Orders of the Day — Finance Bill

House of Commons, 5 July 1999.

FIRST-YEAR ALLOWANCES FOR INVESTMENT IN NORTHERN IRELAND

Disclosure of information in connection with first-year allowances

Barbara Roche (Labour, Hornsey and Wood Green)

I beg to move, That the clause be read a Second time. In last year's Finance Act, we introduced a measure to give 100 per cent. first-year capital allowances for small and medium-sized businesses investing between 12 May 1998 and 11 May 2002 in machinery or plant for use in Northern Ireland. The legislation does not come into effect until a day to be appointed by the Treasury. This was necessary to allow time to make sure that the measure would not be anti-competitive. It is now apparent that some modifications are needed to the scope of the measure to bring it into line with competition law. New clause 7 will make the necessary changes. Once made, we expect to receive confirmation from the European Commission that the measure is not anti-competitive. This will allow us to appoint the day and to bring the legislation into effect. Once that is done, the 100 per cent. first-year allowances may be claimed on any expenditure in the qualifying period. It may be helpful, and for the convenience of the House, if I outline briefly the areas of change. On transport, the 100 per cent. first-year allowances were never intended to apply to expenditure on machinery and plant for leasing or letting, hire cars, long-life assets, sea-going ships, railway assets or aircraft. New clause 7 will expand the exclusion to cover transport assets, such as lorries or containers used in the freight haulage business. It will not affect the entitlement to allowances on transport assets in other types of business, such as delivery vans of retail businesses, mobile shops or tourist buses. As for the agriculture and fisheries sectors, the new clause will mean that 100 per cent. first-year allowances will be available only on investments authorised by the Department of Agriculture in Northern Ireland, as compatible with competition law in the Department. As for large investments, under the normal rules, the 100 per cent. allowance will be clawed back if the asset begins to be used primarily outside Northern Ireland within two years of the expenditure being incurred. For exceptionally large investments, the new clause will extend that claw-back period to five years. The changes are required to ensure that the measure comes within competition rules while retaining the maximum benefit for Northern Ireland businesses.

Michael Jack (Conservative, Fylde)

Will the Minister expand on the conflict with competition law, which she used as a generic term? Which competition law is causing the problem?

Barbara Roche (Labour, Hornsey and Wood Green)

I am talking about state aids, as the right hon. Gentleman will be aware. Rightly, and understandably, the Commission has an interest in this matter. It has always been the policy of this Government—and, to be fair, of the previous Government—to be vigilant on state aids so that protectionism is not let in by the back door. We must make sure that the measures are compatible. I commend the new clause to the House.

David Heathcoat-Amory (Conservative, Wells)

It is significant that we have been debating for more than two hours before getting to the Government new clauses. That is because of the wholly unprecedented number of money resolutions that the Government have tabled at this late stage. By definition, money resolutions are tax raising. To have eight tabled at the start of the Report stage shows not only that we have a tax-raising Government and that we have had a series of tax-raising Budgets, but that we now have tax-raising Report stages. Rightly, we have examined some of the money resolutions, and we can now approach the stage where we can look at the new clauses. I am interested in this one, as it restricts the ability of businesses in Northern Ireland to reduce their tax burden through the use of 100 per cent. first-year capital allowances for small and medium-sized enterprises. The measure was announced last year by the Government, and was passed in last year's Finance Bill. It has been approved by the House, but we now learn that it was not brought into effect because of possible problems with competition law. My right hon. Friend the Member for Fylde (Mr. Jack), in an acute intervention, asked exactly what that meant. He got a reply, but I am not sure that the Financial Secretary was entirely accurate. I ask the question rather than make the allegation. It is possible that she was a little disingenuous. 6.30 pm We know that the 100 per cent. first-year allowance conflicts not with United Kingdom competition law, but with the requirements of the European Union business taxation group, chaired by the Paymaster General, who confirmed in a parliamentary answer that the subject of first-year allowances for businesses in Northern Ireland is being investigated by the group. If the group concludes that the allowances conflict with the requirements of fairness and tax competition, they could be withdrawn, which is a serious matter. It is time that the Government came clean about the EU group, because the allowances are not the only measure in the Budget that could be hit. For example, the 40 per cent. first-year allowances for small and medium-sized enterprises in the rest of the United Kingdom were debated in Committee upstairs without Ministers mentioning the fact that they, too, are under investigation by the business taxation group. More recently, I asked how many British tax measures were under review by the group. It took the Treasury nearly a month to come up with the answer, which is surprising, as the Paymaster General chairs the group. Eventually, she confirmed that eight measures were under investigation, including measures relating to the film industry, which, again, we debated in Committee without knowing the full facts; enterprise zones, which should be of interest to Labour Members who believe in industrial regeneration; and the 100 per cent. first-year capital allowances for small and medium-sized enterprises in Northern Ireland. The House, extraordinarily, is being asked to pass certain tax measures while at the same time a European Union tax committee, chaired by a Treasury Minister, is sitting in secret—the agenda and minutes are not published—and may require those measures to be repealed or withdrawn. This is an important constitutional issue and the House must have an explanation. The Government have agreed in advance to abide by the tax committee's decisions, so it is not an advisory group. We know that because the matter was debated in 1997 and the Government published an explanatory memorandum. In its report on the matter, the Scrutiny Committee said that the Government would agree to the code only 'if it intended to honour it'. The Government have agreed to the code on business taxation, so they must have agreed to honour it. Will the Financial Secretary confirm that it follows that, if the business taxation group rules against the capital allowances for businesses in Northern Ireland, the Government will withdraw them?

Teddy Taylor (Conservative, Rochford and Southend East)

Can my right hon. Friend think of any possible reason why the Government should not publish the reports of the code of conduct committee, given that the latest one, published in May, contains a series of additional measures? Is not it an insult to democracy and to all that we are meant to stand for that the Government are agreeing to measures on so-called tax loopholes without the House of Commons or the people being told? Will he invite the Government to publish the most recent report, which I happen to have in my hand because I got it by devious means?

David Heathcoat-Amory (Conservative, Wells)

I entirely agree. The House deserves to know what tax measures are being discussed elsewhere, as it practically came into existence to take the means of taxation away from the Crown or the Executive and put it in the hands of those who are answerable to the electorate. My hon. Friend is seeking to assert an ancient right. The Government have made much of their commitment to openness and "Your Right to Know". I think that they even plan to introduce a Bill to allow the people to know what is being done in their name. It would be a good start if the Government could tell us what tax measures are under review. The parliamentary answer to which I referred made it clear that the measures that it lists are drawn only from the group's initial list. As my hon. Friend the Member for Rochford and Southend, East (Sir T. Taylor) said, there are other lists. I believe that some energetic web surfer discovered a list of more than 200 European—not all British—tax measures that are under review by the secret committee chaired by the Paymaster General. Will the Financial Secretary publish a comprehensive list of the British measures? Will the Financial Secretary confirm that the restrictions in the new clause, which would cut back the scope of the allowances as agreed last year, were introduced in response to fears about the EU committee, so that bringing our measures into line with the requirements of European competition law really means bringing them into line with the requirements of that committee? Why else have the restrictions been introduced? The allowances were announced last year to a great fanfare and passed by the House. The allowances are being restricted in areas in which the situation in Northern Ireland has got worse, such as haulage. The Government's tax measures on road fuel have made the haulage industry uncompetitive, and the problem is especially acute in Northern Ireland, which has a land border with another member state, so the industry can easily be undermined by lorries using cheaper fuel from the Republic. We know that a great deal of fuel smuggling goes on there; the Government will not even give us an estimate of how much, but we know that the problem is serious and worsening. The same applies to agriculture and fisheries. Northern Ireland faces the same problems as the rest of the United Kingdom, so the case for restricting allowances there has not been made. We strongly suspect that the restrictions are designed to bring us more in line with the requirements of the EU tax committee. I have another question for the Minister. The terms of the new clause indicate that the capital allowances for agriculture are to be restricted in a way that is devolved to the Department of Agriculture for Northern Ireland. That is somewhat remarkable, as it means that the power, not only to authorise specific items of expenditure on agriculture, but to specify persons, is to be at the discretion of that department. Officials in that department will be able to decide that one person gets the capital allowance, but that another person does not. That is a remarkable provision for the House to approve: instead of setting out tax liabilities in rules and regulations, we are now devolving that power to the say-so of officials at the Department of Agriculture for Northern Ireland. Perhaps the Minister can tell us why the rules cannot appear on the face of the new clause. My real point is that we are beginning to see the results of the Government's weakness in respect of European Union tax harmonisation. In 1997, they agreed to a code and they said that they would abide by it. Now, although the Government proudly announced certain tax measures last year and now want to introduce them, those measures are under review by that tax committee. In effect, the judgment of the House on matters of taxation has become subservient to a European Union committee over which we have no control. Those are the facts and we require an explanation.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I apologise for not having been in the Chamber for the first minute of the Minister's speech introducing the new clause. I agree with some of the points made by the right hon. Member for Wells (Mr. Heathcoat-Amory), especially those relating to the secrecy surrounding the group that meets in Europe, because I believe that all the committees that meet in Europe should be far more open than they have been. It is possible that, when the right hon. Gentleman was a Treasury Minister and attended meetings of ECOFIN in Brussels, he pushed for greater openness about the proceedings of that committee, but I doubt that he did so. If I am wrong, I should be more than happy to take an intervention from him. The Conservative Government did not have a good record on pushing for greater openness in Europe, and I hope that the current Government will do a better job in that respect. I disagree when the right hon. Gentleman questions the purpose of the tax committee, because there is a need to examine how state aid is allocated and whether specific forms of state aid meet the requirements of competition law. Competition law is a bulwark of the single market. It is astonishing that, in the Chamber and in Committee, the right hon. Gentleman has argued continuously against bodies such as the tax committee, given that he is—I assume—in favour of the single market. It is astonishing for the Conservatives to be in favour of free trade and of the single market, but against those mechanisms of the European Union that are designed to make the single market work more effectively, including by abolishing state aid. The Conservatives are supposed to oppose most forms of state aid, so it is astonishing that the right hon. Gentleman does not support the EU in trying to get rid of state aid which has, historically, been used by other EU member states in ways that are to the detriment of British jobs and industry. I should have thought that the ideological position adopted by the Conservatives would lead them to be in favour of the sort of approach embodied in that European committee. That does not mean that we should not voice concerns about specific measures laid before the House, and new clause 7 did cause me some concern when I read it and the explanatory notes, especially because, as the right hon. Gentleman said, it removes first-year allowances for investment in the road haulage industry. As we heard in earlier debates on the Finance Bill, the road haulage industry in Northern Ireland is in great trouble, because of the differential vehicle excise duties and fuel excise duties charged in Northern Ireland and in the neighbouring country across the land border, the Republic of Ireland. Now seems an especially inappropriate time to remove allowances, and my questions to the Minister focus on that issue. 6.45 pm Can the Government think of no other way—for example, through capital allowances or direct grants—to support the road haulage industry in Northern Ireland as it attempts to tackle the problems that are specific to it, rather than generally affecting the mainland road haulage industry? Does the subsection to which the right hon. Member for Wells referred, which would give the Department of Agriculture for Northern Ireland powers to make specific grants, offer a means of enabling the Government and civil servants to provide help to the Northern Ireland road haulage industry? Obviously, it would be limited to that section of the industry that is related to agricultural transportation, but it might offer a means of helping at least one part of the industry. I accept that rules for the application of tax law should appear in legislation, rather than administrative laxity or freedoms allowing civil servants in departments to hand out allowances for specific expenditures. That is not the best way to proceed. However, in the present circumstances of the Northern Ireland road haulage industry encountering great difficulties, that power—if it can be used in the way I suggest and remain in accordance with competition law—might offer Ministers a means of helping that industry, for example, by helping it to convert to fuel-efficient lorries. I hope that the Minister will answer my points when she winds up the debate. She should not listen to the protestations of the right hon. Member for Wells in respect of the wider issues.

Geraint Davies (Labour, Croydon Central)

At this historic time, as we look toward a peace settlement in Northern Ireland, I am sure that the whole House would welcome any extension of preferential treatment in terms of capital allowances that focused on small and medium-sized enterprises in Northern Ireland. The new clause strikes a balance between acting in accordance with competition law and doing too much and risking accusations of providing state aid that distorts competition. The result is that we can promote industrial prosperity in Northern Ireland while abiding by competition law. The Conservatives' view seems somewhat schizophrenic. On the one hand, they say that we should have nothing to do with the Europeans and their competition law; on the other hand, they are the first to accuse other European countries of giving unfair subsidies that make our industry uncompetitive. Perhaps we should be accustomed to the Conservatives holding such a contradictory position. We all want fair competition and we all want to support peace in Northern Ireland. Offering preferential treatment to SMEs in Northern Ireland offers a way ahead that fits in with European competition policy, which is much to be applauded. I welcome the new clause.

Teddy Taylor (Conservative, Rochford and Southend East)

The House should realise what it is about tonight. On 12 May 1998, the Chancellor of the Exchequer announced his intention to introduce 100 per cent. first-year capital allowances for spending by small and medium-sized businesses on machinery and plant for use in Northern Ireland. That was carefully thought out—the Government did not simply shove the measure on the table and then phone up their friends in Brussels to ask them whether it was fair and reasonable. As I hope that the hon. Member for Croydon, Central (Mr. Davies)—whose speech was so fascinating—appreciates, although the scheme was carefully thought out before being announced by the Government, it has not yet been activated—it has not happened yet. I am sure that he is having a jolly discussion with the hon. Lady sitting behind him, but I hope that he has heard that simple point. Despite that, and although there has been consultation, the Government are now saying that they got it wrong and will have to change it substantially. The Government are removing the 100 per cent. first-year allowances for transport assets. Why would they do that? Has the road haulage industry had a wonderful time? Is it subject to special preference? We all know that the road haulage industry has had massive new taxes imposed on it, so why are the Government discriminating against it in this measure? On agriculture and fisheries, the 100 per cent. first-year allowances will be available only for investments authorised with the Department of Agriculture for Northern Ireland as being compatible. The 100 per cent. first-year allowances will be withdrawn if the asset begins to be used outside Northern Ireland within two years of the expenditure being incurred. How on earth will that be implemented? Will the Government introduce passports for machinery, so that, if machinery is moved from Northern Ireland to, for example, Scotland, they can make a note of that and ensure that the allowance is withdrawn? Those are extraordinary measures, and we should ask ourselves why there is panic and why legislative changes are being made to bash road haulage and to introduce a passport for machinery to ensure that it is not transferred, even for a few days, from Northern Ireland to Scotland. Frankly, that is nutty. As hon. Members are well aware, I have never been a great fan of grants and allowances in any form. However, the Government are changing a sensible scheme that was carefully thought out and approved by the House. The scheme is very detailed. It says that, to qualify as small and medium-sized enterprises, businesses have to meet two of the following three tests: they have to have an annual turnover of not more than £11 million; they have to have assets of not more than £5.6 million, and they have to have not more than 250 employees. The miracle men of the Treasury had worked out a reasonable, sensible scheme, and the Government are now introducing these rather strange changes before the scheme has even started. I hope that Members will ask themselves, "Why are the Government doing that?" The Government are not introducing the changes because they are stupid or nasty, although all Governments can, to some extent, be stupid or nasty. Something has happened or someone has said that they must change the scheme. It is pretty obvious that the Government have been involved in discussions in Europe in secret committees, and that they have not been publishing the resulting papers. A report of the code of conduct group was mentioned in the Treasury Sub-Committee only last week. I said that I had heard that there was a great plan to tell us about unfair tax discrimination and that there was a report on that. I asked whether it was possible to get hold of that report and I was told "No. Such reports are secret and they are not available." I have a great friend, a brigadier in Gloucestershire, who can always get secret reports if I particularly want them, so I got that report. I have it in my hand. It is not available to the public. It says that there have been two reports of the code of the conduct committee, which is chaired by the Paymaster General. One report classified items of tax competition that the committee felt were unfair, unreasonable and wrong. Four proposals were made. The first related to the film industry. The poor old film industry had better watch out, because it is going to get clobbered. The second related to tax relief on shipping, and I warn that industry that it, too, will be clobbered. The third related to enterprise zones and the fourth to first-year capital allowances in Northern Ireland. Those were identified by that secret EU committee as one of the flaws in the tax arrangements. I am sure that you will rule me out of order if necessary, Mr. Deputy Speaker, but what worries me is the contents of the second report of that committee, which are alarming and terrible. When they become public, people will be upset. As you know, Mr. Deputy Speaker, I had rows with the previous Government just as I do with this Government. Why the blazes will they not tell the people the truth about what is happening in Brussels? Why the blazes will they not publish the reports as they emerge? I am sure that the Government will say that the reports do not require them to take action. We all know what is happening with tax harmonisation and we all know what is being forced on us. We all know what is coming in by the back door, and it is time that people told the truth. I am sure that the Government are exactly the same as the previous Government, and they should tell people what is happening. I ask the Minister why those reports cannot be published. Why cannot the report for which I asked, which emerged in May, be published? Why cannot the Treasury Sub-Committee get hold of it? I am sorry, Mr. Deputy Speaker, if I am getting bad-tempered in my old age, but what is happening in the House of Commons is appalling. People are not being told what is happening. The Government are making announcements and we are debating measures about which we can do nothing. Although there may be a case for throwing away our democracy, we should be consulted.

Geoffrey Clifton-Brown (Conservative, Cotswold)

Does my hon. Friend agree that there is a parallel between this case and the publishing of the minutes of the Bank of England Monetary Policy Committee? If those minutes can be published, why cannot the minutes of the committees to which he refers also be published?

Teddy Taylor (Conservative, Rochford and Southend East)

It is interesting to read the minutes of the Monetary Policy Committee, and I agree with my hon. Friend that the more we publish, the better. We do not want secret information but, if the Government are saying that there are tax mistakes or unfair forms of taxation, Parliament and the people should be told. Part of the latest report concerns the Channel Islands, and, frankly, I should not like to have any money invested in the Channel Islands now—

Alan Haselhurst (Deputy Speaker, Saffron Walden)

Order. I have given the hon. Gentleman considerable leeway. He is, of course, entitled to make his point about the new clause, but he is not entitled to debate the generality of his argument about secrecy and openness. The new clause concerns first-year allowances for investment in Northern Ireland, and his remarks must relate to that.

Teddy Taylor (Conservative, Rochford and Southend East)

I am sorry, Mr. Deputy Speaker. I mention discussions in Europe only because the report specifically says that our grants to Northern Ireland industry are considered wrong and unfair by the code of conduct committee. If we cannot mention that, I do not know why we are in the House of Commons at all. It may be said that the reports are not public and that people cannot get hold of them, but they exist and they arise from meetings that have taken place. I am very sorry that, for the first time since I came here in 1964—which was a long time ago—I have had a dispute with the person in the Chair. It is not my practice to fall out with those who are in the Chair. However, something very nasty and wrong is happening, and I find it appalling that the Minister can say that the Government have suddenly decided, for no apparent reason, that the allowances that they agreed only last year and that have not yet been introduced must all be changed. The Government will no doubt say that they are not legally obliged to implement the conclusions of the code of conduct committee, but that committee regards four specific items as contrary to tax harmonisation, and we do not know about many of its other conclusions, so, although I shall achieve nothing in relation to the new clause and I shall probably fall out with more people than ever before, I urge the Government, at the very least, to start publishing the committee's reports. They know that those reports will, in any event, become public. I have the latest report, which has not yet been published, and I am sure that someone else will get hold of the next one. Why cannot Parliament be told what the Government are discussing? Why cannot we be told what agreements are being made on taxation? Having spent 35 years in the House and discussed many matters, I find it sad that people are not being told about such agreements and that we spend a great deal of time discussing things that we can do nothing about. We are—inadvertently, I am sure—being misled about the origin of the changes introduced in the new clause. I hope that other hon. Members will ask themselves why the Government suddenly want to change a detailed scheme that was introduced in 1998, before it has even been implemented. There is something wrong in that, and I hope that my colleagues will pick up on that.

Michael Jack (Conservative, Fylde)

This is an intriguing new clause. I hope that the Financial Secretary will be able to shine a little light into what, from the speeches so far, seem to be increasingly murky waters. One of the things that worries me in overall terms is that, as my hon. Friend the Member for Rochford and Southend, East (Sir T. Taylor) said, something was introduced after careful thought in order to confer a tax advantage on one part of the United Kingdom, yet, for the reason that the Minister described in response to my intervention—it offends competition law—it is being changed. She also prayed in aid state aids. I am now less clear about the matter than I was before she replied. If the Financial Secretary will do me the courtesy of listening, I should like to ask her why, for example, 100 per cent. scientific research allowances that are available in Northern Ireland are not affected by the proposals. In general, two important tax principles are raised by the new clause. One is whether giving any 100 per cent. allowances contravenes the currently unspecified competition laws. The second is whether a sovereign member of the European Union choosing to grant a tax advantage to one area within its own boundaries runs foul of our position in the EU. I have always understood that one of the principles that one operates in tax in this area is that of fiscal competition. My understanding is that, up to now, a country wishing to confer certain capital allowances for certain purposes on certain tax regimes has never been challenged; we may have whatever allowances we like. It is difficult to answer why we appear to be corrupting that advantageous position by the new clause. The Financial Secretary must spell out very clearly how competition law interacts with the sovereign right of the UK to levy its own tax rates. We are facing harmonisation by the back door. The Financial Secretary winces, but she will know that, when I was in the Treasury, all our EU partners—certainly the major players who valued independence of their tax-determining regimes—would have fought tooth and nail the case of Hoechst v. the European Union on a matter connected with corporation tax because they did not want somebody else determining their tax law. If, as my hon. Friend the Member for Rochford and Southend, East says—he and I have not always agreed on matters European—there has been a change of Government policy, let us have it out in the open. It is no use the Financial Secretary shaking her head. One of the values of these debates is that we may tease out any new interaction between competition law and tax law, with which the new clause deals. I should like a specific answer to the question how, for example, Northern Ireland can benefit from a 100 per cent. scientific research allowance but cannot benefit from the original proposal. Will the Financial Secretary spell out the competition laws that are corrupted by the proposed state aid? We know that one country may confer a benefit through the tax system, but another may do so by another mechanism. It is certainly of interest to those in the Department of Agriculture for Northern Ireland to know of the disquiet among Northern Ireland pig producers over the moneys that were passed to French pig producers in connection with difficulties faced in the French industry. The £150 million that the French Government passed to their pig producers was supposedly to deal with restructuring their industry. The French Government may have decided to deal with that matter via a tax allowance. Similarly, we may have responded by giving our pig industry a tax allowance for various matters such as welfare. Has there been any attempt in framing the new clause to ensure that there is equivalence of help across the EU, given that we may choose to help an industry via tax allowances, but another member state may deal with such a situation by another method? I am now more confused than ever in understanding how there can be parity of competition. The example that I quoted is not hypothetical; it a real issue that affects pig producers not just in Northern Ireland but in the United Kingdom generally. It might have been helpful if the Financial Secretary in her opening remarks had compared and contrasted capital allowances north and south of the border. By and large, the use of assets, particularly agricultural assets, is the point of comparison. I would have liked to have known that we were not disadvantaging ourselves in Northern Ireland by the proposed measure. I turn to an aspect on which my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) touched in his pertinent and perceptive comments. In tax terms, this is a highly unusual measure. DANI is to make statements on what qualifies for tax allowances. Can the Financial Secretary tell me whether those judgments are challengeable via the commissioners of the Inland Revenue? It strikes me that we have a one-way street. DANI will be able to make judgments—there is no definitive list in the new clause—but there appears to be no mechanism for challenging them. The only way in which taxpayers may normally deal with such circumstances is to challenge an Inland Revenue ruling through the commissioners. I am not clear whether that mechanism will be open to people in this matter. The proposed subsection (3CE) is even more mysterious. It says that DANI authorisations may, if given generally, be modified by that Department", and may in any case be absolute or conditional. Does that mean that DANI, or someone else giving an interpretation of the new clause, will be allowed a second bite at a ruling? It sounds to me as if some conditional ruling could be given, hinting that an allowance might be included, but subsequently modified or omitted. That is a recipe for, to say the least, a lack of clarity and certainly a lack of precision in operation. I, for one, would like some clarification. I do not understand how a fiscal activity puts us in contravention with competition laws when we already have an ability to set sovereign rates of tax as we choose. I underscore the importance that I attach to being given clear explanations of why we thought that the legislation as originally drafted was all right, but we are now told that it must be modified by new clause 7.

