their sales prices, suffer lower margins, trim their overheads, and possibly even let some staff go rather than tie up cash flow in stock and finished goods. Such companies, facing those pressures in an increasingly competitive export market, will find the requirement for quarterly payments of corporation tax, introduced so rapidly, an additional burden.

Ross Cranston (Labour, Dudley North)

rose—

Charles Wardle (Conservative, Bexhill and Battle)

I shall give way to the hon. Gentleman, provided that he will tell us about his business experience. I understand that he is a solicitor.

Ross Cranston (Labour, Dudley North)

I am not a solicitor: I am a member of the Bar. Only 2.8 per cent. of companies, 20,000 of them, will have to make the quarterly payments. It seems to me that the hon. Gentleman is making a good argument for a regulation-making power, not a piece of bland legislation, to cover all these different types of company.

Charles Wardle (Conservative, Bexhill and Battle)

No. With the typical skill of a barrister, the hon. Gentleman does not illustrate to the Committee the sort of companies involved. Those 20,000 companies represent the engine room of Britain. It is vital that companies that have been successful in export markets and are now feeling the pinch, or companies that have been expanding rapidly on the back of a good idea and have gone beyond the protection that the Minister rightly intends to provide for SMEs, should be examined by the House of Commons to see the proposals' effect on them in the crucial next three or four years. How can the Minister justify quarterly payments that add to paperwork and intrude on management time that should be devoted to market success? How can he justify the hit of £1.6 billion in the first year and £2 billion on company cash flow in the next two years, if the Government are supposedly business-friendly? Finally, I draw the Minister's attention to a point that was raised time and again on Second Reading, as well as in the financial press. Long though the Bill is, it is full of references to regulations that are to be made subsequently. Clause 30 is a classic example of that. Ministers and the Inland Revenue will have a free hand to be as creative or as repressive as they choose in making regulations. By not writing into the Bill the substance of those changes, the Government make a mockery of their accountability to the House.

Quentin Davies (Conservative, Grantham and Stamford)

Before I deal with the substance and the merits, or otherwise, of the amendment and the clause, I draw to the attention of the Committee and, I hope, of an increasing number of people outside who have not yet focused on what is going on, the extraordinary degree to which the drafting of the Bill represents an invitation to Parliament to abdicate its responsibility for deciding on the taxes to be levied on the British people. As you know, Mr. Butterfill, I have served on Finance Bill Committees for several years. On many of those Committees, I had the pleasure of serving with you. I have never read clauses that were so open-ended in providing for the Revenue to make up our tax laws as it goes on. Clause 30 states: The Treasury may by regulations make provision, in relation to companies of such descriptions as may be prescribed, for or in connection with treating amounts of corporation tax for an accounting period as becoming due and payable on dates which fall on or before the date on which corporation tax for that period would become due and payable". What does that mean? It simply means that the Treasury can write its own tax laws after Parliament has finished with the Bill. Subsection (2) states: The Treasury may by regulations make provision for or in connection with the payment to the Board of an amount or amounts determined by or under the regulations". What can be clearer than that? The Treasury may by regulations make provision for amounts to be paid to be determined under the regulations. In other words, we give a blank cheque to the Revenue. Similarly, schedule 4, which refers to new section 59E, states: The Treasury may by regulations make provision modifying section 826(2) in relation to companies of such description as may be prescribed. In other words, the Treasury will have the right to change existing tax law—in this case section 826(2)—and substitute more or less whatever it wants. That is not hyperbole. It is what the Bill would allow. Such arbitrary taxation is associated with the Turkish empire, perhaps, but not with a free society and a regime in which the representatives of the governed discuss in detail, debate and determine the basis on which the public should be taxed. Parliament cannot pass the clause this evening and look itself in the face tomorrow morning. When I read these clauses, I thought that it might be much easier if the new Labour Government, with a majority of 179 over all other parties, decided that they could do what they pleased with the House, and introduced a one-line Bill allowing the Treasury to impose such taxes as it wishes. [Interruption.] That is what is happening under the clause, which states that the Treasury shall impose such corporation taxes as it wishes. I see some of the Labour Members who make up that absolute majority of 179 over all other parties sitting in the Committee this afternoon, not trying to take part in the debate—we have heard three contributions from the Opposition, without any interruption—but laughing. Perhaps they think that they were sent to this place to do whatever Walworth road or the Whips or No. 10 tell them, and not even to look at the implications. The clause represents a sad and dangerous precedent. In a sense, it does not much matter what taxes we have, whether they are too high or too low, whether they are good or bad, if Parliament has considered them in detail and Parliament can subsequently amend them. However, we are invited this afternoon to hand over our own judgment to unelected officials in the Treasury and the Revenue. We must read the Bill in conjunction with press releases from the Revenue, telling us what it might be minded to do if it were given the powers which, with the Government's majority, we know that it will be given. If one examines the Government's intentions under the clause, serious pragmatic issues for British business arise. I reinforce the comments of my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley) about the way in which the corporation tax provisions in the Bill are used to impose a surreptitious and covert increase in the burden of corporate taxation. The figures are in the Red Book produced by the Government.

Geoffrey Robinson (Labour, Coventry North West)

indicated assent.

Quentin Davies (Conservative, Grantham and Stamford)

I see the Paymaster General nodding. I wonder whether he will have the courage to quote the figures. In all the discussions that we have had on the Bill since the Chancellor's Budget speech, the Government have never done so. They have never drawn attention to the actual increase in the burden of corporation tax. They have disingenuously implied that the Budget relieves the burden of corporation tax. It does not. Although there is an apparent reduction in the rate of corporation tax, that relief, as my right hon. Friend pointed out, is more than compensated for by the cash flow effect of introducing quarterly payments of corporation tax. The Paymaster General is leafing through his papers. I can tell him what the figures are. In the first financial year in which the provisions will apply, 1999–2000, the net burden on industry will be £1.6 billion; businesses will pay more in corporation tax, taking into account the apparent relief through reduction of the rates but the increase in the burden because of the acceleration of payments through quarterly payment. In the following financial year—I shall give way to the Paymaster General if I am wrong in quoting from the Red Book, but he knows that I am not—the net incremental burden on business will be £2 billion. If the Labour party has the slightest respect for the facts and the slightest inclination to be straight with the British people, it should not claim that the Budget reduces the corporate tax burden. This Budget increases that burden by a significant amount of money. Let us turn to the merits in principle, irrespective of what is raised as a result of levying corporation tax on this new basis. I agree with my right hon. Friend the Member for Hitchin and Harpenden: I do not object to quarterly payments in themselves, but quarterly payments of what? The Government are introducing for the first time in tax law quarterly payments of tax for which a company is liable in the current year. In other words, companies will have to predict their profits for the current year and pay—not just make notional provisions in their accounts—those sums of money during the year in which those profits are earned. That is an extraordinary state of affairs. At present, income tax payers who come under schedule D make payments twice rather than four times a year, on the basis of the profits on their earnings for the previous year. They know what the position is: they have closed their books for the year in respect of which they are making payments. They know the profits or the earnings on which they will make payments and they have received those profits or earnings. That is not the position here: this is a dramatic step and a dramatic change in British tax law.

John Butterfill (Conservative, Bournemouth West)

Order. I hope that the hon. Gentleman will start to address the substance of the amendment, as he is ranging rather wide of it at the moment.

Quentin Davies (Conservative, Grantham and Stamford)

When we are debating amendments to the Finance Bill, there is always slight confusion as to whether the Chairman will permit a subsequent clause stand part debate. If he decides not to do that because the discussion of previous amendments has ranged fairly widely and one has points that relate to the principles of clauses, one may find that one has lost the opportunity to put those points. I am in a difficult position as I know that Chairmen are sometimes reluctant to give guidance in advance as to whether they will allow a clause stand part debate. Perhaps you can help me, Mr. Butterfill.

John Butterfill (Conservative, Bournemouth West)

I shall make that decision when I have heard what has happened during the debate. It is normally my practice to give guidance earlier if hon. Members have demonstrated that they wish to speak fairly widely on the amendments. At present, I propose that we have a clause stand part debate. Perhaps the hon. Gentleman could confine his remarks a little more closely to the clause under discussion—although I shall show a certain amount of tolerance.

Quentin Davies (Conservative, Grantham and Stamford)

I am grateful to you, Mr. Butterfill. I was trying to be guided in the extent to which I went wide of the amendment by the precedents that have been set in the discussion. I thought that I was not exceeding the margins that were established by earlier contributors, but perhaps I am in error. Nevertheless, I am sure that you would agree, Mr. Butterfill, that the essence of the clause and every amendment to it is that we are facing a dramatic—and, I believe, an extremely damaging—change to the way in which companies are taxed. There are certain specific and pragmatic reasons why the concept cannot work in practice. That point has been made already, so I shall add to it. It will do even greater damage to the interests of British industry because it is not possible to predict what one's profits will be in the current year. Even in a relatively non-volatile market, such as retailing, one does not know whether one will have successful January or July sales. One does not know whether the car market will turn up or down: it can be affected by unpredictable changes in interest rates or in Government policy. In other areas of business that are inherently much more volatile, profits are even more difficult to predict. For example, how could a company that has been exporting to Asia in the past year have predicted the collapse in the Asian markets? That will have had a dramatic effect on its profits. How will an insurance company know whether extraordinary claims will be made on it? It is like predicting the weather—and if a company is in the property insurance business, the weather will determine the claims on it to some extent. There is something particularly curious about the concept of quarterly payments of corporation tax that is assessed on current year profits. It is an established fact that companies are very cautious about making profit projections for the current year. If they must pay tax to the Revenue on their profits in the current year, they cannot disguise their position from the market or from their shareholders. It is an established principle in financial markets that it is extremely dangerous to make those kinds of profit announcements, yet it follows that all British companies will have to make yearly statements on the stock exchange about their anticipated profits for the current year. As it is in the nature of things that companies will not achieve those profits—their actual profits may represent a substantial increase or shortfall on the figure predicted—the stability of financial markets will be undermined. False markets will occur and people will drive company share prices up or down for no reason. I shall give way to the hon. Member for Croydon, Central (Mr. Davies) who shares my name.

Geraint Davies (Labour, Croydon Central)

I am honoured. I thank the hon. Gentleman for giving way. Is he aware that the 20,000 companies—or 2.8 per cent. of companies overall—that will be affected are large, sophisticated companies? Is the hon. Gentleman aware that the system allows a certain amount of flexibility—profit projections and re-evaluations will be conducted each quarter on a rolling basis? Companies of that magnitude of sophistication and success will obviously have their own accountants and will be able to accommodate quite easily the sorts of changes that the Government are introducing. Therefore, the single point that the hon. Gentleman has made for the past five minutes is wrong.

Quentin Davies (Conservative, Grantham and Stamford)

I think that the hon. Gentleman's comments would cause surprise—and possibly even derision—in most boardrooms in this country with which I am familiar. One is able to predict one's profits not because one has sophisticated company management but because one is able to predict the factors that will determine those profits. I have given several illustrations of that point already—I can give more, but I might go slightly beyond the margins that you have laid down, Mr. Butterfill.

John Butterfill (Conservative, Bournemouth West)

Order. The hon. Gentleman has already gone so far outside those margins that the chances of a clause stand part debate are diminishing by the minute.

Quentin Davies (Conservative, Grantham and Stamford)

I see that I shall be blamed for anything that goes wrong in the debate. However, I am at least released from some of the constraints that were imposed on me a few moments ago. The fact is that no company can predict what will happen in its markets. Every company deals with uncertainty. Companies may have complete control of everything that it is in their power to control, but they cannot control the behaviour of their customers, what happens to interest rates or the general economic and physical climates. Few companies feel able to make profit projections for their shareholders—or for any other purpose—or public statements of what their profits are likely to be 12 months ahead. The reference to the 20,000 companies that will be affected has cropped up several times in the discussion: several Labour Members have intervened to cite that figure. I suppose that it must be in the Walworth road handout about this clause. It represents a certain naivety. If the clause were designed simply to impose a new corporate tax regime on the Financial Times 100 companies—the top 100 companies-it would have a considerable economic impact. Those companies already deliver a substantial proportion of the United Kingdom's gross domestic product. However, the provision is not confined to the FT 100, 500 or 1,000; it applies to the top 20,000 companies. If a Government want a particular tax regime to have a major economic effect, they will want to levy it on the top 20,000. It is extraordinary that the hon. Member for Croydon, Central should have been deceived by the Walworth road handout into asking such a question. The hon. Gentleman knows well that the majority of companies are one-man or one-woman businesses, and that the output of such companies may be very small. The clause is drafted so as to undermine the responsibility of Parliament for the aspect of taxation to which it relates. It is—

Ross Cranston (Labour, Dudley North)

Will the hon. Gentleman give way?

Quentin Davies (Conservative, Grantham and Stamford)

I shall not give way. I want to encourage the hon. Gentleman, if he really has something to say in this debate, to say it in his own speech. Labour Members have come to the Chamber with a Walworth road handout and have made, in many instances, ill-thought-through comments. They have not yet made a substantive contribution to the debate. Indeed, they have not shown the slightest inclination to want to do so. We are faced with extremely bad tax law. If Parliament accepts the precedent that has been put before it, Parliament should be ashamed. The clause will lead to an additional general burden of corporate taxation, which is the last thing that the country needs. It will also impose on companies the complete absurdity and artificiality of having to predict their profits, when, by definition, profits cannot be predicted because they are subject to uncertainties outside the control of companies. That is, by definition, unreasonable and unfair. I look forward to hearing whether there is a rationale for any of the extraordinary proposals that are set out in the clause. Will Labour Members tell us what that rationale is?

Nick Gibb (Conservative, Bognor Regis and Littlehampton)

Clause 30 is the latest stage of incompetence in a saga that stems from the July Budget, when the Chancellor of the Exchequer decided to abolish the repayment of dividend tax credits to taxpayers generally and to pension funds in particular. That decision was designed to raise about £5 billion a year by the back door, and in a way that the Government hoped would not be noticed by the public. However, it has been noticed by the public, because it is the public who have to pay. They will have to pay, on average, an extra £200 a year in higher pension contributions. Gavyn Davies, in his evidence to the Treasury Select Committee in March, said that the abolition of dividend tax credits has been paid for by the household sector. He said: The ACT change has fallen, eventually I believe, on the household sector. We have scored that as a household tax increase in our rankings. Clause 30 has been introduced to clear up the problems that have been created by that decision. When the Government announced the end of the repayment of dividend tax credits they realised that it would lead to a spate of payments of foreign income dividends. That was because if pension funds were no longer to receive the tax credit, they might as well receive FIDs. As a result, FIDs were introduced to enable companies to pay dividends to their shareholders out of foreign earned profits without having to account for ACT. This ACT could not generally be offset against a company's mainstream corporation tax liability because there is generally no UK tax that is payable on such profits as a consequence of double tax relief. As no ACT is paid on FIDs there is no tax credit available to the recipient of a FID. Until last July, therefore, pension funds were not very keen on receiving FIDs. They needed to be able to claim the tax credit. However, after July, FIDs became attractive since the repayment of dividend tax credits has been abolished in any event. The Government recognised that there was a potential long-term problem. That being so, they announced that FIDs would be abolished. There was an outcry from Britain's multinational companies. Already there are £7 billion of unreclaimed ACT at cost to British industry. The Government are effectively saying now that those moneys can never be reclaimed. After various non-starter proposals made by the Paymaster General in the debates that followed the Government's decision, the only solution that the Government could come up with was to abolish the entire ACT system—the entire imputation system that had been in place since 1972. That, of course, would lead to a huge cash-flow cost if companies' advance payments of corporation tax were abolished. That is why we had the consultation document in November on the proposals that we now see in clause 30 for quarterly payments of corporation tax. Unfortunately, that is not the end of the tale of incompetence and of ill-thought-through proposals. I believe that there is a serious shortage of competent Ministers in this Government. Those who are competent find themselves doing more and more work so as to carry their less able colleagues. Thus mistakes, or errors, proliferate even among the few competent Ministers that the Government have. I see the Paymaster General nodding. I wonder which category he sees himself falling into. The supplementary memorandum from the Treasury is to be found at page 82 of the fourth report of the Select Committee on the Treasury. It points out that the Treasury had underestimated the number of FIDs that would be paid instead of normal dividends as a result of the July changes in ACT. The memorandum reads: Although the July 1997 forecast allowed for a rise in the use of FIDs by companies with surplus ACT, following the abolition of tax credits to pension providers the subsequent use of FIDs was greater than expected. It was clear to everyone—

Quentin Davies (Conservative, Grantham and Stamford)

I listened to my hon. Friend's quotation with some interest. It is obvious that the Revenue is not particularly good at forecasting the revenue that it will receive at the end of any given current year. That being so, why does my hon. Friend suppose that the Revenue should expect companies to be better at forecasting their revenues?

Nick Gibb (Conservative, Bognor Regis and Littlehampton)

My hon. Friend makes a telling point. It is incredible that the Revenue failed to predict that there would be more FIDs paid as a result of the decision that was made last July. Everyone knew that there would be more and more FIDs and that there would be a rush to use FIDs as it was no longer possible to reclaim tax credits on ordinary dividends. Why did the Government underestimate the effect of their decision?

Ross Cranston (Labour, Dudley North)

Will the hon. Gentleman comment on a quotation from an accountant, John Whiting, tax partner at Price Waterhouse, who commented on the point raised by the hon. Member for Grantham and Stamford (Mr. Davies) when he would not let me intervene. Mr. Whiting said: This is a pain—but the whole scheme is much fairer. It does show that they"— the Government— have listened to some of the arguments put during consultation. What is the comment of the hon. Member for Bognor Regis and Littlehampton (Mr. Gibb) on that?

