Orders of the Day — Social Security Contributions (Share Options) Bill

House of Commons, 8 February 2001.

NOTICES RELATING TO SHARE OPTIONS ACQUIRED BEFORE 19TH MAY 2000

Howard Flight (Conservative, Arundel and South Downs)

I beg to move amendment No. 10, in page 3, line 3, at end insert— '(7) For the purposes of this Act only, a right to acquire relevant shares will be deemed to give rise to a liability of nil under section 2 below. (8) In subsection (7) above relevant shares are shares which on 7th November 2000 were neither listed on a recognised stock exchange nor traded on a recognised investment exchange.'. I should like first to declare that I am a director of companies with outstanding option schemes, none of which are covered by the Bill's provisions. More importantly, in the past 15 months, I have been participating in a major study among leading members of the industry to determine how the United Kingdom can achieve higher levels of venture capital investment in new businesses. Although the study has focused on a very wide range of issues, I think that it has concluded that the issue of options and the UK options tax regimes are absolutely central to understanding the performance differential between the United Kingdom and the United States. As I shall explain later, the Bill is an important part of addressing that issue. Although Opposition Members are happy that the Government accepted most of the key points that we made in Committee, we are particularly unhappy that, even in the Government's second attempt, their proposals to deal with takeover and roll-over situations are not the correct ones to fulfil what we perceive to be Ministers' intentions. In Committee, we welcomed the Government's deeming amendment, which dealt with our point that a lot of time and money would have been wasted if a determination—or deeming—that companies are not subject to the special national insurance contribution liability is not made automatically on the due date. The amendment would also help greatly to avoid potential unfairness to smaller and foreign companies that were perhaps not even aware of the new special NIC charge on options issued between April 1999 and May 2000. However, although the Government's change is welcome, we believe that there is still a grey area and the potential for problems which could very easily be avoided. The issue is whether options relate to shares deemed to be readily convertible assets—which is the key phrase. In the Government's arrangements, if the option is under water or the shares in question are not readily convertible assets, there would be no special NIC liability. The situation applying last November, however, is old history. For the purposes of the deeming provision, therefore, our amendment proposes not defining shares as readily convertible assets if they were not listed or traded on a recognised stock exchange or market on 7 November 2000. If amendment No. 10 is not accepted, a potential problem is that private companies will assume that they are covered by the deeming provision. Consequently, they could fail to provide due notice. Those companies could become involved in a subsequent, never-ending debate with the Revenue on whether the assets were readily convertible assets on 7 November. If the Revenue found that the companies' shares were readily convertible assets, they would have forgone the opportunity of availing themselves of the Government's relieving provision.

Michael Jack (Conservative, Fylde)

My hon. Friend said in his opening remarks that he had spent time in consultation with companies that use share option. Was amendment No. 10 therefore also born of practical considerations and his discussions with those companies?

Howard Flight (Conservative, Arundel and South Downs)

Yes, it was. I have endeavoured to consult very fully on all the Bill's clauses both with members of the venture capital industry and with lawyers specialising in share options, with the simple and pragmatic purpose of trying to create a regime that is good and not damaging for the United Kingdom economy. The amendment's proposed arrangements would affect only this legislation and are not intended to address the wider issue of how to define a readily convertible asset. They are not intended to have knock-on effects on other legislative provisions. There is a grey area when a private company is approaching flotation and its flotation date and market price have not been established. However, I am sure that the House will agree that, for the particular purposes of this Bill, setting 7 November as the target cut-off date is just as realistic a quid pro quo as that enshrined in the Bill—which tells employees to take a gamble and pay the special NIC charge so that companies do not subsequently have excessive NIC liabilities that could not be met. The amendment is a very practical proposal. It would have minimal revenue implications and help to prevent the possibility of unfairness and wasted time.

John Burnett (Liberal Democrat, Torridge and West Devon)

Liberal Democrat Members support the amendment, which is a move towards simplicity. If an asset is not listed on the specified date, it would not be deemed a readily convertible asset, and therefore not be subject to the special charge to national insurance contributions. I look forward to hearing the Minister's comments on the amendment. Surely the thrust of the legislation is that the special NIC charge should not affect unapproved share option schemes in private companies. By definition, a private company is one that restricts the transfer or sale of its shares. I am a solicitor, and I specialised in taxation matters. However, I do not practise as such now. I also did not do an awful lot of work on approved or unapproved share option schemes. I spent some time in the shares valuation division, and as I said in Committee, share valuation is very much an art, not a science. A lot of deeming takes place and there is enormous scope for disagreement and negotiation. The Government are content for shares that are not readily convertible to escape the special national insurance contribution liability. I hope that the Minister will confirm that and elaborate in detail on the Government's objections to the amendment. Do they fear that it may, in some obscure way, lead to tax avoidance? I do not believe that it will, but I will wait to hear from the Minister before offering any rebuttal. Is their point that it will discourage listing, and therefore investment? If the Minister rejects the amendment, I hope that he will give compelling reasons, because I consider it to be worth while, simple and straightforward.

Michael Jack (Conservative, Fylde)

I declare an interest as a non-executive director of a company that has both approved and non-approved share option schemes, although it does not fall under the scope of the amendment. I share the view of my hon. Friend the Member for Arundel and South Downs (Mr. Flight) that the amendment would bring clarity, but if I were in the Minister's shoes, following what the hon. Member for Torridge and West Devon (Mr. Burnett) said, I would want, if I intended to reject the amendment, to cover areas such as anti-avoidance and what would happen if people with share options in a non-quoted company knew that a takeover was coming and that convertibility would come into play.

Howard Flight (Conservative, Arundel and South Downs)

The amendment relates to history, so it has nothing to do with tax avoidance measures that people might get up to in the future. It relates purely to the position on 7 November 2000.

Michael Jack (Conservative, Fylde)

I posed hypothetical questions in the hope of getting the Minister to explain his position. He may offer us emotive arguments. My hon. Friend's central point of clarity of purpose makes the amendment attractive. People need to know where they stand in this complex area, and the amendment is very helpful. The amendment refers to "a recognised stock exchange", and most people would understand that, but "a recognised investment exchange", to which it also refers, is a little more obscure. It is sometimes hard to keep up with all the newly emerging markets. Will the Minister give us his views in careful and meticulous order? I hope that he will simply say that the Government accept the amendment, but we certainly want to know his reasons either way.

Stephen Timms (Labour, East Ham)

I am happy to provide the House with that explanation. I do not believe that the amendment represents a simplification, as Opposition Members have suggested. Indeed, it would introduce a new and unhelpful complication. The national insurance and PAYE rules on share options were aligned in 1999, so that from that date the PAYE rules effectively determine the national insurance liability. PAYE applies only to shares and options that are readily convertible assets. Shares not falling within that description are not taxed under the PAYE rules, nor are they liable to national insurance charges. The amendment would narrow the definition of readily convertible assets, but only for the purposes of the Bill, and the hon. Member for Arundel and South Downs (Mr. Flight) confirmed that he did not intend to change the definition in other parts of the system. That is an unnecessary complication.

