Orders of the Day — Finance Bill

House of Commons, 3 May 2000.

CHARGE AND RATES FOR 2000–01

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I rise to oppose clause 31, not only because the Liberal Democrats reject the clause, but because we reject the Government's whole strategy on the nation's income tax system. We want to use the debate both to focus on our long campaign for more investment in our schools paid for out of income tax, with which I shall deal later, and to argue that the Government's whole approach to the personal tax system lacks a coherent strategy. The Government need to go away and think again. They should not be given statutory cover to collect income tax in the coming year unless Ministers produce on Report a new clause or clauses that address three issues. First, they must revisit their policy of never raising the basic rate of income tax. The Government might say that that was an election pledge, but they did not pledge to cut income tax, which they have done, thus depriving our schools, hospitals and public services of much-needed funds. They should reject that policy, not only in the context of funding public services, but in the context of managing the economy—to enable investment to be made at a time when the economy is growing quite strongly. Secondly, we believe that the Government need to go away and think about how they are adding unnecessary complications to the income tax system. They promised to simplify that system, but they have done the opposite. That lays unnecessary burdens on business and on individuals, especially those who have low incomes, who are least able to understand the complexities of the system and least able to afford professional advisers to help them to fill in their tax return. Thirdly, we believe that Ministers must design the income tax system to help to produce a fairer society. The l0p tax rate set out in the clause is a gimmick. Without more serious reform of the tax system, at the bottom and at the top end of the scale, we shall not produce the sort of social justice that Labour talks about, but has done far too little to bring about. So, there are three major charges of failure in the approach to the income tax system that the clause fails to put right. I shall start with the charge that the Government are obsessed—in the way that the Conservatives were—with cutting the basic rate of income tax. There are three reasons why Liberal Democrats oppose the cut proposed in the clause. The first is our belief that more resources should be made available to schools. The Government's record on investment in education is very poor. They promised—this was a pledge in their election manifesto—that Education will be our number one priority, and we will increase the share of national income spent on education as we decrease it on the bills of economic and social failure. However, assuming a spring or early summer election in 2001, the amount spent on education as a proportion of national income will have fallen by the end of this Parliament. On current projections, that spending will be 4.6 per cent. of gross domestic product compared with 4.7 per cent. in the last year under the Tories and 5 per cent. for the whole of the previous Parliament. How can the Government claim to be delivering on their education pledges when there will be a reduction in the amount that they have made available? The Government claim that they are providing a huge largesse of £19 billion in the first comprehensive spending review, but when one looks at that figure and takes account of inflation and of double and triple counting, one finds that the figure falls to a mere £6.1 billion. When one strips out the permissions to spend, which are not real resources provided by central Government, the figure falls to just £3 billion. That is not sufficient. It is outrageous for a Government who say that education is at the top of their agenda to be spending more in the coming financial year on income tax cuts than on extra resources for our schools. I have visited primary and secondary schools since the Budget asking how they look on the extra cheque that they have received from the Secretary of State for Education and Employment. Of course they welcome any extra funding—who would not?—but that money is filling the deficits that they have run up. It is not providing any new resources such as more books and teachers. That is not the sort of investment that people expected the Government to provide. It is no wonder that class sizes are going up. The Government talk about reductions in class sizes for five to seven-year-olds, but the average class size in secondary schools is now higher than at any time in the past 20 years—failing education. We find that schools are having problems recruiting teachers and that the number of teacher vacancies has risen by 15 per cent. since last year-47 per cent. higher than in 1997. Are the Government happy with that? Why are they not putting resources into that key area? In a survey by The Times Educational Supplement in January, seven out of 10 parents said that they were prepared to see income tax increase in order to fund improvements in schools. The people—the electorate—are saying to the Government that they have their priorities wrong in putting income tax cuts above the future of our children. The second reason why we are against the income tax cut in the clause is that it constitutes irresponsible economic management. On Budget day and in the Red Book, the Chancellor tried to pretend that he was not giving so much to public services and that there was not any extra money. He was trying to massage the figures so that they appeared lower by making them opaque. Although an extra £9 billion-worth of public spending is planned not for this coming financial year, but for the year after, the Chancellor was not happy to announce it. Why? The real reason why he was not prepared to sing the praises of the ability to find that extra money—we believe that it was an achievement—is that he was worried about how the markets would react to greater public expenditure. The markets are of course right to be worried about a loosening of fiscal policy represented by public expenditure increases that are not covered by taxation. That is why income tax plays a crucial role in managing the economy. If, as we believe, vital investments are needed in our schools, colleges and universities, and if that is constrained by the markets' perception of the management of the economy—the fear that fiscal policy is becoming too loose—it is surely right not to cut income tax in such an economic climate. One must ensure that the extra expenditure to be directed into our schools will be covered by taxation. It is a political and economic choice, which the Government are failing to make. The third reason why we are against the income tax cut is that we believe that the Government are being dishonest about taxation. In fact, they have raised the tax burden substantially in this Parliament, but it is pointless to look for changes in the personal tax system to see where that increase has occurred. There has been no open, honest, up-front approach to raising taxes. The Government have found 101 wheezes, through indirect and corporation taxes, to hide the increases in the tax burden. That is plain dishonest. The Government ought to be making the political case for extra investment in our public services. They should not rely on stealth taxes, as the Conservatives are right, in part, to criticise the Government for doing. We believe that that devalues the vocabulary of politics, and that the Government should be more honest and use the income tax system to achieve their objective.

Nigel Beard (Labour, Bexleyheath and Crayford)

I thank the hon. Gentleman for giving way. He says that more tax should be raised for public services. How much more? The Liberal Democrats always make the case for raising expenditure, but what is the limit? It seems to be an indefinite amount.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

The hon. Gentleman seems not to have seen the alternative Budgets that we publish every year. They set out our public expenditure plans in detail, covered by taxation. Of course, there is a limit on the amount of tax that can be taken from our electors.

Nigel Beard (Labour, Bexleyheath and Crayford)

What is the limit?

Edward Davey (Liberal Democrat, Kingston and Surbiton)

In each year, the amount will be different. That follows the logic of my argument.

Nigel Beard (Labour, Bexleyheath and Crayford)

What is the amount this year?

Edward Davey (Liberal Democrat, Kingston and Surbiton)

We published our alternative Budget this year, in which we stated that we would not go ahead with the 1p cut that is the subject of the clause, and that we would direct the resources into education, which would have meant up to £3 billion more going into education than the hon. Gentleman's Government are putting into our schools, colleges and universities. He should come over to our point of view, if he believes that education should be the top priority. The second reason why we oppose the Government's income tax strategy is that they are making the system far too complicated. The complexity that they are introducing has a real cost. In the business sector, the compliance costs are going sky-high, particularly for small businesses. In the personal income tax system, the costs, which are more difficult to measure, are high on individuals. It appears from the clause that the income tax system is not particularly complicated. Three income tax rates are set out, which look relatively simple. However, when one takes into account the various income tax changes that the Government are making, one finds that there are six effective direct tax rates in the tax system. There is a 10 per cent. effective tax rate, a 20 per cent. rate, a 33 per cent. rate, a 23 per cent. rate, a 46.66 per cent. effective tax rate and a 40 per cent. tax rate.

John Burnett (Liberal Democrat, Torridge and West Devon)

Let us not start on capital gains tax.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

My hon. Friend is wise to say that, as the rates are even more complicated. Just in terms of income tax, the Government have made the tax system far too complicated. Many people—small businesses, representatives of pensioner groups, the various tax professional bodies—are perturbed by what is going on. They see the tax system as an asset of this country, and realise that it needs to be managed carefully. By making it more complicated, one reduces and devalues the asset. In an era of self-assessment, when we should be moving in the opposite direction, the Government are making a huge error by complicating the tax system. 4.45 pm First, the Government should reduce the number of rates. They could start by cutting the 10p rate to 0 per cent., paying for it with a higher rate on incomes above £100,000. People on those higher incomes can afford the professional advisers to assist them in filling out the forms, but pensioners and others on lower incomes cannot. If the Government want complexity, better that it should be at the higher than at the lower end. That would mean that we could simplify the Finance Bill by doing away with clause 32, which introduces a l0p rate on income from savings. The Government could also look again at a proposal that I made during the Report stage of last year's Finance Bill to help pensioners with no income tax liability who, under current legislation, are required to fill out self-assessment forms. Thousands of pensioners who are not liable to income tax have to worry about tax returns and the Government have to pay for the bureaucracy. It is ludicrous that the Government should be making the tax system more complicated. The Government should also push ahead with some of the reforms contained in the Taylor report which the Government rightly commissioned in their first year in office. That report considers how to integrate national insurance contributions with the income tax system. However, the Government have implemented only some of the reforms suggested by Mr. Taylor and his colleagues.

John Bercow (Conservative, Buckingham)

The hon. Gentleman is right to inveigh against the Government for the tax system's increased complexity, but I hope that he will not use that as a cloak to advocate higher income and other tax rates, given that the Liberal Democrats' notion that a 1p increase in the basic rate of income tax as the means by which to finance all their spending commitments has been comprehensively discredited. By how much does the hon. Gentleman believe that the top rate should be raised, and what overall increase does he propose in the already burdensome level of business taxation?

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I am rather surprised by the hon. Gentleman's intervention. He usually follows what is said with great care and does his homework with respect to other party's policies, but in this case he has failed to do so. I just mentioned that we advocated a 50 per cent. rate on incomes above £100,000, and I told the hon. Member for Bexleyheath and Crayford (Mr. Beard) that, before the Chancellor's Budget, we published an alternative budget detailing all our tax proposals. The hon. Gentleman should pay more attention. If the Government want to tackle the problems of complexity, they should consider some of the proposals from bodies such as the Institute of Chartered Accountants, which asks that some principles should underlie the direction of income tax and personal tax policy more generally. Its recent document contains 10 tenets and argues for a code of fiscal simplicity, perhaps to go alongside the Government's welcome code for fiscal stability, setting some real objectives to ensure that, year on year, the overall tax system is made more comprehensible for the ordinary personal taxpayer and the compliance costs for the personal sector are reduced.

John Burnett (Liberal Democrat, Torridge and West Devon)

Liberal Democrats will doubtless praise parts of the Finance Bill. On the whole, we are pleased to see the advent of the tonnage tax. But is my hon. Friend surprised that the Finance Bill has 44 pages on the introduction of the tonnage tax?

Edward Davey (Liberal Democrat, Kingston and Surbiton)

My hon. Friend makes a good point. We debated that matter at some length on Second Reading. The Bill is littered with extra complexities. My point on clause 31 is that the Government are not reducing the complexity of the income tax system. They promised simplicity, but they have failed to deliver that. I shall outline my final reason for our opposition to the clause. The Government have argued long and hard, before and after the general election, that they believe in social justice. They argue that their reforms of the tax and social security systems are meant to promote social justice. Yet clause 31 provides for a tax cut, which will benefit the richest 20 per cent. of our population fifty times more than the poorest 20 per cent. A 1p cut in income tax gives far more to the wealthiest in our society. Perhaps it would be more acceptable if the Government had accompanied it with some sort of package to help the poorest pensioners and those who are less well off. However, the cut is accompanied by an increase of 75p a week in the basic state pension. It is therefore not surprising that pensioners throughout the country are incredibly dissatisfied with the Government. They do not believe that the Government are fulfilling the promises that they made to pensioners at the last election.

Bill Rammell (Labour, Harlow)

To clarify matters, will the hon. Gentleman remind us of the Liberal Democrat commitment in the party's general election manifesto on raising the basic pension? Was not it to increase the basic pension in line with prices—that is, by 75p a week?

Edward Davey (Liberal Democrat, Kingston and Surbiton)

Again, I am surprised that hon. Members have not read our most recent publication, which is our alternative Budget. The proposals in the current Finance Bill were not in the Labour party's manifesto; all our current proposals did not appear in our manifesto. Time moves on. I am more than happy to take on the hon. Member for Harlow (Mr. Rammell) about that subject. Liberal Democrat Members and our colleagues on these Benches are determined to push the case for pensioners and for an increase in the basic state pension that is far greater than a measly 75p a week. Large increases should be made in the pensions of the most elderly people, the over-75s and the over-80s. We should target resources at the most elderly people, who need our support.

Bill Rammell (Labour, Harlow)

Will the hon. Gentleman give way on that point?

Edward Davey (Liberal Democrat, Kingston and Surbiton)

No, I shall not. Let us consider the wider community. The Government claim that the lop tax rate, which the clause reaffirms, somehow helps the lowest paid. Yet every independent commentator, from the Institute for Fiscal Studies to the Institute of Chartered Accountants, can readily show anyone who is able to do basic arithmetic that cutting the 10p rate to 0 per cent. and setting a larger personal income tax allowance directs far more resources at the lowest paid. Again, the Government make a political mistake. They take the rhetoric of the Conservative party and play a political game with our income tax system. If they were more interested in social justice, they would focus resources, not rhetoric, on the lowest paid.

John Bercow (Conservative, Buckingham)

Despite the hon. Gentleman's rude remarks about me, I always enjoy listening to his speeches. A few moments ago, he said that relatively well-off wage earners had access and a desire to use accountants' services to minimise their tax burden. What assessment has he made of the likely use of those accounting services as a result of the proposed introduction of his 50 per cent. top rate, which would damage the tax take? While he deals with that point, will he confirm that because he believes that any cut in the basic rate of tax always disproportionately benefits higher wage earners, regardless of the basic rate of tax, he would always oppose any reduction in it?

Edward Davey (Liberal Democrat, Kingston and Surbiton)

It has never been the Liberal Democrats' position to oppose any reduction in income tax. The key issue that we must debate as politicians is the balance between tax and expenditure and whether we believe that the people we represent have the services that they want. If the hon. Gentleman asked his constituents who use the health service and the state education system, and have to rely on the police services and the emergency services whether they were satisfied with public services, the answer would probably be no. We need to invest in the public services to achieve the quality that exists in some of our continental neighbour countries and other parts of the western world. There is appalling underinvestment in some of our public services. Public servants are trying their very best to provide quality services and, because the previous Conservative Administration and the Government have failed to make that investment, my party favours putting investment ahead of tax cuts.

John Bercow (Conservative, Buckingham)

Raising taxes.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

We would not proceed with the cut from 23 to 22 per cent. under the clause. I do not think that I could make that clearer for the hon. Gentleman. He also mentioned the accountancy profession. It advocates some of our policies, which would make the tax system far simpler. If they could be implemented, the relatively few taxpayers who would have to face the 50p rate that we propose would not present a problem. Liberal Democrats reject the clause. We ask the Government to reconsider their income tax strategy and introduce proposals that would deal with the issues that we have discussed this evening: the need to ensure that investment in public services is put ahead of tax cuts; the need to make our tax system more comprehensible, simple and easy to use for the average citizen in an age of self-assessment; and to produce an income tax system that promotes social justice.

Andrew Welsh (Scottish National Party, Angus)

I agree with much of what the hon. Member for Kingston and Surbiton (Mr. Davey) says on a better general approach to fairer taxation and a proper rate of public investment. The debate is about three issues: the Government's approach to taxation and our tax structure in general, the proposed income tax rates and the balance between tax rates and public spending. On the tax structure, there is little doubt that there has been a shift towards indirect taxation by the Government. According to research from the Institute for Fiscal Studies, more than 40 per cent. of the changes in the Chancellor's previous Budgets were made to indirect taxation. As hon. Members will know, indirect taxation is regressive; it hits those on lower incomes disproportionately harder. What the Chancellor gives with one hand—for example, the welcome increase in child benefit—he takes away with the other in indirect taxes. The Government should pay particular heed to another element of the IFS report, which showed that changes in indirect taxation have had the most pronounced effect on those in lower income groups. The lowest income decile has lost almost 2.5 per cent. of its net income, compared with a 0.7 per cent. reduction for those in the highest income group. The Scottish National party asks the Chancellor to consider reversing the trend of holding a Dutch auction on income tax funded by stealth tax hikes towards making the tax structure fairer and more transparent. The SNP recognises the need for a clear strategic shift of the tax burden from indirect to direct taxation methods. Such a review is necessary to consider new ways in which to promote transparency, accountability and simplicity in the tax system. The Bill continues a dishonest tax policy, which was largely introduced by the Conservative party, but, like so much else, is now enthusiastically embraced by new Labour. The Government are trying to deceive taxpayers with a 1p cut in the basic rate of income tax on one hand and billions of pounds of invisible, indirect taxes on the other. However, I am happy to report that recent by-election results show that, in Scotland at least, the voters are becoming wise to that trick. In Hamilton and Ayr, they made it clear that the time has come for Labour to start delivering its election promises and that they are frustrated by the Government's failure adequately to address the core issues—health, education and poverty. The message, which I pass on to the Government, is that spin is not enough; substance is required. The people of Scotland are making it clear that their priorities are for new resources for our public services, which have suffered from more than 20 years of under-investment. We in the SNP have nailed our colours firmly to the mast of fair taxes and real investment in vital public services. Today, I simply repeat our opposition to the needless cut in the basic rate of income tax proposed in the clause. 5 pm Our public services are still in need of substantial investment, and, although the spending increases announced in the Budget were welcomed by the SNP, they are insufficient to deal effectively with the significant problems affecting our crumbling schools, hospitals and infrastructure. The additional spending must be seen against a backdrop of spending cuts in the first three years of this Labour Government. Health spending in Scotland is due to increase by £173 million next year, but let me put that in context. Scottish hospitals are expected to be £50 million in deficit by the end of the current financial year, and nearly all trusts are expected to miss their waiting-list targets for this year. The Government's higher-than-inflation pay rises must be found from already stretched NHS budgets at a cost of some £449 million a year, which means that the additional money will just about allow the health service in Scotland to stand still, never mind move forward and provide improved services. In fact, it was reported today that Scotland's only heart transplant unit may be forced to close. According to the Secretary of State for Scotland, Scotland will receive £86.6 million of the additional £1 billion announced for education next year. That should be seen in the context of the cuts that Labour has imposed at local authority level. Next year, local authority education funding will be £540 million lower than it was even in the last year of the Conservative Government. All that stems from the Government's taxation philosophy, and the policies that they are imposing. Any increases in education spending will be swallowed by cuts already imposed on our schools. A total of £15.9 million is being allocated to Scotland's transport. That, too, must be seen against a backdrop of cuts in the transport budget, which next year will have £100 million less than it had in the last year of the Conservative Government. Scotland's road infrastructure clearly needs more investment. For example, full implementation of the strategic roads review in Scotland would cost £800 million a year, and the much-needed rail link between the Scottish borders and Edinburgh would cost £30 million. In short, this is not a time for tax cuts. Spending in Scotland as a percentage of gross domestic product is even lower than when the Conservatives were in government. That is not what those who voted Labour in Scotland expected, but that is what has been delivered. Our pensioners must make do with a pathetic 75p increase in state pensions, and local authority budgets are being slashed year after year. The Government are pursuing a Tory tax-cutting agenda, at the expense of our nation's public services. What is required is a longer-term strategy much more suited to Scotland's actual needs, and built on a fairer, more open, accountable tax system—something that this new Labour Government, and the Budget in particular, do not deliver. There will be a cost to the Labour party in future years.