Nick Gibb (Conservative, Bognor Regis and Littlehampton)

The hon. Gentleman will be aware of other leading tax accountants, who say that we are getting perilously close to some constitutional issues by the fact that the Government are legislating a major reform to the corporation tax system through regulation. Such a reform is unprecedented, and the accountancy profession is dismayed at what is happening. The underestimate of the amount of FIDs paid is not tiny or minor. Indeed, it amounts to about £2 billion. Errors or mistakes seem to proliferate in clause 30 and in the consultation document that heralded it. Paragraph 4.28 of that document refers to charging interest to taxpayers from the date that the Inland Revenue receives funds from taxpayers. Should not that be interest charged until the Inland Revenue receives the funds? That is a minor error, but one which is indicative of the competence level and lack of attention to detail that reflect on the Government and on the consequences of what they are proposing. Perhaps that is why clause 30 contains no details of the workings of the new corporation tax system but only paves the way for future Treasury regulations. The Chancellor hyped the reform to the corporate system as a once-in-a-lifetime, fundamental reform, so it is astonishing that it is not included in the Finance Bill. 6 pm The Government's intention to legislate for a new corporation tax system through secondary legislation, subject only to the negative resolution, is a disgrace. It is unprecedented for changes in tax legislation, other than details of administration, to be enacted other than directly through an Act of Parliament. The introduction of a new corporation tax system does not constitute merely an administrative matter but goes to the very heart of how much a company will pay and when. Legislating through statutory instruments on this matter is widely condemned by leading figures in the accountancy profession, the tax faculty of the Institute of Chartered Accountants in England and Wales, by the Institute of Directors and others. My former boss, Mr. Ian Barlow, head of tax at KPMG, said that regulations were normally used for detail and: This sort of material should be in primary legislation. Richard Collier-Keywood, a partner at Coopers and Lybrand, said: I think we are getting perilously close to some constitutional issues. The Institute of Directors said: The dates on which tax is payable and any associated penalties are fundamental matters which should be dealt with in primary legislation. Only if they are in primary legislation can Parliament debate them properly and make amendments as appropriate. According to the Financial Times, the reason for wanting to use regulations is that Ministers do not want to be seen to be making U-turns, but it is a bit late for that. However, what does that say about the competence of Treasury Ministers? Proposals, flawed as they are, were announced in a consultation document in November, some six months ago. Is not that an admission that the Government have yet again produced tax proposals which are not acceptable to those whom they affect, just as they are not acceptable to those who administer and understand the tax system or to the wider public? If the Government believe that the corporation tax proposals in the consultation document, as amended, are flawed, and if they wish to change them, they should do so. A change on the lines urged by Conservative Members and by industry would be widely favoured. Sneaking changes through by statutory instrument will not reduce criticism that the Government have yet again produced an ill-thought-out proposal which they were forced to change. If, on the other hand, the Government do not intend to change their proposals, legislating through regulation will not enable them to get away with introducing bad law without public criticism from the Opposition and from industry. They will achieve nothing from these antics, so I urge them to stop undermining the House, stop listening to their spin doctors, to put democratic procedure before presentation and sheen, and to accept the amendment.

Ross Cranston (Labour, Dudley North)

The hon. Gentleman is generous in giving way a second time. Has he consulted the draft regulations, which are available, and will he be commenting on them?

Nick Gibb (Conservative, Bognor Regis and Littlehampton)

I have not yet consulted the draft regulations, but, like industry, I look forward to examining them in great detail. The errors that I have catalogued have led eventually to the quarterly corporation tax system and the abolition of ACT. When the repayment of dividend tax credits was abolished, FIDs had to be abolished. Their abolition has been causing huge problems with unrelieved ACT, and the only answer that the Government could come up with was the abolition of ACT. How were the Government to solve the problem that that created—the cash-flow cost to the Treasury arising from no more advance payments of corporation tax? The answer, for the Government, is the quarterly corporation tax payment system set out in the consultative document, "A Modern System for Corporation Tax Payment". Of course, it is not modem at all; it has been a long-established practice in several countries. The proposals have been widely condemned, as one might by now have been expected, judging from the Government's track record on their tax proposals. The Institute of Chartered Accountants said of the abolition of ACT: We accept that in order to maintain Government revenues there will have to be a compensating acceleration of the payments of companies' normal corporation tax liabilities. We are, however, concerned that the detailed procedure for payment of corporation tax by instalments, as proposed in the consultative document, would be neither fair nor practical. They are the words of the body that represents chartered accountants in this country. The Government have already performed one U-turn on this issue by exempting small and medium companies from the burdensome proposals, but large companies remain subject to them. As my hon. Friend the Member for Grantham and Stamford (Mr. Davies) said, the consultative document and the notes on clauses state that the term "large" includes those companies whose profits are £1.5 million a year or more. That means 20,000 companies, some of which most people would not regard as being especially large. Those companies will have to pay their corporation tax bills in four quarterly payments, beginning halfway through months seven, 10, 13 and 16. Therefore, for a December year end company, which is the most popular accounting period, the first instalment will be on 14 July and the second on 14 October, both payments being before the year end. The third and fourth payments will be in January and April after the year end. There are transitional rules in place which limit the amount of corporation tax payable, but the changes will have serious cash flow effects on companies, notwithstanding the fact that they are being phased in over three years. The new rules will affect accounting periods ending on or after 1 July 1999. For example, a December year end company will have to make the first quarterly payment, representing 60 per cent. of its annual tax bill, on 14 July 1999. On 1 October 1999, it will have to pay the whole of its corporation tax bill for 1998, and on 14 October—14 days later—it will have to pay the second quarterly instalment of its 1999 tax bill. That represents 130 per cent. of the company's annual tax bill being paid within just one year. That is why the Government are not only making up their cash flow shortfall as a result of the abolition of ACT, but accelerating its cash flow for the next four years as my hon. Friend the Member for Grantham and Stamford said—by £1.6 billion in 1999–2000, by £2 billion the following year, and by £3.1 billion the year after. It is cash that British industry will have to find and, in most instances, will have to borrow. As the Institute of Chartered Accountants said in response to the consultative document, this proposal would require the company to pay tax on profits which it has not yet earned in cases where profits increase sharply towards the end of the accounting period. This would be a particular problem if there is a large capital gain close to the year-end, for example on disposal of a major subsidiary. Even if such an event could be predicted in month 7 (which is unlikely), we regard it as unreasonable to expect the company to pay tax on the gain, or to charge interest if it does not, before the proceeds have even been received. The Red Book figures, which reveal £6.8 billion extra revenue for the Government over the lifetime of this Parliament, show just how the Government are using the change surreptitiously to raise further taxes, and significant further taxes. It is one of Labour's stealth taxes, and it will do nothing to help investment, nothing to encourage enterprises and nothing to encourage the creation of new jobs but everything to reduce investment and destroy jobs. Before the regulations are passed by an overwhelming majority, I hope that these criticisms will be taken into account.

Barry Gardiner (Labour, Brent North)

Will the hon. Gentleman confirm that for small and medium companies that have been paying dividends—companies that he has been careful not to mention—the abolition will mean a net cash flow benefit of £1 billion?

Nick Gibb (Conservative, Bognor Regis and Littlehampton)

I did not refer to that point because we are debating large companies which constitute a substantial proportion of British industry. If one were to examine the aggregate turnover of those companies, I suspect that one would find that it represented more than half the turnover of all companies in this country. One of the worst aspects of the proposed system is that it is based on a company's current year profits. Companies will have to calculate their first two instalments on the basis of their annual profits when the year has not been completed. As the Institute of Chartered Accountants said, The difficulty with this arrangement is that it is, of course, impossible to predict the tax liability for the current accounting period with any accuracy, at least until the period has ended. The problem is particularly acute for businesses such as property investment companies, whose profit is liable to rise to a significant extent from a small number of large transactions, whose timing relative to the next year-end may be unpredictable. Of course, such unpredictable events can affect any company. It would make far more sense to base the quarterly payments on the company's prior year results and the statutory instrument should specify that, as does the income tax system for the self-employed and for sole traders. The consultation document and the notes on clauses cite a number of overseas jurisdictions as examples of quarterly payment systems—Australia, Canada, France, Germany, Japan and the United States. However, the systems used in all those countries except Australia and the United States base instalments wholly or mainly on the previous year's tax liability. Even in Australia and the United States, the system is not as uncompromising as that proposed in the Bill. For example, in the United States there are options to base instalments on the prior year's results with a top-up when the company files its tax return. There are also other methods for determining quarterly payments when companies have uneven revenues and expenses throughout the year. For example, there is what is known as the annualised method and the seasonal adjustment method for companies that generally earn at least 70 per cent. of their income in the second half of the year.

Quentin Davies (Conservative, Grantham and Stamford)

My hon. Friend will correct me if I am wrong, but is it not the case that in the United States there is no suggestion under any regime that chargeable gains would be included in the estimate on which quarterly tax payments had to be made? However, the new Labour Government appear to have included that in their proposals.

Nick Gibb (Conservative, Bognor Regis and Littlehampton)

I defer to my hon. Friend's expertise on that issue and I hope that the Paymaster General will note his comments, albeit that the regulations appear already to have been published. It may be asked what difference will it make if a company underpays or overpays based on an inaccurate estimate as it can always increase or decrease subsequent payments accordingly. However, there is a penalty in that interest will be charged on any underpaid tax. Of course, it will also be paid on any overpayment, but there is a difference between the rates. The consultation document originally referred to a gap of 3.5 percentage points. That gave rise to widespread criticism and the notes on clauses now say that the interest on overpaid and underpaid corporation tax will be brought more closely into line with commercial rates of interest". However, I understand that the interest charged on underpaid tax will still be 2 per cent. above base rate, which is very high, particularly for large companies that can usually borrow much more cheaply. Of course, the proposals apply to large companies. I hope that the Government will reconsider the issue and announce a more realistic commercial rate of interest, although the regulations have been published.

Geraint Davies (Labour, Croydon Central)

I have two quick questions for the hon. Gentleman. First, is he suggesting that it would be better to base the taxation of a company on the figures for the previous year than on the forecast figures? If so, under the hon. Gentleman's proposals, a company facing declining profitability due to exchange rates, for example, would face penal taxation. Secondly, does he agree that an interest rate differential is a good idea as it encourages large companies to make accurate returns instead of giving them an incentive to underestimate their profits and, therefore, gain cash flow benefits from the taxpayer?

Nick Gibb (Conservative, Bognor Regis and Littlehampton)

I am grateful to the hon. Gentleman for that intervention. If a company's profits were less than those of the previous year, it could opt for the current year basis. The Government's proposals are uncompromising as they are based on current year profits and that is the end of the story. As for the percentage gap between the two interest rates, there will be a tendency for companies to overpay their corporation tax as a cushion against penal rates of interest. That will provide more revenue to the Government and put more of a cash flow burden on industry. Basing quarterly payments on current year profits will clearly be unworkable and cumbersome for many companies. It will involve considerable uncertainty. The experience of jurisdictions that have a quarterly payment tax system is that companies tend to cushion the payments by paying more than they would otherwise to avoid penal rates of interest. The Government should avoid that. Why are the Government so determined to go ahead with a system based on current year profits? Is it because they want to raise more revenue from the cushion, or is it because Treasury Ministers simply will not stand up to the Inland Revenue? 6.15 pm The Financial Times says that tax experts believe that the Inland Revenue's large company anti-avoidance division has been instrumental in resisting pleas from companies not to shift to the current year basis. It goes on to explain: Tax inspectors are likely to monitor the payments, and sudden drops in tax liability will trigger investigations. This will act as an early warning system to spot anti-avoidance schemes. In other words, the determination by the Government and the Inland Revenue to base payments on current year profits rather than the previous year's figures is driven by convenience. All the burdens and cash flow problems it will impose on British industry are simply to make the job of the Inland Revenue that much easier.

Barry Gardiner (Labour, Brent North)

Will the hon. Gentleman give way?

Nick Gibb (Conservative, Bognor Regis and Littlehampton)

No. I have given way a number of times and I want to finish my speech. We all want tax avoidance clamped down and companies to pay their tax according to the legislation, but there must be a balance between facilitating Inland Revenue inquiries and placing burdens on business. Requiring a quarterly payment to be calculated on the basis of current year profit is too great a burden. One of industry's main concerns about the use of current year profits is that of market sensitivity, and calculating quarterly payments on the basis of estimated and unpublished future annual profit figures may well result in information leaking into the public domain and increase the scope for insider dealing. Companies may not prepare taxable profits estimates except to calculate their quarterly payments. Giving such figures to outside bodies such as the Inland Revenue may well have that result. That is not my concern but that of British industry, including the British Retail Consortium. There is enormous concern right across industry about the proposal to use current year profits and I hope that the statutory instruments will take that into account. I hope that the Government will listen to the Institute of Directors, which points out that a small underestimate of profit can lead to a failure to pay instalments because a company did not regard itself as large. When it eventually reaches the year end, it suddenly finds that it has made more than £1.5 million in profit. If it is a large company and does not make the quarterly payments, it is liable to pay a very large amount of interest. That view is echoed by the Institute of Chartered Accountants which states: the definition of 'large' could itself be related to the size of the current-year tax liability and hence a relatively modest but unforeseen increase in profit close to the year end could result in a company being treated retrospectively as having been liable for payments on account of months seven and ten. I wish to make one final point on the proposals that I hope will be borne in mind when the regulations are drafted. Although the Chancellor gave a commitment during the Budget statement that he would not raise corporation tax above the new 30 per cent. rate, we are all aware of the commitments that he gave before and during the general election campaign and the ease with which they were breached, rewritten and reinterpreted. "We have no plans to raise tax" became a commitment not to raise income tax when the July Budget revealed a £5 billion a year pensions tax. A commitment not to raise income tax became a commitment not to raise the basic and higher rates of income tax once a decision had been made to reduce the value of the married couple's allowance which increased millions of people's income tax bills. The commitment on the rate of corporation tax is hardly worth the paper on which it is printed, particularly in view of the Treasury's surreptitious decision not to fight the European Commission's proposals to harmonise business taxes. The only commitment that Treasury Ministers now give is to harmonise personal tax rates. They have dropped any reference to business taxes. My concern, which is shared by the Institute of Chartered Accountants, is that calculating quarterly payments is rendered uncertain not only because it is based on future results but because, under the current proposals, its payments on account could be rendered insufficient retrospectively if an increase in the tax rate is announced that affects all or part of the current accounting period. Other changes in tax law could have the same effect. Will the Paymaster General confirm that if an under-payment is a result of a change in the rate of corporation tax or a change in the law, no interest, overdue tax or other penalties will be charged? Will he ensure that that is incorporated in the statutory instruments? I have raised one or two concerns that are shared by those outside the House. It is wrong that a major change should be introduced through secondary legislation. I hope that the Paymaster General will confirm that the regulations will be debated on the Floor of the House, as proposed in the amendment, or, at the very least, in Standing Committee. I hope that the concerns raised by me and others about the proposals set out in the consultation document will be reflected in the statutory instruments.

Geoffrey Robinson (Labour, Coventry North West)

I fear that I shall be unable to reply to all the points that Opposition Members have raised, although if such a wide-ranging debate on the amendment means that we are not to have a clause stand part debate, I could range more widely.

John Butterfill (Conservative, Bournemouth West)

In view of the wide-ranging speeches that we have heard, it would not be appropriate to have a clause stand part debate.

Geoffrey Robinson (Labour, Coventry North West)

In that case, I can reply more widely. I am grateful for your guidance, Mr. Butterfill. The right hon. Member for Hitchin and Harpenden (Mr. Lilley) bemoaned the fact that amendment No. 1 has not been selected. I congratulate him on tabling an amendment on this occasion. When we started proceedings on our first Budget and were debating the windfall tax, it was beyond the competence of the Opposition to table even one amendment. The hon. Member for Gordon (Mr. Bruce) made the point, which was reiterated several times by other Opposition Members, that there is something surreptitious about the way in which we are introducing the measure.

Malcolm Bruce (Liberal Democrat, Gordon)

There is a lack of transparency.

Geoffrey Robinson (Labour, Coventry North West)

The hon. Gentleman may say that, but all the figures were published not only in the Red Book but in the pre-Budget statement in November, when we set out clearly, for consultative purposes, our plans for advance corporation tax. I refer the hon. Gentleman to section 9 on page 19 of that consultative document, issued by the Inland Revenue on 25 November 1997. I also point out that the figures in that document were higher than those subsequently published in the Red Book. The hon. Member for Grantham and Stamford (Mr. Davies), who has not been on top form this afternoon, said that there was something surreptitious or covert about the introduction of this legislation; but that could not be wider of the mark. We not only consulted but gave the figures on which we would consult so that there would be no lack of transparency and no misunderstanding. We reached broad agreement on that proposal.

Peter Lilley (Conservative, Hitchin and Harpenden)

rose—

Quentin Davies (Conservative, Grantham and Stamford)

rose—

Geoffrey Robinson (Labour, Coventry North West)

I shall give way first to the right hon. Member for Hitchin and Harpenden, and then to the hon. Member for Grantham and Stamford.

Peter Lilley (Conservative, Hitchin and Harpenden)

If the Paymaster General is being open and transparent, will he confirm here and now, on the record, that the net cash raised for the Treasury over the next four years—the lifetime of this Parliament—as a result of the clause will be just over £5 billion? Or he is trying, like his colleagues, to slip out of putting that on the record?

Geoffrey Robinson (Labour, Coventry North West)

The right hon. Gentleman is being nothing short of ridiculous. We published higher figures for the cash flow impact in the transitional period. There is bound to be a cash flow impact when moving from the present system of advance corporation tax to an instalment system. We made that clear and did not try to dodge the issue. We discussed the matter with the CBI and industry, and with international as well as domestic companies. They could see that it was a principled reform with inevitable consequences in the transitional period. They understood that we had a long-term interest in stability and low taxation rates and that reducing the rate of corporation tax for large companies and small companies to 30 per cent. and 20 per cent. respectively—the lowest figures ever—would have a major net present value to the companies. That is why we have had considerable support for our proposals.

Quentin Davies (Conservative, Grantham and Stamford)

My complaint was not that the figures were not published in the Treasury's document—I said in my speech that they were in the Red Book, which I quoted—but that although the figures were there for those who wanted to find them, the Government, and not only the Paymaster General, were disingenuously pretending that the effect of the Budget was to relieve the corporate sector of part of the existing burden of taxation when the reality was the exact reverse. My complaint was not about the figures in the Treasury's document, but about the deceptive spin put on them by the hon. Gentleman and his colleagues.

Geoffrey Robinson (Labour, Coventry North West)

The hon. Gentleman misses the point. Not only did we try not to present the measure in that way, but we consulted on figures that clearly showed what the transitional impact would be. One could not be more straightforward or transparent than that.