Michael Jack (Conservative, Fylde)

What is the definition of a readily convertible asset and how does the amendment narrow it?

Stephen Timms (Labour, East Ham)

What I can best do is to refer the right hon. Gentleman to the Inland Revenue website, which I have no doubt he visits frequently, and in particular to tax bulletin issue 36, which explains the matter in great detail. Of course, a readily convertible asset is one that can be converted to cash and—

Michael Jack (Conservative, Fylde)

On a point of order, Mr. Deputy Speaker. Is it in order for a Minister, when a Member of the House asks a straightforward question, to refer him to a technical asset that is not immediately available to Members to find the information that is required?

Alan Haselhurst (Deputy Speaker, Saffron Walden)

The right hon. Gentleman has long experience of the House and is a former Minister, and he should know that it is not a matter for the Chair how a Minister chooses to answer a question. It is a matter for debate.

Stephen Timms (Labour, East Ham)

Thank you, Mr. Deputy Speaker. I am a little hurt by the right hon. Gentleman's point of order, as I was trying to be helpful to him in explaining that a readily convertible asset is one that can be readily converted to cash and is therefore appropriate to be taxed. That is well understood. The amendment would narrow that so that a share in any unlisted company would be deemed not to be a readily convertible asset. To have two definitions floating around in different parts of the tax system would be an unwelcome and unhelpful complication.

John Burnett (Liberal Democrat, Torridge and West Devon)

Would the Minister be minded to accept an amendment that did not exclude this amendment, allowing the definition to include shares that are neither listed on a recognised stock exchange nor traded on a recognised investment exchange"?

Stephen Timms (Labour, East Ham)

No, certainly not, because that would substantially broaden the concept of assets that cannot be readily converted, which would substantially reduce the tax take in a wide range of circumstances. In practice, the amendment would allow all those companies that on 7 November 2000 were in the process of floating to avoid liability under the Bill, as well as those that had trading arrangements in place. The hon. Member for Arundel and South Downs said when he moved the amendment that he did not think that it would cost very much. My estimate is that it would cost some millions of pounds, as a significant number of companies required to make a special payment under the Bill would not need to do so if the amendment were passed. I can understand why some people might lobby for that change, but I do not think that it would be right to introduce it.

Howard Flight (Conservative, Arundel and South Downs)

The latter part of 2000 was a period when stock markets were weak and there were very few flotations. Given that the amendment deals with history, the argument that significant revenue is at risk does not stand up.

Stephen Timms (Labour, East Ham)

I think the hon. Gentleman is mistaken. It is true that the shares of a number of companies were lower in the period to which he refers than they had been previously, but the liability faced by those companies under the Bill is therefore less than it would otherwise have been. For that reason, Opposition Members might wish to draw attention to the Government's generosity in setting the relevant date at 7 November. If the amendment were agreed, a substantial number of companies would avoid liability. In allowing companies whose shares were not readily convertible assets on 7 November last year to pay no national insurance on the options granted between 6 April 1999 and 19 May 2000, the Government are already offering considerable relief. Under the existing class 1 rules, many companies would go on the list before the options were exercised and would be liable to class 1 national insurance. The Bill allows all companies whose shares were not readily convertible assets on 7 November last year to be exempt from both class 1 and the special contribution. I hope that that answers the point raised by the hon. Member for Torridge and West Devon (Mr. Burnett), about avoidance. As I have said, a number of companies that will have to pay under the Bill as it stands would find, if the amendment were passed, that they did not have to pay anything. The hon. Member for Torridge and West Devon also said that valuations for unlisted companies are difficult to finalise. I can tell him that the shares valuation division of the Inland Revenue can now help companies with their valuations. However, we made it clear in Committee—and I emphasise the point again to the House—that if valuations are produced by the company on a reasonable basis, and if the valuation eventually agreed with the employer is higher, the company will be able to pay the difference without falling back into the class 1 rules.

John Burnett (Liberal Democrat, Torridge and West Devon)

The Financial Secretary said that he was concerned about the amendment because it would exempt companies in the process of flotation, and those with trading arrangements in place. Will the hon. Gentleman elaborate on the latter point? That would be of considerable assistance to practitioners and people with unapproved share option schemes, as well as to the House.

Stephen Timms (Labour, East Ham)

I am not sure what the hon. Gentleman means. If a company's shares are not regarded as readily convertible assets there is no liability, irrespective of the reasons for that judgment. However, I should be happy to respond to the hon. Gentleman in writing if he would care to drop me a line. From 7 November 2000, companies will have 92 days after the Bill receives Royal Assent to make a judgment as to whether their shares are readily convertible. As was explained in Committee, the Bill contains appeal provisions that would allow a company that had made a wrong call about whether its shares were readily convertible to pay the special contribution after the 92-day period, as long as that decision had been made on a reasonable basis. That provides an important safeguard for companies.

Michael Jack (Conservative, Fylde)

I hope that the Financial Secretary will help me on a technical point. In the case of a company that had flotation plans in train and was therefore deemed to have readily convertible assets, what would happen if the flotation was pulled the day before or the day after the valuation date? What would be the position of that company?

Stephen Timms (Labour, East Ham)

If the right hon. Gentleman comes across a company in that position, he should advise it to contact the Inland Revenue for advice. I am confident that such a company would be given clear guidance about how to proceed. I see no reason, simply for the purposes of this Bill, to impose an arbitrary limit to rules on the definition of readily convertible assets that are well understood and established. I think that that would be an unnecessary, unwelcome and costly complication to the tax system. In the interests of simplicity, as well as for the other reasons that I have advanced, I ask the House not to support the amendment.

Howard Flight (Conservative, Arundel and South Downs)

In view of the guillotine motion, I do not consider the amendment a sufficiently important issue of principle on which to detain the House. However, the Government have introduced a special national insurance contribution charge, and they do not mind the fact that they are addressing a problem of their own making by means of a special form of tax charge. The amendment proposes a special, one-off clarification of readily convertible assets, purely for the purposes of the Bill. It is incorrect for the Minister to object to the fact that we are applying the same principle as the Government are applying. The Minister made a point about trading arrangements that I do not consider correct. The amendment specifically refers to trading on a recognised exchange. In the absence of the amendment, many companies and Inland Revenue staff will spend a lot of time discussing whether the shares of a limited number were readily convertible assets on 7 November 2000. In most cases, it will be found that they were not. The Government's tax take will be very small as a result, but the costs in terms of time imposed on the companies involved and the Inland Revenue will be considerably greater. In arriving at that judgment, I have taken heed of the practicalities. It is a pity that the Government do not see fit to accept the amendment, especially as the Bill is designed to be a pragmatic measure, relieving a problem of the Government's making. However, for the sake of time, I shall not press the matter to a vote. I beg to ask leave to withdraw the amendment. Amendment, by leave, withdrawn.