Barbara Roche (Labour, Hornsey and Wood Green)

This has been an interesting debate. If one had heard the opening remarks of the right hon. Member for Wells (Mr. Heathcoat-Amory), one would have thought that the Conservative party was in favour of first-year capital allowances. However, the right hon. Gentleman neglected to point out that, in 1984, Lord Lawson, then Conservative Chancellor of the Exchequer, phased out 100 per cent. first-year allowances. Of course I understand the speech made by the hon. Member for Rochford and Southend, East (Sir T. Taylor); I assure him that I have a great regard for him and have no intention of falling out with him. However, I want to make it clear to all right hon. and hon. Members who have spoken that, although the Northern Ireland measures were notified to the code of conduct group that is chaired by my hon. Friend the Paymaster General, we do not believe that they represent harmful tax competition. We are considering not that group, but state aids. I point out to the right hon. Member for Fylde (Mr. Jack)—in the gentlest possible terms—that I sometimes wonder whether we inhabit parallel Treasuries. The state aid rules were in place when we joined the EU. Any aid, including fiscal aid, can be found to be a state aid. That has always been the case; it was certainly the case when the right hon. Gentleman held the position of Financial Secretary to the Treasury.

Teddy Taylor (Conservative, Rochford and Southend East)

As the hon. Lady has suggested that the Government may not have reported this matter to the code of conduct committee, will she ask her officials to read page 63 of the committee's report, published on 25 May, reference 8231/99? The report gives the clear impression that the matter was one of a small number of alleged, harmful tax competition measures presented to the committee by the UK Government. I realise that Ministers sometimes do not see such reports, but it is there in black and white.

Barbara Roche (Labour, Hornsey and Wood Green)

I am grateful to the hon. Gentleman for that intervention, but perhaps he did not hear me correctly. I said that the matter had been notified to the committee. However, we are dealing not with that group, but with the normal rules on state aids, and I shall deal with that during my remarks.

David Heathcoat-Amory (Conservative, Wells)

The issue is not whether the matter was notified to the committee, but whether the committee is investigating it as potentially harmful to tax competition. We submit that it is the latter; the matter is under review and hence may be withdrawn by the Government, under the assurance that they have already given that they would abide by the outcome of the committee.

Barbara Roche (Labour, Hornsey and Wood Green)

The right hon. Gentleman is entirely wrong; the premise of his speech was wrong. It is not the code of conduct group that is at issue, but state aids. I realise that the right hon. Gentleman views that group as a vast conspiracy. Let me allay his fears. I am afraid that he goes home at night wondering whether the code of conduct group is following him. With my long experience as a constituency Member of Parliament, I have regularly had to reassure my constituents as to such fears. I am anxious to reassure him that it is not a problem. When we introduced the measure, we said in our press release that it would need to be cleared with the European Commission as a potential state aid. Could we have been more open than that? It was clear from the start. State aid rules arise within the framework of Community competition policy and have a legal basis in the provisions of the treaty of Rome. The provisions make illegal any non-approved aid given by a member state in any form that distorts, or threatens to distort, competition by favouring certain businesses or regions, or the production of certain goods—that has always been in the treaty. The EC enforces state aid rules and approves certain state aids that are compatible with the common market. In my introductory remarks, I pointed out that the Government support a tough stance on state aid. We have consistently supported initiatives both to tighten the state aid rules and to improve their implementation, with the overall aim of reducing distortions in the single market and of improving competitiveness in Europe. I think that the hon. Member for Rochford and Southend, East acknowledged that in his remarks. We introduced the 100 per cent. first-year allowances and the enabling legislation last year, to give a clear signal of our support for new investment in Northern Ireland. That is what it was all about. As we made clear in the press release, we knew that we should need to clear the measure with the Commission before it could be brought into effect. I want to spell out that there would have been no point in restricting the scope beforehand. As the House is aware, the state rules are complex, and subject to negotiation. We bid high, knowing that we might have to compromise and settle for less at the end of the day. However, we rightly wanted to get the best possible deal for small businesses in Northern Ireland—as any Government would want to do. Given recent events, I am sure that the House is united in wanting prosperity for Northern Ireland.

Geoffrey Clifton-Brown (Conservative, Cotswold)

I have listened carefully to the Financial Secretary's remarks. She pointed out that the state aid rules are extremely complicated. Indeed, the European Court does not operate on the basis of precedent like our own courts; it can overrule its previous decisions. It seems, therefore, that DANI will have an impossible job in trying to judge, at the margins, whether those decisions come under the state aid rules. It will surely always have to rule against the decisions coming under those provisions. Will the hon. Lady explain how DANI will be able to make decisions?

Barbara Roche (Labour, Hornsey and Wood Green)

When one is dealing with matters that are the subject of debate within the EU, such as agriculture, of course one needs tight rules. However, I am sure that the hon. Gentleman will agree that the Department is expert in such matters. When the rules are applicable, we want businesses to take advantage of them. The road haulage sector was mentioned. There will be limited impact on hauliers, because most road haulage in Northern Ireland is cross-border or international, and hence would not have met the condition in the provisional measure that assets must be used primarily in Northern Ireland. The new clause excludes only vehicles and containers from the scope of first-year allowances; the road haulage sector will still be able to claim 100 per cent. first-year allowances on other assets. I know that that will be of interest to the industry. Under the treaty of Rome, there are strict rules on state aids for agriculture; that is why the provisions relating to DANI are included. However, there will be a right to go before the Commissioners. The new clause is extremely sensible; we have tried to achieve the best possible deal for businesses in Northern Ireland. I commend it to the House.

OIL TAXATION: QUALIFYING ASSETS

Barbara Roche (Labour, Hornsey and Wood Green)

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

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

With this, it will be convenient to discuss the following: Government new clause 16—Petroleum revenue tax: instalments. Government new clause 17—Business assets: roll-over relief. New clause 19—Offshore oil and gas: roll-over relief— '.—(1) Section 193 of the Taxation of Chargeable Gains Act 1992 is hereby repealed with effect from 6th April 1999. (2) In section 155 of the Taxation of Chargeable Gains Act 1992 (classes of assets for the purposes of roll-over relief) after Class 8 there shall be inserted—

CLASS 9

Barbara Roche (Labour, Hornsey and Wood Green)

The new clauses and the amendment relate to the taxation of North sea oil and gas activities. New clause 15 prevents the avoidance of petroleum revenue tax—PRT—that could occur if tariff income, which was attributable to a PRT-paying field, were shifted to a non-PRT-paying field. New clause 16 will maintain the monthly flow of PRT receipts from companies which, mainly as a result of new clause 15, will be participators in a PRT-paying field, although they will have no interest in the oil and gas produced by that field. New clause 17 and the related amendment No. 35 extend capital gains roll-over to UK oil licences. That change will make it easier for the oil industry to rationalise its holdings of North sea oil licences. This will allow more scope for cost cutting and more aggressive development of new prospects. There is evidence that some oil companies are considering restructuring their interests in North sea oil and gas fields. Due to the existing rules for charging PRT on tariffs received for the use of pipelines and other North sea oil assets, a restructuring of assets can lead to tariffs being shifted, for PRT purposes, from the current chargeable field to a different field. Where the tariffs are currently attributable to a field that pays PRT, there will be an effective PRT charge on the tariffs. That PRT would be lost if the tariffs were shifted to a field that did not pay PRT. There is no justification for that loss of PRT, particularly as it would create a mismatch between the effective PRT relief already given in the PRT-paying field on expenditure on building the assets and the lack of an effective PRT charge on future tariff income. New clause 15 prevents that PRT loss by ensuring that, where a restructuring would lead to a change in the field to which tariffs are attributed for PRT purposes, the tariffs will continue to be attributable to the current field. In addition, if the owner of the tariff-generating assets would not, following restructuring, be a participator in the field to which tariffs remain attributable for PRT purposes, he will be deemed to be a participator in that field. That will ensure that PRT can be charged in that field on the tariffs that are attributable to it. New clause 15 is aimed at retaining the current PRT charge on tariffs which could be lost due to the restructuring of companies' interests in North sea oil and gas fields, but it should not prevent restructuring of these interests. Where there are good commercial reasons for the restructuring, new clause 15 should not prevent the companies from going ahead with it. The total tax potentially at risk from companies being able to shift tariffs from PRT-paying fields to non-PRT-paying fields is about £100 million per year. New clause 15 will protect those tax receipts. New clause 15 has been introduced at this stage due to the evidence that has very recently come to light about some companies considering the restructuring of their interests in North sea oil and gas fields in a way that would have led to a loss of PRT on tariff income. To protect that tax, we have had to act very quickly. One effect of new clause 15 is that there will be more companies that are participators in a North sea oilfield but that do not own an interest in the oil produced. PRT, as the House knows, is paid by monthly instalment. The amount of the instalment is based on the PRT liability for the previous period, and an adjusting payment or repayment is made, two months after the end of each chargeable period, to take account of any underpayment or overpayment of PRT for the current period. Where a participator in a field has not delivered or appropriated any oil in any month, he can withhold the PRT instalment that is due in the following month. That is because an oil company that has received no cash flow from the field in the previous month may not have sufficient cash to pay its PRT instalment. Companies that are deemed to be participators by new clause 15 will be able to use that rule to withhold all PRT instalments, given that, as they have no interest in the oil produced by the field, they will never have received oil in a previous month. But there is no justification for allowing a company to withhold instalments if the company has received tariff income in the previous month. New clause 16 therefore ensures that a PRT instalment for a month cannot be withheld if the participator has any tariff receipts that are received or receivable in the previous month. New clauses 15 and 16 therefore aim to protect the Exchequer from the loss of tax that would arise from tax avoidance. New clause 17, on the other hand, extends a relief—roll-over relief—to gains that oil companies make on the disposal of UK oil licences. Roll-over relief allows a business to sell one business asset and acquire another without facing an immediate capital gains tax charge. By deferring the tax charge, the relief helps reduce the effect of tax on companies' investment decisions. UK oil licences were removed from the scope of roll-over relief in 1987. As a result, if a company sold its interest in a UK oil licence, it was liable to an immediate tax charge on any chargeable gain that arose. That charge was levied even if the proceeds of the sale were reinvested in another UK oil licence. Our recent discussions with oil companies have revealed that the North sea oil industry has changed significantly since 1987. There is now far more emphasis on developing mature fields, maximising the use of existing infrastructure and managing projects efficiently. In that context, the absence of roll-over relief is causing problems for companies as they seek to rationalise and consolidate their North sea interests. It is now no longer appropriate to deny roll-over relief on UK oil licences. New clause 17 therefore repeals the 1987 legislation that excluded UK oil licences from the scope of roll-over relief. The House will be pleased to know that UK oil licences will now be put on a similar footing to most other business assets and qualify for roll-over relief. Amendment No. 35 is consequential: it includes the repeal within the list of provisions in the repeals schedule of the Finance Bill. I hope that this news will be greeted very warmly by both sides of the House; it certainly will be by the industry. I commend the Government new clauses and the amendment to the House.

Quentin Davies (Conservative, Grantham and Stamford)

The hon. Lady intoned her brief like an orthodox priest intoning a liturgy in Church Slavonic which he did not understand and did not expect his audience to. She does much less than justice to the two measures that the Government are proposing. They are quite different from one another.

Barbara Roche (Labour, Hornsey and Wood Green)

As a member of the United Synagogue, I hope that the hon. Gentleman will rephrase that; I would hate him to get me into any trouble.

Quentin Davies (Conservative, Grantham and Stamford)

The hon. Lady is proposing five new measures. They are, in fact, about two quite different subjects. The first two—new clauses 15 and 16—deal with a PRT issue, and the subsequent three measures deal with a capital gains tax issue. It would be sensible to separate the two. On the first group—new clauses 15 and 16—we have no problem in principle with a measure that is obviously designed to prevent avoidance of PRT. Let us say that a company has an asset that has benefited from PRT relief in its purchase or construction. It then gives up its interests in the production of a field, but maintains that tariff-generating asset to service the field. Under present rules, that tariff-generating asset could be allocated to a non-PRT field and so, whereas the asset had benefited from PRT reliefs in the past, the revenues generated by it would not be subject to PRT. In so far as new clause 15 restores symmetry in that respect and prevents the loss to the Exchequer of avoidable—I believe unjustly avoidable—PRT, we are very happy with it. New clause 16 deals with the consequential case: if a company has given up its interests in the production of a field, by definition it has no production so, under the rule that says that if it has no production for two quarters it does not pay PRT, it would be relieved of paying PRT for ever. I take it that the hon. Lady, in conceiving these two new clauses, had in mind something like a gas or oil pipeline that services a number of fields and could, by this method, without new clause 16, be switched from a PRT field to a non-PRT field.

Barbara Roche (Labour, Hornsey and Wood Green)

indicated assent.

Quentin Davies (Conservative, Grantham and Stamford)

I see that the hon. Lady endorses my interpretation. However, I would like to ask her, because it is an important point, exactly what type of assets would be involved. I take the pipeline to be a clear case in point. I see that the second line of new clause 15 excludes mobile assets. Clearly, something like a mobile drilling rig would be a mobile asset. However, what would be the position of a floating production platform? Could such a platform have benefited from PRT relief when it was installed in a PRT field? If it is shifted to another field, will it generate revenues free of PRT? I do not know whether the Financial Secretary is listening to my question but it is an important one. The House deserves an answer to it and we look forward to that. 7.30 pm I ask the hon. Lady to be precise with the definition of assets. She was not precise in her speech, and nor were the Government in their explanatory notes. I have suggested pipelines but we want to know beyond that what types of asset would be affected. That having been established, I think that in principle the Opposition would be happy to accede to the new clause. When I read new clause 17, I naturally thought, "Hurrah!" What is the new clause? Of course, the Government would not tell us. The Financial Secretary has not mentioned it. New clause 17 represents the Government bringing forward a provision to deliver exactly the effect for which we have been lobbying. Our new clause 19 is designed to produce exactly the same effect. It is probable that the Government heard from the industry—we consulted it on these matters last week—that we were bringing forward a new clause. No doubt the Government thought, "Right, we shall trump the Conservatives. After all, we will do the right thing ourselves." The Financial Secretary is clearly embarrassed about this. If not, she would have mentioned the Opposition's new clause in her introductory remarks. She managed to skate over the fact that there are two new clauses on the amendment paper that would have the same effect. Both would achieve by different means exactly the same effect.

Barbara Roche (Labour, Hornsey and Wood Green)

rose—

Quentin Davies (Conservative, Grantham and Stamford)

The hon. Lady has been rumbled and I give way.

Barbara Roche (Labour, Hornsey and Wood Green)

The hon. Gentleman has been in the House rather longer than me. However, I did not think—no doubt I shall be corrected—that it was my job when I opened the debate to speak to the Opposition's new clauses and amendments. I might be wrong, but I thought that I would leave that to the hon. Gentleman and others. Despite all the bluster that we have heard from the hon. Gentleman, I said that the Conservative Government had removed the relief in 1987. I am extremely glad that the hon. Gentleman has come around to our point of view, but it is rather late.

Quentin Davies (Conservative, Grantham and Stamford)

The hon. Lady's attitude is astonishing. First, she is found guilty of plagiarism, and tries to hide the fact. Secondly, she introduces the Government's new clause while trying to hide from the House the fact that there is an alternative on the amendment paper which addresses the same issue but suggests a different response. My greatest suspicions are aroused by the hon. Lady's behaviour. Obviously she did not feel confident enough of her solution to the problem to want to refer to the Opposition's solution. If she thought that her solution was better and ours was weaker or less adequate than her own, she would have been delighted to speak to our new clause to explain why the Government's new clause was better. However, she did not do that. Tonight, the House has a three-way choice. First, it can decide to do nothing and leave the present regime in place. Secondly, it can accept the Government's proposal to grant roll-over relief to North sea licences. Thirdly, it can accept the Opposition's proposal to grant North sea roll-over relief to North sea licences. The two proposals are very different.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

If the Government are being as opportunistic as the hon. Gentleman seems to be alleging, surely they would have done this before the Scottish parliamentary elections.

Quentin Davies (Conservative, Grantham and Stamford)

I do not think that the Government have been particularly clever in their handling of the Scottish parliamentary elections, which is why other parties did so well, to the Government's great surprise. I am not surprised that they got their tactics wrong for that one as well, as the hon. Gentleman suggests. We have had this situation before, and it has done great damage to the country. The Conservative party has come up with a solid proposal. It is a well-thought-through, viable and sensible proposal that is very much in the national interest. The Labour party, not to be outdone, and out of sheer machismo or pique, has decided to destroy what the Conservative party put in place when we were in government, or to pretend or attempt to neglect, as we have seen this afternoon, the proposals that we are putting forward in opposition, in favour of their own. There was a striking example of that over the past few months with the destruction of personal equity plans and tax-exempt special savings accounts, which were great successes. The Government could not bear the fact that those scheme were great successes and that people were saving more money.

Bob Blizzard (Labour, Waveney)

Will the hon. Gentleman give way?

Quentin Davies (Conservative, Grantham and Stamford)

I shall give way to the hon. Gentleman in a moment. He must learn patience. The Government could not bear the idea that these schemes were great successes and that household saving was increasing so well through PEPs and TESSAs. Against that background, they had to introduce their own scheme. The independent savings account is full of holes, full of shortcomings and badly thought through. Of course, it went quite wrong.

Quentin Davies (Conservative, Grantham and Stamford)

Of course, Mr. Deputy Speaker, I will not say any more about PEPs and TESSAs versus ISAs. However, I think that the analogy is a fair one. We have a choice between a Conservative proposal and a Labour proposal. What is more, we have the Labour Government trying to pretend that the Conservative proposal does not exist. The Labour Government are running away from the opportunity to explain the merits of the two proposals and to defend their own. It appears that they are not capable of criticising our proposal.

Bob Blizzard (Labour, Waveney)

The hon. Gentleman is trying to claim credit for a Conservative proposal. However, when I argued the point during Treasury questions, no Conservative Member rose to continue to press it. When I asked my hon. Friend the Minister for Energy and Industry during Trade and Industry questions to take up the point, again no Opposition Member intervened in support. During the meetings of the all-party group, of which I am the chairman, no Conservative Members have pressed the case. How can the hon. Gentleman square reality with what he is saying now?

Quentin Davies (Conservative, Grantham and Stamford)

If the hon. Gentleman is dissatisfied with an answer that he receives during parliamentary questions, he must take up the matter with the Ministers concerned. It is Labour Ministers who are in a position to give answers. The hon. Gentleman has scored something of an own goal or has aimed a shot at his own side. The difference between the two approaches is quite significant. However, we both appear to have the same stated aims, just as with savings schemes, which I must not mention—but we both apparently want to increase savings. The Conservative scheme or schemes delivered that and Labour's did not. Indeed, the Labour scheme delivered a great reduction in savings. In this instance, we again have the same aims. We both agree that it would be desirable to remove any tax obstacles to greater trading of North sea assets. It is quite natural that at the beginning of the exploitation of a new field, such as the North sea, the risks are high. When licences are being bid for, those risks will be syndicated extensively so that there will be many participations. As fields become more mature, it is natural that there should be trading of those assets, shares and licences, and that there should be fewer holders. In many instances such restructuring can lead to economies of scale, which are extremely desirable. Apparently we are all at one on the objective. That is certainly the Opposition's position. We believe that roll-over relief should be provided for North sea assets, as it is for many other business assets in this country. The question is how best to get there. We decided to get there in the most direct and straightforward fashion, and that was by saying, "We already have eight classes of business assets which qualify for roll-over relief, so we shall create a ninth." The eight classes have proved to be quite robust. There has been no difficulty at all in obtaining roll-over relief. There has been no ambiguity—and, to my knowledge, no court cases—about businesses in those eight established classes getting roll-over relief. The sensible step would be to add a ninth class as we have done in new clause 19. What is wrong with that approach? The Financial Secretary did not attempt to argue that there was anything wrong with that approach, and I draw some comfort from her silence. That approach was evidently so unexceptionable that the hon. Lady, who is pretty combative in her way when she wants to be, gave up at the thought of trying to take exception to it. We can take comfort from the proposal that we conceived and tabled. The hon. Lady's proposal, new clause 17, takes a different approach—a more complicated and less certain approach, which is much less sensible. It knocks out the provisions of the Taxation of Chargeable Gains Act 1992 that explicitly excluded North sea assets from benefiting from roll-over relief. The Government's new clause would restore the status quo ante—the status quo before 1992. The hon. Lady either has not done her homework, or she is being less than frank with the House by not mentioning that. She tried to skate over a material aspect of her new clause. The problem with re-establishing the status quo that existed before the 1992 Act is that that state of affairs was uncertain and unsatisfactory. It was possible to argue then, and it had been argued before 1987, that North sea licences amounted to a claim on the continental shelf. The continental shelf is land—indeed, it was defined by the 1958 Geneva convention on the continental shelf, and confirmed by the 1982 law of the sea convention, as the extension of the land of a coastal state under the waves, so to speak. The claim was made before 1987, not unreasonably but by no means with unambiguous certainty, that a licence was a claim on land, and that roll-over relief should therefore be provided, because land that was being exploited by the business that held the licence should qualify for roll-over relief under class 1, whereby land occupied for a commercial purpose benefits from roll-over relief. The trouble was that that was not unambiguous. So uncertain was it that the Revenue challenged that interpretation, which gave rise to the famous case of RTZ v. Ellis in 1987, in which the Revenue argued that an area was not land and RTZ claimed that it was. As I recall, the matter was referred to the special commissioners, who decided in favour of RTZ. The Government of the day decided to legislate before the matter reached the High Court. In other words, the jurisprudence was never established before the statute of 1987, which was replaced by the 1992 statute that the Government want to repeal. By definition, a return to the status quo ante would be a return to a state of ambiguity that was never resolved, and which was the basis for extremely expensive investigation and much doubt on the part of investors, businesses and all those involved in the oil industry. 7.45 pm That would be a foolish way of trying to resolve the problem. I want to hear from the hon. Lady why she decided to resolve it in that way, and why, as she has taken up our initiative to grant roll-over relief to North sea assets, if it was for reasons other than machismo or pique on her part, she did not accept our way of doing that. The House deserves and will require such an explanation. If the hon. Lady does not want to withdraw new clause 17 and accept new clause 19, which would be the best way of resolving the problem, I suggest that she makes a clear statement to the House now that the Government interpret the law prior to 1992 to mean that the continental shelf counts as land for the purposes of class 1 roll-over relief. If she says that, it may have some force in the courts if the matter is subsequently litigated. However, I regard that as second best. It would be far better for the Government to accept our proposal and to go down that much surer and safer avenue. If the hon. Lady wants to carry the Opposition with her, she must go down one of those routes. So that the matter is absolutely plain, I repeat that she should accept new clause 19—in any event the House deserves an explanation of why she does not consider that a better route—or she should make sure that, if she goes back to the status quo before 1992 or the first legislation on the subject in 1987, the ambiguity that then prevailed is not restored. The only way in which she can do that is by making that declaration now from the Treasury Bench.

Frank Doran (Labour, Aberdeen Central)

I welcome the measure presented by the Government and the speed with which it has been introduced. Before I develop that point, I shall comment on the speech that we have just heard from the Opposition Front-Bench spokesman, the hon. Member for Grantham and Stamford (Mr. Davies). It is always endearing to hear a Front-Bench spokesman for the Conservative party pretending that the Conservative party still matters. The gist of the speech of the hon. Gentleman seemed to be that the Government were ignoring the new clauses tabled by the official Opposition. If that contribution was an example of the Conservative Front-Bench team at its best, it is not difficult to see why the contribution was ignored. The hon. Gentleman left one indelible impression on my mind—the idea of our three women Treasury Ministers strutting their machismo round the Chamber. I hope that they will carry on strutting their machismo for the rest of our discussion of the Bill, because it is important that they hold the line. The importance of the oil industry in the United Kingdom is often understated. Not only can we produce our own oil, but the industry still pays substantial sums to the Treasury—about £4 billion a year, down from the boom years when about £12 billion a year was paid in royalties and tax to the Treasury. It is a mature industry and is now in decline. We know that the decline will be long and slow. In my constituency in Aberdeen, we are still looking to at least another 20 or 30 years of the oil industry. The fact that the industry is not in its prime must be taken into account, so I am pleased that the Government have introduced the measure. One of the biggest problems that the industry faces is the ownership structure. In the early years, many small and large companies bought shares in the various oilfields that were developed, some of them speculatively, and some of the shares have paid off handsomely. However, rationalisation of investment is necessary to reduce costs in the North sea. We are still an expensive province, and we all compete for the same share of oil investment. It is a global industry and a global market. There is one pot of money in each company, and we compete with provinces around the world for that investment, for example, we compete with Kazakhstan, western Australia, Asia and the middle east. Most of the middle eastern Governments are exploring the possibility of western investment coming in. All those countries can produce their oil and their gas much more cheaply than we can in the United Kingdom, so it is important that the Government take every opportunity to support the industry. The measure is a small but important one, particularly for the long-term future of the industry. There are about 380,000 jobs in the oil industry throughout the UK. A recent survey by the Offshore Contractors Association, which is based in my constituency of Aberdeen, determined that 220 Members of the House had constituencies with more than 500 oil-related jobs. That is a significant figure. There is an impression that the industry operates only in Aberdeen, Lowestoft, Great Yarmouth, Teesside and Merseyside, but it penetrates virtually all the country. Even here in the south-east and central London, significant numbers of jobs in planning, computers and software are related to the oil industry. Measures that help the industry and the jobs in my constituency help jobs throughout the country. They will also help to sustain the industry throughout the country for the next 20 or 30 years and I congratulate the Government on their introduction.