Peter Lilley (Conservative, Hitchin and Harpenden)

The Paymaster General could be more straightforward and transparent and not dodge the question. Is it correct that the extra tax raised as a result of the clause will be £5.1 billion over the next four years? Is that true or false? Will he confirm that? Why is he dodging the question? Why is he refusing to put that answer on the record?

Geoffrey Robinson (Labour, Coventry North West)

Even the right hon. Gentleman can read. He can read the Red Book, just as everyone else can—although he may not know the difference between cash flow and tax. To be precise, this is not a tax. The taxes are being reduced and the cash flow impact is negative. We made the effect clear back in November. That gives the lie also to Conservative Members' claim that the two parts of the major corporate tax reform were not seen as a whole.

Peter Lilley (Conservative, Hitchin and Harpenden)

rose—

Geoffrey Robinson (Labour, Coventry North West)

I shall not give way again because the right hon. Gentleman will only repeat, ad nauseam, the silly little point that he is trying to make. He knows that it is a silly little point and he knows that the figures were published and consulted on. He hates the fact that we have the CBI's agreement for the measure and that our relations with industry are very good, and much better than those of the Conservatives in opposition or in government, but he must accept that. The right hon. Gentleman should be aware that the director general of the CBI wrote praising us for the fact that we had consulted and that we had removed medium companies from the instalment systems and made other adjustments. The director general is clear that the principles of the reforms are accepted and supported by the large majority of companies in this country. That is what the right hon. Gentleman hates, but I regret to tell him that the Opposition have to learn that the Government—as we will discuss later when we come to individual savings accounts and other matters—are prepared to consult, to listen and to change policy, as we have done. That is nothing of which we should be afraid or ashamed. We recommend that the Opposition learn from that. Had they behaved more properly in that respect when they were in government, they would not have suffered such a disastrous defeat.

Quentin Davies (Conservative, Grantham and Stamford)

Will the Paymaster General give way?

Geoffrey Robinson (Labour, Coventry North West)

I have given way several times. I shall do so once more, but I hope that it will be a relevant point.

Quentin Davies (Conservative, Grantham and Stamford)

It is a relevant point, and I hope that the Paymaster General will deal with it. There is no point in the Government consulting unless they are prepared to explain why they are introducing measures. Why have the Government decided that it is appropriate for income tax under schedule D to be charged on a previous year basis, but corporation tax on a current year basis?

Geoffrey Robinson (Labour, Coventry North West)

We took that decision because we felt that, on the whole, it would be much more reliable and more appropriate for companies to forecast quarterly on a revolving basis. I do not know on which boards the hon. Gentleman sits or used to sit, but the idea that a company does not make a clear annual forecast against which there is monthly and quarterly reporting is just unbelievable.

Quentin Davies (Conservative, Grantham and Stamford)

rose—

Geoffrey Robinson (Labour, Coventry North West)

I have given way an awful lot and we must move on. I always give way to the hon. Gentleman, as he knows—although, quite honestly, I found some of the things that he said today utterly amazing. I shall now deal with some other points that were made in the debate and need some attention. The hon. Member for Bexhill and Battle (Mr. Wardle) mentioned rapidly growing companies. There are precise provisions—I shall point them out—for rapidly growing companies that relate to whether they were smaller companies in the previous year or whether profits were as high as £10 million. That is a totally adequate provision. I hasten to add that the hon. Member for Bexhill and Battle should not be seen as encouraging overtrading by companies. It is wise to be prudent in such respects. The question is again only one of cash flow impact. If a company were in so much trouble that it had to borrow from the Inland Revenue at 2 per cent. over base— I would not wish it on any company—it would not get a bad deal at that rate. It is worth pointing out that we have reduced the differential between the borrowing and lending rate of the Inland Revenue and companies from the 5 per cent. that prevailed under the Conservative Government for 18 years and was never touched, to a much more reasonable 2 per cent. At that rate, there is not a great deal for the Opposition to grumble about. The general mix that we have come up with reflects what we thought was the best judgment of the situation. I do not think that anyone in the House—at least, no hon. Member has declared himself in such a light so far—rejects the principle of what we have done. The Opposition are trying to accept it in principle, but, having willed the end, they will not will the means. That is why the amendment is confusing. We cannot make regulations under clause 30 without first laying them before the House of Commons. The regulations published on Friday are already in the Library and available to hon. Members. They have to be laid before the House so that we can scrutinise them before they come into effect. Not surprisingly, we do not need the amendment to require that. The second reason anybody who looks at the amendment is bound to be very puzzled is that it will require instalment regulations to be made under the affirmative resolution procedure. That is the point that the right hon. Member for Hitchin and Harpenden is trying to make in tabling the amendment. Indeed, he went on to say, when challenged, that he could not remember in his experience in the Treasury—I think that he served successively as Financial Secretary and Economic Secretary—the Conservative Government doing anything of the kind that we are proposing. Perish the thought. In the light of that damascene conversion, why, if the Conservatives did not like regulations being made under the negative resolution procedure, did they not change it during the 18 years that they were in office? I shall tell the right hon. Member for Hitchin and Harpenden what the Conservatives did in those years and give a few figures to substantiate my comments. The Conservatives were responsible for hundreds of sets of tax regulations that were introduced under the negative resolution procedure, including nearly 200 on direct taxes over the three years to March 1997. The right hon. Member for Hitchin and Harpenden said that the Conservative Government never did any such thing. Perhaps he did not know what they were doing. Perhaps he did not know what he was doing when he was in the Treasury. Above all, perhaps he did not know what the right hon. and learned Member for Rushcliffe (Mr. Clarke) was doing when he was Chancellor. I am sure that the right hon. and learned Gentleman very often did not know about such detail. In 1993, the Conservatives quite happily made new regulations covering the deduction from the pay-as-you-earn scheme—tax from employees' wages and salaries—under the negative resolution procedure. What does the right hon. Member for Hitchin and Harpenden have to say about that? Those regulations affected tens of millions of people and tens of billions of pounds of tax. The simple fact is that the right hon. Gentleman did not know what he was talking about then, did not know what the right hon. and learned Member for Rushcliffe was doing, and neither of them knew what the Government were doing. The amendment is inappropriate and unnecessary and I of course urge the Committee to reject it.

Peter Lilley (Conservative, Hitchin and Harpenden)

I shall endeavour to be brief so that we can move on to the other two amendments to clause 30. The hon. Member for Gordon (Mr. Bruce) said that there had been relatively little detailed criticism of the clause. The reason is, of course, that there is rarely detailed criticism until regulations and details are published. They were not published until Friday, they are not yet in the Vote Office or available to hon. Members, and they have not been seen by the outside world ahead of this debate. Consequently, there was no possibility of people making informed submissions that could be considered by Conservative Members or, if they were remotely interested, by Labour Members. That is what is so wrong with the procedures and mechanisms that the Government are pursuing in this matter. There has been quite a lot of opposition to the fact that the Government are proceeding with the use of regulations on an unprecedented scale. Regulations have always had a place, but when everything is delegated to regulations and none of the detail is in the Bill or published in time for consideration in Committee, that is wrong. My hon. Friend the Member for Bognor Regis and Littlehampton (Mr. Gibb), in a powerful speech that will pay the Paymaster General dividends if he reads it, quoted a series of accountants to the effect that what is proposed is perilously close to a constitutional abuse—and so it is. My hon. Friend the Member for Grantham and Stamford (Mr. Davies) made a characteristically compelling speech in which he asked the Government why they had not simply drafted a one-clause Bill stipulating that the Treasury should have the power to introduce any tax by whatever measures it thought appropriate in the appropriate regulations. I fear that he is putting ideas into their heads. I saw many of them perk up at the thought. The process moves from paying tax in arrears to paying it in advance. Inevitably, that involves a period of double taxation. After beginning blusteringly by saying that he would be transparent and open, the Paymaster General dodged answering the question of how much extra tax will be raised by the clause. We are used to his dodging his taxes; now he is dodging telling us how much other people will have to pay in taxes as a result of his measures. That is not satisfactory. We will come back to this time and again. He pretends that industry is happy with the proposals. The CBI welcomed the mitigation of his original, more onerous proposals—

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

Order. The right hon. Gentleman has just mentioned tax dodging. I am not sure that that is the right phraseology to use, and I would be grateful if he withdrew it.

Peter Lilley (Conservative, Hitchin and Harpenden)

Of course I withdraw. The Paymaster General is well known for dodging answering questions about either his own taxes or the taxes that he is imposing on others. That is a well-established fact. We believe that the Government should come clean on the amount of tax involved and recognise that industry does not welcome the extra tax that it is having to pay. What they propose will be welcomed even less when it accumulates with the other burdens they are imposing on business, which threaten a manufacturing recession that is likely to spread in due course to the whole economy.

Peter Lilley (Conservative, Hitchin and Harpenden)

I beg to move amendment No. 3, in page 16, line 29, at end insert— '(c) for special payment arrangements for companies making seasonal profits, enabling such companies to pay instalments based on actual tax-adjusted results for the previous six month period.'. The quarterly process will inevitably increase taxes on business by requiring companies to forecast their future profits and pay taxes on them before they have been earned. If companies underestimate, they will have to pay interest on the underpayment at a rate designed to discourage understatement. That is a particularly tough requirement on the many firms with highly seasonal business; retailers, for example, who depend on the Christmas season to make any profit at all will have to pay taxes on quarters three and four before they have earned anything at all. The amendment would allow such companies to pay less in the first half of the year. International experience shows that corporation tax systems can be reformed to help seasonal businesses. In the United States, for example, businesses pay tax by quarterly instalments, but the system is modified to allow seasonal traders to pay each instalment of tax according to the proportion of annual profits earned at each payment date, using previous years' estimates. Seasonal businesses are not looking for any preferential treatment, but for a corporation tax system that acknowledges their distinctive trading patterns. It must be wrong to force seasonal businesses to pay tax in advance of earning enough revenues to have any profit at all over the year as a whole. Retailers have come to me with detailed suggestions about how to resolve the problem. The Paymaster General should listen to them and act on what they have to say. To be eligible to use the method we propose, retailers suggest that a company's profits earned in the first six months of the accounting period must be consistently less than their profits earned for the complete financial year. In the US, the proportion is set at 30 per cent. or less of total profit for the year. It would be easy to determine the estimates by looking at established trading patterns over the previous five years, as disclosed in published interim reports. I hope that the Paymaster General will seriously consider the amendment, which should not be costly for the Treasury to accept and introduce and would meet a valid concern of which he should take due note.

Malcolm Bruce (Liberal Democrat, Gordon)

I support the amendment. Some companies—in agriculture, farming and fruit, for example—have business that is exclusively summer or Christmas related, and it is reasonable to suggest that the Bill should take some account of that. Otherwise, the cash flow benefit to the Treasury may be significant, but the difficulties for individual companies may be real. If the Conservative party intends to divide the Committee on the amendment, we will support it.

Dafydd Wigley (Plaid Cymru, Caernarfon)

I, too, support the amendment. I represent a constituency where there is a considerable seasonal distortion to economic activity. Tourism is one of the major industries in my area; agriculture—when it is not going through a depression, as it is now—is the other. The fact that major companies in the tourism sector have large amounts of money coming in over a limited period and then have low levels of activity the rest of the year leads to knock-on effects on a host of service industries associated with the demand from the tourism sector. In Llandudno, for example, the population goes up from 20,000 to 200,000 in the summer. That gives an indication of the impact of seasonal business on the business fraternity in the area. The amendment would be helpful in terms of cash flow for such companies, and I hope that the Government will seriously consider it.

Geoffrey Robinson (Labour, Coventry North West)

The Committee is rightly considering the amendment in a reasoned tone. Like the right hon. Members for Hitchin and Harpenden (Mr. Lilley) and for Caernarfon (Mr. Wigley), the Government have received representations on it. We met the British Retail Consortium, which suggested something similar to the amendment; it would confine the measure to companies consistently making less than 30 per cent. of their profits in the first half of the year. The amendment might help a few large companies, but there cannot be too many firms that make upwards of 70 per cent. of their profits in the second half of the year. The Committee will realise that the amendment would add considerable complexity to the rules. The right hon. Member for Hitchin and Harpenden refers to the American situation, but I am sure that he is aware that, in other respects, the American system is less favourable. The whole of the tax, as opposed to half, is paid in the year in question. I do not think that the British Retail Consortium, or anybody else, would want that because it would be so disadvantageous. We would not have received the support that we have received for the changes over a four-year transitional period if we were to move to the American system as a whole. It is unwise to cherry pick—to have one bit from America and another bit from France—as we would end up with a mish-mash that would not achieve the principled reform we are looking for. I am not inclined to accept the amendment or the proposal from the British Retail Consortium, but we will consider the matter carefully and return to it.

Peter Lilley (Conservative, Hitchin and Harpenden)

I am grateful to the Paymaster General for that assurance; we will not press the amendment to a vote. I beg to ask leave to withdraw the amendment.

Peter Lilley (Conservative, Hitchin and Harpenden)

I beg to move amendment No. 4, in page 16, leave out lines 37 and 38. We have drawn attention to the fact that clause 30 in particular—like the Bill in general—makes excessive use of regulation-making powers. I invite the House to consider particularly the proposed new section 59E(5), which states: Regulations under this section— (a) may make such modifications of any provisions of the Taxes Acts, or (b) may apply such provisions of the Taxes Acts, as the Treasury think necessary or expedient for or in connection with giving effect to the provisions of this section. It is, in short, a Henry VIII clause—a clause that enables the Government, by regulation, to change primary law elsewhere without proper consideration by the House. We know that the other place has found such legislative provisions particularly abhorrent, but it will not have the chance to vote on the Finance Bill. We should eliminate that subsection and ensure that if the Government want to change primary legislation, they must bring the change to the House in an open and democratic fashion by the normal procedures of the House and may not publish regulations that cannot be amended or debated.

Geoffrey Robinson (Labour, Coventry North West)

This is, quite simply, a wrecking amendment, and the right hon. Gentleman is again suffering from a fairly severe bout of amnesia. It is quite normal for tax regulation-making powers to permit modifications of this sort. Given the authors of the amendment—people who have served in distinguished positions in the Treasury—the House may be interested to learn that the previous Government's last three Finance Bills provided more than a dozen sets of regulation-making powers covering direct taxes alone, three quarters of which included the power to modify existing provisions of the Taxes Acts. The only practical effect of the amendment would be to prevent regulations from being made to introduce quarterly instalment payments of corporation tax by large companies. If that is the Opposition's intention—clearly it is—I recommend that we proceed to a vote on the clause as a whole.

Peter Lilley (Conservative, Hitchin and Harpenden)

The Paymaster General said that the Conservative Government's last three Finance Bills contained 12 sets of regulation-making powers, but this clause alone has 11 and includes the obnoxious subsection that the amendment would delete. On any basis, that should make the Committee wary of allowing the clause to stand part of the Bill—we shall recommend that it votes against doing so.

Nick Gibb (Conservative, Bognor Regis and Littlehampton)

On a point of order, Mr. Lord. During the debate on amendment No. 2, the hon. Member for Dudley, North (Mr. Cranston) referred to some statutory instruments relating to clause 30 that he said the Government had already published and placed in the Library, and I believe that that was confirmed by the Paymaster General. I asked Library staff for the reference number of the draft regulations; they can trace no sign of any such regulations being published on Friday, and there is no mention of them in the list of draft regulations or on today's Order Paper. Is not it a gross discourtesy to the Committee that the regulations were not published before the debate, and is not something odd going on, when Labour Back Benchers can see them before other hon. Members?

Geoffrey Robinson (Labour, Coventry North West)

Further to that point of order, Mr. Lord. I hope that the hon. Gentleman asked for the right things when he went to the Library.

Nick Gibb (Conservative, Bognor Regis and Littlehampton)

Yes.

Geoffrey Robinson (Labour, Coventry North West)

If that is the case, we are at a loss at the moment, but we will seek to rectify any error as quickly as possible.

USE OF PEPS POWERS TO PROVIDE FOR ACCOUNTS

Peter Lilley (Conservative, Hitchin and Harpenden)

I beg to move amendment No. 5, in page 60, line 30, leave out 'subsection' and insert 'subsections'.

Peter Lilley (Conservative, Hitchin and Harpenden)

The original plans for individual savings accounts were not only badly thought out but wrong in principle. The original proposals revealed Labour's true intentions on private savings. Labour wanted to tax prudent savers, in effect retrospectively: those who had saved most prudently would face higher tax. We forced a U-turn on the issue. In a debate some weeks before the Budget, we won the argument, even though we could not win the vote, and the dismay on the faces of Labour Back Benchers was clear when Ministers were unable to put up any coherent defence of the proposals. We welcome the U-turn, humiliating though it may be for the Government. Unfortunately, the damage has in part been done, because, by publishing their intention to introduce retrospective changes in the taxation of savings vehicles already in existence and savings already accumulated, the Government have made people concerned that, at some future date, a Labour Government might behave in a similar fashion, when they think that they can get away with it. That has increased reluctance to save in the relevant forms. That is doubtless part of the reason for the decline in the savings ratio that is forecast in the Red Book. Labour originally wanted to reduce the annual amount that people could save in tax-advantaged forms. Alas, that aspect remains in the revised proposals announced in the Budget and in the Bill. The maximum of £10,800 a year of tax-exempt savings will be reduced to only £5,000 a year. That is especially onerous on those approaching retirement. If they have not made sufficient provision earlier in their life, they will not get the benefits of compound interest that enable people to save lesser sums. Having fewer years to go, they may need to put more money aside. We should prefer a higher amount to be permitted to savers in, say, the last 10 years of their working life. Thinking that the Government were unlikely to respond to such a sensible measure, which breaks the very principle to which they are wedded, we have made, in amendment No. 7, a suggestion that came originally from Saga, which caters specifically for the over-50s and over-55s, to allow people in that age group greater flexibility on how they deploy their investments, within the —5,000 limit, so that they can do so in less risky ways if they feel that to be appropriate as they approach retirement and have less chance to ride out the ups and downs of the stock market over a longer period. The Government also wanted to cut the incentives. The cut in the July Budget remains, alas, in the current proposals. Under our Conservative tax system for people saving in personal equity plans, for every £80 net dividend, people got a £20 tax credit, whether they were non-taxpayers or basic rate taxpayers. Under the Government's scheme, the non-taxpayers£those with the lowest incomes£will get no tax credit at all. That will penalise the least well-off relative to the tax regime that we used to have. I will be interested to see whether any Government Members stand up and defend that. Instead of getting £20 tax credit for every £80 of net dividend, basic rate taxpayers will get only £8.90, and that credit will disappear entirely after five years. The main beneficiaries from investing in equities in individual savings accounts will be top rate taxpayers. Is that what the Labour party envisaged when it was elected? Did it expect Ministers to introduce a scheme in which the primary benefits fall to top rate taxpayers and which limits any tax benefit to those on the lowest incomes and more than halves the benefit to basic rate taxpayers? Unfortunately, the costs of the scheme will absorb most of the tax benefit for basic rate taxpayers. The fourth characteristic of the Government's proposals was that they were reckless about the costs of schemes. The £50,000 lifetime limit would have had the most adverse consequence on providers of savings vehicles, and we are delighted that, at least on the face of it, that has disappeared. Other complex rules persist and the sheer change in the rules from the previous system will require all suppliers to modify their systems£and incur costs in so doing. That will enhance costs and mean that a basic rate taxpayer with a modest tax credit will find much of the credit is absorbed by the extra costs imposed by that unnecessary change, unless the provider absorbs the costs; unit and investment trust providers sometimes do so. Our amendments would deal with some of those problems, but, alas, many of the problems inherent in the changes that the Government announced in November or early December persist in the proposals in the Bill. We can only hope that the Government will be willing to make further changes in addition to the massive changes that they have already been forced to make in response to our arguments and widespread criticisms from the financial and savings community.

