Orders of the Day — Finance Bill — [2nd Allotted Day]

House of Commons, 4 July 2002.

New Clause 23 — Rollover of cash from ISAs and TESSAs into securities

Howard Flight (Conservative, Arundel and South Downs)

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

New clause 23 is a straightforward and down-to-earth probing suggestion. PEPs, followed by ISAs, have been very successful in attracting large numbers of people, extending down into society, to the savings habit. The structure of ISAs has been perhaps more complicated than many people might like, although that structure was chosen for good reasons.

As hon. Members will know, mini and maxi ISAs are available. People can invest £3,000 in mini ISAs, all of which can be in cash, and a maximum of £3,000 cash can be invested in maxi ISAs. Historically, people also have cash savings under TESSAs. When those cash savings mature after five years, the interest can no longer be part of the contract, but the principal element can be carried forward into a cash ISA. Perhaps I should have started by declaring an interest in accordance with my entry in the register, although the matter that I am raising is purely practical.

The issue is that once people lock into the cash element of a savings plan, they cannot move out of cash into securities. In the current economic climate people will understandably be cautious and will want to stay in cash. As times move on, however, and as markets go up and down, people may want to move into securities. Indeed, the original purpose of PEPs and ISAs was to encourage investment in securities and not just in cash. The cost to the Revenue can be more in relation to cash, as the amount of tax-free interest is usually greater than the level of dividends paid on equities.

The new clause simply proposes that people who have their cash element in mini and maxi ISAs, and in maturing TESSAs, should, if they wish, be able to invest that cash in securities, but not revert to cash in the future. Although, in principle, it might appeal to people to be able to move all the time between cash and securities, that poses both tax and administrative problems.

The House will be aware of the need to boost savings in this country; perhaps the savings rate should not be boosted by too much in the next few years, as that may cause a recession, but it has fallen to too low a level. I accept, however, that we face difficult and out of the ordinary circumstances in the financial markets.

I repeat that the new clause is a simple, probing amendment. I understand that there may be some degree of support for the idea in the Treasury and in the Revenue, and it would not amount to an additional cost to the Exchequer—if anything, it might be to the Revenue's advantage. I hope that the Minister will respond supportively. I candidly do not know whether the new clause is perfect or imperfect; I expect that it is imperfect, as it is on a difficult, technical matter. What it proposes, however, is eminently clear.

Rob Marris (Labour, Wolverhampton South West)

I welcome the fact that the hon. Member for Arundel and South Downs (Mr. Flight) has at last put forward an amendment that might—I stress the word "might"—have a beneficial effect on many of my constituents, because the issue affects many of them. I shall be interested to hear what the Financial Secretary to the Treasury says about it.

Howard Flight (Conservative, Arundel and South Downs)

I thank the hon. Gentleman for his kind comments. May I make the point that a healthy and strong British economy is of enormous benefit not just to all of his constituents but to every other individual? There are many issues that may appear to be macro rather than micro ones, but they are all about the efficient working and prosperity of our economy.

Rob Marris (Labour, Wolverhampton South West)

Those are interesting words from the hon. Gentleman, as I am not sure that they will be a sequitur to what I am about to say. I sat through most of the debate on the Finance Bill yesterday, the last four new clauses put forward by the hon. Gentleman—new clause 10 on attribution of gains to members of non-resident companies; new clause 11 on capital allowances for expensive cars; new clause 12 on investment companies and trading companies; and new clause 13 on stamp duty exemption on disposal of substantial shareholding—appeared to deal with taxation issues for the very rich, which do not affect many of my constituents. When I put that to the hon. Gentleman last night, he said:

"These clauses have been proposed by the non-political and unbiased Chartered Institute of Taxation".—[Official Report, 3 July 2002; Vol. 388, c. 357.]

I have no doubt that they were. Interestingly, two debates later, the hon. Member for Kingston and Surbiton (Mr. Davey) moved new clause 19. He said, at column 361—

Sylvia Heal (Deputy Speaker, Halesowen and Rowley Regis)

Order. Perhaps the hon. Gentleman could now move on to discuss new clause 23.

Rob Marris (Labour, Wolverhampton South West)

May I briefly finish my point, Madam Deputy Speaker? The new clause moved by the hon. Member for Kingston and Surbiton was entitled "Simpler Tax Assessment for Low-income Pensioners", and it was also suggested by the Chartered Institute of Taxation. Was this new clause suggested by the institute or does the hon. Member for Arundel and South Downs take up the institute's proposals only when they deal with the very rich?

Howard Flight (Conservative, Arundel and South Downs)

That is a pretty poor line of attack. I do not think that my track record illustrates what the hon. Gentleman is seeking to imply. This new clause covers a matter that has been discussed widely within the Revenue and other bodies. It has nothing to do with the Chartered Institute of Taxation.

Rob Marris (Labour, Wolverhampton South West)

I am grateful for that clarification. Perhaps we can now move on to debate this important subject.

Ruth Kelly (Labour, Bolton West)

I am pleased that the hon. Member for Arundel and South Downs (Mr. Flight) recognises the important contribution that ISAs make to our savings strategy. I recognise his long-standing interest in these issues, and I know that he takes a keen interest in the workings of the ISA market. He has outlined the reasons for the new clauses, which would affect ISAs and TESSA-only ISAs. From what he said, I gather that its essence would be to allow tax-privileged cash savings to be converted into stocks and shares ISAs through what would essentially be a one-way valve. It would not then be possible to convert the equity investments back into cash.

The hon. Gentleman mentioned current market conditions and the encouragement to cash investors to diversify their savings into equities. As he recognised, there are difficulties with the drafting of the new clause. It is a little unclear what it is precisely intended to achieve. However, I have listened with interest to his proposals. As ISAs are such an important part of our savings strategy and have already extended the opportunity to save to new groups of people—particularly those on lower incomes, women and previous non-savers—we consider the rules governing ISAs extremely carefully and keep them constantly under review.

We would have to consider the issues and implications relating to the new clause. However, I assure the hon. Gentleman that we are prepared to consider, in principle, his proposals along with other changes to the ISA regime, which may become possible when the review of the polarisation regime concludes following the Financial Services Authority's recent consultation paper. We take these issues seriously and we want to encourage savings. ISAs form a major plank of our savings policy, so we will keep the issues under review.

Howard Flight (Conservative, Arundel and South Downs)

I thank the Financial Secretary for her comments. Do not take too long, however, because many citizens in the constituency of the hon. Member for Wolverhampton, South-West (Rob Marris) might think, as and when markets recover, that it was a pity that they were totally locked into cash savings. I am glad that the Government are interested in pursuing the idea in principle. I made it clear that it was a probing new clause, so I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

New Clause 24 — Simplifying married couples allowances

Edward Davey (Liberal Democrat, Kingston and Surbiton)

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

The hon. Member for Wolverhampton, South-West (Rob Marris) may be pleased to learn that the new clause results from another suggestion made by the Chartered Institute of Taxation. It was not suggested by the institute's Low Incomes Tax Reform Group, which was the genesis of the two new clauses that I moved last night, but by the institute's campaign for simpler taxation. This evolving campaign has a manifesto for tax simplification, and this new clause derives from the proposals for personal tax quick wins. It does not really distinguish between the wealthy and the not-so-wealthy, because both groups would potentially gain. One change in new clause 24 would lead to a gain of the princely sum of £7 per annum for pensioners aged between 65 and 74. That is not a huge amount, although £7 is arguably worth more to someone on a low income than to those on a higher income.

The institute is keen on the changes in new clause 24 because it wants to simplify the tax system in simple ways—for example, by reducing the number of boxes on the self-assessment form that drops through so many letter boxes every year, by reducing the number of civil servants who have to wade through the forms and by saving time in the private sector. Every year, we need to consider how we can simplify the tax system, and new clause 24 contains two simple proposals for advancing that agenda.

Both proposals relate to the married couples allowance, which was recently restricted to 10 per cent. and has now been restricted to pensioners and those who were born before a certain year. That strengthens the case for reform, because the allowance is effectively withering on the vine. While it remains with us, it makes sense to make its administration as simple as possible. At the moment, different rates for the married couples allowance apply to different ages of pensioner. Someone aged between 64 and 75 in the fiscal year 2002–03 has a married couples allowance of £5,465, which is £70 lower than the rate for pensioners aged 75 or above, who receive an allowance of £5,535.

New clause 24 seeks to equalise the allowance at the higher rate. That is not a very generous change, because it would be worth only £7 a year, but it would mean that the coding that pensioners receive would not need to be changed. Savings would also be made in the production of the self-assessment form. The CIT suggested that it would remove at least one box from the form. Coupled with other simplifications that the institute suggests, 22 boxes and one whole page could be removed from the tax form and guide. This proposal is a small step towards meeting that objective.

The second proposal is perhaps more interesting. At the moment, if a pensioner who is eligible for married couples allowance marries, he or she can receive only a proportion of the allowance in the year of the marriage. That necessitates a complicated calculation that requires five boxes on the form and half a page in the tax guide to explain. That is a waste of time. It is an unnecessary calculation, because there cannot be that many pensioners who marry aged 66 or above.

The amount that the Exchequer would lose by the proposed change would be tiny. The new child's tax credit will not have an in-year restriction, so the change would bring the remaining age-related married couples allowance in line with the Government's legislation elsewhere and would be a slight bonus for pensioners getting married. It could not be described as giving a huge tax incentive to pensioners to rush out and wed, but it would remove complications and give them a little extra to spend on their honeymoon. I hope the Paymaster General will take the new clause in the spirit in which it is intended, so that we simplify the tax system for elderly people.

Dawn Primarolo (Labour, Bristol South)

I am afraid that I have to disappoint the hon. Gentleman on his plans to alter the married couples allowance. We have discussed the systematic approach to simplifying the system before on the Floor of the House. For example, yesterday we debated making it easier for pensioners and others to comply with their obligations in the self-assessment system. I am a little surprised at his piecemeal approach to a project that he expects the Government to approach systematically and thoroughly. His suggestions are out of context.

It is important to remind the House of the status of the married couples allowance. The hon. Gentleman said that it sits with the priorities of Government policy, but it is difficult to understand how that can be justified. The married couples allowance has been abolished for the vast majority of married couples for good reasons. He is confusing two things: the approach to simplifying the tax system where possible, and whether it is good policy to amend an allowance that has been abolished for everyone else.

The previous Government reduced the value of the married couples allowance for a number of years before it was phased out. In the end, the allowance did not merely support marriage; it could also be given to single parents and unmarried people who were living together. That reflected the piecemeal approach of altering and fine tuning a particular relief, which is what the hon. Gentleman wants to do.

The Government replaced the married couples allowance with the child's tax credit and other changes to the tax system to support families with children. They decided that it was correct to protect the position of elderly people who were in receipt of the higher age-related married couples allowance. It is not right in principle to go beyond the commitment to maintain the position of those pensioners in the name of simplification, and I do not think that the new clause would provide us with that in the long run.

A line has to be drawn and logic applied. I would hardly describe having two rates of the married couples allowance which are dependent on age as complex, although I listened carefully to what the hon. Gentleman said about the form and the boxes in the self-assessment requirement. However, that goes back to the principle, which we discussed again yesterday, that it is more important for the Revenue and the Government to approach the problem of the form's complexity by asking whether we are asking for information that we do not require and whether we can remove people completely from the tax system. It is not a matter of tinkering around with the tax relief itself.

The hon. Gentleman rightly said that it is a relatively low-cost proposal. It is. However, I remind him that most pensioners already do not pay tax. The Government's approach to the question of support for pensioners has been extremely clear, not only in the raising of allowances but in the introduction of pension credit and minimum income guarantee, and in the numerous other ways that the Government are supporting pensioners, especially the very poorest. We are now spending an extra £6 billion a year from April as a result of the tax and benefit changes that we have made.

I entirely appreciate and accept the principle behind the hon. Gentleman's point, which is to continue to keep the pressure on the Government to simplify the system wherever we can, but I think that he falls into the very trap into which he argues that the Government should not fall: that is, to tinker for the short term without taking a strategic approach to wider questions.

With regret, I have to say to the hon. Gentleman—I know that he sincerely advocates this line—that I am not prepared to recommend to my right hon. and hon. Friends that they should accept the clause. If there were a vote, I would ask them to vote against. I believe that what I said last night is a much better way to approach the matter, namely, the work that the Inland Revenue has undertaken with TaxAid, with the Low Incomes Tax Reform Group and the Working Together Group. That is the best way forward, and the new clause is not.

Howard Flight (Conservative, Arundel and South Downs)

The point that others have raised before becomes all the more important given the pension crisis and the fact that many people will not get the pensions that they expected. There are many who are already drawing pensions who will not get the increases that they expect.

Certainly people older than 50 or 55 have saved for their old age, to the extent that they have made such savings, on the assumption that the married couples allowance would be there when they retired. When it was taken away rather arbitrarily and cut at the age of those born in 1935, that recognised that principle but a great raft of people were excluded who had still been making their retirement plans and their saving plans on the reasonable assumption that the allowance was a main part of the income tax system.

When the Government think about their fundamental reforms, perhaps they would have to give a different—

Dawn Primarolo (Labour, Bristol South)

Perhaps the hon. Gentleman would explain why the Conservative Government reduced significantly the value of the married couples allowance. If the principle that he is now advocating applied, why did it not apply when the Conservatives were reducing the allowance from 40 per cent. to 10 per cent?

Howard Flight (Conservative, Arundel and South Downs)

That to which I think the Minister refers essentially did not affect the great majority of retired people. In relation to the tax credit, it affected those who were younger and earning more money. Secondly, for better or worse, the changes were phased.

For those who have retired and for whom the married couples allowance was higher, that allowance was a material factor in terms of their disposable incomes. When the Minister finally got rid of the allowance, that significance was acknowledged in terms of increasing support for children, although people had to wait a year. The argument was that the moneys were better paid to children than to parents. For those who were retired, and particularly for the great bulk of people in the middle, I am not aware that there was any substitute for the loss of the married couples allowance.

Perhaps the reform which the Minister plans to look at would need a different name to save face. Given the great fears and concerns of huge numbers of people over 50 about the value of their pension on retirement, the Minister should look at the problem urgently to alleviate it and honour the basis on which people saved for their retirement. It may be worth while incorporating the new clause in such reform, as there is little logic in having an allowance which changes slightly according to age, as the hon. Member for Kingston and Surbiton (Mr. Davey) pointed out. However, the more important aspect of the proposal is the restoration of something analogous to the older persons' marriage allowance.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I welcome the fact that the Paymaster General repeated her assurance of last night that the Government will undertake a wide-ranging review to try to see whether the elderly person's experience of filling in tax returns and dealing with the Inland Revenue and other tax authorities could be improved by making the forms simpler and fairer. I am sure that her comments will be welcomed by people outside the House who read them.

I obviously disagree with the Paymaster General's description of the new clause 24 as "tinkering" with the allowance. She graciously pointed out last night that I have pursued these issues for a number of years, so I hope she accepts that I am a little impatient for the overall review and a full examination of the problem. I do not apologise for a proposal of modest chunks, which would not be costly for the Exchequer. I am trying to get the Government to move a bit further as we wait for the review.

It is a good idea to conduct a review with a wide-ranging remit, as tax simplification at all levels is about a process, not an event. We therefore need to come back to it every year and find out whether we could dispense with things that would help us to get rid of a box on the form, a page in the guidance notes or pages in the tax statute books.

Dawn Primarolo (Labour, Bristol South)

I concur with the hon. Gentleman, who has a long track record of pursuing the issue. As I said at 12.15 am today, we should ask first whether everyone in the self-assessment system should be part of it. If not, we should remove them from the system. Secondly, we should consider whether the form is too complex and asks for too much information or information that is not required. Consequently, we may find that changes may need to be made to the relief itself. The process is continuous—I have no qualms at all about admitting that, and have no complaints about the hon. Gentleman continuing to press me on the matter.

I hope that I have clarified the Government's approach and explained why the new clause would make an unacceptable change to the principle of the married couples allowance. However, I agree entirely that there is not a big bang solution to the issue.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

The Minister and I agree about a lot. I accept her assurance from last night that the approach is to remove as many people as possible from the self-assessment system. However, we can envisage a different way of assessing tax for people on lower incomes. We can imagine two types of self-assessment forms, such as many other countries have. However, I do not disagree with the thrust of the Minister's remarks, given our present tax and pay-as-you-earn systems. The process underlying her thinking is correct.

I still do not accept the Paymaster General's argument that new clause 24 is inconsistent with the Government's chosen path. It is consistent with that. I do not seek to change the Government's stated policy on married couples allowances, for which we voted. It was an overdue reform and while one can quibble about the way in which the Government went about it, particularly the delay, it was certainly needed and got money to children, which was an aim that we shared. I do not seek to go back over that ground.

