Finance Bill

Public Bill Committee, 25 June 2002.

Standing Committee F

(Except clauses 4, 19, 23, 26 to 29, 87 to 92, 131 and 134 and schedules 1, 5 and 38) - Clause 126 - Aggregates levy: transitional relief for Northern Ireland

Joe Benton (Labour, Bootle)

I remind the Committee that with this we are taking the following: Amendment No. 258, in page 100, line 24, leave out 'in Northern Ireland'.

Clause stand part.

Christopher Chope (Conservative, Christchurch)

At our previous sitting, the Economic Secretary to the Treasury responded too succinctly. He rightly paid tribute to the Select Committee on Northern Ireland Affairs but omitted to mention that it had concluded that the clause would reduce the impact of the levy on the value-added sector only temporarily and would have no effect on the concerns of the Northern Ireland Executive, the wider industry and the community, and that the announcement of the provisions of the clause did not affect the tenor of the conclusions and recommendations in its earlier report.

The Economic Secretary said at our previous sitting that clause 126

''allows the sector time to adjust to the changed market conditions by, for example, increasing the use of recycled or other non-taxed alternative material in its processed products.''—[Official Report, Standing Committee F, 20 June 2002; c. 502–503.]

Yet we understand from the British Geological Survey and work done by the Department for Transport, Local Government and the Regions that recycling even the maximum level of hard waste could substitute for between only 1 and 2 per cent. of the virgin aggregates needed. The provision will hardly produce the outstanding result suggested by the Economic Secretary that producers in Northern Ireland and the users of aggregates will be able to increase their use of recycled material to a much greater extent than was thought possible hitherto by any of the experts.

The Economic Secretary said that the Revenue forecast was expected to rise significantly next year and the following year because of the delay in implementation and the allowances to be made during the process of introduction. Why do the Revenue's forecasts continue to increase when the Government say that the purpose of the levy is to reduce demand? If demand were to fall, one would

expect the tax yield to fall rather than rise after the first year, but that is not what is shown in the Red Book.

What resources have been allocated to the problem of potential smuggling in Northern Ireland? The hon. Gentleman said that resources had been allocated and that there was a significant limit to the incentive to smuggle because of the weight, bulk and low value of aggregates. He did not explain the 40 per cent. drop in the output of traditional quarries in Fermanagh and South Tyrone. He did not answer the challenge that was posed about Northern Ireland quarrying sales being hit by smuggled aggregates. He did not mention the fact that producers of precast concrete in Northern Ireland are threatening to relocate to other parts of the European Union to take advantage of the competitiveness that will be created by the measure. A large coastal quarry in southern Ireland is being planned to target the United Kingdom market with its aggregates and tax-exempt concrete products. That is a sorry state of affairs and I hope that the Economic Secretary will provide a better response to our concerns than hitherto.

John Healey (Labour, Wentworth)

The hon. Gentleman is right to remind the Committee of the role of the Northern Ireland Affairs Committee in helping the Government to produce these provisions. It has played an important role. As that Committee recognises, it is important to emphasise, even if that is not fully accepted at this point, that the proposals are for transitional provision in Northern Ireland. They do not give an exemption to Northern Ireland but will mean that companies in the industry in Northern Ireland will have five years in which to adjust to the introduction of the aggregates levy. We proposed that provision to help Northern Ireland and to preserve the integrity of a single fiscal regime across the United Kingdom. The five-year period, as I have pointed out, recognises the unique circumstances in Northern Ireland, which has a long land border with the Republic of Ireland.

I am aware of the research that the hon. Gentleman cites on the potential for substitution with recycled materials, but I urge him to look less at academic research, which is inevitably predictive, based on best assumptions and estimates, and more at emerging practice on the UK mainland. That may be a sign of the way in which developments may go in Northern Ireland. For example, Alfred McAlpine is reportedly now investing £16 million in new transport infrastructure to move slate waste from its quarries in north Wales for use as road sub-base. The levy has made the slate waste commercially viable as a product for McAlpine, and it has plans to ship up to 10 million tonnes of slate waste per year from its north Wales quarries. According to reports, during the next 30 years, it intends to use up to 340 million tonnes of slate waste currently built up in its quarries. Until this point that has not been commercially viable but, as a result of the aggregates levy, it now is viable, and therefore a valuable source of an alternative to virgin aggregate.

On the resources that Customs has made available to deal with the potential for smuggling, I have nothing to add to my previous remarks. Hon. Members will appreciate that I shall not, in

Committee and in public, give chapter and verse on the deployment proposed by Customs to keep tabs on the impact of the levy and to ensure that we get the proper level of payment and avoid smuggling. Suffice it to say that Customs has built that into its operational plans for Northern Ireland and I am confident that the plans in place at this stage are sufficient.

On sales, it is true to say that sales from certain quarries in Northern Ireland have dropped during the past several months. However, it is too early to say whether that is the result of inevitable and predictable forestalling and stockpiling in advance of the introduction of the levy on 1 April or whether there is any long-term effect. I suggest that we need to wait and see for hard evidence of that, but I believe that the drop will prove to be the result of understandable forestalling practices in advance of the introduction of the levy.

Finally, on our anticipation of alterations to the revenue yields, the adjusted forecasts take account of the reduction in the extraction of aggregate as a result of the levy. That is precisely one of the purposes of the levy, built in from year one. The alteration to our anticipation of revenue take in the first year built in fresh assumptions about the forestalling practices that I mentioned a moment ago. However, we now anticipate our revenue yield on the levy once the phased introduction in Northern Ireland—which has also been built into the revised assumptions—is complete, to be very similar to what we had originally published and anticipated. The revised revenue forecast for the year 2005–06 is £395 million. For 2006–07, it remains at £420 million.

Christopher Chope (Conservative, Christchurch)

I am grateful for the Economic Secretary's further explanation of the matter, although I do not agree with him. He disclosed some revealing statistics about slate waste, and we shall have a chance to return to the issue when we debate another amendment but, for the time being, having had a debate about it, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 126 ordered to stand part of the Bill.

Clause 127 - Aggregates levy: amendments to provisions exempting spoil etc

Christopher Chope (Conservative, Christchurch)

I beg to move amendment No. 255, in page 101, line 6, at end insert—

'(1) In section 17(1) of the Finance Act 2001 (c. 9) (aggregate that is exempt), at end insert ''except water''.'.

Joe Benton (Labour, Bootle)

With this it will be convenient to take amendment No. 256, in page 101, line 19, at end insert—

'(2A) In section 17(4)(c) of that Act insert—

''or

(iii) the production of aggregate.''.'.

Christopher Chope (Conservative, Christchurch)

I hope that amendment No. 255 finds favour with all members of the Committee. It would

make water exempt from the aggregates tax. The Government never said anything about wanting to tax water but, effectively, that is what is happening under the present arrangements. Customs makes an allowance for water added through washing or dust dampening but apparently is unable to make any reduction to take account of naturally occurring water—rainwater and groundwater. That imposes a disadvantage on quarries that extract aggregates from below the water table. Obviously, it is a big disadvantage for dredged aggregate as well.

This is not some mere academic debate. The total amount of the levy that is payable by a wet quarry is about 7 per cent. more than for a dry quarry. I hope that the Economic Secretary can explain why the Government feel it appropriate to tax the water content of aggregates. Surely that was not what they intended initially.

A consequence of the present regime is that every one of the 488 businesses registered for the levy has been visited by Customs officers who have tried to draw up site-specific formulae to calculate the levy for each quarry, taking into account how much of the aggregate is wet and how much is dry, and the reason that it is wet rather than dry. That adds enormously to red tape, bureaucracy and compliance costs. We understand that the compliance costs are 30p per tonne for the average small quarry.

Chris Grayling (Conservative, Epsom and Ewell)

As my hon. Friend has considered the subject closely, would he clarify whether brine taken from above ground to extract salt is affected by the levy in the same way?

Christopher Chope (Conservative, Christchurch)

My hon. Friend might be better putting that question to the Economic Secretary, who has all the power of the Customs and Excise officialdom behind him. I am sure that my hon. Friend, having given notice of his interest in the matter, will be able to get a reply from him, and I am grateful for the support that my hon. Friend gives by implication to the amendments.

Amendment No. 256 would ensure that the levy was not payable on waste by-products. Secondary aggregates are an unavoidable by-product of the extraction of industrial grade aggregates. For example, it can take up to six tonnes of throughput to achieve one tonne of industrial-grade limestone. Quarries must sell their secondary aggregates at the market price, often less than £1 per tonne, to maintain operating space within quarries and avoid unsightly spoil heaps. Obviously, there is a big contrast between the treatment of waste by-products coming from the quarrying of aggregate and the way in which slate waste is being treated, because disused slate quarries are being opened up in order to provide a new source of what is called virgin aggregate. The Economic Secretary has referred to the enormous investment made by McAlpine, which will probably damage the environment due to the transportation of slate waste over hundreds of miles of the English countryside in order to avoid paying the aggregates tax.

Surely, if the waste from slate is exempt from the levy because it is a waste by-product, the waste from

the production of aggregate and limestone should also be exempt so that such waste does not pile up in great spoil heaps throughout the country, which is likely under the present regime. There should be a proper incentive for the producers of that waste to dispose of it in the marketplace at a price that the market can bear. If the market price is less than £1 a tonne and has to compete with slate waste, the imposition of a levy of £1.60 per tonne plus VAT would result in the accumulation of large tips of waste aggregate. I hope that the amendment will find favour with the Government. Can anyone be in favour of fiscal incentives to establish spoil heaps in the countryside where they do not exist at the moment?

Chris Grayling (Conservative, Epsom and Ewell)

Good morning, Mr. Benton. I should like to follow on briefly from the comments made by my hon. Friend the Member for Christchurch (Mr. Chope). We must draw to the Economic Secretary's attention the fact that the debate is effectively about recycling. Although one cannot recycle the by-products of quarrying in quite the same way as the products of other processes, it would be extremely foolhardy to tax the recycling of aggregate waste out of existence and, as my hon. Friend says, create spoil heaps in the countryside.

In addressing the issue, would the Economic Secretary set the debate in the context of recycling, and give a sense of the Government's view of good environmental practice in the aggregates industry and how they intend to incentivise and encourage that? Having raised the issue with my hon. Friend the Member for Christchurch rather than intervening on the Economic Secretary, I wonder whether he would address that question. There are several processes by which the product of an industrial process is extracted from water that is often taken from below ground, and there is a disposal element to that. One can also find waste products alongside the finished product—salt, for example, and the water that comes out. There is a danger that those products will be lumped together when assessed for the aggregates levy. I should be grateful if the Economic Secretary would address that point.

John Healey (Labour, Wentworth)

I shall deal with amendments Nos. 255 and 256 and the several points raised by the hon. Gentlemen, and in so doing explain the basis of clause 127 more generally for the Committee.

Amendment No. 255 is designed to tax aggregate by its dried weight, as the hon. Member for Christchurch described, even though that is not how it is normally supplied by the industry to its customers. Indeed, there are questions concerning how practicable and possible it would be to establish the moisture content for each consignment of aggregate in order to discount the naturally occurring water weight from the weight of the aggregate and therefore levy the tax in the way that the hon. Gentleman advocates. There is a practical question at stake.

However, more fundamentally, there is no case for the amendment because the current tax treatment of naturally occurring water, or any other substance that occurs naturally with the aggregate, reflects the practice in the industry. The industry sells by the tonne whether the aggregate is wet or dry. To move

away from that practice would increase complexity and undoubtedly result in increased compliance costs for the industry. To be clear, the tax is not on natural water, but on the weight of aggregate, of which naturally occurring water is an indivisible part. If I may say so to the hon. Member for Epsom and Ewell (Chris Grayling), water that is not rainwater or naturally occurring water in the aggregate but, perhaps, brine, would be treated in the same way and weighed as part of the total aggregate load on which the levy would be payable.

In summary, I urge the Committee to consider that amendment No. 255 does not recognise commercial practice, where suppliers sell a tonne of aggregate, wet or dry. It would introduce complexity into the process and inevitably add to compliance costs for the industry itself.

Christopher Chope (Conservative, Christchurch)

If that is correct, why is Customs and Excise making a special exemption for aggregate suppliers that choose to wash their aggregate as a natural part of marketing it, and why, where the aggregate is damped down artificially to stop dust developing, is the water used in that process subject to an exemption against the tax?

John Healey (Labour, Wentworth)

If the hon. Gentleman has constituents who live near operations like this or has visited such operations, he will understand that the dampening down process is highly valuable for local residents because it reduces the dust that lorries introduce into the local environment. It is an additional process with a valuable environmental impact and it is right that we take it into account as a process not related to extraction. We have developed our proposals on that in consultation with the industry, which has broadly welcomed them.

If I may say so to the hon. Member for Epsom and Ewell, the principal environmental impact of the levy lies in its very purpose, which is twofold. Its purpose is, first, to reduce reliance on the quarrying and extraction of virgin aggregates and, secondly, to do that principally by encouraging, through building in fiscal incentives, the industry and its customers to find recycled and alternative materials, which will allow us to scale down the quarrying of virgin aggregates. Alongside that is a determination to build some of the environmental costs of quarrying into the price and cost of quarrying, as I explained to the Committee during the last sitting.

That is the purpose and rationale of the levy and we are starting to see its impact. I quoted the response of McAlpine. A number of other companies are responding to the new regime in a similar way and that is, I think, helping us to feel confident that the levy will achieve its environmental objectives following its operation from 1 April this year.

Chris Grayling (Conservative, Epsom and Ewell)

Given that some quarrying will inevitably continue to take place—not all quarrying can be replaced by recycling—what measures is the Economic Secretary proposing, within the framework of the levy or elsewhere, to encourage good environmental stewardship by producers still extracting from the ground? How will this measure,

which seems to tax the smart disposal of the inevitable by-product of their quarrying, help that process?

John Healey (Labour, Wentworth)

I fear that the hon. Gentleman has taken the discussion well beyond the particular purposes and details of the clause into much more general environmental policy. Clearly, within the purposes of the provision and the clause, the levy is designed to have the impact that I stated. It is not designed to have a direct impact on the quarrying practices of suppliers in the industry and the techniques that they use.

The hon. Member for Christchurch asked why limestone waste is not afforded the same treatment as other industrial mineral wastes such as china clay. The answer is threefold. Limestone is not included in the list of exempt industrial minerals in section 18(3) of the Finance Act 2001 because it is an aggregate. The material arising from limestone extraction is, in reality, low-grade primary aggregate rather than true waste and is often used and sold as such. Genuine waste will not be subject to the levy. As it will not be sold, it will not be commercially exploited. However, if limestone is used for a prescribed industrial or agricultural process rather than as an aggregate, it is relieved under section 30 of the 2001 Act.

Let me deal with amendment No. 256 and, in so doing, explain the purpose of and provisions in clause 127. The clause deals with two separate matters. First, it amends the aggregates levy legislation to make taxable the overburden—the top layer of material that must be removed before a mineral can be worked—from china clay and ball clay extraction. Secondly, the clause contains a provision to exempt waste from the processing of all industrial minerals that are exempt from the levy. Previously, coal, slate, china clay and ball clay were covered. The clause brings into the exemption provision minerals such as fluorspar and other small-quantity minerals that are extracted. The changes will encourage the use of aggregates unavoidably produced in the process of extracting industrial minerals and help to ensure consistent treatment of mineral waste under the legislation.

Amendment No. 256 would exempt any waste, spoil or by-products arising from the production of aggregate and, therefore, subvert the purpose of the clause. The Government conducted the development of their plans for the aggregate levy and their preparations for its implementation on 1 April in a very open and consultative spirit, with regular meetings with the industry, trade associations and other interest groups. In keeping with that, there have also been detailed discussions with the aggregates industry on a suitable definition of waste aggregates or aggregate by-products. To date, the industry has been unable to provide us with a suitable alternative, comprehensive definition.

Quite simply, the reason is that it is difficult to produce a clear and consistent dividing line or borderline between what is and what is not waste. Aggregate quarries produce rock, sand or gravel. Therefore, any rock, sand or gravel that can be used as aggregate and sold as such is not waste but an

aggregate. It is only correct that the purchaser pay the environmental costs associated with its extraction; therefore, it is covered by the provisions of the levy.

Sometimes, quarry owners may describe some of the aggregates that they sell as by-products because they regard them as incidental to the production of their main or higher-value products, on which they make larger profits. However, exactly the same aggregates may be a main product from another quarry. In other words, one man's by-product or waste may be another man's main product. It would be unfair and distorting to base liability for the levy on whether the quarry owner regards such material as a by-product. Genuine waste materials will not be commercially exploited and, therefore, will not be subject to the levy.

Moreover, as we announced in the pre-Budget report in 2001, the Government continue to examine with the industry whether it is possible to deliver additional environmental benefits through the aggregates levy by encouraging the more general and positive use of true waste aggregates that would not otherwise be commercially exploited. On that basis, I hope that the hon. Member for Christchurch will feel moved to withdraw the amendment. If he is not prepared to do so, I ask the Committee to reject it.

Christopher Chope (Conservative, Christchurch)

Dealing with amendment No. 255 first, the Economic Secretary explained how naturally occurring water in aggregate is part of the system, and how aggregate is weighed and sold by the tonne with as much water as there happens to be in it. He went on to explain the fiendishly complicated calculation that Customs and Excise had brought in to work out how much water has been put into aggregate in order to reduce the incidence of dust. He said that there was an environmental benefit in the reduction of dust, which we would endorse absolutely. What he did not address were cases when aggregate is washed and sold wet, having been washed to make it more saleable. It may be sea-dredged aggregate that has been washed. Why should there be a special allowance for aggregate in that washed state when there is no allowance for aggregate from beneath the water table? I am not convinced by the Economic Secretary's explanation on that.

On amendment No. 256, the hon. Gentleman says that the aggregates industry has been consulted. Perhaps I could tell the Committee of something that I was informed about this morning by the British Aggregates Association. It says that there was a court case in front of the European Commission when the application for state aid approval in relation to Northern Ireland was considered by the Commission. The Commission's judgment reached the conclusion that it would be reasonable to allow state aid approval for Northern Ireland, but it also—more interestingly—reached the conclusion that the whole United Kingdom regime was state aid because of the differential impact that it has on different parts of the industry. As one can see from the examples that we have talked about, that is particularly true of the slate industry.

The Government have introduced a fiscal regime that will give an incentive for virgin slate to be quarried and to be used in place of aggregate waste. It will be transported hundreds of miles across the country to enable that to happen. How can that be sensible? It is surely a distortion of the market. How can the Government assert that it is a good thing to have a slate quarry operating, but not a limestone quarry, or that it is a bad thing to quarry virgin limestone but acceptable to quarry virgin slate? That does not make sense.

The European Commission produced its findings on the matter in April. The Government were given 14 days in which they were allowed to indicate whether they felt that the draft judgment should be made publicly available. They did not say anything, and it is only in the previous 48 hours or so that Customs and Excise has agreed with the British Aggregates Association that the draft judgment should be published. The draft judgment shows that the European Commission's view is that the whole regime and structure involves state aid. It has given approval to that, but the Government have hitherto argued that the only element of state aid was in so far as it affected Northern Ireland. Needless to say, that will be the subject of further litigation in the courts, but I think that it drives a coach and horses through the Economic Secretary's suggestion that he is actively consulting the aggregates industry. The industry urged Customs and Excise to give permission to publish the judgment at the end of April but it is only now, towards the end of this Committee, that that permission has been granted. It is significant and exemplifies the responsibility of the British Aggregates Association that it did nothing that it was not authorised to do and sought approval from Customs and Excise first.

Opposition Members feel that we should not countenance legislation that will encourage the mining and crushing of virgin slate while at the same time encouraging the dumping and accumulation of waste aggregate. That encapsulates our arguments in support of amendment No. 256.

John Healey (Labour, Wentworth)

Before the Committee perhaps divides on the amendment, I would not want it to be under any misapprehension on a matter as important as the proceedings and judgments of the European Commission, which Conservative Members follow closely. The High Court, in the judicial review proceedings brought by the British Aggregates Association to which the hon. Member for Christchurch referred, found that the exemption was not a state aid. The Commission ruled that the levy does not contain any state aid, contrary to the information supplied to the Committee by the hon. Gentleman, apart from the phasing in of the levy in Northern Ireland, which is accepted by the Commission as a permitted state aid under environmental guidelines of which the European Commission is the custodian. I hope that that clarification has set my hon. Friends' minds at rest.

Question put, That the amendment be made:—

The Committee divided: Ayes 10, Noes 18.