Robert Smith (Liberal Democrat, West Aberdeenshire and Kincardine)

I follow the hon. Member for Aberdeen, Central (Mr. Doran) in emphasising the pervasiveness of the oil industry. It has not only a direct, obvious presence, but has tentacles—such as subcontracting and the supply industry, which depend on it—that reach throughout the United Kingdom economy. It is important not only to Members of Parliament who represent constituencies with a direct oil interest, but to every hon. Member that the oil industry thrives and prospers long into the future. As the joint vice-chair of the all-party offshore oil and gas industry group, I recognise the industry's importance and welcome anything that will help it to grow and prosper. Although it is especially important to my constituency in the north-east of Scotland—it is obvious and on the doorstep—from time to time we lose sight of the extent to which it pervades our local economy and how dependent on it we have become. Therefore we do not always realise that we look to the future by supporting and developing it. We must look to the future by making sure that the industry's morale survives this period of low oil prices and by recognising that the industry is a mature province. Although we still have infrastructure in the original main fields, new technologies can exploit far smaller reserves that were ignored first time round. Those technologies are viable and economic because they can bolt on to the original technology at the heart of the mother fields, but if they go out of production we will lose that essential infrastructure and not achieve further onward developments. Such developments would be a great benefit because the technology being developed in the North sea is exportable. If we have a good home market and a good home base for the industry, we can build the export industry and confidence in it. This country missed opportunities because it did not develop the export potential of an industry on our own doorstep as much as we might have liked. However, many small innovative contractors have the confidence to export, but they need the security of the home market. That is why anything that the Government can do to avoid disrupting the market and to encourage it is to be welcomed. When the Government were elected, they did not fully understand the sensitivity of the market and embarked on a clumsy review of oil taxation, which worried people and threatened investment. I hope that the measure is a sign that we can draw a line in the sand on that and that the Government are beginning to learn their lessons and work constructively with the industry. I have welcomed the establishment of the task force. I hope that the measure is a symptom of what can come out of its work—not only bringing the industry and various Departments together to understand how complex and interconnected the industry is, but bringing various sectors of the industry together so that they can co-operate. Taking a constructive approach to the industry will benefit the individual players within it. We need to drive forward the industry's export potential. In particular, I welcome paragraph 10 of the Treasury briefing on new clause 17, which states: The cost of this measure is therefore expected to be negligible. The loss of tax on gains on oil licence disposals under current legislation is expected to be offset by increases in tax yield resulting from the benefits of more rationalisation of UK oil licence holdings. That underpins the whole argument that those of us who support a long-term viable future for the industry have been putting to the Government. We want them to say now that they want to make money from the long-term future of the industry and want it to survive. That would send an important signal to people in boardrooms around the country who are deciding where to invest. If the country bought into the idea of achieving long-term returns, the industry may benefit if it also invested to achieve long-term returns. If we can send out such a signal and build on the optimism, the industry may emerge from the price shock of the past year with more potential than would have been the case if we had not been brought to our senses by it. In particular, it helped to bring the Government round from their initial approach of immediately taking more money out of the industry, which was an easy way for the Treasury to benefit. They are beginning to realise that the Treasury will benefit if the industry survives well into the future. Every year oil companies hold briefings on the industry's future and every year the graphs look set to dip. Oil is a finite resource, but we have pushed the envelope of that graph well into the future and the industry is viable. People ask me, "What will we do in the north-east when the oil runs out?" We should make sure that we exploit what oil there is and maximise for our community the benefits of having a good industry on our doorstep. The industry pervades our economy and we should maximise the benefits of that for the United Kingdom and maximise its great export potential. I urge the House to support the measure and send a signal of optimism to those who have to make the vital decision to invest for the long term in an industry that is so important to the United Kingdom economy.

Bob Blizzard (Labour, Waveney)

I, too, support new clause 17 and wholeheartedly welcome the restoration of the capital gains tax roll-over relief for the oil and gas industry. I am the chairman of the all-party offshore oil and gas industry group and I represent a constituency that relies heavily on the industry, which is a major source of employment. The industry has been operating for about 30 years and has achieved huge benefits for this country, such as the sheer scale of its input into our economy. Often, people think only of the 30,000 jobs offshore, but 10 times that number are spread around the country onshore through the 5,000 contractors whose work relates to the industry. Annual investment from the industry accounts for about 16 per cent. of total British industrial investment. Hon. Members should consider for a moment the sums that I am talking about. Shell, which is based in my constituency, invests about £2.5 billion a year in the North sea operation. We should compare that with the capital investment that is made when a new Japanese electronics company sets up. We rightly get excited about investments of £200 million, £300 million or £400 million, but one oil company is investing annually eight times that sum in the North sea. That is substantial investment. In my constituency, as in many others, the industry provides the employment that was lost from shipbuilding and fishing. The employment comes not only from large companies such as Shell and large fabricators such as Odebrecht, but from home-grown companies such as KYE and Boston Putford and scores more, some of which are little businesses with fewer than 10 employees. They all form part of the supply chain for the industry. The industry has also provided a huge source of revenue to the public purse down the years—the debate concerns how that can continue—and relatively clean North sea gas, which has been of great benefit to the environment. When that fuel is used to generate electricity, it produces only half the CO2missions of coal burn. This country is on course to meet the Kyoto targets because of the contribution made by North sea gas. As other hon. Members have said, the industry has been going through a difficult time, and it is still doing so. The situation was critical when the international oil price fell to $10 a barrel. Although the price has recovered to about $16, the outlook is for a price somewhere between those figures rather than an increase to the bigger prices of the past. To understand what is going on in the North sea, we have to look beyond the oil price, because the industry is not the same as it was 30 or even 15 years ago. In fact, people then thought that the industry would not still be with us today. It is remarkable that it still is, even if field sizes are not the same as years ago. 8 pm It would not be economic to exploit today's fields if the industry still operated as it did 20 years ago. The industry has undertaken dramatic cost reduction measures, efficiencies and the development of new technology in a hostile environment, all of which has made the North sea a world leader. It is good for our business that we can export technology and expertise around the world. The industry has changed, and, in its maturity, it needs a new tax structure, different from those of the past. We want the industry to continue for another 30 years—we need the jobs. We want the exports to continue, and we want continued investment that must be won in a global economy in which oil companies can choose to come here or go elsewhere. We want continued tax revenue from a huge industry. As long as the infrastructure exists in the North sea, it makes environmental sense to extract as much oil and gas as possible rather than leaving it behind. Capital gains tax roll-over relief will help. It is well targeted and effective, and it will enable assets to be consolidated or traded, ownership to be rationalised and partners to be aligned. It will therefore reduce costs. Various projects and deals that would not otherwise have gone ahead can go ahead because of the change. Existing infrastructure can be used to develop satellite fields, and the relief will encourage investment, extending the life of the industry. It is a win for both the industry and the Treasury. By extending the life of the industry, the Treasury will receive more revenue in the end. The measure proves that we have a listening Government. The industry has put its case, and the Government have listened. The Government want to work with the industry, and their method of doing so provides a model for such working. The task force has been formed, and the Government have sat down to see what can be done. Rather than having a lot of empty bluster after everything has been sorted out, a task force—into which both the industry and the Government put much time and effort—has brought about results. The Government have signalled their commitment to the oil and gas industry, and they understand that field size—and not just oil price—is important. The changes are welcome in my constituency and in the scores of others around the country that support the industry. One comes to the House to press many issues and ask many questions. It is good sometimes to see a case on which one has worked coming to fruition.

Barbara Roche (Labour, Hornsey and Wood Green)

This has been an interesting debate. I shall deal first with new clauses 15 and 16, which deal with the definition of an asset. The definition—not new, but in existing legislation—is plant and machinery used in the field.

Quentin Davies (Conservative, Grantham and Stamford)

Does that include a floating production platform?

Barbara Roche (Labour, Hornsey and Wood Green)

Floating production platforms are unlikely to be affected by new clause 15.

Quentin Davies (Conservative, Grantham and Stamford)

That is a very vague response. In what circumstances would a floating production platform be affected, and in what circumstances would it not be affected? It is important to be precise.

Barbara Roche (Labour, Hornsey and Wood Green)

The hon. Gentleman will appreciate that one must be careful in the language that one uses when dealing with taxation. I have been as precise as I can under the circumstances. Assets affected would include terminals and pipelines. The position regarding floating production platforms would depend on whether they were considered to be a mobile asset, a dedicated mobile asset or a fixed asset. The hon. Gentleman was perfectly right to ask his question. I mean no disrespect to him when I say that it was one of the most coherent parts of his speech.

Peter Brooke (Conservative, Cities of London and Westminster)

The Financial Secretary has read the note handed along the Bench to her, and has indicated that the situation would depend on three different things. However, she did not say in what way it would depend on them.

Barbara Roche (Labour, Hornsey and Wood Green)

The right hon. Gentleman will realise that the situation will depend on individual circumstances. A definition of assets is included in the Oil Taxation Act 1983. There are also matters of interpretation, and, as a former Treasury Minister, the right hon. Gentleman will appreciate that the situation depends on circumstances. I have been as helpful to the House as I can. The position would also depend on what had been agreed at the time—the right hon. Gentleman knows how the Inland Revenue works, and what negotiations take place; he has a good memory, and all that will come flooding back to him. The principal subject of our debate is capital gains tax roll-over relief. We heard an excellent speech from my hon. Friend the Member for Aberdeen, Central (Mr. Doran), who takes a close interest in the industry and who has great expertise. We heard a further excellent speech from my hon. Friend the Member for Waveney (Mr. Blizzard), who chairs the all-party offshore oil and gas industry group. We have had many interesting discussions on the subject, and I know of his great efforts in this regard. The hon. Member for West Aberdeenshire and Kincardine (Sir R. Smith) also holds a position in that group. It is difficult to know how to characterise the speech made by the hon. Member for Grantham and Stamford (Mr. Davies), except to say that I heard every word, even though he delivered it without a foghorn. My hon. Friends and I were accused of machismo and of strutting our stuff, and we shall be pleased to carry on as we are. I should have taken the hon. Gentleman's bluster and protestations more seriously if the hon. Member for Maldon and East Chelmsford (Mr. Whittingdale)—now off to be Parliamentary Private Secretary to the right hon. Member for Richmond, Yorks (Mr. Hague)—had not congratulated us during the Committee Stage. At no time in Committee did he raise CGT roll-over relief. Even in the all-party group, no Opposition Member has ever raised the matter. New clause 19 is an Opposition U-turn, reversing the position that they took in 1987. The hon. Member for Grantham and Stamford can protest all he likes, but they had all their years in Government to put it right. I shall outline the differences between our new clauses and the Opposition's new clause. The Opposition want to allow roll-over relief on oil licences, with effect from 6 April 1999. Our new clause extends roll-over relief to oil licences from 1 July 1999, the date on which we tabled the new clause. Our aim is to encourage future transfers of oil licence interests. Applying roll-over relief to transfers that have already taken place would not help to achieve that objective. I see no case for making the new clause retrospective, as the hon. Gentleman suggested. There are some technical differences between our new clauses. The hon. Gentleman would wish his new clause to be right, but it contains some technical problems. The Opposition want to add a new class of assets for oil licences under section 155 of the Taxation of Chargeable Gains Act 1992. That is an unnecessary complication, and the precise effect of new clause 19 is not clear as it refers to legislation that has already been repealed. The relevant provisions of the Petroleum (Production) Act 1934 were superseded with effect from 15 February 1999 by the Petroleum Act 1998. So the new clause that the hon. Gentleman invites me to prefer to the Government's new clause is defective. It is not precisely clear how the commencement rule would apply, as there is no indication of which acquisitions are to be covered by the clause.

Quentin Davies (Conservative, Grantham and Stamford)

The hon. Lady makes footling points. It makes no difference to the substance whether the provisions come into effect from April or July, and she must know that. There is no reference in our new clause to the 1934 Act, and I do not know where she got that from. Will she address the main point that I raised? Her proposed new clause takes us back to the uncertainties of the pre-1987 regime, whereas our new clause creates an explicit new class of assets which will qualify for CGT roll-over relief. The essential difference between our new clauses is the unambiguity and greater certainty of the one, and the ambiguity and lesser certainty of the other. I hope that the hon. Lady will not run away from this important issue.

Barbara Roche (Labour, Hornsey and Wood Green)

I regret that the hon. Gentleman has taken the same approach as he has taken throughout the debate, in contrast with other hon. Members who have contributed to a positive discussion about the state of the industry. I do not regard technical deficiencies in a new clause as a footling matter. I shall deal with his points if he will allow me to proceed. When drafting our new clause, we carefully considered whether we needed to introduce a new class of assets for United Kingdom oil licences into the list of classes of assets already eligible for roll-over relief. We concluded that a new class of assets was not necessary, and that the only change required to ensure that companies can claim roll-over relief on oil licences was to repeal section 193 of the Taxation of Chargeable Gains Act 1992. Since 1987, the Inland Revenue has accepted—the hon. Gentleman will know this if he has done his homework—that UK oil licences are an interest in land as defined in class 1A of section 155 of the 1992 Act. It has recently obtained advice from its solicitors confirming that. Its acceptance of that point is made clear in its published manual on the corporation tax rules that apply to North sea oil companies. As a result, when section 193 is repealed by new clause 17, the only barrier to oil companies claiming roll-over relief on UK oil licences will be removed. I assure the House that, as UK oil licences are interests in land, new clause 17 will allow companies to claim roll-over relief on the disposal of UK oil licences. This has been a good debate. I should like to congratulate all hon. Members who took part. I also want to thank my hon. Friend the Minister for Energy and Industry, who chairs the task force on this issue, and the industry for all the constructive discussions we have had. I commend the Government's new clauses, and urge the House to reject the Opposition's new clause.

PETROLEUM REVENUE TAX: INSTALMENTS

BUSINESS ASSETS: ROLL-OVER RELIEF

LENDING BY REVENUE ACCOUNTS TO NATIONAL LOANS FUND

Patricia Hewitt (Labour, Leicester West)

I beg to move, That the clause be read a Second time. New clause 8 allows any cash balances held at the close of business in the bank accounts of the two Revenue departments at the Bank of England to be lent overnight to the National Loans Fund, which will repay what it borrows by close of business on the following business day. That will help the Debt Management Office to manage the Government's cash requirements efficiently when it takes on that role. The DMO will be able to rely on these Revenue department balances being available to help to balance the daily cash flows into and out of the National Loans Fund. That will decrease uncertainty for the DMO, and will, most importantly, prevent it from having to pay to raise cash in the market when there is already cash available within Government. At the same time, the money will still be available during the business day to cover the possibility that tax repayments due exceed tax receipts on that day. The change will benefit Government, but will not have any effect on the Revenue departments' dealings with taxpayers. New clause 8 is a sensible piece of housekeeping by the Government, and I commend it to the House.

Howard Flight (Conservative, Arundel and South Downs)

This certainly sounds like a sensible piece of corporate management: the corporate treasurer approach making the National Loans Fund the cash flow management vehicle for Government. The rate of interest and terms will be decided as the Treasury sees fit. It would be interesting to know whether the Treasury will see fit to pay market rates or some other specific rate. It would be valuable to know the balances that go through Customs and Excise during the year, whether its overall budgeting has hitherto taken account of interest earned and whether that level will change. The new clause implies that the sums may be lent at the volition of the commissioners of Customs and Excise and the Inland Revenue. Surely the intention is that it will be at the direction of the Treasury, whether the commissioners want it to happen or not. I ask myself why, at this stage of the Bill, the Government have suddenly had a conversion to corporate efficiency. Why was this measure not introduced long ago? It has been slipped in quietly at the end of the Bill. Surely this is what the Bank of England, as the Government's banker, has done, in that the different organs of Government have had positive and negative balances. The Government own the Bank of England, so why do they need to step back from the Bank and allow the National Loans Fund to manage cash flows? Does it, by any chance, have anything to do with European Union obligations, and the fact that the Government will not be able to borrow from the Bank of England? It would be undesirable for one Government account and the National Loans Fund to be overdrawn at the Bank of England as a result of a temporary cash flow problem. Perhaps the pooling of these cash flows into the National Loans Fund is designed to avoid that. It is surprising that the Government have slipped this measure in at this stage of the Bill, unless there is some reason beyond virtuous corporate treasurer efficiency, which should not be necessary as the Government own the Bank of England. Perhaps there is some other reason that the Government are not disclosing. Will the Economic Secretary deal with the specific organisational questions to which I referred earlier, and tell us the reason for using the National Loans Fund as the cash manager, rather than the Bank of England?

Michael Fabricant (Conservative, Lichfield)

Like my hon. Friend the Member for Arundel and South Downs (Mr. Flight), I also wonder why this new clause has been introduced on Report. The explanatory note produced by the Treasury says that this is merely a technical provision. Unlike my hon. Friend, who believes that it has been introduced by the treasurers for some Machiavellian reason, I suspect that it was tabled at this late stage of the Bill merely due to incompetence. What will be the market test for this borrowing from one Government Department to another, or from one series of funds to another, rather than on the open market? The Minister said that it was obviously cheaper to borrow internally. I accept that, but will a nominal interest rate be set? If such a rate is set, who will charge it against whom? Will it be entirely within the Treasury, or will a particular Department benefit from the loan funds overnight? When the moneys are chargeable, will we see a transfer of funds? And—this may interest the House more—how much does the Paymaster General think will be loaned overnight, as an aggregate sum, over a year? Are we talking about millions, or about billions?

Nick St Aubyn (Conservative, Guildford)

I am listening carefully to my hon. Friend's speech, but, apart from the Minister's Parliamentary Private Secretary, no Government Back Bencher is present to listen to this important debate.

Michael Fabricant (Conservative, Lichfield)

I find that extraordinary. We may be speaking about billions or, for all I know, trillions of pounds. The Paymaster General gave no indication of the amount that we are discussing. Let us not forget that this is not Government money; it is our money. It is their money—taxpayers' money. We need to know how the taxpayer will be affected. Will he or she benefit from the interest rates that are being set, or will he or she suffer a disadvantage because the money is not sought from outside sources? It is not good enough to try to slip a measure through late in the evening when Labour Members—all 300-plus of them—are wining and dining in the fleshpots of London. We are talking about taxpayers, money. Thank God we have an Opposition who are at least opposing these proposals.

Patricia Hewitt (Labour, Leicester West)

I rather regret the fact that I do not have the chance to wine and dine, whether in the fleshpots or simply in the Members' canteen. We engaged in a full and interesting debate on this subject in Committee. Clause 125 completes the separation between monetary policy and cash management—debt management operations—that we undertook when we gave the Bank of England operational independence in regard to monetary policy. The new clause is simply and genuinely a technical consequence of the main provision that we introduced in the Bill. It follows from the assumption of cash management by the Debt Management Office, a Treasury agency that already handles debt management. As the hon. Member for Arundel and South Downs (Mr. Flight) said, at present the Government's daily need for cash to balance the books is met through the Bank of England, and through the ways and means overdraft facility with the Bank's issue department. However, once we start managing the cash separately and allowing the Debt Management Office to manage it on behalf of the Government, it would be inefficient to allow money to sit in separate accounts—those belonging to the Revenue departments—if it could be made available to meet a deficit on the National Loans Fund, when the alternative to using that spare cash would be borrowing by the DMO from the markets. Let me reassure the hon. Gentleman and his colleagues that this has nothing whatever to do with our possible entry into the single currency in years to come. We have simply completed the separation of monetary policy and debt management operations, in order to avoid any conflict of interests—or perceived conflict of interests—between the two. In particular, as I explained in Committee, the separation will assure the markets that debt management decisions are not influenced by inside information on interest rate decisions.

Michael Fabricant (Conservative, Lichfield)

Will the Minister answer the specific questions that I asked her? I see that her official has passed her a note, so perhaps she will be able to do so. First, what amounts are we talking about on aggregate—millions, billions, trillions or what? Secondly, if she is in effect market-testing between internal transfers within the Treasury and borrowing on the open market, what interest rates will be set and what criteria will she use to set them?

Patricia Hewitt (Labour, Leicester West)

I was just coming to that. All in good time. There will be no interest rate charges, because money is simply being lent from one Government account to another. It would be no more appropriate to charge interest on the loans than it would be if I were transferring money from one account to another in my own name. As for the amounts that might be lent, we estimate that the maximum that Customs and Excise might lend would typically be about £700 million. We do not expect to be able to meet the loans from the Inland Revenue to the National Loans Fund, although the new clause gives the power for that to be done. As I say, this is simply a technical provision that will further improve the Government's housekeeping arrangements and, by reducing any possible need for the DMO to raise money on the open market, will save the taxpayer modest amounts of interest that would otherwise have been paid.

ALLOWABLE LOSSES WHERE BENEFICIARY ABSOLUTELY ENTITLED

Dawn Primarolo (Labour, Bristol South)

I beg to move, That the clause be read a Second time. The new clause is intended to prevent avoidance of capital gains tax through the purchase of losses realised in trusts. We are introducing it now because it is only in the past six weeks or so that the Inland Revenue has gathered evidence of significant exploitation. When we announced the measure on 16 June, our assessment of the potential loss of revenue, if the schemes of which we had evidence were to succeed, was about £500 million. Since then, further schemes have come to light, and the estimate has now risen to £750 million. That is exploitation on a grand scale, and it is entirely unacceptable. We have made it clear that we shall take prompt action to stamp out avoidance of this kind. That is why we are taking action now, and why we shall continue to take such action whenever the need arises. Capital losses realised by trustees on assets in a trust can normally only be set against capital gains of the trust. The losses cannot be transferred to beneficiaries of the trust, except in one situation: when a beneficiary becomes absolutely entitled to settled property under the terms of the trust—in other words, when the property of the trust becomes the property of the beneficiary. Any capital loss arising on that occasion that cannot be used by the trustees is transferred to the beneficiary. Those rules, which have applied since 1965, are being exploited in the following way. Trustees of trusts with large losses that cannot be used to offset gains within the trust create an interest in the trust property in favour of a beneficiary. That interest is contingent on a certain event occurring—an event that is almost bound to occur—after a short period. Steps are then taken for appropriate portions of the interest to be sold to individuals and companies that have gains to shelter. Those individuals and companies become new beneficiaries of the trust. When the appointed day arrives—usually after a very short time—the appropriate amounts of losses pass to them. In such cases, huge losses are available. The Revenue is aware of one scheme where a manufactured loss of £1 billion is involved. The effect is that people with gains can use losses that they have not incurred to eliminate their tax liability. That is wholly contrary to the purpose of the legislation. 8.30 pm The mischief is not confined to cases where new beneficiaries purchase an interest in the trust. The beneficiaries could be appointed by the trustees, or the interest could be transferred to the ultimate beneficiary via an intermediary. It is because of those difficulties that confining action to the purchase of interests in trusts would not solve the problem. The Revenue has been aware of the possibility of loss buying in those circumstances for some time, but there has been no evidence of a widespread problem until very recently. However, as I have said, in the past few weeks, evidence has emerged of very large losses being manufactured in trusts purely to take advantage of those rules by profiting from their sale. The scheme takes a number of forms, but all involve the creation of losses within UK trusts, or the use of UK trusts with existing losses, so that the trust loss can be sold to prospective purchasers. Although the Revenue will challenge the validity of those schemes under existing law, the scale of the problem is so large that we are not prepared to stake the potential loss of so much tax on the possibility of a favourable outcome in the courts. The only sure way to stop the sale of all future trust losses is to attack the source of the problem; I am sure that hon. Members agree. The new clause provides for losses on trust assets sold by the trustees to be allowed within the trust under the normal rules. If a beneficiary becomes absolutely entitled to an asset in the trust and a loss is deemed to accrue on that occasion, and if the trustees cannot offset that loss against gains arising at that time, or earlier in the year, the loss will be transferred to the beneficiary, but the beneficiary can then use that loss only against subsequent gain arising on that asset. That is how the legislation should work and that is how it will work from now on. The new clause not only stops a serious potential loss of tax, but puts right an anomaly in current legislation, which should have been corrected a long time ago. I commend the new clause.