The Government said that this allowance should stay on the statute book and that it will wither away over the years, but while it is there—it will be with us for two or three decades—it should be made as simple to operate as possible, and that was the intention behind the new clause.

I know that the Paymaster General will not accept it today, but I have raised the issue. I have also raised the more strategic issue that the Chartered Institute of Taxation, like other tax professional bodies, is considering this area of simplification and coming up with a series of quick win, simple measures which the Government could embrace, thereby gaining political advantage. If the Government take up the institute's ideas, it will do not just the tax system but the Government good.

As the Paymaster General has been generous in explaining how she sees Government policy unfolding, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

Clause 3 — Duty on beverages made with spirits to be at spirits rates

Christopher Chope (Conservative, Christchurch)

I beg to move amendment No. 1, in page 2, leave out lines 20 to 25.

This is a debate about flavoured alcoholic beverages, otherwise known as FABs, but it might better take its title from another late-night beverage, Horlicks, because the Government have made a total horlicks of this provision in the Budget.

Clause 3 introduces a tax increase of 64 per cent.—the highest percentage increase—which is about a 12p duty increase on a standard bottle of one of these beverages. The Government justified that extraordinarily high increase in the explanatory notes on clause 3, which states that between 1999 and 2001

"the standard pub retail price"—

of spirit-based coolers—

"rose by around 60 pence per bottle, despite the level of duty falling in real-terms. Tax as a proportion of the retail price is now lower for spirit-based designer drinks than for any other type of alcoholic drink in both the on and off-trades."

Based on that information, the Government said:

"it is no longer possible to justify the concessionary duty treatment for this particular class of spirit drinks."

In Committee, I and other members of the Committee challenged the accuracy of the facts used by the Government to justify this massive increase in duty, which, incidentally, was introduced without any consultation with the industry. The problems that have followed would not have occurred if there had been proper consultation. I accept that the Government did not deliberately get the figures in a mess, but they were negligent because, had they had proper discussions, there would not have been this misunderstanding.

Tom Harris (Labour, Glasgow Cathcart)

The hon. Gentleman is right to criticise the Government for lack of consultation, provided that he is attacking the 1996 Budget statement, which also introduced a major increase in tax on those drinks without any prior consultation. I do not recall the hon. Gentleman complaining about that.

Christopher Chope (Conservative, Christchurch)

Sadly, I was not in the House in 1996. If I had been, I am sure that I would have been alert to that matter. As the Committee heard, when I represented Southampton, Itchen—I did so until 1992—one of the largest manufacturing plants producing the beverages was situated there. It has also emerged, however, that the current incumbent, the Minister for Policing, Crime Reduction and Community Safety, last year opened a new production facility in the area and praised the company and work force in respect of the extra jobs that would be created by the investment, but did not say anything at that time about the fact that the Government had it in mind to change the duty regime and threaten that investment.

On 18 June, the Economic Secretary finally admitted that the Government were wrong and that the Opposition were right about whether there had been an increase of 60p or 20p in the retail price of coolers between 1999 and 2001. He said that in 1999–2001, the retail price of coolers went up not by 60p, but by an amount

"closer to the 20p figure suggested by the industry."

I understand that the exact figure is 20.7p—20p is almost spot on—rather than 60p. That represents a compound interest increase of about 6 per cent. over three years. To put it in context, that is slightly less than the average increase in council tax over the same period.

Rob Marris (Labour, Wolverhampton South West)

I wonder whether this could be a question of mixing apples and oranges. The explanatory notes refer to the standard pub retail prices, but is the hon. Gentleman referring to the retail price in, say, a shop, or to a pub retail price? As we all know, pub retail prices can be more expensive and can increase at a greater rate.

Christopher Chope (Conservative, Christchurch)

I am referring, as the Economic Secretary was, to the retail prices cited in the explanatory notes. The Economic Secretary has admitted—as a member of the Committee, the hon. Gentleman will have received a copy of the letter that he sent to me—that the note in question was incorrect in its reference to an increase of 60p, and that the figure is closer to the 20p suggested by the industry.

After being forced to admit that there was such a gross error in the calculations, any decent Government would have apologised to the industry, consumers and Parliament. They would have withdrawn the proposal and deferred a decision on any tax increase while reassessing the impact of the evidence. However, I am sorry to say that that is not what the Government did; indeed, that is not the way in which they operate. The Economic Secretary had the gall to say in his letter to me:

"I want to assure you that—while regrettable—this error does not affect our rationale for this change or its estimated impact."

What a contrast with what the Chief Secretary, formerly the Financial Secretary, told us in Committee on 14 May:

"One of the key issues for consideration was whether the coolers market could support the removal of the concession. Our evidence showed that it could. There is nothing improper about considering whether a market can bear the burden of taxation. Between 1999 and 2001, the consumption of coolers more than doubled, and during that period, the average pub price of a bottle of coolers rose by 60p per bottle. Some hon. Members with peerages suggested that the increase was closer to 20p, but I have to tell them that the figure of 60p comes directly from an analysis of market research data by the Office for National Statistics. Customs has discussed that figure with the industry and I am confident that agreement will be reached to clear up confusion on the part of Opposition Members."—[Official Report, Standing Committee F, 14 May 2002; c. 47.]

The right hon. Gentleman referred to the increase in price as a key issue for consideration, but when the figure was proved incorrect, what did the new Minister say? He did not say that he was sorry and that he would go back to the drawing board. Instead, he is still blustering away, arguing that nothing has changed and that the previous arguments still apply.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

rose—

Rob Marris (Labour, Wolverhampton South West)

rose—

Christopher Chope (Conservative, Christchurch)

I give way to the hon. Member for Kingston and Surbiton (Mr. Davey).

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I want to back up the strength of the hon. Gentleman's argument by saying that, when the Committee questioned the Minister closely on the underlying rationale behind this change in the tax regime, he relied heavily on this piece of evidence. We were surprised, because there had been a change in the underlying rationale of the taxation of alcohol in other areas. The hon. Member for Christchurch (Mr. Chope) is right, and the fact that the Government have been found out suggests that this has nothing to do with rational taxation, and more to do with a raid on people's purses.

Christopher Chope (Conservative, Christchurch)

The hon. Gentleman is absolutely right. It is apparent that the Government are motivated by prejudice rather than reason. That is their driving force, and, as so often happens, that prejudice is tinged with a certain amount of arrogance—the inevitable ingredient of this Government.

Rob Marris (Labour, Wolverhampton South West)

The hon. Gentleman quoted the Minister referring in Committee—I recall being there—to one of the factors. The other factor referred to in the explanatory notes is the chief medical officer's report of 2001, so the hon. Gentleman's suggestion that there was only one reason for the Government adopting this approach does not sit well with what we were told in Committee, or what is said in the explanatory notes about the health aspect of the issue.

Christopher Chope (Conservative, Christchurch)

I have not said that that was the only justification; there were two justifications. But, in Committee—the hon. Gentleman was there; he will remember this—the Minister had to back-pedal pretty rapidly on the assertion that there was some reason for raising the tax on this particular kind of drink, when it became apparent that certain lagers and ciders with a much higher alcohol content were less highly taxed. The Minister moved back from the position of saying that the provision could be justified as a way of addressing binge drinking. Indeed, the Government's argument in Committee was that the consequence of this steep increase in tax would not involve any reduction in the consumption of coolers.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

The hon. Gentleman is exactly right. The health argument put forward by the Government was put in total disarray by the fact that they had been arguing for a reduction in tax on cider. According to the chief medical officer—and evidence, no doubt, from all our constituencies—cider is a drink most associated with teenagers and with binge drinking. So the Government's coherence on this issue is, frankly, non-existent.

Christopher Chope (Conservative, Christchurch)

I am grateful to the hon. Gentleman for reinforcing that point. Much as the hon. Member for Wolverhampton, South-West (Rob Marris) may try to argue the Government's case, I am afraid that the Government abandoned that particular ground in Committee, relying heavily on the 60p increase over the three-year period. Now, when that has been found to be totally wrong, they have resorted to bluster and other arguments.

Rob Marris (Labour, Wolverhampton South West)

Will the hon. Gentleman give way?

Christopher Chope (Conservative, Christchurch)

Not at the moment; I must make some progress. I am sure that other hon. Members want to contribute to the debate, and the hon. Gentleman will have the chance to make his own speech later.

The Government are still saying that the Budget duty increase will have little impact on the demand for coolers. That is why their argument that this would be a good way of addressing binge drinking is obviously ludicrous. A number of people who produce these drinks have written letters of complaint. One such letter comes from Bill Oddy, the managing director of a relatively small firm, employing about nine people. He says in his letter:

"We believe that this decision is unfair to the consumer and, since these products are price sensitive, will have a seriously adverse effect on our industry and those related to it, including producers, bottlers and glassware manufacturers, many of them SMEs"—

small and medium-sized enterprises—

"who have enjoyed UK-based success in recent years bringing jobs and prosperity here. This success countered a large influx of foreign bottled beers in the late 1980s which saw UK bottlers and glass makers hit a low point."

He goes on to say how disappointed he was that this measure was brought in without any consultation.

In Committee, the Minister argued that the concerns of the industry were of no moment whatever. He quoted Karen Salters of Beverage Brands, using her words to make this assertion:

"I do not think that anyone could argue that the measure will be an inhibitor on the business and will cost jobs."—[Official Report, Standing Committee F, 14 May 2002; c. 45.]

We were slightly dumbfounded by that, so we looked up the whole quote. We found that Karen Salters said quite the reverse of what the Minister attributed to her, as she described the measure as wholly unjust and said that it would

"stimulate a shakeout in the trade as smaller"

producers

"will not be able to weather the increased duty demands".

So, Karen Salters was arguing that the measure would put the small businesses under pressure, if not out of business, but the Minister used her words, selectively quoted, to justify quite the reverse proposition. I am afraid that it is not good enough for the Government, who should act responsibly, to address serious arguments by using selective quotes that really are critical of their policy and try to turn them round so that they seem supportive.

We are arguing that the Government should make a fresh start with the issue, because there is confusion between what is a spirituous drink and a made wine. There was no problem over that before, because both products were in the same tax category. Now, people will be able to use spirits as a base, mix them with wine and market them without having to pay the higher tax set out in clause 3.

To do so, however, people will have to agree their formulae and recipes with Her Majesty's Customs and Excise. I shall not trouble the House with the detail, but I have here a letter from Steve Nicholson, who is in charge of alcohol and tobacco regimes, which gives guidance on the excise duty liability of spirit-based drinks after the Budget. It runs to about three and a half pages. The guidance is incredibly vague, and because it is so vague it introduces uncertainty—indeed, it is oppressive for those who are trying to invest in the industry. That is another powerful argument for the Government going back to the drawing board, holding discussions with the industry and trying to achieve a just and fair result.

The Government have asserted fairness, consistency and consultation, and that is what we think they should deliver on the issue. Paragraph 7 of the Customs and Excise 2002 Budget press release says:

"The Government has taken consistent steps to deliver a fairer balance in the burden of taxation falling on different alcoholic drinks and on different types of drink producers."

They can be true to those words only by withdrawing clause 3.

Iain Luke (Labour, Dundee East)

Although I support the Government proposal and oppose the Opposition amendment, I speak as an individual and as a concerned parent who has served locally as a councillor for a long time. I have seen the trends—perhaps not those in other parts of the country, but those in Scotland, where alcopops or coolers have become the predominant drink taken up by youngsters. The Treasury explanatory notes show that uptake of alcopops has doubled, but I do not believe that the increase in cider uptake, especially in my part of the world, is comparable. Such arguments are fatuous.

During my time in Committee, I came to hold the hon. Members for Arundel and South Downs (Mr. Flight) and for Christchurch (Mr. Chope) in very high regard. I believe that they are decent, polite and knowledgeable adversaries, but this advocacy of the amendment on behalf of the drinks industry does them and their party no particular credit.

Chris Grayling (Conservative, Epsom and Ewell)

What the hon. Gentleman says about alcopops in his part of the world may be true. None the less, does he accept the comments about cider made in Committee by the hon. Member for Kingston and Surbiton (Mr. Davey) and by me? Does the hon. Gentleman not accept that a strategy that cuts duty on one type of strong drink and raises it on another has no consistency, either in protecting industries or in protecting young people?

Iain Luke (Labour, Dundee East)

I am happy with my view on drinks taxation: it should be uniform and it should be high to discourage a large uptake, although I enjoy a beverage occasionally. Specifically, drinks targeted on and taken up by the young must be addressed, so I hope that those on the Front Bench take on board the points made by the hon. Gentleman and review the matter. I am setting out my concerns about the situation in my area.

John Healey (Labour, Wentworth)

On the objection raised by the hon. Member for Kingston and Surbiton (Mr. Davey) and echoed by the hon. Member for Epsom and Ewell (Chris Grayling), does my hon. Friend recognise that the chief medical officer's annual report for 2001 expressed concern about binge drinking and young drinkers? It also mentioned designer drinks, but it did not mention cider.

Iain Luke (Labour, Dundee East)

I acknowledge those points.

Tom Harris (Labour, Glasgow Cathcart)

Like me, my hon. Friend was present for the first couple of Committee sittings. He may recall the hon. Member for Christchurch (Mr. Chope) pointing out that alcopops are a particular favourite drink of members of Christchurch Conservative club. My hon. Friend may also remember that the hon. Member for Buckingham (Mr. Bercow) subsequently pointed out the 11.7 per cent. swing from the Liberal Democrats to the Conservatives in the Christchurch constituency at the 2001 general election. Does my hon. Friend agree that there may be a causal link between those two facts?

Iain Luke (Labour, Dundee East)

I am not particularly aware of the political situation in the Christchurch constituency, but I remember the informative and polite exchange between the hon. Member for Christchurch and me on that specific issue. I shall return to it, because certain elements must be addressed.

The Government's proposals have merit in several areas and they deserve universal support in the House. First, there is an anomaly in the tax regime that should be addressed. Secondly, given how such drinks are marketed and targeted, specifically at the younger drinker, there are moral and health imperatives to introduce this tax change. Any price increase may restrict access and discourage the purchase of what is a particularly addictive drink by the most vulnerable, young and often under-age consumers.

I was brought up in a strongly Presbyterian household, where the consumption of strong drink was frowned upon, but I must confess that I have lapsed from those strict religious leanings. [Hon. Members: "Shame."] One has to be open and honest in the House. I have become more of an irregular Episcopalian in later years. Like many of my generation, I was introduced to the demon drink through the accepted convention in Scotland at that time—sipping lager and lime.

That mixed drink was commonly how young, inexperienced drinkers came to grips, for better or for worse, with the initially harsh taste of alcohol on the younger, more innocent palate. Alcohol was made much more acceptable by the use of a sweetener, and a dash of lime cost one old penny. Times have moved on, however, and the market has become more sophisticated. Young people today have much more money than the youngsters of my generation could ever have dreamed of.

Rob Marris (Labour, Wolverhampton South West)

Because of the Labour Government.

Iain Luke (Labour, Dundee East)

Yes. More young people, often at an early age, are encouraged to take a drink whose true strength is often masked by sweetness, which is the basis of alcopops or coolers. Such drinks can have an impact on a younger person's health owing to greater intake prompted by sweetness and accessibility, and that can cause serious damage in later life.

The habit is strengthened through the fashionable image given to such drinks by high-profile marketing campaigns undertaken by the producers of the commodity who are promoting opposition to the tax change. Again, that marketing is aimed solely at the young and the partying life that they are so desperate to enjoy as an introduction to adulthood.

Life for the young, if it is anything, is an experience to be enjoyed to the full, with little thought for the consequences of their lifestyle. Ageing can be a difficult process, but it can also be educative. The hon. Member for Christchurch entertained us in Committee by revealing the drinking habits of members of the Christchurch Conservative club, where, he said,

"every hour is a happy hour".—[Official Report, Standing Committee F, 14 May 2002; c. 33.]

It seems, however, that in that club the ageing and educative process I have described stands still.

It also emerged from our Committee debate on clause 3 that the favourite alcopop—or cooler, as it is described in the Christchurch Conservative club—is a drink called WKD.

John Bercow (Conservative, Buckingham)

I feel duty bound to defend the honour and integrity of the upstanding—even after their consumption of alcohol—members of the Christchurch Conservative club. Will the hon. Gentleman confirm that he is not suggesting that my hon. Friend the Member for Christchurch (Mr. Chope) secured the result he secured because of the inactivity of those members, who were busily engaged in another pursuit, and that he recognises that they were celebrating the success of their efforts to increase his majority?

Iain Luke (Labour, Dundee East)

That was an entertaining intervention. The formula succeeded in Christchurch, and may indeed be adopted by other Conservative clubs to ensure success at the next general election.