Clause 129 - Aggregates levy: miscellaneous amendments

Joe Benton (Labour, Bootle)

With this it will be convenient to take the following: New clause 26—No exemption for commercial exploitation within the United Kingdom—

'.—In section 19(5) of the Finance Act 2001 (c. 9) at end insert ''and if the purposes for which the aggregate is commercially exploited are within the United Kingdom.''.'.

New clause 27—Aggregates levy: adjustment of contracts—

'.—(1) The Finance Act 2001 (c. 9) is amended as follows.

(2) In section 43(1)(a), after ''quantity of aggregate'' insert ''or quantity of product containing aggregate.''

(3) In section 43(1)(b), at end insert ''or quantity of product containing aggregate,''.

(4) In section 43(2)(a) insert ''or

(iii) indices for the price of aggregates''.'.

New clause 28—Reduced rate of aggregates levy—

'.—In subsection 4 of section 16 of the Finance Act 2001, for ''£1.60'' substitute ''50p''.'.

Christopher Chope (Conservative, Christchurch)

These new clauses, particularly new clause 28, enable us to have a debate on the nonsense of the aggregates levy. New clause 28 is drafted to reduce the rate from £1.60 per tonne to 50p per tonne, but that is a form of words to enable the debate to take place. New clause 26 would exempt from the tax, aggregate used in the production of concrete products for export—a straightforward competitiveness issue. New clause 27 would extend the protection in section 43 of the Finance Act 2001 so that price increases due to the levy could be passed on in long-term contracts to supply aggregate products. The increase shown by price indices due to the levy would not then cause rents linked to those indices to rise.

The competitiveness problems arising from the legislation are now coming into stark relief. Nowhere is that more true than in Northern Ireland, as we have said, but it is also true in Scotland. As I understand it, a company there manufactures products, for sale outside the United Kingdom, involving the use of a

lot of aggregate as an aggregate coating on those products. As a result of the incidence of this tax on its products, it is seriously considering whether to relocate its business outside the United Kingdom. The tax is making its product uncompetitive in the marketplace. If that is what the Government wanted to achieve, they are well on the way to doing so, unless they accept new clause 26, which would allow some relief.

While we are talking about Scotland, we know from the Quarry Products Association that the total aggregates tax regime will cost Scotland about £12 million. In contrast, Greater London will benefit by some £43 million each year. Is that something that the Government intended? Did they intend to subsidise Mayor Livingstone's people by £43 million and take away £12 million from the Scots as a result of the operation of the aggregates tax? I suspect that they did not, but that has been the consequence of this ludicrous taxation regime. Now, on top of that, they will find that, because of the effects on companies in Scotland manufacturing products involving aggregate for export overseas, those companies will be separately penalised and the Scottish economy damaged. What a deplorable state of affairs.

An argument put forward for the aggregates levy was that there would be a sustainability fund to help communities—as it was originally expressed—adversely affected by the impact of quarrying. One's immediately thought is that it is hard luck on people who live near the slate quarries that are now reopening as a result of what the Government's legislation is doing in the marketplace; they will not be given any help from the fund. The fund was originally intended to help communities close to quarries, but we are now told that that will not happen because much of the money will be frittered away on bureaucracy and so on. It will not be used to help local people, who normally feel imposed on when quarrying or sand and gravel extraction takes place in their communities. I know that from my constituency, where there are sand and gravel workings. One of the consequences of having a constituency on the very edge of both Hampshire and Dorset is that, because the Hampshire minerals plan has decided that it would be best to extract minerals right on the edge of the county boundary, and the Dorset minerals plan does exactly the same thing, my constituents suffer. They were led to believe that they would get some relief under the regime from the special fund that would be provided from the tax proceeds. We now find that that will not happen. That is one justification for significantly reducing the rate of the tax.

Another justification for reducing the rate of the tax—indeed, eliminating it—is to do away with the enormous bureaucracy that has built up around it. The tax was ill advised in the first place. The Department for Transport, Local Government and the Regions expressed serious doubts about it. In a previous debate, the Economic Secretary dismissed the studies that the Department carried out at taxpayers' expense as backward rather than forward looking. If the

studies were worthless, why were they commissioned in the first place? The short answer is that they came up with the wrong answer and, instead of accepting the advice that they should have accepted, the Government decided to ignore them and to try to justify the tax on the basis of fresh argument.

I hope that the Committee will accept the new clauses and thereby improve the present position by reducing the adverse impact of the tax. However, as we have said before, the best answer would be to abolish the whole rigmarole.

Chris Grayling (Conservative, Epsom and Ewell)

I want to make a few remarks following on from my hon. Friend's comments. He raised some very important points about the measure. Most fundamental is the effect on many parts of our quarrying industry. Last week in the Chamber I had an exchange with the Chancellor of the Exchequer about a different industry but one on which the effects are likely to be similar. I pressed him again on the effect of the changes to North sea oil taxation. He started by defending the tax and its structure, but ended by asking how I proposed to raise the £500 million that the tax would raise.

The fundamental point is that, behind all of the window dressing, the Government are raising taxes from industry. They are taking £500 million from the North sea oil industry. In the case of the aggregates levy, they are taking millions of pounds from companies that are often key employers in remote parts of the country and thus fundamental to the survival of local communities. The Government cannot remove millions of pounds from an industrial sector without affecting its profitability and competitiveness, as well as its ability to play an active role in local communities and to follow good environmental practice and stewardship.

The Economic Secretary's response in the exchange a moment ago was lamentably weak. He had nothing to say about the Government's role in using the levy—if it must remain—to encourage good stewardship by companies that will continue, inevitably, to extract aggregates from the ground. The aggregates industry will not disappear and be replaced by a recycling service. If the Government wish to levy taxation on the industry, it is their responsibility to use the structure of the levy to encourage good environmental stewardship and performance. However, that is not happening. If the Government take millions of pounds out of remote communities in Scotland and recycle them in projects in other parts of the country, they provide no incentive whatever to companies to find the funds to put right some of the inevitable impact of aggregate extraction.

I would point the Economic Secretary in the direction of visible projects around the country. Gravel pits have been left in areas where sand and gravel have been extracted regularly for years, and the industry has turned those pits into some of our finest nature reserves. In many parts of the country—particularly the Cheshire countryside, which I know well—there are any number of high-quality reserves providing a valuable habitat for wild birds and other wildlife, which have resulted from investment put in by the aggregates industry after the extraction of minerals from a particular site.

Inevitably, if taxation is levied from that industry, which is not structured in a way that encourages good environmental practice, and all that is done is recycle through a giant bureaucracy into projects that may have no relation whatever to the original source of the mineral extraction, the development of such projects in future will not be encouraged—it will probably be hampered.

The Government need to think again about the impact of the measure. They seem to believe that they can extract money from different industries without any impact on those industries' finances, the communities that they serve or the responsible works that many companies involved in the industries perform in their local communities for the good of people and the environment. The Government need to think again on the subject. My hon. Friend the Member for Christchurch is doing a valuable job for many communities in this country by highlighting the issue. I hope that the Government will think about what has been said in the Committee this morning.

Michael Jack (Conservative, Fylde)

I want to make one or two remarks following the excellent and cogent lines of argument of my hon. Friends the Members for Christchurch and for Epsom and Ewell.

No one would disagree with the need in many areas to be far more aware of the environmental impact that human activity has. In the context of aggregates and minimising the impact on the environment, I think that people would generally welcome the measure's objectives, but the Government have perhaps a schizophrenic approach to some of their environmental legislation. The objectives of the aggregates levy could have been achieved by a different route.

Had the Government settled down with the industry to negotiate some binding agreements about minimising the production of wastes and recycling existing materials, that would have been entirely supportable and laudable, and would, no doubt, have achieved the objective. I pray in aid of that argument the approach that the Government have taken with industries covered by the Intergovernmental Panel on Climate Change arrangements in the context of the climate change levy. Those industries were the subject of negotiated agreements on the reduction of energy usage.

If the Government can deploy in pursuit of reduced energy usage agreements that effectively bind people to achieve certain targets, surely in the context of aggregates they could do the same. It is right that people should be suspicious of the true motives that underpin that form of taxation, because the Government have chosen not to go down that route, but to use the levy as a source or revenue generation. Having been part of a Government who introduced new taxes, I know that it is never easy to do. Sometimes, it is hard to explain why one is doing something to raise revenue, but in this case the matter is highly focused. It deals with minimising the effect of the extraction of aggregate materials on the natural environment, and encourages the recycling of already used materials, both of which are to be entirely welcomed. However, the way in which that has been

done shows that, in truth, it is really about raising money, rather than achieving an environmental objective.

John Healey (Labour, Wentworth)

I shall deal first with the points put to me in debate, and then with the three new clauses in reverse order.

I regret that the hon. Member for Christchurch has belittled the sustainability fund, which will be worth £35 million in the first year. It is a new fund that has been designed to promote alternative uses of virgin aggregate, efforts to reduce the impact on local communities that suffer from the blight of nearby quarrying, and the environmentally friendly extraction techniques that the hon. Member for Epsom and Ewell returned to again in the debate.

Michael Jack (Conservative, Fylde)

Will the Economic Secretary give way?

John Healey (Labour, Wentworth)

If I may finish this point, I will then certainly give way.

The sustainability fund will play a part in the encouragement of more environmentally friendly extraction techniques. If the hon. Member for Epsom and Ewell has suggestions for how, in addition to that, we might reinforce the operation of the levy to achieve that effect, I am very willing to look at them. I shall ensure that his proposal on encouraging members of the industry to be better stewards of the resources that they manage and exploit is put to the industry for discussion in our regular discussions with it.

Michael Jack (Conservative, Fylde)

In his remarks a moment ago, the Economic Secretary mentioned a number of arguments in favour of the aggregates levy. I wonder what plans the Government have to produce, on each anniversary of the introduction of the levy, an assessment of its impact and a commentary on how it is working.

John Healey (Labour, Wentworth)

As an experienced Treasury Minister, the right hon. Gentleman will know that the Government keep the operation and impact of all taxation legislation under continuous review. The annual Finance Bill often becomes the point at which such matters can be examined and debated. I trust that that will be the case in the future.

Michael Jack (Conservative, Fylde)

I wonder if the Economic Secretary will give way.

John Healey (Labour, Wentworth)

Again?

Michael Jack (Conservative, Fylde)

Again.

John Healey (Labour, Wentworth)

By all means.

Michael Jack (Conservative, Fylde)

I am grateful to the Economic Secretary for his courtesy in giving way.

I accept entirely the Economic Secretary's first line of argument in response to my question, but he has put on record a series of tenets that he believes justify his position. So that Opposition Members and people outside might judge the robustness of his argument with even greater clarity, will the Treasury be kind enough to share with us the results of that continuous review exercise on the next anniversary of the introduction of the tax?

John Healey (Labour, Wentworth)

The right hon. Gentleman is very skilled at testing the robustness of my arguments and those of my hon. Friends, and I am sure that he will do so in future Finance Bills. On his second point, whether we should be considering for the aggregates levy something akin to the model of negotiated agreements that we have implemented for the climate change levy, if there is scope for such measures to help to achieve the purposes and objectives of this levy, we are indeed prepared to discuss them. That might be another item on the agenda for the next round of discussions that we hold regularly with the industry. I shall ensure that the right hon. Gentleman receives due credit for raising the point with me in Committee.

Chris Grayling (Conservative, Epsom and Ewell)

Does the Economic Secretary recognise that the difference between us, on the issues to which he referred a moment ago, is that the Government appear to believe that the sensible way to proceed is to levy a tax on the industry, put it into a fund and then allow people to bid for the fund for special projects? The approach that I would advocate is discussion with the industry, identification of possible ways of improving environmental stewardship, perhaps the provision of tax incentives to pursue those, then leaving the businesses with the job of carrying them out. That would be better than creating this convoluted, bureaucratic process where the money goes out, goes around through bureaucracy and then comes back in again.

John Healey (Labour, Wentworth)

I understand the hon. Gentleman's point, but the difference between us is that he does not want to see the aggregates levy in place and in operation. We believe that there is a strong case for it, with strong environmental objectives. That is why we have legislated for it.

On the point made by the hon. Member for Christchurch about Scotland, the argument that large areas of the UK, which produce the bulk of aggregate, will suffer disproportionately from the introduction of the levy because the tax bill outweighs the national insurance contributions cut from which they will benefit, is simply not accurate. The levy is an indirect tax and, as such, the cost will ultimately be borne by the consumer. Given that the cost of the levy will largely be passed on in price increases to the consumers of aggregates, the tax burden is much more evenly spread across the country than his argument suggests. London and the south-east, where companies will benefit from the 0.1 per cent. cut in national insurance contributions, are the very areas that are the most intensive users of aggregates for construction purposes.

I turn to the three new clauses. Let me be clear at the outset that I do not accept any of them, but I shall deal with them in reverse order. The hon. Gentleman was good enough to tell the Committee that the purpose of new clause 28 was to have a debate on the principle of the levy. Let me take the Committee back to the starting point. The levy is based on the work that we did—independent research and analysis—which concluded that significant environmental costs are associated with the extraction of aggregates. Before the levy, those costs were not covered by regulations and included noise, dust, visual intrusion,

loss of amenity and damage to biodiversity. The former Department of the Environment, Transport and the Regions, which was largely responsible for that research, concluded conservatively that the environmental damage attributable to extraction of aggregates could be costed at around £1.80 per tonne. The Treasury, as is its wont, took a prudent and cautious view and set the rate at £1.60.

Christopher Chope (Conservative, Christchurch)

It is £1.60 per tonne plus VAT, is it not?

John Healey (Labour, Wentworth)

It is £1.60 per tonne. That is the aggregates levy. The cost that the environmental research suggested for the environmental damage is more than that.

The levy is already bringing environmental benefits—that was the principal purpose of introducing the provision—by making the price of aggregates better reflect their true environmental costs and encouraging the use of alternative materials, thereby reducing the amount of virgin aggregate extraction.

John Bercow (Conservative, Buckingham)

I am extremely grateful to the Economic Secretary for giving way. Will he answer a straightforward question: is or is not the levy subject to VAT? Yes or no?

John Healey (Labour, Wentworth)

Very simply, as with a range of other services and goods, the levy is subject to VAT. It is set at £1.60 per tonne. The cost of the environmental impact is greater than that.

On the principle or purpose of the tax, which is where the hon. Member for Christchurch wanted to take the Committee, reports from Alfred McAlpine cited the strong impetus that it is providing for sourcing alternatives to virgin aggregates. Encore Environmental Aggregates, Northern Tyre Disposals, Alcan Smelting and Power UK have all reported recently that they are making moves in a similar direction. A tax rate for the aggregates levy of 50p per tonne plus VAT, as proposed in new clause 28, would not reflect the true environmental cost of aggregates extraction and would not provide sufficient incentive to encourage the efficient use of virgin aggregates and the use of recycled aggregates or other alternatives to virgin aggregates. Not only would the aggregates industry be affected, but the hon. Gentleman's new clause would entail a significant loss to the Exchequer of more than £200 million as the 0.1 per cent. reduction in employer's national insurance contributions that accompanied the introduction of the levy is already in place.

Chris Grayling (Conservative, Epsom and Ewell)

I should be grateful if the Economic Secretary would answer two questions. First, are imported aggregates subject to the levy? Secondly, what change has there been in the trade balance in aggregate materials since the introduction of the levy?

John Healey (Labour, Wentworth)

The answer to the hon. Gentleman's first question is yes. The answer to his second question is that the levy has been in place only since 1 April this year and it is too early to give a definitive answer.

Turning to new clause 27, the first amendment covered by it would extend the adjustment of contracts provision to contracts for the supply of processed

products. To extend any of the provisions of the levy to processed products would be far from straightforward. When aggregates have been used to manufacture processed products they have already passed the tax point and are no longer aggregates for the purposes of the levy. The commercial arrangements for onward supply of aggregates beyond that are intentionally outside the scope of Customs legislation, and it is certainly not something that could be done simply by bolting a new clause on to existing legislation, as Conservative Members seem to think.

The second change that the new clause would make concerns the provisions for adjusting rent or royalty payments as a result of the levy. I confirm for the hon. Member for Christchurch that the Government have already examined the area carefully. We have benefited considerably from our extensive consultation with the industry and other interests. The results of the consultation have produced a suitable measure that renders the amendment unnecessary and, I hope, settles the hon. Gentleman's concerns.

Some rent or royalty payments are adjusted according to indices of aggregates prices published by the Office for National Statistics. The Quarry Products Association proposed earlier this year to make the necessary arrangements with the ONS to produce both levy-inclusive and levy-exclusive indices, so that the levy-exclusive index could be used to adjust rents and to ease industry concerns about the matter. That solution will not require a change to the primary legislation, as section 43 is already wide enough to allow for such adjustments. Therefore, the suggested change to the law covered by the second part of new clause 27 is not necessary.

Finally, let me turn to new clause 26 and the concerns of the hon. Members for Christchurch and for Epsom and Ewell about competitiveness. There is no case for the new clause. The aggregates levy does not significantly affect international competitiveness. Frankly, the scare stories about the potential flight of firms from the UK are just that, because there is limited international trade in processed products. Exports represent only about 3 per cent. of total precast concrete industry sales, and that low level of exports is mainly in high-value products. The prices for such products may range up to £120 or £130 per tonne and are not significantly affected by the levy. Where there is a risk of international competition in processed products—in particular, in Northern Ireland—we have already taken steps to help the industry adjust to the aggregates levy. Apart from that special case, the aggregates levy should not have an impact on the competitiveness of exports of processed products, but we shall carefully monitor that.

Finally, the measure is unlikely to receive the necessary European Union state aid approval, as it is not consistent with the declared nature and logic of the aggregates levy. On that basis, I urge my hon. Friends to reject all three new clauses proposed by the Opposition.

Christopher Chope (Conservative, Christchurch)

The Economic Secretary has made a valiant attempt to defend the indefensible. Let us just remind the Committee of the effect of the levy. We are

coming up to the Commonwealth games. Lawn sand that is put on the green grass areas of the sports stadium is exempt from the levy, but sand put in the long-jump pit is subject to it. Is not that absurd? The absurdity is repeated a thousandfold across other parts of the economy, and all the time it is being policed by expensive Customs and Excise officials.

On exports, surely it would be reasonable to allow the new clause to be part of the legislation, if the cost is so low. The information that I have—the Economic Secretary pooh-poohs it, but I have not divulged it for commercial and confidential reasons—is that the levy is having an effect on people who are seeking to export products. Therefore, I hope that the Committee will support new clause 26 when we put it to a vote.

Chris Grayling (Conservative, Epsom and Ewell)

Does my hon. Friend agree that time and again, in this Committee and in similar proceedings, we see a total lack of understanding on the Government Benches of the impact of even relatively small changes on the profitability of a business. They seem to believe that an additional 1 or 2 per cent. makes no difference, but cumulatively, in industries with tight margins, it can make a huge difference to the viability of businesses.

Christopher Chope (Conservative, Christchurch)

My hon. Friend is absolutely right. One only has to look at today's financial news to realise that all those little bits and pieces are catching up with the Government because they are damaging our economy. Contrary to what the Prime Minister said at Question Time last week, the stock market is now lower than it was when the Government came to office, which is in no small measure because of their taxation policies.

The Economic Secretary has said that there is an environmental justification for the tax. That has certainly been the argument advanced. It is a pity that the Government did not listen to the arguments expressed by bodies such as Friends of the Earth Northern Ireland, which suggested that there were alternative ways of addressing in the planning system the issue of demand and the environmental impact of aggregate supply, and encouraging the reuse of construction wastes.

I put down this challenge to the Government. The levy purportedly deals with some environmental costs: the noise, the dust and the damage that comes from hard rock quarrying, and sand and gravel pits. However, what happens when a slate quarry is reopened? Is there no environmental impact? What is the environmental cost of reopening that quarry and transporting the slate and slate waste across hundreds of miles? The Government have been very partial in the legislation, and I return to the state aid issue. Perhaps the Economic Secretary has not yet seen the press release issued by the British Aggregates Association this morning, but it says:

''The BAA applied to the high court for a judicial review of the aggregates levy. At that review the Government successfully argued that the levy as a whole was not state aid.

The Government had previously applied to the European Commission, under State Aid rules, for permission to grant a temporary partial exemption in Northern Ireland. The Commission approved this special treatment''—

I emphasise this—

''but, in an unexpected move, then went on to approve the levy as a whole, even though the Government claims that it had not asked it to do so.

However, the Commission decision of the 24th April, passed privately to the UK Government just three days after judgment was given in the High Court, accepts that the levy is indeed state aid—and approves it on that basis.''