Nick Gibb (Conservative, Bognor Regis and Littlehampton)

Despite all the changes that the Government have made in ending the absurdity of a lifetime limit, perhaps the Paymaster General could tell us the advantages for a basic rate taxpayer of holding equities through an individual savings account, given that any capital gains are likely to absorb his capital gains annual allowance anyway and it is unlikely that such a taxpayer would be able to generate in a normal, average year gains exceeding the annual limit. The 10 per cent. tax credit over five years is unlikely to exceed any charges made by a managed fund scheme, so what are the advantages of a basic rate taxpayer holding equities through an ISA? If there are no advantages, how can the Government claim that introducing the ISA is any great advance on the TESSA and PEPs regime that already existed? Many outside commentators, including Gavyn Davies, I think£I will stand corrected if I am wrong£have said that all the Government's objectives could have been achieved by simple changes to TESSAs, for example, by removing the ending of the five-year, locked-in period. The Institute of Directors said of the regime: We remain concerned about the low level of the annual limit (£5,000 compared with the £7,800 a year which can now be put into a general PEP plus a TESSA). We are also concerned about the £1,000 sub-limits for cash and insurance products which will increase administrative costs and may also tempt people saving, say, £2,000 a year into inappropriate equity investments. Will the £5,000 limit be increased to reflect inflation as years go by, or will it stay at £5,000 and thus diminish over time as inflation eats away the value of that figure? Will the Minister confirm which of those two options the Government will pursue? The main criticism by the Institute of Directors again concerns how the legislation has been put before the House. It said: None of this detail is in the Finance Bill itself. We are concerned that matters which should be dealt with in primary legislation, allowing Parliament to make detailed amendments, are being relegated to secondary legislation. If, for example, Parliament were to decide that the limits mentioned above should be changed, it could only achieve this by the very crude method of indicating to Ministers that the regulations for ISAs would be rejected if they did not contain different limits. Perhaps the Paymaster General will respond to those points.

Sally Keeble (Labour, Northampton North)

I am grateful to have a chance to speak in this debate because the amendments are mean minded and petty, and their aim is to undermine the purpose of introducing the ISA in the first place. In view of the time, I will be brief. On amendment No. 7, the main aim of the ISA is—and always was£to encourage people who do not already have savings to save. The scheme and the way in which it was to be made available were constructed particularly with that group in mind. At present, young people, especially people with children, have the fewest savings. The family resources survey showed that a third of pensioner couples had £20,000 or more in savings, and one in five of all couples without children had savings at that level. Those are the people who have the most money in savings and who might not look to the ISA to encourage them to start saving. In comparison, a third of all couples of working age with children and 70 per cent. of single parents with children had no savings at all. An amendment that would change the regulations to encourage people of over 55 to save and to provide a savings regime that is more suitable for them runs against the entire purpose of the ISA.

Tim Loughton (Conservative, East Worthing and Shoreham)

The hon. Lady is referring to those 6 million elusive investors who are to be attracted into ISAs. Which feature of the ISA will attract those virgin investors with no savings into becoming savers?

Sally Keeble (Labour, Northampton North)

I am grateful to the hon. Gentleman for making that point. People may not save with the mainstream financial institutions, but that does not mean that they have no savings at all. They might well have savings in credit unions or the myriad other informal savings schemes. It is extremely important that those people are attracted into the mainstream so that they can get access to a wider range of financial services. If they have savings accounts, they might also be able to get access to loan accounts. I take the hon. Gentleman's point about which elements of the ISA are the most attractive. I suspect that they will be the points of access, which is why the supermarkets are so important, and the fact that complex services will be offered, but with ease of access so that people can take their money out as well, which will encourage them to start putting money into savings.

Tim Loughton (Conservative, East Worthing and Shoreham)

I think that the hon. Lady is actually saying something different. If she is alluding to current savings in non-mainstream schemes, such as credit unions or small bank accounts, and saying that those savings could be transferred into the new ISA regime, that will not add a single penny in additional savings. The existing bank arrangements with supermarkets are perfectly accessible and are available to any shopper. Why will ISAs be more attractive and induce people to save more?

Sally Keeble (Labour, Northampton North)

I am not merely thinking of small banks. Credit unions are one such scheme, certainly, but there are many other informal schemes such as Christmas clubs and so forth, in which people save small amounts of money over a short period. Those provide savings schemes for the people who have the least money of all. I do not know the extent of such schemes, but I am certainly thinking of those people. The hon. Gentleman is right in that we do not merely want people to shift their savings from one scheme to another. I have dealt with the aspects of the scheme that will probably be most attractive to people who do not save in mainstream savings accounts. The Government need to stimulate savings most among people of working age who have children still living at home. Amendment No. 7 would not primarily help such people. In addition, it would give tax incentives to people who are already relatively wealthy for their cash savings, which would not be a prudent use of tax incentives. It would, in some ways be silly to produce a new PEP with cash by the back door. The over-55s are already the most likely to own a PEP; the British Household Panel survey found that 31 per cent. of the richest over-55s and 43 per cent. of the richest over-60s have at least one PEP. A PEP with cash by the back door would not achieve the purpose for which the Government produced the scheme. On Tory amendment No. 8, it is of course desirable that administration costs are as low as possible. The Labour party has—quite rightly—criticised the high administration costs of, for example, private pensions. The Government plan to introduce benchmarking of costs for the individual savings accounts. That, combined with careful monitoring, is the right way to control administration costs and ensure that people with relatively low incomes get good value for money in their savings.

Philip Hammond (Conservative, Runnymede and Weybridge)

rose—

Tim Loughton (Conservative, East Worthing and Shoreham)

rose—

Sally Keeble (Labour, Northampton North)

I have an embarrassment of choice.

Philip Hammond (Conservative, Runnymede and Weybridge)

Does the hon. Lady think that costs can be equated with value for money?

Sally Keeble (Labour, Northampton North)

People who do not have much money clearly need savings that provide as much return as possible and are best served by keeping administration costs low. The question is how to do it. I shall deal later with why the proposals in your amendment are not right.

Sally Keeble (Labour, Northampton North)

I apologise, Mr. Lord. I mean that I will deal later with the amendments tabled by the hon. Gentleman's party, which I do not believe are the right way to control costs. The Government's proposals rightly provide flexibility and the means to ensure that mainstream financial institutions will control administrative costs and pass on as much as possible of the benefits to people on low incomes.

Tim Loughton (Conservative, East Worthing and Shoreham)

I am grateful to the hon. Lady for taking a multi-volley of interventions. The hon. Lady has raised benchmarking. Is she saying that cost of a product is the only aspect of benchmarking essential to ISAs? Can she distinguish between benchmarking and kite marking? Labour Members have used both terms—but have inter-used and wholly confused them.

Sally Keeble (Labour, Northampton North)

At the risk of further confusion, I shall give my understanding, which is that kite marking involves approval for particular ways of doing things whereas benchmarking is about criteria for an aspect of a scheme. Certain percentages might be set for administration costs, for example. That differs from kite marking, which says that this, that or the other is an approved scheme. Administration costs must be examined and are likely to be a difficult area of the scheme. Accounts in which people make frequent, small deposits and can withdraw money fairly easily have high servicing costs. That is why the Government must set a benchmark in this area and provide a real incentive to financial institutions to provide such schemes. The institutions will not think up such schemes on their own. Some institutions are not providing particularly good services at present. Artificially capping administration costs would probably make it extremely difficult to deliver such accounts, at least in a way that makes them attractive to people who have not previously saved in mainstream savings accounts. Some of the factors likely to make ISAs attractive to people on low incomes—such as frequent withdrawal and ability to make small deposits—will make them difficult to service. The amendment would undermine the success of the scheme. I believe that that is what the Opposition want. Having failed to win the argument in open debate, they are trying to scupper the individual savings accounts by their mean-minded measures, which would do nothing to provide tax breaks to people with less money and would do everything to protect the incomes of the top 10 per cent. of income earners aged over 50. That is another way of saying that the Tory party is simply trying to look after its own, not the wider interests of the country and the public. I urge the Committee to reject the amendments.

Tim Loughton (Conservative, East Worthing and Shoreham)

First, I must declare an interest, which is in the Register of Members' Interests. I worked for a company that administered PEPs and have run PEPs for 10 years, since their inception. The amendments tackle problems in the Bill for older people. Like my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley), I welcome the climbdown on PEPs. We wish ISAs well and we need them to work, but they must be the right product in the right formulation. We also welcome the tacit admission—at last—that the Government will have to forgo tax relief in order to encourage savings. The net effect of the new proposals will mean forgoing much more tax relief to the Treasury than ever happened under PEPs, as the Paymaster General has had to admit in various answers to written questions. It is a shame that the ISA proposals contain a major missed opportunity to encourage the elusive 6 million people to save for the long term by not linking a savings scheme with the benefit system and stakeholder pensions. Time and again, we are faced with these 6 million people. We do not know who they are or where they come from. If they are shyly revealing themselves, where are they hiding? It is a complete fantasy to say that 6 million people are queuing to throw money at the doors of the Treasury. Six million lower-earning people are not remotely attracted by a capital gains tax concession, as they would get nowhere near the current —6,800 limit. They are not attracted by a tax credit that, on an average yield on a —5,000 equity investment, would amount to just —14, which would be more than gobbled up in charges. As the hon. Member for Northampton, North (Ms Keeble) admitted, the only real attraction of the scheme will be to the Christmas club-type cash element. What will really happen is that people who have existing small amounts of money in various pots may shift it to more convenient pots within an ISA. That will not add a single penny to savings, which surely is not the Government's underlying intention. Far from the scheme being a temptation for 6 million new investors, it would be easier for the Paymaster General to feed the 5,000. The Bill completely misses the need to look after people with existing PEPs. Although PEPs will be allowed to continue, flaws remain that would have had to be changed even if PEPs had remained without an alternative. For example, why should PEP holders be unable to have the full range of overseas investment that new ISA investors may have? Holders of single-company PEPs from their inception should not have to have six completely ring-circled deposit accounts for different years. If they have had one particularly good PEP—perhaps worth £20,000 or £30,000 now—they must reinvest it in only one stock, which puts a disproportionate exposure on a single equity or fund.

Sally Keeble (Labour, Northampton North)

Does the hon. Gentleman accept that even reasonably wealthy people who save tend to invest money for a shorter time than they can afford—for five years rather than 10? The real challenge is not to get non-savers to save for one, two or three years but to save at all. Having got them used to that, with the confidence that they can get access to their money in a crisis, the aim is then to get them to save for longer periods. Does he accept that people with money do not always put it into great long-term investments, because they want access to it?

Tim Loughton (Conservative, East Worthing and Shoreham)

I agree with the hon. Lady's aims, but, with the greater flexibility of ISAs and enabling people to take out cash and, in a confused way, refund it later—whether it is capital or accumulated income that is taken out and replaced is not clear—the Government are not encouraging longer-term investment. That is a fallacy. There was an inflexibility with PEPs, but one advantage of that was that people were committed to longer-term saving. The real problem is that time is ticking away, especially for older investors, as my right hon. Friend the Member for Hitchin and Harpenden said. The ISA regulations are not even out yet and are not due before 10 May, but ISAs will start in 11 months. City firms and independent financial advisers will have to set up systems ready to work by the end of this year, but we do not have full details of how the scheme will work. It will cost a vast fortune in personnel, time and new computer equipment at a time when financial institutions are juggling with self-assessment, corporate tax self-assessment, the euro, the millennium bug and everything else.

Philip Hammond (Conservative, Runnymede and Weybridge)

Does my hon. Friend agree that financial institutions face a major task in persuading existing regular savers in PEPs to sign the necessary paperwork to convert their contracts to continue saving regularly in ISAs, and that it is vital that we do not allow those people to slip through the net?

Tim Loughton (Conservative, East Worthing and Shoreham)

That is right. Will we need to have completely new client agreements for PEP holders who will hold ISAs? There is much paperwork still to be done. Six months on from the original disastrous consultation document, many questions remain, and we have no idea of the answers. Will the money that can be transferred from TESSAs after their maturity be the capital or the capital and the interest? No answer has been given. Will TESSA holders be able to transfer the cash from the cash component of an ISA to the equity component? We do not know. There is a raft of questions on regulation and monitoring, which is of particular concern to older people who do not want the hassle and confusion of changes and much more paperwork. How will the reporting of what people have got in ISAs happen? Whom will they report to? How will we cope with the different components of ISAs being run by different plan managers in the same year? Who will monitor the multi-provider component parts to avoid the risk of over-subscription in one year or five years or whenever it will be? When will we get details about the proposed maxi or mini ISAs that have been dangled in front of us by Treasury representatives? What happens when ISA holders reach the cash, insurance or equity ceiling when they have different plans with different managers over several years? What will happen with withdrawals? Will capital or accumulated income be taken out? Who will monitor it when it is put back a few years later? Who will oversee best advice on a continuing basis, particularly with the insurance element, which demands a higher degree of best advice? When a 55-year-old goes to Tesco, which has a link with a large Scottish pension and investment product company, and decides among his frozen peas and bargain yoghurts to put money into his ISA, it is likely that he will be offered an ISA linked to that company's plan. That is fine; he may go back a few months later and add more money. He may have a regular savings plan. When that investment is no longer the most appropriate—it may have fallen from the first to the third or even fourth quartile—whose is the responsibility to advise that investor to move to a different product? What onus is there on a supermarket, whose major responsibility and profit centre is flogging groceries, to ensure that that investor continues to have the best and most appropriate investment? That brings me to benchmarking, which was mentioned by the hon. Member for Northampton, North. When will we get the consultation document on benchmarking or kite marking? Whenever the Revenue opens its mouth, it leaves open more questions than it answers. The Paymaster General knows that the head of regulation at the Treasury, Paula Diggle, gave one of her many presentations on the subject at a recent meeting of the Personal Equity Plan Managers Association. She likened benchmarking to the pure new wool mark on jumpers or the real dairy cream mark on dairy products. It sounds simple, but wool shrinks and cream is full of clots and can go sour if it is not looked after properly. Investments can go wrong and markets can go down, but the Government want to attract 6 million virgin investors without making them properly aware of the risks of equity or insurance investment and no idea yet of how investors will get on-going best advice to ensure that they get the best deals. It is unclear how ISAs will work, how they will be regulated and how on-going best advice will be guaranteed. Benchmarking is important because of its ability to make the market in ISAs grow fast, if it is to be successful. People will look for benchmarks, if that is how the Government are going to mark things, but what is benchmarking? I asked the hon. Member for Northampton, North about that earlier. It represents the replacement of advice and suitability tests with the judgment of the Government. It inherently means that the Government, through the Treasury, endorse the product as having a wide-ranging suitability for almost everyone. Before long, everyone will be shuffled into tracker funds. No doubt it will be called the people's tracker fund. All our 55-year-olds and younger investors will be encouraged to save in it by a nice little Government-approved benchmark, but if it goes wrong who is to blame? Where does the investor go for compensation?

Nick Gibb (Conservative, Bognor Regis and Littlehampton)

What would happen if all investors generally put their money into tracker funds, which track the stock exchange index? Would not that have a distorting effect on the stock market's top 100 or 200—depending on which index was being followed—companies?

Tim Loughton (Conservative, East Worthing and Shoreham)

That would depend on what the fund was tracking. An artificial amount of money could go into one index that was being tracked. Inherently, tracker funds are fully invested. All the proposals have been formulated in a period in which markets have gone up by at least 20 per cent. over the past few years. At some stage, that bubble will burst. Growth may be more modest or markets may go down and tracker funds will track the relevant index down. Someone sucked into the Tesco hype by the ISA marketing glitz promulgated by the Paymaster General, who—

Tim Loughton (Conservative, East Worthing and Shoreham)

I apologise. I have almost finished. Benchmarking is a key issue and was raised by Labour Members. I fear that if investments go the wrong way, as is highly possible, we will have a misbuying scandal that will make the Albanian pyramid selling scheme and the pensions business so often mentioned by Labour Members look like a tea party.

Sally Keeble (Labour, Northampton North)

Will the hon. Gentleman give way?

Tim Loughton (Conservative, East Worthing and Shoreham)

May I just make this point, as I am sure that the hon. Lady will take me up on it? What is benchmarking actually benchmarking? Is it against charges—that someone is or is not offering a good-value product? Is it against the soundness and financial credibility of the investment manager handling the ISA products? Is it against the past investment performance of the products offered by that investment manager?