In Committee my right hon. Friend the Chief Secretary was quick—perhaps too quick—to let us know that another name for WKD was Wicked. As that libation is based on a mixture of vodka and Irn Bru, the more the Christchurch Conservative club consume it, the more the people of Scotland—where Irn Bru originates—will celebrate. Given the state of the Conservative party nationally, other Conservative clubs may seek to emulate the Christchurch club's intake of WKD. Irn Bru, which purports to be made of girders, could go a long way towards stiffening the Conservatives' performance at the next general election.

The more serious comments I made in Committee still stand, despite the changes contained in the explanatory notes and mentioned in letters from Ministers. Whatever the price increases involved, such are the sales of coolers—promoted through the "happy hours" more commonly found in student union and trend-setting bars than in the Christchurch Conservative club—and the heavy discounts to encourage overall sales and increase bar takings, that those changes will have no significant impact on jobs in the company that produces them. The Opposition's main argument against the tax increase was that jobs would be lost.

Those who take time to study local off-sales will find that nine times out of 10 there is a cut-price offer on drinks of this kind. Marketing techniques and fashionable images aimed at the young have led them to start drinking, which often—although not always—results in a catalogue of disorderly acts, especially among young females. Drinkers in that particular group have also fallen prey to a range of well-documented drink problems in later life, which may lead to criminal activity and health problems.

It is outrageous of the Conservative party to support an amendment of this kind. The proposal should be seen for what it is. It is not accepted by the vast majority of the population, I think it deserves little sympathy in the House, and I am sure that it will find little sympathy among my many constituents. I urge my hon. Friends to vote against it.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

It is tempting to follow the speech of the hon. Member for Dundee, East (Mr. Luke) with accounts of my own revelries as a youngster, or of revelries I have observed in various political clubs across the country. I am sorry not to share my memories of those enjoyable events, but I want to take up some of the serious points that the hon. Gentleman made so well.

It is true that there is a problem of binge drinking. It is true that many youngsters have a bit more money in their pockets than they had a few years ago, and—partly owing to advertising campaigns—are choosing to spend it on alcohol. I think, however, that alcohol problems extend across the age spectrum. Having spoken to magistrates and police in my area, I understand that alcohol is the drug behind most offences, especially violent offences, both in the home and on the streets. I am sure that the same applies in all constituencies, and I am sure that members of all parties accept that it is a problem.

What we must decide now is how to tax alcohol in general. There are many types of alcohol, as our debates have revealed. I did not know that this "Wicked" drink existed, and I certainly did not know that it contained girders or Irn Bru. I now know that there is a huge variety of alcoholic drinks that people can purchase.

Parliament, the Government and Customs and Excise really must develop an overall approach to alcohol taxation. I see no consistency or coherence in the present policy. Should there be changes in the retail price? The Government initially said that that was behind the strategy. Should the tax be based on alcohol content, on competition between different products, or on the impact of smuggling or cross-border shopping? There are a number of possibilities.

The decision on which drinks should be taxed most heavily might indeed be based on health findings, as the hon. Member for Dundee, East suggested, but the Government have produced no such rationale. They have made no clear statement since their election in 1997. They have not said "Here we have a number of alcoholic products, which are varied and which are changing. Here is our overall strategy for taxing alcohol." Theirs has been a piecemeal, reactive approach, driven more by revenue-raising considerations than by anything connected with such matters as health.

I accept that the hon. Member for Dundee, East has good intentions, but I think it unfair to castigate the hon. Member for Christchurch (Mr. Chope) or, indeed, to describe other Conservatives who oppose the present position as "outrageous". We share the hon. Gentleman's concerns, but we are trying to probe the Government. We are asking for consistency and coherence in an important policy area.

I shall not repeat points made by the hon. Member for Christchurch, which appeared in briefings I received from the industry and which the hon. Gentleman made very well. Let me, however, refer to an example on which he touched but did not dwell. Changes such as this have an impact on the market. The associations are worried because they fear that people may switch from coolers to wine-based drinks. As a result of a ministerial decision, Customs and Excise is having to grapple with the business of labelling and categorising, and with trading standards in the regulations, when dealing with different types of drink. When the market was taxed uniformly, some of those problems did not arise. Now Customs officers must—as the hon. Member for Christchurch pointed out—deal with such matters as the difference between spirituous drink and made wine. Even from the briefings that I have received, I know that the issue is incredibly complicated. It is not yet clear what form the regulations will take. They are still under discussion because the matter is so complicated.

When such a tax change is made, with all its implications for the market, one has to question its root cause. The Government have not given us a good reason for this change. I am not suggesting that it is easy to achieve consistency in this area, but I am pushing the Government for it, because if we do not get it we will have little changes every year that will affect relative prices, market shares and investment decisions.

We want to avoid such uncertainty. If we want a thriving drinks industry, which I am sure the hon. Member for Dundee, East wants, despite his reservations about some of the outcomes, we have to allow it to plan and invest and take strategic decisions. Unless there is a long-term strategy on the taxation of alcohol, problems will arise. We are worried because the Government have not shown that. That is why it is right for us to probe them further on the matter today.

John Healey (Labour, Wentworth)

This has been a useful short debate, although it reopens discussion on a matter that was extensively dealt with in Committee. The amendment is designed to achieve the same result as Opposition Members wanted then: to allow spirit-based coolers—or alcopops, or FABs, as the hon. Member for Christchurch (Mr. Chope) called them—to retain the concessionary duty treatment that they have enjoyed since 1988 and to continue to be treated in the same way as low-alcohol wines.

It is clear that the pretext for reopening the argument is the fact that since we debated the clause in Committee, the Office for National Statistics has uncovered a mathematical error in the data that it supplied to Customs before the Budget, concerning increases in the retail price of coolers between 1999 and 2001. I was disappointed by what the hon. Member for Kingston and Surbiton (Mr. Davey) said. He is normally rational and moderate, but to describe the Government as being "found out" on this, when it was a genuine technical error, is a gross overstatement.

I wrote to all Committee members and made a statement to them concerning the error. I do not propose to trawl over all the details again here, other than to remind Opposition Members that the most important thing that I said in my letter and my statement—it could have saved us all a lot of time this afternoon if they had taken greater note of it—was quoted only partially by the hon. Member for Christchurch. My letter said:

"I want to assure you that—while regrettable—this error does not affect our rationale for this change or its estimated impact. The fact remains that—over a period when consumption of coolers was rising rapidly—their retail price was also rising well above inflation. This suggests that the Budget duty increase will have little impact on demand for coolers, but will ensure that they are taxed at a fair rate rather than retaining their previous concessionary duty treatment."

For the benefit of Opposition Members, let me explain as simply and clearly as I can why the mathematical error makes no difference whatever to the rationale for the measure proposed in the Bill. Contrary to the assertion of the hon. Member for Christchurch, its justification does not rest on data that have proved to be incorrect.

Whether the increase is 20p or 60p, the fact remains that, over a period when the consumption of coolers was doubling, the retail price was rising at a rate well above inflation. That suggests to us, and to independent market analysts, that demand for coolers is very inelastic. That suggests, in turn, that we can remove the concessionary treatment of coolers without damaging the growth of the sector. That was one of the key issues that we stressed in Committee.

Christopher Chope (Conservative, Christchurch)

The Minister says that it makes no difference whether the increase is 20p or 60p. How, then, does he explain what the Financial Secretary—now Chief Secretary—said in Committee, at column 47, where he informed us that one of the key issues for consideration was whether it was 60p or 20p? He rejected our arguments for 20p and said that it would definitely be 60p.

John Healey (Labour, Wentworth)

The hon. Gentleman intervened too soon and did not hear out the rest of my argument. One of the key issues, as my right hon. Friend indeed said in Committee, was whether the proposed increase in the duty rate would damage the growth of the sector. The evidence demonstrates, regardless of whether the rise is 20p or 60p, that consumption rose at the same time as prices were rising well above the rate of inflation. The sector can withstand this duty increase, and it is appropriate to make such provision.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

Is the Minister now saying that the Government's taxation of alcohol is driven by an underlying rationale of price elasticities and that, where the price is deemed to be most inelastic, they believe that they can get away with shoving up the tax? Is the rationale that they will charge what they can get away with?

John Healey (Labour, Wentworth)

No, it is not the underlying rationale, but it is one of the factors that we take into account when considering duty changes.

John Bercow (Conservative, Buckingham)

I have to say to the Minister, who is as honest and upright a fellow as a member of this Labour Government can be, that no one believes a word of it. Everyone believes that Governments tax as much as they can get away with at any particular time.

On a lighter note, whatever the implications of the tax regime for the elasticity of demand for coolers, there is likely to be some increase in the demand for them this afternoon, in the light of the splendid news that Tim Henman has won his match.

John Healey (Labour, Wentworth)

I do not know whether Mr. Henman will celebrate by consuming alcopops this evening, but I am sure that the whole House will welcome his victory.

The hon. Member for Kingston and Surbiton pressed me on the narrow point concerning the first part of the justification and rationale for the duty increase, which is, as I stress again, that in our judgment removing the concessionary treatment, whether the price increase is 20p or 60p, can be done without damaging the growth of the sector.

Secondly, whether the increase is 20p or 60p, the fact that coolers remain the fastest growing sector in the drinks market, and now rank alongside cider as the fourth largest sector, renders obsolete the original rationale for granting them the concessionary status alongside other obscure niche products.

Thirdly, it seems unfair that a vodka and orange mixed at the bar should be taxed differently from a vodka and orange drink pre-mixed in the bottle. It seems especially unfair that such a bottled drink should bear a lower rate of tax as a proportion of its average price than any other alcoholic drink.

Whether the increase was 20p or 60p made no difference to our deliberations on whether it was right to retain concessionary treatment for a drink with links to binge drinking among young people, about which the chief medical officer has raised specific concerns. In a thoughtful speech, my hon. Friend the Member for Dundee, East (Mr. Luke) echoed those concerns in respect of his constituency, as did the hon. Member for Kingston and Surbiton in a moderate, measured and rational contribution.

I genuinely hope that, based on my explanation, Opposition Members can see why the 20p-60p issue does not affect our decision that the concessionary treatment for coolers can no longer be justified, and does not warrant reopening the debate. Having said that, I am glad that this debate has enabled me to alert Opposition Members to what industry experts themselves have said about the strength of the coolers market—just as my right hon. Friend the Chief Secretary to the Treasury did in Committee when he was responsible for this clause. On 1 June, a full 18 days after our debate in Committee, Drinks International said:

"New figures reflect the relentless march of pre-mixes in the UK on-trade. Of the top 5 premium packaged drinks . . . in value terms, 3 are spirits-based mixes."

On 31 May, Off Licence News said that suppliers of "Flavoured alcoholic beverages"—one of the many alternative names for coolers—

"are looking forward to a buoyant summer, despite duty on spirits mixers being raised recently. The sector was worth £1.4bn in 2001. This year it is estimated that the category will be worth £1.6bn."

Although I shall not stray into mentioning individual brands, I am aware that one leading cooler manufacturer has recently forecast turnover for 2002 of £50 million—a full two hundred and fiftyfold growth in just four years.

I conclude by assuring all hon. Members that although we regret reproducing the erroneous 60p figure—which I have been happy to correct on becoming aware of it—its revision makes not one bit of difference to the rationale for the change or its estimated impact. This measure supports the steps that we have consistently taken to deliver a fairer burden of taxation on different alcoholic drinks and different producers. These drinks are spirits, they are marketed as spirits and they should be taxed as spirits. Any justification that may once have existed for affording them concessionary status no longer applies. They are well established in the marketplace and they can pay their fair share of duty—at a rate that properly reflects the nature of the alcohol that they contain. Doing so will not damage the future growth of their sector. On that basis, if the amendment is pressed to a vote, I urge the House to reject it.

Christopher Chope (Conservative, Christchurch)

We are not convinced. The Government argued that there was significance in the 60p retail price increase—and if they did not think that, why did they include it in the explanatory notes to clause 3? Why did it feature in Budget day press releases, and why did it feature so prominently in the arguments deployed in Committee by the then Financial Secretary? Only one month after being pressed on the matter, the Government admitted that the figures on which their argument was based were incorrect. They should therefore go back to the drawing board and discuss with the industry the introduction of a rational and consistent taxation regime that fits with other alcoholic beverage duties. It appears that this type of beverage is being discriminated against badly, compared with some of the more potent lagers and ciders. That is a significant factor.

The hon. Member for Dundee, East (Mr. Luke) made an entertaining speech and tried to draw me back into our debate in Committee on Christchurch Conservative club. The relevant extracts from Hansard have done wonders for the reputation of the club's secretary. The hon. Gentleman made some serious allegations about the use of flavourings in such beverages to appeal to the underage market, but that practice was put to an end by the Portman Group, which worked closely with the Government. In Committee, Ministers and the then Financial Secretary accepted that, thanks to the work of the Portman Group and other responsible people in the industry, hooches are no longer on the market. The hon. Gentleman's arguments may have been relevant at one time, but they are certainly out of date now. We are talking about a growing, successful and responsible part of the drinks industry, and it is a great pity that the Government have chosen to discriminate against it in this way.

Clause 5 — Biodiesel

John Healey (Labour, Wentworth)

I beg to move amendment No. 38, in page 5, line 10, leave out—

'the date on which this Act is passed'

and insert—

'such date as the Commissioners of Customs and Excise may by order made by statutory instrument appoint'.

Sylvia Heal (Deputy Speaker, Halesowen and Rowley Regis)

With this it will be convenient to discuss Government amendments Nos. 39 to 41.

John Healey (Labour, Wentworth)

Part of the Budget 2001 package that my right hon. Friend the Chancellor introduced to develop the green fuel strategy was the decision to introduce a 20p per litre duty incentive for biodiesel in the Budget 2002. The Government decided to delay implementation until this year because we recognised that we would need a derogation of the EU mineral oils directive before the new rate could be introduced.

Over the past year, we have worked to secure that derogation. Hon. Members will know that the process can be difficult and protracted, but we now expect to receive all necessary European clearance before Royal Assent, when the new rate of duty will come into force. The derogation received final approval from the EU Agriculture Council on 25 June, and is now in place. The new duty rate, therefore, awaits only clearance by the Commission as an allowable state aid. The Government expect that clearance in the next two weeks.

However, if for any reason Royal Assent were to occur before we have been given state-aid clearance from the Commission, the UK technically would be in breach of the treaty of Rome. The amendments are simply a sensible precaution against breaching treaty obligations, although we expect to get the required clearance before the date on which Royal Assent is granted.

John Bercow (Conservative, Buckingham)

I think that the Economic Secretary has finished his speech on these amendments, so I shall ask a question to which I think hon. Members and people outside will be anxious to know the answer.

There is an implication that the Economic Secretary might be mistaken about when clearance might be received. That is not very likely: he seemed confident that the required dates will be met, but he admitted to the possibility that they may not. That is why the Government feel it necessary to protect themselves against a possible breach of the treaty. Will the hon. Gentleman describe the revenue implications if the date that he envisages is met, and also if there is a delay?

John Healey (Labour, Wentworth)

We do not expect any Revenue implications. Should we not get final clearance from the Commission before the date of Royal Assent—we do not expect those circumstances—immediately we get that clearance, Customs Commissioners can sign into force this provision, and they will do so without delay.

Simon Thomas (Plaid Cymru, Ceredigion)

The speeches are so short I do not know whether they are interventions or speeches. Mine is a very short speech. I simply want to ask the Minister a question. I welcome what the Minister is doing—it is important to get that across. He obviously needs to make arrangements to be sure of compliance within Europe. Can he say something about the new biofuels that are being discussed at European level? Will that impact on the Government's planning? Will it be permissible for the Government to reduce the rate still further in future or, having agreed to this derogation—which we hope will be passed—does this now tie the Government's hands as regards any further reduction and support for biofuels in future Budgets?

John Healey (Labour, Wentworth)

No, this does not tie the Government's hands. Any decisions that flow from this will be for the Chancellor of the Exchequer. I will stop now because I am in danger of straying well beyond the terms of a narrow technical amendment designed as a belt-and- braces job to make sure that the Government do not fall foul of the treaty of Rome.

Amendment agreed to.

Amendments made: No. 39, in page 5, line 17, leave out—

'on which this Act is passed'

and insert "appointed under subsection (6)(a)".

No. 40, in page 5, line 26, leave out—

'that on which this Act is passed'

and insert—

'the date appointed under subsection (6)(a)'.

No. 41, in page 5, line 28, leave out—

'day on which this Act is passed'

and insert—

'date appointed under subsection (6)(a)'.—[John Healey.]

Clause 19 — Vehicle Excise Duty

John Bercow (Conservative, Buckingham)

I beg to move amendment No. 25, in page 13, leave out lines 41 and 42.

Sylvia Heal (Deputy Speaker, Halesowen and Rowley Regis)

With this it will be convenient to discuss the following amendments: No. 26, in schedule 5, page 135, leave out from beginning of line 38 to end of line 2 on page 136.