Sadly, that is why the issue will run and run in the courts, if the Government will not accept the arguments put forward against this ludicrous tax.

Question put and agreed to.

Clause 129 ordered to stand part of the Bill.

Christopher Chope (Conservative, Christchurch)

On a point of order, Mr. Benton. I was wondering about new clause 26. Will we be able to deal with that?

Joe Benton (Labour, Bootle)

At the moment we are discussing the new clauses together with clause stand part. There will be an opportunity to move new clause 26 formally later in the agenda.

Schedule 37 agreed to.

Clause 130 ordered to stand part of the Bill.

Clause 132 - Mandatory e-filing

John Bercow (Conservative, Buckingham)

I beg to move amendment No. 227, in page 104, line 7, leave out 'requiring' and insert 'permitting'.

Joe Benton (Labour, Bootle)

With this it will be convenient to take the following amendments: No. 228, in page 104, line 38, leave out 'or requirement'.

No. 229, in page 104, line 41, leave out 'or requirement'.

No. 254, in page 105, line 9, leave out 'required' and insert 'permitted'.

No. 231, in page 105, line 20, leave out subsection (7).

John Bercow (Conservative, Buckingham)

Good morning, Mr. Benton, and welcome to the Chair. We are dealing with a very important set of amendments, and it is essential to explain the background to them.

Clause 132, as Members and others will doubtless be aware, provides for mandatory filing of payroll returns and information over the internet by 2010. The Conservative party supports measures to encourage electronic communication, but we strongly believe that this provision is totally unreasonable. In view of the Government's lack of success with electronic systems, including, I should emphasise, the Passport Office fiasco and the recent withdrawal of the electronic filing of self-assessment tax returns due to a security failure, this measure is manifestly not a reasonable or even responsible approach.

The essence of the amendments with which we are now dealing—we shall turn to others in due course—is to propose a permissive rather than a prescriptive approach. In other words, by contrast with the Government, we are saying that if people wish to file

their tax returns electronically, now or by 2010, they should be permitted to do so. We are the party of choice. On the other hand, people should be under no obligation to do so if they do not wish to. That is where the Government's prescriptive approach is widely resented.

We hope, even now, at the 59th minute of the 11th hour, that the Government will withdraw. I can say, in a constructive spirit, to whichever Minister responds to the debate, that we would not in any way seek to exacerbate the Government's embarrassment were they now to say, ''Sorry, we accept that we got it wrong. Some powerful representations have been made to us and we have decided to reconsider. We have abandoned prescription in favour of a permissive approach. Will you Conservatives now bank the concession and say no more about it?'' The answer to that would be yes.

I have always taken the view, the more so over the years, that there is no shame in making a mistake, only in failing to acknowledge the possibility of having done so. That is the offer that I make. I ask the Ministers just to think about it. They can do this very painlessly. Hon. Members on this side will not bang on and bore the Government rigid, for months to come, about the fact of their failure and embarrassment. I am dangling a pretty juicy carrot, and Government Members should not dismiss it lightly. Think of the endurance test to which Members will otherwise have to be subject.

The issue is very serious, and I shall deal first with the views of respected tax practitioners. I shall come on to other aspects of the debate in due course, especially under amendment No. 230, but at this stage I pray in aid the tax faculty of the Institute of Chartered Accountants in England and Wales. Its view, I am sure the Minister would agree, is important to our debate, although not the only valid opinion. The tax faculty says:

''The Government and the Revenue should be concentrating their efforts on ensuring that its''—

I presume, the Revenue's—

''e-filing systems are easy to use, robust and reliable and only then encouraging taxpayers to use the service.''

That seems a reasonable position. It goes on to say:

''We object to this clause in the strongest possible terms and believe that is should be withdrawn.''

It continues:

''It needs to be appreciated that the obligation to apply PAYE is not limited to businesses. Many individuals engage nannies, gardeners and other helpers and have an obligation to deduct PAYE from the salaries of such people.''

The clause has its origins in the report prepared by Patrick Carter on payroll services, and I do not doubt that Ministers will invoke that in support. However, it is important to recognise that the tax faculty of the Institute of Chartered Accountants in England and Wales made a representation to that review. In it, it emphasised that it disagreed with some of the conclusions reached in the report, particularly that there should be compulsory e-filing of payroll returns. It said:

''Whilst the future of efficient payroll management, both for employers and for the Inland Revenue lies in an electronic solution, we are concerned at the unrealistic time scales which have been proposed and the element of compulsion suggested . . . Problems within the current electronic solutions need to be resolved before consideration of whether electronic filing should be made compulsory.''

It went on significantly and cogently to add:

''Such a decision should only be reached after further debate in the light of experience of the current electronic filing methods.

We are aware that other representative bodies submitted similar representations and we are deeply disappointed to find that, not only has such a provision been included in the Finance Bill, but the proposed scope of the provision has now been extended to include compulsory e-filing generally.''

The Institute of Chartered Accountants in England and Wales and others question whether the unamended clause is compatible with the European convention on human rights, as the Government somewhat unconvincingly claim. That is the judgment of the ICAEW.

The Chartered Institute of Taxation is presumably of some relevance to our deliberations. It stated:

''We feel strongly that the attempt to make an e-filing regime compulsory is the wrong approach. Whilst supporting the moves towards e-filing we believe the incentives should be by way of carrot, not stick. There are considerable administrative efficiencies to be gained from electronic communications but many of these benefits will accrue to the Revenue. The costs savings need to be shared. It is not fair to impose further costs on the taxpayer and businesses.

We find these particular clauses''—

clause 132 and associated clause 133—

''onerous and un-deregulatory and are most concerned that general empowering clauses, with so little substance, have been placed in a Finance Bill. If compulsory e-filing in specified circumstances is deemed necessary (for employers, following Carter for instance) then proposals of substance should be brought before Parliament for proper debate. Statutory Instruments should only be used to fill in or change minor details. They should not be used to contain the whole legislation.''

In other words, the CIOT is saying that we should know for what we are speaking or voting for or against, if our deliberations are to be accessible and intelligible to the outside world. The Government should not present us with what is, effectively, a skeleton in the Bill, which we are invited to support, on which the flesh will be added only at a later stage by people acting on behalf of the Government. Parliament must be given an opportunity to express a view about the substantial flesh placed on the skeleton.

There may be a simpler way of putting it—I am sure that several of my right hon. and hon. Friends want to contribute to the debate—but that summarises the essence of the undesirability of the Government's approach. They say very little in terms of specifics. They give themselves Henry VIII powers and ask us to trust them. They say that the detail will come later, that Parliament will not have a chance to comment on it, but that they are people of good will who will behave themselves. They say that everyone will be happy—of course, it will be too late to register that one is not happy—and, never mind, they are good chaps and chapesses, lie back and think of England; all will be all right on the night.

As all hon. Members know, I am an extremely charitable fellow. I try to see the best in my parliamentary colleagues of all parties. Therefore, I say gently to the Paymaster General—I do not want to wound her in any way—that I have not been altogether encouraged by her record. I am not willing to be mollified by the soothing bromides for which she is renowned. That is not good enough for me. I am, frankly, more persuaded by the professional concerns of the Institute of Chartered Accountants in England and Wales and the Chartered Institute of Taxation. We want a permissive rather than a prescriptive regime.

That is a compelling argument in its own right, but there is another relevant consideration, especially when we are being invited to take something on trust. I have referred bluntly and perhaps, from the vantage point of the Paymaster General, woundingly to my inability on the strength of the record entirely to trust her, on the basis not of abstract and pejorative comments, but of precedent. I am sorry to say that in addition to the skeleton in the Bill, there is another lurking in the ministerial cupboard on this subject and it is my duty to bring it to the Committee's attention. It is in the form of an exchange between the Paymaster General and her right hon. Friend the Member for Leicester, West (Ms Hewitt), the Secretary of State for Trade and Industry.

On 9 August 2000, the Secretary of State for Trade and Industry wrote on behalf of her constituent, Mr. Jim Fear of 139 Winchester Avenue, Leicester, to the Paymaster General about the Income Tax (Electronic Communications) Regulations 2000. The Secretary of State for Trade and Industry emphasised Mr. Fear's concern—this is important and not a laughing matter—about being forced to use the internet. That troubled him and offended against his principles. The Secretary of State for Trade and Industry, quite properly in her capacity as a constituency Member of Parliament, wrote to the Paymaster General, who sent a two-page reply. Her prose was of the finest and she would probably like me to read out all of it, but I shall resist that temptation. She wrote to her right hon. Friend on headed Treasury notepaper on 21 September 2000. Paragraph 2 of her letter, which started, ''Dear Patricia'', stated:

''You said that Mr. Fear was concerned about being forced to use the Internet and felt that Regulation 4 could be used in this way. I confirm that it is not Government policy to force people to use the Internet, but we are committed to offering them the choice of electronic services. Those who prefer to use paper to communicate with the tax authorities will continue to be able to do so.''

That seems clear, but the Government now propose to have mandatory e-filing by 2010. They believe that they can somehow bridge the gap between the letter of September 2000 and the contents of the Bill, and minimise, if not remove, the Paymaster General's embarrassment by invoking the notion that an intermediary can undertake the e-communication and e-filing. However, with all respect to the Paymaster General, although she may genuinely believe that that is a satisfactory compromise, it can be satisfactory only if the people at whom it is principally aimed judge it to be satisfactory. I am sorry to say that people who, for whatever reason—

some are motivated by conscientious and religious objection—object to being forced to use the internet to file their tax returns, do not consider the concession being offered by the Government as in any way satisfactory to meet their concerns.

In a letter dated 20 June to Mr. Ron Davis of 14 Church Lane, Whitchurch, Bristol, the Paymaster General stated:

''I am able to confirm that it remains Government policy not to force individuals to use the internet personally''.

My hon. Friends will note the insertion of the word ''personally''. The letter continues

''and reassure you that nothing in clause 132 nor the regulations that will follow will create such a requirement.''

The Paymaster General goes on to talk about the use of intermediaries.

People who are unhappy about the clause are not persuaded by the Paymaster General's letter, and it is important to emphasise why they are not. They believe that it should be a matter of choice as to whether they, or those acting on their behalf, use the internet for the purpose of filing tax returns. They are not satisfied that the Government have any such arrangement in mind. They believe—the wording of the clause justifies their belief—that by 2010 the Government will require e-filing of tax returns. That is not something that they want to see.

I would say to the Paymaster General that a certain insult has been added to injury, probably inadvertently, by the fact that on page 7 of the employers bulletin, published by the Inland Revenue on 11 May 2002—importantly, before the passage of the Bill—there is an item rather unoriginally and prosaically entitled, ''The future's bright, the future's e-payroll''. It goes on to say:

''All employers will have to send their year-end returns and forms electronically from May 2010.''

That is a direct breach of the promise that the Paymaster General made in her reply to her right hon. Friend the present Secretary of State for Trade and Industry in September 2000.

We do not believe that the Government have made a compelling case for the U-turn that they have performed. It is in the name of choice and a permissive approach, rather than instruction, prescription and compulsion, that I commend the amendment to the Committee. I save myself a little bit for other amendments to the clause to which we need to turn in due course.

John Burnett (Liberal Democrat, Torridge and West Devon)

I support the amendment wholeheartedly. I do not believe that it is in the interests of the Inland Revenue, let alone the taxpayers, that e-filing should be mandatory; it should be permissive. We all want to encourage electronic communication, but the Government are taking the power to make e-filing mandatory and that is simply not on. The clause will give the Government unbridled power that would substantially and adversely affect the lives of many

people, especially the elderly who are not conversant with the internet, and who are invariably assiduous and law-abiding people.

John Bercow (Conservative, Buckingham)

Many people would be frightened by, and feel vulnerable because of, the arrangements of the clause. I am not suggesting that the person to whom I am about to refer is the most obviously vulnerable person or one easily frightened, but one person who would have grave difficulty if the clause were enacted would be my right hon. Friend the Member for Bromley and Chislehurst (Mr. Forth), who has gone on the record as saying that he would not recognise a website if it jumped out of his breakfast cereal.

John Burnett (Liberal Democrat, Torridge and West Devon)

The right hon. Member for Bromley and Chislehurst is not alone among Members of the House. There are many of us, and I confess that my knowledge of such matters leaves much to be desired, although I am considering taking courses.

I return to the elderly and other individuals not conversant with e-mail and the internet. Those people will have to pay to go to intermediaries. They will be forced to do so and will incur expenditure that they can ill afford.

Iain Luke (Labour, Dundee East)

Does the hon. Gentleman not accept that the elderly people doing tax returns that we are talking about will inevitably be going to agents anyway to ensure that their tax returns are properly processed?

John Burnett (Liberal Democrat, Torridge and West Devon)

No, absolutely not. I should like to place it on the record that, for years and years, I acted for a number of owner-managed businesses, and I found that many people, especially at the smaller end, did their own tax returns and filing. They did so for many reasons: first, because they were competent to do so; secondly, because they were honest; and, thirdly, because they could not afford to pay accountants to do it for them.

Peter Luff (Conservative, Mid Worcestershire)

There is, of course, the question of elderly people who employ domestic help. They will certainly not be using professional help.

John Burnett (Liberal Democrat, Torridge and West Devon)

Indeed, that is correct. I believe that that point was alluded to by the hon. Member for Buckingham (Mr. Bercow) when he referred to the major and compelling objections of a number of the professional bodies. Rarely have I seen unity on such a scale when discussing policy measures introduced by a Government. I do not want to repeat verbatim what the hon. Gentleman said, but the Institute of Directors has made it absolutely clear that it is not appropriate to compel people to file electronically. It thinks it deplorable that the regulations will, in effect, require taxpayers to use intermediaries and strongly believes that the words ''or require'' should be deleted.

I refer to the submissions made on behalf of the Institute of Chartered Accountants. The hon. Gentleman has already referred to some of them. The ICA is a distinguished and authoritative body, and the Government should take heed of what it says. It questions whether the clause is compatible with the European convention on human rights, and says, quite clearly:

''We feel strongly that the attempt to make an e-filing regime compulsory is the wrong approach. Whilst supporting the moves towards e-filing we believe the incentives should be by way of carrot, not stick.''

Dawn Primarolo (Labour, Bristol South)

Will the hon. Gentleman share with the Committee why those institutions believe that moving to e-filing is a good thing?

John Burnett (Liberal Democrat, Torridge and West Devon)

For the very reasons that I, the hon. Member for Buckingham and others in the Committee have adumbrated. The Chartered Institute of Taxation states:

''We are concerned that these clauses impose a burden on all taxpayers not just those identified by the Carter Review and we believe that there should be let-outs for taxpayers who either cannot afford or choose not to use electronic communication.''

Mark Hendrick (Labour/Co-operative, Preston)

Does the hon. Gentleman accept that, with the current roll-out rate of digital services, it is likely that, by 2010, people will be able to submit their tax returns through the equivalent of a television set?

John Burnett (Liberal Democrat, Torridge and West Devon)

I am afraid that I disagree with the hon. Gentleman. The year 2010 is slightly less than eight years from now, and there are people aged 50 in my constituency who want and prefer to use paper and do not wish to file their returns on the internet. They are also deeply concerned about confidentiality.

John Bercow (Conservative, Buckingham)

The hon. Gentleman is developing a powerful argument. I suggest to him that the position of the hon. Member for Preston (Mr. Hendrick) is flawed on both counts. He seems blissfully unaware that he is hoist with his own petard. Does the hon. Member for Torridge and West Devon (Mr. Burnett) agree that if the time scale is unrealistically tight, that is an argument against compulsion; if, as the hon. Member for Preston fondly imagines, it will be easily achievable, what is the need for compulsion?

John Burnett (Liberal Democrat, Torridge and West Devon)

Absolutely right. That is a good very point.

I referred to confidentiality just before those interventions. People are not convinced about the security of such matters and that point of view should be respected. After all, we heard this morning on the news that people can tap in to the electronic communications of the Royal Family and senior Government Ministers, so what hope is there for individuals in small country towns and cities who submit their own tax returns, which often contain confidential details of their lives? It is not on and the Government should think again. The provision should be permissive, but mandatory e-mailing must be dropped. Permissive, yes; mandatory, definitely not.

Chris Grayling (Conservative, Epsom and Ewell)

I want to reinforce the comments made by my hon. Friend the Member for Buckingham and the hon. Member for Torridge and West Devon, and to raise another matter of concern that would result from this thoroughly ill-thought-out measure.

This debate reflects the complete absence of understanding on the Government Benches of the reality of running a business. The range of businesses in this country is hugely diverse, with different cultures, different experience, different working environments and so on. To tell them that they must

do something with no choice defies all logic and suggests a complete absence of understanding. The Government seem to think that there is a large creature called ''business'' and that rules and regulations can be thrown at it and absorbed. The Government never seem to think through and consider the other end of their actions—the small business man or woman doing their books at home on a Sunday night and coping with the complexities, issues and changes that the Government require them to take on.

The Government, rightly and sensibly, want to encourage e-filing and none of us in the Committee disputes the logic for many business of being able to pursue such a route, but we part company with the Government's absolute insistence that there should be no choice. That is ill thought-out, narrow minded and does no favours for our hard-working business people.

We have heard about the issues that may arise. The hon. Member for Torridge and West Devon referred to people of the older generation and their unwillingness to change their way of working. Why should they? We expect the older generation to work longer in the future and we expect businesses to stay in business longer. People in traditional small craft firms—for example, those with masonry skills who carve elegant repairs on the sides of our cathedrals, those who thatch roofs, and others skilled in traditional crafts—will be asked to change the way that they work as they work into their older years and to buy the equipment to enable them to change the way that they work. That is illogical, unfair and unnecessary.

More particularly, another issue that has not yet been referred to is corporate security. Many companies have taken the decision to have a firm wall around their internal networks to the point where there are no links between those networks and the outside world for security reasons because, whether we like it or not, it is possible to hack into virtually any network anywhere in the world. Some people make a living from hacking their way into networks, finding confidential financial information and using it against those businesses or to cause trouble for them.

I am aware of companies that have taken a specific decision no longer to provide electronic links from their networks to the outside world. They may have a couple of machines in the office from which staff are able to send e-mails, but they do not provide external links. Are the Government telling those companies that they must put in place external links that feed straight through to their financial systems, to enable them to lodge an e-file of their PAYE details, even if they have strategic reasons for being unwilling to provide such links, such as consciousness of the security implications—potentially, national security implications? Will companies no longer have the ability to cut themselves off from the internet if they believe that the risk is not worth while? Will the Government compel such organisations to open their networks to outside links? It would be extremely foolish to do so, for the reasons that we have heard today.

Mark Hendrick (Labour/Co-operative, Preston)

Has the hon. Gentleman heard of encryption?

Chris Grayling (Conservative, Epsom and Ewell)

The hon. Member for Preston demonstrates his naivety in that intervention. If one considers the evolution of technology, it is absolutely clear that there are no guarantees on the internet. There are no guarantees with encryption, because it is breakable. People make a living breaking encryption technology. I know of companies that have specifically said that it is not worth the risk.

Mark Hendrick (Labour/Co-operative, Preston)

I speak as a computer scientist and someone who has studied the subject at length. Some codes can be broken, but others would require such tremendous computing power that no machine on earth would be able to break them.

Chris Grayling (Conservative, Epsom and Ewell)

I simply do not accept the hon. Gentleman's assurances that no machine on earth is able to do something, given the technological changes in the past 20 years and the fact that we are looking eight years into the future when technology may have changed enormously. Furthermore, the concept that a small business will use high-quality encryption technology to protect itself when e-filing is equally improbable.

Tom Harris (Labour, Glasgow Cathcart)

Notwithstanding my reservations about some aspects of the Bill, which we will discuss in the next set of amendments, does not the hon. Gentleman accept the Government's reassurances that an intermediary would resolve all the security issues for any firm that has such misgivings? I totally accept that some firms do not want to hook up to outside agencies and may see that as a breach of security but, surely, that is the purpose of an intermediary. There would be no lapse of security for any firm that wanted to employ an outside accountant, for example.

Chris Grayling (Conservative, Epsom and Ewell)

No, I do not accept that, because companies would be required to work in a different way. They would be required to create links that they may for very good strategic reasons not want to create, whether through an intermediary or not. Companies would not necessarily want to use an external agency to handle their payroll if they have an internal department capable of doing that.

All the points that hon. Members made may have some foundation in truth, but I cannot accept the compulsion element as right or necessary. The Government can encourage and incentivise, but they should not require, and I hope that they will change their mind even at this stage.