Sally Keeble (Labour, Northampton North)

The hon. Gentleman has made much of the fact that people on low incomes who invest in ISAs might suffer because tracker funds, into which some of the money may go, track the market downward as well as upward. Does he agree that one of the attractions of PEPs is that they allow entrance into an extremely lucrative market and that, by and large, stock market investments have gone up faster than the interest rates obtainable on conventional savings accounts? Part of the ISA's attraction is that it gives people on low incomes who cannot afford to go trundling off to a stockbroker access to the stock exchange and to the greater returns that that can give, accepting that there is of course a risk. Does he accept that—

Tim Loughton (Conservative, East Worthing and Shoreham)

I shall indeed, Mr. Lord—I have almost finished my remarks. The hon. Lady makes an interesting point; the Paymaster General himself in Committee last year said: There is no logic that I am aware of in share price movements."—[Official Report, Standing Committee A, 17 July 1997; c. 19.] There is no guarantee that the stock market is a one-way bet, as the Lady suggests.

Tim Loughton (Conservative, East Worthing and Shoreham)

I meant no disrespect—I do apologise to the hon. Lady and to you, Mr. Lord. Earlier, I was asking what benchmarking is all about. We have no clear definition at all, which could lead to a false sense of security among the 6 million-strong army of virgin investors on whom the scheme is targeted. In a letter to the Independent Financial Advisers Association, the Treasury stated that ISAs were about encouraging ethnic minorities, families on low income and women to save. On that basis, is the benchmark to be based on the "Woman's Own" seal of approval, or on the endorsement of the Commission for Racial Equality? We simply do not know. ISAs must succeed—we must get them right. We should by now have cleared up all those important questions, of which the largest and most worrying is that of benchmarking. If that is not resolved, it could result in the biggest ever misbuying scandal. Time is ticking away, yet, even at the Committee stage of the Bill, we do not have the consultation documents or some of the proposals on the mechanics of ISAs and how they are to work, and the ISAs themselves are still too complicated.

Nick St Aubyn (Conservative, Guildford)

I am grateful to my hon. Friend the Member for East Worthing and Shoreham (Mr. Loughton) for carrying out such an effective demolition job on ISAs, because that will save me from having to repeat a number of points. However, I have several points I wish to make. Drawing on my hon. Friend's point, the capital gains benefit for small savers simply does not exist within ISAs, nor does the income tax benefit. The Government have already knocked that away with their changes to the system of corporation tax. There is not only a new pensions tax, but a new ISAs tax, in that distributions by companies will already have suffered corporation tax and there will be no offsetting credit. It is contradictory for the Government to claim that what is primarily an equity investment vehicle will be attractive to lower rate taxpayers and, at the same time, to say that they have made the changes to corporation tax in order to encourage companies not to make distributions and to invest the money in the company for capital gain instead.

Nick St Aubyn (Conservative, Guildford)

What I am coming to is that the amendments propose to relax the rules relating to ISAs, so that small-scale savers, for example, are not obliged to invest in equities, but can invest most of their ISA in interest-bearing accounts, where they can at least gain the full income tax benefit without the offset of corporation tax.

Sally Keeble (Labour, Northampton North)

The hon. Gentleman says that the amendment would relax the rules so that people could put more money into interest-bearing savings accounts, yet the amendment applies only to savers over the age of 55. What he is saying is not borne out by the amendment, because that would impose a restriction on ISAs and not relax the rules.

Nick St Aubyn (Conservative, Guildford)

The whole system of ISAs is flawed, because the Government are yet again changing the rules and making saving more complicated. That alone will deter investment by the very people whom the Government claim they want to encourage to save—the 6 million so-called potential savers. The Financial Secretary is mistaken to think that the fact that PEPs and TESSAs give most advantage to relatively well-off people somehow goes against the interests of the less well-off. When people in this country save, it is to the benefit of the entire economy; when people save, it is to the benefit of the overall level of investment in our economy. The reason why the Opposition oppose the Government's measures is that they discourage saving in many ways—we see that in the Red Book projections—and discourage investment. The Government claim that they want small savers to save money, but, by their policies, they cannot even save such people's jobs because we are on the threshold of a recession in manufacturing. It is unrealistic of the Government to think that those who have no spare cash will start to save discretionary sums, not only in deposit accounts, but in higher risk equities. That is simply to misunderstand the needs and aspirations of the very group of people whom they claim to represent. They do not do so. At least the amendments will increase the flexibility of the ISA scheme, so that those who aspire to participate in it will know that it is slightly more open ended than the Government intend. That is why I support the amendments.

Nick Gibb (Conservative, Bognor Regis and Littlehampton)

I rise again to correct something I said earlier when speaking to amendment No. 8. I referred to Gavyn Davies, whereas I meant to refer to Andrew Dilnot, which puts a completely different complexion on my remarks—indeed, some might argue that it adds credibility to my remarks, given that Andrew Dilnot is director of the Institute for Fiscal Studies. In his evidence to the Treasury Select Committee in March, he made some powerful points and was quite damning of the Government's proposals. He said: Almost all of the objectives that will now be achieved by the ISAs could equally have been achieved by abolishing the five year lock-in period on TESSAs and leaving things as they were. If we really thought we wanted to have some life insurance in a tax free regime, we should have allowed £1,000 life assurance into PEPs. While the consultation period has allowed some of the undoubtedly extremely problematic suggestions made last December to be removed and we are left with something which is broadly sensible, we could have got there with a great deal less sound and fury. Now we are in a rather peculiar position where by the year 2000 we can have people with at least six different sorts of savings schemes: a PEP, a TESSA, a maxi ISA, a mini cash ISA, a mini life assurance ISA, and a mini stocks and shares ISA. This does seem to be an unnecessary proliferation of schemes. While I am on my feet, I should mention that the Institute of Chartered Accountants is of the same opinion, believing that the new regime of ISAs and the costs that will be borne by those taking out an ISA are completely unnecessary. The Institute of Chartered Accountants says: It is our conclusion that it would be more straightforward to amend the existing PEP and TESSA savings schemes rather than introduce a wholly new scheme, particularly as the proposed ISA does not appear to offer improved savings incentives, and in fact may well discourage many individuals from saving.

Geoffrey Robinson (Labour, Coventry North West)

As you said, Mr. Lord, the amendments are tightly drawn. However, our debate has been slightly wider. In effect, amendment No. 5 is a paving amendment, leading into amendment No. 7, which would allow those aged over 55 to invest more than £1,000, during the lifetime of the scheme, in cash. One might equally argue that younger people should be encouraged in that direction, but to argue in favour of the amendment, as the right hon. Member for Hitchin and Harpenden (Mr. Lilley) did, is to misunderstand what the revised savings scheme is about. Surprisingly, the hon. Member for East Worthing and Shoreham (Mr. Loughton) says that he has parliamentary written answers in which we say that the new scheme will cost more than the previous PEPs and TESSAs regime. I should like to see them. I shall hasten to be corrected if I am wrong, but I believe that we said in the Budget and in the Red Book—the Red Book figures show this to be the case—that, in the first year, the new scheme would cost the same as the previous scheme, then it would cost plus £30 million, then minus £30 million, giving broadly the same cost in terms of tax relief for the new system as for the old system. [Interruption.] I shall give the hon. Member for Sevenoaks (Mr. Fallon) the page reference if he needs it. I do not recollect—although I stand to be corrected—that we have ever said that the cost would be any more than that. The entire effort of the new scheme is directed at re-balancing the tax relief to encourage the half of the population who have, and make, no savings at all to save. Although the hon. Member for Guildford (Mr. St. Aubyn) may think it derisory, it is a worthy aim, and it has found widespread support. We should not be as pessimistic as he is about its eventual success. I believe that the Conservatives cannot bear the tremendous welcome that the revised proposals are receiving. They cannot bear the fact that we have consulted and that we have such a wide measure of support for our present proposals. My hon. Friend the Financial Secretary received from Lloyds bank a rather good document, entitled "The new Individual Savings Account (ISA)", because she happens to hold a present PEP—I am proud that she does. It says: Lloyds Bank is dedicated to providing customers with good savings products and we believe that ISAs will offer customers many benefits. I would try your patience, Mr. Lord, if I were to quote the many welcomes that our revised proposals have received. None of those people has come to us with the bizarre proposals that we have received from the official Opposition.

Tim Loughton (Conservative, East Worthing and Shoreham)

I do not want to be flippant; I just wonder what advice the Paymaster General has received from his own bank, whether he has a PEP and whether he will take out an ISA.

Geoffrey Robinson (Labour, Coventry North West)

I cannot give advice to anyone on these matters, but I can tell the hon. Gentleman that we have had a warm welcome from his organisation. I shall not embarrass him by reading the letter that I have in my pocket from his chairman, a most distinguished City figure, congratulating us on our consultation process. Indeed, the chairman of Autif said that it was a model of consultation. It did not always feel like that from my side of the—

Nick St Aubyn (Conservative, Guildford)

rose—

Geoffrey Robinson (Labour, Coventry North West)

If the hon. Gentleman wants to make a point on the amendments, I give way to him.

Nick St Aubyn (Conservative, Guildford)

Is the Minister telling us that the process is a model of consultation because he listened to Conservative representations to lift the cap on the size of ISAs?

Geoffrey Robinson (Labour, Coventry North West)

It was a model of consultation because we listened and acted on what we heard, and because the Government are not afraid to consult, to change their mind and to improve things in the light of consultation. That is what it is all about. Two or three things came out of the consultative phase—nothing that relates to the amendments, or to much that Conservative Members have said about them today. The sole purpose of the proposals was to re-balance the system within the existing tax costs and, in doing so, to encourage those who do not save, to save. There is, therefore, no point in focusing on 55-year-olds and over any more than on anyone else. We are focusing on the half of the population who make no savings. That is why it is so encouraging that Schroder, Safeway, Halifax, Pepma, M & G, Fidelity, Virgin and Barclays, to name but a few, say that they will offer the ISA programme—the cash ISA in particular. If we are to make a breakthrough in savings, it must be through the cash ISA, and at £1,000 a year, with £2,000 extra in the first year if it is taken up in that way, it is already at a more than adequate level at which to target those who do not save.

Tim Loughton (Conservative, East Worthing and Shoreham)

rose—

Geoffrey Robinson (Labour, Coventry North West)

I shall give way once more, but I must make progress.

Tim Loughton (Conservative, East Worthing and Shoreham)

On a technical point, will the Paymaster General admit that the policy that a 55-year-old could buy with his insurance money within an ISA would be substantially less attractive than the amount that a 25 or 35-year-old could buy because of his age, health and so on, so there is good reason for giving him extra favourable treatment later in life?

Geoffrey Robinson (Labour, Coventry North West)

Conservative Members do not seem to want to take the point that we want to encourage the half of the population who do not save at all to save. That is the sole criterion; that is what we are trying to encourage. The hon. Gentleman, unlike the hon. Member for Guildford, welcomed the ISA—they might decide where they stand on this matter—and raised a raft of valid technical points. I assure him that the draft regulations will be published next month, and that we shall get down to the hard work that is needed in that regard. I can reassure him on one point now, however, and that is that the TESSAs to be transferred will be capital only, as was the case, as he will readily concede, when the Conservatives were in government. That is what they did in rolling over TESSAs. Amendment No. 8 deals with charges. We can see no point in the official Opposition's proposal that costs should be limited to the average of those currently charged for administering PEPs. We are trying to drive down costs, and we are driving them down; that is the point of benchmarking. However, it is a free market, so if people want to offer a complicated product, it is up to them, and it is up to sophisticated investors who would be tempted by it to decide whether to take it. To be prescriptive in that way runs so counter to the Opposition's usual thinking that I am surprised by the amendment. For all those reasons—

Nick St Aubyn (Conservative, Guildford)

Will the Paymaster General give way?

Geoffrey Robinson (Labour, Coventry North West)

I give way one last time.

Nick St Aubyn (Conservative, Guildford)

The Paymaster General has told us that he believes in a free market in charges. Will he explain why, under the Bill, those who have PEPs—which, as he says, will now be frozen—will be unable to switch their frozen PEP to another fund manager, to allow competition to continue on charges for those on-going PEPs?

Geoffrey Robinson (Labour, Coventry North West)

We have arranged that a very good system of competition will apply to the ISA product, and that is the important benefit on which we must concentrate, which seems to be lost on Conservative Members. I have done my best to explain our reasoned opposition to these interlinking amendments, which have rightly been taken together, and I must advise the Committee to resist them.

Michael Fallon (Conservative, Sevenoaks)

First, I should declare that I, too, have a PEP, but I have not received the glossy leaflet that the Financial Secretary has had. Perhaps we should christen her bank the crawling bank—the bank that likes to say, "Yes, yes". I look forward to hearing from my PEP provider in similar vein. We tabled amendment No. 8 simply because it is important to get some control of the administrative costs of what the Paymaster General, I notice, now calls the RSS—his revised savings scheme. I do not know whether he is officially christening it in that way. As he is aware, the PEP rules run to more than 100 pages. They were composed under an efficient, benevolent Government. What is the point of having a new set—another 100 pages—of administrative rules for the ISA? Would it not be better if the Paymaster General accepted that the Government have got all this wrong? Why should not the ISA simply be a PEP 2, or why did he not allow an instant-access TESSA? If he is going ahead with this bureaucratic new savings account, it is important that we reduce costs. We have other concerns about costs, which is why we want a statutory cap on them. First, will the ISA lie inside or outside the provisions of the Financial Services Act 1986? Perhaps the Paymaster General will help us on that point. If the ISA lies outside the 1986 Act, there will, presumably, have to be a compensation scheme if ISAs are mis-sold, and those who are inside the provisions of the 1986 Act will presumably have to fund such a scheme. Will advisers who come under the provisions of the 1986 Act be allowed to retail ISAs under the same rules as non-regulated retailers, or will the Paymaster General regulate covertly those who retail ISAs generally? We have heard in speech after speech on financial services and from the Paymaster General that the Government want to drive down costs. The best way in which to do that is to put a statutory cap in the Bill, which is the purpose of amendment No. 8. 8 pm We had a brief but revealing debate on amendments Nos. 5 and 7. Almost nothing in the Bill does anything for pensioners. The Red Book devotes only six lines to them, three of which repeat part of the pre-Budget report. We knew that the Bill ignored the interests of pensioners, but this is the first time since the Budget that pensioners have been attacked. In an extraordinary speech, the hon. Member for Northampton, North (Ms Keeble) described the pensioners' amendment as mean minded. Was she describing Saga as mean minded? Was she describing those who want to protect the interests of older pensioners who have never saved before as mean minded? If she examines her speech in the cold light of tomorrow, she will see its illogicality. She rightly went on to argue that she wanted ISAs to be most attractive to those who have no other savings. To achieve that, the ISA must be right for older new savers as well as for younger new savers. Our amendment would not reduce the attractiveness of the ISA for younger savers; it would deal with the position of those who are getting on and are over 55—the hon. Lady is one of the younger members of the Committee—who will not be able to take the same advantage of an ISA as she might. The life assurance limit of £1,000 offers far less protection for a 55-year-old than for a 35-year-old. The account would be held for a briefer period, so people of that age would have less time to ride out market fluctuations and build up an account that would serve them well in retirement. The amendment would ensure that, within the annual limit that is being imposed, the proportion that goes into life assurance could be greater for older people than is prescribed by the Bill.

Sally Keeble (Labour, Northampton North)

Does the hon. Gentleman accept that I referred to over-55s in the top decile of income earners?

Michael Fallon (Conservative, Sevenoaks)

Some over-55s will be in the top decile of income earners, but we are both discussing helping those with no savings. We must encourage some of the people in that group to take out an ISA, which is why the life assurance limit must not discriminate against people who happen to be 55 or over. I hope that the hon. Lady will support us on the amendment. The Paymaster General should reconsider his view on the amendment, for three reasons. First, he will be 60 next month, so he has an interest in it. He may not have had time to concentrate on his life assurance policy, among his other investments and financial affairs. We want to ensure that he is not disadvantaged against other hon. Members, so I hope that, for his own sake, he will reconsider and speak up for pensioners. Secondly, the Paymaster General has repeatedly said that he will listen. The £1,000 limit is not in the Bill; like almost every other matter that we are debating, it will be dealt with in regulations. I hope that he is prepared to reconsider, because those who are getting on in life will not be able to take the same advantage of the £1,000 limit as those who are younger. Thirdly, the Paymaster General has listened before, which is why we hope for a change of view. The previous time that he faced us over the Dispatch Box, he was still defending the £50,000 limit. On the surface, that limit has disappeared. Other aspects of the ISA have gone as well—we have not heard much of the proposed annual raffle—but the internal limits remain, and they deeply discriminate against the over-55s. For those reasons, I invite the Committee to support the amendment.

Peter Lilley (Conservative, Hitchin and Harpenden)

I beg to move amendment No. 6, in page 60, line 32, after 'account', insert 'which may (if the investor so wishes) be retained for the remainder of his life'. One of the most significant proposals in the original plans that the Government announced for individual savings accounts was the one to introduce a lifetime limit of £50,000 as the maximum amount of tax-exempt savings that people could put into their replacements for PEPs and TESSAs. That was punitively low by comparison with the amount necessary to buy a modest pension. Indeed, I have already pointed out how small the amount is compared with what a long-serving Member of Parliament, such as the hon. Member for Bolsover (Mr. Skinner), who raised the issue, would be entitled to by way of a pension. To buy a pension equivalent to the hon. Gentleman's would cost about £350,000, so setting a limit of £50,000 for people's savings was a damaging threat. It was especially offensive that the proposals came from the Paymaster General, who has such large amounts in tax-favoured forms in the Channel Islands. That is why there was such outrage in the country at the suggestion that this limit should be imposed. It was also wrong because it was unworkable in practice, in that following through people's ownership of ISAs over a lifetime would be very difficult; monitoring and maintaining the requisite records would have imposed a great cost on the providers. We are therefore glad that the £50,000 limit has gone. The suspicion remains, however, that the Labour party would like to bring back the limit through the back door. The Government have promised to guarantee ISAs only for 10 years. In a possibly Freudian slip, the Paymaster General earlier today referred to people being allowed to invest £1,000 a year during the lifetime of the scheme. He clearly continues to think that there is to be a lifetime limit on investments in the scheme. The 10-year guaranteed life effectively means that people can put £5,000 a year aside for 10 years: we are back at the £50,000 lifetime limit, by the back door. Our suspicions are fuelled by the fact that the Government refused to put their so-called guarantee in legislation. Nowhere in the Bill is there to be found any assurance to those who take out ISAs that they will be able to keep them for any period, let alone 10 years. We believe that a period of 10 years is grossly inadequate. People want to be sure that, when they put money in such schemes, they can keep them for the rest of their lives. They are saving, by and large, for retirement. They do not want their tax exemptions to disappear after 10 years. We have therefore specified in this important amendment that, not just for 10 years but for the rest of their lives, people will be able to keep the ISAs that they have taken out. We should be interested to hear from the Paymaster General any reasons he has for opposing the amendment. We will look closely at his words, as we look suspiciously at his Freudian slip earlier today, to see whether the Government are suggesting that there should be some limit on the duration of the rather minimal tax reliefs available under the legislation that they propose.