Quentin Davies (Conservative, Grantham and Stamford)

I have some sympathy for the Paymaster General's approach to the problem. She has set out her thinking clearly, for which we are grateful. However, several points concern me. I shall ask her some questions. I hope that I receive clear and sensible answers, so that we can have a serious dialogue across the Dispatch Box. I hope that she does not follow the example of the Financial Secretary to the Treasury, who tried to avoid all my questions although, finally, she made the declaration that I wanted all along, so I suppose that we must be grateful to her for that. Two things concern me most about the new clause. It seems to run counter to, and potentially to damage, two principles that should characterise our tax law, or any rational and fair tax law. I fear that the new clause moves our law on capital gains tax away from those two principles. The first, which is terribly important, is even-handedness between losses and gains. If trustees can distribute gains and if those gains are subject to tax in the hands of the recipient and beneficiary, it should be axiomatic that trustees can distribute losses and that those losses can be used freely by the beneficiary, to be set against gains for which he or she might otherwise be liable elsewhere on his or her portfolio of investments. We seem to be moving away from that principle of equivalence of treatment between gains and losses. Secondly, the new clause poses the danger of moving us away from the principle that an individual should be taxed on the basis of his or her income or capital gains to the greatest extent possible, irrespective of whether those assets are held, those incomes or gains derive from a beneficial interest in a trust, or whether they are held directly. We know very well that, for many years—although it is not always the case—trusts were established deliberately to avoid tax legally. However, the previous Government's reforms, which have been implemented in the past few years, to modernise our tax system have all attempted to remove that anomaly in tax law, and to ensure that people are taxed on their real financial position—on losses or gains for capital gains tax; on income for income tax—regardless of whether income was channelled through, or assets held, in a trust. Now, we are moving away from trying to make such a reform. There may be very good reasons for establishing a trust, and I do not want anyone to get the impression that Conservative Members are against establishing one. There are extremely respectable—indeed, valuable—reasons for establishing a trust, such as to promote a particular cause or objective, to protect the interests of minors, or to protect family property down the generations by preventing one generation from squandering it all. Those are all sensible and responsible uses of a trust. However, so far as possible—this was the thrust of the previous Conservative Government's reform of trust taxation—trusts should not be established simply to shelter a given income flow or potential capital gains from tax to which the beneficiary, without a trust, would be liable. New clause 4 moves against the previous Government's reforms, and in the direction of creating a situation in which it is less advantageous to have losses credited to one in a trust, as it would not be possible to offset those losses against gains that might arise elsewhere in one's portfolio. Such an offset should be allowed if gains distributed to the beneficiary are similarly taxable. Those are my general concerns, and those principles certainly inform the Opposition's thinking and the way in which we consider tax. I should like the hon. Lady to tell us, very frankly and seriously, whether she generally shares our principles in the matter; and, if she does, how she justifies moving the proposals in new clause 4 and, regrettably, taking the Taxation of Chargeable Gains Act 1992 away from those principles. If she does not share our principles, perhaps she will tell us why she does not. The hon. Lady justified the Government's proposals entirely on the ground that they would deal with potential tax avoidance, and she gave some alarming figures on that. I am, again, grateful to her for her extremely intelligent and sensible exposition of the Government's thinking on the matter. She explained why the Government feel that there would not be sufficient protection if we legislated that gains could be enjoyed for purposes of setting against losses only when the beneficiary to which the gains were distributed had not purchased his or her interest in the trust—as other mechanisms would be available that could lead to the same abuse that she described. An existing beneficiary could, for example, nominate another beneficiary, or the trustees could nominate another beneficiary. My initial reaction to those examples is that, presumably, without some financial consideration, no one would nominate someone else to benefit from gains or useful losses that were attributable to him or her. I should think, therefore, that the approach that the hon. Lady rejected might be more promising than, at first sight, she believed they were. I am quite certain that, in practice, any trustee or beneficiary who is giving away his or her rights is receiving some form of compensation. Therefore, if we legislated to ensure that such ultimate beneficiaries could not enjoy the benefits of losses they had thus acquired, we might solve the problem. I hope that she thinks a little further about whether there might be some other way to approach the issue which would not do violence to the key principles that I have just enunciated. Another approach that is worth exploring and on which I should like a response from the Paymaster General would be to protect those who are beneficiaries by virtue of the original trust deed. They might not be named in the trust deed because they might be a subsequent generation, but they would be of a category provided for in the original trust deed rather than secondary or tertiary beneficiaries who had been nominated or who had purchased their interest in the trust through the avenues that the hon. Lady set out. I make my suggestions in a constructive spirit, because I share the Minister's concern about the potential loss of tax revenue and I am grateful to her for the extent to which she has taken us into her thinking. I do not doubt the hon. Lady's personal sincerity, but the new clause aroused my suspicions. Eliminating the risk of tax avoidance is not a full and credible explanation of the motives behind the Government's proposals. Only a small part of the new clause—subsection (2)—addresses potential avoidance. Subsection (2D) sets out the rules for the order in which losses can be set against gains for the purposes of determining capital gains tax liability. Subsection (2D)(a) says: allowable losses accruing to the trustee on a deemed disposal under subsection (1) above"— deemed disposal is when an asset is transferred from a trust to the direct ownership of the beneficiary— shall be deducted before any deduction is made in respect of any other allowable losses accruing to the trustee in that year". What the devil does the order in which losses are set off against gains have to do with tax avoidance? If someone set up an artificial scheme to generate losses in a trust to be set against gains from elsewhere to reduce CGT liability, they would not need to be told by legislation that the losses had to be used in that way because they would have gone to the trouble of creating those losses for the purpose of reducing CGT liabilities. That arouses great suspicions, which I hope that the hon. Lady will be able to allay. If she does, we shall support a well considered attempt to attack a genuine source of potential tax avoidance. Subsection (2A) refers to a disposal"— by the trustees— which, on the occasion on which the beneficiary becomes absolutely entitled as against the trustee to that property, is deemed under subsection (1) above to have taken place; or (b) any other disposal taking place before that occasion but in the same year of assessment". Taken together with subsection (2D), which I quoted earlier, the effect will be that trustees who cannot make use of all their losses will not be able to distribute those other than the deemed losses that may have been incurred to the beneficiary, because they will have had to set off against any gains the deemed losses in the first instance. Once those are exhausted, they may find themselves with other additional losses that cannot be transferred to the beneficiary. Trusts will lose the ability to use certain losses. Is the new clause an attempt to prevent a new source of tax avoidance or is it an attempt to change the existing regime applying to trusts to make it less favourable to honest trusts, which will no longer be able to use the totality of losses that is currently available to be set off against CGT-liable gains? That is what I want to know. 8.45 pm Why are we going in for this complication? Why do we have these rules on the order in which the losses must be applied? Is not it incredible—or non-credible—to suppose that if artificial losses are created, they will not be used immediately to offset gains? Why would people otherwise take the trouble and expense to set up these artificial schemes? We want to know whether these matters have been thought through. Does this proposal really represent the bare minimum required to address the notional or potential loss? Will the position of entirely innocent trusts—which continue to administer themselves on the same basis and are not the source of any artificial schemes—be made considerably less favourable by what I believe to be a far too bluntly drafted clause?

Dawn Primarolo (Labour, Bristol South)

As this is the first time that I have addressed the hon. Member for Grantham and Stamford (Mr. Davies) from the Dispatch Box since his promotion, may I belatedly congratulate him and welcome him to the Opposition Front Bench? I will try to deal with the points raised by the hon. Gentleman, which are very important. The Government were faced with a serious situation. The current tax rules in this area are anomalous. Trustees of trusts are taxed as a separate person from the beneficiaries for capital gains purposes, and are chargeable on all gains made on trust property at the special rate. It is more than a little odd that, in those circumstances, the rules should allow losses on trust property to be passed to beneficiaries to set against gains on property which have not emerged from the trust. Losses realised by the trustees ought to be allowed only against property which is in the trust or which has come out of the trust. That is what the new clause is trying to deal with. The hon. Member for Grantham and Stamford asked about the purchased interests, and why we have not attacked them. There would be a real difficulty in establishing whether a trust interest had been purchased. Under some arrangements, the trustees and the beneficiaries may be bypassed altogether, with the money—because there is a payment—going directly from the purchaser to the scheme organiser or the loss creator. It would have been futile to introduce legislation which missed the mark and allowed some schemes to escape and provide opportunities for other schemes to be reworked to get around the rules. The hon. Member for Grantham and Stamford asked whether that may still be the case. We have tried to write the rules in the new clause in such a way as to prevent that from happening in what is a complex area. We have tried to avoid immensely complex legislation, which could deny the transfer of loss to beneficiaries who might be genuinely added at the discretion of the trustees. That would be wrong in principle. The only situation where we consider it justified for losses to continue to be transferred from a trustee to a beneficiary is where the asset on which the loss arises is transferred to the beneficiary.

Quentin Davies (Conservative, Grantham and Stamford)

I am well aware of what the proposals are. I am asking the Paymaster General to think a bit further about a limitation that would exclude beneficiaries who have purchased their interest in the trust. Her original response was that such beneficiaries would not necessarily have had to purchase their interest because they could have been nominated by the trustees or a beneficiary, but it is fundamentally implausible that the trustees or a beneficiary would give away their interest—which must, by definition, have a value if it serves a purpose in a tax avoidance scheme—for no consideration. Now, the Paymaster General says that the sums concerned might have been transferred from the ultimate beneficiary—the beneficiary of the artificial scheme—to the organisers of the scheme, with the trustees and the beneficiary having no benefit, but it would be a breach of trust law for a trustee simply to give away such an interest. A provision based on someone having directly or indirectly purchased an interest in a trust is a great deal more robust than she originally thought.

Dawn Primarolo (Labour, Bristol South)

I do not agree. After careful consideration we came to the conclusion that such a provision would be difficult and complex and would not deal with the abuse that is clearly taking place. The Government wanted to get to the root of the abuse without introducing too much complexity in the legislation. The capital gains tax system taxes the gains of trusts separately from those of individuals. The trustees are treated as different persons from the beneficiaries for CGT purposes. The new clause is an anti-avoidance measure. It does not alter the fundamental basis for taxing trusts.

Nick St Aubyn (Conservative, Guildford)

Why, in closing the loophole, are the Government shifting the principle of tax neutrality from the beneficiary to the trust, introducing a much tighter definition that is very unfair to those who were given much fairer treatment under the previous Government's reforms over 18 years?

Dawn Primarolo (Labour, Bristol South)

To ensure that the abuse is stopped. The potential loss of tax is so great that we had to act. If tax planners introduce such complicated and ingenious ways of getting round the intent of legislation, they must expect the Government to respond.

Quentin Davies (Conservative, Grantham and Stamford)

rose—

Dawn Primarolo (Labour, Bristol South)

The complaint of the hon. Member for Grantham and Stamford seems to be that the Government have gone too far and that there were other ways of dealing with the matter. I have explained that, despite the fact that we considered some of his suggestions carefully, the only way of guaranteeing that we deal with the root problem is embodied in the new clause, which I commend to the House.

Quentin Davies (Conservative, Grantham and Stamford)

rose—

EU TRAVEL EXPENSES

Dawn Primarolo (Labour, Bristol South)

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

Dawn Primarolo (Labour, Bristol South)

This clause makes a small but necessary change to the tax rules dealing with the payments that Members of Parliament receive to cover the costs of visiting European Union institutions. In 1991, the House set up a scheme to meet the costs of one visit a year to EU institutions in Brussels, Strasbourg and Luxembourg. To avoid any uncertainty about the tax treatment of payments made under the scheme, the Conservative Government introduced what is now section 200(2) of the Income and Corporation Taxes Act 1988 to take them outside the scope of any tax charge. On 26 May this year, the House passed a resolution extending the range of destinations covered by that scheme. Members can now also get the costs of one visit a year to the national Parliament of another EU member state. We need to carry that through to the tax rules; otherwise, we shall have a tax exemption for some payments authorised by Parliament for hon. Members' EU travel, but not others. The new clause extends section 200(2) to take in the additional destinations now included in the House scheme. We also need to make a consequential amendment to schedule 5 of the Bill to ensure that the same rules apply to any corresponding payments made to Members of the Scottish Parliament and of the devolved Assemblies, in line with the resolution of the House.

Oliver Letwin (Conservative, West Dorset)

I do not want to tarry long on the new clause, because there are juicier morsels to come. However, I should like to ask the Paymaster General two or three questions. We recognise that, in principle, the measure flows from a resolution of the House, to which the Minister referred. During the debate on that resolution, my right hon. Friend the Member for Haltemprice and Howden (Mr. Davis), who occupies a special position in the House, mentioned that: There has been a decline in the reputation of this institution in the past few years and went on to say: It is vital to the authority of this institution that we maintain the public perception of the integrity of Members of Parliament"—[Official Report, 26 May 1998; Vol. 332, c. 416.] Doubtless, the Paymaster General recalls my right hon. Friend's remarks. In the light of those remarks the House made an amendment—originally tabled by my right hon. Friend, I believe—to the resolution that required Members who took up the option of a trip to Paris, Rome and so on to state in advance the purpose of their visit. That gives rise to my precise questions. If a visit is for a specific business reason, why would it be taxable? Why is it not analogous to a business visit engaged in by any private sector employee who has correctly stated that the purpose of his visit is a business purpose, which counts as a business expense and is not taxable? As the Paymaster General reminded the House, under clause 48 of the Bill, Members of the Scottish Parliament and Members of the Welsh Assembly have to be treated in the same way as Members of this Parliament; therefore, they will be subject to the same tax treatment if new clause 9 and amendment No. 25 are accepted. In the light of my previous question, it is material to ask whether that would apply even if the Scottish Parliament and the Welsh Assembly had not passed resolutions with an amendment analogous to that which my right hon. Friend tabled in this House. In other words, might not Members of the Scottish Parliament and Members of the Welsh Assembly be exempted from tax simply by virtue of the analogy with membership of this House, even if they do not have to make the declaration on which procedures in this House will now be founded? If that is the case, is it not an example of the very problem to which devolution generally gives rise? We seek to give the Welsh Assembly and the Scottish Parliament certain freedoms of manoeuvre and we forsake the ability to vet whether, in fact, those freedoms of manoeuvre are being used in a way that is responsible from the point of view of taxpayers. Things will have come amiss if it turns out that Members of the Scottish Parliament can do what Members of this House would have been able to do if my right hon. Friend's amendment had not been passed—get both free trip and tax exemption without having to state in advance why they are going on the trip and prove that it is a business affair. If I am mistaken in my assumption, I should be grateful for clarification from the Paymaster General.

Peter Luff (Conservative, Mid Worcestershire)

I shall not detain the House for long. The new clause leaves rather a nasty taste in the mouth when one considers all the other new clauses that we are debating this evening which are designed to increase the tax take, and often to take more tax from very vulnerable members of our society. Here we have a group of Members of Parliament, who could hardly be described as vulnerable, seeking to obtain new tax advantages for themselves at the taxpayers' expense. There is a strong sentiment in many parts of the House that the original resolution was a mistake, and that tax advantages should have been retained entirely to European institutions. That pass has been sold and the privilege has now been extended to other, national Parliaments. I am sceptical about whether people will find sufficient reason to justify the additional trips to national Parliaments. There would be a rough justice in maintaining the present tax concessions rather than handing money back to MPs for these freebies. I note that the resolution to which the new clause refers enables MPs to be paid twice the corresponding civil service class A standard subsistence rate. The perk seems to be very generous as it is, and it would be perfectly reasonable to tax this extension of it. I do not accept the logic of the Paymaster General's opening remarks.

Michael Fabricant (Conservative, Lichfield)

The Paymaster General opened the debate by saying that this is a small but necessary amendment, but I am not sure that it is necessary. At the moment, the provisions apply to Brussels, Luxembourg and Strasbourg, and only £44,500 out of a total budget of £250,000 has been spent, so clearly there is not much of a demand for the provision. I said earlier that I wondered where all the Labour Members were. I notice that there are now two Labour Back Benchers present. I suggested that while we were debating the taxpayers' money, most of them were in the fleshpots of London. What bothers me is that after the new clause has been passed, they will be visiting the fleshpots of Berlin or the beaches just east of Athens, which will now fall under the aegis of the measure. As my hon. Friend the Member for Mid-Worcestershire (Mr. Luff) said, the economy is contracting and the weakest in society are suffering. It is typical of this Government that the pigs are being lead to the trough at such a time.

Andrew Love (Labour/Co-operative, Edmonton)

Does the hon. Gentleman accept that when the original motion came before the House and was fully discussed, only two or three members of the Opposition opposed it in the debate and, more importantly, voted against it when we went into the Lobbies?

Michael Fabricant (Conservative, Lichfield)

The point is how many Labour Members voted against that motion. Two wrongs do not make a right. If only £44,500 out of a budget of £250,000 has been used, the provision is under-utilised. I put it to the House that these trips are yet more jollies, which seem to have been promoted since the Government came to power.

Nick St Aubyn (Conservative, Guildford)

Will the Paymaster General tell us how much of the budget will be spent under the new provision? What will she do if too many of her colleagues demonstrate a propensity to indulge in this new form of subsidised travel so that the fund is exhausted before the end of the year?

Dawn Primarolo (Labour, Bristol South)

Opposition Members need to keep this measure in proportion. As my hon. Friend the Member for Edmonton (Mr. Love) said, when the original motion was discussed the official Opposition did not oppose it. The normal procedure is to make such trips tax-exempt. The hon. Member for West Dorset (Mr. Letwin), who spoke from the Front Bench, asked why we need a specific tax exemption at all. Several provisions in the Income and Corporation Taxes Act 1988 deal specifically with Members of Parliament; they reflect the nature of Members' duties. In most cases, deductions for any payment to meet the cost of Members' visits to European countries would be available under the ordinary schedule E rules, but it would sometimes be difficult to determine whether a visit would meet the qualifying conditions. Section 202 of the ICTA avoids that uncertainty by taking payments to Members of Parliament who have been authorised under the terms of the House scheme out of the scope of any tax charge. As hon. Gentlemen will know, Members of Parliament will have to apply in advance and give the reasons for and purpose of their visit, and whom they will be meeting, before the travel is agreed by the House. The Fees Office will require information on the visit's purpose, location, duration and the persons or organisations to be met to be sure that the visit is within the resolution of the House.

Michael Fabricant (Conservative, Lichfield)

I take the hon. Lady's point that Members will have to give an official reason, but what is to stop someone visiting an institution for three days and then spending a further week on the trip at their own expense having had the travel paid for them by the House of Commons—or should I say the taxpayer?

Dawn Primarolo (Labour, Bristol South)

The rules of the House are laid down and Members are required to comply with them. As the hon. Gentleman well knows—I do not know whether he is advocating an avoidance scheme—that is the correct way in which to behave. I am sure that he behaves in that way. To infer that any other Member would not comply with those requirements is ungenerous of him, to put it mildly. The hon. Member for West Dorset asked whether legislation was needed to extend the Westminster tax scheme to the devolved Assemblies; the answer is yes. Without the amendment, the Westminster tax rules would not automatically apply to the devolved Assemblies, as should happen.

Oliver Letwin (Conservative, West Dorset)

The question I asked was whether if, for example, the Scottish Parliament did not agree an amendment or pass a resolution that would require Members of that Parliament to make the same declaration in advance, would they nevertheless be tax exempt?

Dawn Primarolo (Labour, Bristol South)

My understanding is that the rules of the House on the terms under which Members of Parliament can travel, as provided under the resolution of the House, are clear, and that those rules extend, therefore, to Members of the Welsh Assembly and the Scottish Parliament. The hon. Member for Mid-Worcestershire (Mr. Luff) felt that the proposal was yet another perk for Members of Parliament. As I said at the beginning of my remarks, it is important to keep this matter in perspective. In most circumstances, Members are treated for tax in the same way as employees generally. We are dealing with specific provisions to deal with one or two minor areas where the position of Members of Parliament does not fit easily into the general tax framework. No more money is being made available. The budget of £250,000 for Members' visits to European institutions remains unchanged. The amendments simply bring the resolution of the House into the tax legislation—as was the practice of the previous Government. It is an entirely reasonable thing to do. I commend the new clause to the House.

GOODS FOR SALE ON BOARD SHIPS OR AIRCRAFT

Dawn Primarolo (Labour, Bristol South)

I beg to move, That the clause be read a Second time. As hon. Members will know, until last week, passengers on ferries, hovercraft and aircraft travelling within the European Union were able to buy duty-free goods, either on board or at duty-free shops at ports and airports. Within the EU, duty free came to an end on 30 June. All merchandise sold for take away must now be sold duty and tax paid. The new clause makes the necessary changes to the Customs and Excise Management Act 1979, bringing the Act's provisions into line with a decision taken unanimously, in 1991, by the previous Government and all other member states. Several statutory instruments preceded the new clause to give effect in UK legislation to the abolition of duty free. From 1 July, goods sold to the travelling public for them to take away at the end of journeys within the EU are subject to VAT at the rate applicable in the member state of departure. Excise goods, such as tobacco and alcohol products, are chargeable with duty at the rate of the member state of departure or of the country of destination—depending on where they are sold. The vast majority of journeys within the EU can benefit from the simplified procedures introduced by the Government, and from the concessions that we managed to extract from the Commission. In the few areas where the simplified arrangements cannot operate, discussions have been held with service providers to ensure the smooth introduction of the successor regime. The new regime is working smoothly, but the Government will keep the implementation of the scheme under review to ensure that—should further amendment be required—we can assist the trade and the travelling public. That includes the possibility of returning to the Commission to press for any changes that may become necessary. I commend the new clause to the House.

Oliver Letwin (Conservative, West Dorset)

I have already declared one potential interest in that a pet-food shop might be a client of my bank; I now declare another in case some airline or shipping company is also a client. We accept that the measure is a corollary of the removal of duty free. In the Standing Committee to which the Paymaster General has already referred, we fully exposed the fact that both the previous Government and the then Opposition were partners in crime in bringing about that sorry state of affairs. Moreover, we have adequately exposed the history of the matter. Notwithstanding the protestations of the hon. Member for Wrexham (Dr. Marek), formerly the shadow Economic Secretary, the present Prime Minister came into office, believing, for some reason unknown to man or beast, that he could change something that was locked in unanimous cement—why, I cannot imagine. To his great astonishment, and that of the British public, he found that he could not change it in the least. That, of course, represented a major triumph for the getting to the middle of Europe, sitting at the table and then being eaten thesis—why we have to be at the top table and retain our so-called influence. Leaving that on one side, the devil is in the detail; that came out in our debates in Standing Committee. The provision makes it clear that the Paymaster General inadvertently misled the Committee in explaining the state of the law. It also demonstrates the depth of the mess. Paragraph (4A) of the new clause is the operative item. It tells us that in order to be "a relevant journey", a journey has to begin in the United Kingdom—that is uncontroversial—and has to have an immediate destination outside the member States. You were lucky enough to avoid the Standing Committee where two problems arose, Mr. Deputy Speaker; we christened them the Gibraltar problem and the Basle problem. The Gibraltar problem came to light only after the Paymaster General realised, and correctly and helpfully informed the Committee, that Gibraltar was not actually part of the EU. We had previously thought that it was a Casablanca problem. I had thought that, in order to get duty free, one would have to fly to Casablanca and then on to Gibraltar, because Casablanca is—I quote new clause 6(4A)— an immediate destination outside the EU, but it turned out that actually one only had to fly to Gibraltar. As long as one goes to Spain via Gibraltar, one will be able to collect duty free; if one goes to Spain directly, one will not. 9.15 pm My hon. Friend the Member for Spelthorne (Mr. Wilshire) brought out the more vexed issue of the Basle problem. Should Basle airport be privatised, I would recommend that hon. Members consider investing in it early, because Basle has the lucky escape, so to speak, of being in two countries—Switzerland and France—at once, or in neither country at any time. As a result, if one wants to travel inside the EU to France and one happens to be clever enough to do it via Basle, one will also be entitled to duty free, even though one will be walking straight out into France. Those were just two of the very large run of problems that were brought up, and that illustrated the complicated farce that the present proposals will give rise to. The Paymaster General, in an eloquent series of utterances, told the Committee that it was a puffed-up thing and that no one need worry because Passengers would have to go to Casablanca, get off the plane, go into the airport and then rejoin the plane before take-off. Then she said rhetorically to the Committee: What am I supposed to do about duty-free goods outside the EU?"—[Official Report, Ninth Standing Committee on Delegated Legislation, 1 July 1999; c. 16.] Unfortunately, today, the Paymaster General produces new clause 6 and subsection (4A), and we find that the relevant item is the "immediate destination". It turns out that there is no need to get off the plane at all; it is quite sufficient for that place to be the first stop on one's journey. While one is there, or on the way there, the things that one is sold are stores in the technical meaning of the term and therefore may be sold duty free—and hey presto, the mess is not only a mess, but a mess the character of which, it turned out last week, the Paymaster General has not understood. Undoubtedly, during the coming weeks and months, clever lawyers, clever airlines and so on will illustrate a heap of other such messes. I am sure that the Paymaster General will then return to the House and say that she never meant any of those things and that she really had quite a different clause in mind. It is just a pity that she has not brought that before the House today.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

Does the hon. Gentleman think that people travel for duty free or to get from A to B?