John Pugh (Liberal Democrat, Southport)

In supporting the amendment, I accept that the Carter report recommended precisely this measure and a mixture of incentives and compulsions. As I understand the legislation, the Government have taken power to compel and coupled that with a few pathetic incentives, such as £250 for a small business, which will not buy much of a computer these days.

There are objections to the measure. I understand some of them, but others I understand rather imperfectly. There appears to be root-and-branch religious objection—there have been moments in my life when I thought that the computer was the

instrument of the devil—but the objections have not been properly explained. On moral objections that have been put forward, some people have suggested that staff should not be given access to the internet or that firms may wish to work in an environment that does not include internet access. In most businesses, that is not really a difficulty, because there are always ways of getting around or getting control of IT apparatus, but there is a problem for the individual who has just one employer.

The fundamental issue appears to be that we allow a multiplicity of payment methods—one can pay by cash, cheque or credit transfer—but for some reason the Government seem to be ruling out multiplicity of ways of form filling. One has to ask oneself who that is good for. Is it good for business or the Exchequer? I think that the Government believe it is good for both. They have a puritanical belief that the more business gets into computers, the more efficient it will be. They see a necessary connection between IT and efficiency. That connection sometimes exists, but as anyone who uses IT will find, it is not always there.

What the Government are demanding goes a little further than demanding that people fill in a form with a black pen. It has consequences for data recording, equipment procurement and security. There are any number of agencies that, according to the Government's own legislation, will have access to anything sent via an internet service provider. The Government are being permissive—from a Home Office angle—in opening up access to records on the part of Government bodies. I think that when people send in their tax records they have a right to know that those records have gone to the tax body, which is where they are retained and not snooped on by anyone else. Hackers are also a problem, which has already been alluded to.

I want to make a further, slightly geeky, technical point, which has not been addressed. The legislation appears to allow the Secretary of State to specify the format by which people may communicate. So it is not simply that one has to communicate via the internet, but one has to do so in a format that is acceptable to the Department. That gives the Government unfettered power to specify a format. They can require or favour particular software, browsers or platforms, whether that is PC, Unix or Mac. I do not want to enter the debate about Microsoft and anti-trust legislation, but we already know that the Government attitude to IT has made it impossible for people to access Government services who do not use proprietary software, which happens in most cases to be Windows-based software. There should be some kind of guarantee in the legislation that no matter what format of IT a firm is using, it should have access to the Inland Revenue, and should not have to buy the necessary software or platform.

John Bercow (Conservative, Buckingham)

In reflecting on the clause, what assessment has the hon. Gentleman made of line 25, subsection (3), in which the Government elliptically inform us that they propose

''provision for the application of conclusive or other presumptions''?

John Pugh (Liberal Democrat, Southport)

The hon. Gentleman has picked up on my anxiety. We know that the Government are keen to collude with the IT lobby. We do not want the Government colluding with Bill Gates and the Microsoft lobby in every case. That not only flies in the face of what I call decent commercial principles, but flies in the face of the Government's principles, which they adopted in the Enterprise Bill. That Bill is strongly anti-monopolistic and in favour of there not being one IT culture across the board. The House of Commons has sold out entirely to Windows and Internet Explorer. I would like an assurance from the Paymaster General that whatever the Inland Revenue develops, and whatever road it goes down, at the end of the day, regardless of the IT equipment that is used—

Dawn Primarolo (Labour, Bristol South)

May I inform the hon. Gentleman that the Inland Revenue already offers an online service for PAYE, which is all that we are talking about today? The provisions in the Bill will ensure that when the intermediary uses another software package it is compatible and capable of being used in the interaction with the Inland Revenue. That follows exactly the point that he has been making for the last few minutes and has been the case for some time.

John Pugh (Liberal Democrat, Southport)

I am not responding to what the practice of the Inland Revenue currently is; I am responding to what the legislation says. The Inland Revenue has the right to specify. It may behave itself in a totally appropriate way now, but it might not in future, which is precisely the point.

Michael Jack (Conservative, Fylde)

Having had something to do with the establishment of electronic communication between the Revenue, the citizen and business, I have some sympathy with the Government of the day wanting to employ systems that have now established themselves, as the Paymaster General's intervention on the hon. Member for Southport suggested. One could fill up the entire time for the rest of today asking important and searching questions about the security, operation, software and computer issues related to the electronic transmission of data, all of which would be entirely proper. My view, however, is that there is an established protocol there and that the systems work as well as any other bulk transmission system for data.

The Paymaster General has already said that much of the system is already in place and that many big businesses are already benefiting tremendously from the electronic transmission of tax return data under the current regime. No doubt many accountants are doing that on behalf of big businesses and many small and medium-sized enterprises are beginning to experience the joys of electronic returns. However, what saddens and worries me is that the Government have not chosen the route of further persuasion but are being absolutist in the way in which they are going about the matter.

The explanatory notes on the clause reassure us that this is a matter for the employer. However, the clause itself does not say that. It talks about the delivery of information for ''specified persons''. By definition, specified persons are not specified. The part of the clause that my hon. Friend the Member for

Buckingham seeks to amend gives powers to the Commissioners of Inland Revenue to make regulations. For clarification, can the Paymaster General tell us whether that means that the commissioners—I have forgotten how precisely they make their regulations—can make the regulations without their being returned to this House, or can make them with the benefit of the law as specified in this clause?

Dawn Primarolo (Labour, Bristol South)

I can answer that question now. The right hon. Gentleman might remember, from when he was Financial Secretary, that all PAYE regulations are dealt with under the negative procedure in that way. It worked like that under the previous Government. The reason is that discussions with the payroll providers about best methods and the need for constant improvement mean that the service can often be improved. Sometimes that requires some changes to regulations. That is precisely what has happened in the past and there will be no change in future when the matter is under the commissioners.

Michael Jack (Conservative, Fylde)

I am genuinely grateful to the Paymaster General for refreshing my memory, but that gives me cause for concern. If the regulations are made under the negative procedure, the chances of this House revisiting the territory are very limited. That is why imposing the measures by compulsion, as opposed to agreement and discussion, is very worrying. In another capacity, serving on the Environment, Food and Rural Affairs Committee, I have been involved in a study of the way in which the European Union decided to introduce a regulation dealing with the disposal of fridges. The lack of consideration, ahead of the agreement's coming into force, of how that should be done was remarkable and has left us with the practical implications of fridge mountains.

I am not saying for a moment that these systems are not in place and that we will not have some robust method of transmitting information to the Revenue. But according to the Government's explanatory notes, there is clearly a lot of work to be done

''to persuade many small employers to remove away from paper.''

Paradoxically, the notes go on to say:

''The report recommended a mixture of compulsion and incentives'',

but the Government seem to be backing compulsion over incentive. I think that they are being premature in producing the proposal now, when there is obviously much more work that could be done by negotiation, education and discussion.

The benefits are clearly there and companies should be able to work out for themselves that if, as in the majority of cases, they keep information electronically, being able to summate that in the form of a return and send it would be to their advantage. As other hon. Members have said, it will not always be the case that particularly an embryonic business, perhaps in the first six months of its existence as it copes with all the complexities of establishing a business, even by the year 2010, will be fully capable of working out what it has to do with year one's tax returns on behalf of its employees. For example, it might have set up a paper system. It might be a collection of individuals who

formed themselves into a company. Even in the year 2010, they might not have got around to doing it, yet the clause offers absolutely no flexibility in such a situation.

I agree with the hon. Member for Preston that by 2010 a new cohort of entirely computer-literate people will be involved in business in the United Kingdom. They may well be able to cope but, even then, there may be people who retire at the age of 60 and look for a second employment without some of those skills. The inflexibility of the compulsion worries me.

Another aspect that worries me is the wording ''specified persons'' in the clause that my hon. Friend the Member for Buckingham seeks to amend. We do not know to what extent specified persons will go beyond the indication in the explanatory notes that they will be restricted to those in the world of commerce. Specified persons could be anyone with an obligation to submit information to the Inland Revenue. It is dangerous to agree now, without let or hindrance, to a clause that empowers the commissioners to make regulations in which they can list, if they so wish, anyone that they want.

John Bercow (Conservative, Buckingham)

My right hon. Friend has rightly picked up on a point to which I did not refer; namely, the reference to specified persons. If one considers the clause, there is further reason for anxiety that there will be different categories of specified person. Specified persons will not necessarily all be equal to one another. In subsection (7)(c), the Government arrogate to themselves the power

''to make different provision for different cases''.

There are different types of specified person. What is their nature, and how will they be treated differently? We are none the wiser.

Michael Jack (Conservative, Fylde)

I could, but I will not at this stage go through much more of the Bill, partly because I suspect that I might be wandering out of order.

Peter Luff (Conservative, Mid Worcestershire)

I would encourage my right hon. Friend to do that, because subsection (8) goes to the nub of our concerns about the clause:

''the imposition on any person''—

that is who the specified person is—

''of any requirement or the issue to any person of any request''.

There are extraordinarily sweeping powers in the clause.

Michael Jack (Conservative, Fylde)

I am grateful to my hon. Friends for embroidering and adding to my point. In the spirit of modernising our tax system and using the benefits of the systems run by Electronic Data Systems on behalf of the Inland Revenue, I would have liked the Government, first, to produce a document showing how the development could be introduced over time, together with a draft of the regulations so that people would have had an opportunity to consider what they were being asked to approve; and secondly, to consult on it and deal with all the proper points of security, technical compatibility and all of the electronic items,

all of which could have been discussed. I do not think that the report to which others have referred went into the detail that is now being invoked by clause 132. I have many concerns; for example, it is difficult to see where dispute resolution comes into the process.

Let me conclude by saying why I am concerned that the Government may be rushing their fences. All members of the Committee receive payments from the House of Commons Fees Office from time to time. I received a piece of paper advising that such a payment had been sent to me electronically. I searched for it on my bank account, but it did not appear. I rang my bank, which told me that there must have been an error that I should check. To cut a long story short, a check was run from the Fees Office via the Bank of England, which showed conclusively that the electronic data had arrived at my bank, but my bank continued to deny that the transaction had ever taken place. I was left in the middle in an electronic no-man's-land. I could not personally, as a citizen, prove absolutely that the transaction had taken place. I could tell my bank that the paying authority had the authority of the Bank of England that the transaction had taken place, but the bank still denied it. Eventually, it accepted the force of the argument, but that is one example of what can go wrong in the world of electronic transmission. I shall not labour the point, but it illustrates that if the Government compel citizens and businesses to go down that route, they must be able to demonstrate, before pressing the e-button, that they have their act together and can answer all the questions that people are rightly posing.

There is no compulsion in this country to vote, yet we are being invited to make an important transaction between the world of business and the Revenue an irrevocable process with the weight of law but without publication of the details of the regulations and without consultation on all the questions that have been asked. On this occasion, supportive as I am of the use of electronics in the Revenue, I believe that this is a misjudgment by the Government.

Rob Marris (Labour, Wolverhampton South West)

That was an interesting intervention from the right hon. Member for Fylde (Mr. Jack). Like him, I support the Government's encouragement for businesses and individuals to be up to date with the e-revolution. However, I have reservations about the compulsory aspect at this stage. I seek reassurance and an explanation of ''specified persons'' and ''specified information'' in subsection (1), although ''specified information'' is adumbrated later in the clause.

The Paymaster General said that we are discussing PAYE, but I do not see that in the Bill and I should like reassurance on that, as well as on the software, to which the right hon. Member for Fylde referred. I am a member of the Select Committee on Work and Pensions, which is all too aware that the software for the Child Support Agency let the Government down on 20 March when the change in the Child Support Agency had to be pulled. That is not the only software difficulty experienced by the Government and, indeed, the private sector has also had huge difficulties with software and computer systems.

The explanatory notes refer to 2010, but that date is not in the Bill. I should like some reassurance from the Paymaster General. I support the project in terms of encouragement, but there are some i's to be dotted and some t's to be crossed.

Howard Flight (Conservative, Arundel and South Downs)

I shall be brief. The various reasons why people may not want to use electronic communication have been set out and I want to stress the point made by my right hon. Friend the Member for Fylde about evidence, which is crucial to businesses' and individuals' dealings with the Revenue.

It is blindingly obvious to me that many businesses and individuals will use electronic communication in future or are already using it. If they want to do so, that is fine, but the Soviet habit of compulsion that is creeping into the Government is absolutely unacceptable. Death and paying taxes are perhaps the two most important and greatest certainties of life. The Paymaster General may respond by saying that the clause does not matter because the negative resolution procedure is available, but everyone knows that that is bogus. The reality is that the clause would give the Revenue the power to insist with fines of £3,000 for anyone who does not do whatever it insists on. I am sorry, but that is completely unacceptable in a free society.

Mark Hendrick (Labour/Co-operative, Preston)

The hon. Gentleman talks about a free society. He will remember, as I do, the days when people were paid in cash. It became the norm that people had bank accounts and were paid electronically, as the right hon. Member for Fylde referred to earlier. That was not seen as some big infringement of civil liberties. In the same way that electronic systems occasionally go wrong, pay packets occasionally went missing. Why is the provision such a big infringement?

Howard Flight (Conservative, Arundel and South Downs)

With the greatest respect, the hon. Gentleman seems to have a complete mental block as to what the essence of liberty is. Many people still are paid in cash. If people want to be paid in cash, they can be. That is an arrangement between them and their employers. It has nothing to do with their dealings with the state. The payment of tax is a particularly important issue. It touches on people's private affairs, and is potentially vulnerable to leaks and so on. The Paymaster General's letter to the right hon. Member for Leicester, West was entirely right and I shall repeat it:

''I confirm that is not Government policy to force people to use the internet . . . we are committed to offering them the choice of electronic services.''

That is what we are about as a society. The clause is outrageous, and the Committee should throw it out.

Mark Hoban (Conservative, Fareham)

I support the amendment, which would make the requirements to file electronically permissive rather than mandatory. The Paymaster General muttered from a sedentary position earlier that about 94 per cent. of businesses have access to the internet. It is very important that they have access, but businesses use the internet for different purposes, and they are conscious of the risks attached to using the internet for transactions. My

right hon. Friend the Member for Fylde mentioned the issues concerning the electronic transmission of data, and the failure of that in the transaction to which he referred. Other businesses may have concerns about the security of the information that they have transmitted. Hon. Members will be aware of the problems that the Inland Revenue had with its software for the online filing of self-assessment, when it became apparent that people filing returns had inadvertent access to the data of other taxpayers. If we are not sure that the systems will be secure, people will not want to use the internet to transmit end-of-year returns. The security of data once they have been transmitted is a legitimate concern and a good reason why the amendment moved by my hon. Friend the Member for Buckingham should be accepted. The provision should be made permissive rather than mandatory.

Dawn Primarolo (Labour, Bristol South)

First, it is important to put the debate, and the purpose of the Carter review, in context. The previous Government commissioned work and tried to pay particular attention to the compliance cost to business in running the PAYE system. The clause refers only to the PAYE system. That is for employers with employees who are returning their tax and national insurance information. The previous Government tried very hard in the circumstances, without huge success, which reflects the technological developments of which the Government are now able to take advantage. The previous Government tried to reduce compliance costs, particularly for small and medium-sized businesses, but were unable to do so.

The current Government have continued to look specifically at how compliance costs for smaller businesses could be reduced and businesses, in particular smaller ones, could be empowered and provided with methods of developing their business potential through the use of new technologies that we are developing. The Carter review was commissioned as an independent review to discuss with all the representative bodies that have been referred to today, and the small business representatives, how progress could be made on achieving the dual objectives that everyone wanted: how to try to reduce compliance costs and how to encourage and provide for the greater use of e-technology.

The Carter review, having consulted widely, reported to the Government and that report was published. We then asked for further comments. The Government propose a package of incentives spread over five years to encourage small employers to switch to electronic filing and realise the benefits of IT support for the payroll. The Government are committing, over those five years, £420 million of incentives to be paid to intermediaries. We already provide, through the Inland Revenue sites, the opportunity for direct returns through PAYE, which have caused none of the problems to which hon. Gentlemen have referred—Armageddon has not occurred for those businesses. However, many businesses, especially small ones, have told the

Government that they want to work through intermediaries.

The response to the review was to pay all the money in incentives, but not have the final benefit of electronic communication until 2010. Carter recommended 2007, but the Government decided that we need a little longer and chose 2010. The reason is so that clean data are provided. One problem for small businesses and their representative bodies, mentioned in many representations made during the debates on this Finance Bill, is that there are many reasons why correct information is not provided—paper floating around, returns sent to the wrong place, returns not sent in on time—which can lead to incorrect data being stored by the Inland Revenue. What happens then is that inquiries can occur that need not have been made, causing more compliance costs and pressure on a business; or service to the business can be delayed while there are endless investigations to piece all the data together, or a completely wrong assessment may be made. Small businesses were widely consulted, on this matter specifically—hon. Members can see from the Carter report, which is in the Library, exactly what they said and that it was not only the Government contributing to the review—and concluded that they wanted effective, quick and accurate service from the Inland Revenue on their PAYE. They wanted to ensure that they could attempt to reduce their compliance costs and they welcomed the opportunity to develop their business through e-commerce.

John Pugh (Liberal Democrat, Southport)

Is it recorded that those small businesses also wanted mandatory e-mail filing?

Dawn Primarolo (Labour, Bristol South)

What they want is clean data. The way to ensure that is to have the data transmitted to the Inland Revenue on time in forms that are acceptable. I would say to the hon. Gentleman that—[Interruption.] That is to ensure that the correct information is collected. It is a burden to ask for information that we do not require—we often receive such information—and businesses want to be able to develop.

Turning to the figures for businesses, the annual Department of Trade and Industry benchmarking study shows that the number of United Kingdom businesses connected to the internet rose from 90 to 94 per cent. during 2001. That is the highest connection rate in any G7 country. The 2001 benchmarking survey also shows that there has been a rapid increase, from 15 per cent. in 1999 to 62 per cent in 2001, in microbusinesses making use of the internet.

Mr. Bercow rose—

Dawn Primarolo (Labour, Bristol South)

I shall give way in a moment, if the hon. Gentleman will allow me to finish my point.

The Government's objectives are to listen to businesses, to provide incentives to use an intermediary—an accountant—who files on the internet, to try to reduce the compliance costs for businesses and to make the change in a way that enables them to develop the technology so that they

can grow. Those principles underpinned the review and that is what we are delivering in these provisions.

John Bercow (Conservative, Buckingham)

I am sure that I am not alone in being underwhelmed by the Paymaster General's statistical litany. I want to ask her a question that I asked of another hon. Member earlier. If use of the net and e-filing are as popular as she supposes, why does e-filing have to be compulsory?

Dawn Primarolo (Labour, Bristol South)

The Carter review demonstrated that it was necessary to provide an incentive for smaller employers to move to that position. The Government will invest £420 million to do that. If we are to invest the money and tell businesses that we will deliver the service with clean data, we must ensure that we reach that point, hence the requirement for PAYE for small businesses to be made by electronic filing by 2010.

I fully understand that there are exceptions, particularly in a small section of the community with deeply held views about internet use. I shall return to those specific points once I have made the general case and answered the questions about why e-filing will be compulsory for PAYE and for small and medium businesses.

Howard Flight (Conservative, Arundel and South Downs)

The Paymaster General has made much of the £420 million investment. She said that the Government want tit for tat and that, if they put money in, they want everyone to be forced into e-filing. What does she mean by investment? I presume that she is saying that programmes will be put in place with a view to saving costs in the running of the Inland Revenue. That is not Government investment; it is merely part of the mechanics of collecting tax effectively.

Joe Benton (Labour, Bootle)

Order. Before the hon. Lady responds, I want to clarify something in the light of her comment before the hon. Member for Arundel and South Downs intervened. I am curious about whether she will encroach on amendment No. 230.

Dawn Primarolo (Labour, Bristol South)

Okay. I shall not do that. I apologise, Mr. Benton, but I know that some hon. Members, regardless of the amendments, are concerned about compulsion for everyone and want to know whether there will be exemptions. I shall respond to that point not under these amendments but under amendment No. 230. I wanted to notify the Committee of that, because the point has been behind many of the comments that have been made, particularly with reference to the Human Rights Act 1998 and whether the compulsion would be a breach of others' deeply held views, for which the 1998 Act provides.

In response to the hon. Member for Arundel and South Downs, the Government propose that payments start at £250 for 2004–05. We do not need to include that in the Bill, because we already have the power to pay the incentives. The payment is not for equipment but for the intermediary's bill. It is intended to facilitate the use of the intermediary by way of a direct subsidy to those who use it, so it reduces their costs, because they still have to do tax returns and pay an accountant if they use one. The payment tapers off

during the five years to a final payment of £75 in 2008–09.