EFFECT OF NOTICE UNDER SCHEDULE 1

Stephen Timms (Labour, East Ham)

I beg to move amendment No. 1, in page 3, line 34, leave out from "amount" to end of line 36 and insert— 'which (in accordance with the provisions of section 135(3)(a) of the Income and Corporation Taxes Act 1988) would have been taken to be the amount of the gain realised by an exercise in full of that right immediately before the time of its assignment or release.'

Alan Haselhurst (Deputy Speaker, Saffron Walden)

With this it will be convenient to discuss Government amendments Nos. 2 to 8.

Stephen Timms (Labour, East Ham)

These amendments would amend the provisions in clauses 2 and 3 that deal with the assignment or release of an option that has been settled under the Bill. As I said in Committee, I am grateful to the hon. Member for Arundel and South Downs (Mr. Flight) for identifying a loophole in the Bill as previously drafted. Clauses 2 and 3 deal with the somewhat complex issue of exchanges of options. Our clear intention was to protect the national insurance liability if a settled option were to be subsequently rolled over—or exchanged for another option—or assigned or released, and the new option were to be of a higher value at the time of the roll-over. We have looked again at clause 3, as I said in Committee we would, and amended it to ensure that it is effective to deal with the range of situations that may arise. It remains complex. I do not seek to persuade the House that this is a straightforward matter. It is not. It deals with multiple roll-overs and a situation in which options are assigned or released for a mixture of benefits such as options plus cash. Most companies will not need to use the provisions in clause 3, which deal only with roll-overs. For those that do, special guidance will be available so that they can be confident about how the legislation will operate. 3 pm The amendment leaves undisturbed the class 1 liability on the excess value given for the settled option to prevent the kind of manipulation to which the earlier drafting could have been open and to which the hon. Member for Arundel and South Downs drew our attention. I commend this technical, but valuable, group of amendments to the House

Howard Flight (Conservative, Arundel and South Downs)

Amendment No. 1 indeed addresses the point that we raised in Committee—that the wording of the Bill as drafted opened up scope for avoidance. By the substitution of the term "gain" for the "gross proceeds" to which the original drafting referred, the mistake is corrected. Our main objections are to amendments Nos. 2, 3 and 4. As we pointed out in Committee, clause 3 deals with the complex territory of takeovers, in which people have options in a company that is taken over and receive alternative options. We attempted to draw the Government's attention to what we felt was misdrafting and a misunderstanding of the implications of certain parts of the Income and Corporation Taxes Act 1988. It is our perception that those problems have not been grappled with. What is the Government's intention in relation to takeovers and switches of options? We have assumed that common sense will prevail and that the intention is that if people receive a like-for-like option and the value is the same, the position is essentially neutral and no national insurance contribution liability is activated. Obviously, if more valuable options are granted in lieu of the existing options, there is a changed situation, and an NIC liability should apply on the value enhancement, preferably when the options are exercised; or if in place of the existing options people receive a mixture of new options and cash, there will be NIC liability on the cash that has been paid. It seems that the basic flaw that we pointed out in Committee has been carried over in amendments Nos. 2 and 3. The Bill should provide that if there is an enhancement element in any option exchange, it should be subject to NIC on exercise, as we proposed in Committee. Otherwise, the new option has the benefit of any exemption on the old option. The technical background is that NIC charges on options are explicitly linked to income tax charges under section 135 of the 1988 Act. Section 4(4) of the Social Security Contributions and Benefits Act 1992 charges NIC on any gain on which the earner is chargeable to tax by virtue of section 135. This charges tax on the exercise, assignment or release of an option and provides that if people exchange one option for another they are not charged tax on the value on the new option, but are charged tax if any other consideration—cash, for example—is given at the same time. The new option should be treated as if it were the original option and the employee had paid the due amount to acquire the new option equal to what he paid for the original one, less any consideration taxed on that exchange and paid at the time of the exchange. So it is a little misleading in amendment No. 3 to describe section 136 of the 1988 Act as charge to tax on roll-over". The relevant section moderates a tax charge which would otherwise have applied under section 135. Amendments Nos. 2 and 3 expressly require section 136 to be disregarded in certain circumstances which, prima facie, appear to require a class 1 charge under section 4 of the 1992 Act under which there would not be an income tax charge. We are of the view that, technically, the provision is not correct as it stands. Amendment No. 2 deals with the assignment or release of an option on which NIC can still be charged on the excess of any buy-out consideration which exceeds the inherent gain in the option. That is reasonably sensible in the light of amendment No. 1. However, amendment No. 2 also seems to provide that in the circumstances of an assignment or a release, we can ignore section 136 for these purposes and apply clause 2(3) to charge national insurance on the excess of the buy-out consideration over the lower of either the inherent gain in the old option or the inherent gain in the new option. That would only ever catch an extra cash consideration on the roll-over: if the new option was an enhancement, proposed new section 3A(a) would treat the non-cash consideration as equal to the gain in the old option as the lower of the two gains plus any cash, and the clause 2(3) charge would be only on that amount less the gain in the old option. The net effect of the wording of the Government's amendment is that if no extra cash is offered on a roll-over but there is still an enhancement element, there will be a nil charge under clause 2(3). I question whether that is what the Government wanted. It is not a bad result, but the drafting that arrives at this, I suspect unintended, result is incomprehensible. We think that there is an error in the drafting of amendment No. 3. Clause 3(4) preserves the right to charge national insurance on replacement options in specific circumstances, but amendment No. 3 provides that, on a roll-over, section 136 will apply to the new option only to the extent that it is over additional shares—that is, that the exchange is an enhancement. The intention appears to be that any enhancement element would be referred back to clause 3(4) and charged national insurance on eventual exercise. Is that the Government's intention? If it is, fair enough. The problem is that if there is no enhancement in the exchange, the wording also implies that section 136 will not apply to the roll-over, where only so much of section 136 applies as relates to additional shares and the new option, prima facie, gives rise to an NIC charge under the 1992 Act because, with section 136 ignored, there would have been a charge for income tax purposes under section 135. I was upset that it was not possible to re-table on Report the amendments that we tabled in Committee on these complex issues. As we see it, our amendments address what the Government are seeking to achieve and what should be achieved, whereas the Government's amendments, sadly, do not. On amendment No. 3, specifically, if the old option was covered by a notice under clause 1, there would be a nil class 1 liability and if not, there would be an accelerated employers' and employees' class 1 liability on the option exchange. So there is a mismatch between the national insurance charge and income tax; the Government are penalising "correct" parity non-enhanced option exchanges for companies which do not gamble on their share price. We assume that that is not the Government's intention; if it is, it is not very prudent. We shall be interested to hear whether that is the case. New subsection (4A) in clause 3 is expressed to be subject to new subsection (5), but that does not help the situation either. We want to hear the Government's counter-arguments. If they think that we have not technically understood this nightmare labyrinth and the fact that, in essence, there is no 1992 Act charge because such a charge is moderated by statutory regulations; and if they are thinking of relying on such regulations, we would advise them against. Not even the Revenue pretends to apply the regulations in that territory, because they were wrongly drafted. The Government should correct or withdraw their amendments and reconsider the arrangements that we proposed in Committee. Amendment No. 3 should read leave out from 'or' in line 7 to the end of line of line 31 and add, '(4A) Subject to subsection (5) below, a determination under subsection (4) above may be made in respect of a replacement right or a subsequent replacement right in either case buying a right to which a notice under section 1 applies only— (a) at a time when, but for this Act, a liability to pay class 1 contributions would otherwise have arisen in respect of that right; and (b) to the extent that it is a right to acquire additional shares'. The matter will clearly have to be dealt with in the Lords, but, in short, I ask the Minister to reconsider in depth the drafting of the amendments—especially that of amendments Nos. 2 and 3, which do not achieve what we believe to be the Government's aims. Amendment No. 4 is not particularly necessary. It seeks to achieve the existing law of the land in a round-about fashion. It seems to be saying only that when there is a roll-over of a new option into another option, with cash paid out as well, the charge is on the cash element under clause 2(3)—on the assumption that one ignores any enhancement element in the new option. As discussed under amendment No. 2, that would be the position in any case, as I have just commented. We have no particular quibbles as to technical drafting problems with the amendment, but we are not sure that it is needed. Amendment No. 5 is broadly speaking okay. It addresses a mistake in the Bill which we pointed out in Committee. Amendment No. 6 also corrects a mistake that we pointed out in Committee. Amendment No. 7 is somewhat unclearly drafted, although if it were more precise, it could achieve an end with which everyone is in agreement—along the lines of our alternative amendment proposed in Committee. Is the Minister sure that the wording of amendment No. 8 is right? We think that the brackets should be deleted from subsection (10)—the current wording does not seem to make grammatical sense. However, I am open to correction. How is the amount of special contribution for one of the options to be assessed, if not according to the principles set out in clause 3? Are we to pretend that the option is an original right? I apologise for using such technical language, but it is important that law passed by this place is accurate and that it is so drafted as to achieve its objectives. I thought that the Government had accepted the underlying points in the amendments that we tabled to clause 3 in Committee. As I had sight of the Government's amendments only yesterday and had only yesterday afternoon and evening to take legal advice on them, I am disappointed that, for the third time, a significant part of the measure is wrong.