Nick St Aubyn (Conservative, Guildford)

I support amendment No. 6. No one who saw the success of PEPs and TESSAs would honestly claim that there was a good case for changing a successful system. I am not a keen supporter of ISAs, because they are second best. We had a thoroughly good scheme before. If we are to have ISAs, however, let the Opposition's success in arguing for the lifting of the cap on ISAs be written into the Bill, as my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley) urged. It is extraordinary how much power the Bill leaves to the discretion of the Treasury. In so many of the areas touched by the Bill, the Government want to keep all their cards up their sleeve. That is characteristic of this Government in so many aspects of their policy. Now we see it in their Treasury policy. There are only two reasons for rejecting the amendment. The first is that the Government wish to preserve the cap of £50,000 by the back door. The second is that they want to keep to themselves as much discretion and power as possible, and leave as little as they must for debate and scrutiny in the House of Commons. Amendment No. 6 would encourage people's wider aspirations. We have heard the Government argue that the point of ISAs is to redirect savings incentives to those on lower incomes. We must all encourage those on lower incomes to save, but, if they have very little discretionary money available for saving, the amount that we can encourage them to save through a discretionary scheme will be limited. If the Government want those on lower incomes to save more—for example, to provide more for their own needs in the future, particularly for their retirement needs—the Government should be honest and set out their proposals for a more rigorous and disciplined system for people to save for the long term. They would thereby make it clear that they want people to save for their future needs, not just for their future aspirations—additional spending opportunities over and above their needs. That is why most people would put money into ISAs, as they put money into PEPs and TESSAs. They put the money in because they did not need it immediately. In many cases, they did not need to save all the money, but they saw that, by saving it through that mechanism rather than spending it immediately, they might have wider spending opportunities. They might be saving towards a daughter's wedding, a world cruise on their retirement or a second honeymoon. Such were the objectives of many people who put large sums into PEPs and TESSAs. Now the Government are changing the nature of the scheme and encouraging those on much lower incomes to get involved, but they cavil at the suggestion that people should put in more than £50,000. They do not want to give even that encouragement. They do not want people to venture even that far in their hopes and aspirations. It says a great deal about the Government that they are not prepared to make such a commitment.

Barry Gardiner (Labour, Brent North)

I had no intention of speaking on the amendment, but I feel compelled to do so because of the cavalier way in which the Opposition insist on confusing a guarantee with a manacle. It is clear that the Chancellor has offered a guarantee that the scheme will continue for at least 10 years, because the Government appreciate the need to give long-term security to investors. It is to be welcomed, especially as it far exceeds any guarantee on PEPs made by the Conservatives when in government.

Nick St Aubyn (Conservative, Guildford)

Is not the difference between the present Government and the previous one that the previous Government did not break the promises and undertakings they made before an election, in the context of PEPs and TESSAs? Because the Government sought to break their word, they must now give more cast-iron guarantees.

Barry Gardiner (Labour, Brent North)

I am delighted to respond to that question. It is breathtaking to be lectured by the Opposition on a Government breaking their word. The Conservatives were indicted year on year for breaking their word in government, particularly their tax pledges. The categorical pledges on VAT made before the general election in 1992 were consigned to the waste paper bin within weeks afterwards. We will take no lectures on that. On clause 75, it is clear that the Chancellor sought to give some long-term security to investors who might be induced to come into ISAs. That was not previously done. No Government would seek to manacle themselves in terms of tax for an indefinite period. That period might be as long as 70 years.

Nick Gibb (Conservative, Bognor Regis and Littlehampton)

The Government have caused enormous damage to the confidence of savers. The first colossal damage was done in the July Budget, when the Government decided to abolish the repayment of dividend tax credits. That took £5 billion a year out of the nation's pension funds and dented people's confidence in pension funds as a vehicle for savings. It dented the concept of savings. The Government then decided to announce the abolition of PEPs and TESSAs during the Finance Bill discussions in July and the months that followed. That, too, damaged people's confidence in savings. The nonsense of the initial proposals for the £50,000 limit added to the lack of confidence in the savings tax regime. It is odd that the Chancellor feels the need to guarantee the survival of the ISA scheme for 10 years. When the Conservative Government introduced PEPs and TESSAs, they announced no such guarantee. Nobody believed that it was necessary to specify the length of the reliefs provided, because everyone assumed that they would last indefinitely. The purpose of those schemes was to encourage people to save for the long term, and those schemes were enormously successful.

Philip Hammond (Conservative, Runnymede and Weybridge)

Does my hon. Friend agree that the difference is that people believed that the last Government were genuinely committed to the principle of encouraging long-term savings, whereas they believe that this Government have merely embarked on a cosmetic exercise?

Nick Gibb (Conservative, Bognor Regis and Littlehampton)

My hon. Friend makes a very valid point. I have asked myself why the Government have decided to abolish TESSAs and PEPs and replace them with ISAs, which are a pale facsimile. Why did the Government not simply tinker with TESSAs and PEPs? The only possible reason is that the Government want to be rid of a successful, Conservative-inspired policy for purely vindictive, political reasons.

Tim Loughton (Conservative, East Worthing and Shoreham)

Does my hon. Friend agree that the Government's proposal is in complete contrast to the message that we usually hear from Ministers? They claim repeatedly that they cannot commit a future Government to current measures. Therefore, there is no guarantee that this proposal will survive. What will happen in five years—

Michael Martin (Deputy Speaker, Glasgow Springburn)

Order. The hon. Gentleman must be brief.

Tim Loughton (Conservative, East Worthing and Shoreham)

What will happen in five years if the Government decide that too much tax relief is lost? That is what they did in this case, and they tried to penalise PEP holders retrospectively until we objected.

Nick Gibb (Conservative, Bognor Regis and Littlehampton)

My hon. Friend makes a valid point. Labour right hon. and hon. Members have given commitments that have subsequently been breached. The Labour party gave a commitment during the election campaign that there would be no increases in taxation, yet, within two months of coming to power, Labour introduced measures that would raise £5 billion a year from the nation's pension funds. It is clear that the Government have decided to abolish the successful TESSAs and PEPs and replace them with the less successful ISAs for purely dogmatic reasons. That decision will return to haunt them in the future. The Treasury Select Committee examined the 10-year guarantee, and its conclusions are quite damning. It makes the same point that my right hon. Friend the Member for Hitchen and Harpenden (Mr. Lilley) raises in the amendment. The report states: The abolition of the life-time limit was mentioned in the FSBR but not announced by the Chancellor in his speech; he did announce that the ISA system would continue in place for an initial ten years, with a review after seven years. As the annual investment limit is £5,000 (£7,000 in the first year), the effective total investment (apart from TESSA capital) would amount to only £52,000 after ten years. It is there in black and white in the report of the Treasury Select Committee, which comprises a majority of Government Members. The report states that the total investment would be only £52,000 after 10 years. It sounds as though the members of the Treasury Select Committee agree with my right hon. Friend that this is a lifetime limit by the back door because the amount one can invest is limited to only £52,000 after ten years". Will the Paymaster General confirm that the Government do not intend to end the scheme after 10 years or to review it after seven years with the possibility of not continuing it after 10 years? If he provides that confirmation today, it will begin to redress the damage to savings that the Government have caused, and which they acknowledge in the declining savings ratio that is set out in a table in the Red Book. The Treasury Select Committee raised another issue regarding the prize draw, to which my hon. Friend the Member for Sevenoaks (Mr. Fallon) referred. Footnote 75 on page xi of the Treasury Select Committee report states: Another proposal which was dropped without mention in either the Chancellor's speech or the FSBR was the monthly prize draw". The Government have made another U-turn, sneaked out via a Budget press release and hidden in footnote 75 of the Treasury Select Committee's report.

Geoffrey Robinson (Labour, Coventry North West)

I find the Opposition's argument on this amendment bizarre. The Conservatives were in office for 18 years, and PEPs and TESSAs ran for much of that time. Every document relating to those schemes always stated clearly—although not always in bold or in headlines on the front cover—that tax rates and reliefs could change and that the investor should be aware of that fact. That degree of uncertainty existed. Indeed, the view was put around the City towards the fag end of their tired Administration that the Tories were looking seriously at ways of curtailing the cost of tax reliefs. In this proposal, we are trying—I confirm to the Committee and to the right hon. Gentleman that the regulations will make it absolutely clear—to guarantee a minimum 10-year period in which tax reliefs will remain as they are now and cannot be reduced. That is an unprecedented guarantee for any Government to make. The Tories did not give similar assurances when they were in government. We give that guarantee in order to ensure certainty in the market, long-term stability and a genuine incentive to save. Our proposal has met with an extremely strong response during the consultation period.

Peter Lilley (Conservative, Hitchin and Harpenden)

The Paymaster General says that the regulations—which are not before the Committee and which are not available to inspect—will guarantee no reduction in tax relief during a 10-year period. Is he then saying that, after five years, the tax relief available to basic rate taxpayers will be extended and will continue for a full 10 years? In that case, the previous announcement that relief would end after five years is no longer valid.

Geoffrey Robinson (Labour, Coventry North West)

We mean exactly what we have said: tax reliefs will remain at at least their present levels for a 10-year period and we shall review the scheme.

Peter Lilley (Conservative, Hitchin and Harpenden)

rose—

Geoffrey Robinson (Labour, Coventry North West)

I shall give way in a moment: I know the point that the right hon. Gentleman wants to make. What we have said is quite clear, and that is all we are saying: reliefs will last for 10 years and they will be reviewed after seven. The Government's commitment carries considerable weight because everyone knows that this Government will review the scheme in seven years. It is totally irrelevant whether the Opposition decide to join us in that commitment or threaten to change or withdraw the scheme and reduce the tax relief, because everyone knows that the Tories will not be in office to do that. Our position is quite clear. There is sourness on the part of the Opposition that the measure has been so well received by the financial savings institutions in the City of London.

Peter Lilley (Conservative, Hitchin and Harpenden)

I am sorry that I did not make myself clear to the Paymaster General, but this is an important point. The Chancellor of the Exchequer said that the 10 per cent. tax credit for basic rate taxpayers taking out ISAs and investing in equities would disappear after five years; the Paymaster General has said that tax reliefs would remain unchanged for 10 years—which statement is true?

Geoffrey Robinson (Labour, Coventry North West)

We have made it clear that tax reliefs will be phased out after five years, and that remains the case. I turn to some points raised by the hon. Member for Guildford (Mr. St. Aubyn), who was trying to be his usual helpful self but got into a terrible muddle. The proposals have been received extremely well. We are working for long-term stability. The clear commitment by existing institutions and by the new ones that want to join the scheme, such as Safeway and the other supermarkets, will ensure that we shall get new net savings. There will not be the simple displacement factor to which the noble Lord Lawson referred when he introduced the scheme. He said, "This is not really about net increases in savings—we do not believe that—but it will increase the habit of investing in equities." That was the policy of the previous Government. Our policy is different: we want to generate genuine new savings. That is why we have no lock-in period and why we have guaranteed tax reliefs for 10 years, with a review after seven. It is unnecessary to go further than that at this stage. No Government have gone as far as that: the previous Government never gave a similar undertaking. All the documents relating to PEPs made it absolutely clear that tax reliefs could change and that people would have to guard against that. If the Opposition are minded to push their ridiculous proposition to a vote in this amendment, we shall have to resist it. In dividing the Committee, the Opposition would be going clearly against the wide acceptance of the stability of the long-term commitment that the Government's proposal represents, which has been so well received by the industry.

Philip Hammond (Conservative, Runnymede and Weybridge)

How would the Minister square the projected decline in the savings ratio with the net increase in savings that he is talking about?

Geoffrey Robinson (Labour, Coventry North West)

We do not need any lectures from the Opposition about savings ratios or the mis-selling of pensions or savings products. The past masters in both were the Opposition. That is the point they must take on board. For four years in the 1980s, they managed to achieve a negative savings ratio. Billions of pounds—

Philip Hammond (Conservative, Runnymede and Weybridge)

Check the figures.

Geoffrey Robinson (Labour, Coventry North West)

Absolutely. Check the figures. The hon. Gentleman will find that he is wrong. Indeed, he has been wrong already on one point, but he has not had the grace to admit it. The Opposition managed to achieve a negative savings ratio in the 1980s, and I shall send him the figures to prove it. We need no lectures on any of that from Opposition Members. Everything that we have been doing—the Government have been committed to this approach and all our economic policies have been about this since we formed our Administration, including the operational independence of the Bank, the code of fiscal stability and the evening of the playing field on forms of investment—is designed to achieve long-term stability and long-term growth. That is best for savings, best for incomes and best for the country.

STAMP DUTY ON CONVEYANCE OR TRANSFER ON SALE

David Heathcoat-Amory (Conservative, Wells)

I beg to move amendment No. 10, in page 136, line 32, at end insert— '(4A) This section shall not apply to properties which are subject to uniform business rate.'. I shall give my reasons for moving the amendment in the context of a wider comment about the Bill, which is that it is a tax-raising measure. That is the general nature of the Bill, and the clause is very much part of that strategy. We had a good deal of waffle in the Budget statement about the Budget being for investment and enterprise. However, wherever we look in the Bill we find an increased tax burden, often on the precise sectors of the economy that are asked to produce additional jobs and more investment. The Chancellor of the Exchequer said in his statement that stamp duty would rise from 1.5 to 2 per cent.—a 25 per cent. increase for the transfer of properties above £250,000 in value. For properties valued at more than £500,000, there would be a 50 per cent. increase in stamp duty from 2 to 3 per cent. I have a commercial interest to declare as I am a director of a property company that is duly registered in the Register of Members' Interests. Perhaps right hon. and hon. Members may be affected in their private lives by having to pay increased stamp duty on house transactions. I do not think that many Members will be affected in that way, however, because the burden of the tax does not fall primarily on the house owner, contrary to what the Chancellor tried to put over in his Budget speech. The right hon. Gentleman, having described the tax increase, said that it was a change which leaves 98 per cent. of house transactions unaffected."—[Official Report, 17 March 1998; Vol. 308, c. 1110.] He was therefore suggesting that the tax would be felt only by richer householders. The truth is that the burden falls on the commercial sector, not on the private householder. The Chancellor adopted a disingenuous way of describing the increase because three quarters of the tax is paid by commerce. The burdens are considerable. In the current year, the extra burden of the tax will be £390 million, rising in the next financial year to £470 million. In the year 2000-01, the yield will be £520 million, so the yield from this tax will be more than half a billion pounds a year. The burden will fall on the sector of the economy that is asked in the welfare-to-work project to produce extra jobs. In the Budget statement, we had an appeal for more investment. In the Red Book, which was subsequently published, we find that, although business investment has been rising strongly in recent years—it is recorded as rising at 7.75 per cent. last year—there is a projected stabilisation and then a small decline. 8.45 pm The reason lies in the clauses that are before the Committee this evening. Quite simply—it is not a startling observation—if we tax business and reduce profits, the result is fewer jobs and less investment. More than that, such an approach inhibits mobility, flexibility and inward investment—those are all the things which the Government say that they are seeking to encourage. It is not surprising that the Association of British Insurers said that the measure was a disincentive to productive business investment and efficiency. The increased tax will be paid primarily perhaps by those selling commercial property. However, indirectly it will be paid by a much wider spectrum of businesses. Commercial tenants will pay because their landlords will seek to recover the additional cost of stamp duty through increased rents. The increased tax will provide a perverse incentive for those who are investing in property. For example, there will be an advantage in investing in property overseas in those countries that have lower property transfer taxes, especially those outside the European Union. In the time available, I have undertaken a little research in the context of the European Union. There is a confused position because there is not even attempted harmonisation or standardisation in the description of taxes, let alone the rates and incidence of the taxes. Sometimes, they are described as property transfer taxes and at others as conveyancing taxes. Sometimes, the taxes are described, like our own, as stamp duty. Some taxes are collected at municipal level, some at regional level and others at national level. Generally, most member states have higher equivalent taxes than we do. It seems that the French conveyancing tax is levied at an ordinary rate between 13.4 and 15.4 per cent. In Belgium, the standard rate for a similar tax is 12.5 per cent. The rate in the Netherlands is lower. It seems that 6 per cent. is normal for property transactions there. Ireland has a conveyancing duty on a sliding scale between 1 and 6 per cent. In Portugal, the tax is collected by the municipalities. The Library produced a figure of 10 per cent., that being normal on transfers of urban buildings or building land. There is a sliding scale for domestic properties. Germany seems to have a lower rate of 2 per cent. which is collected by the Lander government, so the picture on the continent is very mixed. I mention that because one of our advantages up to now was that our stamp duty was comparatively low, and that at least contributed to our being an attractive haven for inward business investment, but the Government appear set on eroding that. Indeed, if we go on increasing stamp duty as we are going, we shall lose a very valuable competitive advantage. This could be connected with the fact that, a few months ago, the Government signed up to a code of conduct on business taxes to counter what the European Union is pleased to call harmful tax competition. One of my questions for the Paymaster General is whether the code of conduct on business taxation has implications for stamp duty and whether the Government are seeking to increase stamp duty under the guise of harmonisation, as there is undoubtedly pressure from that part of the European Commission that sees low taxes as unfair. Another point worth dwelling on for a moment is which companies will primarily pay the increased stamp duty. It is well known in accountancy circles—I have to confess to being a chartered accountant, so I used to earn a living by doing such things—that large companies can on occasion avoid stamp duty by using various avoidance devices. The simplest concept is that a property to be transferred is owned by a subsidiary company, and it is the company rather than the property that is sold. If that is done offshore, in another tax jurisdiction, stamp duty can sometimes be avoided completely. Of course, there are various anti-avoidance devices; nevertheless, it remains true that the sophisticated company which is well advised can often find ways around stamp duty. In a free trading world and a global environment in which many multinational companies have their headquarters in Britain, it is increasingly the case that, where avoidance can be secured, great time and effort go into securing it. It tends to be the smaller or medium-sized company, which is less sophisticated and less well advised, that pays the increased taxes upfront. If the Paymaster General is intent on increasing stamp duty, is this not an opportunity to move to a slice rather than a slab system? Putting it as simply as I can, under the slab system if the value of a property moves even £1 above the threshold of, say, £250,000, the higher rate of stamp duty is applied to the entire value rather than just to the extra slice. That can lead to a mysterious grouping of valuations just below the threshold, for obvious reasons, and people can attempt to divide up properties or sell the furniture and fittings separately in order to keep under the relevant value. However, it is inequitable that the extra charge should apply to the entire value of the property. Was this not an opportunity to move to a slice system, whereby the higher rate applied only to the top slice? I put that forward not as an amendment but as a genuine question to the Paymaster General. The higher the rates become, the more inequitable the system of assessment. Our best solution is to remove clause 147 altogether and put things back to the way they were before Budget day. If that is not possible, our second-best option is to confine the proposal entirely to householders. If the Government really are anxious to tax people with large and expensive houses, amendment No. 10 does exactly that by exempting properties that are subject to the uniform business rate, so stamp duty would not be a tax on the commercial sector. I commend the amendment to the Committee.