No. 27, in page 136, line 4, leave out from "vehicle" to end of line 6.

No. 28, in page 136, line 8, leave out "or (1A)(a)".

No. 29, in page 136, line 14, leave out "or (1A)(b)".

No. 30, in page 136, line 20, leave out "or (1A)(b)".

No. 31, in page 136, line 25, leave out "or (1A)(a)".

No. 32, in page 136, line 28, leave out "or (1A)(b)".

No. 33, in page 136, line 31, leave out "or (1A)(a)".

No. 34, in page 136, line 35, leave out "or (1A)(a)".

John Bercow (Conservative, Buckingham)

I am in the mood for brevity, Madam Deputy Speaker, as you have become aware over the past 24 hours. Other right hon. and hon. Members may wish to contribute to the debate. I should like to remind the Economic Secretary of the interest taken in this subject in Committee by my hon. Friends the Members for Christchurch (Mr. Chope) and for Arundel and South Downs (Mr. Flight). That interest was reflected in speeches from other political parties.

Our concern all along has been about the ambiguity, if not impenetrability, of clause 19 in its unamended form and of schedule 5. Specifically, we wish to see in the Bill, as my hon. Friends previously indicated, a declaration of a nil rate vehicle excise duty for vehicles that are neither used nor kept on the public highway. We do not dispute the need to charge back VED on things that may have been vehicles if, and only if, it can be proved that they were used or kept unlicensed at one time on a public road. The terms "unregistered" and "unlicensed" could be used to clarify what the Government are aiming at. Unless there is a specific declaration in terms in the Bill that people who are manifestly innocent cannot end up copping it simply because there is no one else able to foot the bill, the concern of reputable organisations will persist that there could be unintended consequences and financial penalty resulting from the way in which, no doubt inadvertently, the clause is drafted.

I am also aware, as no doubt other hon. Members are, that the Government have provided themselves with their old and favourite facility: the statutory instrument. If memory serves me correctly, they are in a position to proceed on this matter through their preferred route, the negative—as distinct from the affirmative—resolution procedure. While on the subject of ambiguity and impenetrability, I am conscious of a certain irony and I owe it to the House and, more important perhaps, to people outside the House, to underline the significance of the difference between the two.

If there is an affirmative resolution procedure and the regulations, which in due course are forthcoming, are subject to debate on the Floor of the House, however inadequate and truncated that debate might be, we shall at least have the opportunity to see whether the spirit to which we think the Government during the Committee and Report stages have committed themselves, is reflected in the terms of the regulations. If, however, we are to be fobbed off—I hesitate to use that term in relation to the Economic Secretary, because he is a decent cove—with the negative resolution procedure, there will not be another opportunity to debate this matter and we have to take the Government purely at their word—the Government purely at their word in terms of what they say and of their capacity to ensure the equity as well as the intelligibility of the regulations.

Once again I therefore ask the Minister whether he recognises that there is a case for ensuring that only people who are guilty will face a charge and that those who have not possessed a vehicle for a long time and are thus in no sense liable for its current whereabouts will be faced with a VED charge back. That is what we want to know. It seems a reasonable request. It is not necessary to go to the wall on it, but I am not persuaded that my hon. Friends' efforts have met with the fair result that they wanted and that the Automobile Association and other organisations have a right to expect.

John Healey (Labour, Wentworth)

The amendments would stop the registered keepers of vehicles which ceased to be mechanically propelled from being liable for their vehicle. That would not help to tackle the abandoned vehicles problem, but it would undermine the integrity of the vehicle database that we are seeking to reinforce, and the whole thrust of our policy that those who abandon their cars are more easily called to account and made to pay would be undermined.

The purpose of clause 19 and schedule 5 is to reduce the number of abandoned cars and to deal with VED evasion by improving the quality and integrity of the vehicle records that we keep through ensuring that the registered keepers retain liability for their vehicles until they notify the DVLA of a change in circumstances. Were the amendments successful, the registered keeper could abandon their vehicle and avoid their fiscal responsibilities for the vehicle simply by disabling it. That would not help us tackle the problem of abandoned vehicles but would undermine the thrust of our policy.

The hon. Gentleman was concerned, as he said in rather colourful language, about innocent people "copping it". The schedule already contains clear exemptions from the new offence of being the keeper of an unlicensed vehicle. These include circumstances in which the vehicle has been stolen, the DVLA has been notified of its disposal or that it has been scrapped, and the vehicle has been taken off the road and a statutory off-road notification has been made.

The schedule also allows for new exemptions to be made through secondary legislation if necessary. The hon. Gentleman might see this as a strength, rather than a weakness. It could be the outcome of the discussions and consultations that the Government are conducting with stakeholders, including the AA, on the best way to implement the provisions.

Let me again give the assurance that clause 19 and schedule 5 will not affect the current exemptions for pre-1973 vehicles and that the current system of statutory off-road notification will remain in place. On that basis, I ask the hon. Gentleman to withdraw the amendment.

John Bercow (Conservative, Buckingham)

I fear that the Minister has said his final word on the matter. I do not dispute the fact that the regulations could provide an opportunity to give reassurance to the AA, the DVLA and other organisations that may not be convinced that the clause is as fair, or will prove to be as judicious, as Ministers suppose.

The Minister and the Paymaster General will be aware of my deep attachment to the affirmative procedure. I am very suspicious of the negative procedure. It is always supremely ineffective for Ministers to say, "Ah, but it happened when your lot were in power." I always reply, "I wasn't here, I didn't know, I'm not responsible, I couldn't care less, I won't be held to account. I will deal with that for which we are responsible now, rather than that which was ostensibly done in our name at some time in the past when I was busily completing my A-level studies." If there were to be a proper debate on the Floor of the House at a later date, we would have the chance to put to the test what the Minister is inviting us to accept on trust.

I know that hon. Members will want to move on to consideration of the amendments relating to controlled foreign companies and a number of other important matters, so, in my usual genteel and understated fashion, I will accept the Minister's assurances and not press the matter any further. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 89 — Controlled foreign companies: territorial exclusions from s.748 exemptions

Sylvia Heal (Deputy Speaker, Halesowen and Rowley Regis)

We now come to amendment No. 3.

John Bercow (Conservative, Buckingham)

Well, this is a first. One never knows what will happen on these occasions; my hon. Friend the Member for Arundel and South Downs (Mr. Flight)—

Dawn Primarolo (Labour, Bristol South)

I wonder whether it might help the hon. Member for Buckingham (Mr. Bercow) if he moved the amendment and I responded to it. If he feels that I have not quite covered everything that he wanted me to cover, he can then make his substantive points.

John Bercow (Conservative, Buckingham)

I beg to move amendment No. 3, in page 64, line 16, at end insert—

'and ceases to have effect in relation to accounting periods of controlled foreign companies beginning on or after the earlier of:

(a) the third anniversary of the day on which this Act is passed; and

(b) the expiry of any twelve month period during which no statutory instrument is approved under section 748A(5) of the Taxes Act 1988 (territorial exclusions from exemption under section 748).'.

The Paymaster General made an extraordinarily helpful suggestion. As she knows, it is just that I do not want to subject the House to my tones for too long. I am thirsting to hear her mellifluous tones, and I know that hon. Members will prefer hers to mine.

Dawn Primarolo (Labour, Bristol South)

Clause 89 provides for a reserve power to make regulations specifying overseas jurisdictions in which all controlled foreign companies would automatically fall within the charge to tax made by the controlled foreign company rules. The aim of the measure is to protect the United Kingdom against harmful tax practices where they continue to be prevalent. It reflects the Government's determination to promote fair tax competition and to take effective action where jurisdictions do not remove the harmful features of their tax regimes. It would not be used where appropriate action is being taken by jurisdictions to remove harmful tax practices.

The amendment accepts clause 89, but seeks to insert a sunset clause to limit the life span of the reserve power to the earlier of either three years from the date on which the Finance Bill receives Royal Assent or the expiry of 12 months during which no statutory instrument specifying a jurisdiction has been made. I know that the hon. Member for Buckingham is, as he said, very attached to the affirmative resolution procedure. The reserve power ensures that the Government would have to bring before the House regulations making it clear why a jurisdiction had been designated, and no jurisdiction could be designated unless and until the House voted through regulations to that effect.

The clause was introduced for a specific and highly focused purpose, and we hope never to use it. But we should signal that we are serious about our desire to protect the United Kingdom's interests in the long term and to be in a position to provide that protection should harmful tax practices be introduced in the future or continued in some way. If the amendment were to be accepted, and the clause lapsed, we would have to consider reintroducing such provisions in Parliament, taking up valuable parliamentary time to have exactly the same debate.

In 1985, the Conservative Government took the same reserve power, which could have been used against the United States in respect of unitary taxation. It did not contain a sunset clause. The hon. Gentleman takes the view that he bears no responsibility for what happened in the name of his party before he entered the House. I hate to have to point out to him gently that there is such a thing as responsibility in politics, which is not only about discharging one's obligations but about understanding that one has to account for decisions taken in our collective names. We entirely supported the reserve power taken in 1985. The Conservatives never sought to remove the provision and, although it has not been used, it remains on the statute book as section 812 of the Income and Corporation Taxes Act 1988.

Clause 89 provides for the Government to defend the UK's best interests in exceptional circumstances. I could not agree to recommend to the House that we limit the time period over which the power could be used without seriously undermining the Government's ability to defend our tax base. I therefore ask the hon. Gentleman to reconsider the matter. If he presses the amendment to a vote, I shall have to ask my hon. Friends to oppose it on the basis that unfortunately, in this instance, his party is not acting in the best interests of UK taxpayers.

John Bercow (Conservative, Buckingham)

The Paymaster General did her best to reassure us, but, as she knows, I am not easily reassured. As things stand, the Treasury has far-reaching powers in these matters, and we are not convinced that those powers are desirable or will be needed. We are concerned about the Government's intentions towards several Crown dependencies.

The thrust of our proposed sunset clause is sound. If it turns out that the Government do not need these provisions, they should not rue the passage of the sunset clause because all it says is that these provisions will expire after

"the third anniversary of the day on which this Act is passed"

or

"the expiry of any twelve month period during which no statutory instrument is approved"

under these provisions.

If the Government have had no reason to use these provisions, it is not clear why they should object to the sunset clause. However, if the Government use these provisions, they ought to be prepared to go through the minor and trifling inconvenience of returning to Parliament to renew them on the statute book, given that it is a matter of legitimate contention whether they will need these provisions.

I was a little disappointed, particularly as the Paymaster General is rather a keen parliamentary advocate, to hear her talk about valuable parliamentary time being taken up. This is an extremely important matter. If the Government used these provisions, they would have far-reaching implications for the people and companies affected. In those circumstances, it is not unreasonable to assume that the Government would be willing to tell Parliament that, because these important provisions have expired, they need legislatively to renew them.

Moreover, there is some form on this subject, as the Paymaster General will know. She chided me because the Conservative party did not propose a sunset clause when we were last in government. The answer is that we subsequently recognised that it would be wise to introduce all sorts of things that we did not do then. The theme of sunset clauses was taken up enthusiastically by a number of my hon. Friends and myself during the previous Parliament.

Rob Marris (Labour, Wolverhampton South West)

Apart from sunset clauses, would the hon. Gentleman care to give some other examples of things that were not done that he now thinks should have been done?

John Bercow (Conservative, Buckingham)

The hon. Gentleman tempts me down a path that is not altogether virtuous and that I doubt will prove to be in my interest, but on the basis that I cannot be accused of saying something new—I merely repeat what I have said before—I shall tell him that I prefer to put it the other way round: we have done things that I should have preferred we had not done and to which I never signed up. We passed a silly treaty at Maastricht. I was opposed to it then, and I am opposed to it now. I hope that we would not pass it again.

I shall be tempted no further down an unvirtuous path, the prospect of which the hon. Gentleman has dangled before me. However, I would tell him that a decent debate on sunset clauses has taken place. Sadly, he did not contribute to that debate because he was not a Member of Parliament at the time. I highlighted the significance and potential of sunset clauses with reference to the experience of our friends in the United States of America when, on 27 April 1999, I introduced a ten-minute Bill that related to this subject, among others.

I was mortified that the Government did not accept my Bill. I thought that they would provide time for it. I rue the fact that it never became law, but I note that some significance and value were attached to my proposal on sunset clauses because the then Secretary of State for Trade and Industry, the right hon. Member for Tyneside, North (Mr. Byers), subsequently included a sunset clause in the Electronic Communications Act 2000.

The then Secretary of State was very proud of the inclusion of that sunset clause. He drew attention to it during our exchanges on Second Reading and said he thought that I ought to be satisfied, having highlighted the arguments for such clauses in my ten-minute Bill, that he had introduced such a clause. The trouble is that the Government have since lost enthusiasm. Their appetite has diminished. I am not aware that there have been further such clauses. If a sunset clause was good for that Act, there is at least an argument for the Government to consider such a clause in relation to the Bill.

However, there are other matters to discuss. My hon. Friend the Member for Arundel and South Downs (Mr. Flight) is now in the Chamber. He has a wealth of expertise on this subject; he may be tempted to share just a portion of it and therefore I shall now, blessedly, conclude my remarks.

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

Does the hon. Gentleman wish to withdraw the amendment?

John Bercow (Conservative, Buckingham)

I withdraw. No, I wish to press the amendment to a Division. I am sorry, Mr. Deputy Speaker. For the avoidance of doubt, I was tempted to withdraw the amendment because I thought that you were accusing me of a parliamentary infelicity. My hon. Friends and I wish to press this matter to a vote. That is why I have been banging on about it for the past 10 minutes.

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

I think that the hon. Gentleman has now made his intentions quite clear.

Clause 91 — Supplementary charge in respect of ring fence trades

Clause 98 — Gift aid: election to be treated as if gift made in previous year

Howard Flight (Conservative, Arundel and South Downs)

I beg to move amendment No. 4, in page 75, leave out from beginning of line 39 to end of line 6 on page 76 and insert—

'or a series of qualifying donations made by him in one or more of the previous three years of assessment (a year in respect of which an election is made being an "elected year" for the purposes of this section).

(2) Any such election may be made by notice in writing to an officer of the Inland Revenue before or at the time that the donor delivers the return required under section 8 of the Taxes Management Act 1970 (c. 9) (personal return) for the year in which the gift is actually made.

(3) An election may be made in respect of an elected year only to the extent that the grossed–up amount of any gift or part-gift would, if made in that elected year, be payable out of profits or gains brought into charge to income tax or capital gains tax for that elected year. Where an election is made to treat a single gift as if it had been a series of qualifying donations made in one or more years, the sum of such qualifying donations may not exceed the amount of the actual gift.

(4) On receipt of an election under this section, the Board of Inland Revenue shall make such payments and adjustments as appear necessary to them to leave the donor in the position he would have been in had he made the relevant gift or part–gift in the relevant elected year and the provisions of section 25(6) to (9A) of the Finance Act 1990 had then taken effect.'.

We have previously welcomed the Government's initiative to follow United States law and practice in terms of introducing incentives for the gifting of substantial assets. As hon. Members will be aware, when the first package was introduced, it was confined to listed securities. We then argued that it should be extended to land, unlisted securities and works of art, all of which qualify for gift-aid relief in the US. The package now includes land, but not the other two assets. At this rate, unlisted shares and works of art may be covered next year and the year after that.

In the case of land and unlisted securities, a wealthy potential donor may often be rich in assets but not particularly rich in income terms. As the incentives currently stand, they will not work particularly well and—dare I say it—there might be an element of intent that they should not. I hope that that is not so.

There are lessons to be learned from the United States, so our simple proposal is that those gifting substantial assets but who do not have the income in the year of gifting sufficient to qualify for the relief should be able to cast back three years or obtain relief against income in the previous three years. That would change the provisions in the Bill, which allow only a single year's carry-back, to make it easier to fit into the self-assessment regime. The amendment would allow an individual to go back three years by making a claim at the time that they submit their tax returns for the year of the gift and to split large gifts between years, through an adjustment outside the self-assessment return.

The Minister may tell me that the amendment needs further technical improvement—I hope not—but we want an acknowledgement from the Government of the need for a bigger carry-back than one year if the gift aid scheme is to be really effective. That is particularly so with the gift of land and buildings, because in those cases the owners are more likely to be asset-rich but income not-so-rich.

Our objective is to make the welcome reform of gift aid relief work. The bigger the voluntary sector the better, and we want to encourage people to give to universities and schools to build up the voluntary sector which so often does things for better value and more efficiently than the public sector. That is the motivation behind the amendment.