John Burnett (Liberal Democrat, Torridge and West Devon)

I was extremely interested in the matters raised by the hon. Member for Arundel and South Downs (Mr. Flight). He stressed the importance of consultation and of ensuring that the provisions are correct. They are designed to address loopholes in the Bill; we held lengthy discussions on those matters in Committee. In particular, they cover roll-overs and multiple roll-overs—an extremely complex issue. The fact that the amendments were available only yesterday means that neither individuals in the professions nor taxpayers have had an adequate opportunity to give their views on the drafting. I do not expect the Minister to offer us this afternoon a redrafting or suggested redrafting of amendments that the Government tabled only yesterday. I hope, however, that before the Bill goes to the House of Lords, he will authorise his officials to submit it to the professions, to taxpayers and interested individuals so that they can consider it and offer their comments. I am sure that the Minister will then be minded to listen carefully to their views. In Committee, I asked the Minister what the Government's aim was in respect of these provisions. I asked him to confirm that, if there was a bona fide exchange of shares—for example, on a takeover—at approximate parity, and provided it that was not part of a measure designed for the avoidance of taxation, a charge should not arise for the taxpayer. There should be no charge to a taxpayer on a takeover or subsequent takeover; to use capital gains tax jargon as roll-over jargon, it should be treated as "no gain, no loss". There should be no charge for the special national insurance contribution. When the Minister responded to my point, he agreed as to the Government's aim. He said that if the roll-over is at parity, there should be no additional charge. In the light of our previous debates and our discussions on private companies, will the Minister confirm that there should be no charge? That is important. If there is parity or approximate parity—in respect of private companies, the valuation of shares is an art, not a science—there should be tolerance in valuation either way. It is in the commercial best interests of this country that takeovers happen and that, when they do, taxpayers can be reasonably sure of their liability, provided that they have a bona fide stab at valuation. Since the Minister was not prepared to accept the amendments that we tabled previously, I can only ask him to elucidate—to tell the House exactly what the charge will be. When will there be an exemption on a roll-over or a multiple roll-over? Will the Minister confirm that he will instruct his officials to circulate these draft provisions to the professions and to interested parties? And when they make their comments and submissions, will he listen to them and then submit a properly drafted Bill to the House of Lords?

Michael Jack (Conservative, Fylde)

I do not profess to understand the technicalities of this provision beyond its general purpose, but I rise to express my discontent at Government amendment No. 3 and the tortuous drafting therein. Except for the sake of giving the Financial Secretary adequate time to respond to the excellent speech made by my hon. Friend the Member for Arundel and South Downs (Mr. Flight), I shall not detain the House for long. First, I should like to know what Government amendment No. 3 means and how it will be applied. It starts: Subject to subsection (5), so much of section 136(1) of the Income and Corporation Taxes Act 1988 (charge to tax in roll-over cases) as provides for"— and on it goes in the most labyrinthine and impenetrable language. I want to know what it means.

Graham Allen (Labour, Nottingham North)

Oh no!

Michael Jack (Conservative, Fylde)

It is a great pity that the Whip on duty will not grace the House with his own clairvoyance on the matter. The fact that we are subjected to such language is a condemnation of parliamentary drafting, especially as a tax law rewrite exercise is taking place. Secondly, I should like the Financial Secretary to tell us why such a technical matter was not subject to further consultation. The Government have had long enough to develop the Bill. Part of the clarity of the tax system has been achieved by virtue of subjecting to outside opinion the proposals in the rewrite exercise. As both Front-Bench spokesmen have said, this group of amendments clearly has not been subject to the white heat of public scrutiny. I ask the Financial Secretary for a proper, fully detailed explanation of Government amendment No. 3. Why has it been so poorly drafted? How does he propose to ensure that practitioners have an opportunity to comment on the legislation before it is finally cast in concrete?

Stephen Timms (Labour, East Ham)

I am grateful to the hon. Member for Arundel and South Downs (Mr. Flight) for the care with which he has studied these amendments and taken advice on their contents. He and the hon. Member for Torridge and West Devon (Mr. Burnett) have asked me what precisely is the Government's intention in clause 3, so I shall explain it again. Under clause 3, settled options will not incur any further class 1 liability where the option is subsequently rolled over, provided that roll-over is conducted at parity. That aspiration was expressed by both hon. Gentlemen, and that is our intention. Where the roll-over is not at parity, class 1 national insurance contributions will apply, but only on the proportion of the gain on the new option that relates to the amount in excess of parity. So the amount of the gain on the new option that relates to the original remains capped.