Philip Hammond (Conservative, Runnymede and Weybridge)

I welcome the opportunity to speak in support of the amendment. I shall declare an interest over and above the interest that all hon. Members have as owners or aspiring owners of houses, in that I have an interest in a small house building company, and the house building sector is certainly more interested than most in the proposals. As my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) said, we are opposed to the measure in its totality, and would prefer it to have been excluded from the Bill. Since coming to office less than a year ago, the Government have now had two bites at the cherry of stamp duty. As my right hon. Friend suggested, one must have serious concerns about where this will lead us. I shall say a little more about that in a moment. The spin put on the stamp duty announcement during the Chancellor's Budget speech and in most of the press reporting immediately after the Budget was to relate it entirely to houses. Indeed, as my right hon. Friend pointed out, the Chancellor said that the change would leave 98 per cent. of house transactions unaffected".—[Official Report, 17 March 1998; Vol. 308, c. 1110.] That takes us back to the politics of envy of some 20 years ago—"It's all right, because it will affect only those who have houses worth more than £250,000," the implication being that we should not be too concerned about such people. I draw the Committee's attention to the fact that any arbitrary cut-off level of that nature in relation to house prices already discriminates severely against certain parts of the country. In my constituency, for example, someone owning a house worth £250,000 is likely to be the kind of industrious manager in a small business whom the Paymaster General is anxious to encourage in his endeavours. I accept that in other parts of the country, someone owning a £250,000 house might genuinely be considered to be a rich and unusual member of the community, but that is not so in the more affluent parts of the south-east. Since I May 1997, the Government have effectively tripled the stamp duty payable on the transmission of properties worth more than £500,000 and doubled it on properties valued at more than £250,000. If we look further down the house price scale, it is not true to say that the measure will not affect 98 per cent. of houses, because houses have to be built on land. When builders and developers buy land to build even the most modestly priced houses, they will typically buy it in parcels worth more than £500,000. In those circumstances, the Government's action will contribute to house price inflation at the bottom as well as the top end of the scale. Typically, land accounts for a third of the value of a new house, and very much more than that in the south-east. The amendment would specifically exclude business premises from the scope of the stamp duty increase. It is a second-best option if the increase cannot be rescinded altogether. My right hon. Friend the Member for Wells made a persuasive case for, as he put it, the slice system as opposed to the slab system. Until last year's Budget, most of us regarded stamp duty at 1 per cent. as more of an irritant than a meaningful consideration in a transaction. Now that it is becoming a meaningful consideration, one of our concerns must be the extraordinarily high marginal rates at the change points of £250,000 and £500,000. The Chancellor recognised quite rightly in his Budget speech, when addressing matters of welfare reform, that high marginal rates have a disastrously distorting effect in the marketplace, sending people all the wrong signals and inspiring inappropriate behaviour. He was referring to marginal rates of withdrawal of 80 or 100 per cent. In respect of a property priced at £499,999, we are discussing a marginal rate of tax of 500,000 per cent. if the sale price increased by £1. The Paymaster General will recognise that, in general terms, that would lead inevitably to distortions in the market, discrete steps and a discontinuity in the curve of the marketplace. My right hon. Friend the Member for Wells has made a sensible and valuable proposal which I hope the Government will consider. 9 pm The measure will have two effects specifically in respect of business property. The first relates to property as a tool or as a piece of working capital in the operation of a business. The Bill will place an additional tax burden on all businesses using property, including factories, shops, offices and warehouses. Estimates show that 75 per cent. of the yield of the increase in stamp duty will come from business—raising £350 million in 1999-2000. That represents a significant additional burden on business. In cash flow terms, the burden will fall on a business purchasing a new property, expanding or building a new factory—just when its cash flow is strained most, as it seeks to expand and to answer the Government's exhortation to invest and create jobs. The second effect of the measure will be on property as an investment. Property is already by far the most illiquid of the assets held by investment funds, and the Bill will dramatically decrease the liquidity of property. If a fund owns a building that would be expected to sell for £100 million, it must consider that any buyer will have to pay 3 per cent. tax on that transaction—a not insignificant sum. The measure, if passed, must have an effect on the value of existing property assets held in funds, including pension funds that have already been hit by the Government's change in the treatment of ACT credits last year. As my right hon. Friend the Member for Wells suggested, there are a number of ways in which more sophisticated operators can seek to avoid the impact of the increase in stamp duty. They include the use of the single-asset property company as a vehicle for the transmission of a property—or perhaps multiple transmissions—avoiding the payment of significant stamp duty on each occasion. The Paymaster General would probably agree that, in general terms, it is undesirable for the tax tail to wag the investment or business decision dog. We are in danger of a multiplicity of methods being employed to avoid the full impact of the measure on business properties, including an increase in the use of single-asset companies and the development of different funding methods for property development to avoid the transmission of ownership and, therefore, a charge to stamp duty. Any measure that fragments the market into different qualities of assets because of different tax status attaching to them must be negative, as it will damage liquidity in the market and create distortions, adding to the distortions that will already be created by the arbitrary cut-off points at £250,000 and £500,000. The cut-off points are particularly important. They are far too low to affect the behaviour of large property investors and sophisticated developers building in the City of London, but they will affect and determine the behaviour of smaller companies building investment properties, and public authorities building starter industrial units up and down the country. The Government should not object to the Opposition amendment if their real purpose is to introduce a new regulator into the housing market, as the Chancellor suggested. However, I have my own concerns about the possibility that stamp duty is being ratcheted up from a nominal 1 per cent. to become a significant tax. My concerns lie not so much with the issue of harmonisation of business taxes in Europe, but with the Government's projected preparations for our possible entry into the single currency. The United Kingdom has a distinctive housing market which is different from that of many of our European Union partner countries. When my right hon. Friend read out a list of countries in the European Union with high rates of property transfer tax, although he was dealing specifically with business property, it occurred to me that there may be a correlation between the high rates of property transfer tax and the relatively low percentage of home ownership in many countries. We would not wish to discourage home ownership in the United Kingdom. As the Government look towards preparing the United Kingdom for possible entry into a single European currency, the Treasury must be concerned about the peculiar nature of our housing market and the absence in a single currency union of any distinctively British regulator of housing market activity. The Government would not control interest rates. They could find themselves facing a housing market boom in the United Kingdom while overall economic conditions in the European Union indicated relatively lax monetary conditions. In those circumstances, the British Government would find it extremely difficult to control the housing market in the United Kingdom and certainly would not be able to use the conventional means that have been employed in the past. I wonder whether the Government are looking at stamp duty as the future method to regulate house price inflation. If so, the British people should be told. We should understand now that the Government propose to increase stamp duty, perhaps to 6 or 7 per cent. as applies in other European Union countries, as their preferred method of regulating the housing market as the United Kingdom prepares for entry into the single currency. If that is the case, the British people should be told.

Nick St Aubyn (Conservative, Guildford)

I share the concern of my hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond) that there is a hidden agenda in the rise in stamp duty imposed by the Government. It is absolutely right that, in considering the amendment, we ask ourselves whether it goes far enough. Should it not also include an exemption for the housing sector? At this point, I declare an interest as someone who is affected by both clause 147 and the amendment. The problem with stamp duty is that, as a regulator of economic activity, it is for any Government what one might term counter-intuitive. Often when a recession looms, the Government's borrowing requirement goes up and it is intuitive and in their interest to cut interest rates. That is easy. But if in such a situation they consider a cut in stamp duty as part of regulating the economy, there will be howls of anguish from some members of any Cabinet. They will ask, "Why are we giving money back to this relatively affluent sector?" and to be told that it is part of the Government's long-term plan to regulate the housing market will not wash with them. Stamp duty is a one-way street for this Government. They will happily raise it in the good times that they inherited from the previous Conservative Government. However, it will go against all their instincts to contemplate reducing it again if and when—I fear that under this Government, it will be when—a recession hits not only manufacturing, as is happening now, but the property and housing sectors. The trouble with a tax that is aimed at what we are told is 2 per cent. of residential housing purchases is that it sounds as if it hits only the rich. But in the London economy and, indeed, in the wider economy, there are many businesses and craftsmen who work for those rich clients. A business in which I am much involved often works for clients who own substantial properties. If those properties are hit by a higher rate of stamp duty, not only will their rich owners have less money to spend, but they will be less inclined to move. If they do move, they will probably decide to economise on some of the costs of moving, which would include the more craft-based, refined products that they would otherwise purchase. The Government's policy—their stated policy and their hidden agenda—will hit a specific sector of craftsmen. We are considering an amendment which would change only the rate on commercial property. As my hon. Friend the Member for Runnymede and Weybridge said, the liquidity of the property market is almost certainly at risk as a result of the proposal. Over the years, there have been attempts to develop a derivative market in commercial property. The threat of the higher rate of stamp duty may act as a spur to such a market. I hope that the Paymaster General will at least assure us tonight that if such a derivative market in commercial property were to develop, he would regard it not as a tax avoidance device, but rather as a healthy development for efficient investment in this country. If we have taxes that distort investment, we shall have a less efficient economy. I know that the Paymaster General's own investments relate more to intellectual than to commercial property. Nevertheless, he should recognise that old-fashioned bricks and mortar have their role to play in the running of businesses. Another aspect of the issue is brown-field sites. We have heard much back-treading by the Government on brown-field sites. Initially, they set modest, unsatisfactory targets for the number of brown-field sites to be developed for residential use. They now want to achieve a target of 60 per cent. That is not enough for an area in Surrey such as I represent, but it is a welcome improvement on their earlier target. Have the Government considered how the rise in stamp duty will affect the attractiveness of brown-field site development? Following the logic of the argument of my hon. Friend the Member for Runnymede and Weybridge, for some businesses, it will be a marginal decision whether they give up their inner-city brown-field site for a residential housing proposal and then have to buy a new commercial site in another part of the town. They may be discouraged by higher stamp duty. That brings me to the crux of the matter: 3 per cent. stamp duty—an increase of 1 per cent.—may change the positive environment for property investment, although it may be just about bearable. In agreeing the full price, buyers and sellers may agree to suffer the rise between them. If, however, the Government intend to raise stamp duty to continental levels, as my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) mentioned, the quantity of land available for brown-field site development to meet the country's housing needs will certainly be adversely affected. Sources suggest that the rate of stamp duty in other countries is much higher. I have heard that in Italy it is 8 per cent., and that in Ireland it reaches up to 9 per cent. Stamp duty at 9 per cent. on brown-field sites in this country would almost certainly be enough to kill any prospect of change in use. That has long-term consequences. It is a good example of how stamp duty can distort the economy. 9.15 pm Part of the hidden agenda is the fact that the Government took one swipe at pension funds and enjoyed it so much that they want to take another. They took that swipe through changes to corporation tax. By not allowing a tax credit, they in effect introduced a pensions tax. It must alarm some in the Treasury that pension funds can redirect investment into commercial property and thereby increase income and get round part of the problem. The Government told us that they did away with the investment tax credit to encourage companies to keep money in the company rather than give it out in dividends. The hidden agenda behind the increase in stamp duty suggests far more. It is just old-fashioned Labour, seeing a pot of gold and trying to find as many different angles as possible from which it can get its greedy mitts on it. Even if there is not a derivative market in commercial property, fees for lawyers' advice and accountancy schemes will be paid. That will result in long-term major pension fund investors avoiding the consequences of stamp duty. If the increase is part of a progressive increase in stamp duty, it is fair to say that the Government will find that the amount of revenue attracted will steadily diminish. A law of diminishing returns will apply rapidly to stamp duty. If there are to be high levels of stamp duty, a pension fund will have to think hard before it can justify switching from one commercial property to another in the course of balancing its portfolio. As my hon. Friend the Member for Runnymede and Weybridge mentioned, the final part of the Government's hidden agenda is convergence in Europe—not just in tax rates and regulation of the economy, but in the very nature of the economy. We have a property-owning democracy, not just for the very rich, but for all levels of society. Many people who have started their own businesses have as their pension fund their company's commercial premises. In order to sell their business, they may intend to retain control of the company's main asset in some form or other and to rent it out. That is a classic way in which businesses change hands. Businesses changing hands is all part of the way in which the economy develops, grows and thrives. The increase in stamp duty is yet another Labour spanner in the works. It is another way in which attempts to ease the flow of business will be upset by the scale of duty that the Government are imposing—in many ways quite arbitrarily—on those who own commercial property with a value of more than £250,000. It is arbitrary because, in other parts of the Finance Bill, we see a general claim—which we shall examine in more detail later in Committee—that there is an attempt to mitigate the capital taxation of long-term investments. Yet here we have a clear case of the Government imposing a swingeing tax on a long-term capital investment. It shows how far new Labour's actions are divorced from its warm words.

Nick Gibb (Conservative, Bognor Regis and Littlehampton)

I support the amendment, which seeks to remove from these draconian provisions properties that are subject to the uniform business rate—commercial properties. One of the points that the Chancellor of the Exchequer skated over when announcing the swingeing increase in the rate of stamp duty on high-value properties was that stamp duty also applies to the transfer of commercial property; not just real property, but all assets in a business that are transferred by document. That greatly affects businesses. The notes on clauses make clear that 75 per cent. of the revenue raised will be from sales of businesses and commercial property.

Philip Hammond (Conservative, Runnymede and Weybridge)

Would I be right in thinking that the measure applies also to transfers of intellectual property, which might be of direct interest to the Paymaster General?

Nick Gibb (Conservative, Bognor Regis and Littlehampton)

My hon. Friend is right. It applies to all assets of a business, including intellectual property. It can also apply to one's debtors. If a company has any assets transferred by document—cash, even—the stamp duty is applied to the value of those assets As my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) said, a large company that takes legal advice from leading solicitors and accountants can avoid paying duty. If it is made clear in the agreement to sell or buy a business that certain assets—for example, plant and machinery and tools—will be transferred not by document but by delivery, the stamp duty is avoided. That requires a company to take legal advice on the sale of a business, but most small and medium businesses will not have the resources to take advice on stamp duty; they will probably be caught more than large companies. A measure designed to raise revenue for the Government will hit the very businesses they purport to want to encourage. The Institute of Directors has made clear that it opposes this draconian measure, saying: We deplore the increases in stamp duty on high-value properties. While very few house purchases will be affected, a higher proportion of purchases of business premises (and of goodwill and patents) will be affected. The Institute of Chartered Accountants deplores the measures; the tax faculty has said that the further increases in stamp duty for asset transfers as against share transfers may distort business decisions and inhibit sales of assets as against companies. Here, again, we have a measure designed to hurt medium and small businesses, as against large ones. It will not affect businesses that simply sell shares from one owner to another; they will be subject to a different rate of stamp duty—the rate applying to the transfer of shares—but someone trying to sell a small business because of retirement, for example, will have to pay the very high rates of stamp duty on all the assets transferred. The IOD makes the valid point that insurance companies, pension funds and property unit trusts will bear the brunt of the direct impact of the increases in stamp duty because most commercial properties are owned by such investors and then leased. Millions of people who invest in insurance, pension funds or unit trusts will suffer.

Philip Hammond (Conservative, Runnymede and Weybridge)

Will not the measure cause a further distortion—a bias in favour of renting or leasing smaller business premises rather than purchasing them outright and paying the attendant stamp duty?

Nick Gibb (Conservative, Bognor Regis and Littlehampton)

My hon. Friend is absolutely right. It is wrong that Government measures should have such distortionary effects—the Government should carefully consider the effects of taxes on the market. The distortion of usual commercial transactions is distressing, but it will happen in a variety of areas as a result of the Bill. The Institute of Directors is concerned that the measure will reduce the value of the investments of millions of innocent investors. That demonstrates a wider point—taxes levied on big business or business generally are always eventually borne by individuals. That has been widely acknowledged, as the Treasury Committee noted. Gavyn Davies said that the brunt of the advance corporation tax credit would be borne by the household sector. Similarly, the brunt of the effects of clause 147 will be borne ultimately by individuals, either as tenants or as purchasers of houses on small estates where the land was bought as a parcel—as my hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond) rightly pointed out, the 3 per cent. stamp duty would be passed on to the purchaser of the newly built house. Like my hon. Friends, the Institute of Directors is concerned that nothing has been done to remove the distortions caused by the slab scale. The matter was the subject of an amendment to the Finance Bill in the summer; the Government opposed that amendment, too. As they are doing everything possible to remove distortions in areas such as national insurance, it is odd that they are exacerbating distortions in stamp duty by increasing the rates. I urge the Government to accept the amendment, which would prevent business from having to face these draconian measures. In his Budget statement, the Chancellor implied that the provisions would apply only to residential property; he made no reference to their effects on commerce and business transactions. For once, let us see legislation living up to the spin and presentation.