Oliver Letwin (Conservative, West Dorset)

The hon. Gentleman, unlike many of us in the House, is obviously not a skier. I have to tell him that there are lots of ways to get to Switzerland and lots of ways to get to France, and quite a lot of them end up by getting from A to B; it is just that one can choose to go via C, D or E. He would be very well advised to think of going via Basle in future.

David Wilshire (Conservative, Spelthorne)

Thank you for calling me, Mr. Deputy Speaker. I have little doubt that you would rule a general debate about duty free out of order, so I shall confine myself to some specific matters that are raised by new clause 6, which are relevant to duty free in general but more specifically to the financial arrangements. I am worried about this issue because my constituency is hard up against the boundary fence of Heathrow, which means that either many hundreds, or a 1,000 or so, constituents of mine depend on the duty free trade for their jobs. It also means that a significant number of customs officers who work at Heathrow are my constituents. Perhaps more important still, almost all my constituents—whether they travel for duty free or for other reasons—enjoy duty free, so I am very much involved in the entirety of this debate. I am worried about new clause 6 because it gives effect to changes that will lead to redundancies in my constituency, and that will put pressure on the decreasing number of customs officers—decreasing because the present Government see fit to reduce the number of customs officers at Heathrow fairly regularly. In case the Paymaster General is tempted to say that new clause 6 will reduce the work load of customs officers, I would respectfully suggest that it will actually increase it because, previously, anyone passing through terminals 1, 2, 3 and 4 bought duty free and away they went, and the Customs and Excise people knew the score. Now, it will be necessary to decide, when a person leaves, for example, from terminal 1, where the heck they are going, or if they are arriving at terminal 1, where they have come from. As a result we shall need more, not fewer, customs officers—or very clear assurances from the Paymaster General that the existing customs officers will not be put upon unreasonably. The new clause also confirms the Government's failure to prevent something happening that they trumpeted that they would prevent. It is a failure by the Government from which they cannot hide on this occasion. When the Paymaster General replies, it will not be good enough for her to say, "We have obtained some wonderful concessions." I heard her try that trick last week. I have had a good, long and hard look at the so-called wonderful concessions, and one of them bears mentioning. We were told that, if a ferry is coming across the English channel and someone happens to get himself into the shop before the vessel enters territorial waters, there is a concession that enables the individual to continue shopping. However, the small print states that, after three months the concession will disappear. So much for the Government's marvellous negotiating skills when they go to Brussels. There are a number of matters concerning the new clause on which I seek clarification. I begin with the concept that it is founded upon the treating of goods in ships and aircraft as stores. Are we absolutely clear what we mean? The clause states that it is necessary to refer to section 1(4) of the Customs and Excise Management Act 1979. That is where we must turn to find our definitions, and I did that this afternoon. Section 1 of the 1979 Act amounts to four and a half pages of various definitions. The section goes so far as to draw a distinction between a ship, which is defined, and a British ship, which is also defined. Search as I might, I could find no definition of an aircraft. If we are to be told in the new clause that we must refer to the 1979 Act for a starting point, where is the definition of "aircraft" from which we must work? The Paymaster General may shake her head and think that I am being pedantic. However, she tells us that we must refer to the 1979 Act for a definition of "ship". I ask her to provide us with one for "aircraft". Another feature that bothers me about the concept of treating goods as stores is that the new clause refers to "Goods … carried." It does not refer to goods loaded. Here, there is a problem. As it is made clear in the definition that we are talking about ships and not British ships, we are talking about any ship that comes into a United Kingdom port carrying goods. Let us suppose that a Norwegian ship leaves Bergen and calls in at Newcastle. There is no problem because it has come from somewhere outside the European Union. However, it is carrying duty-free stores from Bergen which it will take back to Bergen. If I understand the clause correctly, if that ship returns directly to Bergen, there is no problem. It will not have landed anything but it will have duty-free goods on board. However, if that ship, having sailed from Bergen to Newcastle, calls in at Rotterdam before returning to Bergen, Customs and Excise will have to board it and make a list of every last thing on it and make those concerned pay duty, which they may or may not have paid back when they leave Rotterdam to go to Bergen. That is the nonsensical feature of referring to "Goods … carried" and not goods loaded. I shall be most grateful if the Paymaster General will tell us why the particular wording has been used. I am also concerned about "relevant journey" as a definition. We are told that it equals an immediate destination outside the member States. This afternoon, the Paymaster General helpfully gave me a list of those parts of the European Union that are outside the customs union. One of them was Andorra. Another that has been mentioned is Gibraltar. However, we are told that a relevant journey must take one outside a member state. Gibraltar is not outside a member state. It is part of the European Union, but it is outside the customs union. The Andorran situation bears closer scrutiny. Last time I was there, huge numbers of French matrons driving Renaults and Citroens were bombing up and down the mountain, going up empty and coming down full, and seemed to be making numerous journeys every day. If they can go on doing that, why cannot we, when we go across the channel? I am worried about whether the definition of "relevant journey" is accurate. My hon. Friend the Member for West Dorset (Mr. Letwin) referred to the Basle-Mulhouse problem. I shall not detain the House by rehearsing the stupidity of it, but when I was given a list of parts of the EU that are outside the customs union, I got wonderful places in the Caribbean and other bits of France all over the place, but no mention of that lovely little part of France that is occupied by Basle airport. As the Paymaster General told us in Committee last week, if we travel into Basle airport from Heathrow, we can have all the duty free to which the allowances entitle us, but it is in France, so the information that we were given this afternoon was, I suggest, duff information. It did not include all those parts of the EU that are outside the customs union. Will the Paymaster General therefore revisit the answer that she gave me and try again? Will she also tell me whether the definition of "relevant journey" as an immediate destination outside the member states is sufficient, given that she admitted that travelling to a part of France can be construed as a relevant journey? There seems to be some trouble with the drafting. There is a further problem with the definition of "relevant journey". If we leave Tilbury and head for Tangier, that is a relevant journey. If, however, we have engine trouble on the way and put in in Vigo in northern Spain, do Her Majesty's Customs and Excise have to fly out to Vigo to say, "Oops, sorry, this is not a relevant journey any more, so we want to make sure that you give us all the excise duty and VAT."? If not, where is the qualification in the legislation that states that an unexpected diversion into an EU state does not trigger the problem that I am highlighting?

Michael Fabricant (Conservative, Lichfield)

My hon. Friend contrasts the difference in travelling from one part of the EU to another, not involving the UK. He asked whether there had been a mistake in the drafting. Does he think that we have over-egged the European Union directive and made it a tougher regime than it need otherwise be?

David Wilshire (Conservative, Spelthorne)

I am certain that we shall behave as we usually do in the United Kingdom, and rigorously enforce measures while others shrug their shoulders and may or may not bother to enforce them. That is one of the reasons why we suffer time and again at the hands of Brussels bureaucrats, when others get away with ignoring them. Again, Mr. Deputy Speaker, if I went down that track for much longer, you would rightly call me to order. Another phrase that concerns me in the wording of the new clause is "for consumption on board". We have not had an explanation why the Government suggest that. I am all in favour of as many concessions as we can get, but this seems illogical. The reason why our harmless bit of fun has been taken away, as I understand it, is that the Brussels bureaucrats decided that it was against the interests of the single market for us to be allowed to buy duty free as we travel round the EU. If we travel from Paris to London, we are travelling within the EU, but the Brussels bureaucrats say that it is perfectly all right for us to have duty free, provided that we consume it. That is daft. If we can get a concession for consumption, why not other concessions? The exception is incredibly difficult to enforce. Someone travelling on a ferry may be thirsty and buy lots of drinks, only to be taken ill because the sea is rough. What will he do? He has bought drinks to consume, but has not consumed them. Will customs officers tear around the ship checking what people have eaten, drunk and smoked as they make their journey and demand duty if they have not finished a bottle? We need an explanation. 9.30 pm Another thing bothers me about the words "for consumption on board". We now know that duty-free prices at places such as Heathrow were seriously inflated—we are talking about £5 on an £8 bottle of spirits. We are granting an exception so that ferry companies and aircraft operators can sell duty-free drinks to passengers. Do the Government plan to make it compulsory for bar price lists and menus to make it clear that the person serving drinks is taking advantage of a duty-free perk? If they do so, there would be a warning of some sort and, when people paid, they would not make the mistake of comparing bar and menu prices with those in what was the duty-free shop and is now the duty-paid shop to judge whether they were being ripped off. What do the Government have in store for Eurostar in respect of the words "for consumption on board"? When people catch a ferry from Dover to Calais or fly from Heathrow to Charles de Gaulle what they eat, drink and smoke on the ship or the aircraft is duty free—that is the concession—but it is not if they catch a train. That also is illogical. Perhaps the Paymaster General can tell the House why Eurostar and Le Shuttle have been singled out for such particularly nasty treatment.

James Gray (Conservative, North Wiltshire)

Has my hon. Friend noticed the astonishing urgency with which the Minister's Parliamentary Private Secretary is dashing up and down to pick up bits of briefing? He is obviously hitting a few bull's eyes.

David Wilshire (Conservative, Spelthorne)

I am fully expecting detailed answers to all my questions. Although some Labour Members may think that I am being a bit of a nuisance, Mr. Deputy Speaker—[Interruption.] I apologise, Madam Deputy Speaker—[Interruption.] I apologise, Madam Speaker; you can tell that I have been carried away by my enthusiasm. The new clause raises two other issues—the safety of aircraft and environmental damage. Profit margins are being cut and the holding down of prices in what were duty-free shops will work only if sales increase. There is now no limit on what people can buy duty paid at Heathrow airport or wherever and it therefore follows that it is perfectly possible to buy a large number of bottles of spirits. When I raised that issue with the Paymaster General in Committee last week, I received the answer that airlines would not allow vast numbers of bottles to brought on board. However, the number does not have to be vast. Someone with no hand luggage could easily bring four or five bottles on board instead of one. That would be within most airlines' limit. Alternatively—this has already happened—someone could buy a large number of bottles and arrange for the aircraft operator to carry them in the hold. I represent part of Heathrow, and I am worried by the thought of large quantities of inflammable liquid in glass bottles hurtling about the skies. I believe that we have opened up a safety problem and I should be grateful if the Paymaster General would address it. I am also concerned about the extra weight that will be carried by aircraft. It would be easy to say that I am making another pedantic point, but if the weight carried by an aircraft increases the burn of aviation fuel increases and further damage is done to the atmosphere and the ozone layer. There is a simple solution to the problem that the new clause causes: the Government should allow the sale of duty-paid products at lower foreign prices to arriving passengers at British airports. They would not then need to go to Charles de Gaulle airport in Paris to stock up with huge numbers of cheaper bottles. They could fly with less luggage, the aircraft would be safer and there would be less chance of environmental damage. I commend that approach to the Minister. So many messages have been passed to the Paymaster General that I have probably asked enough questions of her. I see that another answer is on its way to her as I speak. I hope that she will not fall into the trap of saying simply that I am being difficult, or trying to wile away a few minutes. All my questions are serious. They raise difficulties about the wording of the clause and the workability of a forthcoming Act of Parliament. All of them need clear answers, although some were technical and, if the answers being passed to the hon. Lady do not answer them in detail, I should be grateful to receive a written reply, copied to the Library. I deplore what has happened. It has spoiled the fun of many. It causes redundancies in my constituency, and it is yet another reason why the EU's powers need to be taken away. But I am a realist. What has happened has happened, and we must get the Bill right. Will the Minister repeat the undertaking that she gave in Committee to introduce the changes with the lightest possible touch from Customs and Excise in the early stages, when problems will arise? Will she repeat her undertaking to review absolutely everything over the next three to four months—not just what suits her—to see whether we can learn from the mistakes that the Government have undoubtedly made?

Dawn Primarolo (Labour, Bristol South)

I will not say that the hon. Gentleman was wasting time, and he was wrong to suggest that I should. I think that he is misguided, and that he has not paid attention to the fact that the successor regime operates already. He obviously has not read the newspapers or the undertakings given by suppliers about the possibility of job losses, but I understand entirely why he, like any good constituency Member, is particularly concerned about the future employment of his constituents. The hon. Gentleman was present when I made it clear that preparations for the abolition of duty free and arrangements for the successor regime were working smoothly for traders and travellers. I am happy to repeat that Customs and Excise will work closely with the trade and will apply the light touch for which he asked. We shall review the work of the successor regime in the light of experience. The hon. Gentleman will have seen that many of the disasters that he predicted, and which he continues to forecast, have not happened. The hon. Gentleman asked why on-board consumption was VAT free. The Commission announced on 2 October 1998 that member states could continue to allow goods consumed on board to be relieved of VAT. I explained in Committee that the Government would allow that to happen.

David Wilshire (Conservative, Spelthorne)

The Minister may recall that I asked whether consumption was exempt of tax alone or of tax and duty. She may have made a slip of the tongue, but I understood her to say that goods would be free of VAT. Will they be free of VAT alone, or duty too?

Dawn Primarolo (Labour, Bristol South)

I am sorry; I misheard the hon. Gentleman. I thought that he was asking about VAT only. The position that I set out earlier on excise duty and VAT is correct. The hon. Gentleman asked about the immediate destination provision. As I said in Committee, if a flight involves a stop-over outside the European Union, travellers have a limited entitlement to duty-free goods. As he well knows, it is a very limited entitlement and may not be the bargain that they thought they would get. Over the next few months, the staff of Customs and Excise will concentrate on helping the industry to adjust to the new regime. In the long term, Customs and Excise does not expect the duty-paid regime to be any more demanding of its resources than the former duty-free regime. The hon. Gentleman may have seen the report in The Sunday Telegraph on the decision of British Airways not to sell alcohol and tobacco on flights, but to continue to offer other goods under the EU restrictions. As I said to the hon. Gentleman in Committee, safety is a matter for the airline companies, which are perfectly capable of enforcing a reasonable attitude towards the carrying of duty-paid goods, and are doing so. The hon. Gentleman's final point was on triangular routes. A ferry may move through several duty regimes. As I said in Committee and in my opening remarks, the simplified arrangements apply to the majority of journeys. However, in the exceptional case of triangular routes, fuller accounting procedures are required. Those operators are already used to dealing with more complex accounting of their stores and sales under the old regime. The problem that the hon. Gentleman forecasts is not manifesting itself in the spectacular way that he continues to suggest. The Government would have preferred more time to work on a successor regime, but it was not available to us. We would have preferred it if the previous Government had made some preparation for the abolition of duty free, for which they voted, but they did not. In the circumstances, we have a regime that has been welcomed by the trade, that is working well for the travellers, and that is ensuring that the transition from duty free to the new regime is as smooth as it could possibly be. I commend the new clause to the House.

WORKS OF ART, ANTIQUES, ETC.

Dawn Primarolo (Labour, Bristol South)

I beg to move, That the clause be read a Second time. The new clause enables the United Kingdom to fulfil its legal obligations under the seventh VAT directive, as incorporated in the EC sixth VAT directive. That directive requires member states to apply a minimum rate of VAT of at least 5 per cent. to a wide range of imported works of art, antiques and collectors' pieces. The new clause implements the undertaking given by the previous Government to increase our rate to the minimum level. Since 1995, the United Kingdom has applied a rate of 2½ per cent. to a limited range of works of art, antiques and collectors' items. Until the UK implemented the seventh directive, those products had been relieved from import VAT. That rate of 2½ per cent. has been available to the UK only under a transitional derogation, which was time-limited to 30 June 1999. 9.45 pm Despite our inheritance from the previous Government, this Government have decided that, on balance, it would be better all round for our 2½ per cent. rate to be more widely available in the Community. We have fought that case long and hard in Europe, arguing that the interests of both the United Kingdom and the Community generally would be best served by 2½ per cent. being made the minimum rate available to all member states. However, we have also pressed the case for the UK to retain its special rate for a further period in the event of our failing to reach agreement with our European partners.

Michael Fabricant (Conservative, Lichfield)

Will the Paymaster General give way?

Dawn Primarolo (Labour, Bristol South)

May I finish what I am saying? After that, I shall be happy to respond to any points that the hon. Gentleman wishes to make. Either of those proposals would have required both the support of the European Commission and the unanimous agreement of all other member states. Despite our efforts, it became clear that there would be little support for the UK position, and it has therefore not been possible to secure the unanimous agreement that was necessary to bring about the change.

Nick St Aubyn (Conservative, Guildford)

Will the Paymaster General give way?

Dawn Primarolo (Labour, Bristol South)

I want to finish what I am saying. I shall then be happy to respond to any points that hon. Members make in the debate. We have throughout worked closely with the art trade. We fully realise the importance of the British art market and its worldwide standing. For those reasons, we propose to ease the effects of the increase in the rate of import VAT by widening the scope of the new 5 per cent. rate to a broader range of art works. That rate will apply to the full range of items that may be entitled to a reduced rate of import VAT under the sixth directive.

Andrew Tyrie (Conservative, Chichester)

Will the Paymaster General give way?

Dawn Primarolo (Labour, Bristol South)

I should be grateful if the hon. Gentleman would let me put the case. I shall, of course, respond to the points that hon. Members make in the debate. We engaged in some discussion about the matter at the outset, and I know that the hon. Gentleman is keen to take part. Even with the increase, there is still no lower rate of import VAT in Europe on works of art. It is the minimum that the Government need to do to comply with the absolute legal obligation that we inherited from the last Administration. The package offers a much wider coverage of the reduced rate for art imports and should ensure that the UK remains an attractive place for the art trade. Our proposals have been welcomed by the British art market, which has acknowledged the length to which the Government went to try to undo the damage done by their predecessor. I commend the new clause.

Nick St Aubyn (Conservative, Guildford)

I am grateful to my right hon. Friend the Member for Cities of London and Westminster (Mr. Brooke) for drawing attention to the last Government's difficulties. Their decision to accept the halfway house that has persisted until now was a compromise that was, in effect, forced upon them. It was always envisaged that the economic impact of a 2.5 per cent. VAT rate would be properly assessed by the European Union, and it was reasonable to suppose four years ago that, when the matter came up for review this year, our partners would understand the effect that the rate has had on the London art market in particular. The Paymaster General asked us to applaud her efforts. The fact is that the widening of the 5 per cent. band will not affect the major issue, which is where international art sales take place. It is in the sales of Impressionist paintings and old masters that the really attractive big money is being spent. Those are exactly the sort of sales which, in the future, will take place almost exclusively in Geneva, New York and other places outside the European Union. It is the lucrative end of the market that London will lose, and the consequences for London will be severe. The Paymaster General has failed to tell us in this debate or the previous one how many jobs she expects the market to lose as a result of the measure. There can be no doubt that jobs will be lost. It may not be as many as the 5,000 predicted earlier—let us hope that that is the case—but there will be job losses. The Paymaster General's comment that the new measure is tax neutral beggars belief. The only sense in which it is tax neutral is that the amount of tax that is raised may be no more than the amount that was raised under the previous system. Any situation in which the tax rate doubles but the amount of tax collected remains the same is, by implication, one in which the volume of transactions has, in effect, halved. Will she confirm—I hope she is listening—that in the key areas, including the old masters, the Impressionists and other parts of the value end of the art market, the implication of her prediction on revenue is that the value of sales in the United Kingdom will halve as a result of the increase in tax? In Committee, I suggested to the Paymaster General and her advisers that they should look at the exemption for culture under the sixth VAT directive. There is a clear exemption for cultural activity in the European Union—VAT should not apply to cultural activities where those are not to the disadvantage of other member states. It is widely agreed that, in the case of the art market, any low rate in the UK is not to the disadvantage of other member states because we are in competition not with them, but with Geneva, New York and other centres where there is no tax to pay. Why is it that before we did not impose tax on art sales in this country? It is because, fundamentally, it is not a financial transaction but a cultural exchange. Therefore, under the VAT directive, there is a specific exemption, which could be explored with our other partners. On that basis, a wide exemption could be granted to the market in this country. Four years ago, we chose not to go down the contentious legal route to protect our art market. We chose to enter a compromise deal—

Geraint Davies (Labour, Croydon Central)

Will the hon. Gentleman give way?

Nick St Aubyn (Conservative, Guildford)

I will finish in a moment; I shall let the hon. Gentleman in in a moment. We chose to enter a compromise deal on the basis that, within four years, the evidence would be clear that the rate was damaging our market and not helping anyone else's. We assumed that our partners in Europe would accede to our request at the end of the period to cut the rate again. Having failed to do so, we should be going down the legalistic route. We should be trying to protect a valuable business in this country. It is the Government's failure to do so, despite their promises in recent months, that is the real disappointment. That is why our questions deserve a proper answer from the Paymaster General.

John Townend (Conservative, East Yorkshire)

I do not know whether I heard the Paymaster General correctly, but I got the impression that she said that the 5 per cent. rate was not continuous but for a limited period. If that is so, will she tell us how long that period is and what the rate is likely to increase to? The Paymaster General surprisingly said that the decision to double the VAT rate was welcomed by the art trade in this country. I find that incomprehensible because the only people who will welcome the VAT increase in London are art dealers in New York and Switzerland. The terrible situation has shown us one thing. As my hon. Friend the Member for Guildford (Mr. St. Aubyn) said, naturally, we expected from an equitable point of view that our European colleagues, having looked at the effect of the 2.5 per cent. rate, would see reason and allow us to continue at that rate. As has been said many times, it is not a question of harmonisation to remove unfair competition with other countries in Europe. There are only three international markets in the world: London, Geneva and New York. Once the change is made, all that will happen is that the European Union as a whole will lose out in the international art market to America and to Switzerland. Does not that fact demonstrate—to the House and to the British people—that, when our vital national interests are at stake, we cannot depend on Europe? It does not matter whether the previous Government made a great mistake in agreeing the change or the current Government are making a mistake now. The current Government said, "Things will be different: we are at the heart of Europe. We shall persuade our European partners to see reason." In this case, we have reason on our side, but the Government have failed completely.

Geraint Davies (Labour, Croydon Central)

Today, we have heard much froth and rubbish from Opposition Members on the issue to which there are two aspects: first, VAT on certain items will be increased from 2.5 to 5 per cent.; secondly, there will be a VAT reduction on other works of art. However, we have not heard much from Opposition Members about the VAT reduction. Let us get our facts right. Earlier, my hon. Friend the Member for Shipley (Mr. Leslie) asked the shadow Paymaster General, the right hon. Member for Wells (Mr. Heathcoat-Amory), whether he was Paymaster General in 1994, when the previous, Conservative Government agreed the VAT increase from 2.5 to 5 per cent.—about which Conservative Members have been whingeing today, but which they agreed—but he said that he was not Paymaster General at that time. [Interruption.] However, all the records—such as old lists of ministerial responsibilities—seem to say that, in September 1994, David Heathcoat-Amory Esq. was the Paymaster General.

David Heathcoat-Amory (Conservative, Wells)

rose—

Geraint Davies (Labour, Croydon Central)

Obviously the right hon. Gentleman has some sort of memory problem. Perhaps that is why he has a majority of only 528. [HON. MEMBERS: "Give way."] I shall certainly give way, if the right hon. Gentleman would like to correct the record.

David Heathcoat-Amory (Conservative, Wells)

I am grateful to the hon. Gentleman for graciously giving way, as he mentioned me. I should like to make it absolutely clear, and beyond doubt, that I had nothing to do with the negotiation of those matters or the decision, all of which were dealt with by my noble Friend Lord Cope. Will the hon. Gentleman accept that assurance?

Geraint Davies (Labour, Croydon Central)

Does that mean that the right hon. Gentleman knew nothing about it, and had no responsibility for it whatsoever? In answer to the question of my hon. Friend the Member for Shipley, the right hon. Gentleman said that, in 1994, he was not Paymaster General—but he was. Could we get that matter clear, for the record? What sort of Cabinet was involved in the decision? Regardless of whether the decision was taken by him, one of his colleagues or someone who has subsequently slipped off the electoral terrain—as I said, the right hon. Gentleman has a majority of only 528—with such talk about positions previously held, one wonders whether he will be in the House for very much longer. The simple fact is that British art will be successful for much longer than he will be. There will be a marginal tax increase. Although no one welcomes the increase—which was introduced by Conservative Members—to counteract it, the Government are introducing all types of concessions. There will be a massive reduction in the marginal rate of VAT, from 17.5 to 5 per cent., on tapestries, ceramics, enamels and photographs. More widely, there is a new generation in a thriving antiques industry, which will generate many new jobs. However, all we hear from whingeing Opposition Members—crying crocodile tears, moaning and rolling around on the Opposition Benches—is, "What about the job cuts?" The Government are reviving the industry, while dealing with the legacy of tax constraints that we inherited from the previous Government.

Nick St Aubyn (Conservative, Guildford)

Will the hon. Gentleman give way?