John Burnett (Liberal Democrat, Torridge and West Devon)

rose—

Stephen Timms (Labour, East Ham)

Let me finish the point. I confident that, when these amendments are agreed to, that is what the clause will achieve. The relief from class 1 contributions will be provided by a new basis of the class 1 charge. Therefore, only the proportion of the new option in excess of parity will be subject to charge. That is the intention. Of course, I shall consider with great care what hon. Members have said about the details of the wording. The right hon. Member for Fylde (Mr. Jack) asks what Government amendment No. 3 will achieve. The best that I can do is to refer him to the published notes, which set out precisely what Government amendments Nos. 3 and 4 will achieve. I shall carefully consider the points that hon. Members have made. I am happy to discuss technical matters, as we have done throughout the process, with the share scheme lawyers group. The Inland Revenue has discussed the roll-over provisions with that group. I believe that these amendments will achieve the Government's intention, which is supported on both sides of the House, and on that basis, I commend them to the House.

SPECIAL PROVISION FOR ROLL-OVERS

INTERPRETATION

Stephen Timms (Labour, East Ham)

I beg to move amendment No. 9, in page 7, line 40, leave out "sixty" and insert "ninety-two". In Committee, I was happy to accept the amendments, tabled by the hon. Member for Arundel and South Downs (Mr. Flight), which extended the period in which notification and payment must be made from 60 to 92 days after Royal Assent. Of course, that change must be made throughout the Bill, but we subsequently found an omission. The amendment will remedy that omission and ensures that 92 days will be referred to throughout.

Howard Flight (Conservative, Arundel and South Downs)

We welcome this amendment. In fact, in Committee, it was our error to have missed one of the references to 60 days. We are glad that the Government have picked up that omission, so that the Bill will refer to 92 days throughout.

John Burnett (Liberal Democrat, Torridge and West Devon)

We also welcome this amendment. We supported the amendments in Committee. The date for notification and payment will now be 92 days, not 60 days, as in the proposals as originally drafted. This worthwhile amendment is welcomed throughout the business community.

Stephen Timms (Labour, East Ham)

I beg to move, That the Bill be now read the Third time. The Bill, as hon. Members know, responds to the concerns of a number of companies about the effects of paying national insurance on employee share option gains. Following that change, some companies said that the uncapped secondary national insurance charge had led to accounting difficulties for them. Following a period of consultation, measures were introduced last year, enabling companies to remove the accounting problems and uncertainty that the NIC charge presented. The earlier measure allowed companies to ask the employee to bear the secondary national insurance charge on the share option gain. That was announced on 19 May 2000. That legislation has enabled companies to remove the accounting difficulties and has provided them with certainty. Although last year's legislation was drafted to cover all the options that had already been granted, it has, not surprisingly, been difficult for employers to negotiate with employees terms that change options already granted to them, so the uncertainty remained for some of the companies that granted options before 19 May 2000. The Bill responds by giving companies the chance to settle their national insurance liabilities on the options granted between 6 April 1999 and 19 May 2000 early, in advance of the date when the actual gain is made by the employee. Companies that choose to take advantage of this measure will be able to cap their national insurance liability by calculating the amount of national insurance due by reference to the accrued gain up to 7 November 2000.

Andrew Tyrie (Conservative, Chichester)

Will the Financial Secretary clarify a basic point about the legislation? We are trying to redress an anomaly, which was created as a consequence of earlier legislation designed to prevent tax avoidance of the NIC charge by the use of share options. How much revenue do the Government reckon was at stake in the beginning, and how much revenue is at stake now? We have just heard the most extraordinary labyrinthine story of complex legislation being added to the statute book, and that has resulted in huge compliance costs for industry and a bonanza for lawyers. How much money will the Government get in return for that?

Stephen Timms (Labour, East Ham)

The Bill does not correct an anomaly; it completes the arrangements to ensure that companies will not face the uncertainties about which some of them have been concerned. On the hon. Gentleman's question about the cost, because payments in the first year will have to be made within 92 days of Royal Assent there will be a gain to the Exchequer. Money will be paid earlier than it would be if it were paid only when the options were exercised. Over a five-year period, there will be a loss to the Exchequer and we estimate that to be about £160 million.

Andrew Tyrie (Conservative, Chichester)

I am sure that the Minister has given the correct answer about the cost of the Bill, but my question was about the problem that was generated by the decision taken in 1996. I want to know how much revenue was at stake when that decision was taken. Clearly, the Government must have gone back to consider the original legislation to see whether it was worth while closing all these loopholes.

Stephen Timms (Labour, East Ham)

I do not have a figure for how much was at stake when the previous Government made the changes in 1996. I have no doubt that they published figures at the time, and I shall certainly try to dig them out. Perhaps I can write to the hon. Gentleman about that. As I have explained, companies that choose to take advantage of the measure will be able to cap their national insurance liability by calculating the amount of national insurance due by reference to the gain accrued up to 7 November 2000. They will be required to notify the Inland Revenue and pay the appropriate amount within 92 days of Royal Assent. Our consideration of the Bill has been brief, but it has been fruitful. Several worthwhile improvements to it have been made and I am grateful to hon. Members for that. I take pleasure in commending the Bill to the House.

Howard Flight (Conservative, Arundel and South Downs)