Geoffrey Robinson (Labour, Coventry North West)

Opposition Members have advanced reasoned arguments on the amendment, but I think that they are really saying that they do not like the clause. It would have been much more simple if we had debated the clause as a whole. The hon. Member for Bognor Regis and Littlehampton (Mr. Gibb) mentioned draft regulations. We have checked what happened—they were placed in Derby Gate, in the House of Commons Library and in the House of Lords Library. We are not sure why they were not there when he looked for them—

Nick Gibb (Conservative, Bognor Regis and Littlehampton)

rose—

Geoffrey Robinson (Labour, Coventry North West)

I do not doubt that they were not available to him, but I reassure him that we have arranged for additional copies to be deposited—no doubt he will be able to collect them after the Division.

Nick Gibb (Conservative, Bognor Regis and Littlehampton)

I am grateful for that reassurance, but why were the draft regulations not referred to in the regulations list, in the book that lists all the documents that the Government have presented to the Library, or in today's Order Paper under the list of documents that were placed in the Library on Friday?

Geoffrey Robinson (Labour, Coventry North West)

I have explained to the hon. Gentleman that the draft regulations were deposited in the Library, although we do not know why they were not available to him. I have assured him that we have made additional copies available. I cannot do more, and I ask him to accept what I have said. The increased levels of stamp duty will apply to intellectual property, but the amounts will be very small—some tens of millions in the total. I do not think that the matter is significant to our consideration of the amendment—in fact, the amendment would not affect it. I am sure that the whole House has considerable respect for the professionalism of the hon. Member for Bognor Regis and Littlehampton, but he must find other reference points than the Institute of Directors and Gavyn Davies, much as we respect the latter and much as our relations with the former are improving. I am sure that he can do better than that, even if he has to make frequent reference to his former boss. We heard about the slice system as against the slab system and the cliff edge. My right hon. Friend the Chief Secretary conceded in the debate on 28 July last year, when we divided on an amendment, that there were certain deficiencies in the present system, but it is funny that the Conservatives did nothing about it when they were in government. I hasten to add that rates were lower then, so the problem was slighter, but Conservative Members have made the point today that there was already a bunching. We are prepared to consider the issue, but only in the context of there being no reduction in revenue, so presumably the rates would be spread over a banded system and the results might not be to everyone's liking. 9.30 pm The Opposition's talk of a hidden agenda is a lot of nonsense. I suppose that they have nothing better to say, but we could have predicted that the right hon. Member for Wells (Mr. Heathcoat-Amory), along with the hon. Members for Guildford (Mr. St. Aubyn) and for Runnymede and Weybridge (Mr. Hammond) and others, would mention the European situation. In anticipation, I took the trouble of getting some figures on Europe, which I am sure will interest or even intrigue the right hon. Member for Wells. He was pretty right on Belgium; wrong on France and on Germany; and right on the Netherlands. I have the figures here, and I will make them available to him afterwards. Overall, stamp duty and its equivalents in the Community stand at between 6 and 10 per cent. on average, which still puts us at a considerable advantage. I believe that I am correct in saying that there is no intention that the business properties taxation should bring us in line with the code of conduct of business taxation. We have looked at the market—

Nick St Aubyn (Conservative, Guildford)

rose—

Geoffrey Robinson (Labour, Coventry North West)

If the hon. Gentleman can contain himself for a moment, I am dealing with a coherent point raised by other Conservative Members in the debate. I agree with the Budget judgment that we have a level of taxation that even he would accept is assimilable in the present market and does not pose a problem.

Nick St Aubyn (Conservative, Guildford)

In the light of the Paymaster General's assertion that to refer to a hidden agenda is nonsense, and of the comments that he has just made, can he confirm that the Government have no intention of raising stamp duty yet further?

Geoffrey Robinson (Labour, Coventry North West)

The question of a hidden agenda was raised in relation to Europe and to some harmonisation proposals concerning a code of conduct for business taxation. I repeat that that is nonsense. There is no hidden agenda in that respect.

Philip Hammond (Conservative, Runnymede and Weybridge)

The point was also raised in respect of how the housing market would be regulated under a single currency and of comments made by the Chancellor himself suggesting that a prime motive for the move was a further damping of the housing market.

Geoffrey Robinson (Labour, Coventry North West)

The hon. Gentleman says that the Chancellor made that remark, and I look forward to receiving a copy of it, if he can produce it. The issue is not whether the United Kingdom's housing market is out of phase with the European Union's, although that could well happen; the issue is whether there is genuine convergence between our economy and the European economies. That is why the policy that we cannot contemplate entry to the single currency until there is established convergence is so right. Convergence means a general harmonisation of the economies in terms of inflation, growth and other factors, one of which, but only one, is the housing market. We cannot pick out housing and try to deal with it as a separate issue; nor would we attempt to do so. All the amendments have been odd, as if the Opposition had trouble getting them down or making up their minds what they wanted to do. The odd thing about this amendment is that it would give relief for businesses of over £250,000, but nothing for those under that figure. I do not resent Opposition Members speaking to the amendment. For the most part, their concern seems to have been the effect on the housing market, but the amendment would do nothing about the problems that they consider the increase in stamp duty might pose for that market and we do not accept that it will pose a problem. The hon. Members for Runnymede and Weybridge and for Guildford are concerned about the housing market and the possible effects of the tax on house building, house prices and land prices, but surely they must have learnt from the 1980s, the Lawson boom and the mishandling of the economy by the Conservative Government that the one thing the property market does not want is the politics of boom and bust. The politics of envy has nothing to do with it—it is the politics of boom and bust. That is what brought the housing market to its knees and what plunged millions into negative equity from which, as I heard today from someone who works in the Treasury, people are still not escaping, in spite of the improvement in the economy. The whole point about everything that the Government are doing, as I explained during the debate on clause 75, is that stability and long-termism have to be the name of the game. There is no point in going back to boom and bust or trying to regulate one aspect to distort another. We have to have a coherent set of policies that keep the economy on a steady course. That is what the Budget is about and the increase in stamp duty is one part of it.

Nick St Aubyn (Conservative, Guildford)

I am afraid that the hon. Gentleman condemns himself with his own words. On the one hand, he tells us that there is no hidden agenda and that raising stamp duty is not part of regulating the economy, but, on the other, he talks about preventing boom and bust. In the context of house building, surely he realises that it is the transaction costs that are the concern. Increasing transaction costs will deter the development and provision of brown-field sites for residential development.

Geoffrey Robinson (Labour, Coventry North West)

The hon. Gentleman may continue to make that point, but we believe that we have taken a balanced view. Indeed, a Conservative Member agreed—I cannot remember whether it was the hon. Member for Bognor Regis and Littlehampton or the hon. Member for Runnymede and Weybridge—that, at the present level, the increase will not markedly affect the market. We agree with that judgment and it is the one which we have taken. The point that I was trying to make about stability, which the hon. Member for Guildford seems to be too dense to understand, is that we are trying to achieve it not through one measure alone, but through a set of measures. The one thing that will kill the housing market again is to get away from stability and go for boom and bust. We must not do that. That is why the whole of the Budget fits together as a coherent set of measures to keep the economy on a steady course, with steady growth, to the benefit of all sectors. I hope that the right hon. Member for Wells is reassured about the European fund. He also mentioned welfare to work and its having some effect on those companies that we will be looking to to provide considerable effort in that respect. I am pleased to be able to tell him that my right hon. Friend the Chancellor and I met representatives of some big companies in the hotel industry—this is not unrelated to commercial property values—and, while they could give us a tremendous commitment to welfare to work and the developments that they have in hand are extremely encouraging, none of them raised the increases in stamp duty with us. They were committed to welfare to work and very committed to the Government's policy of stability and long-termism. We are in the right ball park as far as the increase is concerned. Indeed, that is confirmed in the monthly index of Richard Ellis, which shows that the impact is pretty marginal, if there is any at all, and that we are not greatly affecting the market. It also seems that Richard Ellis reviews its Budget judgment as well.

Philip Hammond (Conservative, Runnymede and Weybridge)

I listened carefully to what the Paymaster General said about long-term stability. Can he explain how two separate stamp duty increases in less than 12 months convey an impression of stability? Either we have to assume that there will be a steady progress and further increases, or those are discrete and disruptive movements.

Geoffrey Robinson (Labour, Coventry North West)

There has been nothing of significance in the market and no boom such as that which the Conservative party managed to contrive. There is every indication that the economy is on a steady course. We believe that our Budget judgment was right and everything we have done was committed to stability. We shall stick with our policies. There is no merit in the amendment, which would do nothing to improve the housing market in a way that would have any effect on commercial property. We believe that our judgment is correct and we will make decisions as and when it is proper to do so in the context of the Budget. If a fit of misguided "Oppositionism" leads the Conservatives to force the amendment to a vote, we shall resist it.

David Heathcoat-Amory (Conservative, Wells)

I do not think that the Paymaster General has done justice to the many excellent points raised by my hon. Friends the Members for Bognor Regis and Littlehampton (Mr. Gibb), for Runnymede and Weybridge (Mr. Hammond) and for Guildford (Mr. St. Aubyn), all of whom spoke with considerable theoretical or practical knowledge. The Minister has once or twice completely overlooked their questions. The Paymaster General did pass the comment that our amendments were confused and asserted that we had had trouble in getting them down. I do not know what he means by that, or how on earth he can know the circumstances in which our amendments were tabled. In fact, we had no difficulty. Our only problem was to try to restrain ourselves from flooding the amendment paper with necessary amendments and to try to concentrate on those that would be constructive and would improve the Bill. The amendment is crystal clear. We tabled it to try to take out commercial property because we thought that the Government intended that.

John Swinney (Scottish National Party, North Tayside)

I take it from what the right hon. Gentleman has said that the Opposition amendments will be the pinnacle of their contribution to the debate and that we can expect no better from the other amendments that we will debate over the next two days.

David Heathcoat-Amory (Conservative, Wells)

I do not know whether the hon. Gentleman is trying to be witty or to ask a genuine question. If he sticks around for the next two days, he will hear more of our amendments, which I hope he will support because we have in mind not only the United Kingdom, but improvements to the economy of Scotland, which is dear to the hon. Gentleman's heart. The amendment was tabled, at least partly, because we judged, following the Chancellor's Budget statement, that it could well meet his intention. The Chancellor referred only to increasing stamp duty on householders and we know from last year's Finance Bill that the Government—or, at least, those on the Treasury Bench—did not always understand their legislation. The fiasco of the withdrawal of dividend tax credits made it clear that they certainly did not understand their own Bill. Those of my hon. Friends who served on the Standing Committee will remember that Ministers simply did not understand foreign income dividends. Eventually, rather than withdrawing the relevant clause, they said that it was inoperative and that they would return to it later. It is possible that, in the rush of preparing a Budget, the Chancellor genuinely thought that stamp duty did not apply to commercial properties. No one had gone into the point in great detail and the Chancellor himself has no commercial background. Perhaps that was a mistake, and we have sought to help him by giving effect to what may have been his intention; otherwise, the Bill will have a very damaging effect on commercial properties. We hope that there will be time for a short debate on clause stand part so that we can make a few more general points about the clause's wider effect on the economy. I must complain that the Paymaster General was dismissive of my innocent inquiry about whether this might not be the opportunity to move from what I called a slab system to a slice system. I think it was my hon. Friend the Member for Runnymede and Weybridge who picked that up as an important potential reform. All the Paymaster General said was that we should have done it. My point was that it is not so important to have such reforms when the rates are low, but, when the upper rate of stamp duty is increased by 50 per cent., as is proposed, it becomes important to try to avoid such gross distortions. 9.45 pm There is also the code of conduct for business taxation. Again, the Paymaster General was dismissive and said that, as far as he knew, there was no connection; that is his opinion, but the Government appear to have an agenda to harmonise—upwards, of course—business taxation to fit a European pattern. He challenged my figures on the effective rates of stamp duty in other member states. I defer to his greater knowledge, or at least to his easier access to specialist advice. I had to refer to the Library at short notice and it did a very good job for me, but I may not have got its figures right. However, it is clear, and he confirmed this, that the average rate of property transaction taxes is between 6 and 10 per cent. He confirms my point that we have a comparative advantage. That is one of the reasons why firms transfer to Britain and why we act as a magnet for overseas investment. That is much criticised by members of the European Commission, who regard that as terribly unfair. They are itching to harmonise it all upwards to the higher continental rates. It was not right for the Paymaster General to be so dismissive of my point. The Paymaster General ignored my question about which sorts of businesses would be hit by the increased stamp duty. I noted—again, this was echoed by several of my hon. Friends—that large, well-advised companies can and do avoid stamp duty by various means. The Paymaster General did not mention that. He knows a great deal about tax avoidance and how to counter it. The Committee would have expected some reference to how he will ensure that the burden of the higher rate of stamp duty is spread evenly through the commercial world rather than, as often happens, being loaded on to the weaker shoulders of small companies that cannot afford professional advice on the scale necessary. The Paymaster General's responses were inadequate. We may seek answers to some wider questions in the debate that will shortly follow on clause stand part, if it is allowed.

David Heathcoat-Amory (Conservative, Wells)

The transfer of property is not a luxury but a sign of a dynamic and successful economy, so any tax that inhibits it strikes at the root of productive investment and business activity. In an earlier speech, the Paymaster General suggested that the tax was to bring stability—that it would somehow even out the ebbs and flows of the property market and ensure that we do not have a boom followed by a bust. I do not think that it has anything at all to do with that. I should believe the hon. Gentleman more if there were some indication that he would lower the rates of stamp duty at another stage in the economic cycle, but, as has been said, it is a ratchet—the direction is ever upward, with no chance whatsoever of the £500 million impost on the commercial sector ever being reversed. The truth is that the measure is not about stability, but about extra taxation. That sits oddly with the Government's professed desire for a dynamic economy—presumably one in which both foreign and domestic businesses locate, relocate and start up in or transfer to the United Kingdom. The vigour of the property market is a healthy sign, so to tax property transfers is a retrograde step. What is the reason for the clause? Why are the Government increasing taxes on property and, therefore, on commerce at this time?

Geraint Davies (Labour, Croydon Central)

Does the right hon. Gentleman accept that, given that the rate of increase in commercial sector property prices is more than twice the rate of inflation, any simple understanding of market systems brings one to the conclusion that there is excess demand in the market and that the rate of increase is far in excess of the marginal increase in tax, which will surely be absorbed in containing the rate of increase in prices? There is no way that the increase will harm the economy—far from it. It will have a stabilising impact.

David Heathcoat-Amory (Conservative, Wells)

There are two responses to that interesting intervention. The first is that the increased prices in the commercial sector mean that, even at existing rates of stamp duty, the yield is extremely buoyant. It will increase precisely because of the higher taxes; therefore, the Chancellor did not need to increase the rate in order to increase the yield. The second point follows on from my remarks a few minutes ago, which is that I would only accept such an argument if there were any evidence that the Government would cut the rate again if the commercial property market turned down. That logically follows on from the hon. Gentleman's point. If the hon. Gentleman indicates that that is indeed his policy in the debate we are about to have—however short it may be—I shall regard his interventions with considerable respect in future. Incidentally, I hope that he is on the Standing Committee on this Bill. He was happily on the Committee on last year's Finance Bill and, having finally got the hang of the different between you and they—the first person and the third person—he was an excellent member of that Committee. Before that intervention, I was asking the Paymaster General about the reason for the tax. There is no environmental reason; as my hon. Friend the Member for Guildford emphasised, it has nothing to do with the difference between building on green-field or on brown-field sites. There is no apparent reason from a European perspective—the Paymaster General has denied that there is a hidden convergence agenda. Finally, the Government do not need the money, because we are in surplus. A budget surplus was nearly achieved in the financial year just ended and there will be a substantial surplus in the financial year on which we have just embarked. Given that there is already to be a £20 billion tax burden on the commercial sector in the lifetime of this Parliament, why is the Chancellor adding to that unnecessarily by increasing rates of stamp duty that disproportionately hit the business sector? I conclude with those few questions and comments, hoping to allow one or two of my hon. Friends to make a contribution in time for an early end to the debate.

Nick St Aubyn (Conservative, Guildford)

I begin by applauding the Paymaster General's altruism in proposing the clause. We are near neighbours in Surrey, where he is my constituent. Whereas I occupy a humble labourer's cottage, he occupies the mansion of the village—very nice it is, too—and I know that, in this case, the tax rate will hurt him a great deal more than it will hurt me. Nevertheless, one is bound to ask, in what spirit is that altruism being proposed? The Paymaster General says that he is anxious to prevent boom and bust. Well, we do have a boom. In the past two years, the stock market has increased by about 50 per cent., as measured by the increase in the FTSE index. To help us understand the Government's long-term policy, will the Paymaster General clarify why his Government are happy to preside over a boom in financial assets as represented by shares, but have an engrained hostility to any increase in the value of bricks and mortar in so far as they, too—especially on the commercial property side—represent a financial asset? We need to know the answer to that question, when the Paymaster General has told us that he believes that 3 per cent. is about right, and has pretty well implied tonight that stamp duty should not go higher than that, and yet he stops short of giving the House any reassurance that he and the Government recognise that if they try to push this boat out any further, the harmful effects—which we have identified this evening—on the property market, especially the commercial property market, will become very marked. The property-owning democracy is a decent society—there is nothing to be ashamed of in it—but I believe that we have isolated all the possible motives that the Government have for introducing clause 147, and in the end we must conclude that the motivation for the clause comes back to old Labour. It comes back to an old-fashioned attack on property. That is what will drive Labour Members through the Aye Lobby tonight.

Geoffrey Robinson (Labour, Coventry North West)

My reply will be brief. In your absence, Mr. Lord, and that of your iron discipline, we had a fairly wide debate on amendment No. 10. A debate on an amendment relating to commercial property was turned into one on the housing market, and Opposition Members expressed much anxiety. It remains only for me to say, as we near the end of the first day's debate in Committee of the whole House, that there is no hidden agenda regarding the increase in stamp duty, and that no European convergence idea underlies it. The obsession of the right hon. Member for Wells (Mr. Heathcoat-Amory) with anything that might smack of Europe is well known to the House and he is respected by many for it, but he must not let that obsession overreach itself by imagining things where, obviously, none exist. I assure the hon. Member for Guildford (Mr. St. Aubyn) that I am not—sadly or happily—his constituent; that we have no hostility to financial assets; that we are pleased by the sustained confidence shown by the markets in the Labour Government; that we are sure that that will continue; and that we are delighted that property-owning democracy is also continuing, as polls show, to support this Labour Government.