Richard Ottaway (Conservative, Croydon South)

There could be no clearer contrast between the approaches of the Scottish National party and of the Liberal Democrats. Although I did not agree with a word of what was said by the hon. Member for Angus (Mr. Welsh), at least I was clear about what he stood for. However, when the hon. Member for Kingston and Surbiton (Mr. Davey) was asked what I considered a perfectly clear question—how much more would the Liberal Democrats like to be done in terms of public expenditure and taxation?—we were given no clear answer. The hon. Gentleman said repeatedly that we should know about that, because it was in Liberal Democrat manifestos and other publications. I must confess that I have never seen a Liberal Democrat Budget proposal, a Liberal Democrat manifesto or a Liberal Democrat policy document. Perhaps the Liberal Democrats will include me in their distribution lists in future, so that I have some idea of what they are talking about.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

The Liberal Democrats publish their alternative Budgets at press conferences, which are often attended by a gentleman from Conservative central office. Can the hon. Gentleman tell us when, during the present Parliament, the Conservative party has published its tax and spending proposals as the Liberal Democrats have, and what spending cuts the Conservatives propose to meet their tax guarantee?

Richard Ottaway (Conservative, Croydon South)

We have not published a tax and spending programme. We will do so before the next election, but one thing is for sure: we will campaign on a tax-cutting agenda because, if a party has the will and commitment to cut taxes, it can do so. That is what will differentiate the Conservative party from the other three parties that are represented here today.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

Which of the public expenditures will the Conservative party cut to pay for those tax cuts?

Richard Ottaway (Conservative, Croydon South)

First, I do not accept that we have to cut spending to cut tax. Secondly, we will let the hon. Gentleman know in due course and with absolute clarity exactly what our plans are. He said that the Conservative party was obsessed with tax cuts. Frankly, it is a worthy objective to reduce taxation.

Nigel Beard (Labour, Bexleyheath and Crayford)

Why is tax cutting such a worthy objective if it puts in jeopardy the national health service and state education for the coming generations?

Richard Ottaway (Conservative, Croydon South)

I do not accept that we have to reduce expenditure on the health and education services to cut taxes. It is a worthy objective because Britain lives in a competitive world and, as we will find out in the next debate on IR35, it is Britain's competitive position that creates the prosperity that pays for the health service and education.

Nigel Beard (Labour, Bexleyheath and Crayford)

When the hon. Gentleman's party was in government, it pursued an economic policy of competing internationally on the lowest costs. The present Government's policy is to compete through high added value and a highly skilled population, which demands high spending on education.

Richard Ottaway (Conservative, Croydon South)

I do not quarrel with that, but I do quarrel with the hon. Gentleman's assumption that the previous Government worked on the lowest possible cost. That is not true and he does not have the evidence to prove it. Basically, at heart, those who oppose the clause want the Government to tax more and to spend more. That is the clear position of both parties. The hon. Member for Angus accused the Government of engaging in a Tory tax-cutting agenda. Nothing could be further from the truth. The Committee would benefit from examples of tax-raising measures since May 1997. In the July 1997 Budget, mortgage tax relief was restricted to 10 per cent., stamp duty was increased for property transactions of more than £250,000 and payable tax credits on dividends were abolished. It introduced the windfall tax, abolished relief for private health insurance for the over-60s, increased road fuel duties by 6 per cent. in real terms, and tobacco duties by 5 per cent. in real terms. The 1998 Budget abolished advance corporation tax and introduced the quarterly payment of corporation tax, restricted the married couple's allowance to 10 per cent. from April 1999, increased stamp duty again for property transactions of more than £250,000, increased tobacco duties by 5 per cent., and road fuel duties by 6 per cent. and advanced the date of the road fuel duty increases. The 1999 Budget abolished the married couple's allowance for the under-65s from April 2000, abolished mortgage tax relief, increased insurance premium tax from 4 to 5 per cent., increased stamp duty for property transactions of more than £250,000, increased tobacco duties by 5 per cent., and road fuel duties by 6 per cent. It advanced the date of the tobacco and fuel duty increases, extended employers' national insurance contributions to all taxable benefits in kind from April 2000 and increased company car taxation. This year's Budget increased tobacco duties by 5 per cent. in real terms, increased stamp duty on property transactions over £250,000, introduced the aggregates tax from April 2002 and increased tax on wine by more than the rate of inflation. There have been no fewer than 26 tax increases since the 1997 general election, so the next time that Labour Members start hollering about 22 tax increases—most of which are fabrications—under the previous Government, I suggest that they take a close look at my list and the 26 tax increases over the past three years.

Geraint Davies (Labour, Croydon Central)

Will the hon. Gentleman give way?

Richard Ottaway (Conservative, Croydon South)

No—[Interruption.] I did not catch what the hon. Gentleman said.

Geraint Davies (Labour, Croydon Central)

I thought as much.

Richard Ottaway (Conservative, Croydon South)

I am pointing out that the Government can reduce income tax by 1 per cent. only because they have imposed 26 other tax increases. I did not give way to the hon. Member for Croydon, Central (Mr. Davies) first, because he has only just entered the Chamber and secondly, because every time I have given way to him, what he has said has been total and absolute rubbish, so it is not worth giving way to him.

Geraint Davies (Labour, Croydon Central)

You are a small man.

Richard Ottaway (Conservative, Croydon South)

I am a bigger man than you.

Richard Ottaway (Conservative, Croydon South)

Of course I bow to your wishes, Mr. Lord. The list of taxes that I have just read out provides transparency in respect of the 1 per cent. reduction in income tax. The Liberal Democrats and the SNP have got what they wanted. They have got tax increases and increased expenditure, so it is nonsense for them to oppose the clause. For the same reason, we shall not oppose it tonight.

Dawn Primarolo (Labour, Bristol South)

In responding to this brief debate, let me turn first to the comments of the hon. Member for Kingston and Surbiton (Mr. Davey). I was not surprised that the hon. Gentleman does not agree with the Government as, presumably, if he did agree with us, he would be on the Government side of the Chamber, changing things, instead of sitting on the Opposition side of the Chamber, dreaming of irrelevancies. The hon. Gentleman went on about complexity and fairness, so I would remind him of a few points. He talked about complexity causing problems with the system and about self-assessment. Only 9 million out of 28 million taxpayers pay through the self-assessment system. He was not suggesting that everybody should complete a self-assessment form and he recognises that most people do not. He then complained about the complexity of the system and proposed that we should introduce a 50p rate of tax for income over £100,000 and that that would fund a zero-rated band rather than the 10 per cent. band in the clause. The Liberal Democrats and the hon. Gentleman who spoke on their behalf cannot complain about complexity and say that the tax system confuses people and then make such a proposal. It is difficult to see how a new rate of tax in addition to a personal allowance would make the system easier to understand. The hon. Gentleman then said that, if the 1p reduction were part of a package of measures in respect of fairness and help to the low-paid, perhaps the Liberal Democrats would take a different view. I shall return to that point. The hon. Gentleman also said that the system should be fairer for pensioners. As I think that he will know, four out of 10 pensioners are able to pay tax. I think that he will also agree at least on the point that the Government should focus first on the poorest households. The Government's measures are dealing with precisely that point. 5.15 pm The hon. Gentleman then prayed in aid 10 points on simplification of the tax system, and discussed whether we should have tax exemption certificates particularly for pensioners. We have considered carefully both that idea and the points that have been made. We have also acted on many of those points. However, I do not know how a tax exemption certificate could offer more than is already available. Pensioners who do not have to pay tax on their gross income are already able, when registering a savings account, to receive interest gross. Exemption certificates would seem to require such pensioners not only to have to apply for an exemption, but to supply more information. How would that make the tax system simpler? How would it remove complexity? I also remind the hon. Gentleman that the changes that the Government introduced in July 1999—taking precisely the type of action that he and other people have advocated—removed 200,000 pensioners from self-assessment.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

Can the Minister tell the Committee how many pensioners who are not liable for income tax are still being required to fill out income tax self-assessment forms?

Dawn Primarolo (Labour, Bristol South)

I do not have that precise figure to hand. I am sure the hon. Gentleman did not really expect me to have it, but was simply making a debating point. Although I think that he will find that that information is available, I shall, nevertheless, in the tradition of the House, ensure that he receives it, if he does not already have it. The hon. Gentleman then said that we need a strategy to help those who are in the lower-income bracket. However, the Government's proposals are part of a package aimed at achieving precisely that objective. The package includes the working families tax credit—which Liberal Democrat Members have opposed and voted against every time the House has considered it—the national minimum wage, and the national insurance reforms. Additionally, the Government are examining precisely how best to tackle the issue of child poverty. Hence—as will be debated later today—we are introducing the children's tax credit; from next month, increasing the working families tax credit child rate; and developing the new integrated child credit. As the hon. Gentleman will know, because of the changes made in the Government's Budgets to date, by April 2001, 1.2 million children will have been lifted out of poverty. The hon. Gentleman is therefore trying to focus on a tiny piece of the Government's strategy, simply to repeat Liberal Democrat Members' usual mantra, "Give us 1p." Then, the hon. Gentleman and the hon. Member for Angus (Mr. Welsh)—whom I shall deal with later, in relation to health and education in Scotland—suggested that the Government's taxation policy is regressive. The suggestion is ridiculous. Because of our policies, a single-earner family on average earnings with two children will be £2,600 per year better off. A family with one full-time worker will be guaranteed an income of £214 per week—which is more than £11,000 per year. Introduction of the 10p band will halve the marginal tax rate of 2.7 million people who are on low incomes. Moreover, as I said, our measures will lift 1.2 million children out of poverty. The hon. Member for Kingston and Surbiton then said that it would be better to increase the personal allowance than to introduce the 10p rate. That demonstrates yet again the total confusion of the Liberal Democrats—they tell us that we must not give too much to those on higher incomes, while advancing a policy that would do that. In isolation, increasing the personal allowance would give the biggest cash gain to the highest payers, a point which the hon. Gentleman does not accept. The hon. Member for Angus presented, if he will forgive me for saying so, the economic strategy of the Scottish National party worked out on the back of a fag packet, revealing yet again that the SNP's approach to taxation is to raise tax without considering the basis on which the economy is moving forward. The hon. Gentleman complains that Scotland does not receive its fair share of expenditure. Spending per head in Scotland is some 22 per cent. higher than in England—well above the United Kingdom average. Spending on health is 24 per cent. higher than in England and spending on education is 28 per cent. higher. The allocation of extra resources is based on the population and the allocation of resources between England, Wales and Scotland. Spending on health in Scotland is £1,197 per head; in England, the figure is £963. Spending on education in Scotland is £840 per head; in England, the figure is £636. So for the SNP to advance the argument that somehow Scotland is getting a bad deal from the Union is typically fanciful and untrue.

Andrew Welsh (Scottish National Party, Angus)

What is spent per head of population is only one way of measuring public spending. The Minister is continuing an old Tory tradition—Michael Forsyth tried the same game, but when he investigated it further, he found out that, when looked at in the round, spending worked out basically the same. Under-investment in the health service over decades has led to a massive problem in Scotland. Health trusts are running at a deficit, there are cuts and closures, and local government is again underfunded this year. What the Minister says may sound clever in this Chamber, but it will not sound so clever on the doorsteps when she and her colleagues have to face the electorate who are dealing with the effects of her policies.

Dawn Primarolo (Labour, Bristol South)

I agree with the hon. Gentleman that 18 years of Tory Government left our health, education and public services with massive under-investment. The scale of the task that the Government face in reversing that is truly phenomenal. The economic policies pursued by this Government are turning the tide. The Budget gives an immediate boost of £1 billion to education, and an increase of £2 billion in national health service spending. Health spending is to increase by more than 50 per cent. over the five years from the beginning of the comprehensive spending review, from £45 billion in 1998–99 to £69 billion in 2003–04. if the hon. Gentleman is saying there is still a long way to go, Labour Members agree with him, but, instead of undermining our economic policy, he should be considering its elements and how to ensure investment in public services and economic prosperity.

Andrew Welsh (Scottish National Party, Angus)

rose—

Dawn Primarolo (Labour, Bristol South)

I am coming to the end of my remarks, and I have dealt with the hon. Gentleman's points, so I hope that he will forgive me for not giving way again. This is supposed to be a debate about clause 31. The clause imposes income tax for the year 2000–01. It sets the rates for income tax at 10 per cent. for the starting rate, 22 per cent. for the basic rate and 40 per cent. for the higher rate. It implements the commitment of my right hon. Friend the Chancellor in his 1999 Budget to cut the basic rate of income tax by 1p. We have introduced a range of measures to make work pay better and to encourage people into work. We have cut the basic rate, benefiting 24 million taxpayers. The provision implements the measures already in place to help those on low incomes, such as the starting rate for income tax, national insurance, the working families tax credit and the national minimum wage. Cutting the basic rate cuts the marginal tax rate for the majority of employees. The introduction of the 10 per cent. starting rate halves the marginal rate for 2.7 million people. Of course we are not cutting taxes at the expense of public services, as both the hon. Members for Angus and for Kingston and Surbiton suggested. My right hon. Friend the Chancellor announced in his Budget the largest-ever increase in national health service resources. We are providing for a 35 per cent. real-terms increase in national health service spending over the five years from the beginning of the first comprehensive spending review, including the additional £2 billion for this year. On top of all of that, this Government are spending £7 billion per year extra on support for children—to lift children out of poverty by 2001. This is a Government who keep their promises, who have an economic strategy, and who can balance economic fairness, growth in prosperity and investment in public services. This is a Government who cannot be challenged on those points by Opposition Members. I commend the clause to the Committee.

PROVISION OF SERVICES THROUGH INTERMEDIARY

Richard Ottaway (Conservative, Croydon South)

This debate is about IR35 and its introduction. The Government entered office in 1997 on the back of a clear general election victory. They had the support of almost every age group, both sexes, the professional classes and, most important, the business sector. In my judgment, the influence of the business sector played a crucial role in the Labour party's victory. The small business man and the self-employed had much to look forward to. After all, the Labour party's business manifesto said: A new Labour Government will give Britain's entrepreneurs and small businesses the backing they deserve. What do they get in response? They get IR35. Not content with raising the burden of taxation on business by £5 billion a year, a £5 billion regulatory burden, a complete revamp of double taxation relief costing billions and imposing national insurance contributions on share options, the Government now want to clobber the heart of Britain's high-tech industry with IR35 at a cost of £900 million a year, which is a heck of a lot for Britain's self-employed to pay.

Michael Fabricant (Conservative, Lichfield)

My hon. Friend is perhaps falling into the trap of at least giving credence to the idea that it was the Labour Government's idea to introduce IR35. Is he aware that the Treasury suggested that IR35, or its equivalent, be introduced in the early 1980s, in the late 1980s and then the early 1990s, but the idea was rejected three times by Conservative Chancellors of the Exchequer? They knew the effect that it would have on high-technology companies in the United Kingdom.

Richard Ottaway (Conservative, Croydon South)

My hon. Friend is right. We opposed IR35 because of its impact on the flexibility and operations of labour markets, and I shall make that point later. At least the leopard does not change its spots. In the 1960s, the Labour party nearly brought the economy to its knees and, in the 1970s, it tried to tax the service sector into oblivion. Now in the 1990s, as the high-tech era lifts off, it wants to hit those who make such a large input to the sector's success. Not content with treating the self-employed with contempt, the Government do it with offence. They accuse Britain's entrepreneurs of "disguised employment" as though they were somehow cheating. The Government fail to recognise that the world is changing. Labour patterns and methods of doing business are changing. Highly skilled staff no longer stay with employers for long periods. We have an increasingly mobile work force and trying to tax them in such a way will inevitably lead to difficulties. For decades, the self-employed have worked through service intermediaries. They form a business with themselves as its main asset.

Michael Clapham (Labour, Barnsley West and Penistone)

Is the hon. Gentleman suggesting that an employee of an intermediary who works for a client and is under the control of a client and therefore engages as an ordinary employee would engage, should have benefits over and above those available to the employees of the client?

Richard Ottaway (Conservative, Croydon South)

I am grateful for that intervention. I am certainly not suggesting that and, what is more, it would not be the case. As I shall shortly point out, the self-employed caught by IR35 will still be worse off in terms of the benefits that they receive. The self-employed work through intermediaries not, as the Government would have us believe, to avoid national insurance contributions, but primarily because it is the most sensible way to arrange their affairs. It helps with the establishment of offices at home, with the purchase of specialised equipment to carry out their job and with travel and accommodation expenses. The Government, with a complete lack of vision, accuse such people as though they were somehow cheating the public. The very opposite is true. Contractors do not get such a good deal; they often do not receive such good benefits as the employed personnel with whom they work. If I can have the attention of the hon. Member for Barnsley, West and Penistone (Mr. Clapham) for a second, the Inland Revenue has confirmed that, even under IR35 and despite paying class 1 contributions, the self-employed will still not be entitled to rights such as sick pay and holiday pay and, what is worse, they will not be entitled to unemployment benefit when they are not contracted. In short, it is pain without gain. The national insurance element is being dealt with by delegated legislation shortly to be taken in Committee and against which the Conservative party has prayed in early-day motion 657. The other half of the Government's attack are the rules subjecting intermediaries to schedule E taxation. They are contained in schedule 12 and will be introduced by the clause that we are debating.

Geraint Davies (Labour, Croydon Central)

Will the hon. Gentleman give way?

Richard Ottaway (Conservative, Croydon South)

No, I will not. In simple terms, the rules governing the employed—

Dale Campbell-Savours (Labour, Workington)

On a point of order, Mr. Martin. We have just heard a remarkable response from the hon. Member for Croydon, South (Mr. Ottaway). In Committee on the Floor of the House, we give way.

Michael Martin (Deputy Speaker, Glasgow Springburn)

Giving way is—[Interruption.] Perhaps the hon. Member for Workington (Mr. Campbell-Savours) will listen to my response. He might learn something. Giving way is up to the individual Member. It is not for the Chair to decide whether a Member should give way.