As the House is aware, the Bill is the Government's second attempt to correct the problems of their own making when, with inadequate consultation, they introduced in April 1999 a charge to national insurance on unapproved option gains. As has been pointed out, this attempt has resulted in excessive technical detail and it still has not got the corrections entirely right in the objectives for takeovers, under this relieving Bill. We have welcomed, in principle, the relieving measures in the Bill and we welcome the fact that the Government accepted most of the points that we raised in Committee. They will make the operation of the relieving measures more practical by allowing a sensible period of 92 days in which to elect to pay this one-off national insurance charge. However, as we said at some length on Second Reading and in Committee, we continue to oppose the principle of making companies gamble on their potential tax liabilities. The only comfort for most listed companies that issued options between April 1999 and May 2000 is that the options would likely have been significantly under water on 7 November 2000, given what happened to stock markets over that period. Therefore, the great majority of companies will not have any difficult decisions to make, because they will not have a special NIC liability. I stress that we do not think it is correct for Governments to play with tax policy and offer quid pro quos, or gambles, on shareholders' funds. Let the Government never forget that the overwhelming majority of shareholders are pension funds. The Government have not entirely understood the principles relating to market abuse on which they themselves insisted in the Financial Services and Markets Act 2000. At that time, we urged them to accept the principle of intent, but they resisted that. As a result, under the Bill, giving misleading price information—whether intended or not—will be an offence. As we have previously pointed out, if companies do not exercise the option to make the special NIC payment, the markets will perceive them as sending a negative signal about their share price prospects. However, as the Minister agreed, the reasons for that might be quite different: companies might not exercise the right because of a shortage of cash or because of intended staff changes. The only comfort is that the latest draft of the Financial Services Authority's code of conduct on market abuse makes it clear that it has included the concept of intent in virtually every provision, as we recommended at the outset. As we pointed out last summer in the debates on the Finance Act 2000, our main criticism is directed towards the whole approach of treating options in the same way as remuneration and the argument that gains on unapproved options should be subject to national insurance charges. Such thinking is misplaced. It is absolutely clear that if someone's remunerations arrangements involve a lower salary than he might receive at a mature company but include a package of options, whether those options have any value is entirely a matter of risk. The net effect of everything that the Government have done is to tax those options at a higher rate than ordinary income, and that cannot be logical. In reality, the Government's proposals were an excuse for more stealth taxation. On 4 September last year, the Minister wrote to me advising that the Treasury viewed the cost of not having national insurance on unapproved options as £1 billion per annum. I think it is extremely unlikely that the Government will obtain anything like that revenue from national insurance on options. To the extent that the Government argue that the proposals are designed to close avoidance loopholes, I point out that I have never encountered arrangements whereby one can have a share option scheme with a certain return. If the Government and Revenue have encountered such an arrangement, that problem could have been dealt with specifically. The much wider measure of treating option gains as the same as earned income is the wrong path down which to go. The issue is important because unapproved options have become central to entrepreneurial motivation in this country. The tax regime for approved options is attractive but they are limited to £30,000 in value. Sadly, the Government's new executive management incentive scheme is extremely restrictive. Therefore, unapproved options are used overwhelmingly to offer incentives to management, particularly in new businesses in the new technology and new economy sectors. In Committee, the Minister admitted that only 100 companies of the 20,000 or so suitable have taken up the new executive management scheme incentive scheme. Although it looks very generous, it is difficult to qualify for and any company that started to achieve success would quickly disqualify itself. I am tempted to observe that the Government knew that because the amount of tax cost provided in the Red Book was modest. Let us come to the heart of the matter. I am assuming that the Government are not disingenuous in their desire to see a much more vital economy and a much higher level of venture capital investment. We should not be complacent. The United Kingdom is doing poorly against America. Per pound or dollar of national income, America is achieving about four times the level of venture capital investment of the United Kingdom. We may be doing well against Europe, but we are certainly doing poorly against America. That has been central to the growth rates of the two economies. America has grown at about 4.6 per cent. per annum for the past three years and the United Kingdom at only about 2.3 per cent. Our under-performance is material. The huge US economy has done so well largely because of the tremendously positive level of investment and activity in new ventures in high-tech, new economy and so forth. This is central to the Bill. When people in the venture capital industry in the United Kingdom are asked what are the key issues, interestingly they say that right now it is not about there not being enough money, but about a shortage of talented management wanting to come forward. There is a shortage of people willing to leave the more comfortable employment terms and security with large, established businesses and risk joining a new business. Often there is also a shortage of new business projects that those people might otherwise bring to the table. When the venture capital industry is asked what is central to this issue, it says that the tax regime on share options in the United Kingdom is extremely unattractive compared with that in the United States. In the United States for the equivalent of UK approved schemes, known as ISOs, people can have $100,000 of options per annum; the employee is not taxed on exercise but only on the sale of shares following the exercise of those options; the tax rate, provided that he has held the shares for a year, is 20 per cent.; and there is no equivalent to national insurance charge because social security charges are capped for both employer and employee at incomes of $74,000. In the United States, the new business sector which is not hugely profitable—it is building businesses where cash flow is tight—uses predominantly ISO options to pull in and motivate talented management and, inevitably, pays them lower salaries than they would get in mature businesses. That is what options are all about. While US unapproved options have a tax of 39.6 per cent. on exercise, the issuing companies get a tax credit equal to the tax which the employee pays, so the net tax situation between employer and employee is tax paid at about 10 per cent. and, again, there is no equivalent to our national insurance charge. If the Government genuinely want to get a higher level of venture capital activity in the United Kingdom, it is crucial that they accept and understand the message from the industry that we are going wrong on option incentives. The Computing Services and Software Association said to the Chancellor in the lead-up to the discussions behind the Bill: We need a similar regime to the USA as that is where we have to compete for staff. The Minister will be aware that the top management of Cisco, now the largest high-tech company in the world, and of companies such as Micromuse—still British but with more of its activities in the United States than here—say that the high tax on options was leading them to move their operations elsewhere, predominantly to the USA, because they could not motivate staff here where options were taxed too highly. The staff needed in the new business areas are international. They are people who will move about the world readily. This is not necessarily about a brain drain from here to the United States; it is also about whether we attract the talent from all over the world to the UK that we need to get our high-tech sector going. The chairman of the UK small business investment taskforce, appointed by the Government, commented in a letter two weeks ago on how restrictive the executive management incentive option schemes were and on how punitive the national insurance charge arrangements on options are. The chief executive of QXL Internet Auction company commented that the NIC situation in this country would force talented staff out of the United Kingdom. The message from the high-tech industry is loud and clear. This relieving Bill is welcome in terms of the specifics, but it does not address the fundamental issue—namely, that the Government have hit the venture capital and new tech industries by applying a 47.3 per cent. Tax charge on unapproved options when individuals exercise them. That is right at the centre of why we are not doing nearly as well as the US in our new venture capital industry. Last May the Government realised and accepted the threat to the cash flows of new companies by imposing NICs on options. It is the companies that are the problem with a 12.2 per cent. national insurance charge. The Government thought that they could be clever and that by a wheeze they could keep the stealth tax that they had imposed by changing the rules so that the employer's NIC could be transferred to the employee. As the Government have confirmed, that gives a 47.32 per cent. tax charge to employees on unapproved share options. It is palpably nonsense that a risky form of remuneration—whether options are worth anything depends on the particular success or failure of an individual business, whether new high-tech areas prosper and the general economic climate and where the risk-to-reward ratio is skewed heavily to risk—should attract higher tax than a safe salary. That is theoretical nonsense. It is reducing the use of options. The reaction of talented people who are willing to work for new ventures is to want better salaries and a safer income, as well as some options. Instead of the trade-off of lower salaries and more options, they are demanding higher salaries, and that is just what new businesses cannot afford. Behind the Bill still lies the great misfortune that just when the Government have been claiming that they want to help new ventures, venture capital and entrepreneurship, they have hit at the centre and made the key element—namely, option incentivisation—punitive and unattractive tax-wise. If the Minister goes out and about in the venture capital industry and talks to people other than the Government's cronies, he will find that the Government are not seen as bona fide friends to entrepreneurship and venture capital, and are believed not to understand how crucial the taxation of options is to entrepreneurial endeavour. When the relieving measures that we are discussing were announced shortly before Christmas, the press reaction summed them up. It was that the proposals received one cheer from high-tech entrepreneurs, who said that they did not go far enough and did not address the fundamental issue. Others commented that the problem is of the Government's own making, with constant tinkering and a failure to sort out the fundamental issue of what the tax regime should be for share options, if we want to be able to attract many more talented people into new ventures. The Bill is a relieving measure and we are not opposing it. We hope that the Government will correct what we believe are outstanding technical errors as the Bill passes through another place. We appreciate that the Government have accepted our proposals to make arrangements simpler and to avoid potential for unfairness in this Bill. We say to the Government, "If you are genuine about wanting to encourage entrepreneurship, go back to first principles and consider the taxation of options in the United States. Do what those who are at the centre of, and who are trying to create, more new venture capital and more new business recommend, and look to have option taxation regimes that are broadly similar to those of the US and that are not punitive, as the mainstream unapproved option regime now is."