Chris Grayling (Conservative, Epsom and Ewell)

I rise to speak briefly in support of amendment No. 4. Through gift aid, successive Governments have made a significant contribution to an important part of our society—the voluntary sector. As my hon. Friend the Member for Arundel and South Downs (Mr. Flight) said, the voluntary sector makes a significant difference across our society in a variety of ways.

The amendment highlights the role played by more substantial gifts and endowments. In the US, major institutions, foundations and charities benefit from substantial donations from wealthy individuals who have often built their wealth in the form of assets, rather than in ready and available cash. Many people in this country— I know of some in my constituency—have the resources to be major contributors to the voluntary sector. I hope that our society will become more like the American model, with people more inclined to make substantial donations to support our major institutions or to enable significant charitable facilities to be established.

My hon. Friend has highlighted a potential extension of the gift aid provisions that would encourage substantial donors to take a major step towards enabling charitable and voluntary organisations to build substantial foundations for the work that they do. I hope that the Minister will accept the spirit of the amendment even if, as my hon. Friend suggested, it is not drafted in a way that he finds acceptable. I hope that the Government will recognise the potential that has been developed in the US and accept that it could make a significant difference in this country. If the Government cannot accept the amendment today, I hope that they will undertake to accept the principle in the future.

John Healey (Labour, Wentworth)

I welcome the welcome for the tax breaks that the Government have provided to boost gifts to charity, especially through the extension of gift aid. In many ways, the arguments that we have heard from the hon. Members for Arundel and South Downs (Mr. Flight) and for Epsom and Ewell (Chris Grayling) were a brief reprise of the discussions that we had in Committee, which turned on a concern for those who may be asset-rich, but income not-so-rich. Amendment No. 4, however, relates to gift aid, which applies only to cash. The arguments that both hon. Gentlemen voiced are not relevant to gift aid, which is not effective for gifts of assets.

I recognise the spirit in which the amendment has been tabled, but it would add considerable complexity to a system that we have introduced to benefit both charities and taxpayers. The existing measure in the Bill will act as a prompt and an incentive to higher rate taxpayers by making gift aid relief immediately available.

The amendment would give further time for electing to gift aid a donation by extending the time limit, but the link to the filing of the self-assessment return for the previous year is a key part of the Government's planned measure in offering the incentive of claiming relief early rather than waiting until completion of the return for the year in which the gift was made. Allowing further time for an election to be made would dilute the incentive to take a decision and make a donation.

The amendment would go further by allowing the donation to be deemed to have been made not only in the previous tax year but also in one or more of the three previous tax years. For a small number of donors that would be beneficial, perhaps because they were unable to claim higher rate relief in the previous year but had higher rate liability in an earlier year. However, in practice, for higher rate taxpayers it would mean that earlier years would have to be reopened and tax liabilities recalculated. Clearly, taking advantage of a gift aid scheme would no longer be a straightforward part of the completion of the self-assessment return, which is the purpose of the provision.

The current measure uses the self-assessment return to provide a straightforward mechanism for the donor to make the gift aid election and claim the relief without the need to complete any further claim forms. For the reasons I have given, I hope that the hon. Gentleman will withdraw amendment No. 4 and allow the House to report clause 98 as it stands.

Howard Flight (Conservative, Arundel and South Downs)

The Minister has responded negatively on the grounds that the amendment is defective. However, I had hoped to hear from him a response to the intention of the amendment. The intention was to ensure that if large donors to charities, whether by gifts of land, securities or cash, do not have sufficient income in the year of the gift to take advantage of the income tax offset, they should be able to cast back the value of the gift for up to three years and gain the full income tax incentive on the gift. I apologise for the imperfect wording of the amendment, but it is tricky territory.

The Government reject the amendment on technical grounds, because they want to limit the income tax incentive to the year in question. Our worry is that that would not encourage major gifts, especially of property, because the income tax write-off will not work.

I wanted the Minister to reply to the substance of my argument. Even if the amendment is defective, we will divide the House on it as a matter of principle. We want the tax incentives for gifting highly valuable assets to work as well in this country as they have worked in the United States.

Clause 99 — Films: restrictions of relief to films genuinely intended for theatrical release

Clause 114 — Contracts for the sale of an estate or interest in land chargeables as conveyances

New Schedule 1 — Stamp duty: contracts chargeable as conveyances: supplementary provisions — Subsales

Schedule 8 — Chargeable gains: exemptions in case of substantial shareholding

Schedule 28 — Derivative contracts: transitional provisions etc

Schedule 29 — Gains and losses of a company from intangible fixed assets

John Healey (Labour, Wentworth)

I beg to move amendment No. 14, in page 434, line 22, leave out sub-paragraph (4) and insert—

'(4) Sub-paragraph (1) has effect subject to—

(a) paragraph 126 (application of Schedule to fungible assets), and

(b) paragraph 126A (certain assets acquired on transfer of a business treated as existing assets).'.

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

With this it will be convenient to discuss Government amendments Nos. 15 to 18.

John Healey (Labour, Wentworth)

I shall be brief. Amendments Nos. 14, 15 and 18 are designed to correct a mismatch which has come to light between schedule 29 and the capital gains rules on company reconstructions. Amendments Nos. 16 and 17 deal with a problem in the drafting that was identified by the hon. Member for Arundel and South Downs (Mr. Flight) in Committee. The hon. Gentleman was assiduous throughout our proceedings in Committee, paying great attention to detail. I promised further consideration when he withdrew his amendments in Committee. Amendments Nos. 16 and 17 are the result of that further consideration. They will help to ensure that the major reform of corporation tax treatment of intangible assets will now work in a way that all those with an interest in these matters would wish.

Amendment agreed to.

Amendments made: No. 15, in page 437, line 28, at end insert—

126A (1) This paragraph applies where—

(a) an asset that is an existing asset in the hands of a company ("the transferor company") is transferred to another company ("the transferee company"), and

(b) the transfer is one in relation to which—

(i) section 139 of the Taxation of Chargeable Gains Act 1992 (reconstruction or amalgamation involving transfer of business), or

(ii) section 140A of that Act (transfer of UK trade to company resident in another member State),

applies with the effect that the transferor company is treated for the purposes of that Act as disposing of the asset for a consideration that secures that neither a gain nor a loss accrues to that company.

(2) Where this paragraph applies the asset shall be treated for the purposes of this Schedule as an existing asset in the hands of the transferee company.

(3) This paragraph does not apply where the transfer mentioned in sub-paragraph (1) occurred before 28th June 2002.'.

No. 16, in page 437, line 39, leave out sub-paragraph (3) and insert—

'(3) If the asset—

(a) was acquired before the beginning of the first accounting period to which this Schedule applies in relation to it, and

(b) is a chargeable intangible asset immediately after the beginning of that period,

it shall be treated for the purposes of Part 7 (roll-over relief on realisation and reinvestment) as if it had been a chargeable intangible asset at all material times between its acquisition and the beginning of that period.'.

No. 17, in page 438, line 16, leave out sub-paragraph (4) and insert—

'(4) If the asset—

(a) was acquired before the beginning of the first accounting period to which this Schedule applies in relation to it, and

(b) is a chargeable intangible asset immediately after the beginning of that period,

it shall be treated for the purposes of Part 7 (roll-over relief on realisation and reinvestment) as if it had been a chargeable intangible asset at all material times between its acquisition and the beginning of that period.'.

No. 18, in page 444, line 5, at end insert "(and see paragraph 126A)".—[Dawn Primarolo.]

Schedule 31 — Gains of insurance company from venture capital investment partnership

Schedule 37 — Aggregates levy amendments

Alex Salmond (Scottish National Party, Banff and Buchan)

I beg to move amendment No. 11, in page 478, line 29, at end insert—

'(3A) In subsection (3) at end insert—

"(g) it consists wholly of uncrushed aggregates to be used for harbour sea defence projects or coastal erosion protection.".'.

We were making such good progress too, but now we come to something slightly more controversial, and something significant to the economic life and environmental concerns of many coastal communities throughout the United Kingdom.

I have debated the issue several times with the Minister's predecessor in a number of different places, including Westminster Hall and a statutory instruments Committee. Given that that Minister was promoted to the Cabinet half way through these debates, it could only be that his promotion was based on his superb ability to deliver a very bad case in a really eloquent way. That is what delivered the right hon. Gentleman's promotion. I commend the present Minister, however, and perhaps he could deliver a much better case in an eloquent way. Who knows where he might end up if he were able to do that? A number of Members across the House would appreciate a reasonable concession on this important issue.

The amendment is specifically about exempting coastal protection defences from the imposition of the aggregates levy. We have had debates in other places at other stages of consideration on the aggregates levy as a whole, and I do not intend to repeat these arguments, except to say that there are aspects of the levy that should cause concern even for those who say that it was justified on environmental grounds.

For example, there is regional disparity in the impact of the levy. The levy is gathered on aggregates as produced. The Government announced that there was to be a fiscally neutral measure and proceeded to offer a small rebate on national insurance contributions. However, areas that have few people but many aggregates—for example, rural areas such as Scotland, Wales, much of Northern Ireland and much of the north of England—could end up paying a substantial proportion of the tax, whereas areas with large numbers of people will get a rebate in the form of national insurance contributions.

An example that I shall give concerns Peterhead Bay Authority. The impact of the aggregates tax on its proposed breakwater is an extra £1.2 million imposition. In return, it will receive a rebate of about £650 in national insurance contributions. I accept that that is an extreme example, but even when a tax is announced as neutral by the Treasury, it is as well for many people in many areas carefully to count their fingers to assess what the impact will be in practical terms.

I have a real concern. Unlike the oil tax, which, as we debated yesterday, was a surprise to many people, not least some Labour Members representing constituencies in the north-east of Scotland, the aggregates levy, to be fair to the Government, was announced several Finance Bills ago. It went through exhaustive consultation and debate with the industry. There is nothing wrong with a consultative process in terms of the levy, but basically the problem with the tax is that the Government, after that consultation, went for a sharp change in direction, which took in things such as coastal defences and the aggregates that are used for those defences. Originally the Government had intended them not to be taxed, but that was an unintended consequence very late on in the process of consultation.

The Government originally envisaged that aggregates used for coastal defences would be untaxed because by and large these are uncrushed, unprocessed and unmachined aggregates. The environmental impact of such aggregates is much less than the ones that have gone through an industrial process. The Government's intention in introducing the tax was to try to substitute reclaimed and recycled aggregates for machine-processed aggregates. In Peterhead Bay Authority's proposal, 99 per cent. of the aggregate to be used for a breakwater in my constituency is uncrushed, unprocessed aggregate from a quarry five miles away. There is no environmental saving whatsoever in taxing that aggregate, as large blocks of rock will be taken from one part of Buchan and moved five miles along the road to another.

There is no environmental gain from putting the finances of that breakwater in jeopardy, but there will be a substantial environmental and economic loss if it is not built. The bay authority, like many small harbour trusts and boards the length and breadth of the country, is responsible for sea defences, protection against the erosion of beaches and sea walls, and other aspects of coastal protection. If we are to believe Government forecasts, there is a genuine possibility that much of southern England may be under water, or at least under threat, within a hundred years or so. On balance, that is bad thing, although it is a close call.

Given those environmental problems, we can expect a greater call for coastal defences in the next generation. Many of the organisations with responsibility for defences are not multi-million-pound or billion-pound bodies—they are small trust ports or harbour authorities charged with the task of securing the defence of the coastline. In my constituency, Peterhead Bay Authority has been husbanding its resources for 10 years, and has saved up £10 million in revenue. It undertook an extensive consultation to produce the breakwater project, which will provide a calm harbour 365 days of the year—arguably the best deep-water port on the east coast of Scotland—and secure coastal defences. Late in the day, as an unintended consequence of the imposition of the aggregates levy, the authority was faced with an additional bill of £2 million, which has subsequently been reduced to about £1.2 million, but which still makes the economic viability of the project marginal.

To be fair to the Minister, whom I met this morning, and his predecessor, every Minister or Government spokesman to whom I have spoken is sympathetic to the project in my constituency, and I am sure that they would be sympathetic to ports and bay authorities contemplating similar harbour defences throughout the country. Everyone agrees that such projects are a good thing for the environment and the economy, so why are they being taxed under the aggregates levy? It has been argued that the objective of the levy is to secure more recycled aggregates. The technical specifications for the breakwater in my constituency make it impossible to use recycled aggregates. The authority has reduced the use of aggregates to the minimum needed to secure the calming of the harbour for which they have statutory responsibility.

It is invidious to tax a body that is trying to discharge its responsibilities for protecting the environment and providing an infrastructure to stimulate the economy in north-east Scotland. It would be wrong to make a similar imposition on other authorities which are trying to do comparable things. It is not as if there are not exemptions from the levy. In fact, there are a total of some 22 exemptions, including, for example, the sand for children's playground sandpits. Clay pigeons are exempt from the levy—good news for clay pigeon fanciers across the country.

Tom Harris (Labour, Glasgow Cathcart)

For real pigeons too.

Alex Salmond (Scottish National Party, Banff and Buchan)

I can hear roars of assent, and am sure that Labour Members lobbied hard, as I would have done, and now approve of the exemption of clay pigeons from that iniquitous tax.

Harbour walls, defences and breakwaters are as important as the pursuit of clay pigeon shooting which, naturally, we all support. I urge the Government to see whether they can find a way of not penalising such important work. Coastal communities are experiencing a range of pressures—those of us representing constituencies with fishing interests are only too well aware of pressures on the fishing industry. Projects undertaken by relatively small organisations to deal with the ever-increasing environmental threat from rising seas are expensive, so it is unfair to impose an additional burden on them, given that their work is for the public good. I urge the Minister, whose predecessor was sympathetic to the argument, but unable to deliver a solution without damaging the integrity of the tax, to use his ingenuity and fresh approach to see whether it is possible to avoid the huge imposition on harbour and bay authorities across the county that is an unintended consequence of the levy.

Robert Smith (Liberal Democrat, West Aberdeenshire and Kincardine)

I support the amendment and the arguments of the hon. Member for Banff and Buchan (Mr. Salmond). In particular, I support his point that there are unintended consequences from not thinking through the aggregate tax, as environmental costs will be recycled back into the community. When the environmental impact of quarrying was assessed, much was found to be local to the community in which the quarry is situated. However, the tax takes money away from that community and spends it across the whole country, well away from the quarry. In Peterhead, the fact that the aggregates will have to be transported five miles suggests that any recycling, even if up to specification, would hardly reduce journey times or environmental impact.

The Government would do well to accept amendment No. 11, which would maintain the status quo on coastal defences and allow them to find another way to close a worrying loophole, which stems from a lack of thought about the impact of the aggregate tax and the way in which it would work. I urge the House to support the amendment, but it would be even better if the Government came up with a constructive proposal that would render it superfluous by making it possible to get coastal defences built without an unnecessary tax burden.

Alan Reid (Liberal Democrat, Argyll and Bute)

I, too, support the amendment tabled by the hon. Member for Banff and Buchan (Mr. Salmond).

Climate change is leading to higher sea levels and increasingly violent storms, which means that coastal communities are under even greater pressure. Coastal communities on the Atlantic islands suffer from extremely violent storms and are under great threat from coastal erosion. The aggregates tax will simply put a greater burden on Argyll and Bute council and private individuals who want to build coastal defences to protect local villages and roads.

The tax is supposed to have an environmental purpose, but I do not envisage any environmental benefits from imposing a tax on aggregates used for coastal protection. On islands, for example, the aggregates would be quarried and moved, in some cases only a few hundred yards, for use in coastal protection. Alternatives simply do not exist. The Economic Secretary, in his letter to me of 11 June, said that "alternatives do exist." I should certainly like to hear exactly what they are. On small islands like Tiree and the slate islands of Easdale, Luing and Seil, villages are under threat, as the tax puts a greater burden on their efforts at protection.

Alex Salmond (Scottish National Party, Banff and Buchan)

I agree with the hon. Gentleman. The alternative would be to bring a recycled aggregate, which would be suitable for some projects, many hundreds of miles by land and then over sea, but that would hardly meet environmental standards.

Alan Reid (Liberal Democrat, Argyll and Bute)

That is a valid point. An alternative may exist several hundred miles away, but in environmental and financial terms a long road and sea journey would be more expensive than paying the tax. The alternatives simply do not exist on the islands.

The purpose of the tax was supposed to be environmental, but I cannot see the environmental benefit in charging people more money to avoid having their house washed into the sea. There cannot be a much greater environmental disaster than that. I hope that the Government will listen today and accept amendment No. 11.

Howard Flight (Conservative, Arundel and South Downs)

I, too, support amendment No. 11, which is obvious common sense. I am not at all happy with the aggregates levy. I was in Inverness last weekend and I must warn hon. Members that I shall be in Scotland again next week, so sinking England is driving us north.

Alex Salmond (Scottish National Party, Banff and Buchan)

We will make appropriate sea defences for the hon. Gentleman's visit.