Geraint Davies (Labour, Croydon Central)

Perhaps we can now move on. I would have taken the hon. Gentleman's intervention, but he refused—from absolute embarrassment—to take mine.

Andrew Tyrie (Conservative, Chichester)

I simply want to ask the Paymaster General a few questions that I was unable to put in an intervention. First, will the Paymaster General clarify the assumptions behind her forecast of a £10 million revenue increase from the VAT increase from 2.5 to 5 per cent? Will she state categorically whether those assumptions include the sharp fall in business that is likely to occur because of the VAT increase? Secondly, will the hon. Lady commit herself to the review that my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) asked for? Will the Government go to Brussels and press for another report after a couple of years, which will show the damaging effect that the increase in VAT will have in Britain and across the European market? The market will move out of Europe to New York and Tokyo. Will she commit herself to pushing for a review of this absurd policy after a couple of years?

Christopher Gill (Conservative, Ludlow)

My hon. Friends the Members for East Yorkshire (Mr. Townend) and for Guildford (Mr. St. Aubyn) have made a good case on behalf of the London art market and shown how the tax will adversely affect it. I have every sympathy with their point of view and the strength of their argument. The Government are fully signed up to the European Union. Instead of looking at the issue in the narrow confines of the British interest, why has it not been possible for the British Government to persuade the European Union that not increasing the tax is in the interests of the European Union as a whole, not just the London art market? London is part of the broader picture. Why has it not been possible to persuade the powers that be that the change would damage the European Union? The argument should be advanced on a broader plain. We need to explain to our European partners that the opposition is in New York and Geneva. By damaging the London market, all that we are doing is damaging Europe.

Michael Fabricant (Conservative, Lichfield)

I endeavoured to intervene on the Minister earlier, but she was determined not to let anyone in. When we debated the subject on the earlier narrow Ways and Means motion, she said that we would be quite competitive at 5 per cent., because, apart from Denmark, other countries had a higher rate. The problem is that those countries are not the competitors. The competitors are Basel, Geneva and New York. What is the general sales tax for art works in New York state or Geneva?

David Heathcoat-Amory (Conservative, Wells)

We debated the issue earlier today, but there are some questions outstanding, to which my hon. Friends have referred. I have two questions. It is regrettable that VAT on imports is to be doubled. That will be a heavy and savage blow to the British art market. No one has made a secret of the fact that we are dealing with a pre-existing directive. I am happy to reassure the hon. Member for Croydon, Central (Mr. Davies) again that it had nothing to do with me. The negotiations took place while my predecessor was Paymaster General, but I do not dissociate myself from my noble Friend Lord Cope, who secured an undertaking that the Commission would conduct a study before the derogation ran out. That study was forthcoming and showed that damage had been caused even at the existing levels of VAT on art imports. The study also mentions that in the 1950s Paris was the biggest art market not just in Europe, but in the world. It has been damaged by a combination of the droit de suite—a levy on the resale of works of art—and the imposition of VAT on art imported into France. That is a matter for the French Government, but the same levels of VAT are to be imposed on the UK market despite the damage that has been shown in the study by the consultants. That conflicts with article 2 of the treaty of Rome, as amended, which says that the European Union should have a number of objectives, the first of which is to promote economic and social progress and a high level of employment. It has been shown by the study that the proposal will cost jobs in the EU, and will undoubtedly do further economic damage. It is my contention that the European Commission is breaking the treaty in persisting with its intention to bring the minimum level of VAT on art imports up to 5 per cent. My first request, which has been echoed by my hon. Friends, is that the Commission should be asked to conduct a further study after the VAT directive is enacted to ensure that no further damage is done and, if damage is inflicted, that action will be taken. That is a modest request to make of the Government. My second request concerns the linked matter of droit de suite. Happily, that separate threat has been deferred. However, it has only been postponed, and I would like to know on what terms it has been deferred, whether it will come back, whether further technical work will be undertaken and whether further political consultations are taking place. The art market needs to know the answers to those questions tonight. I asked them earlier today without success. Perhaps the Minister will take this opportunity to answer those two specific questions.

Dawn Primarolo (Labour, Bristol South)

We can sum up the approach of the right hon. Member for Wells (Mr. Heathcoat-Amory) as, "It is nothing to do with me. I was just a member of the Government of the time—or, at least, I was voting for them." The previous Government committed the United Kingdom to an absolute legal obligation to increase VAT on works of art from 2.5 per cent. to 5 per cent. It is true that the previous Government asked the Commission to undertake an independent study of the impact of the imposition of 2.5 per cent. VAT on the art market. However, the study was not made conditional on anything. It was not put in the directive, nor was it said that the derogation should not expire until the study was completed. The study was completed independently, and arrived late. It showed that there were grounds for continuing to argue the case that the increase from 2.5 per cent. to 5 per cent. should not take place. The Commission ignored that, and made its own recommendations. The Government were faced with an absolute legal obligation to increase the VAT to 5 per cent, which could not be resisted. There was simply no practical choice but to implement the increase. We were faced with the legal obligations signed up to by the previous Government. Earlier, I referred to the cost to the British art market, how much revenue would be raised by increasing the levy to 5 per cent. and the results of the concession. The British Art Market Federation has said that it believes that the overall package will enable the art market to remain as competitive as it is already. Therefore, the Government's figures of a £10 million rise, as well as the cost of the concession, will result in a revenue-neutral position. [Interruption.] I am not surprised that Conservative Members do not want to listen, because their crocodile tears at this late stage are pathetic. The Government have fought hard, working in partnership with the art market, and we continue to press the case. We made it clear to the Commission that we want to pursue the impact on the art market of increasing VAT. The British art market is of value to Europe. We should think not about our art market versus the rest of Europe but about sales in the international market. I am happy to give the House the undertaking that the Government will continue to fight for the best interests of the art market. We deeply regret the fact that the previous Government were so foolish as to create an absolute legal obligation with which we now have to comply, but there is no alternative. The package that we have proposed will enable the art market, so it tells us, to remain competitive and vibrant and attract new trade.

John Townend (Conservative, East Yorkshire)

The Paymaster General said that the art market has said that the reductions on ceramics and tapestries—which are minor parts of the market compared with painting—will allow it to remain competitive. Who exactly has said that?

Dawn Primarolo (Labour, Bristol South)

I could send the hon. Gentleman a copy of the British Art Market Federation's press release in response to our proposals. I am sure that he would be delighted to read it and to congratulate the Government on having done our very best—given that we were forced to increase VAT—to put together a package that mitigates the impact and helps the art market. I commend the new clause to the House.

PREPARATIONS ETC. OF MEAT, YEAST OR EGG

Dawn Primarolo (Labour, Bristol South)

I beg to move, That the clause be read a Second time. The new clause corrects an error made in the transcribing of a cross-reference from the Value Added Tax Act 1983 to the Value Added Tax Act 1994, unintentionally extending zero-rating to VAT on food to include pet food, although it has been this Government's, the previous Government's and the industry's interpretation that VAT was to be applied at 17.5 per cent. It restores the position to what everyone understood it to be until Customs and Excise recently discovered the error. I commend it to the House.

Oliver Letwin (Conservative, West Dorset)

The new clause gives us a marvellous illustration of what is wrong with VAT legislation. The drafting mistake that the new clause remedies arose because of a quadruple negative. In the first place, everything is subject to VAT, but schedule 8 zero-rates—makes not VATable—certain items, including those in group 1, item 2 of which is animal feeding stuffs and pet foods; but certain items in group 1 are excepted and are not not VATable; but there is an override for preparations and extracts of yeast, meat or egg, which are not not zero-rated, or not not not VATable, making them not VATable, or zero-rated; but the override is overridden by note (6), which restricts some of the overrides to beverages such as Bovril, the favourite drink of my hon. Friend the Member for Lichfield (Mr. Fabricant). That makes the other meaty preparations on that list not not not zero-rated, in which case, they are not not not not VATable—in which case, they are, of course, VATable. All of that was meant to apply to pet foods—poor old pet foods. Unfortunately, that string of quadruple negatives quite defeated Her Majesty's Government's magnificent legal advisers—and, we are to assume because no challenge was levelled, the entirety of the private sector, until very recently. Now, Her Majesty's Government have splendidly caught up with the fact after the fact; but they hardly needed to because, as my hon. Friend the Member for Rochford and Southend, East (Sir T. Taylor) pointed out earlier this afternoon, the sixth VAT directive probably had direct effect throughout, so there was probably no need for the change. That brings me to my questions. Does the Paymaster General know what the yield of the measure will be if it has been correctly drafted? I asked her this some hours ago, when we debated the Ways and Means motion, but she failed to answer—no doubt it was an oversight. Perhaps she will answer now.

John Bercow (Conservative, Buckingham)

The challenge my hon. Friend poses the Paymaster General is entirely unexceptionable, so I assume that she will be able to answer it. However, does my hon. Friend agree that the hon. Lady does not have to look into the crystal ball when she can read the book? Given that, in answer to my hon. Friend the Member for Rochford and Southend, East (Sir T. Taylor), the Paymaster General said that this tax had not only been incurred legally, but had been paid by the relevant sector in previous years, should she not be able to tell us how much was paid in the financial year 1998-99, and do so immediately?

Oliver Letwin (Conservative, West Dorset)

My hon. Friend is absolutely right. We are discussing an opportunity loss for the Exchequer and, since we can know what revenue came to the Exchequer through pet food VAT last year, the Paymaster General should be able to estimate what the opportunity loss would be were the new clause not added to the Bill—always assuming it had any value in the first place. My next question is whether the drafting is now right. I should not bother to ask were it not for the fact that the whole thing is so incomprehensible that it defeated all the draftsmen to begin with, and it might be that there is a mistake this time. I should also like to know what is a packaged food for birds. Packaged foods for birds will be caught, but packaged foods that happen to be eaten by birds but are not for birds will not be caught. This is just like the Medicines Control Agency: a great deal of fuss and bother has been caused by the difficulty of determining what something is for before one has eaten it. Whether the thing in question is caught depends to a great extent on whether one is a bird or a human being. I hope that the Paymaster General can tell us that she is confident that, this time around, she and her officials have got the drafting right, because what we have here is legislation that is a dreadful mess. That is nobody's fault—the blame must be spread across the past 50 years—but the situation has been greatly worsened by the sixth VAT directive. What we should have been dealing with this evening is a proper clearing up of some ghastly architecture; unfortunately, what we have is just another piece of patchwork. I hope that the Paymaster General will tell us, first, that the provision yields some serious revenue and, secondly and crucially, that it has been correctly drafted this time.

Dawn Primarolo (Labour, Bristol South)

The answer to the hon. Gentleman's second question is that I sincerely hope that the provision is correctly drafted this time and that the transcription error has now been corrected. The yield is £185 million a year, which is not an insignificant sum, so it seemed to be a good idea that the Government should maintain the revenue. I know that it is late, but I think that the Opposition should consider calming down, and agreeing that the new clause makes sense and represents sensible management.I apologise to the House for the previous Government having made the error, and I hope that the Opposition will now agree to its being corrected.

NON—TAX PAYERS

Quentin Davies (Conservative, Grantham and Stamford)

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

Betty Boothroyd (Speaker, West Bromwich West)

With this, it will be convenient to discuss the following: New clause 18—A pensioner's tax exemption certificate—

Quentin Davies (Conservative, Grantham and Stamford)

I remind the House that I have interests that are listed in the register, but none of them is relevant to this debate or to earlier debates. This is a crucial point in the proceedings. There is no need for any political banter or point-scoring. In tabling new clause 3 and amendment No. 3, we contend that the Government, in only two years, have inflicted immense damage on our income tax system. They have brought about a disreputable shambles by making changes that bear no relationship to the principles that ought to characterise a tax system. In a fair, just and economically sensible and successful society, a tax system ought to be based on the principles of justice, clarity and rationality. We now have an income tax system that is brutally unfair, discriminatory—particularly against the most vulnerable people—and incomprehensibly irrational and opaque. I turn first to the callously unfair aspects of the tax system, as modified by the new Labour Government. The result of their measures is that people at the bottom of the income scale, whose incomes are so low that they do not even reach the income tax threshold, are now subject to income tax. That is already having a devastating effect on the finances of extremely—indeed, I would say almost pathetically—poor people. Let us consider someone whose total income is £5,000 a year, which is derived from dividends. That person might be one of those widows whom the Government have decided, in other measures, to deprive of their widows pension. We debated and, I regret to say, unsuccessfully opposed that vicious measure only a few months ago. That person might be somebody who has no pension or other source of income, but who has saved from a lifetime of self-employment a small amount of money that now yields £5,000. That person might be someone who had to leave employment because of disablement, and we know how the Government have now cruelly restricted the eligibility criteria for incapacity benefit and are means-testing that benefit. Those people are at the bottom of the income scale. A few months ago, their income was £5,000. What is their position now, following the Government's measures? It is almost inconceivable. Most people in this country, who are not in that category, have not even begun to face the reality of what has happened to people on the lowest incomes. The result of the Government's measures is that people who had £5,000 to live on now have only £4,000. Those people, who are extremely vulnerable, have lost £1,000 a year, which is an income reduction of 20 per cent.

John Bercow (Conservative, Buckingham)

My hon. Friend is expounding the case with great force and eloquence. Is he aware that during the proceedings on last year's Finance Bill, the hon. and learned Member for Dudley, North (Mr. Cranston) urged the then Paymaster General to reconsider the Government's position on the tax treatment of dividends as it affected people of pensionable age? The hon. and learned Gentleman, having made that suggestion as a Government Back Bencher to the beleaguered Paymaster General, was subsequently promoted to the post of Solicitor-General. Sadly, despite his promotion, the Government have not shifted their position. Is not it about time that they did so, or that the Solicitor-General relinquished his post?

Quentin Davies (Conservative, Grantham and Stamford)

My hon. Friend makes two telling points—one about an hon. and learned Member who certainly ought to be considering his position in the new Labour Administration. I hope that the Financial Secretary to the Treasury, who is about to respond to me, is also considering not just her position, but whether she feels proud to serve in a Government who press on the poorest people in our society in such a malicious and devastating fashion. That is exactly what has occurred. As my hon. Friend the Member for Buckingham (Mr. Bercow) rightly said, the former Paymaster General, the hon. Member for Coventry, North-West (Mr. Robinson), felt sufficiently ashamed by what his Government had done to express his embarrassment in Committee and to hold out the prospect that something would be done. Nothing, of course, has been done. This is part and parcel of a campaign waged by this new Labour Government against the new poor—people who are at the bottom of the income scale, but who have a small amount of savings and therefore do not qualify for the Government's means-tested benefits. They are being clobbered over and again by these vicious tax measures. One thing is quite extraordinary: the Government have protected certain categories of people from the impact of the abolition of the dividend tax credit. They have protected the higher taxpayers—people who would have been paying a marginal 40 per cent. tax on their dividend income and who continue to pay a marginal 40 per cent. on other sources of income. They have a new dividend tax rate of 32.5 per cent. The Government have protected overseas holders of British equities, so that Americans who receive a dividend stream from this country will still receive a cheque—a tax credit—from the Treasury. The Government cannot find a single crumb for people in this country who have saved hard or who are—perhaps—widows whose husbands saved on their behalf and who have some small savings income from dividends on which to live. The Government should be utterly ashamed of themselves. It amazes me that they can sleep happily in their beds knowing how cruelly they have ruined the standards of living of people who are right at the bottom of the income scale. That is the achievement of new Labour.

Chris Leslie (Labour, Shipley)

Do the hon. Gentleman's comments about people on the lowest income mean that he will now support the working families tax credit?

Quentin Davies (Conservative, Grantham and Stamford)

The hon. Gentleman has been well schooled by new Labour. The technique that he has learned is this: if one is asked an awkward question, if one is confronted with unpleasant reality, and if it is suggested that one's Government have betrayed the very principles on which the Labour party has thrived for most of this century, one changes the subject. The hon. Gentleman has tried unconvincingly to do so. I shall next consider people who are slightly up the income scale. What is the position of savers who have an income from saving, from bank deposits, building societies, bonds and gilts, or wherever, which takes them just above the income tax threshold? They do not benefit from the new lower tax rate of 10 per cent. They therefore find themselves at a disadvantage. For reasons incomprehensible, and certainly indefensible either in terms of justice or economic rationality, such savers are taxed at 20 per cent.—not at 10 per cent., as for the first £1,500 earned income band of taxable income. What has actually occurred? I shall briefly go through the range of rates, because the public have not yet focused on what has happened. Until last year, under the regime inherited from previous Conservative Administrations, there were only three income tax rates in this country. They were applied simply according to the taxpayer's income. They were progressive: the basic rate of tax was 23 per cent.; the lower rate was 20 per cent.; and the higher rate was 40 per cent. People paid at the relevant marginal rate according to their income. The system was fair, rational and comprehensible, and was widely accepted. 10.30 pm What have the Government done during their two years in power? They have replaced those three rates—that simple and rational system—by eight different categories of liability for income tax and by five, soon to be six, different rates. They did so according to no principle at all, so that what has emerged is a dog's breakfast. There is a 10 per cent. lower rate of income tax on the first £1,500 of earnings from employment or self-employment. That does not apply to savings income from bank or building society deposits, bonds, gilts and so on. There is a 10 per cent. basic rate on dividends—not a lower rate—which takes that tax rate on dividend income up to more than £32,000. That is an extremely low rate. Anyone who receives dividend income up to more than £32,000—taking into account the personal allowance, which, I think, is now £4,335—does not have to make any further payments to the Revenue; that person does not have to account for any further tax. Then, there is a 20 per cent. basic rate on other savings income, so that, although dividends are taxed at 10 per cent, bank deposits are taxed at 20 per cent. Where is the rhyme or reason in that? What about income from earnings from employment or self-employment? The basic rate is 23 per cent.—not 20 per cent. as for savings—for income within the range of the basic rate; that is up to £32,000 for people aged below 65, and slightly more than that for those aged over 65. I have already referred to the new 32.5 per cent. higher rate on dividends; there is a 40 per cent. higher rate on other savings income, and on income deriving from employment or self-employment. Soon, there will be an eighth category and a sixth rate: a 44 per cent. marginal rate for those with children, when the child tax credit comes in. The system is a complete shambles, based on no conceivable principle. Is it to be defended as being fair to the poor and slightly more unpleasant for the wealthier? No, not at all. As I have shown in my example, the people who suffer most—with a 20 per cent. reduction in their income overnight—are the poorest in the country, who have a savings income from dividends. On the other hand, higher rate taxpayers are protected; if they have dividend income, they are subject to a special 32.5 per cent. rate. One could not possibly say that the new system is a workers tax, as has been argued by new Labour, and that people receive better tax treatment if their income is from employment or self-employment rather than from savings. The reverse is true. People with higher earnings from employment and self-employment will pay tax at a margin of 40 per cent., whereas, if their income derives from dividends, the rate is 32.5 per cent. There is no rhyme or reason in that. I take two examples from different ends of the range. First, let us take a person whose total income is £6,000. If that income derives from United Kingdom dividends, they get £6,000; that is fine. If that income derives from bank interest, they will pay 20 per cent. tax above the threshold, and their income will be £5,711. If they have earned income, they will pay 10 per cent. for the first band of £1,500 above the personal allowance, and they will get £5,855. If their income were from foreign dividends, they would get the same amount, because a rate of 10 per cent. would apply. If they have—

Geraint Davies (Labour, Croydon Central)

Will the hon. Gentleman give way?

Quentin Davies (Conservative, Grantham and Stamford)

Not at this stage. Therefore, we have a series of five different possibilities—income from UK dividends; income from bank interest; income from earnings; income from foreign dividends; or income from PEPs and ISAs, in which case there will be a tax credit of 10 per cent., so the person will end up with £6,600. The income tax rate depends, not on how much one earns, but on the source of income. Secondly, let us take someone with a total income of £30,000. If their income derives from dividends, they are credited with having paid tax at 10 per cent. and have nothing more to pay. If it derives from bank interest, it is taxed at 20 per cent. beyond the personal allowance, and they will get £25,665. From self-employment or employment, they will get £24,293; from foreign dividends, £27,433. From PEPs or ISAs, they will get £33,000 because they will get a tax credit. There is no rhyme or reason in that. This is a system that simply cannot remain viable. This is a system that has lost all touch with justice or good sense. This is a system that the Government have managed to introduce in merely two years. They have produced a shambles—an extremely damaging shambles—and they are in danger of undermining the fundamental support for taxation in this country, which has always been a feature of British life. If one produces something that is neither fair nor rational, one will not enjoy public respect; and that is the most devastating disservice to the cause of good taxation that any Government could possibly deliver.

Geraint Davies (Labour, Croydon Central)

It is a great pleasure to have the hon. Member for Grantham and Stamford (Mr. Davies), who bears my name, back on the Conservative Treasury team. He is very amusing when he makes his emotional outbursts, which bear no relation to reality. Strategically—to put this in context—the Government are trying to have a Budget that gets people back to work and supports families, while protecting the least poor with minimum income guarantees. The changes that are embraced in the Budget and will be entailed in what happens in the wider economy, should be seen in that context—enabling families to work, stopping child poverty, making work pay, and so on. There has been a lot of ranting from the Conservative Benches about the so-called pathetically poor and the cruel nature of the new Labour Government, but we should view that in context. The crocodile tears that Conservative Members have been shedding come from those who made up a Government who introduced such things as the poll tax, which obviously hit the poor the worst, and VAT on fuel, which especially hit the pensioners that they claim to be concerned about. That Government introduced charges for eye tests and cut pensions in real terms. We had the pensions mis-selling crisis. Also under that Government, about a million pensioners underclaimed their rights, and the Conservatives did nothing to encourage and enable people to claim their rights. There was a complicated system, which many people who did not have a very good education—because of the legacy of the lot opposite—did not understand. Essentially, we ended up with a lot of poor people who did not claim their benefits. These are the sort of things that the Government are doing something about.

John Bercow (Conservative, Buckingham)

The hon. Gentleman is a good colleague of the Solicitor-General and I believe that he sat on the relevant Finance Bill Committee with him. Given the hon. Gentleman's reputation for intellectual curiosity, has he at no stage since the elevation of his hon. and learned Friend the Member for Dudley, North (Mr. Cranston) to the post of Solicitor-General asked him whether he has changed his mind about the Government's policy on the tax treatment of dividends for pensioners? Has he asked the hon. and learned Gentleman whether he is now a supporter of the Government's position or whether, continuing to believe in the position that he held as a Back Bencher, he has used his position within government to argue for a change of policy? Is the hon. Gentleman saying that the thought of consulting his hon. and learned Friend has not crossed his mind?

Geraint Davies (Labour, Croydon Central)

I thank the hon. Gentleman for that long-winded question. He would know, if he had bothered to be a member of the Committee to which he referred, that my hon. and learned Friend the Solicitor-General asked whether the Government would care to review their position. The then Paymaster General said, "We will have another look at it because we are very fair on the Government Benches." The Government took that look and came to the conclusion that they were pursuing the right policy. It is necessary to separate social policy from economic policy. Without rehearsing all the arguments, Opposition Members should know that the changes were introduced to encourage more inward investment in companies and to get rid of tax distortions and excess pay-outs of dividends. The fact that there is a by-product for some non-taxpayers is known, but against that we have a strategy for eliminating poverty that is separate. It is horses for courses, and that is a rational approach. When we consider the number of people who are concerned by the changes—if he had been up to speed I would have expected the hon. Member for Grantham and Stamford to refer to the 300,000 pensioners—we find that 220,000 pensioners are affected by less than £100. About 270,000 are affected by less than £200. After all, we are giving £100 to older people for their winter fuel benefit. We are talking about gainers and losers, and in the wider context there is the reduction of value added tax on fuel, the minimum income guarantee and the extra £21 billion that is going into the health service. We must consider the real impact that the Government are having on pensioners. It is no use considering a small change in a microscopic way. We must have a wider vision of what is happening, and within that broader context is the case that the Labour party is the pensioners' friend.

Robert Smith (Liberal Democrat, West Aberdeenshire and Kincardine)

If someone is £200 worse off and he is given £100 to pay his heating bills, what is he meant to pay the heating bill with when he is £100 worse off net?

Geraint Davies (Labour, Croydon Central)

The first £100 was only the winter fuel benefit. When we add up the other factors the average is £240. The hon. Gentleman should look up some of the facts rather than coming out with glib remarks that make no sense. The changes that we made to advance corporation tax were to repay tax. Pensioners who invested in equities were receiving cash back on tax that they did not pay. A differential approach was taken to those pensioners who perhaps invested in other sources of savings. Clearly there was a distortion, which has been removed. If we want to give more money to poorer pensioners, it can be done through other strategies such as the minimum income guarantee and winter fuel benefit. Indeed, that is precisely what we are doing. We have introduced a range of measures including health service changes—

Desmond Swayne (Conservative, New Forest West)

Will the hon. Gentleman give way?