Richard Ottaway (Conservative, Croydon South)

I recognise the courtesies to which the hon. Member for Workington (Mr. Campbell-Savours) refers. I would give way to 658 Members. It happens that in the past the hon. Member for Croydon, Central (Mr. Davies) has intervened with offence. As a result, I will not be giving way to him. I shall continue with the debate, and the important subject of IR35, which will attack many people.

John Bercow (Conservative, Buckingham)

Will my hon. Friend consider adding to his list of Members to whom he does not intend at any stage to give way the hon. Member for Workington (Mr. Campbell-Savours), who has just had the chutzpah to accuse the Opposition of defending tax dodging? He has therefore subjected 60,000 hard-working IT professionals to a calumny.

Richard Ottaway (Conservative, Croydon South)

I am grateful to my hon. Friend the Member for Buckingham (Mr. Bercow). I would certainly give way to the hon. Member for Workington (Mr. Campbell-Savours). We do not agree with him on this side of the Chamber, but we treat him with respect. I shall return to IR35. In simple terms, the rules governing the employed and the self-employed are being changed. The self-employed person who looks as though he might be employed will be treated as employed, and will have to pay tax and national insurance contributions as an employee, not as a self-employed person. Expenses incurred in running a business will be taxed as income, and a mere 5 per cent. of turnover will be allowed as a genuine business deduction. That is not taxation of Britain's self-employed; it is discrimination against Britain's upwardly mobile work force. Those who will feel it hardest will be the high-tech sector, which is the sharp end of British industry. They are the people whom Britain can least afford to lose. I shall quote from the Electronic Telegraph. A software engineer at an aerospace-related corporation preferred to remain anonymous because his contract is not yet completed. When it is, he plans to work with a German partner, or possibly an Italian. He said: The Government is creating a brain drain like the one that happened in the 60s. Software is a peculiar thing which has produced a good income for Britain and lots of spin-offs but lots of other countries like Germany are not very good at it. He thinks that they will become good at it, and so take trade away from Britain, in addition to the tax loss from losing high-income experts. Another example is Mr. Steven Weaver, who says that he is ashamed to say that I voted for this business hostile Government…I have no wish to remain in a country that punishes enterprise instead of encouraging it. My company turned down six months' further work in the UK implementing e-commerce systems for our major telecommunications company, entirely because of IR35. At the general election, Alan McRae was a Labour voter. He said: I spent three months and about £50,000 of my company money to try to develop a marketable item of hardware. IR35 will stop this kind of enterprise. Under the new rules, I could not afford to work here. My outgoings in travel and living costs will be swallowed up in two months under the 5pc ruling for expenses. So he moved. In his case, the total take to the Government is now zero. I shall take another example. Would Laetitia Caster, the model chosen to represent the symbol of the French Republic, La Marianne, have come to the United Kingdom if she had known about IR35? She almost certainly works through a personal service company, and she ran away from France to avoid 54 per cent. tax, but found that she would have to pay 52.2 per cent. tax here. It comes as no surprise to find that when she arrived and saw what was going on, she quickly announced that she would not be resident in the UK for tax purposes.

Nigel Beard (Labour, Bexleyheath and Crayford)

Can the hon. Gentleman suggest a motive for people to leave full-time employment and set up a personal service company other than tax evasion?

Richard Ottaway (Conservative, Croydon South)

The hon. Gentleman must consider the complexities of the issue. Many of the self-employed incur expenditure on the tools of their trade, particularly in the high-tech sector when they buy computer equipment. Under the self-employed rules, that expenditure is tax deductible, but under IR35 it is not. Many people therefore prefer to be self-employed so that they can at least count expenditure on the tools of their trade as tax deductible.

Desmond Swayne (Conservative, New Forest West)

I worked in the industry, and for most people it is not a question of giving up employment because most jobs are project-driven and contract staff are required, so more often than not full-time employment is not an option.

Richard Ottaway (Conservative, Croydon South)

My hon. Friend is right. As I was saying earlier, we have a mobile work force, and work patterns are changing. Fewer people are employed as regular staff for a long period. Individuals move frequently and are subject to a wide variety of circumstances.

Nigel Beard (Labour, Bexleyheath and Crayford)

I understand the point that people who are employed on a casual basis may have a greater reward than those who are employed on a regular basis, but that should be given in their salary or payment. Why should it be given through the tax system?

Richard Ottaway (Conservative, Croydon South)

It is not a reward. Any business is entitled to tax deductions for its operations, such as capital allowances for large corporations. The Government are saying that if people are caught by the IR35 rules, their expenditure cannot be tax deductible, particularly if it is more than 5 per cent. That is perfectly straightforward.

Dale Campbell-Savours (Labour, Workington)

There is one simple point that I cannot understand. Why should people want to relieve themselves of tax liability when the United Kingdom has some of the lowest income taxes in the whole of the developed world? Even the Tories kept telling us that in the last Parliament, and taxes are lower now.

Richard Ottaway (Conservative, Croydon South)

The hon. Gentleman misunderstands me: people are not trying to relieve themselves of taxes; they simply do not want to be taxed on the turnover of their business.

Dale Campbell-Savours (Labour, Workington)

Some people say that it is tax evasion.

Richard Ottaway (Conservative, Croydon South)

It is not evasion; that is illegal.

Dale Campbell-Savours (Labour, Workington)

It is avoidance.

Richard Ottaway (Conservative, Croydon South)

Avoidance is a much better word.

Michael Fabricant (Conservative, Lichfield)

I am grateful to my hon. Friend for giving way because I am conscious that he has faced a barrage of interventions. He mentioned tax relief on the purchase of equipment, but he should also make it clear that if the clause is passed, IR35 will mean that people will be unable to claim tax deductions for expenditure on travel and accommodation when they go out to seek work but are unsuccessful. That is a disincentive to go out and seek work.

Richard Ottaway (Conservative, Croydon South)

My hon. Friend is right, although he should be careful to note that the Inland Revenue has issued guidelines about what is self-employment and what is employment. As far as I can tell, the old rules are being changed, although how that interacts with case law is not yet apparent. Perhaps we shall explore that in the Standing Committee. The point applies to people who are caught by IR35 because they are considered to be employed. The Government say that the self-employed have nothing to fear from IR35, but how do we know whether someone is genuinely self-employed? As I said, the Government's guidelines will tell us, but those guidelines are applied by the Inland Revenue, which finds out who is self-employed by checking every single case. That is not means-testing, it is a witch hunt. Every person who thinks that, according to the Government's guidelines, he may be self-employed has the right to ask the Inland Revenue for verification. The Inland Revenue has let it be known, however, through leaks, that if someone is unsure whether they are self-employed, it will almost certainly tell them that they are employed. That means that a subjective judgment is made by the official considering the case. In two test cases put forward by the Professional Contractors Association, the two people in question were doing the same job, and one was told that he was employed and subject to IR35, and the other was told that he was self-employed and therefore not subject to it. What sort of encouragement to British industry is that? Someone may invest in equipment only to find that no tax relief is available. The uncertainty will be devastating to the high-tech sector, and it is no wonder that people are up in arms about IR35 and fleeing abroad. It is no wonder that Australia abandoned a similar scheme because of its complexities and the difficulty of introducing it.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I have been listening carefully to the hon. Gentleman and agree with almost every word. Does he agree that it is absurd to introduce a system that requires small businesses to check every contract with the Inland Revenue? Is not that bureaucracy gone mad?

Richard Ottaway (Conservative, Croydon South)

The hon. Gentleman is right. When, only a few weeks ago, the Australians realised how complex their scheme, which was very similar, would be, they abandoned it. Concerns have been expressed not only by the industry and Members on both sides of the Committee but by the Minister for Small Business and E-Commerce. She went to the United States to try to woo ex-pats back to this country, but considering the chaos that IR35 is about to cause, who in their right mind would want to return? It is not only Conservative Members who are saying that the Paymaster General is wrong, but her fellow Ministers. As usual, however, she refuses to listen. The good news is that part of the Government have got the message. They announced yesterday that the time taken to process work permit renewals is to be cut to three months to help Britain to compete for overseas specialists in areas such as information technology. The Department for Education and Employment press release said: The processing time for work permit renewals is to be slashed by up to three months following the introduction of a new renewal system…by the Education and Employment Secretary David Blunkett. The move, together with new measures arising from the work permit review, will particularly help IT employers to address skills shortages. It continued: The modernisation measures include: a fast-track work permit route for employers in recognised shortage sectors, such as IT. The press release's notes to editors said: Examples of occupations on the fast-track applications route are included in Annex A. That annexe includes analyst programmers, software engineers, database specialists and IT managers. Part of the Government has got the message that there is a shortage of IT staff. The press release also said: We are listening to the needs of employers, and we are giving them what they need. I only hope that the message gets through to the Treasury.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

Will the hon. Gentleman speculate on whether that is an example of joined-up government or shambolic government?

Richard Ottaway (Conservative, Croydon South)

It is completely disjointed government. I hope that the Paymaster General will address the issue. Chamber debating banter aside, this is a serious issue because one Department is pushing a programme that is in complete opposition to what the Treasury is doing. Germany is seeking to recruit IT workers from India. The United States is introducing a high-tech Act, which will come into effect on 1 October. That will allow the US to increase the number of visas for IT consultants coming to the country by 200,000 over three years. I hope that the Paymaster General will get the message that there is a shortage of IT workers around the world. Yet the Treasury, in its obsession about so-called fair taxation, is driving IT specialists out of the country as fast as other Departments are trying to woo them in, and believe me, they have plenty of places to go. 6 pm We now have a battle between Departments and between nations. We have the case of Mr. Richard Marriott, who says that, although the Government claim to favour small business, they are pouring weedkiller on the seed-bed of enterprise. He is a specialist computer consultant and is moving to New Jersey to avoid IR35. Stuart Ranson, a programming consultant, was worried when Labour came to power, but returned from an overseas contract none the less. Now, they have finally driven me away— says the programming consultant, now in Holland. He adds: It was totally as a result of IR35 and the uncertainty. I object to being taxed at 52 per cent. and being called a tax cheat. I cannot save any money in my company for the times when I don't get work and the 5 per cent. expenses allowance doesn't go anywhere near to covering the cost of hardware, training, accounting and legal expenses.

Dawn Primarolo (Labour, Bristol South)

Before the hon. Gentleman digs himself into an almighty hole, I thought I might mention that, in the United States of America, IR35 rules are in force: someone earning £55,000 gross will have net earnings of £37,000, but, of course, has to pay health costs. There are also service company rules in the Netherlands: someone earning £55,000 will take home £29,000.

Richard Ottaway (Conservative, Croydon South)

The hon. Lady thinks that that is a reason to introduce IR35, but that is entirely in opposition to the vision of the Conservatives. If those are the conditions in the Netherlands and the United States, why does she not abandon the measure and so get IT consultants to come here and meet the requirements of the Department for Education and Employment?

Dale Campbell-Savours (Labour, Workington)

Did the hon. Gentleman already know what my hon. Friend the Paymaster General has just told him?

Richard Ottaway (Conservative, Croydon South)

I shall be candid: no, I did not. However, the point is that we live in a competitive economy and we have to compete against other countries. It has been recognised that there is a shortage of IT consultants in this country, and we are going to have a problem unless we can attract more of them here. Introducing IR35 is not the way to do that.

Nigel Beard (Labour, Bexleyheath and Crayford)

Is the gist of the hon. Gentleman's case that there is a shortage of computer industry workers, some of whom have gone abroad, so we should try to attract them back by making tax dodging easier?

Richard Ottaway (Conservative, Croydon South)

I am merely saying that we should leave the tax system as it has been since it was started, not introduce the new measure. That is not to make tax dodging easier. The Government must reassess their attitude to professional contractors in this country. They do not recognise that the use of freelance contractors provides businesses with skills that are not available in-house. They do not recognise that many contractors became freelances as the result of experiencing redundancy in their middle years and realising that they stood little chance of regaining permanent employment because of changes in working practice and age barriers. They do not realise that a limited company provides the only reasonable way in which to compensate for contractors' lack of job security. We support the Government in their objective of achieving fair taxation, but a system of taxation must be workable and the Government must be aware of its consequences. However, there are plenty of flaws in the Bill. Let us take the case of a professional musician who plays at a recording session in the morning, does a solo at a memorial service at lunchtime, rehearses in the afternoon with a group of friends with whom he occasionally fulfils engagements, and performs in the evening with his main employer, the orchestra with which he has a regular contract. The system is simply not workable in such cases: is the Revenue going to insist that four separate contracts apply? For Ministers to defend such a ragbag of nonsense is bare-faced cheek and lacks credibility. One need only read a little further into the legislation to discover an even bigger nonsense. Paragraph 4 of schedule 12 extends the legislation to partnerships where the worker, as an individual or in combination with relatives, is entitled to 60 per cent. or more of the profits of the partnership. Its definition of relative refers to "husband or wife" and some other relatives. However, paragraph 21(4) states: For the purposes of this Schedule a man and a woman living together as husband and wife are treated as if they were married to each other. We have a double first. Hon. Members will have noted that the legislation does not apply, for example, to homosexual couples. We know that the Government are hostile to marriage, but that is the first time that common law relationships between a man and woman have been recognised in the tax system, and the first time that homosexuality has been treated as an exception under legislation. The Government must state whether that is intended or an oversight. It is clear that the measure has been introduced in a rush. As I said, the Conservative Government rejected it several times as unworkable and liable to erode Britain's competitive position and to destroy labour market flexibility, but the current Government clearly do not have the vision to recognise the implications. IR35 is a turnover tax which creates uncertainty. It is being introduced with minimum consultation, and those representations that were made have been ignored. We should ask whether it will produce the revenue that the Revenue expects or hopes for. A leading computer specialist, Gurcharanjit Sian, told the Electronic Telegraph: IR35 will cause the biggest brain drain since the 1970s when Labour taxed the rich until the pips squeak. Because of the large scale emigration, the estimates of extra tax revenue will also be wrong. The amount of tax my business and I paid last year was enough to finance a couple of Minister's salaries with some change left over for servicing a Jaguar. This year the amount of tax I pay will be nil. His emigration will mean that we lose his e-commerce expertise to another country. In addition, he is recruiting 100 Britons with similar expertise who have been hit by the same rules because they have similar businesses; they will go abroad with him. Mr. Sian adds: We have no British car industry left due to old Labour. Tomorrow there is a danger we will have no British e-commerce industry left either, due to new Labour. I conclude with the arguments advanced by Mr. Alan Broke, a former president of the Chartered Institute of Taxation. In last year's Hardman lecture, he suggested: most complexities come about when politicians depart from the objective of raising enough revenue to cope with their spending and insert measures that have nothing to do with raising revenue but everything to do with trying to engineer social change. All the evidence suggests that tax systems are spectacularly unsuccessful at doing this. However, that does not deter politicians from trying. I could not have put it better myself. The legislation is muddled. The measure breaches Labour's manifesto commitments, it is a bureaucratic nightmare, it erodes Britain's competitiveness, it will lead to a brain drain and it will not raise the revenue that the Government hopes for. The Government should delay implementation to give them time to reconsider the damage they are causing. That is why we shall vote against the clause tonight.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I associate the Liberal Democrats with many of the remarks made by the hon. Member for Croydon, South (Mr. Ottaway). We shall vote against the provision because it is extremely pernicious and damaging to British industry's long-term wealth creating sector—the e-commerce sector. The Government came to power saying that they would champion the knowledge economy, and we have heard many speeches and read many publications in which they have said that they want to back the knowledge economy, the IT industry and e-commerce. However, the measure goes in precisely the opposite direction; it is a huge own goal for which our economy will pay dearly if the Government do not take the opportunity to change their mind. I could recount the saga of the shambles that the Government have created, but I shall not detain the House for too long exploring every detail. When the Chancellor of the Exchequer made the initial announcement in the 1999 Budget, the system was even dafter than the current proposals. We had an accreditation system, which would have placed responsibility on the client in various contractual relationships. The system was a nightmare and belatedly, in September, the Government were forced to do a U-turn on many of the original proposals. That U-turn was forced on them as a result not only of lobbying by the industry but of hard work, particularly by my hon. Friend the Member for Twickenham (Dr. Cable), whom I congratulate. He worked very hard with Members on both sides of the House in lobbying the Treasury to back down. Unfortunately, in its announcement of 23 September, the Treasury failed to go far enough. It has helped some groups in the IT industry. It has helped the large companies and larger partnerships which earn millions of pounds a year, but it has not helped the small business or contractor or the sole trader. In failing to help the small business, the Treasury has again misunderstood the nature of the new economy and how the IT sector works. The IT industry is very competitive and innovative, and relies on the small business—the one, two and three-person business—to generate the drive forward. Technology changes the parameters of the industry every three months; every month, there is a change. One cannot rely on larger companies and partnerships to remain on top of that. One needs the small business and the one-person contractor to provide the innovation and drive behind the new business. In failing to understand that, the Government have shown their ignorance of the way that the economy of this country and of the developed world is going.

Nigel Beard (Labour, Bexleyheath and Crayford)

I am following the hon. Gentleman's argument, but I do not understand why he seems to believe that someone who is employed in a major company in a particular role should be able to leave to set up a personal service company—for all sorts of reasons; perhaps for some of those that have been mentioned—and enjoy tax or national insurance privileges as a result. Surely the hon. Gentleman is arguing that there should be neutrality on either side of the boundary.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

The hon. Gentleman raises the issue of whether there is tax avoidance and abuse of the system. I think that all parties agree that some abuse has occurred. The question is how we stamp out that avoidance while allowing genuine contractors to go about their legitimate business and provide the country's wealth. If he looked at some of the correspondence that I have received, he would see that many businesses in my constituency—and, I imagine, in his—will be caught by the proposal. The Government are using a sledge hammer to crack a nut. There is no doubt that they know that but are failing to act. One must question their motives.

Dale Campbell-Savours (Labour, Workington)

Is it not true that the Liberals' desire to raise the higher rate of tax by 10p would have exactly the same effect?

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I am more than happy to confirm that that is our policy, because we have just debated it under the previous clause, but it would not by any means have the same impact. [Interruption.] The hon. Gentleman asked me a question; he should have the decency to listen to the answer. Many of the people who are writing to me earn far less than the £100,000 threshold at which the Liberal Democrats want to impose a 50p top tax rate. Many of them earn £30,000 or £40,000. They work in genuine small businesses and have modest incomes. The hon. Gentleman's party want to shove an extra 10 or 20 per cent. tax on to people who are struggling to make a living.