Howard Flight (Conservative, Arundel and South Downs)

Yes, sea defences for the invasion.

Coastal protection work is needed elsewhere in the British Isles and I can see no logic in simply increasing the cost of that as a result of the aggregates levy. If we cannot stop that misguided tax altogether, let us at least have the exemption that is proposed here for something that of itself serves an environmental cause.

John Healey (Labour, Wentworth)

I welcome this short debate and was glad to discuss the matter with the hon. Member for Banff and Buchan (Mr. Salmond) this morning.

Let me begin by being blunt. I do not accept that there is a case for exempting virgin aggregates used for harbour sea defences or coastal erosion protection projects from the aggregates levy. The levy is designed to address the significant environmental costs of extracting aggregates, including dust, noise, visual intrusion, loss of amenity and damage to biodiversity. Those environmental costs are associated with aggregates used in coastal defences, just as they are associated with aggregates used in other construction processes.

Robert Smith (Liberal Democrat, West Aberdeenshire and Kincardine)

Was not the levy initially aimed at the crushing of aggregates to the fine aggregates, which gave rise to the estimates of the impact of dust, while this measure is aimed at large boulders and rocks, which do not produce that much dust or noise when put into the sea?

John Healey (Labour, Wentworth)

I shall come to the rationale for the clause dealing with uncrushed aggregates, and treating them in the same way as crushed aggregates, which were part of the original legislation.

Alex Salmond (Scottish National Party, Banff and Buchan)

The Minister will confirm that the Government's original intention was not to include uncrushed aggregates within the levy. I understand that he says that the Government responded to consultations with the industry and so on, but if they are environmentally damaging, why were they not included in the original Government proposal?

John Healey (Labour, Wentworth)

The nature of legislation is that it evolves. As the hon. Gentleman says, we are making this amendment as a result of points raised with us by the industry, which was concerned that not to do so would create opportunities for avoiding the tax and for unfair competition, to which I shall come in a moment.

The levy, in building in a recognition of the environmental costs of extraction, recognises those costs by making the price of aggregates better reflect their true social and environmental costs; encouraging more efficient use of aggregates; encouraging the use of alternative materials such as recycled materials and certain waste products in construction; and encouraging the development of a range of other alternatives, including the use of waste glass and tyres in aggregate mixes.

Alan Reid (Liberal Democrat, Argyll and Bute)

Will the Minister explain where on a small island one can find those materials in sufficient quantities to substitute them for the aggregates that are being taxed?

John Healey (Labour, Wentworth)

The hon. Gentleman will appreciate that we simply cannot devise a fiscal regime with a particular constituency in mind. This is a UK tax regime designed to apply consistently across the piece. It is not practicable to take into account arguments about whether a particular material is transported five miles or more in primary legislation.

Alex Salmond (Scottish National Party, Banff and Buchan)

Surely special island allowances in the fiscal regime, support for lifeline services or the passenger duty, are examples of where a fiscal regime has been tapered to meet social need and common sense, so why not do the same here?

John Healey (Labour, Wentworth)

Social need and other objectives are often built into tax and duty legislation. However, the hon. Member for Argyll and Bute (Mr. Reid) was putting the case of his own constituency, and that level of detail cannot be dealt with.

I have explained why the aggregates levy was introduced on 1 April this year and I want briefly to elaborate on why this Finance Bill brings into its scope aggregates that are extracted as uncrushed aggregates.

Rob Marris (Labour, Wolverhampton South West)

Will my hon. Friend elucidate for hon. Members such as myself who represent constituencies in the middle of the country? Who pays for coastal erosion projects, for example, on the island of Tiree, and have special island allowances been adjusted for the increased cost that might be incurred by coastal defences as a result of the aggregates levy?

John Healey (Labour, Wentworth)

A feature of my hon. Friend's interventions during the passage of this Finance Bill has been a request for such factual information. An exhaustive list of the sources of support for such projects would take some time. They range from local authorities to special Government funds and, in the case of Scotland, the Scottish Executive would have a part to play.

Armourstone, the large blocks of aggregate that are often used in sea walls or coastal protection, was brought into the scope of the levy as a result of the levy's extension to uncrushed rock. That was a necessary change. Because aggregates can be produced from rock without crushing it, consultation with the industry suggested that there was a danger of distortion of competition and the distinct possibility of avoidance.

Alan Reid (Liberal Democrat, Argyll and Bute)

The Minister referred to a distortion of competition, but we are talking about small islands. Does he seriously think that there will be two competing quarries on one small island?

John Healey (Labour, Wentworth)

The operation of the levy will encourage much greater efficiency in the use of aggregates, which will help in the sort of circumstances to which the hon. Gentleman is referring. It will also help to encourage the use of alternatives to virgin aggregates and a reduction in the amounts that are used.

If coastal protection projects were to be exempt, as the amendment proposes, requests for exemption would inevitably be made in respect of other worthy projects such as the building of schools and roads, for which there may be the social case to which the hon. Member for Banff and Buchan referred.

Roy Beggs (UUP, East Antrim)

I, too, represent a coastal area, and I cannot foresee any means of reducing the amount of aggregate that is needed to provide sea defences. Will the Minister tell us whether the Government plan to compensate those who will have the responsibility of providing sea defences by giving grant aid towards such defences?

John Healey (Labour, Wentworth)

If the hon. Gentleman doubts that the levy can help to encourage those who are considering plans for such projects to reduce the amount of aggregate that is involved, he might like to have a word with the hon. Member for Banff and Buchan, as that is exactly what is currently happening as a result of the levy in the Peterhead bay project, to which he referred.

The Government are sympathetic to the fact that coastal defence projects are designed to protect the environment. We support such projects in a range of ways, but I must tell the hon. Member for Banff and Buchan that I do not propose that an exemption from the aggregates levy should become one of the ways in which we support such work.

The hon. Gentleman also raised with me the question whether an alternative source of support may be available through the Public Works Loan Board in relation to the Peterhead bay project. I am sympathetic to that idea. As he knows, I am sympathetic to the project itself and would not want it to be jeopardised. I understand that there may be some legal difficulties in securing a loan from the board, but I would urge the local authority to explore that option with the board as a way of providing extra support.

On that basis, I encourage the hon. Gentleman to ask leave to withdraw his amendment. If he is not prepared to do so, I ask the House to reject it.

Alex Salmond (Scottish National Party, Banff and Buchan)

I thank the Minister for those last few words. Hon. Members will understand that the bay project in Peterhead is very important to my constituency, not least because of the economic benefits that could flow from it in an area that has been extremely hard pressed economically, so I welcome his sympathy and support. I also freely acknowledge that his predecessor shared a similar opinion. I hope that we can find a way forward through other mechanisms and I accept his bona fides and word on that matter.

However, I hope that the Minister will not think that I am grudging if I wish to push the matter in principle. Although we agree that the project in my constituency and, no doubt, similar projects in other constituencies, are a good thing, a principle is involved, and I should like to spend a very few minutes explaining what I think is the disagreement in principle.

As I pointed out, the Government originally accepted that uncrushed, unmachined aggregates did not pose the same risk of environmental damage as machine-processed aggregates. They moved from that position only because it was suggested that there might well be areas of exemption and unfair competition. Indeed, if I had proposed in the amendment again to exempt unprocessed aggregates, that would have been a fair argument against it. However, the amendment suggests only that as coastal defences are a good thing for the community, they should be exempt.

I pointed out to the Minister that some 22 exemptions were already covered, and I gave some illustrations involving clay pigeons and other things. I have no quarrel with those exemptions and have suggested merely that approved coastal defence projects seem to me a legitimate exemption.

Robert Smith (Liberal Democrat, West Aberdeenshire and Kincardine)

Did the hon. Gentleman notice that the Minister's strongest argument was that he was frightened of agreeing to add coastal defences to the list because someone else might want to be included on it afterwards? That is one the weakest arguments to have come from the Government. Obviously, the coastal defence issue would be defined by the fact that there were no alternatives.

Alex Salmond (Scottish National Party, Banff and Buchan)

That point makes itself.

I have a lot of sympathy with the Minister, as he has had to argue a very difficult case. His predecessor had exactly the same difficulty in Westminster Hall and in the Committee considering the statutory instrument. Ministers sometimes find themselves in that position, but they also have a wider responsibility. When a case appears very difficult to progress, it may be because there is something wrong with the argument that the Minister is being asked to deliver.

The case of the island communities has been made. Other legislation sets out special requirements for such communities and I see no reason why the Bill should not contain similar measures. In respect of the particular case in which I have a constituency interest, it is impossible to argue that environmental damage will be caused by taking materials from Stirlinghill quarry five miles along the road, with community support, and putting them in the breakwater to calm the harbour. There is no environmental concern in my constituency.

Rob Marris (Labour, Wolverhampton South West)

I appreciate that that may be the case in the hon. Gentleman's constituency, but perhaps he will also accept that it might not be the case in other parts of the United Kingdom. Would not a better way of addressing the issue be for those in Banff and Buchan, Tiree and other places to seek greater grant aid, rather than to change the basis of the tax system for the whole country?

Alex Salmond (Scottish National Party, Banff and Buchan)

I thought that I was doing quite well in gaining the Minister's sympathy with regard to the Public Works Loan Board. If the hon. Gentleman is suggesting that we up the ante for grants, I would be the first to agree. None the less, he has a fair point. When introducing legislation, we have to look for unintended consequences. If the Government had said that they were going to end up taxing coastal defences without having meant to do so and were putting in place fiscal help to compensate through grant aid, his point would have been well made. We are not in that position, however, and the reason for tabling the amendment progressing the case is to advertise to the Minister that there is a genuine problem that will affect my constituency immediately and will very shortly affect island constituencies. I suggest that it will also affect coastal constituencies throughout the United Kingdom. The problem needs to be dealt with in one way or another.

While I welcome the Minister's assurances and sympathy in relation to the Public Works Loan Board—the principle could perhaps be applied not only in my constituency, but to appropriate cases in a wider sphere—I would like to press the amendment in principle. I believe that coastal defences are a good thing and should not be taxed, because the community purpose that they serve will increase in future, not decrease.

Dawn Primarolo (Labour, Bristol South)

I beg to move, That the Bill be now read the Third time.

Five years ago, the Government's first Budget set out our objectives, our plans for reform, and the disciplines to achieve economic stability, higher employment and sustained prosperity. On 17 April, my right hon. Friend the Chancellor was able to report in his Budget speech that Britain had enjoyed the lowest inflation and the lowest interest rates for 40 years. For the first time for half a century, unemployment in Britain is lower than in America, Japan and Europe. In the year just ended, Britain had the highest growth of any of our major competitors.

Last year, the main economies of the industrialised world started a synchronised slowdown. In the past, during such slowdowns Britain entered weaker and suffered longer, unable to act because of higher inflation and higher borrowing. Britain has faced this world downturn with low inflation and sound public finances, both delivered by our new monetary and fiscal frameworks. This time, the Bank of England has been able to adjust policy at the right time and in the right way. Last year, it cut interest rates seven times.

With the support of fiscal policy, we have been able to safeguard economic stability and growth, and last year Britain was the fastest-growing G7 economy. The challenge for British industry and investors at this time is to build on hard-won stability and to accelerate productivity improvements, thereby increasing output, employment and prosperity. The economy has been stable, but it can and must grow stronger.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

The Paymaster General is giving a eulogy on the Government's macro-economic performance. Will she say a few words about manufacturing? In the last four quarters, output has fallen; in the last six, manufacturing employment has fallen.

Dawn Primarolo (Labour, Bristol South)

As the hon. Gentleman knows, expectations are rising and output was improving in the last quarter. As he rightly acknowledges, the long and hard position of the manufacturing industries is improving—[Interruption.] It ill behoves Opposition Members to make jests or to laugh from a sedentary position about the serious issues and considerations for the British economy.

I was stating the current position to the House and putting the Bill in that context. Clearly, it is important that we build on that increasing output, employment and prosperity, and there is a clear role for the Government in establishing the conditions necessary for that development, which must take place. The UK is—

Adam Price (Plaid Cymru, Carmarthen East and Dinefwr)

rose—

Dawn Primarolo (Labour, Bristol South)

If the hon. Gentleman is patient, I shall give way later.

The UK is, and will remain, a low-tax environment, and the Bill introduces important measures to modernise tax, keep pace with real-world developments and the global economy, promote enterprise and cut red tape.

Adam Price (Plaid Cymru, Carmarthen East and Dinefwr)

I am grateful to the Paymaster General for giving way. She knows, of course, that manufacturing output is down 6 per cent. over the last year whereas retail spending is up 6 per cent. Is that not a case of simultaneous boom and bust?

Dawn Primarolo (Labour, Bristol South)

It is necessary that the Government establish the right framework and the stability for that growth. Of course, investment, which is very much part of the Bill, is a key driver of growth. To encourage more investment, we have, in past Budgets, cut corporation tax from 33 to 30 per cent.—the lowest rate in our history. To enable investment in high-growth, high-technology industries, clause 53 and schedule 12 extend and enhance the research and development tax credit to all companies. That means a £400 million boost for innovation and research.

Clause 44 and schedule 8 specify an exemption for companies disposing of substantial shareholdings. That will enable them to restructure without an essential business decision being constrained by the tax system. The new relief forms part of the Government's commitment to reforming and modernising the corporate tax system, and ensuring that the United Kingdom remains a good place in which to do business.

The Bill establishes a new regime to provide relief for the cost of intangible assets, including intellectual property and goodwill. The relief proposed in clause 84 and schedules 29 and 30 will encourage business to take advantage of opportunities in the knowledge-based economy. That is another important step in our programme of corporate reform, ensuring that our tax system supports, encourages and reflects the change in the business environment.

John Redwood (Conservative, Wokingham)

When the Government imposed their big windfall licence fee on the telecommunications industry—a very big one-off tax—I warned that it would lead to job losses and slashes in the investment programmes of our lead sector. The Government said it would not. Will the Minister now apologise and explain what went wrong?

Dawn Primarolo (Labour, Bristol South)

The right hon. Gentleman has made many forecasts that turned out to be wrong. If there is a list of apologies that need to be made to the House, we may be here for a long time hearing members of the last Government apologise for all their errors.

In clause 91 and with the reforms of North sea oil taxation, the Government recognise the need to strike the right balance between a fair share of profits for the nation from the exploitation of a scarce resource and the encouragement of investment. The 100 per cent. first-year allowances on capital expenditure, along with the commitment to abolish North sea royalties and the supplementary 10 per cent. charge, strikes that balance.

Small businesses account for 55 per cent. of all private sector jobs, more than 10 million, and for nearly half the economy's output. Small firms are important drivers of growth and support for them is an important theme of the Bill. In 1997 we cut the small companies tax rate from 23p to 21p in the pound, and in 1998 we cut it again to 20p, with a starting rate of 10p. Now, in 2002, clause 31 lowers it further, to 19p, with immediate effect.

Clause 32 proposes a fall in the starting rate for corporation tax from 10 per cent. to zero. That means that companies with profits of up to £10,000 will pay no corporation tax, and that the tax regime for small companies is more favourable than those of any of the other advanced industrial countries.

To fund the growth of our young companies, we need to increase business investment. Private equity investment has doubled since 1997, which is an important contribution to an entrepreneurial economy. But there is more to be done, and to maintain the momentum the Bill cuts capital gains tax to 20 per cent. in respect of business assets held for a year or more. In the case of business assets held for more than two years, it cuts the tax to 10 per cent. That means that, overall, Britain's capital gains tax regime is more favourable to enterprise than that of the United States.

I know that for many small businesses the cost of compliance is important. The Budget set out proposals to reform the administration of VAT, to help smaller firms comply with PAYE, and to remove unnecessary regulation. Clauses 23 to 25 set out the steps we are taking to simplify and streamline the VAT regime.

In disadvantaged areas too, however, businesses can be a catalyst for community regeneration. In recognition of that, in 2000 we designated enterprise neighbourhoods. Small business tax cuts will be supported by further measures to encourage social entrepreneurs. We introduced the community investment tax credit, creating an incentive to invest in disadvantaged communities.

The emerging consensus on the idea of sustainable development is also an opportunity for British companies. Investing now in energy-saving technologies and techniques is the best way of getting ahead of the game and gaining an important advantage over our foreign competitors. Investment in energy-saving technologies will qualify for enhanced capital allowances at a rate of 100 per cent., strengthening our economy as we move towards our Kyoto targets. Incentives will also be introduced to drive cleaner vehicles, with a reduction in the licence fee of £30 for the most efficient cars, £55 for the least polluting vans and £35 for the least polluting motor cycles. This is a balanced approach, taking into account the needs of the economy and our communities and the need for secure employment.

To ensure fairness for taxpayers and for business, we must act swiftly to close tax loopholes and be vigilant against tax avoidance. We have decided to act with immediate effect on the avoidance of stamp duty on property and to put an end to artificial schemes for VAT avoidance.