Geraint Davies (Labour, Croydon Central)

No, I will not take any more interventions. We have got rid of eye-test charges for pensioners and there have been VAT changes. A host of measures in favour of pensions have been introduced by the Government. It is fallacious and cynical for pompous speeches to be made by Conservative Members about the particular change that we are considering.

John Townend (Conservative, East Yorkshire)

I support new clause 3. It would ensure that people who earn less than £4,335—which, I should have thought, even Labour Members would accept is not a very high figure—and more importantly, people between the ages of 65 and 74 who earn no more than £5,720, do not pay income tax. I am particularly interested in that group because in my constituency, East Yorkshire, we have a much higher percentage of old age pensioners than in the country at large. 10.45 pm The new clause tries to set right the perverse situation that occurred as a result of the Government's decision in the July 1997 Budget to abolish dividend tax credits for non-taxpayers. That measure came into effect this year and means that non-taxpayers who have already paid the tax on their dividend income cannot reclaim it, as they used to be able to do. That affects 300,000 pensioners, quite a number of whom are in my constituency. It is all very well for the hon. Member for Croydon, Central (Mr. Davies) to say that £75 or £100 is not much money, but for pensioners living on just over £100 a week, an extra £2 a week in their pocket is a lot of money. At the last election Labour claimed to be the party of the old age pensioners, and the hon. Member for Croydon, Central said that today. The Government should think carefully about accepting the new clause, as it would be in their interest. It was fascinating to me that an officer of the Pensioners Alliance came to my last surgery in Bridlington. That person is a lifelong socialist. I confess that, at the last election, I did not get anything like the support from older people that I had got in previous elections. That was for two reasons. First, it was put about that the Conservative party would do away with the old age pension. Secondly, the old age pensioners were led to believe that the Labour party would restore the connection between the average wage and the pension.

Hilton Dawson (Labour, Lancaster and Wyre)

Will the hon. Gentleman give way?

John Townend (Conservative, East Yorkshire)

Naturally, I was interested in why that lady had come to see me. I could not help asking whether she was happy with her Government. She said, "No, that is why I have come to see you, Mr. Townend. I am very interested in learning what Mr. Hague's new policies are likely to be for pensioners, because we feel let down by the Government." She pointed out that people who had saved modest amounts could no longer reclaim the tax on the dividends. When pensioners heard the Chancellor's speech, they were led to believe that the connection between earnings and pensions had been restored. Then they found that anyone who had an occupational pension got nothing at all. They learned that there was a new 10p income tax rate, but it did not apply to pensioners. They were told that they would keep their marriage allowance, but that was not for new pensioners—only for existing pensioners. The lady at my surgery said, "We are very disillusioned, and I will tell you one thing, Mr. Townend. We will not be voting in the European elections." The Labour party should take note of that. The old people are feeling let down. If Labour Members say that an old age pensioner on £5,720 a year should be paying tax, they have got it wrong.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

What the hon. Member for East Yorkshire (Mr. Townend) did not tell us is what he told his constituent about Mr. Hague's pension policy. I learned from my hon. Friend the Member for Northavon (Mr. Webb) that when the hon. Member for Grantham and Stamford (Mr. Davies) was in charge of pension policy for the Conservative party, his pension policy was not to have a pension policy. I hope that a Conservative Member will intervene to tell us what William Hague's pension policy is.

Alan Haselhurst (Deputy Speaker, Saffron Walden)

Order. The hon. Gentleman should realise that when he refers to another right hon. or hon. Member, he should do so by his constituency.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I am grateful to you for putting me right, Mr. Deputy Speaker. I agree with the substance of what the hon. Member for Grantham and Stamford said. He made the point that the Government's abolition of the dividends tax credit has hit a lot of elderly people—300,000 of them. Despite a long review, the Government have failed to see the error of their ways. It is no good the hon. Member for Croydon, Central (Mr. Davies) saying that we should divide social policy from economic policy. Of course we should not; they are totally intertwined. The Government recognise that linkage in other policies. I have always thought that the welfare-to-work programme is about ensuring that social justice helps economic efficiency, so he cannot have it both ways. The Liberal Democrats have tabled new clause 18 to put that idea before the House and the Government. We believe that giving tax exemption certificates to pensioners who are below the income tax threshold would simplify tax administration, bringing to the Inland Revenue and also to pensioners a lot of savings—not only financial, but in terms of anxiety and worry. Hundreds of thousands of pensioners who are below the income tax threshold receive large self-assessment tax returns every year, filling them with anxiety about whether they are due to pay tax, how to fill in the form and who they need to see make sure that they do so correctly. They want to pay any tax that they owe, but are not sure how to go about that. New clause 18 is based on a simple idea developed by the low incomes tax reform group of the Chartered Institute of Taxation. We have borrowed it and we hope that the Government will borrow it from us in turn. It would ensure that all those unnecessary self-assessment tax returns do not have to be sent out. The Government could take that further and ensure that taxpayers who are sent self-assessment tax returns, even though they owe only a small amount, could benefit from simplification of the tax system. The Chartered Institute of Taxation has produced many examples of ordinary taxpayers—pensioners—who are extremely concerned when they receive such forms. A pensioner from Tilbury was quoted in one of the institute's recent reports, which was published in June. The pensioner wrote: I am one of those pensioners on low income who is being hectored by the Inland Revenue. I've tried explaining about my income not being enough to tax. This is the third year running that the pensioner has had to do that even though my circumstances stay the same. A pensioner from Stroud wrote: My husband is disabled and a non-taxpayer. We now realise that because we have a joint Pensioners Bond we are sent a self-assessment form automatically every year. We could easily do without this form filling as we are on low income having paid taxes all our lives. I shall give a final quote, although I could have given hundreds. A pensioner from Ilfracombe wrote: My experience from the Tax point of view is basic. I have not paid any for over 20 years, but still receive annual tax forms. Now I must fill in the new Tax Assessment Forms (for the 2nd year running). That is bureaucracy gone mad; it is causing huge anxiety among the pensioner population and it flies in the face of the Government's declared policy. When the Chancellor announced the comprehensive spending review to the House, he said: We shall also set a tax guarantee that no pensioner will pay income tax unless their income rises above a specified level."—[Official Report, 14 July 1998; Vol. 316, c. 193.] That is a policy that hon. Members on both sides of the House can subscribe to—it is very sensible—but it is yet to be enacted. New clause 18 would give the Government the chance to do so. It is a practical way forward. The proposal for tax exemption certificates is simple. The Inland Revenue could work out from the records which pensioners had not paid tax for the previous two years and write to them, making the offer that they would gain a certificate if they filled in a simple application form. Alternatively, the individual non-taxpaying pensioner could apply to the Inland Revenue for an application form for a tax exemption certificate, for which I suggest the following simple wording: "I do not expect my income to exceed the tax exemption certificate threshold of £6,000 for the current year. I do not anticipate that my income in the next three years will exceed the tax exemption certificate threshold. If my income should exceed the tax exemption certificate threshold in the next three years, I will notify the Inland Revenue by 5 October following the end of the tax year." Everyone would be able to understand such a simple declaration, and it would save us the cost of sending millions of tax returns to non-taxpayers, as well as saving them anxiety. Certificates could be re-registered every four years, and random checks used to ensure that the system was not abused, as happens in other parts of the tax system. Our proposal is in line with the Conservative new clause, but offers a practical idea to simplify administration of the tax system. Our amendment is not just about non-taxpayers or self-assessment tax returns, but about the relationship of the Inland Revenue and the public sector with pensioners and others who may have difficulty filling out forms, such as those with learning disabilities. The IR ought to be far more user friendly. The Government could use new clause 18 to make a start on that.

Peter Luff (Conservative, Mid Worcestershire)

The Financial Secretary to the Treasury is honourable and decent. If she listens to the purpose of new clauses 3 and amendment No. 2—and of the new clause proposed by the Liberal Democrats—she will realise that her task of asking the House to reject them is unpleasant and unsavoury. The purpose of new clause 3 is simply to ensure that those who earn less than the income tax threshold do not have to pay income tax. Who can argue with that? The Financial Secretary may say that the clause is technically flawed, or that it needs to be rethought. However, the principle that underlies it must be one with which the whole House agrees. Amendment No. 2 would ensure that savings income is liable to taxation at the new 10p lower rate, not the 20p rate. Both measures would have a disproportionate advantage for those on low incomes, particularly for pensioners. I hope that the Minister will think carefully about what she is to say later. In the post today, I received a document that I did not recognise. As far as I can tell, it must be a Government briefing document for Labour Members, as it is headed "DSS Key Messages on Welfare Reform June 1999".

Chris Leslie (Labour, Shipley)

Read it; it is very good.

Peter Luff (Conservative, Mid Worcestershire)

Reading it is exactly what I intend to do. It states: The Government's central aim is to make the welfare state fit for the next century. Some new Labour waffle follows, then the document says that the Government aim to promote work for those who can and security for those who cannot. On pensioners, it adds: Most help for those with most need. Giving more help to the severely disabled, to poor pensioners and to children. How will the measures on which the Government are insisting tonight help poor pensioners? The document goes on—particularly amusingly—to say: Providing for the future with new stakeholder pensions and encouragement that those who can save should do so. What encouragement do the measures on which the Government are insisting give to those who want to save? Later, the document lists all the marvellous things that the Government claim to have done to help pensioners—the minimum income guarantee; the winter fuel allowance referred to by the hon. Member for Croydon, Central (Mr. Davies); free eyesight tests; and the reduction in VAT on fuel. There is no mention of much more—the abolition of mortgage interest relief at source and the implications for home income plans; the abolition of married couples allowance for new pensioner families; and the higher rates of fuel duty that are crippling poor pensioners in many rural areas. The Financial Secretary will have to defend the position of making poorer pensioners pay income tax or pay it at higher rates than is acceptable. I invite the Financial Secretary to think carefully about the consequences of rejecting amendment No. 2 on the taxation of savings. The estimates of independent analysts suggest that accepting this amendment would cost just £85 million, and £55 million of that advantage would go to people of pensionable age. I cannot believe that the new Labour Government, who publish such documents to send to their Back Benchers, intend to reject these measures. I am sure that the Financial Secretary, whatever she says, will, in her heart, know that the Opposition are right.

Nick St Aubyn (Conservative, Guildford)

The Government's mantra that we hear so often—that they govern for the many, not the few—will have a hollow ring tonight. The 300,000 people we are discussing are the few. They are vulnerable, and many are old. They are also the few because they believe in being self-reliant. It was significant that the hon. Member for Croydon, Central (Mr. Davies) emphasised the benefits that this group of people may be entitled to as a result of the Government's measures. Some of them may welcome those benefits, but others take pride in the fact that they have managed to provide for themselves up till now, and that is how they intend to carry on. As a result of the Government's proposal, those people will lose a significant amount of income. In the debates on this issue this year and last year, Labour Members argued that this group of people could change their investment strategy, and that, if they switched to bonds, they would not suffer income tax. The difficulty with that approach is that inflation, even at the present low rates, eats away at such savings. In the long term, the only way to protect the value of an income through a savings plan is by investing in shares. We learned today that the average income in this country has now reached £20,000 a year. I read that, 25 years ago, it was only £2,500. People who, at the start of their retirement, took the Government's advice and put all their retirement savings into bonds may have had their standard of living severely curtailed compared with what they might have achieved if they had kept their savings in shares. What is the point of a Government tax strategy that encourages the old, the vulnerable and the weak to put their small amount in the least sensible form of savings? Surely that goes against the whole thrust of modern thinking. We should encourage people to care and provide for themselves. We should foster the self-help culture. The Government are penalising the people who have provided for themselves through thick and thin, and who have wisely invested in shares to protect some of the value of their savings. The other argument that was advanced in Committee this year and last year was that those people could put their money into ISAs. If they were to do that, they would get a double whammy. Not only would there be an element of taxation on their share income in ISAs but, because the amounts involved are very small, the management charges for running those funds would eat into the net income or into the capital. One way or another, they would suffer greatly compared with the situation they were in before the Government came to power. Perhaps the Minister could tell us in passing what proportion of ISAs has been invested in stocks and shares and what proportion has been invested in cash ISAs. We could judge from that how successful the Government's new initiative has been. We have already heard the ghost of the hon. and learned Member for Dudley, North (Mr. Cranston) hovering over the debate. I remember the surge of optimism among Conservative Members during the Committee stage of last year's Bill when he addressed the Committee with enthusiasm, urging the then Paymaster General to make concessions. We thought that the Government were at last listening to the needs of the few as well as the mantras of the many. Unfortunately, however, that particular Paymaster General has disappeared from the scene. He has not been in the Chamber for quite a while. I fear that he has been sent to Coventry, if not to Coventry, North-West.

John Bercow (Conservative, Buckingham)

My hon. Friend presents an irresistible temptation. Does he agree that, at the end of the speech of the hon. Member for Croydon, Central (Mr. Davies), it was no clearer than it had been at the beginning whether he thought that the Solicitor-General had since experienced an apostolic conversion and come round to supporting the Government's view, or whether—secretly, and smothered in guilt—he still believed what he had said a year ago from the Back Benches?

Nick St Aubyn (Conservative, Guildford)

Unlike my hon. Friend and me, the Solicitor-General is a lawyer, and none of us really knows what he believes. I wish that he were here to tell us. In his absence, however, I think that the Financial Secretary owes us an explanation. Why have the Government stalled at the last fence? Why have they failed to treat this section of our community fairly? I feel that they should pause, and consider the negative signal that the measure will send to other savers.

Vincent Cable (Liberal Democrat, Twickenham)

I want to say a little about amendment No. 2, which Liberal Democrats tabled along with Conservatives. It relates specifically to discrimination between different kinds of income earned and unearned, and the 20p rate. Let me summarise what I consider to be the central reasons why that is an adverse development. The first reason has, in part, already been summarised by the hon. Member for Grantham and Stamford (Mr. Davies). It introduces a great deal of complexity into the system. We are talking not merely about the distinction between earned and unearned income, but about the distinction between different types of savings income. Different rates now apply to dividend and fixed-interest income; different rates apply to fixed-interest deposits, as opposed to annuities, which stem from another kind of interest income. There is no economic, equity-based or administrative reason for that; it just happened to emerge from a very complex, badly-thought-out piece of legislation. That is why we are pressing our amendment, which relates specifically to the certification process that will make things much easier for low-income pensioners. Another point has not been mentioned, although it is important. The Government have unintentionally reintroduced the old tax principle that unearned income is in some sense less worth while than earned income. It used to be a principle of taxation that those with rentier income were somehow less worthy than those who were working. That principle had been scrapped, but now it is returning in disguise. Although it may have been reintroduced unintentionally, it is very unhealthy, and not compatible with the ideas that I thought that new Labour stood for.

Quentin Davies (Conservative, Grantham and Stamford)

The hon. Gentleman is making a strong point. A case might be made for penalizing so-called unearned income, as opposed to earned income, and a case might be made for doing the opposite. At present, however, the Government are penalising unearned income at the bottom of the tax scale, and propose later, at the basic rate, to tax unearned income at a lower rate—dividends at only 10 per cent., and other savings income at only 20 per cent.—while taxing earned income at 23 per cent. That, surely, is complete madness.

Vincent Cable (Liberal Democrat, Twickenham)

The hon. Gentleman is right. The central issue of the debate is how the proposals affect people at the bottom end. I sense that the Government still have not appreciated the extent to which people who are otherwise very poor still depend on unearned income. The situation is quite common. We all have constituents in this position—for example, people who have not made the contributions that would entitle them to a state pension, and who therefore save. Because they have substantial savings, they will not qualify for income support, and their future retirement therefore depends almost entirely on savings income. Young pensioners in particular, and those whose allowances are particularly small—those who have retired prematurely, or have been made redundant—are being hit at very low levels of income by higher rates of tax. Therefore, the system does not merely discriminate against unearned income. As the hon. Member for Grantham and Stamford says, it particularly hurts poor savers. In that context, I say a word about dividend tax credits and the dividend problem. It has been referred to, but it is helpful to go over a little of the chronology. The hon. and learned Member for Dudley, North (Mr. Cranston) has been singled out. I was present in the Committee when he spoke. He has been perhaps unfairly singled out because he was speaking up for the colleagues who were around him. He was representing a genuine disquiet among Labour Members about what was happening. Indeed, that continued for many months afterwards. There was a widely circulated early-day motion, which was, I think, roughly equally supported in the three parties. I subsequently went to see the former Paymaster General with the hon. and learned Member for Dudley, North and the hon. Member for Bognor Regis and Littlehampton (Mr. Gibb). He was very accommodating and accepted fully that an unfair and unfortunate major anomaly had been created. He undertook to mobilise the Treasury's resources to try to do something about it. What was discreditable was not the fact that he was not able to something about it—there may have been genuine administrative difficulties in sorting out the problem—but that it took the Treasury six months to make up its mind to tell us. Its reply came through in a written answer to me; it was sneaked through six months later. Not merely the policy but the way in which the Treasury handled the matter subsequently was discreditable. In addition to all the other disadvantages of applying extra rates of tax to savings incomes, the provision is a further measure disadvantaging and discouraging personal savings. As the right hon. and learned Member for Rushcliffe (Mr. Clarke) has been sitting patiently during the debate, it is worth mentioning that he introduced a particularly popular and valuable form of personal savings called pensioner bonds. I was intrigued, as one of my constituents asked, how the returns on pensioner bonds had developed since he introduced them. It was clear not merely that the nominal return on the bonds had gradually declined over the past few years—I would expect that because inflation is lower—but that the real return on the bonds had been allowed to fall by about 2 per cent. Therefore, a popular form of savings is being devalued and we have increased taxation of savings. In the short run, that may not matter—the United States has much economic growth and deteriorating personal savings—but it cannot go on. A society cannot grow rapidly and in a sustainable way without healthy personal savings. In addition to all the unfairness that the tax change introduces, it undermines the fundamentals of our economy.

Desmond Swayne (Conservative, New Forest West)

I support new clause 3. I would have kept my peace but for being provoked to speak by the hon. Member for Croydon, Central (Mr. Davies). Otherwise, I would have relied on the eloquence of Conservative Members who have put the case solidly. The hon. Member for Croydon, Central refused to take my intervention, which was uncharacteristic because he is normally generous in taking interventions. However, I could see his difficulty, with the Government Whip shaking his head and telling him to refuse. The penalty is that he must now endure listening to me. The hon. Gentleman expounded a most peculiar argument. He seemed to suggest that it was all right to plunder the savings of the elderly, so long as Government policy was viewed in the round. Specifically, he cited the fact that those people would benefit from the minimum pension guarantee. It might have escaped his notice that the guarantee is not yet payable, yet elderly pensioners in my constituency have already lost the right to reclaim tax on dividends. As a consequence, while living on low incomes, they are paying tax where they were not paying tax before. That is what the new clause is designed to remedy. Labour Members might believe that people who have savings in the form of shares have developed a form of financial sophistication that makes it open season for such a tax increase. However, the lie to such sophistication is given by the number of constituents who are still writing to me to say that they have only just realised what effect the Government's proposals will have on them. That does not speak of great financial sophistication. 11.15 pm Labour Members might also think that, generally, people who have invested in shares are at the wealthier end of the income ladder. However, the most distressing letters that I have received on the issue are from those who admit that being able to reclaim tax paid on dividends makes a difference, not between wealth and poverty for themselves but between being able to afford small luxuries—such as Christmas presents for their grandchildren, or visits to their relatives—[Interruption.]

James Gray (Conservative, North Wiltshire)

The hon. Member for Shipley (Mr. Leslie) laughed.

Desmond Swayne (Conservative, New Forest West)

Labour Members may well laugh, but they might also recall that those are the very people for whom the Labour party—before it became new Labour, in pursuit of middle income and of those who are able, because of their income, to make donations to the Labour party—used to care.

John Bercow (Conservative, Buckingham)

The whole House will have noticed that the hon. Member for Shipley (Mr. Leslie) does not believe that pensioners should be able to buy Christmas presents for anyone—that is the scale of the scandal of his position. Nevertheless, does my hon. Friend agree that, when the hon. Member for Twickenham (Dr. Cable) said that the Government's handling of the matter was dishonourable, the one thing that he omitted to mention was that, today, the single most dishonourable aspect of the Government's handling of the matter is that the only currently serving Treasury Minister who served in the Finance Bill Committee when the matter was discussed is not in the Chamber to reply to the debate? I refer, of course, to the Paymaster General. Where is she?

Desmond Swayne (Conservative, New Forest West)

I entirely agree with my hon. Friend; he makes an important point. I am certain, however, that the dignity of age will change the views, and indeed the attitude, of the hon. Member for Shipley. Quite unacceptably, the hon. Member for Croydon, Central contended that it is perfectly acceptable to plunder the savings, and therefore the self-reliance, of elderly people, and to replace them with means-tested benefit. What signal does that send to generations yet to retire? What message does it send in respect of self-reliance? The hon. Gentleman went on to speak of the need to eradicate child poverty. Does he not realise that the tax that we are debating would be paid by children? Although I grant him that the tax is unlikely to be paid by children living in poverty—the nature of the arrangements that we are discussing are such that they are unlikely to be made for children by parents who are below the poverty line—I ask him to consider the fact that many parents have arranged for shares to generate income for their children precisely because those children will not be able to provide for themselves, as they are handicapped and their parents are worried about their future. They, too, will pay the tax, and their income will be affected by it. I hope that the hon. Gentleman will reconsider his earlier remarks and reflect both on their wisdom and the message on self-reliance that they have sent to the British people.

Barbara Roche (Labour, Hornsey and Wood Green)

The hon. Member for New Forest, West (Mr. Swayne) said that he was not going to speak but was provoked into doing so. I am in the same position: I was tempted not to speak until I heard his speech. I have never heard such arrant nonsense, although he is not alone in this debate. One would have thought that the Conservatives had not presided over record levels of child poverty when they were in government and that they had not introduced VAT on fuel—perhaps the most regressive measure to hit our pensioners; yet they have the temerity to pose as the party of the pensioner. That is nonsense. We have debated the issue time and again. That makes it all the more surprising that the new clause reveals a basic misunderstanding about the tax credit system and is fundamentally flawed. If the Conservatives really cared about the new clause, they would do their homework and get it right. Once again they have not done their homework, and not only can they not get the politics right but they cannot get the detail right either. The withdrawal of payable tax credits does not mean that non-taxpayers below the personal allowance threshold will suffer tax on their income. The tax credit has never represented tax deducted on behalf of the individual, and the payment of tax credits on dividends was never a repayment of tax deducted on their behalf. On the contrary, it represented a payment to non-taxpayers of tax that they had not borne in the first place—tax paid by the company. Effectively it was an income top-up. The withdrawal of the credit leaves the non-taxpaying shareholders in the position of having paid no tax on the dividends.

Quentin Davies (Conservative, Grantham and Stamford)

Will the hon. Lady acknowledge the reality, which is that someone who had £5,000 entirely from dividends to live on will now have £4,000? That is a catastrophic fall in income for someone who is not well off—very likely a pensioner.

Barbara Roche (Labour, Hornsey and Wood Green)

The hon. Gentleman should listen to what I am going to say about the total package. If he does, he will find out. Conservative Members have used the new clause as another opportunity to rehearse the well-worn arguments on the issue. Why did we make the change? We wanted to remove a distortion in the corporation tax system that encouraged companies to distribute their profits as dividends rather than reinvesting them in their business. Reinvestment is essential for growth in the economy, which we want to encourage. We know what the Conservatives did to our economy and we are determined not to see it repeated. [Interruption.] Conservative Members may shout. They do not like hearing the facts, but they are going to hear them this evening. Payable tax credits were abolished immediately for most companies and pension funds, but we recognised that there would be a period of change. By investing in the new individual savings accounts, individuals will be able to benefit for a five-year period from 1999 from the payment of a 10 per cent. tax credit on dividends from UK equities. I urge the House to reject the new clause. I understand the concerns raised by the hon. Member for Kingston and Surbiton (Mr. Davey) about the impact of the tax system on older taxpayers, but I am not convinced that his solution is the best way to deal with the problems. The aim of the proposed certificate for older taxpayers is that those on low incomes should be given assurances that they are outside the tax system, in particular to enable them to receive income without the deduction of tax at source. The present system achieves what the certificate is designed to do. Around two thirds of older taxpayers are outside the tax system. We are proud of that record. The package of Budget measures has taken a further 200,000 older people out of the system. Many of them have no reason to contact the Inland Revenue at all unless their circumstances change and their income rises.

Nick St Aubyn (Conservative, Guildford)

Is the Financial Secretary proposing that people with share savings should put them through an ISA? How much has been put into share ISAs compared to the amount put into cash ISAs since the scheme was launched?