Michael Fabricant (Conservative, Lichfield)

Are the Government not targeting the very people whom we need in this country—those who are not risk-averse, those who comprise the enterprise culture and those who work in high-tech sunrise industries? They are the very people whom we should not be driving abroad.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

The hon. Gentleman is absolutely right; I agree with everything that he has said. If we are to oppose the proposal constructively, we must debate how we would tackle the abuse that we agree has occurred—the "Friday evening, Monday morning" abuse to which the hon. Member for Bexleyheath and Crayford (Mr. Beard) rightly referred. The Liberal Democrats believe that that abuse could be tackled without hitting the legitimate contractor. One could consider past contractual relationships between employees of a personal service company and its main or sole clients; we could target that abuse and hone in on it to stop it. That is the approach that we recommend, but not the one in the schedule that the clause will implement.

Bill Rammell (Labour, Harlow)

Will the hon. Gentleman give way?

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I shall give way in a second; I wish to make the following key point. A survey of small contractors by the Professional Contractors Group, which represents the people targeted by the clause, showed that the main client of 4 per cent. of its members is the former employer. So it seems that not only have the Government overestimated the abuse, but their measure is totally inadequate to capture the people whom they say they want to stop.

Bill Rammell (Labour, Harlow)

I heard the hon. Gentleman say that it would be wrong to criticise the proposition without offering an alternative. I then heard him say that he would hone in on abuse. Will he enlighten the Committee by telling us exactly what he means by that, or was the phrase simply vacuous?

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I am more than happy to do so; in fact I just did. Before the hon. Gentleman intervened, I talked about the past contractual relationship between an employee of a personal service company and its main or sole client, which constitutes the abuse that the Government said they wanted to tackle. The PCG has come up with more detailed tax proposals that would stop the abuse about which the Government say they are concerned without hitting legitimate business. If the hon. Gentleman is concerned about the people in his constituency who will be hit—they may have voted for him—he should be criticising the Government and asking them to think again, just as in Australia, where the Government proposed a similar provision but realised that it would harm the new economy. The far east and the Pacific rim are very competitive. Those countries realise that they must retain home-grown, skilled IT workers in order to develop businesses. Fortunately, the Australian Treasurer had the wisdom to back down. When the Australian Government changed their proposals, the Treasurer said: Originally the proposals aimed to set up a system whereby people who are really employees couldn't pretend that they were contractors and walk out of the PAYE system, but you had to protect genuine contractors who really are in business. And what we are trying to do here— by the change— is protect genuine contractors. That is what our Government should be doing, and that is what we are arguing for.

Quentin Davies (Conservative, Grantham and Stamford)

The hon. Gentleman quoted the figure of 4 per cent. of contractors whose principal customer is a former full-time employer. Does he agree that for many of those contractors, the relationship will have changed at the initiative of the former employer? Those people will have been made redundant. The employer will have decided that he could no longer bear that individual as a fixed cost, but could do so as a variable cost. In other words, the individual who is pushed into being a contractor bears the economic risks of his activity in a way that he previously did not. It is perfectly right and economically rational that such people should be taxed on that basis, as self-employed.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

Although I agree with the thrust of the hon. Gentleman's point, in opposing the clause we must be careful not to give succour to employers who go down such a route. I agree with some of what the Government say about the Friday evening, Monday morning practice being wrong. Far fewer employers use it than the Government are trying to make out; none the less, we must not give succour to people who behave in such an appalling way. We are against such abuse of the tax system. We are in favour of a different approach, which does not discriminate against small companies. The Government will be taken to the courts because of this measure, and rightly so. I do not know whether the Conservatives are pleased that it will be under European legislation that the Government are criticised in the courts—

John Bercow (Conservative, Buckingham)

Ends and means.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

It seems that some on the Conservative Benches want to have their cake and eat it. We will not let them do that. The Professional Contractors Group will seek a judicial review, because it believes that the Government's proposals represent anti-competitive measures that discriminate against small businesses, which are the bedrock of the economy. The measures favour the big boys, and that must be wrong.

John Bercow (Conservative, Buckingham)

I strongly agree with the hon. Gentleman's comments about discrimination against small firms. Should we not therefore be told by the Paymaster General whether, against all the evidence with which she will have been provided, she believes that the 5 per cent. expenses limit is, on average, adequate to cover accountancy, computer and training costs, or whether she knows perfectly well that it is not adequate, but that she does not care because the figure has been plucked arbitrarily out of the air, as a capricious means by which to raise taxes?

Edward Davey (Liberal Democrat, Kingston and Surbiton)

The hon. Gentleman is right. The Government must justify the 5 per cent. figure, and I fear that they will be unable to do so. We pointed out to the Paymaster General that the figure does not represent the training cost that must be borne by contractors in the industry. They often find that within six months their skills are obsolete, because the industry changes so much. They will be out of business unless they spend heavily on investment in their skills. In response to that argument, the Government say that employees must fund their own training costs. The Government clearly fail to see the difference and the issue that we are trying to highlight. A self-employed business man or woman trying to build up his or her business needs to make that investment. In the new economy—the knowledge economy—such an investment in training and knowledge is comparable to an investment in machinery and plant in the old economy. If the Government fail to realise that, they will damage the cornerstone of the country's future wealth. The discrimination against small companies is of particular concern to Liberal Democrats. The Government have granted various exemptions to larger companies, which smaller companies will not enjoy. With such a bureaucratic system, as the hon. Member for Croydon, South described it, the compliance costs will be much higher for small companies. The Government are reinforcing the existing anti-small business features of the tax system. Small businesses already have higher compliance costs than larger companies. Again, the Government seem to be favouring the big boys. As for who will be caught by IR35 and who will not, the key issue is the definition of self-employment. No doubt we will debate that in detail in Committee. The Government need to realise that, in the knowledge economy, self-employment is inevitably a more difficult concept to pin down. In the case of physical goods—say, rabbit hutches—it is easy to prove that one is a sole trader manufacturing rabbit hutches and selling them on. A sole trader running a shop can show that he has premises from which he sells his wares. However, if the goods and services that one is providing are in one's head, and those are provided to a number of clients, of course that will be more difficult to prove under the old rules fashioned two centuries ago. When the Minister replies to the debate, will she tell us of any case dealt with by the courts in which they have defined for the knowledge economy the criteria that constitute self-employment? Whereas there are a host of cases that define self-employment in many other industries, there is no such case law for the new economy and the IT sector. The Government and the Inland Revenue have to make it up as they go along. That leads to huge uncertainty and will result in people facing penal tax rates, which they should not have to do.

Gerry Bermingham (Labour, St Helens South)

I have been listening to the hon. Gentleman with great care, and I declare an interest as a practising lawyer. I have many clients; I have no single client. I am self-employed. I can offset the costs of going to my place of employment, and the costs of my chambers—what I have to pay towards the bill. I cannot offset anything else, except perhaps the odd course. What is the difference between me and someone in the IT sector? [Interruption.]

Edward Davey (Liberal Democrat, Kingston and Surbiton)

There are many differences. If the hon. Gentleman looks at the details, he will see that the costs that self-employed people in many businesses can offset against their profits are much greater than those that he mentioned.

John Bercow (Conservative, Buckingham)

Does the hon. Gentleman agree that, as one of my hon. Friends lucidly observed from a sedentary position, one important distinction between the two individuals is that whereas there is no obvious shortage of lawyers, there is an obvious and worrying shortage of IT professionals?

Edward Davey (Liberal Democrat, Kingston and Surbiton)

The hon. Gentleman makes a good point. I shall take head on one of the charges made by the Minister on Second Reading and in another forum—

Dale Campbell-Savours (Labour, Workington)

rose—

Edward Davey (Liberal Democrat, Kingston and Surbiton)

No, I will not give way. The Minister made a comparison between an employed nurse and a self-employed IT consultant. That is like trying to compare apples with pears. A more correct comparison would involve a nurse working from a nursing agency. The Minister would find that under tax law, that nurse is seen as self-employed and would thus be subject to exactly the same tax rules as the self-employed IT contractor. If the Minister makes the precise and fair comparison, she will find that the people who are complaining about the legislation are on the side of nurses and teachers. We argue that employees in the private sector and the public sector should be on the same tax system, and that the self-employed who work in the public sector and in the private sector should also be on the same tax system. That is the basis of our argument, and the Minister must not try to confuse it. I refer her to a case—Clark v. Oxfordshire Health Authority 1998—in which the Court of Appeal ruled that a nurse working for a nursing bank was indeed self-employed for tax purposes. Let us not have false arguments from the Treasury Bench tonight, please. A self-employed person—a nurse or an IT contractor—is subject to a different tax and benefits system from those who are employed. That is a straight fact, which the Government should acknowledge. The self-employed are liable to corporation tax if they make real profits, and they will not get the benefits that employed people get. The distinction between being employed and being self-employed is crucial and of long standing in our taxation system. The Government are trying to change that through a hidden tax increase. It will be more damaging to the economy in the longer term than any of the other tax increases that they have tried to impose, because it will damage the key sector of the future British economy.

Frank Doran (Labour, Aberdeen Central)

The attack that we have heard from the two Opposition Front Benches is familiar to all of us who have been following the matter. The Liberal Democrat spokesman was a little more sensitive to what the Government are attempting to do, but we have just heard a recitation of all the claims made by the Professional Contractors Group, which most of us received in our mail bag, without any attempt at analysis or proper examination of the system. If the Government pursue their agenda to introduce a fair tax system, which we all support, and business taxes are progressively reduced to become the lowest in Europe, loopholes need to be closed. I support totally the principle behind the Government's aim, but I shall deal in detail with one aspect of the process that causes me concern in my constituency. 6.30 pm Most of the debate on the issue so far in the Chamber and earlier has concentrated on the IT industry. That is developing into a global industry, and the reality of any global industry is that people will go where the work is. It is nonsense to suggest that hordes of IT specialists will uproot themselves and their families to go to other countries on the assumption that those countries do not charge tax. The hon. Member for Croydon, South (Mr. Ottaway) appeared not to be aware that such countries have similar legislation in place. People will go where the work is, and it is clear that much of the work is in Britain, which is spearheading a lot of development.

Richard Ottaway (Conservative, Croydon South)

I should clarify that the quotes that I gave were not from people who have not gone or may be going, but from people who have gone.

Frank Doran (Labour, Aberdeen Central)

I am questioning whether the Government's proposals are the sole reason for their going. During the past 14 months since the Chancellor made his announcement, I have received a substantial mailbag on the issue. My hon. Friends the Members for Aberdeen, North (Mr. Savidge) and for Aberdeen, South (Miss Begg) and I organised two meetings in our constituencies to meet contractors affected. More than 180 people attended and we had full and frank discussions. [Interruption.] They were useful discussions. Those meetings brought to my attention the problem that I am about to raise and clarified a number of issues for me, making me even more supportive of the Government's position. The comments that have been made to me fall into two categories. There are the honest contractors who say, "Yes, this has been going on for years. We wondered when you would catch up with us," and there are the others who mouth the sort of comments that we have heard from the Opposition Front-Bench spokesman. We need a little reality and balance. I want to concentrate on a particular issue. I want to talk not about the IT industry, but about the oil industry. Aberdeen is the centre of the European offshore oil industry. As most hon. Members will know, oil is a global industry. It is also a volatile industry. For example, in 1985–86 there was a substantial downturn in the industry and the oil price went down from about $32 a barrel to $9 almost overnight. About 50,000 jobs were lost, but, because they were spread throughout the country, there was not quite the outcry that we have seen with other large-scale industrial closures or job losses. However, Aberdeen was seriously affected. The oil industry responded quickly, altering the basis on which work was carried out in Aberdeen. I cannot give percentages because each company varies, but a large proportion of people now employed in the oil industry are contracted. The industry uses them to provide flexibility for the bad times. For example, at the beginning of last year, when the oil price virtually halved overnight from about $20 a barrel down to $9 or $10, the redundancies were almost invisible because contractors were simply shaken out of the industry. Their contracts were terminated. All the contractors who stayed, from the large contractors employing hundreds, sometimes thousands, of people, down to the one-man bands that we have talked about tonight, were forced to take substantial cuts, some as high as 20 per cent., which were imposed by the oil companies across the board with no questions asked. That was the requirement if people wanted to keep a contract. Contracts are written in a way that ensures that oil companies have the power to do that. It gives the oil industry flexibility and that is the price that people who work in the oil industry have to pay. The oil industry is international. I am used to seeing in my surgery people who have just come back from contracts abroad—from Kazakhstan, the Gulf of Mexico, Australia and Indo-China. They work all around the world. We already have a global industry, and people are used to moving around in it. The oil industry is a mature industry. Some people say that it is in decline; it is, but it is a slow decline. However, it is clear that its future will depend on the sort of contracting arrangements that we have debated tonight. One of the issues that came up at the meetings that I had with contractors in my constituency was employment status. The hon. Member for Kingston and Surbiton (Mr. Davey) talked about employment aspects. One of my concerns about the Government's proposals is that there is a suggestion in the legislation that there is an element of choice. Unfortunately, in my constituency, employees who are contracted by the oil industry do not have a choice. There is a chain of employment, and contractors are employed in the industry only through employment agencies, many of which specialise in the sort of skills that are needed offshore. Those employment agencies provide employees, either for the main contractors who provide the services directly to the oil industry or for the oil companies themselves, but usually for large contracting companies. When I discussed the issue with the oil industry and the employment agencies in my constituency, I asked why it was a requirement that employees who worked as contractors should establish companies. Only companies are accepted. All are forced to form personal service companies to provide the contracting skills that the oil industry wants. The simple reason is that the Income and Corporation Taxes Act 1988 places a liability on employers to pick up the tab for any failure on the part of an employee to pay national insurance or PAYE contributions. The oil industry, the contractors who work for the oil industry, and the employment agencies that are the direct line of employment for my constituents who work as contractors in the oil industry, are not prepared to take that risk, so my constituents are forced to form companies. In discussions with my constituents, collectively and privately, many have made it clear to me that their choice would be, first, obviously, to have a proper job with proper pay, paying PAYE and national insurance contributions like everyone else. That option is denied to them because of the nature of the oil industry. Their second option would be to be self-employed without the hassle of running a personal service company and having to make returns and employ accountants, and to obtain the reliefs to which they would be entitled as self-employed people. However, the system does not allow for that because the employing companies are not prepared to take the risk. My concern is that service companies in my constituency have no choice. Many see the advantage of self-employed status, but because of the effect of the 1988 Act, that option is not available to them. Therefore, while reiterating that I support the aims and principles of the legislation, I ask the Minister to consider that point.

Sir Nicholas Lyell (Conservative, North East Bedfordshire)

In the past three years, there has rarely been a subject like this on which so many thoughtful and intelligent constituents have come to see me to discuss matters so deeply. Ever since the IR35 proposal was put forward by the Government, I have been visited by a series of constituents, mostly working in the IT industry, who are deeply concerned about the proposals and whose fears have not so far been assuaged by the answers that I have received from the Minister. The net point made by the Chief Secretary is that nobody will be caught by IR35 who would not be deemed to be an employee under existing employment law. That is stated in the letters that I have received in reply to the many letters that I have sent on behalf of constituents. However, my constituents are not satisfied that that is the case and, unless the Minister can satisfy the House that it is, the proposals should be removed. That is why I support the Opposition's proposal to delete clause 59. The contractors in the IT sector who come to visit me make the point that they in no way seek to avoid tax; they seek to provide services to an industry that demands flexibility in a way that enables them and their employers—I do not use the word strictly, but those who use their services—to operate in the most effective manner. They point out that they always take a reasonable salary from their service companies, and that those service companies pay the usual tax and insurance on salaries. They say that they have no knowledge of the system whereby someone is an employee on Friday and self-employed on Monday morning. One of those who came see me is an experienced chartered accountant, who acts for many people in the IT sector. He, too, has never come across the Friday evening, Monday morning syndrome, that is part of the Government's case. Contractors point out that they either work for several companies that use their services, or for one company at a time, for periods that are not easy to predict. That requires the flexibility to be able to move out of a particular sort of employment and take the risk of seeking new employment. As I said earlier, the contractors use service companies, which means that they pay tax and national insurance. Those companies are similar to the examples, such as that of the nurse, that Ministers cite when pushing their case. It was rightly pointed out that an agency nurse would make a better comparison. The contractors stressed the unreasonableness of the 5 per cent. expenses limit. I should like to know whether the Paymaster General intends to stick to that. I am not sure whether she is catching my remarks. If we consider the costs of accountancy, purchasing and maintaining computers, and training, it is unrealistic to expect them to be met on 5 per cent. The Government should take note of that. One contractor said that his training costs regularly totalled £2,000 a year. It is not fair to treat those who work for a service company simply as employees. They are treated as employees without the benefits that ordinary employees receive. If the contractors whom we are considering were employed, an employer would pay his share of their national insurance contributions. if they were made redundant, they would receive redundancy payments. They do not receive such payments under the system that they use. If they were unemployed, they would receive jobseeker's allowance and the benefits attendant on that. As employees of their companies, they have to forgo those benefits. The Government therefore do not treat like as like. The Government claim that the proposals are tax neutral. For the reasons that I outlined, they are not. In an artificial way, a specialised IT provider will pay more tax than if he were an employee. The proposals are not, therefore, tax neutral.

John Bercow (Conservative, Buckingham)

Does my right hon. and learned Friend agree that, if the proposals turn out to be tax neutral, it will be the consequence not of a deliberate Government policy decision, but of several contractors ceasing to trade and thus not paying tax?

Sir Nicholas Lyell (Conservative, North East Bedfordshire)

My hon. Friend makes a good point. It leads to a point that many hon. Members have made and to which the Government would do well to pay heed. People are voting with their feet and leaving the country or seriously considering doing so. That is damaging to the country, and will lead to a reduction in the Government's tax take. Hon. Members of all parties have heard highly intelligent constituents, who plainly pay a fair proportion of their income in taxation, express revulsion at the Government's proposals. That would not happen unless there was a serious reason for it. 6.45 pm Although in the past six months the Government have been pigheaded and refused to give ground, there is a chink of light. The letters that we receive from Ministers encourage people to discuss the matter with their tax inspectors to ascertain whether they can find a way through. Perhaps that means that the Government do not want to be seen to back down, but are giving a nod and a wink to tax inspectors. The proposals have caused genuine anxiety to a highly intelligent and undoubtedly modern sector in the business community, which the country badly needs. The Government use the expression "modernisation" so often that it makes many of us feel ill. They ought to reconsider the proposals carefully. Unless they are satisfied that those proposals will not do the damage that my constituents fear, they should revise them.