The software is not specified by the Inland Revenue. There are many different types of software and methods. There is constant change and communication with the Revenue, and that will grow. Therefore, we are not specifying which software must be used. It will be developed by the industry. I should have thought that the Opposition would encourage the Government to do that, rather than try to create their own. Therefore, it is a direct payment to the intermediary for the services provided, which we would expect to be passed on to the individual business. Small businesses said that that was what they wanted. Having consulted and listened to them, that is what we have provided.

John Pugh (Liberal Democrat, Southport)

This is a significant point. The Paymaster General has just said that businesses can choose whatever software they want, yet subsection (2) states:

''Regulations under this section may make provision—

(a) as to the electronic form to be taken by information delivered to the Inland Revenue using electronic communications''.

It appears that a power has been reserved to the Inland Revenue. If I have misunderstood, I would be happy to have clarification from the Paymaster General.

Dawn Primarolo (Labour, Bristol South)

The hon. Gentleman has misunderstood the clause. On a day-to-day basis, the Inland Revenue discusses software development with software designers to ensure that the legal

requirements of the tax system are met. The regulations and the Bill provide for the continuation of such discussions, which take place at present. The measure is not intended to be used in the way that the hon. Gentleman suggests. He probably knows well that software developments and the knowledge and expertise of the IT industry are expanding all the time. It is necessary to ensure that the software can be used to provide the information that the PAYE legislation obliges the employer to give when he makes the return. That is the purpose of the measure.

The Opposition are looking for ghosts, skeletons and reasons why the Government are taking this approach. If they examined the current practices of the tax system with regard to paper transactions, they would see that the measure translates those practices into electronic delivery of the same information. Basically, that is what is provided for and what is happening.

Amendment No. 231 would require that regulations made under the clause could not provide for a penalty to be charged if an employer did not comply with a requirement to send his return electronically. The regulations made under the powers will require employers to send certain returns electronically—

It being One o'clock, The Chairman adjourned the Committee without Question put, pursuant to the Standing Order.

Adjourned till this day at half-past Four o'clock.

Standing Committee F

(Except clauses 4, 19, 23, 26 to 29, 87 to 92, 131 and 134 and schedules 1, 5 and 38) - Clause 132 - Mandatory e-filing

Roger Gale (Conservative, North Thanet)

I remind the Committee that with this we are taking the following amendments: No. 228, in page 104, line 38, leave out 'or requirement'.

No. 229, in page 104, line 41, leave out 'or requirement'.

No. 254, in page 105, line 9, leave out 'required' and insert 'permitted'.

No. 231, in page 105, line 20, leave out subsection (7).

Dawn Primarolo (Labour, Bristol South)

I was speaking to the group of amendments and I had started to make a detailed response to amendment No. 231. To recap, amendment No. 231 would mean that the regulations made under the clause could not provide for a penalty to be charged where an employer did not comply with the requirement to send their return electronically. The regulations made under these powers will require employers to send certain returns electronically and require those returns to meet the quality thresholds. Earlier, we discussed quality thresholds that are providing for the information that legislation, and the Inland Revenue, require to comply with the pay-as-you-earn regulations.

Regulations cannot be effective without some form of sanction for those who fail to comply. That is the experience of this Government and Treasury Ministers; the Conservative Government reached the same conclusion. Employers have the choice of sending their returns electronically themselves or using an intermediary, such as a payroll bureau, so no-one should have to pay a penalty. As I said this morning, we are paying a fee to encourage employers to make that transition.

Where a non-electronic or substandard return is submitted, the clause will allow the Inland Revenue to provide in the regulations either to treat the return as not made or to charge a fixed penalty. The amount of any fixed penalty will be linked to the employer's size, which is normal procedure. The clause sets an upper limit of £3,000 for penalties and, in line with normal practice, only the most serious failures would attract

the maximum penalty. The actual amounts of the penalty for each category of employer size will be specified in the regulations; the practice is well known.

John Bercow (Conservative, Buckingham)

The Paymaster General is seeking to justify the regulations, but to many of us it seems that the regulations in their proposed form, if they are to reflect the terms of the clause, will represent a triumph of Sir Humphrey at his most zealous. Perhaps I am being a trifle cynical, but can the hon. Lady tell me, as an earnest of good intentions and of her understanding of what is likely to follow, how we are to interpret in subsection (3) the words

''provision for the application of conclusive or other presumptions''?

What does it all mean?

Dawn Primarolo (Labour, Bristol South)

It means the same as is already operational in the tax system and the same requirements that are applied now with regard to the obligations of employers to make PAYE returns. I understand that the hon. Gentleman may be a little cynical, but I cannot understand why it is something that the Committee should consider in a cynical vein when the Government provide for a direct payment to encourage employers in a matter that employers have identified as having high compliance costs, and are prepared to invest in payment to assist the employer to make those returns electronically.

The clause provides for the same provisions to apply for electronic transmission as for the current paper submissions that can be made by employers. That goes to the heart of the hon. Gentleman's points. He wants employers to be able to choose whether to file electronically for PAYE, whereas the Government wish all employers to do so, after a period of time and investment. To remove the penalties would render the clause useless—which is the hon. Gentleman's intention in moving the amendment. The Government reject it and ask the Committee to do so. Our objective is to move to electronic filing by 2010. It is staggering that in this day and age, with the speed of developments in e-commerce, members of a Committee of the House would declare that they do not wish to assist employers to move to electronic filing or provide the investment necessary to achieve that.

Peter Luff (Conservative, Mid Worcestershire)

That is ridiculous!

Roger Gale (Conservative, North Thanet)

Order.

Dawn Primarolo (Labour, Bristol South)

In this day and age, when faster and better methods of communication exist, the Opposition wish to stick to paper—and presumably, if they could, to the pony express.

Peter Luff (Conservative, Mid Worcestershire)

Will the Minister give way?

Dawn Primarolo (Labour, Bristol South)

In a moment.

I ask members of the Committee to reject the amendment.

Peter Luff (Conservative, Mid Worcestershire)

The hon. Lady does not understand that although legislation that assists employers to achieve honourable objectives that the Government wish them to embrace is welcome, legislation that compels them to do so is not. There is a world of difference between

those two concepts. Cannot the Minister understand that simple point?

Dawn Primarolo (Labour, Bristol South)

The hon. Gentleman fails to understand that the Opposition parties wish us to maintain a system—simply because they do not want modern technology—that will not deliver the objectives that business says it wants: clean data, speedy service, accurate information from the Revenue, and the eradication of confusion and delay.

Michael Jack (Conservative, Fylde)

Will the hon. Lady tell us which member of the Opposition has opposed in principle the use of electronic filing?

Dawn Primarolo (Labour, Bristol South)

The Opposition wish to prevent the crucial part of the equation that would enable the efficient working and delivery of electronic filing, and the reduction of compliant costs: the requirement to file electronically. They want the ends but do not want to provide for the means—that is typical of many Opposition speeches.

John Burnett (Liberal Democrat, Torridge and West Devon)

Is it the hon. Lady's view that everyone, without exception, should have to file electronically?

Dawn Primarolo (Labour, Bristol South)

The vast majority of people should be required to file electronically for their PAYE returns. [Interruption.] The hon. Gentleman tempts me into discussing an amendment that has yet to be moved; I accept that it may be possible to vary that requirement in special circumstances for a very limited number of people. However, electronic filing of PAYE for the overwhelming majority of people by 2010 is not an unrealistic target. It would be unacceptable not to use the best technology in this modern age to improve delivery of service.

Howard Flight (Conservative, Arundel and South Downs)

I thank the Paymaster General for giving way. I hope that exchanges will not become acrimonious where she does not agree with me. My hon. Friend the Member for Buckingham (Mr. Bercow) and I referred to her letter, which clearly stated that the Government did not intend to force, require or oblige people to file electronically. What happened to that? There has been a sudden change. As most of us made clear, some 95 per cent. of businesses are likely to want to use electronic methods to file their returns. It is therefore balderdash that not making it compulsory will wreck the project. Will the Paymaster General say how she has reconciled stated Government policy some 18 months ago with today's volte-face?

Dawn Primarolo (Labour, Bristol South)

If there is no problem with everyone filing electronically, the hon. Gentleman has already answered his own question. Nor will he be worried about the requirement for it all to be completed by 2010 because, according to him, it will happen.

With regard to the letter to my right hon. Friend the Member for Leicester, West (Ms Hewitt) in 2000, I am comfortable with the proposition. People have two options. They can file their returns personally using the software on the Inland Revenue website that has been available for some time. If they do that, they will still

receive a payment from the Inland Revenue over the five-year period, which they will be able to use to invest further in their software to improve their business. If people do not want to do that, we now provide an intermediary for them to use, which many people already do. Again, there will be a direct payment to assist in the transfer to using the intermediary. The software can be very simple, and will speed up, not slow down, the processes that businesses must undertake on PAYE.

John Bercow (Conservative, Buckingham)

Will the Paymaster General give way?

Dawn Primarolo (Labour, Bristol South)

I will be happy to give way to the hon. Gentleman in a moment.

I cannot see why our target of 2010 is unrealistic, given the vast growth in the use of computers and the internet, and the clear business improvements that can be gained from them.

Roger Casale (Labour, Wimbledon)

I am sure that the Paymaster General is as surprised as I am that so many Opposition Members seem to be ready to go to the stake over what they regard as the inviolable right of business people not to file their tax returns by e-mail. Will the Paymaster General confirm that just as the Inland Revenue has the right to require proper tax returns from business people, so it must have the right to say how it wants those returns presented? After all, people are compelled to use a paper form, and in future they will be required to use e-mail. What is wrong with that?

Dawn Primarolo (Labour, Bristol South)

I gave way to my hon. Friend, so perhaps I should give way to the hon. Member for Buckingham.

John Bercow (Conservative, Buckingham)

I do not agree with the hon. Member for Wimbledon (Roger Casale), although in view of the stoical service that he gives on the Committee from the Back Bench, I say to him in a genuine spirit that it is time that he got his reward and was put on the Front Bench.

The way in which the Paymaster General dangles the carrot of the entitlement to use an intermediary is ultimately unpersuasive. The point has been made to me repeatedly that if someone opts to use an intermediary rather than to file personally, he or she will still be required to have an e-mail address. Does she not recognise that? Some of the people who object most strenuously to the clause do so to the idea that they should have to use e-mail, even if only indirectly, when they do not wish to do so.

Dawn Primarolo (Labour, Bristol South)

The intermediary provisions, which allow returns to be made on an employer's behalf, are no different from the current arrangements. Intermediaries already file information electronically, and we want to move to a situation in which all the information arrives in that way. I accept that we do not yet have the provisions concerning the move to require electronic filing for all submissions by 2010.

It will be necessary, following on from the Carter review and the fact that the Government put the review out to further consultation—[Interruption.] The idea that there was a huge clamour of horror from all businesses saying that they did not want the change is

not correct. There was a request about the drafting of the regulations and agreement on the areas covered by them, and that will be subject to further discussions. In 2004–05, we shall start the process of paying over the five years the £420 million that we are prepared to invest to help small businesses to move to electronic filing.

All the amendments are designed to prevent the requirement for filing to occur electronically by 2010. I understand Opposition Members' objections, but I simply do not agree with them, and I ask my hon. Friends to reject the amendments if they are put to a vote. Following some of the points that have drifted into this debate, perhaps the debate on the next amendment will be a suitable forum in which to clarify the issue of exceptions, should any be needed, to the regulations.

John Bercow (Conservative, Buckingham)

As you know, Mr. Gale, and the Committee can confirm, I am as open-minded as any hon. Member. I am always willing to be persuaded of an argument and, at the risk of embarrassing the Paymaster General, I do not mind disclosing that, since the difficult days when I fought the Bristol, South constituency and it fought back to such good effect, I have come increasingly to both like and respect her. The hon. Lady therefore knows where I am starting from: I like and respect her very much and I think that she is an extremely effective exponent of her case. However, the case is sometimes so poor that it just does not pass muster, and although I admire her professionalism, I cannot say that I was persuaded by her argument.

Dawn Primarolo (Labour, Bristol South)

Flattery sometimes works, but on this occasion it will not. Despite the hon. Gentleman's eloquence, I am still not minded to accept the amendments. I just thought that I would save him from having to make his speech.

John Bercow (Conservative, Buckingham)

That is a pity. I wondered whether charm would work on this occasion, rather than aggression, but I have been sadly disappointed at an early stage in my speech. That approach was worth a go, but I shall have to be careful about trying it too often.

In any event, I was not persuaded by the hon. Lady's argument. She argues on one hand that there will be a great beneficence from the state as it offers financial incentives—some might use the more unflattering, but perhaps more accurate, term ''bribes''—to businesses to comply with the Government's will. On the other hand, she talks about the crucial importance of ensuring 100 per cent. compliance if the savings that she wants and envisages are to be achieved. It seems a peculiar state of affairs that the Government, to secure 100 per cent. compliance and the savings that will result therefrom, judge it necessary in the first instance to lob sums of money at businesses to sweeten the pill of being coerced into doing something that they would otherwise not choose to do.

Leaving aside the hon. Lady's arguments so far, I shall not dilate on the additional point—you would be displeased if I did, Mr. Gale—of deadweight costs. If many companies are proposing to comply in any case,

it is not sensible for a Treasury Minister to lob money at them like confetti as a bribe. On this occasion, the Treasury brief was less compelling than it might have been.

In truth, though, the hon. Lady made the most sensible of her points when she said that she understood the Opposition arguments but simply did not agree with them. In other words, we agree to differ. Rather than rehearse all the arguments again, it would better to agree with her on that. We disagree. The subventions are unnecessary and coercion is undesirable. It would be better to allow a choice. I have listened with interest and respect to the Paymaster General, but I have not been converted. She will be astonished and mortified, but I am compelled to press for a vote.

Mr. Jack rose—

Roger Gale (Conservative, North Thanet)

I am terribly sorry. I tried to encourage the right hon. Gentleman to intervene earlier on the hon. Member for Buckingham when he was winding up the debate. I shall now put the motion.

Question put, That the amendment be made:—

The Committee divided: Ayes 9, Noes 18.

John Bercow (Conservative, Buckingham)

I beg to move amendment No. 230, in page 105, line 5, at end insert—

'(e) exempt from the provisions of this section any person who is a practising member of a religious society or order the tenets or beliefs of which are incompatible with the use of such means of electronic communications as may be specified in the regulations.'.

I should now like to continue the argument by dwelling on the amendment, which, as members of the Committee will be aware, was suggested by the Brethren. I stress from the outset that the Brethren are not motivated by considerations of party politics, and are unfailingly courteous and extraordinarily efficient lobbyists. They make a point of putting their case to Members on both sides of the House. They are not partisan in their motivations, as they view their relationship as being with God. Members of the Brethren do not vote in general or other elections. Without lightening or devaluing the importance of our exchanges, I hope that I can be forgiven for arguing that my hon. Friends and I are not motivated by vote-grabbing instincts.

I should also stress that there is no requirement for me or, I suspect, any other Opposition Committee member, to declare a registrable interest, because I am not a member of the Brethren. [Laughter.] The Financial Secretary laughs, but it is worth making the point, and from the Brethren's vantage point, it is jolly fortunate that I am not a member. They are upstanding people of high moral fibre, and I do not think that I could reach the standards of behaviour to which they aspire and that they attain in their daily life. They are motivated by principle, and I agreed with and respected the language that the Paymaster General used in an earlier reference to this matter. She did not name the Brethren, but she talked about a minority of people with strong convictions that are different from those of many other people but are entitled to be respected. That is the starting point of the Conservative Opposition.

The Brethren suggested that a satisfactory amendment could be made to clause 132 by inserting a subsection (4)(e) that would

''exempt from the provisions of this section any person who is a practising member of a religious society or order the tenets or beliefs of which are incompatible with the use of such means of electronic communications as may be specified in the regulations.''

Consistent with my comments about the Brethren's non-partisan motivation, it is typical of them that they should be at pains to emphasise, as they did in a letter to the Paymaster General on 13 June 2002, that they

''would much prefer the amendment to be tabled as a Government amendment rather than as a cross-party one, even although we are certain that there would be cross-party support for it on account of the fact that it is not a political issue but one of religious conscience.''

Regrettably, the Government did not want to make such an amendment, and the Brethren have had to use another vehicle to get the issue debated. However, they wanted to anticipate and diffuse political controversy rather than to stoke it up. That is not an argument for their amendment, but it is a commentary on their motives and integrity.

The Conservatives can see merit in such a provision. Originating in 1828, the Brethren are a worldwide Christian fellowship and profound believers in Jesus Christ. There are more than 14,000 Brethren in the United Kingdom alone. They have a conscience before God based on the teachings and prophecies of the holy scripture and seek to live a separated life as governed by the Bible. They respect and honour Government as ordained of God, but are of no political persuasion themselves, as has been stressed before. They pray for the Government, Ministers and all who are in authority.

For the past 20 years, during the dramatic advancement, to which the Paymaster General properly referred, of IT in the worlds of business and communication, the Brethren have practised a way of life involving the consistent refusal of the use of computers in their businesses and homes. Some prophetic scriptural warnings concerning the present mighty scientific and commercial build-up depicted in great Babylon are given in a variety of references. The Brethren referred me and other Committee members

to those in Thessalonians and Revelations, which underpin their determination to resist being caught up in the whirlpool of electronic developments.

There are about 1,200 Brethren businesses in the UK. Without computers, they trade, employ staff and pay taxes, so they need to be able to continue to communicate with the Inland Revenue and other tax authorities on paper.

Mark Hendrick (Labour/Co-operative, Preston)

Does the hon. Gentleman know whether the Brethren use telephones? All modern telephones are switched by computers. From my time as both an electronics engineer and a computer scientist, I recall a devout member of the Plymouth Brethren working as an engineer alongside me.

John Bercow (Conservative, Buckingham)

I will not comment on devout engineers or devout anything else who are not personally known to me. I have no reason to doubt the veracity of what the hon. Gentleman says, but I am not aware of the circumstances. He makes a point about the use of telephones. As I understand it, members of the Brethren use the telephone. A constituent of mine, Mr. Wells, has come to see me about various issues of concern to him as a member of the Brethren. Although I do not recall speaking to him on the telephone—[Interruption.] Yes, he does use the telephone. It is not for me or members of the Committee to make a judgment about the rationale behind or the purity of the practices of members of the Brethren. It is not for me to set myself up as the legitimate and proper umpire of the way that they conduct their affairs. They are much better informed about the reasons for conducting their affairs as they do.

Mark Hendrick (Labour/Co-operative, Preston)

Will the hon. Gentleman give way?

John Bercow (Conservative, Buckingham)

I will give way to the hon. Gentleman once more because I am an indulgent fellow, but after that I want to develop the argument.

Mark Hendrick (Labour/Co-operative, Preston)

I would not wish to pass judgment or to act as an umpire. I merely wish to understand the principles on which the Brethren operate in order to take a fair and just decision.

John Bercow (Conservative, Buckingham)

Well, I will give an example. The hon. Gentleman will have to make do with it. Members of the Brethren would argue that the use of the telephone is qualitatively different from the use of the internet. Using the telephone involves a decision made by an individual who wishes to communicate with another individual. It does not involve the person using the telephone receiving information, images, pictures or depictions that he or she does not wish to receive. It is at least arguable that the difference lies in the fact that the Brethren regard the internet as a source of uncontrollable evil. They are genuinely distressed by much of the traffic on the internet.

That is a respectable opinion. It may not be the hon. Gentleman's opinion and it might not be mine. Do I tolerate such an opinion? No, I respect it. I respect the sincerity of this minority. The hon. Gentleman has a laudable track record of standing up for minorities, as do most Labour Members. The

Paymaster General has a powerful record for doing so. We are talking about a minority who practise a particular way of life. They are law abiding, have always paid their taxes and want to continue to do so. They simply object to being compelled to pay in a particular way. They have a fair point.

Moreover, there is a precedent for an exemption. It is not specifically in this field. Although I referred earlier to the hon. Lady's correspondence with her right hon. Friend the Member for Leicester, West in September 2000, about which she is rather embarrassed, on this occasion I refer to the precedent in section 42 of the Criminal Justice and Public Order Act 1994 under which the Brethren sought and were granted an exemption from jury service because of their religious views. The idea is not new. The precedent for granting different treatment to a particular minority in deference to the strongly held convictions of members of that minority is well established. I personally think that it is reasonable.