John Burnett (Liberal Democrat, Torridge and West Devon)

This is one of the few occasions where the Government have changed their mind on a Treasury Bill. I pay tribute to the Minister for listening to, and understanding, the points that have been made. Both the changes to which he has agreed are important. The Bill is a relieving measure and it is helpful. It caps liabilities at 7 November 2000. As I said earlier, other amendments could have been made in fairness to taxpayers. For example, the Government should have given taxpayers a choice whether to pay on 7 November or on the date on which the option was exercised. That would have been simpler, just as certain, and fair. Now, an individual will, for example, have to pay national insurance contributions on the value of an option on 7 November last of £100,000. The option might decrease significantly in value, and when he or she exercises the option in years to come, the value might be only £10,000, so the individual will be considerably worse off. The amendments that have been agreed to are welcome. First, the period in which notice is given and contributions have to be made is extended from 60 days to 92. Secondly, there is the amendment that applies where the amount of special contribution is nil because on 7 November either the option was under water or the shares were not readily convertible assets. In those circumstances, notice would be deemed to have been given within the prescribed period. Those are helpful amendments. We discussed the significant amendments that the Government introduced yesterday, and the Minister has confirmed that he will circulate the draft clauses and probably the entire Bill. I welcome that. I believe he said that he would circulate them to the various professional bodies and perhaps to some taxpayers who call for representation so that they have the opportunity to make submissions and produce amendments to clarify and improve the Bill. Having had those assurances from the Minister, and realising that the Bill is a relieving measure, we welcome the Bill and the amendments to which the Minister has acquiesced. We shall not, therefore, oppose it.

Andrew Tyrie (Conservative, Chichester)

I confess that I did not understand all the points that my hon. Friend the Member for Arundel and South Downs (Mr. Flight) made when he was dealing with the Government's amendments to clause 3. I doubt whether anyone else in the House did. I certainly do not think that the Minister did. The only person who fully grasped them was my hon. Friend. That reflects a serious problem that we have encountered today in trying to make legislation of this sort on the Floor of the House. It is certain that we shall be passing a flawed Bill to the other place, where we hope that it will be put right. It seems that the programme motion will prevent virtually any discussion, if the Government so choose, of any changes made in the other place, even if they are substantive. Effectively, that which is to become law will have received virtually no scrutiny in this place. That is not a good way to produce legislation. I strongly agree with my hon. Friend the Member for Arundel and South Downs that this relieving Bill is welcome, but that the Government have hit the industry elsewhere and have not understood the damage that they have been doing. We are dealing with a complex and technical matter that relates to an awkward interaction between tax and national insurance contributions. The origins of the problem lie in the decision to treat options as remuneration. That was done as an anti-avoidance measure. I shall throw up for consideration whether that was worth it and whether the Government have thought through whether it was. There are two ways of answering that question. First, was it worth it from the Inland Revenue's perspective and how much NIC liability has been created? The Minister gave me the figures for this relieving measure, but following my earlier intervention it was clear that he had no understanding of how much money was being brought in as a whole as a result of the underlying measure, which the Government are attempting to improve by means of the Bill. How much avoidance activity will be discouraged by putting the Bill on the statute book? The yield may be low, but firms may have written fewer options than they would otherwise have done. The second big issue in addressing whether it was right to treat options as remuneration is the effect that that has had on the whole economy. My hon. Friend the Member for Arundel and South Downs referred to that in his excellent speech. Treating options as remuneration significantly affects economic behaviour. Share options may be extremely efficient as incentives to better business performance. That approach will have been discouraged by anti-avoidance measures. An assessment of the entire economy would also take into account the compliance burden, the administrative burden and the legal and accounting costs involved in introducing the measure. There has been far too little analysis of those whole-economy effects and a great reluctance to put numbers on them, in terms not only of the Bill and underlying legislation but of a range of measures that the Government have taken since 1997. Some of that work used to be done by the deregulation unit, but one of the Government's first acts was to abolish that, in July 1997. The Government are trying to mitigate the whole-economy damage that some of their measures have caused by creating the new approved scheme. The EMI scheme and the company share option plans that the Government introduced push in that direction. They have heavily targeted the information technology sector with some of their measures. I am not convinced that it is right to create a distortive incentive to target a particular sector. The argument runs that that incentive is needed because shares in the IT sector are more volatile. So what? Volatility should be treated as a business cost and the Government should not rejig the tax system to take account of it. I said that I do not like the way in which the Government have gone about the matter. By implication, I am criticising the way in which the previous Government tried to treat the awkward relationship between tax and national insurance contributions. Of course, that is the origin of the Bill. Let me briefly go through a few possible alternative approaches. The first would be to continue muddling through, which, clearly, the Government are trying to do now. One could continue to try to police the line between tax and national insurance; one could try to limit tax avoidance, but strike a balance between closing tax ramps and chasing small sums that might slip through. However, there is always the risk that one is chasing ever smaller sums with larger dollops of regulation and ever more pages of legislation.

John Burnett (Liberal Democrat, Torridge and West Devon)

Does the hon. Gentleman subscribe to, and agree with, the contribution principle?

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

Before the hon. Gentleman answers, let me say that his remarks are becoming rather wide-ranging. Third Reading is limited to the contents of the Bill, and his remarks should be limited to those contents.

Andrew Tyrie (Conservative, Chichester)

I entirely accept your ruling, Mr. Deputy Speaker. We know that the Bill that we are now considering will not end up on the statute book because it is flawed as drafted; there will be further consultation and it will be fundamentally re-examined in the House of Lords. It is therefore helpful to flag up markers for the other place when it comes to examine the Bill.

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

Order. What happens to the Bill when it leaves this place does not affect the fact that Third Reading speeches should relate purely to the content of the Bill.

Andrew Tyrie (Conservative, Chichester)

A crucial aspect of that content is the great emphasis on the need to collect revenue, however small the amount being chased. Looking at the Bill, one sees that there is almost a light-headedness about putting on the statute book huge quantities of highly complicated legislation. I defy anybody to read the amendments and honestly say that they can work out what they mean. As I said, nobody has made the effort to work out the whole-economy effect of such measures. Other approaches need to be adopted alongside the approach that the Government have decided to take. One is to treat share options like all shares and tax the capital gain, as was suggested by Mr. Mike Lynch, chief executive of the software group Autonomy. He said: There's no doubt that the Government is trying to do the right thing. I agree. Mr. Lynch continues: The problem is that they tinker, tinker, tinker and don't sort out the fundamental issue, which is that options should be treated as a capital gain, and not be hit with national insurance. That has some attractions, although the logic of it leads towards integration of capital gains tax and income tax; I am not sure whether Mr. Lynch had that in mind. Of course, the treatment of capital gains as a marginal slice of income was the intellectual background to the 1988 Budget, which caused so much controversy in the venture capital industry. That is not the right way to go. Capital gains tax is in a fundamental mess, and trying to go down that route would make it even worse.