Michael Fabricant (Conservative, Lichfield)

The Government propose the measure for only one reason: not to close loopholes but to raise money for the Treasury. The clause is not tax neutral; it will raise £900 million. As I said earlier, it will raise that money from the companies, organisations and people whom we need to keep in this country. We need people who are not risk averse, who work in skilled high-tech, sunrise industries and know about computers. Unlike the Prime Minister, who, as a stunt, tried to show that he knew all about e-commerce, but failed to find the "T" for "Tony" on the keyboard, we are considering people who know how to generate not only software for computer companies but income for the nation. The Paymaster General simply does not care. I sent her 11 plastic bags, which contained more than 3,500 names of people who said that although they were not experts in tax, they were experts in computers and their companies. They said that they would leave the country or, even worse, remain in the country but invoice from abroad and thus deprive the Revenue of money if this nasty clause were passed.

Barry Gardiner (Labour, Brent North)

Is the hon. Gentleman trying to undermine the arguments of Conservative Front-Bench Members? He pointed out that the Government will raise £900 million in revenue through the measure. However, Conservative Front-Bench Members argued that the very 350,000 people to whom he referred, and others, would leave the country and that the money would not be raised. Does the hon. Gentleman intend to undermine Conservative Front-Bench Members, or does he simply fail to understand their arguments?

Michael Fabricant (Conservative, Lichfield)

The hon. Gentleman would have made a good intervention if he had kept to the point. I realise that he is only a new boy, but, in future, if he wants to make a killer point, he should make it short. Rambling on a bit gives one time to think.

Barry Gardiner (Labour, Brent North)

Answer the question.

Michael Fabricant (Conservative, Lichfield)

I shall answer. The hon. Gentleman is an opera singer and clearly creative. His mind wandered during my introduction. I mentioned earlier in an intervention that the figure of £900 million came from the Red Book, which makes a prediction. Perhaps the hon. Gentleman has recently appeared in the Chamber, or perhaps only his body has been present while his mind has been elsewhere, but as my right hon. and learned Friend the Member for North-East Bedfordshire (Sir N. Lyell) and others, including me, said, the Government probably will not raise the money because people will go out of business or go abroad. The Government cannot claim ignorance because people have gone to see the Paymaster General. She has not always been in a particularly listening mood, but people have talked to her and she has not responded.

John Bercow (Conservative, Buckingham)

Is my hon. Friend aware that my constituent Mr. Mark Gillis, a software consultant, has just ceased to trade? At the beginning of April, I wrote to Treasury Ministers on his behalf. The Paymaster General signed a reply dated 26 April, which she appears not to have read and which shows no acknowledgement of the fact that that individual is one of her first victims.

Michael Fabricant (Conservative, Lichfield)

Mr. Mark Gillis may be one of the first, but I am sure that he is the first of many—[Interruption.] This is no laughing matter. He is one of the very people we need if this country is to succeed in the 21st century.

John Bercow (Conservative, Buckingham)

This is no laughing matter for Conservative Members or, in fairness, for Liberal Democrat Members. Does my hon. Friend agree that it is disgraceful that Labour Back Benchers find it hilarious that someone has ceased to trade, losing an invaluable business? Such is their intelligence.

Michael Fabricant (Conservative, Lichfield)

Such is Labour Back Benchers' understanding of business. Those who have spoken are barristers, solicitors or social workers. Those are all great careers in themselves, but such people are risk averse.

Gerry Bermingham (Labour, St Helens South)

You are joking.

Michael Fabricant (Conservative, Lichfield)

Perhaps not barristers. I exclude the hon. Gentleman from that remark, although I shall refer to a couple of inaccurate points that he made earlier. The Labour party is unfamiliar with what business men—even small business men—have to endure. If one is to be taxed at a particular level, there must be a benefit.

Nigel Beard (Labour, Bexleyheath and Crayford)

Labour Members' derision had nothing to do with a person going bankrupt. It was prompted by the absurdity of attributing going out of business to legislation that has not yet been passed.

Michael Fabricant (Conservative, Lichfield)

As we say in the Chamber, the hon. Gentleman makes his point in his own way, and his own way is interesting indeed.

John Bercow (Conservative, Buckingham)

I am grateful to my hon. Friend for giving way again as he has given me the opportunity to elucidate for the benefit of the hon. Member for Bexleyheath and Crayford (Mr. Beard). Does my hon. Friend understand that my constituent Mr. Mark Gillis is ceasing to trade now because he has the capacity to see ahead? He is aware beyond doubt that he will be clobbered by the Government's proposals and that remaining in business will not be worth his while. He is giving up the struggle against the Treasury leviathan.

Michael Fabricant (Conservative, Lichfield)

Either way, it is interesting to speculate: will Mr. Mark Gillis choose to stay in this country and claim from the state as unemployed or will he become an opportunity cost by going abroad to trade, thus reducing this country's status? That effect will be magnified many thousands of times as the high-technology and software writing position of rival countries improves. IR35 is nothing new. Such a measure was proposed by the Inland Revenue in the early 1980s, the late 1980s and the early 1990s as a tax-producing dodge—a way of raising money for the Treasury. Previous Conservative Chancellors rejected that method outright because they recognised the effects that it would have on small business men and sunrise industries in particular. What is new is that this Government, because they are unable to understand the requirements for producing a high-technology-oriented nation, have fallen for it hook, line and sinker, and 60,000 people will he affected. Perhaps they will all go abroad. Then the Government can say, "We've got 60,000 fewer people. That is why we are allowing so many asylum seekers into this country." [Interruption.] I shall not pursue that line, Mr. Martin, because you would rule me out of order, but there is no other logic to it. Surely the Paymaster General and the Chancellor are not naive enough to fall for a particular proposal even though previous Chancellors refused to do so. That would be absolutely wrong.

Dawn Primarolo (Labour, Bristol South)

I am sure that the hon. Gentleman did not want to make a gratuitous and unacceptable comment in referring to asylum seekers. May I help him? If he wants to criticise the Government on the fast-tracking of work permits, he is entitled to do so. However, every Member of the House recognises that pouring oil on the flames represented by the hysterical language that some Members use about asylum seekers has no place in the Chamber.

Michael Fabricant (Conservative, Lichfield)

Thank you, Mr. Martin. I would not like to create a situation in which the Paymaster General can be even more pompous and patronising than usual. A couple of interventions on my hon. Friend the Member for Croydon, South (Mr. Ottaway) showed a lack of understanding of the effect of IR35, and the hon. Member for St. Helens, South (Mr. Bermingham) asked an interesting question of the hon. Member for Kingston and Surbiton (Mr. Davey): what is the difference between a lawyer and a worker in a high-tech software industry? Let me answer that. I put it to him that there are two clear differences. First, as a barrister, he is self-employed and already enjoys all the benefits of not being hit by IR35. When the Bill is passed, he will retain those benefits, but people in high-tech industries will not. In effect, they will be on schedule E, while he is on schedule D. The second difference is more profound. As a lawyer, the hon. Gentleman does not have to invest quite so much in technology. He has to invest in books and needs access to the internet, but I am not convinced that he requires access to as much software and chip writing as those who work in the high-tech industries. He also does not have to travel to seek work. If he had to go to Aberdeen to represent an oil company, he would be retained by a solicitor and would already have the contract. People seeking a contract to write software may travel to Aberdeen, not win the contract and be unable to claim travel and accommodation expenses.

Sir Nicholas Lyell (Conservative, North East Bedfordshire)

My hon. Friend points up another unfairness between IT contractors, on whose behalf we are speaking, and self-employed people such as myself and the hon. Member for St. Helens, South (Mr. Bermingham). I have returned to private practice and I know that barristers are spending a lot of money on IT as well as on books and retraining. However, they are not restricted to 5 per cent. of their gross earnings whereas IT contractors, who are at the cutting edge, are being so restricted. I want the Government to justify that. Can my hon. Friend help me?

Michael Fabricant (Conservative, Lichfield)

Sadly, I cannot help my right hon. and learned Friend—and, even more sadly, I doubt whether the Paymaster General will be able to help him either. It is clear that those who will be hit by IR35 will experience all the penalties and none of the benefits. We have already heard that they will receive no sick-pay benefit, no holiday-pay benefit and no unemployment benefit. They will not be able to charge equipment against tax; nor will they be able to charge their travel and accommodation. We are discussing a provision that was rejected by Conservative Chancellors, by Australia and Germany and, to an extent, by the United States. I ask the Minister to check with her officials after the debate to establish whether the information that she gives is wholly correct, because she will find that in some American states there is no IR35 provision. Yet again, Labour has demonstrated that it is no friend of business. Yet again, it has accepted tax-raising schemes proposed by the Inland Revenue and rejected by Conservative Chancellors. Yet again, Government spin doctors have been dragooned into demonising small high-tech businesses in sunrise industries by namecalling—by branding them tax-dodgers. Yet again, Labour has shown itself to be of the deepest red hue: while pretending to be "new Labour", it has driven those that are part of the enterprise culture into a new and more damaging brain drain.

Gerry Bermingham (Labour, St Helens South)

I did not intend to make a speech, but when I hear an argument so misused and language so abused in the making of terrible points that have no merit, I feel that I must deny my natural self-restraining principles. The hon. Member for Lichfield (Mr. Fabricant) has done it again. I do not know whether it is the time of the month or the movement of the moon that produces the rants, but they occur with periodic frequency. The hon. Gentleman really is being rather silly—and I say that with the greatest respect. Let us suppose that I am an information-technology contractor, and an expert in the field. Let us suppose that I suddenly decide that the tax regime will be against me, and resolve to take myself to Paris, Frankfurt, Dublin or another European capital or major city and flog my services from there. In that event, I would find myself paying tax in Paris, Frankfurt or Dublin, where personal taxation is higher. Oh dear! It seems that that would not be a very wise move. I realise that, as a humble barrister, I do not live in the whiz-kid world of today; I live in the world of yesterday. Let me gently remind the hon. Member for Lichfield, however, that I was once a senior partner in a firm that employed hundreds and hundreds of people, and today employs thousands. I have just a little bit of knowledge about the running of large businesses with million-pound turnovers: I speak on the basis of experience rather than ignorance.

Richard Ottaway (Conservative, Croydon South)

That was a long time ago.

Gerry Bermingham (Labour, St Helens South)

Yes, but there is a funny thing about some of us. We may move to a different side of our profession, but we keep in touch with our former colleagues, and we therefore keep up to date with what is happening—shock, horror. Be that as it may, let us suppose that I am an IT consultant, or perhaps an engineer. Why do we not hear much about the Institution of British Engineers and the engineering consultants? Why do we not hear much about surveyors, chartered accountants, or, indeed, specialist pharmacists and forensic scientists who act as sole practitioners and consultants? We hear nothing about those people, who are all self-employed. That is because, when they set out to be self-employed, they set themselves up in a way that justified the tax allowances and expenses that they could claim. How do they do that? Well, they charge a fee for their services, and if they earn more than £60,000 a year gross—I think that that is the current turnover—they charge value-added tax, which is, of course, collectable and payable. They then find themselves in the interesting position of having to finance their own expenses and overheads. In my case, that will be chambers fees; in the case of pharmacists or forensic scientists, it may be laboratory fees. They will offset the costs against their incomes, which will result in a net figure on which they will pay tax in the normal way. There is, however, a risk in being self-employed. Self-employed people are not paid during their holidays. They are not paid when they are sick, so they cannot succumb to any illness unless they are insured against it. If they are made redundant—if they are no good, and are out of a job—they do not receive unemployment benefit. That is the risk. If IT consultants set themselves up in the same way, they must take the same risks as the rest of us who are self-employed. I am not here to say whether that is good or bad; but if there are dodges that mean that some people receive holiday and sickness pay and all the rest while pretending to be self-employed, and if that is not open to those who are self-employed, should there not be a level playing field? Let me tell the hon. Member for Lichfield and the hon. Member for Kingston and Surbiton (Mr. Davey) that there are ways of organising one's affairs to ensure that one is genuinely self-employed and, as such, taxed genuinely. There are, however, risks and disadvantages in being self-employed, from a taxation and from a personal point of view.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

The hon. Gentleman is completely misrepresenting the issue. The self-employed IT contractor does not receive the sickness and unemployment benefits that the hon. Gentleman is trying to claim that he would receive: the hon. Gentleman has misunderstood the tax change that we are debating.

Gerry Bermingham (Labour, St Helens South)

In fact, the hon. Gentleman has completely misunderstood what I am saying. I said that, for someone who is self-employed, those are the disadvantages. If the IT contractor is genuinely self-employed and consults an accountant, he will be in exactly the same position as others and there will be no problem. I do not understand the sudden assumption that there is a difference.

Malcolm Bruce (Liberal Democrat, Gordon)

I know that the hon. Member for Aberdeen, Central (Mr. Doran) has already raised this issue, but may I raise a specific point relating to contractors in the oil industry? They do not have the option of becoming self-employed, because the oil companies will not deal with them if they do. They must set themselves up as separate businesses, yet they are restricted to the 5 per cent. allowance. Many of my constituents say that their expenses constitute 10, 15 or 20 per cent., but that they cannot reclaim those amounts. Is that fair?

Gerry Bermingham (Labour, St Helens South)

That is exactly why I accept what was said by my hon. Friend the Member for Aberdeen, Central (Mr. Doran). I was about to refer to exceptional circumstances in which the nature of the industry—[Interruption.] Just one second. In such circumstances, the nature of the industry creates a climate in which a level playing field is not possible. I accept the concept that lies behind what the Government seek to do. Like my hon. Friend the Member for Aberdeen, Central, I also accept that there are exceptional circumstances that need to be dealt with. However, we must not throw out the baby with the bathwater; we must seek to rectify the situation, and perhaps that will happen later. That is why I was rude about the hon. Member for Kingston and Surbiton. In fact, when I intervened on him I was trying to be helpful. If he does not accept that, it is sad. Sometimes I try to be helpful even to Liberal Democrats, although it goes very much against the grain. It was, however, the speech of the hon. Member for Lichfield that prompted me to speak, because again it was the wrong point in the lunar cycle and we got a rant.

Michael Fabricant (Conservative, Lichfield)

On a point of order, Dr. Clark. Is it in order for one Member to make personal remarks about another?

Michael Clark (Conservative, Rayleigh)

I do not think that I heard any personal remarks.

Gerry Bermingham (Labour, St Helens South)

I agree with my hon. Friend the Member for Aberdeen, Central, who made a valuable point. I hope that it will be taken on board, that eventually self-employed will mean self-employed, and that the advantages and disadvantages will be the same for all self-employed people, whatever their field.

Robert Smith (Liberal Democrat, West Aberdeenshire and Kincardine)

I welcome the contribution that we have just heard because it highlighted the problems of the oil industry and reinforced the point already made by the hon. Member for Aberdeen, Central (Mr. Doran). I too represent a constituency in the north-east of Scotland, where many constituents are concerned about how the proposals in IR35 will affect them. I reinforce the point that it is not just the one sector—the IT industry—that will be affected; several sectors are affected. When the Welfare Reform and Pensions Bill was going through the House last year, many Labour Members were completely blank as to whether there was a problem at all, or where it was coming from. It seems to be an issue that affects some constituencies very badly and does not touch other constituencies. Well over 60 constituents have raised the issue with me directly, yet I have talked to Members from other parts of the country and not a single constituent has raised it with them. That is why the understanding is perhaps deeper among some Members than others. I reinforce the point about the oil industry. I hope that if the Government cannot take it on board tonight, they will at least hint that they will take it on board later in the Standing Committee. People find themselves working through single-person companies not because they went to an accountant and said, "How can I minimise my tax take?" but because they lost their job, and setting themselves up to work through a single-person company was the only way they could get another. The Government must therefore look carefully at the arbitrary 5 per cent. costing and explain where it came from and how it was worked out. Why can they not recognise genuine costs that have been incurred by someone trying to operate a company, and look at the actual costs on a case-by-case basis, individual by individual? The other problem in the oil industry is the ageing profile of the people working in it. Many of them are getting near to retirement. They are trapped, having made their financial plans on the basis of the current arrangements. I wonder whether the Government could give them any hint, advice or certainty as to how they might sort out their pension arrangements and what their future plans should be if the Government push through their proposals unamended. Now that those people are so near to retirement, there is little scope for them to make adjustments. They have planned on the basis of a way of working and a tax regime that they understood, working towards retirement. Others may have made slightly better provision for retirement, but there is a threat of skill shortages. The downturn in the oil industry and the low prices have masked a serious recruitment problem. The next generation is not coming into the industry. Some people will look at the proposals, the way their life is going and what they have already sorted out and will say, "Perhaps early retirement is the way forward for me." There could be a loss of skills and a loss of work force. I hope that we will hear from the Government that they recognise that it is not just an IT problem, but one that affects other sectors in the economy—it affects many in the north-east of Scotland in particular—and that the people coming to my surgeries who face 20 per cent. cuts in their contract income, as the hon. Member for Aberdeen, Central has already said, are not high-flying earners looking for a great tax avoidance regime. The industry is structured in a certain way, so they have worked in that way. They have now been hit by a sledgehammer and are looking for some reassurance from the Government that, finally, at the 11th hour, there will be an understanding that they have genuine costs that need to be met and recognised.

Desmond Swayne (Conservative, New Forest West)

In view of the lucid exposition given by my right hon. and hon. Friends, from which we have all just benefited, and particularly in view of the robust contribution of my hon. Friend the Member for Lichfield (Mr. Fabricant), I shall not need to detain the Committee long. Like my right hon. and learned Friend the Member for North-East Bedfordshire (Sir N. Lyell), I have benefited from meeting many intelligent and articulate constituents who have brought their concerns about the measure to me, but they are not quite as clever as some of us might imagine. I had about 30 written representations and have met half the authors. About two thirds of them—let us say 10 of them—prefaced their remarks with the extraordinary and unprompted admission: "I did not vote for you. I am very sorry, Mr. Swayne. I voted new Labour for the first time at the general election." One cannot help having a slight smirk on one's face and saying, "Is it not a measure of your own contributory negligence that you now find yourself in the position that you are in?" They were warned that it would be like this and that is how it has turned out. However, one has to rise above that personal, selfish, unworthy reaction and consider the national problem that is being engendered by the measure, which will affect not only our own constituents. 7.15 pm The Government's attitude has been given away by the terminology that they have used. They have spoken of disguised employment that should be otherwise—that should be proper employment. It is a Canute-like attitude. They do not like the world that they find but want it to be otherwise and introduced the measure to make it so. The world is different for a good reason. For 10 years before I was elected to the House, I worked as a systems analyst for a large bank. That 10 years spanned the change—

Dale Campbell-Savours (Labour, Workington)

Who was analysing whom?