I do not want to engage in a philosophical discussion, Mr. Gale, as you will get jumpy if I do, but I rather subscribe to the approach of John Stuart Mill on these matters. I would invoke the harm principle and say that members of this minority are not inflicting harm on anyone else if they are granted a derogation or an exemption from this rather burdensome requirement. The Brethren are concerned that the clause is a violation of their human rights. I believe that they refer to the principle of equal treatment of taxpayers, as set out in the taxpayers charter. They believe that the principles of the taxpayers charter in respect of equal treatment are not reflected in the clause if it differentially and adversely affects them because of their principles. When they are perfectly willing to pay their taxes and have always done so, the charter is in practice, if not by design, being breached.

The Brethren wish to stick to the position that they much admired, which was set out by the Paymaster General in her letter to her right hon. Friend the Member for Leicester, West in September 2000. They felt that there was much to commend that. I know that Mr. Ron Davis, Mr. Bruce Robertson, Mr. Tom Kendall and Mr. Colin Davies in their letter to the Paymaster General of 25 May went so far as to say to her:

''You wrote a very helpful reply on 21 September 2000 . . . Your assurance that it is not Government policy to force people to use the internet was very comforting as was the statement that those who prefer to use paper to communicate with the tax authorities will continue to be able to do so.''

I would point out to the Paymaster General that that meant a great deal to them. Being told that they can use an intermediary and, in a sense, safeguard their principles because they are not using the internet—I do appeal to the Paymaster General to at least consider this point—does not satisfy them because they feel that they are nominating someone to act on their behalf and engage in a practice of which they disapprove.

I hope that the Paymaster General will reconsider and I refer finally to her latest letter on the subject, of 20 June. I found the last paragraph a little odd, and possibly even—I regret to have to say this to her—

disingenuous. In that final paragraph, the hon. Lady told members of the Brethren:

''The amendment you propose would permit, but not require, the Government to make regulations including the exemption you seek. For the reasons set out above, I do not believe that the exemption will be necessary, but even if it were, the present drafting of the clause would permit it''

—that is to say, the Brethren's amendment—

''to be made in secondary legislation. For these reasons, the Government will not be able to support the amendment you propose.''

Dawn Primarolo indicated assent.

John Bercow (Conservative, Buckingham)

The hon. Lady is nodding enthusiastically from a sedentary position; therefore my challenge to her is simple. Is she saying that the Government do not want to agree to the amendment now, but they will reflect it, preferably word for word, in the regulations? If that is what she is saying, I would be delighted. My hon. Friends and I would retire home, celebrate and dance around the mulberry bush together. If the Paymaster General is saying that the Government are not going to reflect the amendment in the regulations, what on earth is the point of that little sop in the final paragraph of the letter? It is all very disappointing.

Our position is that the Brethren are a law-abiding minority and feel very strongly about the matter. No harm will be done by practically accommodating them. I appeal to the Paymaster General to do just that.

John Burnett (Liberal Democrat, Torridge and West Devon)

I shall not keep the Committee long, but I detect, and I hope that it is not presumptuous of me to say this, that we may get some satisfaction on the amendment. The Paymaster General gently and deftly trespassed on the amendment during the previous debate. In reply to an intervention that I made, she said that in special circumstances for a very few it is possible to vary the mandatory requirement to file information electronically to the Inland Revenue. The way in which the Minister will seek to accommodate us is something that, of course, we are all looking forward to hearing.

I, too, want to advert to the conscientious and principled objections that the Brethren have to the clause. Like the hon. Member for Buckingham, I have had a brief from them—I believe that they have briefed everyone. It is a sign of the catholic nature of this debate that we shall all, including Government Members, have had an opportunity to consider carefully the matters that the Brethren have drawn to our attention.

The Brethren base their creed on their view and interpretation of the teachings and prophecy in the scriptures. This is no new principle: it has been constant, throughout the 20 years that have seen the dramatic advance of information technology. During that period, the Brethren have practised a way of life involving a refusal to use computers in their homes and businesses. They believe that the internet is uncontrollable and a source of evil. Obviously, we do not all share that view—very few in this Committee probably do—but we are all here to protect minorities, including conscientious minorities such as the Brethren.

There are approximately 1,200 Brethren businesses in the United Kingdom. They trade, employ staff and pay taxes without computers. They need to be able to continue to communicate with the Inland Revenue and other tax authorities using paper. Unless a conscience provision is included in the clause, there is clearly no framework to allow for the protection of those with principled objections to it. A conscience clause, as is proposed, is not unprecedented. I believe that the proposal is modelled on the jury exemption clause in the Criminal Justice and Public Order Act 1994. There are other conscience exemptions in statute law. I refer the Committee to regulations that allow Sikhs exemption from the use of protective helmets on motor cycles and building sites. I also refer Members to the Oaths Act 1978, which allows alternative provision for affirmation.

We should have, and should promote in this Committee, a tolerant society that respects minorities. We should not ride roughshod over the principled and constant views of a substantial group of our fellow citizens. I very much hope that the Minister will accept the amendment.

Tom Harris (Labour, Glasgow Cathcart)

I have some sympathy with the spirit of the amendment. I hope that this will be the first and last time that I say this, but I agree with a great deal of what the hon. Member for Buckingham said in his earlier remarks, although I am not quite ready to dance round a mulberry bush with him.

For the record, although the Brethren have been described in the press in the past week as a sect, they are absolutely not to be described in that way. They are a completely legitimate branch of the Protestant Christian Church. I spent some time in my earlier life as an evangelical Christian. The phrase ''misspent youth'' can be fully understood and appreciated only by someone who has spent 10 years of their life, from the age of 16, as an evangelical Christian. However, one of the legacies that that left me with is a somewhat improved knowledge and understanding of holy scripture. I was intrigued to see some of the references with which the Brethren provided us.

It is a Christian prerogative to use the Bible and scripture to justify various social and even political opinions. The Jehovah's Witnesses, for example, believe that they should not take part in any kind of political activity, including voting. It is something of an un-Christian joy for me, during general elections, to canvass the doors of Jehovah's Witnesses, as revenge for the number of times that they have chapped me up on Saturday mornings, just to ask them whether they intend to vote, and their answer is the same as the one that I always give them: no.

I was sceptical when I was contacted by the Brethren, so I did my research into the passages that they presented to me: Thessalonians chapter 2, and five references to Revelations. I admit that I looked in my Bible with some trepidation. I was quite excited at the thought that the Lord had decided that the

Microsoft empire was not to his liking. I was dying to find out some justification for any suspicion of Bill Gates. I was disappointed that Apple Macintosh was not the preferred platform of the apostles.

Kevin Brennan (Labour, Cardiff West)

Is my hon. Friend aware that to justify their actions the Rebecca rioters in Wales used the quotation from scriptures that people should tear down the gates of the oppressors? Perhaps that is the reference that he has been searching for.

Tom Harris (Labour, Glasgow Cathcart)

I am grateful, in a way, to my hon. Friend and I am sure that in his own world that is quite relevant.

The Government must be careful. I have some reservations about the specific wording of the amendment. Although the amendment and its wording were specifically used to excuse members of the Brethren from jury duty, I have some concerns that if the wording is used in a Finance Bill—although intended as an exception—it could turn into a loophole that may be exploited by some who are more cynical and less principled than the Brethren.

John Burnett (Liberal Democrat, Torridge and West Devon)

I think that the Paymaster General has said that some 94 per cent. of people already communicate with the Revenue through the internet.

Tom Harris (Labour, Glasgow Cathcart)

I think that the hon. Gentleman is correct, but I do not want to go over old arguments that have been made by previous speakers in the debate. Whether we agree with the principles or not, I would hope that the Government show some sort of understanding of and sensitivity to the fact that members of the Brethren are completely principled and have genuine beliefs. They do not intend to avoid their commitment to the Government in terms of paying taxes or filing returns. I hope that the Government recognise that any reservations that they have about the way in which they do that should be dealt with in the Bill, and perhaps in the Committee today.

Personal religious conviction must be respected, even when there is disagreement on such matters. The evidence, as the hon. Member for Buckingham has said, is that members of the Brethren are exemplary in the running of their business affairs, not least because they understand that they and their faith would be judged by others if anything else were the case. They are diligent in paying their taxes. When the Paymaster General replies, I should like to hear an explanation to address the fears that the Brethren have that not only will their PAYE returns have to be carried out over the internet, but any further communication might have to take place by e-mail instead of the usual methods of telephone or mail. I hope that the Government will address that concern.

I hope that the Government will show their customary flexibility on the matter and recognise that such reservations are held in sincerity. Any changes to the clause are being sought by the Brethren for no other reason than a desire to worship God with a clear conscience, and at the same time to pay to Caesar what is Caesar's.

John Pugh (Liberal Democrat, Southport)

I support the amendment, but I must say that I do not share the convictions of the Brethren. I would go as far as to say that I do not understand their convictions. I understand that the Pope uses a computer and that makes it rather difficult for me to see it as the instrument of the devil. It may not make it quite so difficult for the Brethren to see it in that context.

I do not really understand how people can have a principle against a specific piece of machinery, but I understand that they do. Quakers have real difficulties with pieces of military machinery, and certain orthodox Jews object to cameras. I think that we have to accept that there is an element of diversity that none of us can explain or find a rationale for. However, this is a case of coercing people to act against their convictions. Were their religious convictions such that they refused to pay tax at all—a sect set up on that basis would be very popular—the Government would have to overrule them. The hon. Member for Buckingham presents a very strong argument: who essentially loses if we make an exception? The people who I think are the losers—the hon. Gentleman has already identified them—are the bureaucrats, who seem to be the winners in the legislation as a whole. There exists a satisfactory alternative technology to computers called pen and paper. It is more secure, more reliable and has withstood the test of time.

However, the Government are in a dilemma. They can go down one route and accept the amendment, which is not perfectly worded and which may create problems. They can accept specific nominated groups but, as has been mentioned, other people may abuse any loopholes that are allowed. Rather than deal with that, the Government can take a simpler route, which has been telegraphed all day. They can abandon compulsion and rely on incentives—there is no point in using incentives if there is compulsion—and simply move away from mandatory e-filing. Such a course would not generate insoluble problems for the Government.

Dawn Primarolo (Labour, Bristol South)

I can be very brief. I do not intend to go over the debate on amendments on which we have voted, and the importance of e-filing. I am sure that hon. Members will want to return to that. I also do not want to comment specifically on the Christian Brethren but accept the points that have been made this afternoon about them. I am a little saddened that my word as a Minister before the Committee and in writing has not been taken with the same charity as views that are slightly different. Hon. Members who have contributed to the debate have rightly stressed the need for tolerance, which one would expect in any democratic Parliament.

Jim Cunningham (Labour, Coventry South)

I understand the difficulties with the amendment for reasons of precedent, but I have had some correspondence with the Paymaster General regarding the plight in which the Brethren find themselves. I know that she does not wish to name the Brethren, but can she give us at least a hint that she will consider their situation?

Dawn Primarolo (Labour, Bristol South)

Yes, I can give my hon. Friend that undertaking, as I have in correspondence with the Brethren, much of which was quoted today. I find it sad that some people seek to read other meanings in the paragraphs that I wrote. I can say absolutely clearly that we entirely understand the few individuals—it is only a few, compared with the millions of taxpayers—who have expressed their genuinely held religious objections to using electronic communication, even if we do not personally take that view.

I stress again that the requirement is on employers. It is perfectly possible to arrange to have all the records passed in paper form from the employer to the intermediary; the intermediary would then make the return. As I understand the points that have been made, there are intermediaries who would have religious objections to undertaking e-filing, and that is the point at issue.

I would say to the hon. Member for Buckingham, who read out the paragraph, that his amendment is unnecessary. It would give the Government the opportunity—it does not force the Government to do it—to draft regulations that would exclude from electronic filing in circumstances such as those of the Brethren. The Bill already provides for those regulations to be made. The Government are therefore adding nothing, whereas the Committee is putting it slightly more strongly by pressing the Government to consider the option. I ask my hon. Friends to reject the amendment. The officials concerned at the Inland Revenue will have discussions with the Brethren to ensure that the regulations, when drafted, cover the point that they have been making. That was my point in my letter to my right hon. Friend the Member for Leicester, West in the year 2000, and in all the letters that I have since written. I place it on the record today that that is what will happen.

John Bercow (Conservative, Buckingham)

I am sorry if the Paymaster General believes that her integrity has been impugned, because it has not. My point was that the relevant paragraph to which I referred did not reflect what the Government plan to do. For the avoidance of doubt, and given that the hon. Lady implies that she always intended to take account of, and satisfy, the concerns of the Brethren, could subsection (7)(c) be used for that purpose where it refers to making

''different provision for different cases?''

Is that partly, at least, what the hon. Lady has in mind?

Dawn Primarolo (Labour, Bristol South)

Yes, I confirm that that would be a sensible hook. It covers a wide area. For example, any change to the construction industry scheme to assist contractors would need specification.

I do not wish to prolong the proceedings. The Revenue will consider the principle and ensure that these points are covered. The amendment is unnecessary. We already have the relevant power, and will conduct the necessary discussions. The irony is that the negative procedure allows us to do that speedily, which is why PAYE is done in this way. The thing that the hon. Gentleman did not like this

morning about the clause provides the flexibility to respond to a group of people, albeit a small one, and to respect their deeply held views. I hope that the hon. Member for Buckingham will withdraw the amendment, and accept that his point will be covered in regulations.

John Bercow (Conservative, Buckingham)

I appreciate what the Paymaster General has just said. I am reluctant to dwell on the point of difference, but I refer to it as there is a difference between us. I do not accept that the negative procedure alone allows for the meeting of grievances, or that the affirmative procedure, which Opposition Members generally prefer as it allows debate, somehow does not allow a person to address them. However, I respect the fact that the Government have chosen to proceed in this way. The result is what matters, not the technique used.

I am bound to say that I am pleasantly surprised and considerably encouraged by the Paymaster General's remarks, as I hope that members of the Brethren will be. We will keenly attend to the discussions that the hon. Lady and her officials will have with members of the Brethren. She has put it on the record in unmistakable terms that she wants to meet their concern, and I am prepared to take her at her word. She knows that I will probably bestir myself to raise the matter again in future, perhaps at length and with some vigour if I feel that the pledge has been broken. I know that she would not entertain that scenario with any enthusiasm. I shall take her at her word and beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

John Bercow (Conservative, Buckingham)

I beg to move amendment No. 232, in page 105, line 44, leave out subsection (9) and insert—

'(9) Regulations under this section shall be made by statutory instrument subject to an affirmative resolution of the House of Commons.'.

I shall be brief as we have debated these issues at length and I have been a modest participant in that length. The amendment enjoys the support of the Law Society as well as of Opposition Members and would make the regulations subject to an affirmative resolution. When I mix with people who are not involved in politics, I am often conscious that the language of our exchanges is almost entirely impenetrable to those outside the political system. That makes it necessary to explain the difference between negative and affirmative procedures for dealing with statutory instruments.

The negative procedure effectively denies debate. It just happens when the House has already taken a view about a Bill. Matters of great detail and potential controversy can end up being covered in regulations that the House has never debated, although the negative procedure can be taken more quickly. The affirmative procedure allows the House to debate the issues and reach a view on them.

My hon. Friends and I believe that both the controversy about this part of the Bill and the scope

of the regulations make the affirmative procedure appropriate. These matters should be subject to proper debate and parliamentary scrutiny. That is the Opposition view that underpins the amendment. If necessary, I shall invite my right hon. and hon. Friends to support it in a Division.

John Burnett (Liberal Democrat, Torridge and West Devon)

We support this amendment. It is important to have an opportunity to debate these matters so that any errors can be corrected. After all, Governments are not infallible. We can see that in our proceedings almost every day. The amendment is worth while. Let us have matters in the open and properly debated.

Michael Jack (Conservative, Fylde)

I rise to explain my views and put on record the fact that the amendment has been proposed to make the provision work properly in practical terms. The Paymaster General suggested that her word as a Minister was not taken with the seriousness that she would like. When she winds up debate on the clause, I hope that she will acknowledge the good intentions of Opposition Members who favour modern technology and want the Government to benefit from improved and efficient ways to operate. We want to make the provision work properly.

As explained in Committee earlier, many serious practical questions surround what the regulations cover. If Parliament is to pass a mandatory requirement into law, we do not want it subjected to further debate and questions because we never had the chance to discuss it properly in the first place. The Government's willingness to consult in greater detail would be helpful. Will the Paymaster General assure us that discussions about the workings of the regulations will take place, particularly with the industry? The regulations say little about what would happen to the system if the current provider of IT services to Inland Revenue were to suffer a major financial failure and a successor company were employed to replace Electronic Data Systems and provide the specialist services necessary to drive the system. We know nothing about that. We need reassurance about consultation. How robust do the Government believe are the systems underpinning what we are asked to accept? They should put that on the record.

What we propose is important, because the affirmative resolution would, if necessary, enable a motion of amendment to the motion to agree those regulations to be tabled in such a way that any practical objections could be stated in public, on the record. The negative process would not allow the House of Commons to do that. If we are to make something an absolute requirement on the majority of our citizens, they will want to know that we have debated it properly.

I want the Government to conduct a proper consultation exercise on the matter and give the House of Commons the opportunity to review, for one last time, whether the proposal would work in practice.

John Pugh (Liberal Democrat, Southport)

I think that we have seen enough to know that this little clause is creating quite a problem. Issues of conscience have been aired in the debate this

afternoon, and issues of commercial security were aired this morning. Issues of competence, concerning some people's ability actually to use the system, have been aired, and I raised the issue of competition. We cannot simply give the measure a fair wind and say, ''Get on with it. We will draw it in only if a problem arises,'' because it needs constant scrutiny. A close eye must be kept on it.

I want to touch briefly on the issue of competition, which I raised this morning. It is not as though things never go wrong—

Roger Gale (Conservative, North Thanet)

Order. We cannot go over debates that were held this morning. What the hon. Gentleman says must relate directly to the amendment.

John Pugh (Liberal Democrat, Southport)

It relates specifically to the need for scrutiny. If I may do so, I will illustrate why there is a reason for scrutiny.

Roger Gale (Conservative, North Thanet)

The hon. Gentleman may make the case relating to the amendment that we are debating now. He may not re-rehearse arguments that have already been rehearsed.

John Pugh (Liberal Democrat, Southport)

I am not presenting the same argument, Mr. Gale. I want to point out that in e-filing in the past, or the use of e-government, the Government's record is not one of undifferentiated success. The e-government portal that they set up, which was designed by Microsoft, excluded non-Windows browsers. More importantly, as far as taxation is concerned, there was a serious problem with digital certification which ruled out lots of equipment that was not the appropriate brand designed by the firm concerned. In this case, it happened to be Microsoft, coincidentally.

There are important issues regarding e-filing that I want to press home, at the pain of being tedious—[Hon. Members: ''Yes.''] I will be tedious, if necessary. If we commit ourselves to a system that runs the risk of a particular brand of software and a particular brand of computers having pre-eminence in every business enterprise in the country, that has enormous significance for the software accountancy industry and so on. I am simply pleading with the Minister: there will be concerns that this will be an anti-enterprise measure and a drift to technological conformity.

This morning, the general line of the Minister suggested that good practice was in place. I agree with that; there is good practice in place, but there is nothing in the Bill to ensure that it stays in place and nothing in what has been said compromises the need for strenuous monitoring. I point to a specific item: if people check the Inland Revenue site at present, and simply look for details of their tax return, they find other things, too, for example, a little notice with ''spin of the day'' from the Government and completely unnecessary details of what is the Government's flavour-of-the-month policy. Why should that be there? It is an issue for us later on; it is the kind of thing that will intrude if things are not constantly monitored. What we ask for is serious and constant monitoring.

Dawn Primarolo (Labour, Bristol South)

Let us place it on the record and make it absolutely clear that the Inland Revenue's website carries only information for taxpayers on their obligations, and gateways into that information. It does not carry any information that the hon. Gentleman referred to, such as ''spin of the day'' from the Government.

Dr. Pugh rose—

Dawn Primarolo (Labour, Bristol South)

Just one moment, please. The Inland Revenue operates, under care and management of the tax system, a very strict division and its websites provide precise information to the taxpayer. I have never heard such a misinformed understanding or description of the Inland Revenue's website or of the services offered to taxpayers through that website. It has absolutely nothing to do with affirmative resolutions. If the hon. Gentleman knew anything about the procedure of the House, he would know that affirmative resolutions cannot be amended. They are only accepted or rejected. Regulations under negative resolution are placed before the House for 21 days so that Members and lobbyists can see them.