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

Order. As the hon. Gentleman is cantering around the economy, I remind him yet again that he must debate the precise content of the Bill.

Andrew Tyrie (Conservative, Chichester)

I am grateful to you, Mr. Deputy Speaker, for making sure that I do not canter around the economy. However, I assure you that there is an intimate inter-relationship between share options, capital gains and the anti-avoidance measures on national insurance that we are discussing. Once one is altered, the others will require attention, which is why this awkward measure is before us today. I shall not linger for more than two sentences on the point about the contributory principle made by the hon. Member for Torridge and West Devon (Mr. Burnett). I disagree with the view that national insurance contributions and income tax should be integrated, and believe that the contributory principle should stay. The recent report of the Select Committee on Social Security agreed with that, and that is probably where we shall remain. If so, we are thrown back to the first option that I listed—muddling through. If we do muddle through, I urge the Government, as I said a moment ago, not to chase ever smaller sums of revenue with ever more regulation. Is it really worth trying to collect national insurance on unapproved share options? That is the key underlying question, which I hope the other place will have in mind when they examine the Bill. When it does so, I hope that it will weigh the whole-economy cost against the diminishing return to the Inland Revenue.

Eric Forth (Conservative, Bromley and Chislehurst)

Following your general nudging of my hon. Friend the Member for Chichester (Mr. Tyrie), Mr. Deputy Speaker, I thought that I would say a few words about the Bill. That seems to be the order of the day and is what the House expects on Third Reading. I shall have a go and see if I can deal with the Bill in the limited time that is left. First, an irregularity that struck me—and which, I hope, will attract the attention of their Lordships in another place—is the Bill's long title. These are difficult, complicated matters to do with tax and high finance, and understanding them is obviously limited to a small number of people, of whom I am certainly not one. In those circumstances, the layman is allowed to speculate about why on earth the Bill deals retrospectively with a period beginning with 6 April 1999 and ending with 19 May 2000. That tells one several things, including the fact that the problem was certainly not noticed when it should have been and/or was not dealt with properly when it should have been. However, with the benefit of hindsight, we shall reach back into the recesses of time and try to deal with it now. That strikes me as something that we would normally deprecate and be uneasy about. Against that background, I am a little unhappy with the consensus with which the Bill seems to be easing its way forward. Following your helpful advice to look at the Bill, Mr. Deputy Speaker, my eye lit upon clause 2(5), in which, I thought, some sinister elements appeared. It contains the condition: If it appears to the Inland Revenue that a person who has given a notice under section 1 in respect of any right and who would (but for subsection (4) of this section), be liable by virtue of that notice to pay a special contribution". A lot of use of "appears to" and "but for" is creeping in. At the very least, that indicates something that my hon. Friend the Member for Arundel and South Downs (Mr. Flight) was at pains to point out from the start: the measure has not been properly thought out and, despite the expertise and tender ministrations of my hon. Friend and the hon. Member for Torridge and West Devon (Mr. Burnett), we still have not got it anywhere near where it should be at this stage of the proceedings. After all, the Bill is in the last gasps of its proceedings through the House of Commons. I wonder whether the Government are up to their old tricks, hoping that it will be sorted out properly in another place. That is a constitutional and parliamentary proposition of extremely dubious value. This place should take responsibility for sorting out Bills that originate here. One could say that, when a Bill originates in another place, we expect it to come here in good order. The same must surely apply in the other direction. What seems to be happening recently, not least in respect of this Bill, is that we have come to rest more and more on the presumption that we can do sloppy, untidy, hasty, poor work here—making the law of the land, let us not forget, and affecting people very directly, as our measures must inevitably do, and this Bill no less than most—and pass it to the other end of the building, saying to their lordships, "You have more time. You can sort it out." That is not a sound constitutional principle. My doubts grew even stronger when I read in clause 2(5)(a) the words: which he had reasonable grounds for believing was the correct amount of his liability". That is probably fair enough, but the clause goes on, almost unbelievably, in paragraph (c): has a reasonable excuse for having failed to do either of those things within that period"— not a reason, but an excuse. Excuses have now entered our statute as a term of art. I am not a lawyer. The hon. Member for Torridge and West Devon is an eminent lawyer. It is probably too late for him to comment now, but I leave the thought with him and not least with the Minister: if we are writing excuses into our statute, matters have gone beyond all reason. It makes me wonder how on earth we could have arrived at this point in our deliberations, with all the accumulated brain power of my hon. Friends, the hon. Member for Torridge and West Devon, the Minister, who has been praised lavishly today and whom I will praise modestly, and all the panoply of talent available to the Minister via the parliamentary draftsmen, when they are not engaged on hundreds of amendments to other Bills at the last minute. The best that the Government can come up with in the Bill is a reference to someone having a reasonable excuse for having failed to do something within a specified period. It is pretty desperate stuff, when one thinks about it. It is not the stuff of which proper statutes should be made. It will provide a field day for the lawyers. Imagine them getting their minds around that, and their fees around it, as well. I will not tempt my right hon. and learned Friend the Member for Sleaford and North Hykeham (Mr. Hogg), who, if he were listening to me, which he wisely is not—

Douglas Hogg (Conservative, Sleaford and North Hykeham)

I was listening closely to my right hon. Friend. He was speaking about fees.

Eric Forth (Conservative, Bromley and Chislehurst)

I shall have a quiet word later with my right hon. and learned Friend. Leading up to the talk about fees, I was speaking about excuse as a concept in the law. He and I can discuss that later; even though it is in the Bill, I am sure that Mr. Deputy Speaker would not want me to elaborate further. At that point, I was put off reading the Bill any further. I thought, "If things are as bad as that so early in the Bill, I do not see why I should upset myself or anyone else by reading on." I concluded without too much effort that it is yet another example of a Bill poorly conceived, poorly drafted and—I say this with considerable regret—poorly scrutinised, mainly because the Government have not given us proper time or opportunity to give it the attention that it deserves. As has been pointed out, the period allowed between identification of the flaws in the Bill in Committee and its Report stage today would usually be sufficient to permit proper reflection, advice to be taken from other sources and the expertise of those whom I mentioned previously to be brought to bear. None of that has been allowed. If we are to learn a lesson from the Bill, it is that the way in which the Government are requiring the House to deal with legislation is inadequate. It palpably does not work, and the Bill is a perfect example of that. Although I sense that we shall probably give the Bill an unopposed Third Reading—would that that were not the case, as I would love to vote against it—I hope that, at the very least, we can invite Members of another place to give it much more scrutiny than they might otherwise do.

Stephen Timms (Labour, East Ham)

The climate for enterprise and entrepreneurship in the United Kingdom is better than it has ever been, and the Bill makes it better still. We have made a number of changes to the Bill. It has been a good example of effective scrutiny. I take great pleasure in commending it to the House.