Desmond Swayne (Conservative, New Forest West)

For the benefit of the hon. Gentleman, who comments from a sedentary position, I was analysing risk management systems and dealing rooms at the cutting edge of modern technology, so I know what I am talking about. Those 10 years spanned great change in the industry. When I started, the IT department of the bank was effectively the monopoly supplier of IT services to the bank, but the technology itself changed and became much more project driven. We required skills that we did not have. Those skills had to be acquired from the marketplace, but, given the nature of technical change, they were necessary only for a short period so we found ourselves relying much more heavily on the contract market. Yes, we employed as contractors people whom we had previously employed full-time. That was not because we were a bogey employer who made people redundant and then tried to find a cheap way of employing them subsequently; it is the nature of the change in technology that has driven these things. The Government's attempts to turn back the clock by altering the tax system and the national insurance framework will fail, to the detriment of the industry as a whole and to our economy. Last night, the hon. Member for Workington (Mr. Campbell-Savours) seemed unable to appreciate the fact that—[Interruption.] I can remember. He seemed to be unable to appreciate the fact that people change their behaviour in response to economic stimuli. He will recall that in the debate on excise duty he would not accept that a large price differential would affect how much that people traded legally or illegally in a market. That is precisely the attitude that now seems to dog Labour Members. I accept entirely the force of the argument that has been made by Labour Members that if the IT high-tech contractor, who has largely been the focus of the debate, suffers certain disadvantages in respect of his employment conditions—the lack of sick pay, the lack of holiday pay or whatever—he will need to be recompensed through the pay packet, rather than through the tax system. That argument has force, but Labour Members fail to appreciate that we are, in effect, in a global market. Employees and companies can consider the conditions and the tax situation that apply elsewhere. People who have skills and are capable of moving elsewhere will do so if they perceive that the circumstances will benefit them. That was precisely what the hon. Gentleman could not understand last night about the sale of cigarettes. It is also precisely what he cannot understand about the IT industry and how people move in response to economic stimuli.

John Bercow (Conservative, Buckingham)

My hon. Friend is developing a powerful argument. Does he agree that for someone who ceases to be an employee of a company thereafter to become a consultant to that company is both commonplace and entirely unobjectionable? Is not the fact that it strikes Labour Members as so bizarre merely testimony to the fact that the great majority of them have only ever worked either in the public sector or for pressure groups and regard any other pattern of employment with incredulity?

Desmond Swayne (Conservative, New Forest West)

I often found myself having to acquire specific skills in order to manage a particular project. If someone who had previously been in the employment of my organisation was available in the marketplace, that person would be my natural first choice because of his knowledge of the organisation; so it is entirely proper that such people should be so employed. Further to my point about economic stimuli, Labour Members fail to take account of the fact that we are desperately short of certain skills, and if we drive people with those skills abroad we will all suffer. Labour Members have continued to deny the fact that those people will indeed move abroad. As my hon. Friend the Member for Croydon, South (Mr. Ottaway) pointed out, they have done so and are doing so simply in anticipation of the proposed changes. I know that it is extraordinary for some Labour Members to consider that anyone would uproot themselves from England and go to Holland, for example, and have to live with brass money and wooden shoes. However, the reality is that people will move overseas, despite the prejudices of Labour Members. It is an extraordinary little Englander attitude from a party that claims to be so communautaire.

Vincent Cable (Liberal Democrat, Twickenham)

I should like to say a few words in support of my hon. Friend the hon. Member for Kingston and Surbiton (Mr. Davey), who originally called for this debate. The speeches that we have heard this evening have vindicated that request. Difficult though it may be, given the way in which the debate has proceeded, it might be useful to identify what are admittedly rather limited areas of common ground. There is some acceptance among Labour Members, at least formally, that there are people working in the IT industry and the offshore oil industry who are self-employed, even in the narrow terms defined in the Inland Revenue regulations and in tax law. I believe that the estimate is that something like 20 per cent. of the current IT contractor population will be given self-employed status. The phenomenon of the self-employed contractor is acknowledged to exist, but I am interested in why the figure of 20 per cent. has been used. It may be larger or smaller and I should like to know why it has been defined in that way. Conservative and Liberal Democrat Members fully acknowledge that there are cases of abuse and that there are people who are trying to avoid tax by creating single-person companies. It is absolutely right that any Government should try to deal with those cases. That is common ground among Members on both sides of the Committee. We are concerned about the others—it maybe a large group of people—who fall between the two categories. Essentially they fall into two groups, as the hon. Member for Aberdeen, Central (Mr. Doran) said. Some people are involuntarily working in the sector mainly because of their age. The IT industry is a very young industry in which anybody over 30 is considered old. Many people are forced out of organised employment and have to accept frequent and multiple contracts. They have to accept the risks, but they cannot define themselves as self-employed, as the hon. Member for St. Helens, South (Mr. Bermingham) argued they should, because of the nature of their work, which the hon. Member for New Forest, West (Mr. Swayne) explained. They mainly undertake project work, which means that they are likely to fail a control test as they work as part of a team under a project manager, probably for several months at a time. Such people are involuntarily in the position of self-employed service companies and they will be hit the hardest. The second category comprises people who have consciously chosen that life style. They are willing to accept the risks and the fact that they have no job security, no guaranteed employer contribution and no national insurance contributions. They take all the risks in order to enjoy the flexibility of that life style, but, because of the way the tax law operates, they cannot be classified as self-employed. Those two groups of people, who are not tax avoiders, and who under no circumstances can be described as such, will be hit the hardest. That is why there is such strong feeling among Opposition Members. As it is such a grey area and the big arguments of principle have already taken place, many of us are looking for some sign that the Government recognise that a large number of people are on the margin, and are prepared to show some flexibility in dealing with them. They could do so in two main ways. First, they should recognise the force of the arguments about the limited nature of the 5 per cent. allowance. Many of the people to whom I have spoken can produce their accounts showing expenses of up to 20 per cent. Even if one discounts a little, expenses are generally considerably more than 5 per cent., for reasons that have been set out in some detail. In addition, the Government should show some flexibility in the way in which the Inland Revenue deals with individual cases. My understanding is that some people could face penal charges if, quite accidentally, they classified themselves as self-employed and were subsequently determined not to be. I believe that the Inland Revenue sets itself five years to determine whether the self-employment principle applies, and people who are subsequently found to be in the wrong category after a year face tax penalties. That seems absolutely wrong. If someone has made a genuine mistake, the tax that they have paid should be credited to their eventual account.

John Bercow (Conservative, Buckingham)

The hon. Gentleman and I agree that it would be better not to have these proposals at all. However, will he clarify whether he is advocating a larger blanket expenses limit to take account of the concern that the proposed limit is not adequate, or suggesting the operation of a taper, which might have some merit, but would be administratively highly burdensome?

Vincent Cable (Liberal Democrat, Twickenham)

I take the hon. Gentleman's point that it would be burdensome. If I were making a recommendation, it would be for the former. Finally, one point that emerged from the discussion a few moments ago related to the total tax take, which is now estimated to be £900 million. When we discussed the matter six or nine months ago, the figure cited was £450 million. Will the Paymaster General explain why the estimate has changed so radically? Is it because, as I rather suspect, the conditions and exemptions will be much more narrowly drawn, so the tax base will be significantly higher? Is it based on some sort of calculation of how much leakage there will be in terms of people leaving the profession? This is a genuine question; I do not know the answer. It would be useful to know why this tax measure, which was initially introduced as having a modest tax take, is now approaching the £1 billion mark.

Dawn Primarolo (Labour, Bristol South)

I thank the hon. Member for Twickenham (Dr. Cable) for his calm approach to an important discussion. I know that he has worked hard. He has written to me and has come to see me to discuss the issues. That is in marked contrast to other speeches from Opposition Members. I hope that I will be able to deal with all the points that have been raised, but if I do not manage to do so, I am sure that the hon. Gentleman will intervene. Let me start with the points on which we appear to agree. I shall quote from Computer Contractor—a magazine that seems to be very relevant to the debate, as we are talking about information technology contractors. Under the headline "Make hay while the sun shines", it states: The optimum salary to draw this year is £4,335, which covers your personal allowance…I know a lot of readers will be worried about the minimum wage. Although this does not apply to company directors…it is highly unlikely that any contractor will be served with a notification. Beg, borrow and steal to avoid paying higher rate tax this year. Next year you will not be able to avoid it. You should recognise your company for what it is, a tax haven. 7.30 pm Many quotes have been given in the debate. I shall quote from a letter to The Independent written by someone who has worked in the IT industry for 27 years. He said: Although there are many honourable exceptions, the majority of— service company workers— were cynically taking the rest of us for a ride…They should admit defeat gracefully and be grateful for all the years in which they got away with their rip off on society. The Government is to be congratulated for making them contribute their fair share towards the funding of our hard-pressed public services. [Interruption.] Opposition Members can heckle as much as they like. Today, so far, all that they have done is repeat the well known arguments of one organisation—the Professional Contractors Group, which was established exclusively to campaign against the proposal. People in that organisation have a vested interest in not wanting the provision to be applied.

Sir Nicholas Lyell (Conservative, North East Bedfordshire)

Will the Minister give way?

Dawn Primarolo (Labour, Bristol South)

If the right hon. and learned Gentleman will allow me to make this point, I shall happily give way to him. The points made in the debate have dealt with whether the companies are entrepreneurs; whether the definition of self-employment correctly reflects the labour market in the sector; whether the people concerned are entitled to benefits; whether there will be a brain drain; what Australia is doing in its legislation on the matter; whether the proposal is discriminatory in any way; whether there has been consultation; whether it is an attack on large business—

John Bercow (Conservative, Buckingham)

Small business.

Dawn Primarolo (Labour, Bristol South)

Yes. The points also dealt with whether small businesses are being assisted in meeting training costs; whether there will be a legal challenge to the proposal; and the issues that the oil industry has raised. The right hon. and learned Member for North-East Bedfordshire (Sir N. Lyell) also made some points on self-employment status and the 5 per cent. deduction for training costs. I hope to deal with all those points as calmly and clearly as the Committee will allow me to do. First, however, I shall be happy to give way to the right hon. and learned Gentleman.

Sir Nicholas Lyell (Conservative, North East Bedfordshire)

I am most grateful to the Minister. Does she realise that the constituents who have come to see me on the matter have all made the point that they pay themselves substantial salaries, on which they pay tax? Plainly, they do not fall into the categories described in the two quotations that she has given. They are deeply concerned about the 5 per cent. limit because, among other things, they have genuine expenses that are far higher than that figure.

Dawn Primarolo (Labour, Bristol South)

I am grateful for the right hon. and learned Gentleman's comments, as I wanted to deal with that point. The objective of some of the speeches made in this debate and of the arguments made by some vested interests has been to spread fear and misinformation about how the arrangements will work. Although I hope to deal clearly with those points in my speech, the Committee will have other opportunities to deal with them. In the past 12 months, much information has been published about our proposals for tackling tax and national insurance avoidance by service company workers and others who provide services to clients through intermediaries. I think that it is fair to say that the general objective of our proposals is pretty well understood now. We want to stop people who are really the same as employees from dressing up their working arrangements by setting themselves up as a service company to avoid paying the correct level of properly due tax and national insurance. As I said, individuals are not entitled to choose self-employed status simply because they fancy being self-employed. There are clear precedents and case law defining "self-employed" and "employee". The proposal seeks clearly to align rights, so that if someone is an employee, he or she is entitled to all the rights of an employee and will be defined as such. Conversely, if someone is self-employed, he or she will continue to receive all those other rights. I fear that many of the companies with which the right hon. and learned Member for North-East Bedfordshire has been in contact are under a misapprehension about how the rules will affect them.

Sir Nicholas Lyell (Conservative, North East Bedfordshire)

If the Minister, by saying that those companies are under a misapprehension, means that they do not need to worry because they will be accepted in the status that they require, why are they to be limited to 5 per cent. expenses? Does she realise that those who have come to see me—like those who have gone to see most of my hon. Friends, I suspect—are highly intelligent people performing a function in which it is not open to them to be employees, because those for whom they work do not wish to employ them as employees? Those people can do the job only through the type of service company that we are discussing, and they are being badly and unfairly hit by the proposals.

Dawn Primarolo (Labour, Bristol South)

People who are employees will receive exactly the same treatment as every other employee in the tax system. However, we have agreed that, for those employees who seek to work through service companies, we shall allow a 5 per cent. deduction to help run those companies. Nevertheless, we are saying that they are employees. If they are self-employed, the 5 per cent. deduction will not apply to them because they have access to all the other reliefs, as ably explained by my hon. Friend the Member for St. Helens, South (Mr. Bermingham).

Richard Ottaway (Conservative, Croydon South)

Can the Minister confirm that people who are caught by IR35 and end up paying class 1 national insurance contributions will not be in the same position as "an employee" as they will not be entitled to sick pay and other benefits that employees receive, and that they will not be entitled to unemployment benefit between contracts?

Dawn Primarolo (Labour, Bristol South)

If a worker is designated as an employee and is paying national insurance contributions as an employee—which is the whole purpose of the proposal—he or she will be entitled to the benefits to which any other employee paying national insurance contributions is entitled.

Richard Ottaway (Conservative, Croydon South)

rose—

Dawn Primarolo (Labour, Bristol South)

I shall deal with the point in more detail later. If the hon. Gentleman will let me make some progress, and if he is still unclear on the point, I shall give way to him.

Richard Ottaway (Conservative, Croydon South)

It is on this point.

Dawn Primarolo (Labour, Bristol South)

The problem is that hon. Members have asked various questions, but are refusing to allow me logically to develop the answers and explain the procedure. Do they want to hear the answers or only to ask more questions?

Richard Ottaway (Conservative, Croydon South)

I was merely quoting from the Inland Revenue's own guide on the matter, not making up figures. Will the Minister confirm that, when someone has a relevant engagement that is caught by IR35, that person will not be entitled to the benefits of an employee?

Dawn Primarolo (Labour, Bristol South)

I cannot understand why the hon. Gentleman finds this point so complex. If employees pay national insurance because they are employed as employees, they will be entitled to the same rights as other employees. [Interruption.] Perhaps I should stop looking at Opposition Members, Dr. Clark, and focus my gaze on you. I hope that you will not misinterpret that; it is just that Opposition Members are really not a very attractive prospect. As I said, I think that the objectives are well understood now. It is true also that all right-minded citizens, business representatives, individual taxpayers and their advisers, Members of Parliament and those who are in the other place recognise—it is a matter of public record—that no one wants that type of avoidance to continue. Such avoidance simply is not fair to the rest of us, and we should deal with it. It is also true that, until 6 April 2000, people were perfectly entitled to obtain a tax and national insurance advantage by working in that way through service companies. However, it became apparent that many of the people doing so were acting against the spirit of the legislation, to their considerable personal advantage, and at a disproportionate cost to the Exchequer. In reaching this decision, we recognised that we were proposing to remove what had been a legitimate way of reducing tax and national insurance bills. That is why we announced our intention to make this change a full year ago—to allow good time for preparation and consultation. The Government have taken extensive consultation on this matter. Even the PCG, which has been so extensively quoted, has said publicly that the Government consulted and listened on this matter. However, we have not gone as far as the PCG would have wished. People with a vested interest in continuing to avoid paying tax and national insurance, plus one or two powerful lobby groups, have been sowing confusion about what the measure does. Let me deal first with the point made by the hon. Member for Croydon, South (Mr. Ottaway) that IR35 is an attack on entrepreneurs. The tax system has a long-established method for distinguishing between employees and the self-employed entrepreneur. Some people have chosen to use service companies because they do not fit the definition of self-employment, but still want to benefit from the tax breaks available for self-employment. They are really only employees who want a better deal from the tax system than that to which their status entitles them. Those people will be targeted by the new rules. As I said on Second Reading, our intention is not to prohibit the use of service companies. Instead, we are telling those who are really employees that using service companies will not enable them to avoid paying their national insurance and tax at a fair level. The idea that people who are really employees are the same as self-employed people in taking risks, creating employment and seeing their companies grow simply does not stand scrutiny. We are not talking about all service companies or all IT contractors. The new rules will apply to people in service companies who would be employees of their clients if the service company did not exist. The usual case law tests will be used to determine whether someone would be an employee. Those tests have been used for all others in the tax system and are well known. I do not believe that it is beyond the intellectual capability of those IT consultants who are still protesting to get to grips with these rules.

Malcolm Bruce (Liberal Democrat, Gordon)

Will the hon. Lady explain how an employee who has travel and training expenses is treated in the same way as someone with a company who has those expenses? Is it not normal for the company's employer to pay those expenses and claim tax relief on them?

Dawn Primarolo (Labour, Bristol South)

If someone is employed by a company which provides training, there is no claim on a benefit in kind for the employee, but there is no relief—the employer gets it. An employee cannot claim his training expenses—nobody can. Training expenses for employees cannot be tax-deductible. If employees pay for their training, that is up to them.

Robert Smith (Liberal Democrat, West Aberdeenshire and Kincardine)

Will the Minister give way?