The United Kingdom remains a low-tax environment, favourable to business and enterprise. That has been acknowledged by a wide range of surveys and reports from business management. The Institute of Management development study, published recently, states that the United Kingdom has better withstood the uncertainties of the global economy. The Government have put in place a comprehensive set of measures aimed at raising competitiveness and closing our productivity gap with our major competitors.

Another survey, conducted earlier this year, said:

"In our analysis of the business environment the United Kingdom and the United States of America stand out as leaders in the environment they provide for growth companies."

The Bill promotes investment in our families and communities, in those who are disadvantaged, in enterprise, in the future growth of the British economy and in the national health service and our public services, providing for the people of the United Kingdom security, opportunity and a future in which they will be able to contribute to a growing and flourishing economy. I commend it to the House.

Howard Flight (Conservative, Arundel and South Downs)

The Bill is, to use the old cliché, something of a curate's egg. There are certainly some good things in it, such as the simplification of the VAT regime for small business, the modernisation of business taxation and, we hope, the capital allowance regime for larger companies—we hope that the one for smaller ones will not be too complex to be effective. I thank Treasury Ministers for their courtesy in Committee, where we underwent a useful process and some issues that we raised were noted for inclusion in the Bill.

However, some bad things remain, and some for which the case was not made at all in any of our debates. I do not intend to repeat the exhaustive debate that we had on increased taxation on North sea oil exploration yesterday, but we remain powerfully convinced of the view that it will damage Britain's interests and greatly reduce extraction of the oil that remains there, at a time when our current account position is already the worst it has been in our history. I noticed that there was no response to the crude point that the loss of output will add on average about $12 billion a year to our current account deficit, although I am not saying that the tax increase is the only cause.

Yes, we all like small business, which is the majority employer. A small tax will be popular, and we must all like it, but it is unwise of the Government to forget about the self-employed, because self-employment is crucial. The ability to make a living through self-employment has been one of this country's strengths, particularly in difficult economic circumstances. All measures tend to have contrarian effects if they are not thought through, but as we have argued, masses of modest self-employed people will have to queue up to incorporate, in order to gain—potentially—£3,000 or £4,000 a year in tax terms. The costs will be a lot greater than the Government estimate, and it is not desirable for small self-employed businesses to incur yet more regulatory costs and hassle as a result of incorporation. It would have been better to balance fiscal incentives for small businesses between the incorporated and the unincorporated.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

Does the hon. Gentleman share my surprise that this is one tax cut for business that many people do not welcome? However, they do not welcome it because, as he says, it might distort choice in an unplanned and unstrategic way.

Howard Flight (Conservative, Arundel and South Downs)

Indeed. Many self-employed people tell me that they thought they were getting a tax cut, only to discover that they are not. They ask me what they should do to get it, and I tell them to get an accountant. To be candidly cynical for a moment, the Government have not got the bang for their buck from the small business community that they perhaps expected. The point is one of principle: if the objective was pure, there should have been a mixed reduction involving the incorporated and the self-employed, rather than a reduction weighted entirely in one direction.

The Government may regret their approach to stamp duty. It is fine and correct to attack tax avoidance, but the basic issue is whether it is right and economically sensible for business to pay 4 per cent. stamp duty. That has not been a huge issue until now because there were many schemes through which to avoid such duty; indeed, many businesses believed that the Government regarded such schemes as an incentive for business. Whether there has been a change of policy or merely a waking up to it, the fact remains that a business's physical assets— the property—are just as much of a component as the machinery and the people. Taxing them more will lead to less mobility and greater costs.

We have debated the unfortunate principle of the alcopops tax, whereby it is okay to proceed with a tax based on data that prove bogus. On green fuels, green taxation and car legislation, I do not understand why the Government did not include liquefied petroleum gas in the incentives. Some of the fiscal arrangements, particularly those relating to company cars, may prove mind-blowingly complex.

We had a strong debate on mandatory e-filing. Of course, technology advances and we will all comply with it, but regardless of the intention, it must be wrong to begin by saying that we will force everybody—businesses, little old ladies—to file tax returns electronically. The underlying mindset is unnecessarily authoritarian.

I apologise for not being present when controlled foreign company legislation—the Jersey clause—was addressed in detail. I strongly object to two aspects of CFC legislation. First, it is bad for the UK as a multinational base for business. Whatever the Government may think, we are becoming less attractive in terms of tax and regulations, and are slipping down the competitive league table. If multinational companies based here become subject to an arbitrary power to change the tax rules governing their international operations—in other words, if the Treasury suddenly has random power to decide that they would not get the CFC exemption—they will face a disincentive to doing business. Arbitrariness of any sort is undesirable.

Secondly, I believe that one element of the legislation has been mis-sold, as there is widespread support for the savings directive. It was the alternative to the silly proposal that is the common EU withholding tax, and it was effective against tax evasion. However, the Opposition certainly do not like the notion of EU tax harmonisation, and elements of the EU unfair tax competition code lean in that direction. I want this country to retain its autonomy to set taxes as we wish, as a way of encouraging what we want to encourage. Competitive taxation is healthy: anything that compromises that rather invites a tax cartel.

Finally, 30 years ago huge negotiations took place with regard to the Channel Islands. They had a degree of independence, and they remain outside the EU. I do not like the UK exerting back-door leverage to bring them within the ambit of EU initiatives. Given their particular relationship with the UK, there is some justification for that approach when it is in Britain's interests, but not when it is used to get around, by the back door, a position settled 30 years ago.

The Prime Minister visited Jersey in June. I was amazed to read that he said Jersey had its own rights in this situation, that the Government would protect them, and that the Government were not trying to affect tax rates. Either the Prime Minister does not know what he is talking about, or he was being deliberately misleading.

It was a pity that the new clause on the tax law commission did not get selected for debate. The exercise of trying to rewrite tax law more simply has had some success—

Alan Haselhurst (Deputy Speaker, Saffron Walden)

Order. The hon. Gentleman must not comment on Third Reading on a new clause that was not selected for debate.

Howard Flight (Conservative, Arundel and South Downs)

Let me put it another way, Mr. Deputy Speaker. We are faced with 505 pages of taxation—surely it is possible to have tax rules that are simpler and more comprehensible. It is a question not merely of drafting tax law more simply, but of establishing bodies that would contribute to simplifying our tax system.

The Bill does not address the pension crisis that we face and that is largely a result of the Finance Act 1997. I shall not repeat what was said in yesterday's debate, but I hope that the Government took note of the growing concern registered by the financial community, citizens and others at the growth in off-balance-sheet, Enron-style accounting.

People are also worried by what can only be described as the tangled web involved in getting public sector investment off the balance sheet. It seems that tax vehicles are being shaped to meet the rules rather than the substance, and I wonder whether the Government know the full extent of the liabilities that are lurking in wait. If not, given the difficult economic times, some extremely unpleasant things could happen.

Above all, the Budget in aggregate is bad for business, and it is bad for business at the wrong time. It will do some helpful things to encourage research and development, but it also imposes massive increases in employment costs on business, just when business and enterprise face considerable problems. At the root of the problem and the reason why the stock exchange has been collapsing is the problem of corporate profitability. If anything, corporate profitability is contracting. Companies are finding it increasingly difficult to sustain profits, let alone increase them. Continually adding regulatory and fiscal costs to business produces a downward spiral which will then reduce pension fund values and investments still further, and so forth.

The Chancellor thought, as ever, that he was very clever with his Budget. He went out to the focus groups who said, "Yes, we quite like the idea of hypothecating extra national insurance to pay for more health care." I think they also said, "We certainly agree with more spending but, like the Conservatives, we do not agree that more spending will be effective without the necessary reforms." The Chancellor sold the whole package on hypothecation: more money to pay for more health expenditure. The figures, however, show that half of it is not that at all.

There are £4.7 billion-worth of tax credits, bringing the total tax credit cost up to some £16 billion. As we have pointed out, those tax credits will discourage pension saving for many and are in danger of providing excess job subsidies, militating against skill training and increased productivity. It may be no accident that after four years of the working families tax credit we are now seeing productivity declining. We have not only the lowest productivity growth for some time, but falls in productivity when for five years the Chancellor has gone on saying that his Government will increase and improve productivity.

It is no use spending huge sums on health unless those amounts will be effective. As we have said again and again, a package of increased spending without the necessary reforms should not be supported. The crude fact that in Scotland, Northern Ireland and Wales, where spending as a proportion of national income is already above European levels, delivery is even worse than in England is straightforward evidence that reform is needed. We hear of more administrators than beds and only 17 per cent. of new expenditure going to front-line delivery. Those have all the hallmarks of the inefficiency of nationalised industries the world over. The risk is that all that expenditure will in reality go on wage increases.

In an entirely different area, the problem is becoming more apparent of the black hole in the Chancellor's plans—something like £7 billion. Indeed, it was heartening to find the Government's own new economic adviser at the Department of Trade and Industry, Vicky Price, warning publicly that the Government may be about to embark on too much spending which they will not be able to finance. The expectation is that quite soon taxes may have to increase again. Apparently the Chancellor said that he thought the statement was a spoof. Perhaps it is he who is out of touch and not the rather tough and honest speaking new economist at the DTI.

Productivity is falling. London job prospects are the worst since 1993. Tax receipts are declining for the first time in nine years. Corporation tax receipts are down 12 per cent. and Inland Revenue receipts down 7 per cent. Hearing the rosy picture which the Paymaster General described, who would imagine that we had a crashing stock market? Of course, it happens just like that. Stock markets are not at all predictive, are they? That is not their role. But what the stock markets are telling us is that corporate profitability is vulnerable and falling. That is the key point. The worst aspect of the Budget overall is that it will be bad for business, as business has made clear.

We have heard all the spin about the Government's wonderful finances. That is the point of raising the off-balance-sheet issue, because however one looks at it—whether one talks about sticking to the rules rather than the substance, or potentially breaking the rules—all that has been happening is that the capital expenditure side is being hidden off balance sheet. People know that. There may be several benefits in involving the private sector, but everyone knows that in reality the state of the public finances is not the rosy picture that is painted by the Chancellor.

Yet again, we had a clever-clever Chancellor's Budget. It got all the headlines that he wanted on the day, but now people are focusing on realities such as their declining pensions, businesses weighed down with tax and regulation, and the problem of sustaining profitability. This morning I turned on my radio as I was getting up and the chap said, "Yes, the Chancellor's going from boom to bust." One of the problems with allowing the savings ratio to fall so badly is that when it recovers—and it will recover in a recession—consumption falls by too much. The Chancellor has presided over a period in which overall saving has declined too much, consumption has risen too much and the external balance has gone to hell; and the time will come to pay the price for that. It was an arrogant and unwise Budget. The details of the Bill are good and bad, but there will be a growing mess for us to sort out in due course, and the Government will need more than the ability to deliver a bad case in an eloquent fashion.

Above all—this is why we are going to vote against the Bill—there has been a foolish arrogance as regards the whole issue of North sea oil taxation. The resource of North sea oil is not the family silver in the Treasury, but one of nature's great gifts of good fortune to this country. The new tax measures mean that instead of managing it to make the most of it, we are going to under-exploit it. That will be to the country's disadvantage over the coming years.

Iain Luke (Labour, Dundee East)

Thank you, Mr. Deputy Speaker. I am glad to have caught your eye in the twilight of our deliberations on the Budget and to be able to make a further contribution to the debates on the Finance Bill as it proceeds through its final stages towards enactment. As a Back Bencher new to the ways of the Budget and to the intricacies of the tax-raising powers of this House, I feel privileged to have been able to make contributions at every stage of the Budget process.

I am glad to have witnessed at first hand the nature of the response by Opposition Members to the proposals brought to the House by the Chancellor in his Budget on 17 April. There has not generally been a great deal of heat in the arguments that they put forward, despite the contribution just made by the hon. Member for Arundel and South Downs (Mr. Flight), but sufficient light has been engendered in Committee and on the Floor of the House for us to recognise that although there have been genuine areas of disagreement, the many positive aspects of the Budget have met with general agreement.

The Budget was carefully crafted and constructed not to deceive the British people but to create a fairer and more efficient tax regime that will benefit the majority of taxpayers, investors and companies that contribute so much to the well-being of the economy and to the UK's continued economic health and prosperity. I firmly believe that, as the Paymaster General said, the initial view of many of the informed commentators who voiced opinions on the nature of the Budget will be fully substantiated: that view was that it was a defining moment in the life of this Government.

The major issue of this Budget is close to my heart, close to the heart of the labour and trade union movement of which I am a representative and, indeed, close to the hearts of my constituents and all those who believe in Britain: it is the health and well-being of this country in the widest sense. The future of the national health service and how it will be financed was certainly the major focus of the Chancellor's Budget.

I shall take up the points made by the hon. Member for Arundel and South Downs. In the past two to three years, the people in my constituency have noted the much improved health service in Scotland. We have done away with the internal market. We have reorganised the service in Scotland to provide a sharper, leaner service, and I believe that the money coming from the Budget will obviously deal with many of the criticisms that have been levelled at the Scottish NHS and ensure that the services are delivered properly.

I shall not linger on this, but there has to be recognition of the fact that rates of illness are obviously higher in Scotland. There is a need for greater spending given the higher levels of cancer and coronary heart disease. It is right in a country that cares for all its component parts that the Government should take account of that in their Budget formulae.

Leaving that aside, the Budget was certainly crafted to ensure not only that the NHS survives but to secure the health of Britain's poorest communities, the health of the British economy and the health of this country's companies and corporations—the sinews and muscles of Britain's economic health.

I am certain that, just as the people's Budget at the beginning of the last century laid the foundations of Britain's nascent welfare services, in bringing the Budget proposals to the statute book at the beginning of the new century, this Finance Bill will reaffirm this Government's and this nation's belief in and commitment to modern, inclusive welfare provision, where wealth and opportunity are in the hands of the many, not the few.

The Government and the Chancellor have clearly indicated the need for a process of redistribution to ensure the vitality and the very existence of Britain's poorest, most disadvantaged communities and social groups, so that they are given an injection of assistance and support, delivered, in the words that Winston Churchill used when Chancellor of the Exchequer, via the ambulances of state aid.

Many fellow Members of Parliament will welcome those Budget provisions that directly relate to their constituencies, be they the community development tax credits and community development funds; the new incubator funds to help new innovative companies to grow; the removal of the stamp tax on the sale of property in Britain's most socially deprived areas—I am glad to say that my constituency will be one of those that benefits most from those innovative provisions—or the encouragement of small business start-ups and enterprise. All those provisions will help areas that have suffered significantly through urban and social change and economic decline to begin to make serious starts to regenerate themselves.

I believe the Budget proposals in the round are to be welcomed. They clearly show the political differences between the two major parties, despite the many agreements that we have had in Committee and on the Floor of the House. The Government believe in social justice, equity, enterprise and opportunity, but the Opposition put business first, not the people. In Committee, the Conservative party defended the tobacco industry, just as Conservative Members have today defended the drinks industry. They have promoted the abolition of inheritance tax and the complete removal of the stamp tax, while opposing the Government's prime proposal to improve this country's health service.

Politics can best be defined as the battle of two conflicting groups of ideas, struggling to achieve popular endorsement for policies and programmes. The Budget has been branded as unwise, but the British people have clearly indicated their massive endorsement of the Budget proposals—even a majority of Conservatives endorse them—and by implication accept the means by which they are to be funded. In a question asked recently at Prime Minister's questions reference was made to our all being Thatcherites now, but the Budget and the Labour party's stewardship of the nation's finances invite us to beg to differ.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

May I start by agreeing with a major point made by the hon. Member for Arundel and South Downs (Mr. Flight)? He said that the Paymaster General's opening remarks describing the performance of the British economy and its management under the Government were far too rosy; I would say that they were Panglossian. There may have been successes in the last five years, particularly Bank of England independence and the increased stability that that has given to monetary policy, which Liberal Democrats have welcomed on many occasions. To suggest that the whole picture of the macro-economy is rosy, however, is far from the truth.

I suggest to the Paymaster General that, rather than simply reading the briefing from Treasury officials, she should go to the House of Commons Library to read the latest research paper on economic indicators, published this week. Merely browsing through that will show her that a whole range of indicators are flashing red, which the Government appear to be ignoring totally. I was therefore very worried by the right hon. Lady's speech.

Manufacturing output has fallen in the last five quarters. Indeed, in 2001, it fell by 2.3 per cent. We can also consider other industries, such as agriculture, hunting and fishing, whose output has of course been falling for many quarters; it fell in 2000 and 2001, and it fell in the first quarter of this year. Other industrial sectors show similar falls. Manufacturing is perhaps the most worrying because of its importance to the tradeable sector. We have seen large falls in that sector, especially in manufacturing employment, which fell in 1998, 1999, 2000 and 2001, and is falling again this year. In fact, manufacturing employment is falling at around 5 per cent. a year, while manufacturing output is falling at 6 per cent. a year. Can the Government be proud of that?