Barbara Roche (Labour, Hornsey and Wood Green)

I would certainly not want to give advice. [Interruption.] The hon. Gentleman must learn to have some patience. I gave way to him, and I will be pleased to reply if he will wait. It is no surprise that, in the first period, the most money has gone into cash ISAs, considering that they were very much designed to appeal to those with little or no savings. I am delighted to tell the House that ISAs are a tremendous success and are proving very popular. I congratulate my hon. Friend the Economic Secretary to the Treasury on all the work that she has done.

Geraint Davies (Labour, Croydon Central)

Will the Financial Secretary give way?

Barbara Roche (Labour, Hornsey and Wood Green)

No—the hon. Gentleman had his chance. If he will forgive me, I have heard him at volume tonight. I gave him one chance. Obviously, the hon. Member for Guildford (Mr. St. Aubyn) is no longer interested in ISAs, as he is busy talking. However, for many poorer people, ISAs have been a great boon and we are proud of them. The £1 billion Budget package for older people included a new minimum tax guarantee for pensioners; and the age-related personal allowances were increased by up to £200, more than required by statutory indexation. [Interruption.] I am not surprised that Conservative Members do not recognise the importance of that minimum guarantee. It is certainly important for the majority of pensioners whom the Government represent. The proposal would have the effect of increasing the personal allowance for many lower income pensioners to £6,000 a year. As I have explained, the Budget package already includes generous increases in the age-related personal allowances. [Interruption.] I do wish that Conservative Members would cease chattering. The hon. Member for Kingston and Surbiton is entitled to a reasonable reply and that is what he will get. The idea of the certificate was put forward by the low incomes tax reform group. I can tell the hon. Member for Kingston and Surbiton that the Inland Revenue is holding discussions with the group about its ideas, and we are always willing to consider how the scheme might be improved. Savings income, such as bank and building society interest, is already taxed favourably. It is taxed at the lower rate of 20 per cent., rather than at the basic rate of 23 per cent., until it is of a sufficient size for the higher rate of tax to apply. As part of the reform of corporation tax, dividends are taxed at 10 per cent. up to the basic rate limit.

Geraint Davies (Labour, Croydon Central)

Why?

Barbara Roche (Labour, Hornsey and Wood Green)

I will tell the hon. Gentleman why—because one of the basic tenets of the Chancellor's Budget was to encourage work and enterprise and to help families. That is what we have done.

Geraint Davies (Labour, Croydon Central)

Will the Financial Secretary give way?

Barbara Roche (Labour, Hornsey and Wood Green)

No, the hon. Gentleman has had his chance. I noticed that he took no interventions. I have taken one from him and responded to a sedentary comment. The Conservatives' amendment, which was not costed, would cost the Exchequer an extra £1 billion a year. Once again, we see that the Conservative party is prepared to talk about public services without saying how it will spend public money. The Conservative party poses as the pensioners' friend, but it is no such thing. It is the party that in the past has undermined pensioners. I urge the House to reject the new clause.

CAPITAL ALLOWANCES: ROAD FUEL GAS

ROAD FUEL GAS

Michael Jack (Conservative, Fylde)

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

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

With this, it will be convenient to discuss the following amendments: No. 27, in clause 8, page 3, line 26, after 'centimetres,', insert 'a vehicle falling within subparagraph (1) of paragraph 1A, or a vehicle falling within subparagraph (1) of paragraph 1B,'. No. 28, in page 3, line 39, at end insert—

Michael Jack (Conservative, Fylde)

This debate gives us an opportunity to review the logic of the Government's proposals on vehicle excise duty and carefully to examine their credentials on the fiscal encouragement that they may be contemplating—[Interruption.]

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

Order. I am sorry to interrupt the right hon. Gentleman, but there is far too much background noise in the House. We are conducting a debate.

Michael Jack (Conservative, Fylde)

We have an opportunity also to consider the fiscal encouragement that the Government are giving to the use of fuels for motor vehicles, particularly liquefied petroleum gas, which have several environmental attributes to which I shall refer in a moment. I thank the Society of Motor Manufacturers and Traders and the Calor Group plc for their assistance in preparing material for the new clause and the amendments. I tabled them because the Government received support for their proposal in the Budget and the subsequent Finance Bill to introduce a new vehicle excise duty regime. They reduced the VED for cars of 1100 cc or less by £50, but increased the VED on all remaining vehicles by a counter-balancing amount so that the measure would effectively be tax-neutral.

Michael Fabricant (Conservative, Lichfield)

I am sure that my hon. Friend was not fooled, as so many were, into thinking that the Government were being generous in their dispensation. Is he aware that even as small a car as the Fiat Punto does not qualify for the 1100 cc lower vehicle excise duty dispensation?

Michael Jack (Conservative, Fylde)

I suppose that I should declare an interest: I have one of those cars, so I am entirely aware of my hon. Friend's point, with which I shall deal. The 1100 cc cut-off was chosen quite arbitrarily. Magically, one supposedly reaches a tax-neutral position by taking £50 from the VED of the 2.9 million vehicles affected, and adding £50 to the VED for other cars. It is intriguing, therefore, that in year one of the change announced in the Red Book, the Government gained £14 million. I tabled amendments on the VED, because in the press release issued at the time of the Budget, the Government said: New cars registered from Autumn 2000 will be subject to a VED system based principally upon their rate of carbon dioxide emission, to encourage the take-up of more fuel-efficient vehicles. I found it odd that they were jumping the gun on the outcome of their consultation document "Consultation on reform of Vehicle Excise Duty to ensure a cleaner environment", which was issued in November, although I do not disagree with such an objective. In paragraph 2.3 of that document, the Government say: The UK also has a domestic aim of cutting emissions of carbon dioxide, the main greenhouse gas, by 20 per cent. by 2010 relative to 1990. So, a clear environmental objective was stated right at the start of the consultation exercise. In paragraph 2.4, the Government go on to point out that Recently, a voluntary agreement has, however, been concluded between the European Commission and car manufacturers to reduce average emissions from new cars to 140 grammes of CO2 per kilometre by the 2008, a cut of about 25 per cent. on the current average". From the two statements, one would have thought that, at that juncture, the Government would have wanted to do all that they possibly could to encourage the take-up of fuels that will reduce carbon dioxide, and thereby encourage those who are to meet the remarkable voluntary agreement by 2008. As I shall demonstrate, my amendments give the Government an opportunity to encourage such developments over the next 12 months. They are entirely consistent with the Government's objectives in their consultation exercise. Amendment No. 29, which applies the introduction of the proposals to liquified petroleum gas, prays in aid the comment at the end of paragraph 2.5 of the consultation document. It draws our attention to the problems of fine particulates PM 10s, which have a demonstrated link with respiratory and cardiovascular disease, and to oxides of nitrogen, which can damage the lungs and play a part in summer smog episodes. Those emissions currently result from the use of petrol engines, which, as I shall demonstrate, are well tackled by the use of liquified petroleum gas. The amount of encouragement through the VED arrangements for the uptake of vehicles powered by such fuels is zero. It is the lack of consistency that persuaded me in the first place to table the new clause and the amendments. It is important to consider the detail because we then find that, of the 10 cars with the lowest carbon dioxide emissions, only five have an engine size of less than 1100 cc; the rest are diesel-engine vehicles. Secondly, the best performing vehicles have carbon dioxide emissions of between 129 and 139 g per kilometre. Current technology is already incorporated in some cars; they will meet the 2008 figure. Under the present VED arrangements, there is nothing fiscally to encourage the uptake of such vehicles. Cars with engine sizes of less than 1100 cc have carbon dioxide levels ranging from 129 g to a massive 172 g per kilometre. It is odd that the arbitrary use of 1100 cc means that the Government are encouraging vehicles with carbon dioxide emissions that are not at the top end of environmental friendliness; they are at the bottom end—if I can put the matter in terms of good and bad. An examination of the logic of the current VED proposals shows that they seem to encourage the wrong kind of cars. My amendments give the Government the opportunity to correct that damage. Although I have prayed in aid of my arguments the 2008 agreement of 140 g of carbon dioxide per kilometre, the amendments may encourage the Government to consider the fact that other cars are already in existence that perform markedly better than the 172 g that I quoted but whose engine size is above 1100 cc. The Ford Ka at 155 g, or the Nissan Micra at 151 g are two good examples of vehicles that might be encouraged. I shall not read out the exhaustive list of cars that meet the 140 g output—the subject of my amendments—but it includes the Peugeot 106 diesel, the Volkswagen 1.9 diesel mark 3, the Audi A3 diesel and the Ford Focus 1.8 diesel. Many other diesel cars, because of their relative fuel efficiency, already meet the 140 g output of carbon dioxide per kilometre. Sadly, however, they do not benefit from the Government's arguments on VED on cars with engines of 1100 cc or below. We should consider alternative fuels. I shall apply the same logic as I have already used, but to cars powered by liquefied petroleum gas. The reference to engine capacity is purely arbitrary; it does not take proper note of the logic of trying to encourage more environmentally friendly cars. Liquefied petroleum gas is good on carbon dioxide; it deals effectively with benzine emissions, which can cause particular health risks. It deals well with particulates and PM 10s, with sulphur dioxide, oxides of nitrogen and ozone emissions. I will not list all the medical benefits, but heart disease and respiratory problems will certainly be affected by a reduction in those emissions. In fairness, the Government are backing their own policy of encouraging the uptake of liquefied petroleum gas. I am advised that the Deputy Prime Minister drives a car that is powered by that fuel—as are most of the Government's car and despatch agency vehicles. Sadly, however, by the end of 1998, just under 8,000 vehicles were powered by that fuel source. I can think of two reasons why such an obviously environmentally friendly fuel has not enjoyed a greater uptake, and they are addressed by my amendments, which deal with the tax relief arguments. There is no well-established infrastructure for the refuelling of cars with liquified petroleum gas.

Tim Loughton (Conservative, East Worthing and Shoreham)

In past Budgets, the present Government gave specific tax incentives for the conversion of buses and lorries to use road fuel gases. Those incentives were not nearly sufficient because, throughout the country, fewer than 100 lorries and 100 buses benefited from them. The problem is not limited to cars.

Michael Jack (Conservative, Fylde)

My hon. Friend makes a telling and helpful point. In my view, if there was some fiscal encouragement to install the necessary infrastructure, more cars would be converted to use liquified petroleum gas. The second of my amendments would encourage the conversion of fleet vehicles to run on liquified petroleum gas. That fuel beats petrol and diesel on all of the polluting emissions that I mentioned except carbon dioxide. It is a very environmentally friendly and health-conscious fuel. Sadly, the Government appear to have missed a significant opportunity to start the process of encouraging the uptake of such fuel, and the development of the motor vehicle technology that would help to achieve the Kyoto targets by reducing damaging emissions earlier than agreed. For some reason—in my opinion, only to catch a cheap headline—the Government arbitrarily drew the line at 1100 cc. As a result, they have an inconsistent and illogical approach to their objective of encouraging cars that are more environmentally friendly. In the case of liquified petroleum gas, they have completely missed the opportunity to encourage earlier uptake among cars powered by that fuel. There is compelling evidence that the increased use of liquified petroleum gas would save more than £10 billion in health care and damage to the environment—especially by reducing particulate levels—by improving air quality. There would be many accompanying savings. My proposal is self-financing. Often, when we advanced perfectly respectable ideas to improve the Finance Bill, we were shot down in proverbial flames because they would cost money. However, I am now suggesting something that will save well in excess of its costs, which the Calor Group has calculated as a net figure of £607,000—the tax costs of encouraging the installation of the infrastructure for LPG. One company, Shell, has expressed willingness to install the infrastructure, but there is scepticism in the industry about how quickly that development will be made. The modest proposals that I am putting before the House tonight would effectively save far more money in preventing damage to the person and the environment than they would cost in tax terms. If the Government were to agree to my proposals this evening, it would be a worthwhile step on the way to achieving their objectives earlier than expected.

Michael Fabricant (Conservative, Lichfield)

I support the new clause so ably moved by my right hon. Friend the Member for Fylde (Mr. Jack). It gives the lie to the Labour Government's claims that the Budget is environmentally friendly. The fact that the arbitrary cut-off figure of 1100 cc generated a net income, in its first year alone, in excess of ¤40 million simply shows that it is yet another stealth tax, and is even more deceitful than the average stealth tax because it was introduced in the guise of being environmentally friendly. 12 midnight The new clause and amendments tabled by my right hon. Friend meet the Kyoto accord and follow on from the principles of the Rio de Janeiro summit, which was established by a former leader of the Conservative party and Prime Minister, Lady Thatcher, who is now in another place. She established the conference in Rio de Janeiro and was instrumental in setting the targets that other Governments seek to follow. The vehicle excise duties set up in the Budget do nothing for achieving these targets. As my right hon. Friend has already asked, why have the Government, instead of saying that there should be a cut-off point of 1100 cc, not specified a cut-off point that is related to the emission of particulates or carbon dioxide? Why, for example, have they not encouraged, as has the republic—that is the right way to put it—of California, the introduction of catalytic converters to Californian standards, which can reduce the emission of carbon dioxide to less than 110 g per kilometre. There is—[Interruption.] The Secretary of State for Scotland says from a sedentary position that it is typical that I do not mention British—[Interruption.] I give way to the right hon. Gentleman. I did not understand or hear what he said.

John Reid (Labour, Hamilton North and Bellshill)

I said that California has excluded almost all British cars. Is he suggesting that we do that here?

Michael Fabricant (Conservative, Lichfield)

The right hon. Gentleman raises an interesting point. If the Government, instead of carping, understood a little about emissions—not from their mouths, but real emissions—and a little about industry, and introduced standards that would reduce the emissions of carbon dioxide, British cars would not be excluded. They are excluded because they do not meet Californian emission standards, and they should. We should aspire to those standards in the United Kingdom and not mock them. The Government mock them because they do not understand. When my right hon. Friend the Member for Fylde was talking about 140 g per kilometre, I could see the eyes of Labour Members glazing over. They did not understand. They are innumerate. They understand only pound signs, stealth tax and the spin to try to make out that the measures that they are taking, which are primarily to raise tax, are designed to produce a cleaner environment, They are trying to misguide the population. They will not produce a cleaner environment by such means. We have a chicken-and-egg situation with regard to liquefied petroleum gas, which is a very clean way of generating power for motor vehicles. However, my right hon. Friend the Member for Fylde will be the first to concede that using LPG reduces the power output of a vehicle by about 20 per cent. The real reason why there are so few cars using LPG is that despite the best endeavours of companies such as Shell, there are only 14 outlets in the United Kingdom selling it.

Michael Jack (Conservative, Fylde)

Is my hon. Friend aware that the question of loss of power output has been more than addressed? That has been ably demonstrated by the fact that one of the leading cars in the Vauxhall Vectra racing category happens to be powered by LPG.

Michael Fabricant (Conservative, Lichfield)

I am interested to hear that. I believe that the Volvo, which is the only commercially available car that has a device to enable it to use non-leaded fuels and LPG, loses 20 per cent. of its power when switched to LPG.

Lindsay Hoyle (Labour, Chorley)

The hon. Gentleman may not be aware that a very good British car—the Vauxhall Vectra—has such a switch.

Michael Fabricant (Conservative, Lichfield)

I am pleased to hear that. Like the hon. Gentleman, who is a powerful advocate for British industry, and particularly British Aerospace, I would like to see the British car industry doing well and exporting to California. May I say how shocked I was that the right hon. Gentleman the Secretary of State—I might say my right hon. Friend—should think for one moment that I would not wish to see British cars exported to California. If the Government were truly interested in the emission of particulates, carbon dioxide and other pollutants, they would focus on the emissions, rather than setting arbitrary sizes of car engine.

Richard Page (Conservative, South West Hertfordshire)

I hope that my hon. Friend will develop the argument and explain to the House why the Government have banned the production and licensing of gas-powered electricity stations, as opposed to letting them continue with coal power, which produces far more emissions and environmental damage.

Michael Fabricant (Conservative, Lichfield)

My hon. Friend is right. Although carbon dioxide is extremely dangerous and damaging to the environment—we have all heard of the greenhouse effect—he knows that the power stations fuelled by oil and by coal produce sulphur dioxide, which is an even greater pollutant. One can use as many cleaners as one likes in the emission chimneys; the emission of sulphur dioxide is still damaging, and is in breach of the Kyoto and the Rio de Janeiro targets. Let us not be confused or beguiled by the Government's weasel words. The Government are not interested in ensuring that our environment remains safe for the generations that will follow. If they were, they would tax emissions. Instead, they tax the size of the engine. They tax it to the tune of £40 million in net gain this year—as I said, yet another stealth tax. By how much will that increase in years to come? The world will get warmer and warmer, and become more and more polluted. We will have a car industry that still cannot sell into California, as the Secretary of State for Scotland said from the Treasury Bench, because in California people are truly concerned about their environment, so they are concerned with output and emissions. I should have liked the Government to give real tax incentives for experimentation in the use of liquid hydrogen, which has not yet been developed in this country. Liquid hydrogen is one of the cleanest forms of fuel for the internal combustion engine. The sole emission of liquid hydrogen is steam.

Richard Page (Conservative, South West Hertfordshire)

Is it not explosive?

Michael Fabricant (Conservative, Lichfield)

Liquid hydrogen is less explosive than petrol. Before we all get carried away with diesel, may I point out to my right hon. Friend the Member for Fylde that it is in many ways dirtier than non-leaded petrol. Whereas non-leaded petrol can produce long-term pollution of the environment, diesel with its particulates is particularly known for causing asthma, especially in schools located near main roads. I ask the Government to consider the amendments tabled by my right hon. Friend. I wait with interest to hear how the Government justify their claim that the original measure was an environmentally friendly move. Even if they deny that it would raise £40 million for the Revenue, will they not come clean and say at least that it was yet another example of Labour spin?

Tim Loughton (Conservative, East Worthing and Shoreham)

I support my right hon. Friend the Member for Fylde (Mr. Jack) and new clause 10. At the outset, I should declare an interest. A few months ago, together with the hon. Member for Peterborough (Mrs. Brinton), I was given a spin round Brands Hatch in the aforementioned Vauxhall Vectra at 116 mph. When we got out, my make-up was rather less smudged than hers. The car certainly revealed no loss of power compared with petrol-driven racing cars. It is the only liquified petroleum gas-driven racing car in the world and I gather that it is currently second in the league tables. There is certainly no difference in that respect.

Michael Fabricant (Conservative, Lichfield)

Is not a larger engine required and is not fuel consumption therefore greater?

Tim Loughton (Conservative, East Worthing and Shoreham)

No. My hon. Friend the Member for Lichfield (Mr. Fabricant) was right when he said that this is a chicken-and-egg problem. I do not want to go into the environmental and health benefits of road fuel gases, as my right hon. Friend the Member for Fylde has done, but the problem is that there are only about 135 points of service for road fuel gases even though this country has about 19,000 service stations. There are difficulties with access. There is an LPG service station in my constituency, but there are no others for miles around. The key to the success of LPG—and, indeed, of compressed natural gas—is infrastructure and making tax concessions to create that infrastructure. Installing an LPG pump at the average service station costs in excess of £30,000; installing the infrastructure to enable compressed natural gas to be pumped costs much more. The key to the installation of such pumps is businesses realising that there is a market for the product and the key to that market is company car fleets. About one car in 10 in this country is a company car, but 50 per cent. of all new cars are company cars. We need to give tax incentives for company car fleet operators to convert their cars to road fuel gas or to buy road fuel gas-driven cars in the first place. At the same time, we need to give tax incentives to the manufacturers of those cars so that they will produce them at rates that are competitive with those of the diesel and fossil fuel-driven cars about which we have heard so much. One of the few measures that we welcomed in the Budget was the 29 per cent. reduction in taxation on road fuel gases. We found out about it only in the small print and it was a great shame that the Government did not sound off about it rather more. That good measure followed another good measure that was introduced by my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) in a Budget about five years ago. He reduced the duty on road fuel gases by 25 per cent. Not enough has been done despite those two, proportionately large moves being made. The duty on road fuel gases in this country is still higher than in any other European Union country. Certain European countries, such as Belgium, do not tax road fuel gases or LPG at all. We need to make a bold move on taxation—not only on fuel duty, but to enable people to install the pumps and the infrastructure necessary to make such products available. Getting sales of unleaded petrol off the ground was a great success of the previous Government. They succeeded only because they made a bold move—slashing the duty on unleaded fuel—and because such fuel was readily available in service stations. A new pump head had to be put on the same sort of tank and, in many cases, people had to put an extra widget on to the engine—a 30-minute job. However, the job is far more substantial on road fuel gas-fired vehicles, which is why tax allowances are required to speed things up. The industry would tell the House that it needs at least a five-year stability plan to show that the Government, whoever they are, are committed to promoting tax incentives and much wider use of road fuel gas-fired cars.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I generally agree with what the hon. Gentleman and his hon. Friends are trying to do. Does he agree that other clean fuel technologies, such as fuel cell technologies, should also be promoted by the tax incentives he proposes?

Tim Loughton (Conservative, East Worthing and Shoreham)

I entirely agree, but those technologies are still some way off. In fact, 100 per cent. tax allowances are available in some circumstances, including for equipment for scientific research to develop technologies. We need immediate action to promote the use of road fuel gases over the next few years. The Kyoto targets are not many years off, and by the time that new technology comes in, it will be too late to achieve them. By promoting the use of road fuel gases, we would increase the residual value of cars. Dual fuel-driven cars are a current option, but conversion is much more expensive. If drivers are guaranteed to be close to a pump using road fuel gases, the costs will be brought down, and there are also economies of scale. Grants are available from the Energy Saving Trust for conversion, but such cars would be cheaper if the fuel were more readily available. There are also implications for noise pollution. Companies such as the John Lewis Partnership and Safeway have converted or bought vehicles that operate on LPG because they are quieter as well as more environmentally friendly, which enables deliveries to shops in residential areas at anti-social times. They can reach the shops more quickly, avoiding adding to the traffic congestion that costs British industry so much. The new clause would give more of a kick-start to the greater use of road fuel gases than merely reducing duty. It is no use reducing the duty on fuel if people cannot get the stuff. Manufacturers and operators of petrol stations will not make a capital commitment unless they are convinced that there will be some payback over, say, five years. New clause 10 sends a firm message to the industry that change will not cost much in the short term, but will have an enormous payback in the medium term, not only in revenue, but in savings from the promotion of the health of the nation.

Nick St Aubyn (Conservative, Guildford)

I support the new clause tabled by my right hon. Friend the Member for Fylde (Mr. Jack). I apologise for not having been here to hear him move it, but I watched his progress carefully on a television monitor. During the Committee stage, I, too, proposed the encouragement of the use of liquid petroleum gas. One of the key movers of that project, the British Oxygen Company, is based in my constituency. Everyone involved in the project welcomed the reduction in duty rather quietly announced after the Budget, but was concerned that it was not enough. We need more petrol stations providing road fuel gas outlets. In Committee, we heard startling statistics about how far one might drive by filling up with LPG. Of course, it depends on how big the car's tank is, but we need many more LPG outlets if the idea is to take off. A car converted to LPG requires expensive charges for substantial checks that it is roadworthy. Cars carrying the new fuel must be safe, and the cost of the fuel tank is another hurdle in the way of wider use. The basic cost of tanks is perhaps between £500 and £1,000, but safety checks add greatly to the cost, wiping out the benefit of Government grants. I urge the Minister to give that some thought when she responds to the debate. If this conversion is to happen it will require further research. I regret the fact that the hon. Member for Peterborough (Mrs. Brinton) is not present. During the Committee, her thoughts were rather skimpy, to say the least, and tonight, they are not to be had at all. That is regrettable, because the heart of the research into LPG engines is at Perkins Engines in Peterborough. That company was the subject of a serious takeover bid, and it is well known that its new owners are reviewing whether this research project should go ahead. The comments of Ministers about the LPG project, and about what they are prepared to do to encourage the infrastructure without which the project will not succeed, could have a serious effect on the viability of the research programme and on the willingness of the new owners, Caterpillar, to invest in the project. That would affect employees in Peterborough, and it would have a knock-on effect on employees at BOC in my constituency, and all that it has invested in the project so far. BOC has converted its vehicles to run on LPG, and many other firms are looking into that. A firm in Cranleigh in the southern end of my constituency takes cars around the country for those who wish to travel by air. It is the air equivalent of motorail. If someone is flying up to Edinburgh, instead of putting his car on the back end of a train, he leaves it at Gatwick airport, where it is put with others on the back of a trailer and driven up to Edinburgh overnight. His car is ready for him when he arrives at his hotel in the morning. For the modern business traveller who uses his car as a mobile office, this is a tremendous saving, because he arrives without the hassle of having to drive all that way.

Richard Page (Conservative, South West Hertfordshire)

I suggest that my hon. Friend recommends to his constituents that they take a hire car in Scotland. That would probably be a lot cheaper.

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

Order. I suggest that we come back to the matter in hand.

The rest of the debate is in Hansard.