Dawn Primarolo (Labour, Bristol South)

No. Opposition Members must fix in their minds what employees are entitled to and what self-employed people are entitled to. We are ensuring that the rules in the tax system are properly aligned. The next point was that there would be a brain drain—a massive exodus from this country. Many people have said that they will go abroad, but the IT industry recognises that that is just a lot of noise. Britain is still a low-tax country and there will still be good money to be made in the IT industry, even after IR35. The trade journals show what has been said by the profession. Computer Consultant said: Although many of the contractors questioned said they intended to look for work overseas, the feeling is that this is an expression of contractors' defiant anger rather than a true intention to migrate. Christine Little of the Recruitment and Employment Confederation said: I cannot believe the tax advantages of working in Germany or Holland are going to be enough to justify uprooting and moving abroad. 7.45 pm The idea that IT consultants can go somewhere else where they will not have to pay tax on their earnings is interesting but incorrect. In some countries, workers will be worse off than if they had stayed in the United Kingdom and fallen within IR35. I have received some interesting postcards from someone who allegedly moved to Germany as a consequence of IR35. I have news for that contractor: on an income of £55,000 per year, his take-home pay in Germany will be £25,000. If he had stayed here, it would have been £34,000 under IR35. His friend, who apparently moved to Strasbourg, will be taking home £30,000 instead of the £34,000 that he would have taken home in the UK. In the United States, Norway, Belgium, the Netherlands, Germany—all the countries that contractors claim that they will move to—the liability to tax is higher than it is here. The next area is to do with the expenses and the 5 per cent. allowances proposed under this measure. The new rules will affect only income from engagements that would have been employment if entered into directly with the client. It is a question of whether an activity passes the employment test. Income from any other source within that service company is completely unaffected by the legislation and can be used by the company to meet running costs, make investments, make capital purchases, employ staff, pay dividends, or whatever. When a service company has income only from engagements that are caught by the legislation and nothing else, we do not think it right that the service company worker should be in a more advantageous position on tax and national insurance than a conventional employee. I really cannot understand why the Committee is struggling with that simple proposition. The 5 per cent. allowance, which is on top, is intended to cover the basic running costs of the service company, such as Companies House filing charges and accountancy fees. We have said that we will not inquire into how that money is spent, and also that the service company need not keep any records in support of the expenditure. As far as we are concerned, this is an automatic, flat-rate allowance. It is pretty generous, given that most of the work done by service companies would be as an employee. The hon. Member for Kingston and Surbiton (Mr. Davey) spoke on Second Reading about the compliance regime. He said that he would ask me again about whether the position on IR35 would be flexible. I say to him, as I said to the Inland Revenue, that officials are to give the benefit of the doubt where businesses make genuine mistakes when trying to comply with the rules. That is only fair, given the change during this period. It is a light-touch approach. Of course, in the rare cases in which avoidance of tax and national insurance liability is deliberate and intended, the same compliance regime and penalties will apply as exist in the tax system for trying to avoid paying tax and national insurance. Contractors working for service companies will be entitled to statutory sick pay and maternity pay, like other employees. They may not get the benefits from their clients but they may, in the short term, from their companies. IR35 does not discriminate against anybody in terms of their relationships. The regulations make it clear that we must consider associates and how they work together. Hon. Members mentioned Australia and questioned whether it had withdrawn its legislation. It has not—it is going ahead with it and has made some amendments, as we have done, but in different areas. Anyone who meets the accepted definition of an employee should pay tax on the same basis as any other employee. This measure is not anti-competitive and it does not discriminate in favour of big business against small firms. It is simply not true to say that it does. Again, I will quote the industry, in a debate about the measure on "Accounting Web", in which it was stated: I find it laughable when people who have been using the veil of incorporation to hide what is fundamentally the relationship which would otherwise exist between an employer and an employee, claim that it is somehow going to harm British business. It is not—it's going to harm their pockets. That is what those affected are complaining about.

Sir Nicholas Lyell (Conservative, North East Bedfordshire)

I have been listening carefully to the Minister and I have read the Chief Secretary's most recent letters to me on this important topic. My impression is that the sort of constituents to whom I referred in my speech, who are paying substantial tax but sometimes work for long periods for an individual company that uses their services, will not be regarded as employees and will not be caught by IR35. Will the hon. Lady confirm that only the blatant cases are likely to be caught? Or is she expecting to scoop up the lot, in which case my constituents and those of my hon. Friends and other hon. Members who have spoken will still be very worried?

Dawn Primarolo (Labour, Bristol South)

I have already answered that question in the debate. The question is whether the person is an employee or is self-employed. The terms and conditions of their contract with their client are the issue and those determine their status. If the relationship with the client is clearly that of the self-employed, as laid down in case law and in the Bill, the answer as to their liability to IR35 is clear. My hon. Friend the Member for Aberdeen, Central (Mr. Doran) and the hon. Member for West Aberdeenshire and Kincardine (Sir R. Smith) asked a series of questions about the oil industry. If a worker in that industry works for a client in circumstances that meet the definition of employment, PAYE and national insurance should be paid. Until now, clients have been able to insist that workers set up service companies—my hon. Friend referred to this—to enable the client to avoid liability for PAYE and national insurance. I listened carefully to my hon. Friend's comments and to those of the hon. Member for West Aberdeenshire and Kincardine. I think that they will find that that definition is the issue and that was the requirement for companies, but I will reconsider those decisions carefully. [Interruption.] I realise that Opposition Members find two things difficult. One is a woman speaking at the Dispatch Box, because they treat women appallingly in the House. The other is that although they ask questions, they do not want the answers because they know the weakness of their case. They can heckle me all they like, but I am putting the Government's case on the record and I intend to continue to do so. The final question asked by the hon. Member for Twickenham concerned the figures in the Red Book and the increase in the first year to £900 million. He will see from our original assessments that we estimated the number of companies that were using the loophole as we described. We were challenged about the estimate by the hon. Gentleman and a number of organisations. I asked the Inland Revenue to assess thoroughly through our network the number of companies that appeared to be using that mechanism, and which would therefore be affected. That is where the new £900 million figure came from. In truth, the avoidance mechanism is being used far more extensively than we had thought, and the Government have moved to close that loophole. I commend the clause to the Committee and I look forward to what I hope will be more good-natured debates on the same subject in the future.

Richard Ottaway (Conservative, Croydon South)

The problem is not that we do not listen to the answers; it is that the Paymaster General does not answer the questions. The Inland Revenue published a leaflet called, "Questions frequently asked about IR35", which makes it clear that an individual who works through a personal service company will not be in the same position as an employee while both are paying class 1 national insurance contributions. That person will not be entitled to benefits from the company or to unemployment benefit between contracts. The most honest thing that the Minister could do is admit that, rather than trying to mislead the Committee into thinking that people will be in the same position. The hon. Lady did not answer the question posed by my right hon. and learned Friend the Member for North-East Bedfordshire (Sir N. Lyell) about the 5 per cent. Most importantly, she did not deal with the fact that the Red Book estimates that the measure will raise £900 million. Inland Revenue documents state that 60,000 companies will be affected. One does not have to be a genius to work out that every one of those companies will have to pay £15,000 a year extra in taxation. The hon. Lady did not deal with any of those issues, nor did she deal with the fundamental matters raised by hon. Members on both sides of the Committee, despite the objections of the hon. Member for Aberdeen, Central (Mr. Doran). That is why we will vote against the measure.

DOUBLE TAXATION RELIEF

Oliver Letwin (Conservative, West Dorset)

I should begin by declaring the interest that stands in my name in the Register of Members' Interests, which apparently gives me the unfortunate and dubious advantage over some representatives of Her Majesty's Treasury of understanding the effect that clause 102 will have on British industry.

Graham Allen (Labour, Nottingham North)

Is that a recommendation?

Oliver Letwin (Conservative, West Dorset)

I do not know whether the hon. Gentleman will find by the end of my remarks that it is or is not a recommendation. It makes one so profoundly miserable about the process of our government when one understands the way in which the measure came to pass and what it contains that I am left regretting that I understand it.

Graham Allen (Labour, Nottingham North)

It makes one want to clear off back to the City.

Oliver Letwin (Conservative, West Dorset)

It would be precious little use obeying the hon. Gentleman's usual sedentary animadversions, because if the measure were to have its way, a good part of the activities of the City would be removed at a stroke. It is surprising in many ways that we are having this debate, because the measures in clause 102 and schedule 30 have been the subject of probably the most sustained and intellectually effective destruction job on a tax measure of the past few decades. Yet we are having a debate because the measure still stands. The Committee will want to know the history of the measures. We are told something about them in the explanatory notes. I should say in defence of the Treasury, which I am otherwise about to excoriate, that the notes on clauses in this respect are an admirable example of clarity. The officials who wrote them deserve the thanks and congratulations of the Committee for making clear just what is going on in this noxious clause. Paragraph 42 of the notes on clause 102 and schedule 30 makes a statement which is as near to misleading the House as I suspect that parliamentary language will allow me to allege. The statement is: The measures contained in Schedule 30— and hence the subject of clause 102— have been drawn up after extensive consultation with business. That is an oddity. It is perfectly true that there was extensive consultation with business—one of the more extensive consultations that has been carried out in respect of any tax measure in the Bill. Unfortunately, it was consultation on a different proposition. It is an interesting concept of consultation that we have here. I might consult you, Dr. Clark, about the prospect of my giving you cornflakes tomorrow morning for breakfast. You might tell me that you prefer Frosties. But if my intention was to electrocute you, I might not have discovered everything that I wanted to know about your response to my proposition. The Government's consultation is a somewhat similar case. I may say also in defence of Inland Revenue officials that the consultation paper is a model of intellectual rigour and one of the loci classici of exposition of the advantages of export of capital neutrality. The document goes through in awesome detail systems of exemption, systems of credit, systems of onshore pooling and systems of mixing. It comes to the view, in section 6.32 on page 29, that Mixer companies have been in use for a considerable number of years. Multinational groups have structured their overseas interests accordingly. Relief for underlying tax, which mixers facilitate, of around £4 billion a year is allowed each year. Both mixer companies and onshore pooling present a number of interesting and complex issues of both an economic and a technical nature. It will be important for the future to strike the right balance between them. So what the Inland Revenue said to British industry in one of the longest and most detailed consultation exercises in recent years was that it was important for the future to strike the right balance between mixer companies and onshore pooling. Looking round at some of the distinguished Members present, some of whom have served in Ministries and some of whom have been enormously important members of the Treasury, I am sure that they already understand the measure, but in case anyone has the slightest shade of doubt about what clause 102 and schedule 30 do, I inform them that they prevent the practice of mixing. In other words, they prevent the averaging of the rates of tax incurred in foreign jurisdictions by the subsidiaries of a multinational company, and thus, by means of such averaging, a greater offset against United Kingdom tax than would otherwise be the case. There are two methods of achieving that greater offset. One is through mixer companies, which are artificially established subsidiaries offshore, and the other is through the method of so-called onshore pooling, which achieves the same effect but within the United Kingdom tax jurisdiction. So two possibilities were put in the consultation exercise, either of which would serve admirably the purposes of British industry and of multinationals located and headquartered here. British industry was asked to reply to the consultation document and tell the Inland Revenue which of the two systems was preferable, or whether some other system that would roughly speaking achieve the same results was preferable. That was an admirable and sensible exercise—but what happened when clause 102 came along? Why, Dr. Clark, not the cornflakes but the electric shock. It turned out that the effect of clause 102 was not mixer companies, onshore pooling or something similar to them, but the opposite. It was to destroy at a stroke the system of averaging offshore tax rates, in order to clobber British industry headquartered here with multinational outlets and subsidiaries. In passing, I might mention that the process that I have described contravenes the Government's own code of practice. I do not think that the Government believe that codes of practice matter. They are prolific in producing codes of practice. When they came to power, they produced more codes of practice than probably all the Governments of that century put together—so many that Ministers probably cannot keep up with which codes of practice they issued or what those codes say. In December 1997, with a great flourish, the part of the Treasury for which the Paymaster General is responsible—the Inland Revenue and Customs and Excise—introduced a code of practice on consultation. I do not know whether anyone reads these codes of practice inside ministerial offices. I have no doubt that people read them inside the Inland Revenue; they probably they live by them as a kind of bible. I have no doubt that when Ministers conducted the consultation exercise, they intended that it should conform to their code of practice on consultation exercises. So I suppose that when they asked people whether they would prefer mixing or pooling, Ministers genuinely meant to choose the one or the other. It would have been a good idea if they had done that, because page 6, section 3 of the code of practice tells the people consulting on behalf of the Inland Revenue that they ought to assess the likely effect on tax revenues of the measure being put forward. It is a little difficult for an industry that is being consulted to assess the likely effect on tax revenues or its tax payments of a measure about which it is not being consulted. You are learned in many respects, Dr. Clark, and I wonder whether you would find it easy to answer if I were to ask you what would be the tax effect of increasing your income tax by 5 per cent. when what I really wanted to know was what would happen if I increased your income tax by 50 per cent. You might be forgiven for giving me an odd answer. That is what happened in the case of British industry. As it was asked not what would be the effect of the measures in clause 102 but what would be the effect of some other set of measures that have not been implemented and are the opposite of the measures in the clause, it did not give the answer that is required in a consultation exercise. That is probably why the Government misestimated the effect of the measure on their tax revenues. When I say that the Government misestimated, I do not mean that they got it wrong by 5 per cent. or 10 per cent. Goodness me, no Opposition Member would be so ungenerous to the Paymaster General as to suppose that she could make an accurate forecast of tax revenue. No Chancellor of the Exchequer, no Paymaster General and no Financial Secretary has ever been able to do that. People get it wrong by 20 per cent., 30 per cent. or 50 per cent. All of those are accepted, but this is not a case of getting it slightly wrong. This is a positively heroic error. I cannot recall a time in recent history when such an error has been made. They got it wrong, roughly speaking, tenfold. If the Chancellor of the Exchequer got things wrong to that extent in general, he would bankrupt us and use up our gross domestic product about five times over. It was quite a mistake to make. If such mistakes were generally made about taxation, one could produce some interesting economic effects. Why did the Treasury make the mistake? It made it because it consulted on the wrong measure—the opposite measure. Therefore it did not have the slightest idea what the effect on taxpayers would be. I say all those things not just because they are important in themselves, but because they relate to the reason why we have a code of practice. Of course, Ministers may have intended the code to be just window dressing, but they sent some earnest officials away to write it. Those officials wrote it sensibly, got down to business and worked out what one should do if one is consulting. They worked out that if one is consulting about tax, it is jolly nifty to find out what the effects on industry will be. Therefore, they said that one should ask that question—but the Treasury and the Inland Revenue did not ask it because they asked a question about a set of measures that they were not proposing to introduce and did not introduce. Perhaps the Inland Revenue intended to introduce them, but the Treasury did not; I shall come to that point shortly.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

Will the hon. Gentleman confirm that the code on consultation allows the Government to introduce anti-avoidance measures without consulting, but that the Government have explicitly said that these measures are not about anti-avoidance?

Oliver Letwin (Conservative, West Dorset)

The hon. Gentleman, as so often on these matters, is absolutely right. First, this is not an anti-avoidance measure. Secondly, it does not tackle avoidance. Thirdly, the Government have admitted that, and fourthly, as he rightly said, the code specifically exempts anti-avoidance and some other measures from consultation. For example, it exempts measures that would be evaded if consultation about them took place. However, this clause does not fall into that category. It is a classic case of a highly complex and important tax measure being introduced, about which there should have been consultation, and about which the code says there should have been consultation. There was no consultation, because the consultation took place about something else—the opposite measure. I have written today to the Cabinet Secretary to ask him what is to be done about a Department that breaks its own code of practice. I have asked him what administrative sanctions apply, what a Department should do when such a contravention comes to light, and how its accounting officer should behave. I have also asked the most important question. Hundreds of highly paid individuals in British industry—this is not my major point, but it is important—have spent a couple of years thinking about what the Inland Revenue has proposed, and they tried to answer its question. They spent a lot of time with their advisers, and that is expensive time. Perhaps it is some of the most highly paid time in the country, but all that was a total waste of time and money because they answered a question about cornflakes when they were facing electrocution. I have asked the Cabinet Secretary what administrative redress and what ex gratia payment the Treasury and the Inland Revenue will make to people who have wasted their time because of a consultation exercise about the wrong thing. If the answer to my question is, as it may be, that there is no such redress, my advice to those sections of British industry would be to bring a class action and to test in court whether there can be redress in such a case. There jolly well should be. I have outlined the history of the consultation exercise. I now come to the brilliant measure itself. How does it achieve its intended result? What is its intended result?

Stephen Dorrell (Conservative, Charnwood)

What is the purpose of the measure?

Oliver Letwin (Conservative, West Dorset)

That is exactly the right question. What is the measure's intended result? I admit to a profound perplexity on this matter. It is possible, although I hardly dare allege such a thing in such an august assembly as this, that the person or persons who invented the measure—I do not think that they are in the Inland Revenue at all—intended that it should raise a lot of extra money for the Exchequer. I hardly dare allege that, because Ministers have denied it repeatedly and I know that they are honourable. However, someone somewhere in the Treasury—not a Minister, but certainly not in the Inland Revenue, because it consulted about the opposite change—had the brilliant idea that he could invent the most complicated and stealthiest tax of all time—a tax that he hoped no one at all would understand, which would raise a large sum of money. That is one possibility. The intervention of my right hon. Friend the Member for Charnwood (Mr. Dorrell) is particularly apposite to the other possibility, and my right hon. Friend the Member for Fylde (Mr. Jack) made the point forcefully on Second Reading. It is also possible that this is a simple case of a catastrophic administrative error, and the measure has no aim at all. The Government have not the slightest intention of achieving the results that it will achieve, or any other discernible results. They might simply be engaged on an acte gratuit to prove that one can be an existentialist Treasury. That is a possibility. Surely, we should follow the dictum that, when one has looked in all the possible places and not discovered the true answers—we know that they are not true because Ministers have denied them—we have to look in the impossible places. Therefore, I suggest that it is possible that the measure is an arbitrary action or a knee-jerk reaction. If so, it represents an interesting departure in administration. If tax policy is to be conducted on that basis—without warning and with or without consultation, but perhaps with consultation on the opposite—we may discover that all sorts of taxes are changed in the coming years. I rather look forward to that. It will be fun to stand at the Dispatch Box and watch them go by as one watches the symbols on a one-armed bandit.

Michael Clark (Conservative, Rayleigh)

We are captivated by the hon. Gentleman's hypotheses, but we would be even more engaged if he discussed the substance of the clause.

Michael Jack (Conservative, Fylde)

rose—

Oliver Letwin (Conservative, West Dorset)

Before I give way to my right hon. Friend, may I wholly accept your admonition, Dr. Clark? I shall return to discussion of the clause.

Michael Jack (Conservative, Fylde)

I am grateful to have the opportunity to enable my hon. Friend to get back on track. He may recall that on Second Reading the Paymaster General gave us a hint of the missing reason for the proposal. In some way, it would have a remarkable effect in lowering high tax rates in other tax jurisdictions. Has my hon. Friend had a chance to consider the validity of that line of argument?

Oliver Letwin (Conservative, West Dorset)

I am now about to come to something really astonishing. This point relates directly to the clause, but my right hon. Friend and I are both suffering from an important form of selective amnesia. I have exactly the same memory as him of what happened in an exchange on Second Reading, so I read the Hansard report of what the Paymaster General said in response to him on Second Reading. Strangely enough, the report appears to be slightly different from my memory. I know that Hansard is always accurate, so my right hon. Friend and I—I assure you that we have not discussed this with each other, Dr. Clark—must have suffered from a collective hallucination. I am glad of that. If the Paymaster General had said what we mistakenly supposed—contrary to the Hansard record—that she had said on that occasion, she would have said something so manifestly ludicrous that it would have been impossible to imagine that it could have come from a Minister of the Crown.

Michael Clark (Conservative, Rayleigh)

Is this hypothesis No. 2?