The hon. Gentleman also fails to understand that the PAYE system operates on the updating of regulations and has done so under not only this Government but the previous Government. It is an effective way of ensuring that responses are taken on board, regulations are properly drafted and changes can be made to the tax system. Anyone who understood the tax system, the vastness of the work undertaken by the Inland Revenue and the detail of its everyday communication with taxpayers would never make such incorrect statements about its professionalism.

John Pugh (Liberal Democrat, Southport)

I defer to the Paymaster General on matters of procedure. On matters of brute fact, she can go to the Inland Revenue portal site today—Members can check this later—and she will see a sign about the benefits of skilled migrant workers coming into this country. That has nothing to do with the taxation system, but it is there. Committee members can inspect it for themselves.

Dawn Primarolo (Labour, Bristol South)

There is nothing on the Inland Revenue website that does not concern tax information, and the hon. Gentleman should apologise for such assertions. The website carries only taxpayer information, as it is required to do.

On the amendment, I have made the point that the affirmative procedure would not take the hon. Member for Buckingham any further forward. The heart of the assurances that he sought concerned the consultation and discussion. The negative resolution procedure is perfectly reasonable, has always been used and works well, but I accept that it will be necessary for the Inland Revenue to consult representative bodies and software developers about the necessary developments. It is not about an Inland Revenue software system, but about all the providers and designers in the market being able to develop software packages. The discussions with the Inland Revenue will only concern ensuring that the relevant information is supplied in the packages and that they

are compliant. It is not as if the Inland Revenue is putting in a huge system.

For the Committee's information, the first set of draft regulations will be published in March 2003, and a period of consultation will follow before they are finally tabled. Any Member who is keen to discuss them will be welcome to receive a copy of the draft regulations and comment accordingly on it. In that way, the hon. Member for Buckingham gets consultation and a longer period, which is much better than an affirmative resolution procedure that does not provide for that. Although it is not everything that he wanted, I hope that he will feel that I have met him halfway and that he can withdraw his amendment.

John Bercow (Conservative, Buckingham)

The Paymaster General has offered me half a slice of cake, and it would churlish of me to throw it, crumbs and all, back in her face. I do not agree with her view on the negative procedure, but I agree that the regulations' content, enforceability and acceptability are what really matter.

I have another reason for not only enthusiasm but perhaps even joy. The Paymaster General referred to the draft regulations that are to be published in March next year, followed by a thorough consultation. The reason why that makes me enthusiastic and perhaps even joyful is that I am sure that the Paymaster General proposes to act in that way because she has taken heed of the title and contents—''Regulations on Small Businesses (Reduction)''—of the ten-minute Bill that I had the great privilege to present on 27 April 1999. As she has followed my lead and been so generous this afternoon, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Peter Luff (Conservative, Mid Worcestershire)

On a point of order, Mr. Gale. In the interests of making progress, I will not move new clause 15. However, I hope that the Paymaster General, who would have responded to that debate, will be prepared to engage in correspondence on the issues that I wanted to raise.

Dawn Primarolo (Labour, Bristol South)

I am happy to write to the hon. Gentleman to give him chapter and verse on why his new clause is unnecessary.

Roger Gale (Conservative, North Thanet)

Happily, that is not a point of order for the Chair, but the Committee has heard it. I have listened to the debate carefully and am satisfied that the matters arising from clause 132 have been fully discussed.

The Chairman, being of the opinion that the principle of the clause and any matters arising thereon had been adequately discussed in the course of debate on the amendments proposed thereto, forthwith put the Question, pursuant to Standing Orders Nos. 68 and 89, That the clause stand part of the Bill.

Question agreed to.

Clause 132 ordered to stand part of the Bill.

Clauses 133 and 135 to 140 ordered to stand part of the Bill.

New Clause 21 - Parliamentary visits to eu candidate countries: tax treatment of members' expenses

Howard Flight (Conservative, Arundel and South Downs)

We do not oppose the new clause, but I cannot resist pointing out that it simply adds to the number of swan visits that Members of Parliament can make around the European Union. These tend to bring the EU into disrepute because so many such visits are manifestly not about serious politics, but about having a good time.

Dawn Primarolo (Labour, Bristol South)

The new clause follows the resolution of the House of Commons that was passed in May to extend the range of destinations covered by the House travel scheme to meet the costs of visiting EU institutions or national Parliaments. It follows automatically from the agreement of the House. I should point out that few Parliaments meet at the weekend, and before MPs are entitled to make those trips, they must agree to adhere to the strict rules of the House. Members must apply for the visit and detail who they will meet and when, and what they will discuss. Only when the Fees Office gives clearance is the trip authorised to take place. The hon. Gentleman's point is simply not true. The new clause provides for the proper business of the House.

Chris Grayling (Conservative, Epsom and Ewell)

Why do Members of the devolved Assemblies need the right to travel to EU candidate countries?

Dawn Primarolo (Labour, Bristol South)

Because with some of the candidate countries' structures and devolving of powers—I am thinking of Germany, for example, and the division of powers within its democracy—it is appropriate to provide for that measure within the safeguards that I have explained. If the Fees Office has not sanctioned a visit as legitimate, the new clause will

not apply and the MP will not have his costs covered. The measure will work perfectly well in relation to the current provisions. I am sure that no member of the Committee wishes to reduce hon. Members' ability to achieve a greater understanding of other countries' Administrations and practices, which they can then use to the benefit of debates in the House.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New Clause 6 - Arrangements with respect to payment of corporation tax

Howard Flight (Conservative, Arundel and South Downs)

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

We touched on the contents of this new clause earlier. It seeks to give companies the choice of paying their tax instalments based on the previous year's taxable profits, which would greatly reduce the administration and the costs to companies that currently must estimate annual taxable profits five and a half months before the end of the accounting period. Failure to perform a reasonable estimate leads to interest penalties being levied. That means that companies have to calculate their tax liabilities at least three times: once for each of the payments in months seven and 10 of the accounting period and once for all payments after the end of the accounting period. It is an unnecessary burden. The ideal solution would be to make the arrangements similar to those for individuals' payments on accounts, based on the previous year unless reasonable evidence exists to show that it is too high.

The regulations are in a statutory instrument, so in a sense this is a probing amendment to raise the point. When we touched on it before, the Minister replied that the rules did not need to be changed because the

rate of interest on unpaid tax had been reduced. Although that is true, it does nothing about the cost burden and administrative burden to companies in having to make all those calculations. They need to show that they have calculated their payments on account to the best of their knowledge and belief where lack of evidence leads to penalties. Why should it not be accepted that companies cannot make an accurate payment on account? There are not many other examples of payment on account where the payer has both to estimate what the final liability might be and pay interest if the estimate is incorrect.

Dawn Primarolo (Labour, Bristol South)

I shall ask the Committee to reject the new clause, which causes further complexity and confusion in the current arrangements for instalments of companies tax and could lead to a loss of cash flow to the Inland Revenue. The clause provides an election for a previous year or current year basis of assessment, but applies only to companies that are within group payment arrangements. Outside group payment arrangements, the method of calculating the quarterly instalments is flawed because it locks companies into paying instalments of a fixed amount by reference to the previous year, even where it may be clear that the current year liability will be much lower than that for the previous year. It would be a distinct disadvantage to the company. Although that is not the intention of the new clause, that is what would happen.

Complex provisions would be required to deal with accounting periods of differing lengths and the new clause does not provide special rules that would be required to establish payments due on the commencement of activity. The new clause would also increase complexity in the interest regime. It is unlikely that the previous year's liability would have been established with any certainty when payments for the current year became due, and it is not uncommon for a company's liability for one year to be settled before that of the previous year.

The other effect of the new clause is to provide some group companies within the instalments regime with a right to elect for either a previous year or a current year basis of quarterly instalment payments. It is not clear why the new clause allows that choice only to companies within group payment arrangements. The effect of offering such a choice would be that companies would opt to pay the lower of the previous and current year, which would have a significant cash-flow effect on Exchequer receipts. More fundamentally, the Government believe that it is right for large companies to pay tax on a current year basis as profits are made. I assume that the new clause was drafted because of companies' concerns about estimating their current year profits accurately. We recognise those concerns, and have already taken steps to help companies, to which the hon. Gentleman referred. Two years ago, we reduced the interest rate on underpaid instalments by 1 per cent. More recently, the Inland Revenue has worked with industry, representative bodies and advisers to produce guidance on the practical application of the instalment system. The guidance clarifies the underlying principles of the regime through detailed

examples, and aims to spell out more clearly what can and cannot be reasonably expected of companies. To date, the feedback from those consultations has been positive.

The Inland Revenue intends to publish the guidance at the end of July in time for the July payment. The hon. Member for Arundel and South Downs (Mr. Flight) is welcome, as always, to receive the draft guidance and to consider and comment on it before its publication at the end of June, if he so wishes. However, I impress on him that his new clause would make the instalment payments far more complex and difficult for companies. After thorough consultation with those who expressed an interest in this matter, we believe that the guidance has now dealt with the small problem that he seeks to address. I therefore hope that, on this occasion, he will agree to withdraw his new clause. If he is not satisfied, I am sure that he will refer to the matter again when we consider the Finance Bill next year.

Howard Flight (Conservative, Arundel and South Downs)

I look forward to receiving the guidance notes, which perhaps represents half a cake. I said that this was a probing amendment. The Paymaster General overstated its complexity as, in essence, it proposes that companies should have the option of incurring the effort of calculating current year, or to use prior year. For medium-sized companies, it is a relatively greater effort to deal with current year. We are pleased that the Treasury realises that current-year calculations are an imposition. Indeed, the imposition of advance payments was one of the many stealth taxes of the past four years. However, half a cake is better than no cake, so I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

New clause 17 - Stamp duty and OFEX

Howard Flight (Conservative, Arundel and South Downs)

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

The new clause is designed to exempt from stamp duty the market-making activities of OFEX in line with the market-making activities of the main official list stocks, alternative investment market stocks of the rest of the London market, and any OFEX stocks in Europe. It was an accidental anomaly that OFEX was excluded from the stamp duty exemption regime on market making. Before the Finance Act 1986, market makers on the London exchange benefited from stamp

duty exemption and stamp duty reserve tax. For the Finance Act 1997, section 80A was inserted into the Finance Act 1986 to provide an exemption from stamp duty to persons recognised as intermediaries and members of a European economic area exchange where a sale was effected on the exchange. The exemption recognised the important role of intermediaries in providing liquidity to the markets.

OFEX was not a significant force when that amendment was made to the Finance Act 1986. However, since that time, the OFEX market has become more important and established as the junior equity market in the UK. It has been authorised by the Financial Services Authority, and has become established as a prescribed market under the Financial Services and Markets Act 2000 and a regulated market under the Criminal Justice Act 1993. It is also anticipated that an order including OFEX may be relevant. The other day, OFEX was a relevant EEA market for the purposes of a Financial Services and Markets Act promotion order. In becoming a prescribed market, OFEX needs to satisfy three tests, including the economic importance of the market test. Currently, OFEX has some 200 companies trading on the market and more than 400 companies have used OFEX. To date, companies on OFEX have raised £1 billion. Of these, 71 transferred from OFEX to AIM or directly on to the official list. Clearly, OFEX is a firmly established regulated market and a junior equity market of increasing importance to the UK.

The amount of stamp duty that OFEX currently pays is not great: it paid £260,000 last year. OFEX is concerned that the absence of an exemption will hamper its efforts to develop and grow. It currently has 106 broker dealer members and one specialist as well as 70 corporate advisers. It wants to expand by admitting further specialists. The lack of stamp duty exemption, particularly in comparison with AIM, with which it overlaps and to some extent competes for intermediaries, will be a deterrent to new specialists because of the direct costs of stamp duty on market making. As I said, the specialists are exempt when they trade on AIM.

I understand that the leaders of OFEX have had discussions with the Treasury and I look forward to the Minister telling us, as tacitly agreed the other day, that this unfairness will be addressed, if not specifically by our new clause, in one way or another.

Ruth Kelly (Labour, Bolton West)

I find the hon. Gentleman's arguments persuasive and I shall not repeat them today. I have reflected on the matter and, as he said, the possibility of an exemption has been a subject of correspondence between my officials and OFEX. As he observed, OFEX is established in the marketplace and is regulated as a service company by the Financial Services Authority and under the Financial Service and Markets Act 2000.

However, we are not convinced that the new clause will achieve the desired result in the most effective way. I am sympathetic to the hon. Gentleman's arguments,

but I would recommend that Committee members do not accept the new clause. I intend to table a suitable Government new clause on Report.

Howard Flight (Conservative, Arundel and South Downs)

What can I say? I am delighted to hear that. This important issue will be resolved, so I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

New Clause 24 - Living accommodation provided for employee

Chris Grayling (Conservative, Epsom and Ewell)

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

The new clause is a probing one. It arises from a concern of a constituent who is involved in the public carriage business, and highlights an issue that will become an increasing problem for a variety of companies, particularly around London and the south-east, where the cost of living makes it difficult to attract workers in many key industries. My constituent recruited from some distance away a bus driver who came to work in my constituency during the week but returned to his home at weekends. The company provided a room for him during the week and the Inland Revenue assessed him for a substantial benefit in kind. He incurred a substantial tax bill.

If companies of essential public importance find it difficult to attract workers from within their own areas, they will be tempted to look further afield for workers. The new clause would modify the rules so that where it was clear that a worker had a proper address somewhere else in the country or could demonstrate title to a property or a substantial lease of a property not to or from a relative, they would be entitled to receive temporary accommodation during part of the working week in a different part of the country without incurring a tax liability. Regulations would have to establish clear guidelines for that to happen, but it would work in much the same way as Members of Parliament receive the additional cost allowance. It would recognise that such people incur additional costs when working away from home.

Given the mounting skills and labour shortages in key industries such as health care, education and transport in London and the south-east, I hope that the Government will consider the new clause favourably.

Mark Field (Conservative, Cities of London and Westminster)

The definition of public service industry is not easy. With only 55 minutes left of our sitting, it might not be the best time to discuss the definition, and we should perhaps come back to it on Report, but how does my hon. Friend define a public service industry? Speaking as another inner-city Member of Parliament, I must say that the public services go beyond simply the public sector to include the private sector, especially shopkeepers, who are the very glue of the community.

Chris Grayling (Conservative, Epsom and Ewell)

My hon. Friend makes an important point. The new clause limits the definition of public service industries to

''the provision of public transport and other public carriage services, the provision of healthcare, the provision of education''

and leaves it open to the Secretary of State's discretion, either on a short or long-term basis, to designate additional industries.

I want simply to establish a principle. It seems an anomaly that meeting labour shortages by encouraging people to work away from home for a few days each week will mean that those people can incur a tax liability. I hope that Ministers will take the initiative as a result of this probing new clause to examine the matters in greater detail and perhaps introduce their own proposals later.

Dawn Primarolo (Labour, Bristol South)

I am grateful for the way in which the hon. Member for Epsom and Ewell (Chris Grayling) introduced his new clause. I have re-examined my notes on the existing tax reliefs and the circumstances in which an employee receiving accommodation would be exempt from the tax. I must be honest and say that, from the brief details that he has put before the Committee, I am at a loss to understand why the problem has arisen. Although his point is general, a particular case has clearly prompted it, and if the hon. Gentleman agrees to send me more details, I shall consider them closely. I can then decide whether the matter concerns only a specific issue regarding his constituent or a wider issue that needs Government attention.

I would rather not comment further at this stage to save the Committee's time, but I will be interested to receive the details of the hon. Gentleman's constituent's case.

Chris Grayling (Conservative, Epsom and Ewell)

I thank the Paymaster General for that assurance. I am glad to hear that she is willing to examine the broad issue and that I have highlighted a shortcoming in the system through my constituent. I beg to ask leave to withdraw the motion.

New Clause 29 - Life insurance: rate of tax on insurance company chargeable gains and treated as paid on policy gains (No. 2)

Howard Flight (Conservative, Arundel and South Downs)

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

The new clause must be probing because under the Ways and Means resolution requirements, it cannot address the second half of what is required. However, it would address what the Minister would agree has been an anomaly since the Finance Act 1999 by reducing the amount of tax paid by life insurance companies on policyholder capital gains from 22 to 20 per cent. I would like it to make a matching reduction in tax credits for higher-rate taxpayers who receive taxable proceeds from life policies.

The new clause would restore equality of tax treatment between those who save through life insurance policies, and those who save directly or through unit trusts. The Finance Act 1999 reduced the rate of capital gains tax paid by basic rate taxpayers from 22 to 20 per cent. without making a matching reduction in the rate of corporation tax paid by insurance companies on investment-backing life insurance saving policies. Few basic rate taxpayers—about one in 250—pay any capital gains tax because of the annual exemption. In contrast, all the 25 million individuals who save through life insurance policies indirectly pay some capital gains tax each year, as life companies have to pay corporation tax on policyholder capital gains with no equivalent to the exemption limit.

The amounts in 1999 and 2000 were substantial, which may be one reason why the Government have dragged their feet on dealing with the problem. However, one unforeseen result of the fall in share prices over the past two years, which sadly continues, is that the Exchequer cost of removing the anomaly and the rate differential is now relatively small—some £10 million—compared with the total corporation tax paid by the life insurance companies, which was some £2.7 billion in the last year for which figures are available.

I hope that the Paymaster General agrees that this anomaly is unfair and needs correcting. As I pointed out at the beginning, it is necessary to reduce the rate paid by life insurance companies and to reduce the credit from 22 to 20 per cent. for higher-rate taxpayers.

Michael Jack (Conservative, Fylde)

I support my hon. Friend the Member for Arundel and South Downs, who elegantly summarised the technicalities of the new clause. The Paymaster General may recall that I raised this matter with the Minister for E-Commerce and Competitiveness when he was Financial Secretary in 2000. He did me the courtesy of writing a letter, in which he said that the case for change was not wholly without merit. In the same letter, he confirmed that the cost of the measure, to which my hon. Friend referred, would be some £30 million. I am pleased, or perhaps saddened, that if the Government were minded to introduce the measure, the estimated fall in stock market prices would now be significantly less. It would be interesting to hear their figure.

With regard to equity and the operation of the i minus e formula in life assurance taxation, the

Government have, in fairness, adjusted the personal rates of tax in the composite rate used in qualifying policies to reflect changes in personal taxation. However, the anomaly has remained in capital gains taxation for some time, as my hon. Friend the Member for Arundel and South Downs said. I was equally heartened by a comment made by the then Economic Secretary during the Report stage of the previous Finance Bill that the issue should be kept in mind. The hon. Lady indicated that what she described as a package approach would probably be the best way to address it. I assumed from that that the Government were minded to examine the wider issues relating to life assurance taxation so that the matter could be addressed. To the best of my knowledge, however, such a package has not been forthcoming. As my hon. Friend said, the regular savings of some 25 million people in the UK include some form of life assurance. As we know, there is considerable disquiet among the holders of some policies about whether the companies will deliver the financial result that the policyholders expected.

Although saving through life assurance has taken a battering, it should not get such a bad reputation that people do not see it as a tax-effective and personally effective way of saving in the long term. This change would have a modest but beneficial effect on the returns from life assurance policies. I hope that the Government will agree at least to consider it, with a view to making the necessary changes.

Ruth Kelly (Labour, Bolton West)

The new clause would reduce the rate of tax that life insurance companies and friendly societies paid on the part of their capital gains that would contribute to benefits payable to policyholders. The logic behind the clause is to bring the rate of corporation tax on those gains in line with the rate of tax applied to the capital gains of individuals. There are, however, fundamental differences between the regimes for taxing gains made by companies—especially life companies—and those for taxing the capital gains of individuals. Therefore an attempt to align the corporation tax rate on gains with the rate applying to an individual's gains is too simplistic.

For example, individuals enjoy taper relief, whereas companies have indexation. Individuals have an annual exempt amount below which gains are not taxed. Life companies can deduct management expenses in computing their liability on chargeable gains, whereas individuals cannot. Life companies can also fund payments to policyholders from incoming premiums without realising assets and therefore making capital gains. That enables companies to defer making taxable gains almost indefinitely and so reduces the effective tax rate that they pay on policyholder gains.

The hon. Member for Arundel and South Downs and the right hon. Member for Fylde (Mr. Jack) suggested that there were small savers who had not exhausted their annual exempt amount of capital gains tax liabilities who might lose out as a result of the current regime. Most policyholders benefiting from life assurance policies do not pay any further tax when the policy has been cashed. Instead, the amounts paid by

the insurance company in corporation tax are effectively treated as satisfying the tax other than the higher rate tax that would have been paid by the individual if they had held and disposed of the assets personally. For the reasons that I have given, the effective rate of tax paid by life companies on the policyholder profits cannot readily be equated with individual tax rates. That is especially true of chargeable gains, where the life company's significant advantages make a direct comparison difficult.