Oliver Letwin (Conservative, West Dorset)

No, Dr. Clark, because I shall come on to what the Paymaster General said in Hansard, which is one of the arguments now being alleged for the clause. I hope that I can end this excursion simply by saying that I am unclear about what on earth the Government are trying to achieve by the clause. Therefore it is difficult to tell whether it will achieve its aim. However, it is clear what it will achieve. First, it will clobber British industry for about £4 billion a year—I may be wrong, but I am not wrong by the scale on which the Chancellor was wrong. It might be £3.5 billion—I shall grant the Paymaster General that—or it might even be £3 billion. There is not a serious set of accountants or business men in Britain today who think that the figure is much less than that. When Pricewaterhouse first referred to that effect of the clause, the Government did something that takes us beneath the level about which we should joke. Instead of answering the point and investigating it seriously—to do them justice, I think that they have begun to do that, and I shall discuss the reasons why shortly—they impugned on the Floor of the House the honour and professionalism of a serious professional who is one of the partners of Pricewaterhouse. I regard that as gross abuse of parliamentary privilege. The Paymaster General should take that back on behalf of the Government or repeat it outside the House of Commons, which would mean that she would be sued for a serious amount of money.

Nigel Beard (Labour, Bexleyheath and Crayford)

Is the hon. Gentleman suggesting that when PricewaterhouseCoopers was asked for instances of companies that would suffer from the proposed legislation, it was not able to quote even one?

Oliver Letwin (Conservative, West Dorset)

The hon. Gentleman, no doubt honourably and genuinely, is entirely misled about what happened within the Treasury. If necessary, I am prepared to go into the details of what happened, which I happen to know. I will not detain the Committee with that because I now propose to list those who have said exactly what the effects of the proposal will be—

Nigel Beard (Labour, Bexleyheath and Crayford)

Subsequently.

Oliver Letwin (Conservative, West Dorset)

The hon. Gentleman tries my patience. It is true that the responses were subsequent, but 24 hours subsequent to the visit and before the Paymaster General's statement in the House. If we were to get to the seriousness of the matter, things could become very uncomfortable for Ministers. We now have absolute clarity about what British industry thinks of the proposal. I will start with the Institute of Directors. I suppose that Labour Members will think that it is prejudiced. However, it is pretty moderate on the subject. It states that it is a further blow to UK-based multinationals… The Government should withdraw this paragraph from the Finance Bill…and have a proper consultation prior to the Finance Bill 2001. The consultation in 1999 bears no relation to the UK system as amended by this paragraph, and is therefore worthless in this context. I know that the CBI will be dismissed by some Labour Members as a mere collection of capitalists. However, what does it have to say about the matter? It states: This clause introduces Schedule 30 containing a draft of radical and unheralded changes to the existing law on Double Tax Relief, particularly in relation to restriction of relief involving mixer companies. The biggest problem which business has with the provision is their adverse effect on the international competitiveness of businesses located in the UK. I shall return to that point in a moment. The CBI continues: Companies of different sizes across the sectoral spectrum, whose business is vital to the success of the UK economy, have raised concerns about the adverse impact of the proposals. Forty of the CBI's companies, a small fraction of those that will be affected, are estimated to be losing about £700 million a year. The CBI continues: Specific problems are discussed below but the overall effect of the adverse changes…has been to create a situation where a number of commentators, including companies which have contacted the CBI, are saying that the UK will now have one of the worst, if not the worst, double tax regimes amongst the G7 nations. What does the Association of Corporate Treasurers have to say?

Michael Jack (Conservative, Fylde)

Before my hon. Friend departs from the point about foreign jurisdictions, will he note that in response to a parliamentary question that I tabled to the Paymaster General, inviting her to put on record what information the Treasury had about foreign tax jurisdictions in this context, she was unable to supply any?

Oliver Letwin (Conservative, West Dorset)

I am grateful to my right hon. Friend. had noticed that. That is why later I shall supply the information for the Treasury; I think that he is already in possession of it. If it had looked into the matter, I am sure that it would have discovered what the Inland Revenue already knew. As the Treasury was introducing a measure, the opposite of that which the Inland Revenue had been consulting about, it is quite possible that it did not want to ask the Inland Revenue what the effect of the measure that the Inland Revenue thought that it was not introducing would be if it were introduced. The Association of Corporate Treasurers tells us that the announcement on 21 March of the sweeping and fundamental changes to the double tax relief … system took the entire business community by surprise …. these changes reduce the UK's competitiveness as a base for multinationals…The suddenness of the change and its fundamental nature is extremely disconcerting. I do not know whether the association is also regarded as a dangerous group of lunatic capitalists, but the Chartered Institute of Taxation really cannot be put into that category by the Paymaster General. She spends most of her time in the House of Commons telling us how she will close loopholes, apparent loopholes or what seem to her to be loopholes, that will destroy other sections of British business, on the ground that the institute has told her to do so. The institute, her favourite body, tells us: In the discussion paper dated March 1999, and in discussions with the Inland Revenue International Division— that is an important point in itself because it mentions not just the paper but what was said after it was issued— the impression was given that offshore mixer companies were accepted and that, indeed, some form of onshore pooling was being considered. In the event, the proposals go in the opposite direction. This calls into questions the bona fides of the consultation process and the way in which the Revenue and the Treasury work together in relation to taxation policy decisions. We have begun to hear what will be the prolonged murmur of companies that are thinking of re-siting their headquarters away from the UK. Zurich Allied cited its reasons a few days ago; today, it is SmithKline Beecham. Whatever the Paymaster General may care to do to an innocent partner of a major accounting firm when he raises the truth, I doubt that even she will want to assert that those companies, which between them employ thousands of people in this country, are to be neglected, ignored or abused. We have the seeds of a serious malaise in our economy; they have been sown by a provision that is unheralded and unannounced, and about which there was no effective consultation. Why did it happen? Part of the reason, probably, was that the Inland Revenue was genuinely and honestly moving in an entirely rational direction. From what we can gather, an economic adviser in the Treasury then had a bright idea. It was suggested to Ministers that they could make a large amount of money very easily and quickly from a source that had not been the subject of the initial levy when the Government first came into power, but which was mighty rich. The Ministers were told that it would never be defended in public because no one would have the gall to do so. That was because the source was nasty capitalists coming from abroad called multinational companies. I think that that is what happened. Was the process by which it happened respectable? No, it was not. I have dealt with that already. Regardless of the merits of the measure, the process was disreputable. Much more important is the question whether it is substantively tolerable. What are the Government's arguments for taking £3 billion, £3.5 billion or £4 billion a year off the multinationals that are headquartered in the UK, and do they stand up to scrutiny? The first argument is that the figures are all wrong, and unfortunately that argument is right, but it backfired. As I have pointed out, the figures that are wrong are those of the Government, and the measure makes a huge hit on the multinationals headquartered in Britain. The second argument has not been made here, but I suspect that it has been made in some quarters in the Treasury, and it is rather more ingenious. The hon. Member for Kingston and Surbiton (Mr. Davey) will enjoy this argument, which is parallel to some of those used during the proceedings on the Government Resources and Accounts Bill. It runs as follows: multinationals currently headquartered in Britain are shackled by the ingenuity of the capital gains tax arrangements because they cannot move their headquarters abroad without crystallising a huge capital gain arising from the difference between the historic cost of the subsidiaries that they have acquired and their current market value. We can therefore sting them for £3 billion, £3.5 billion or £4 billion because they will not be able to leave these shores and we will not suffer the adverse effects that would be caused by their doing so. That is a curate's egg of an argument—some parts are good and other parts are not so good. The bit that is good is that it is true. The ingenuity of the capital gains tax system means that existing multinationals with old acquired subsidiaries are shackled to this country. That is not an unusual arrangement; most countries have it. Those companies cannot get out because if they tried to do so they would have to pay the Chancellor a whopping bill—which would probably be greater than the one that we are discussing—all at once, and he would be a happy man. He could put away another several billion pounds to pay off national debt or to spend on the national health service, à choix. There are two slight problems with the argument. The first is that not all the major multinationals acquired their subsidiaries and assets abroad long ago. Some, such as Vodafone-Mannesmann, have recently acquired massive overseas subsidiaries. I pose as no expert on these matters, but it is not clear that they are shackled to this country. Vodafone-Mannesmann is the biggest company in Britain, the biggest company quoted on our stock market and the most important single element of the very market that the stock exchange today conjoins with markets in Frankfurt and New York. If the measure is passed, the company might move its headquarters abroad, and if it did, what would go with it? All the lawyers, accountants and consulting engineers, all the people in the City and all those who service all those people, from tea to printing, would lose out. We are not talking about thousands, millions or tens of millions of pounds; we are talking, over time, of hundreds of millions of pounds of economic value that will be lost to this country.

Howard Flight (Conservative, Arundel and South Downs)

Billions.

Oliver Letwin (Conservative, West Dorset)

In the long run, as my hon. Friend says, we could lose billions of pounds. The second slight problem concerns all the companies that are not yet headquartered here. I have personal experience of this matter, because at one stage I was restructuring INTELSAT, a satellite organisation that involves all 137 countries of the world. The question arose of where the organisation should locate the headquarters of its new privatised spin-off. The most extensive search was performed, ironically by Pricewaterhouse, on behalf of INTELSAT, to identify the countries where multinational companies would most like to have their headquarters. The two that came top of the list were the UK and the Netherlands. What would happen today? The UK would be at the bottom of the heap. For that reason, if clause 102 is passed, an intangible and unquantifiable economic value will be lost over the years because companies that would have brought their headquarters here will not do so. They will go to the Netherlands or other countries. The idea that the measure will have no real effect because companies are shackled is just true enough to be deeply misleading. There is a third argument, which Ministers have used and to which my right hon. Friend the Member for Fylde alluded a moment ago. Ministers have tried to claim that we will have a highly competitive regime even after clause 102 has been passed. I am not now suffering from the selective amnesia to which, regrettably, my right hon. Friend and I are subject, because I was able to find this point in Hansard. On 17 April, the Paymaster General said: when we compare how we tax our multinationals and, in particular, the use of our controlled foreign company legislation, with the practice of our European partners— she may be thinking of places where there are many company headquarters such as Luxembourg or the Scilly Isles— we find that the Government's proposals are to bring us into line with the competitive practice of other countries.—[Official Report, 17 April 2000; Vol. 348, c. 758.] I mention the Scilly isles because the proposition is absurd. The USA has onshore pooling and uses a general basket of offshore credits. Japan has onshore pooling via a worldwide basket. Canada exempts dividends from trading activities worldwide. France and Germany exempt 95 per cent. of dividends from significant shareholdings. Italy does likewise, but only within the EU, although that is changing in 2001 and the exemption will be universal. Of the G7 countries, the UK, under clause 102, becomes the only one that does not have onshore pooling or exemption as a way of achieving the same effect. The Paymaster General brilliantly exposes us to be the sole candidate to be at the bottom of the heap, the one country that companies would want to avoid if they were seeking to site their headquarters in a major economy. I do not know what the Paymaster General thought that she meant when she said: when we compare how we tax our multinationals…we find that the Government's proposals are to bring us into line with…competitive practice, unless she thinks that bringing us into line with competitive practice means ensuring that we are last in the race. If that is the hon. Lady's general notion of how the UK should be competitive, we have grounds beyond the clause to worry. 8.45 pm The fact is that the measure, which does not have the justification that it has no real cost, nor that it has no ill effect, nor that it leaves us competitive, has been given another basis by some of the Treasury's utterances: we have been told on various occasions that it is fairer. Only some companies can form mixer companies—how unfair, how wrong; therefore, we must prohibit that practice, which favours the mighty. However, a slight intellectual impediment afflicts that argument. The average fish-and-chip shop does not need to form mixer companies, because it does not have very many international subsidiaries. That point clearly eluded the Paymaster General during her investigation of the subject. It tends to be the case that, before a company has foreign subsidiaries, it becomes rather large—indeed, it becomes a multinational company. Therefore, the unfairness spotted by the hon. Lady is one that does not have the quality of existing. The next argument advanced is that the system produces capital export neutrality. The Paymaster General and almost everyone here in the Committee knows about that, but, just in case anyone less informed is reading Hansard, I shall explain that capital export neutrality is an important principle: it is that we should have a tax regime that makes our companies when they invest abroad relatively indifferent to which tax regime they choose to invest under, so that they invest instead in the places where they can most efficiently produce, and that is to the advantage of our companies and their shareholders in the UK. It is an admirable aim, which the Inland Revenue consultation document states as an objective. However, it would be extremely odd if that were the aim that really explained why the measure is a proper one. First, the Inland Revenue's own consultation document makes it clear, in paragraph 1.6 on page 6, that the overriding objective should be "the national interest" of the UK economy. Whatever the measure does for capital export neutrality, it certainly is not in the interests of the UK economy to send all the multinational headquarters scuttling. Secondly, it is not a strong argument in favour of the scheme because paragraph 3.16, on page 12 of the consultation document, makes it clear that: The ordinary credit system adopted by the UK and a number of other countries has the twin advantages of going some way towards achieving…CEN— that is, capital export neutrality— for the United Kingdom economy. In other words, the Paymaster General's argument that the system needs to be got rid of because getting rid of it is necessary for the sake of capital export neutrality has the disadvantage that her own Department denies that fact. Finally, we come to the mystery guest—the item about which my right hon. Friend the Member for Fylde and I are suffering selective amnesia—the thing the Paymaster General never said. Contrary to the imaginings of my right hon. Friend and me, she did not say that the measure would induce foreign countries to adjust their tax rates—oh no. She said something entirely different—and I know she said it because it appears in the Official Report at precisely the moment that we thought she said what we thought she said. In fact, she said something quite interesting: The use of mixer companies has made UK investors more or less indifferent to the high tax rates in countries in which they invest— I note in passing that she thereby exposed the fact that the system did achieve the effect of capital export neutrality that she otherwise argued it did not achieve, but leave that lacuna as well. She continued: and we need to change that focus— I note in passing that she meant "We need to destroy the capital export neutrality that the Inland Revenue, in its consultation document, said we needed to create," but leave that lacuna. She said: we need to change that focus to ensure that we receive— now comes the seminal phrase that my right hon. Friend and I, through our imaginings and hallucinations, never heard— the correct amount of tax.—[Official Report, 17 April 2000; Vol. 348, c. 791.] Thus, at the end of a vast circle of imaginings, we come back to our beginning, and it turns out that the measure is, after all, a remarkable one that fits into the category that we have come to know and love—that of the stealth tax. It is designed to create a means of collecting the correct amount of tax— that is, a large amount of tax. When I hear the Paymaster General and her colleagues in future talking of things that are "correct", I shall know that they mean elephantine, gargantuan, enormous. That is the amount of tax that the measure raises, and a brilliant way it is of doing so.

Michael Jack (Conservative, Fylde)

I am grateful to my hon. Friend for focusing on the word "correct" because his analysis has alighted on a new principle of taxation. Has he by any chance in his assiduous research come across a definition of "correct" in taxation terms?

Oliver Letwin (Conservative, West Dorset)

I would answer that most instructive intervention—except I know, Dr. Clark, that your beady eye is on me and that if I were to go into the wide-ranging lexicon employed by the Government, you would upbraid and stop me. I shall not be tempted down that line, although we must remember that the correct amount of tax will always henceforth mean in the Government's jargon a very enormous amount of tax. What will be the effect of that tax? It will be to charge those already in this country, to send some of the great new enterprises packing and to deter hereafter, virtually completely, all the highly mobile multinational companies from siting their headquarters in this country. It will try to undo the good work of today in creating our stock markets as a parallel with Nasdaq and Frankfurt; it will try to ensure that our great service industries in the financial services are destroyed; it will in fact try to destroy as much of the British economy as it can in pursuit of the correct amount of tax. I must quickly add one other comment. I apologise for detaining the Committee, but it is rather interesting. The debate is in fact wholly otiose. I have not noticed the Minister intervening or asking to make a statement today, but I have noticed, because somebody has passed it to me, that a statement has already been issued to the press about the matter. We already know the answer to the debate, only it is embargoed until 22.00 which, unless I am also suffering from a hallucination, is some little while from now. It is a strange—a passing strange—thing. We thought that Parliament was debating the matter because it might decide on it and instruct itself and because Ministers might pay attention to Parliament. No, it was not to be. Ministers decided at an earlier hour this evening how they would respond, issued a statement and embargoed it until—I regret to tell them that they may not be quite right—they imagined that we would have finished speaking. Although I shall certainly close my current remarks anon, I am slightly tempted to detain the Committee through the night so that we could read tomorrow morning the text of the statement in the newspapers, and would not have to rely merely on my possibly misleading and hallucinatory version of the release. It is interesting that the release is as ambiguous as could be. Ministers have told the press that they will keep the measure intact but that they will delay its introduction—mysteriously—from 1 July 2000 to 31 March 2001. With your percipience, Dr. Clark, you may be able to detect a reason for doing that, but I must admit that, with my humble intellect, I am precluded. I have not the slightest idea why, if one is to retain the measure intact and not alter any major part of it, one would want to delay its introduction by nine months. If its purpose is to create a means of collecting the correct— we remember, that means an elephantine— amount of tax, why not introduce it early? What is the point of delaying the collection of this huge, correct amount of tax by nine more months? I cannot imagine that the Chancellor of the Exchequer has suddenly become generous in his old age. It may just be—I hesitate to speculate—that the Government's real intention behind the delay is to think again, to tear up this noxious, ludicrous, misguided measure and to start again without admitting that they are doing so. If that is so, we will not be ungenerous. We will not taunt them. We will acknowledge that that was the right thing to do. All the Paymaster General needs to do this evening is to remedy a wrong measure, wrongly introduced through the wrong consultation process, with the wrong estimates of its effects, and with the Government wrongly pretending that they are not undoing it while possibly undoing it. The Paymaster General can remedy all that at a stroke by saying tonight, in the House of Commons, where such things ought to be done, that she is sorry; that the Government made a mistake—we are all human—that they withdraw the measure; that they will table amendments to get rid of it; that obeying their own code of practice, they will carry out a proper consultation, consulting about the measure that they intend to adopt, rather than about the measure that they do not intend to adopt; and that they will eventually produce a sensible proposal that achieves whatever mysterious effect they were trying to achieve, other than to raise the correct amount of tax. If the Government do that, we shall thank them heartily.

Dawn Primarolo (Labour, Bristol South)

I shall begin by responding to the hon. Member for West Dorset (Mr. Letwin), who broke the embargo on information that we forwarded to the Liberal Democrat and Conservative spokespersons in order to keep those on the Front Benches fully informed of the Government's thinking on the matter. When the Finance Bill was published, it was announced that there would be further consultation on clause 102 between then and 19 April. Given that the debate had been called for this evening, it seemed appropriate to inform the House at the earliest opportunity of the Government's decisions in their consultations with industry. When I have dealt with that, I shall return to some of the points that the hon. Gentleman made in his opening remarks. On Budget day two years ago—

Quentin Davies (Conservative, Grantham and Stamford)

Will the hon. Lady give way?

The rest of the debate is in Hansard.