The right hon. and hon. Members also referred to the recent fall in the stock market and suggested that it might not be that expensive for the Exchequer to consider making this particular move at this time. However, the Inland Revenue's cost estimate of the new clause is £55 million. It is not easy to make such an estimate, but that is its best estimate of the total cost. Clearly, in years when the stock market has fallen quite sharply, the cost is reduced, but we cannot base estimates of the cost on past performance of the stock market. We have to consider its future performance when making such estimates. The gains and losses realised by a life company in a particular year need not be those that have accrued in the year, so any estimate could be quite wide of the mark.

Another matter is relevant to consideration of this issue. We said in the Budget that a consultative document on reforms of the corporation tax system would be issued in the summer. One issue that it covers will be future treatment of capital gains made by companies. The question of what rate of tax should be charged on gains made by life insurance companies will naturally arise during those consultations, so it would be premature to consider that in isolation now.

Michael Jack (Conservative, Fylde)

I am grateful for the Minister's response. Would she now, or in correspondence, refresh my memory as to when the current rate of capital gains tax in i minus e was set, when it was last changed and what was the logic of that change?

Ruth Kelly (Labour, Bolton West)

I shall certainly deal with the right hon. Gentleman's points through correspondence. I did not say that there was no case for looking at this issue. I said that it should be considered during the wider consultation on the corporation tax regime. That paper will be issued this summer. For those reasons, I suggest that the hon. Member for Arundel and South Downs consider withdrawing the motion and new clause, otherwise I shall have to advise my hon. Friends to reject it.

Howard Flight (Conservative, Arundel and South Downs)

We raised this matter during the debate on the Finance Bill in the year 2000 and the Government treated it reasonably sympathetically. They said that it had some merit and that they would look at it. We are now two years on. I was glad to hear what I took the Minister to be saying, which was that the issue would be looked at during the consultation on the reform of the corporation tax system and insurance company taxation system. I cannot entirely agree that it is that complex an issue to resolve.

As to cost, the figure that the Minister quoted, which is very different from that worked out by the Association of British Insurers, may not have taken

account of the other part of the proposal that could not be in the new clause. Those paying higher rate tax should have another 20 per cent. and not another 18 per cent. to pay. Both adjustments are needed. It seems genuinely wrong that saving via insurance should be tax disadvantaged for the great majority of people by having a 22 per cent. rather than a 20 per cent. rate. I hope that what the Minister had to say to a fair extent tacitly accepts that. It will therefore be addressed as part of the overall package. I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

New Clause 30 - Principal private residence exempt from IHT

Mark Hoban (Conservative, Fareham)

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

At the outset, may I just say that, due to the timing of the tabling of the new clause, I was unable to table the other part of the clause, which reduced the inheritance tax threshold? That brings a sigh of relief from the Minister. I am not so cavalier with the Government's finances as to suggest that we leave the threshold unchanged. I am conscious that there was a fairly lengthy debate on Thursday afternoon on inheritance tax and I have read much of it. One of the issues was indexation of the threshold. I am suggesting another way of getting around the issue by exempting a principal private residence from the scope of inheritance tax.

We have spoken at length about the way in which house price inflation has made people's homes the principal part of their estate, particularly for those with a relatively modest income but a relatively high asset base. It strikes me as unfair that the beneficiaries of a will should have to pay tax on the increase in the value of the property. That is beyond their control and also beyond the control of the person who bequeathed them the house. The exemption is important for another reason. Several of the issues that we face today about people saving for their retirement and the growing period over which mortgages can be repaid can be traced back to the increase in house prices. Because house prices have risen so much, people have taken out longer mortgages. The daughter of one of my constituents has taken out a 35-year mortgage, which causes me no end of concern. It shows what people on modest incomes need to do to buy houses in expensive areas.

We also referred during Treasury questions last week to the fall in the savings ratio. One reason why it is falling is that people are putting more money into their mortgages, partly because they have to spend more on their mortgage simply to acquire a house that they feel is appropriate for their family. Exempting the principal private property from inheritance tax will encourage intergenerational transfers so that children can benefit from the capital that their parents have

built up to repay some of those mortgages over long repayment periods. They will also find their savings augmented by the proceeds of the sale of the house, which will be free of inheritance tax. It is a relatively simple measure that addresses several issues that people experience as a consequence of high house prices.

Ruth Kelly (Labour, Bolton West)

I am relieved that the hon. Member for Fareham (Mr. Hoban) intended to accompany his new clause with a reduction in the threshold at which inheritance tax would apply. His new clause would be extremely costly to the Exchequer. I understand that the estimated cost would be around £950 million every year and it is with some relief that I understand that the hon. Gentleman does not intend the Exchequer to bear that cost and that he would seek to compensate by lowering the threshold.

Cost is only one factor in this debate. Perhaps the main objection to the new clause is that it would be profoundly unfair. When we considered clause 115 last week, hon. Members were keen to ask profound questions about the philosophy behind inheritance tax and the threshold. I am not going to be drawn into that or to rehearse those previous arguments, but, like our predecessors, we are all concerned about fairness, and particularly horizontal equity, so that people in broadly similar circumstances face broadly similar tax bills and not large differences in liability for reasons unconnected with their capacity to pay. The new clause runs flatly counter to that principle.

Every member of the Committee is aware that house prices have recently risen sharply, and we also know that there have been large regional variations. I am sure that hon. Members are aware of figures from the Land Registry showing that the average price of a detached property in the north-west is just over £139,000, whereas a similar property in Hampshire would cost £246,000. Under the new clause, someone in Hampshire would pay no tax if he or she owned property worth just under £500,000 and happened to live in that county's average-priced detached property, whereas someone in the north-west at the same place on the housing ladder and with the same total wealth would pay around £45,000. That does not seem fair.

I could go on about other aspects of the new clause that strike me as unfair, but for the Committee's sake, I want to make progress. I want to point out the practicalities of introducing a relief that would encourage people to buy the most expensive house irrespective of their needs. That is precisely what the housing market does not need at the moment.

Recent house prices rises have resulted in some sharp changes in people's ideas of where they stand in the wealth pecking order and people take time to adjust to that new state of affairs. They can be assured that my right hon. Friend the Chancellor will look carefully, as he always does and always has done, at the new pattern of assets when setting the IHT threshold each year and make adjustments as and when necessary. I do not believe that there is any call to make vast structural changes to IHT to accommodate passing movements in asset prices, and

particularly not to single out a particular asset price if such a change would be unfair and counter-productive.

Mark Field (Conservative, Cities of London and Westminster)

It is accepted that the principle private residence is exempt from another property tax—capital gains tax—so what is the rationale for not making a similar exemption from inheritance tax for the same asset?

Ruth Kelly (Labour, Bolton West)

The hon. Gentleman is trying to draw me into the philosophy behind inheritance tax, which we debated at great length at our previous sitting. Suffice it to say that such a tax would not be fair. It would strike people in similar tax circumstances and with similar wealth differently in different parts of the country. It would be hugely expensive unless it were accompanied by a reduction in the inheritance tax threshold to, I believe, around £130,000. For those reasons, I urge hon. Members on both sides of the Committee to reject the amendment.

Mark Hoban (Conservative, Fareham)

I am grateful to the Paymaster General for her reply, but picking her up on that final point, I was not over-generous in the draft amendment that was not tabled; I suggested that the threshold should go down to £100,000. That would therefore have been tax generating—which, I must say, I regret.

This was very much a probing new clause, but it concerns an important issue for many people on a relatively modest income who have a large proportion of their estate tied up in property. It was important to air that issue. I suspect that we shall have to return to it in later years if we see a continuing increase in property prices across the country. I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.New Clause 32Costs of residential care (No. 2)

New Clause 32 - Costs of residential care (No. 2)

Chris Grayling (Conservative, Epsom and Ewell)

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

I should like to try to take advantage of some of the finance just mentioned by my hon. Friend the Member for Fareham in his new clause. This new clause is designed to drive to the heart of what I believe remains one of the most significant problems for the elderly in our society, namely, the financing and support of those in residential care. At the moment, elderly people who go into residential or nursing care initially pay for themselves. They do so, first, out of their income and, secondly, out of the sale of their assets. Thirdly, when

they get down to a relatively low threshold, the state takes over and pays the bill.

The reality is that someone living off, perhaps, income from a not terribly substantial old age pension and some savings income pays tax to the Government before paying for the cost of his or her residential care. I think that that is wrong. It is wrong in principle because it makes it more difficult for those people to pay their way. It is also wrong from the point of view of the Government because it brings sooner the date on which the Government take over responsibility for paying.

It also gives rise to an iniquity that, I know, causes huge frustration to elderly people around the country. Hon. Members on both sides of the Committee must have experienced knocking on the doors of people, at election time or in between, who say that they feel deeply frustrated because they have saved all their lives, put some money aside for old age and bought and own their own home, but are expected to pay for their residential and nursing care themselves, whereas, by contrast, those who have not made provision for themselves have the state pick up the Bill. On numerous occasions, people have expressed to me frustration that they are not able to leave property to the next generation or make adequate provision for themselves because of this system.

It seems to me that one way of tackling that—at a cost, and I shall be interested to compare my figures on the cost to the Minister's—would be to change the approach to create a fairer environment for those paying for their own residential and nursing care. This would, I think, benefit the Government financially as well as costing them financially. My proposal is that an individual paying the cost of residential and nursing care should be able to offset 50 per cent. of the cost of that care against basic rate taxation. I have picked 50 per cent. because inevitably in retirement, whether or not one is in a residential home, one has costs—the general costs of living and buying food. It is right and proper that the state should expect a decent contribution towards the cost of residential and nursing care from those able to make it. However, providing tax relief on 50 per cent. of that cost reflects the fact that, when one goes into a residential or nursing care environment, one acquires an extra raft of costs arising from one's dependency on others and inability to fend for oneself. Those are costs that one would not otherwise incur.

If we say to those people, ''We accept that you have limited means and are paying out most, if not all, of your pension income and drawing substantially on savings and the value of your house to pay for this, so we will allow you to offset half that cost against income tax as a relief,'' that would not be a significant expense in the gamut of public expenditure. My betting is that it would cost somewhat less than £100 million to achieve, and I will tell the Paymaster General how I reached that figure. The Government would get much of that money back through the reduction in costs for the state by meeting the costs of those people in residential care at an earlier date than would otherwise be the case.

Let me conclude by telling the Paymaster General how much I think that that would cost. There are 42,700 people in this country currently paying for their own residential and nursing care. Allowing an estimated annual cost of £24,000 a year for those people, they are paying a total of just over £1 billion a year. If one allows them basic rate tax relief on half that, the cost would be just over £112 million—if one assumes it is entirely at income rather than savings rates of taxation. By the time one takes into account the fact that considerable parts of that will come from savings rates of taxation, which are lower, the sum would be less than £100 million.

I believe that much of that money would be recouped through reduced costs to social services and the Government of funding those people at a later date. I do not believe that ultimately the cost is anything like that total, but I think that the gesture that the Government would make to those elderly people in adopting that approach would be such as to make it well worth while, socially as well as financially.

Dawn Primarolo (Labour, Bristol South)

This is an interesting turn of events towards the end of the Committee stage of the Finance Bill. The hon. Member for Fareham seeks to raise the money in his new clause, and his hon. Friend the Member for Epsom and Ewell seeks to spend it in the subsequent new clause, taking the idea of Government-in-waiting beyond normal expectations.

Our costings come to about £200 million, based on average fees, annual costs and the number of individuals concerned. That is not a small amount of money, but it is not just a question of the cost. It is a question of the principle and how the Government approach the provision for those who require residential care. The new clause, which I will ask my hon. Friends to oppose should the hon. Gentleman decide to put it to a vote, would benefit only those who are paying for their care. The principle for charging for care is not new. Indeed, I seem to remember that the Conservatives were quite keen on advocating payments for care. Where appropriate, it is not unreasonable to expect that people should pay some contribution. They pay the full cost only if their capital is worth more than £16,000 a year.

Chris Grayling (Conservative, Epsom and Ewell)

In total.

Dawn Primarolo (Labour, Bristol South)

Yes, £16,000 in total. In many cases, however, the cost of those in residential care has already been met by local authorities. The Government have made it clear that we are committed to providing a wide range and greater volume of high-quality services in response to people's needs. We are pursuing policies that will allow people to remain in their homes, which many people want to do. When they do go into residential care, Government policy has been that there should be a system of charges that is fair to the residents of the care homes, and those who care for them.

Changes were introduced last year that have been financially beneficial to a great number of the residents to whom the hon. Member for Epsom and Ewell is directing his attention. Those followed on from the recommendations of the royal commission for long-term care. The Government have implemented several

of those changes in the residential care charge system. They give residents more options as to how they pay for their care, and have ended the unfair system whereby nursing care was free in some settings but not others. The funding for local authorities for the provision of personal social services has increased, on average, by 3 per cent. a year in real terms during the period from 1996–97 to 2002–03. From 2003–04 to 2005–06, it will increase by 6 per cent. a year in real terms. That is £3 billion of new money, invested in a way that I think is a far better use of resources, particularly given that so many people desire to remain in their own homes and be supported there.

This is about choice and how the money is spent. Even compared with the hon. Gentleman's options, it is a very substantial amount of money. Given the desire to provide for a number of options, including remaining in one's own home, I suggest to the hon. Gentleman that the money is far better spent in the way that the Government intend to invest it, which is to offer those wider options and support people in the home, having made the changes already to the system of care charges.

Obviously, this is an important policy area and the Government continue to look at it closely—not the Treasury, but other relevant Departments. I hope that the hon. Gentleman will feel that, although he has made his case, he does not wish to press his new clause at this stage. If he does, I shall have to ask my hon. Friends to oppose it.

Chris Grayling (Conservative, Epsom and Ewell)

I am unconvinced by the Paymaster General's argument, but I was not really expecting to be convinced by it. My proposal would be a substantial tax cut for those who have made provision for old age, and would be extremely popular, especially in the residential care home sector, which I do not think has received anything like the attention from the Government that it deserves and has hoped for. Given the Government's failure to live up to the suggestions made in the royal commission's report, the proposal would add significantly to the process of alleviating the financial pressures for those in such homes.

That said, time is running on and I do not intend to press the matter to a vote. I hope that the point has been made, and I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

New Clause 33 - IHT and executors

Ruth Kelly (Labour, Bolton West)

I thank the hon. Member for Arundel and South Downs for the constructive manner in which he has put his proposal and raised the issues. I accept that there is a case here, but there is a problem with the new clause, which I do not think actually deals with the issue in point. Although it states what executors can use, it does not oblige anyone else to let them have it. The issue is not just about tax law, but is a matter of the general law surrounding the administration of estates. It is not something that we can change at a stroke through amending the Inheritance Tax Act 1984.

That said, I think that the Committee will understand that we are interested in resolving those issues. We are working on them in close consultation with bank and building society representative bodies. The key is to address the concerns that such third parties have about releasing assets before they can be assured that the would-be executors have the authority, in the form of a completed grant of probate, to direct what should be done with them. We think that that can be done through an arrangement that asks banks and other deposit takers to release funds only if they go directly to an Inland Revenue account to pay inheritance tax. That would cover the intermediary against potential exposure to paying out a second time in the unlikely event that the process goes wrong in some way.

The hon. Gentleman will understand that it takes time to negotiate and implement new arrangements with which all concerned can feel comfortable. I hope very much that we can make some concrete announcements before long and I ask the hon. Gentleman to withdraw his new clause.

Howard Flight (Conservative, Arundel and South Downs)

This is a very pleasant end to our proceedings. I am delighted to hear that the Government are addressing this practical issue and I hope that it will be resolved before my turn comes. I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

Schedule 39 - Repeals

Dawn Primarolo (Labour, Bristol South)

Before we move to the final stages of our consideration of the Bill, I want to put on record my thanks to you and Mr. Benton for guiding us so expertly through our proceedings and ensuring that the Committee made good progress with proper consideration of the Bill. You kept us in good humour while ensuring that the Opposition were precise and Ministers answered their questions.

I also thank the Clerks, the Hansard writers and the Police Officers for their assistance in ensuring the smooth running of our proceedings during the past weeks.

I thank the hon. Members for Christchurch (Mr. Chope) and for Arundel and South Downs for the thorough but good-humoured way in which they pressed the Government. Finance Bills present the Opposition with a huge task and I appreciate the way in which they approached this Bill. The partnership that developed with the Government, who accepted many of the very good points that were made, was facilitated because of the good-humoured way in which our business was conducted.

I thank the hon. Member for Buckingham for his occasional visits although we made speedier progress when he was not present. I look forward to seeing him in future.

I also thank the Ushers and Door Keepers for their excellent support.

I thank Conservative Members who pressed Ministers hard when necessary and were good humoured when it was revealed that their proposals were rather expensive and they continued to want to raise money and spend it at the same time.

The Liberal Democrats were occasionally present in the Committee, despite the fact that they claimed on the Floor of the House yesterday that it was important that Bills receive thorough scrutiny. Their contributions to various clauses added to that and I thank them for their tolerance and participation. I appreciate how difficult such matters are.

I congratulate my right hon. Friend the Member for Brent, South (Mr. Boateng), who is now the Chief Secretary to the Treasury, and my hon. Friend the Member for Bolton, West (Ruth Kelly), who has been so fantastic on the Bill that during its proceedings she was promoted. I welcome my hon. Friend the Member for Wentworth (John Healey) to what I hope will be many happy years of Finance Bills.

I thank all my hon. Friends for their sterling support, patience and perseverance. Finance Bills are important and technical, and their assistance in debating the clauses ensured that those outside this place can read our deliberations and be sure that the right questions have been asked and answered.

At the close of what is, I believe, my eighth or, perhaps, ninth Finance Bill, may I say how much I have enjoyed the Bill? I am so pleased that there are at least 12 months before the next one, and I certainly hope that the hon. Member for Arundel and South Downs is not planning to depart this earth in any way whatever before that date.

Howard Flight (Conservative, Arundel and South Downs)

I offer my thanks and, on behalf of my colleagues, their thanks to you, Mr. Gale, and to Mr. Benton for your most professional and gracious chairing of our proceedings. We also wish to thank the Police, all the Hansard staff, the Door Keepers, the Ushers and, particularly in my case, the Clerk. I put him to a great deal of trouble, and he has been professional and helpful in guiding me in the nightmare task of trying to get amendments correct. Thank you very much.

I congratulate and thank the Government team, who take a professional approach to dealing with Finance Bills—I hope that it has not been eight years of Finance Bills. Without indulging in Buckingham flattery, I believe that all of us have very much appreciated the professionalism of the Paymaster General and of the Financial Secretary. I also congratulate the new Economic Secretary, the hon. Member for Wentworth, who got stuck into the Bill incredibly well at the latter stages.

I thank all of my colleagues for their support. The Committee has given good scrutiny to 550 pages of

enormously complex legislation with good nature throughout. Thank you, everyone.

John Pugh (Liberal Democrat, Southport)

I would like to say a few words on behalf of my absent colleagues, who have deserted me. It has been a privilege to serve under your chairmanship, Mr. Gale. The proceedings have been an education for me, as I am sure the Paymaster General knows. I have been impressed by the good humour and fair adjudication that we have had from you, Mr. Gale, and from Mr. Benton. I have also been impressed by the scrutiny of the Committee and the skill, expertise and politesse that have been exercised by hon. Members and the ministerial team.

I wish to finish on a note of absolute sweetness and light, and bury some of my differences with the Paymaster General. She was right in saying that the Inland Revenue portal does not carry Government announcements, but I was right in thinking that stuck

right above it and inextricably entwined with it was an announcement from the Government about doctors and red tape. As I discovered in the Committee, the truth is always very complex.

Roger Gale (Conservative, North Thanet)

I thank all members of the Committee for their kind remarks, which I shall most certainly pass on to Mr. Benton. I add my thanks to Mr. Cranmer and Miss Garratty, without whose assistance my job would have been impossible, and I add our collective thanks to the officers and staff of the House for their services. I would also like to thank all members of the Committee for the courtesy and good humour with which they participated in the proceedings. It makes our lives a great deal more enjoyable as well as easy.

Bill, except clauses 4, 19, 23, 26 to 29, 87 to 92, 131 and 134 and schedules 1, 5 and 38, as amended, to be reported.

Committee rose at seven minutes to Seven o'clock.