I remember that, when the Chancellor of the Exchequer was in opposition in his role as shadow Chancellor and, prior to that, as the Opposition spokesman on trade and industry, he was on the television night after night talking about manufacturing—manufacturing investment, manufacturing output and manufacturing jobs. Under his stewardship, however, we have seen declines in all those areas. He does not have a record of which to be proud.

Tom Harris (Labour, Glasgow Cathcart)

I had not intended to intervene at this stage. I must point out, however, that when my right hon. Friend the Chancellor was making those points in opposition, it was in the context of interest rates of 10 per cent. or 11 per cent., which are debilitating to manufacturing industry. The fact is that we have the lowest interest rates for 40 years, which is testament to the success of the Government and to my right hon. Friend's policies.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

The hon. Gentleman is right about interest rates. The problem with the Government's management of the economy has been a totally benign approach to the exchange rate.

Howard Flight (Conservative, Arundel and South Downs)

With respect to the hon. Gentleman, he is wrong about interest rates. As soon as we came out of the exchange rate mechanism in 1992, interest rates fell like a stone, and they were miles lower than 10 per cent. while the Chancellor of the Exchequer was making his points throughout the period from 1992 onwards.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I would caution the hon. Gentleman about intervening too much to praise the Conservatives' record on managing the economy. I am afraid that I will not agree with him on their overall performance, given that we saw debt triple and years of high interest rates.

I was focusing on Labour's record. Because of the high exchange rate—which is still too high—the manufacturing sector has been haemorrhaging jobs.

Tom Harris (Labour, Glasgow Cathcart)

Can the hon. Gentleman tell the House how the Liberal Democrats would engineer a devaluation of the pound to help manufacturing industry? I know that that is a very dangerous thing for any Government to do. I presume that the reason why the Liberal Democrats claim that they can do it is that they will never be the Government.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

We have argued consistently—it is not a new argument but one that we have been making for many years—that if the Government had a positive approach to joining the single currency and gave us an indication of when the referendum would take place, the foreign exchange markets would push sterling down to a competitive rate.

Tom Harris (Labour, Glasgow Cathcart)

Fingers crossed.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

The hon. Gentleman says from a sedentary position, "Fingers crossed"—

Adam Price (Plaid Cymru, Carmarthen East and Dinefwr)

Signalling effects.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

As the hon. Gentleman says, however, the signalling effects have been proven, not just in the case of the UK but in the case of Italy when it announced that the lira would join the single currency. There was a sensible, slow, gradual and sustainable depreciation, so that the lira could move in a competitive way into the single currency.

Directly after the general election, the markets perceived that the Government, who had kept their large majority, might be more positive about their approach to, and timetable for, joining the single currency, and the foreign exchange markets reacted to that by putting downward pressure on the exchange rate. The Treasury stepped in to say, "Hold on a minute. We have no intention of joining," and tried to scupper the rumours, and it was only then that the pound went back up again. That proves my point entirely.

The Government have failed to give a clear lead on the exchange rate and so must take the blame and the responsibility for many of the thousands of jobs that have been lost in manufacturing. Let us remember that 500,000 jobs have been lost in manufacturing over the past five years.

Rob Marris (Labour, Wolverhampton South West)

I represent a constituency in the west midlands, the manufacturing heartland of the United Kingdom. In contrast to the hon. Gentleman's view, it seems to me that the cross rates between sterling and non-euro currencies show that the problem is that the euro is too low rather than that the pound is too high. Does the hon. Gentleman disagree with that analysis? If so, what level does he think the pound should be at?

Edward Davey (Liberal Democrat, Kingston and Surbiton)

When we carried out a review with a whole range of independent economists who were experts on exchange rates, we published a guideline on the sort of range at which the pound could join the single currency. We challenged the Government to provide their range and enter the debate. That is how we should start to consider and face up to the issue. The Government's failure to do that concerns me greatly.

Howard Flight (Conservative, Arundel and South Downs)

Since the hon. Gentleman has focused on this territory, will he complete the story? The Chancellor and the Treasury are terrified that, if sterling were to depreciate significantly, inflation would be imported into this country, interest rates would rise and the housing market would crash. The Government would then become the most unpopular of all time. That completes the circle.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

The hon. Gentleman is almost beginning to suggest a conspiracy theory which says that the Government are deliberately not acting because of the housing market. I am not sure that that is the case. The Government do not control interest rates; they rightly gave power over them to the Monetary Policy Committee, which has the difficult task of trying to judge the balance between the external side and the domestic side and to deal with the dilemma of domestic inflation in sectors such as the housing market and external deflation in the tradeable sector.

Howard Flight (Conservative, Arundel and South Downs)

The hon. Gentleman has missed the point. The Bank of England will certainly continue to control interest rates; but given the state of the economy, the Government know that if they talk down sterling, inflation is likely to increase. If inflation increased, the Bank of England would be obliged to put up interest rates. If interest rates were put up in the current property market, with many people dangerously over-borrowing at low rates of interest, there would be the risk of a crash in the property market. That is the circle.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

The hon. Gentleman is wrong. Many people in the Treasury and the Bank of England would like a readjustment of monetary policy in exactly the way that he describes—a lower exchange rate and a higher interest rate. That would probably be a much better solution. The Government could engineer that if their policies on the euro were much clearer, but the examples that I have given show that their failure to go down that route is leading them into a dangerous position in which the housing market is being allowed to overheat. That will store up trouble for the future.

Michael Jack (Conservative, Fylde)

On a point of detail, the Government in fact retain control of monetary policy by virtue of the fact that they set the target for inflation. Section 11 of the Bank of England Act 1998 requires the Bank and the MPC thereafter to hit that target. If the Chancellor wanted to affect the range of interest rates, he could, if he so wished, change the inflation target.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

The right hon. Gentleman makes a valid point, and I refer him to the report of the Committee that debated the Bill. I served on that Committee and argued for target independence for the Bank of England, so that the Monetary Policy Committee could set its own targets instead of the Chancellor doing it—in the same way as the European Central Bank does. I argued that because if the markets think that the Chancellor may use that remaining power to set targets and thus affect interest rates and the exchange rate, that will undermine the credibility of the inflation rate.

Long-term interest rates show some evidence that we are still paying a premium in the UK. We have slightly higher long-term interest rates than many other of our competitor countries. That slight premium exists partly because the Bank of England does not have target independence. [Interruption.] If hon. Members wish to dispute that, I am more than happy to show them some of the figures that I have seen. I also refer them to the recent article in the Financial Times by Chris Huhne, a Liberal Democrat Member of the European Parliament.

John Redwood (Conservative, Wokingham)

If the hon. Gentleman cares to check today's Financial Times, he will see that the long bond yield in Germany is slightly higher than the long bond yield in the UK. He has only to read it.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

The House of Commons information document on economic indicators, which was published this week, shows that on 10-year Government bonds, the figure for the UK is 5, in the US it is 4.83, in Switzerland it is 3.21 and in Japan it is 1.25. My point is backed by the evidence in the latest publication from the Library.

The Government's rosy picture of the economy is complete nonsense. Indeed, the whole strategy behind the Bill is very worrying. In the Budget, the Chancellor increased his forecasts for the underlying growth rate of the economy. He did that to try to balance the public finances. By increasing the underlying rate of growth by just 0.25 per cent., the Chancellor found £4 billion or so over the forecast period.

The change in forecast is highly contestable, for reasons to do with the overall performance of the economy that I have discussed and, if one looks at the background documents published at the time of the Budget, the overall rationale behind it. On Second Reading, I asked why the Government had not chosen the central forecast from the Government Actuary's Department. The rationale for increasing the growth rate was that the population was increasing faster than had previously been expected. The Government relied on the report from GAD for that information. However, instead of taking the central forecast from that report, the Government chose a figure in the mid-range between the central forecast and the most optimistic forecast. By doing so, they tried to provide an explanation for increasing the underlying growth forecast.

I received no reply when I asked why the Government had decided to make that change. It was arbitrary and stealthy, and the only way in which the Chancellor could balance the books. I am concerned by that. The Government's positive spin on the performance of the economy is very worrying, because they are misleading themselves into believing their own public finance forecast.

I support the Government on one major change: the increase in taxation to fund the extra health spending, which is key to the Budget. My hon. Friends rehearsed the argument in favour of such a policy on Second Reading of the National Insurance Contributions Bill and elsewhere, although we would not raise the money in the same way. Income tax is our preferred route because it would be fairer and more efficient. It would not hit employers and would ensure that people who enjoy high investment incomes pay their fair share.

The fundamental question that the Conservatives have ducked is whether they support the extra money for the health service. That is the key consideration. We have campaigned for that increase in spending for many years. It is one reason why we voted against Third Reading of the Finance Bills in 2000 and 2001. It would be hypocritical to vote against Third Reading today because the Government have done what we have been calling for, albeit with significant differences. The basic thrust is right, however, which is why we support them.

Chris Grayling (Conservative, Epsom and Ewell)

The hon. Gentleman's comments highlight the often two-faced nature of Liberal Democrat politics: on the one hand, he criticises the Government on manufacturing industry and is concerned about the predicament that it faces; on the other, he supports tax increases that place a huge additional burden on manufacturing industry. Can he explain that?

Edward Davey (Liberal Democrat, Kingston and Surbiton)

The hon. Gentleman has not been listening. When we debated the key problem facing manufacturing, I spoke about the exchange rate. Had I spoken about the rate of taxation, he would have a point, but the key problem facing manufacturing is the exchange rate because they are the major exporters in our economy. He need only talk to a few manufacturers to know that. It is possible to be in favour both of a higher rate of tax to ensure that the health service has the money that it needs and of an exchange rate that is competitive and assists our exporters, which is why we support the euro.

There are a few problems with the details of the Bill—the North sea oil issues and the freeze in personal allowances, for example. I think that the cut in the starting rate of corporation tax to 0 per cent. is a mistake, as the hon. Member for Arundel and South Downs explained. However, the Bill contains some good measures, such as those on amateur sports clubs, the tidying up of film tax relief and the streamlining of VAT.

It is worth focusing on one significant aspect of the Bill and the Committee proceedings. Some 60 per cent. of the Bill—300 pages—was published in draft form for consultation. That is a major and serious change. It should be welcomed by hon. Members on both sides of the House and should be repeated and extended. Conservative and Liberal Democrat Members have said that one major problem is the complexity and vastness of tax legislation. By publishing things in advance we can ensure that the professionals have a chance to make comments to us and the Government so that many of the problems are ironed out by the time the Bill is introduced. For that reason, the Committee proceedings were relatively uncontroversial. There was much agreement among hon. Members and excellent work was done, not least by the hon. Member for Arundel and South Downs, who did an exceedingly good and thorough job.

The Government have some way to go on the simplification agenda. The Bill adds some complexities. They should continue some of the good work but also go much further. I have a radical suggestion to make. One reason why we have an annual Finance Bill is the Provisional Collection of Taxes Act 1968. We do not need a huge Finance Bill every year. One reason why the tax system is so complicated and weighty is that the Chancellor, Customs and Excise and the Inland Revenue want to get their sticky fingers on the statute book every year. We should move to a system in which a full Finance Bill is introduced every other year. That would enable the Government to undertake even more consultation on draft clauses. In the years when we did not have a proper Finance Bill, we could have a small Bill that followed the Provisional Collection of Taxes Act, to make sure that income tax and corporation tax could be collected each year. That would mean that we would not keep adding so much extra taxation legislation every year, which by its nature has a degree of complexity.

Howard Flight (Conservative, Arundel and South Downs)

First, I thank the hon. Gentleman for his kind comments. Secondly, I say, "Dear God, not 1,010 pages every other year!"

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I am grateful for the hon. Gentleman's intervention. If we moved to a biennial Finance Bill, I would not want that Bill to be twice the size of the present annual Bill. The purpose of the idea is to stop the tax legislation juggernaut. I think it would complement the way in which the Government are now trying to consult.

Having spoken for 38 minutes on Second Reading, I promised myself that I would not speak for so long on Third Reading. I intend to draw my remarks to a close.

I am delighted that the Government did a U-turn by understanding that taxation needed to increase if we were to make essential investments in our public services. I have some concerns about the amount within the economy as expressed. Similarly, I have some concerns about the way in which the Government are presenting their public finances. However, overall it was a tax rise that was needed both by the health service and to ensure that our public finances are on a secure footing. For that reason alone, we shall be giving the Bill our support in the Lobby.

Michael Jack (Conservative, Fylde)

This has been an interesting Finance Bill, first, in terms of the personnel who have dealt with it on both sides of the Committee and on both sides of the Chamber. I associate myself with the remarks of the hon. Member for Kingston and Surbiton (Mr. Davey) about my hon. Friend the Member for Arundel and South Downs (Mr. Flight). He did a remarkable job, in many instances singlehandedly, speaking with a rapid-fire delivery about incredibly complex matters, which he at least followed. Occasionally, the rest of us were left trailing verbally in his wake, trying to keep up with his flow of intellect. He did the proper job of probing the Government sometimes on their more technical measures, leaving the more salacious parts of the Bill to lesser beings sitting behind him.

I acknowledge the excellent work that was carried out by my hon. Friends the Member for Fareham (Mr. Hoban), for Cities of London and Westminster (Mr. Field) and for Epsom and Ewell (Chris Grayling), who were considering their first Finance Bill. They performed an admirable task.

On the Government Benches there was a sort of game of musical chairs. We started with the Financial Secretary who became the Chief Secretary, while the Economic Secretary was promoted to be the Financial Secretary. In the past few days, we had the pleasure of welcoming the Economic Secretary to the Treasury, the hon. Member for Wentworth (John Healey), as the new kid on the block. I tried my very best to try to read the new body language of Treasury Ministers, not always with great success. However, I think we learned something about what goes on in their minds by their demureness and the way they communicated with us.

The hon. Member for Wolverhampton, South-West (Rob Marris) marked himself out by developing an interesting line of asking the uncomfortable question but without quite getting himself into the uncomfortable position. The Government have found someone on the Labour Benches who is prepared to ask the difficult question, and the Bill's scrutiny was made the stronger as a result.

For a moment, I shall take up the thoughts that have been expressed by those on the Opposition and the Liberal Democrat Front Benches about the complexity and length of legislation. With no disrespect to those who have spoken of the subject, perhaps they did not press the Government to give us a definitive statement. A Bill of more than 500 pages and in excess of 125 clauses illustrates that we have added much more legislation to the statute book, and it shows that the world is a complex place and that tax law reflects it.

I would not go so far as the hon. Member for Kingston and Surbiton and suggest that we should have a biennial Bill. Sometimes there are people who seek to avoid their just deserts. A Finance Bill must move quickly to secure the revenues for whichever Government were legitimately elected. Over the years, I have received representations from the Chartered Institute of Taxation, the Institute of Chartered Accountants in England and Wales, the Confederation of British Industry, the British Chambers of Commerce and many other individuals and organisations, all of whom, notwithstanding the tax law rewrite exercise, call for work to simplify our tax system and to improve its scrutiny.

The publication, "Towards a better tax system", issued by the Institute of Chartered Accountants, points out that the Finance Bill of 1978 had 75 clauses and the Finance Bill of 1999, 140 clauses. In 1978, 53 clauses were debated, but in 1999, only 42 were debated, which illustrates a scrutiny deficit that has crept into our proceedings. For perhaps understandable reasons of pre-legislative scrutiny, we did not go through every single clause in the current Finance Bill, but the time has now come for the Treasury to consider bringing together representative bodies who have made representations and, more importantly, have ideas about ways in which the operation of the tax system could be improved beyond the rewrite exercise. Discussion of the rewrite is timely, as next week a new measure on the topic—the second—will be published, demonstrating the totality of part of the tax universe. When preparing a Finance Bill, no Treasury Minister ever sees all the relevant parts of the Taxes Act 1988. Those Ministers only see one bit and consider one set of implications. Only when the rewrite is submitted can we see the enormity of their proposals.

It is time to assemble a body under Treasury chairmanship, including parliamentary representatives with an interest in the subject and, more importantly, practitioners, to try to map out an agenda to simplify the tax system and improve its operation. The idea that simplification can do the surgeon's job of cutting chunks wholesale from the tax system is not realistic. The Government, and indeed the previous Government of whom I was a member, have always looked for opportunities to remove unnecessary legislation. Making legislation work better and making it more understandable, however, as well as the need to consider the effect of the tax code on the economy, provide a perfectly legitimate opportunity for people involved in tax to have their say.

I should be grateful if the Financial Secretary in her winding-up speech nodded in that direction, and accepted the need for the Treasury to consider a meeting of interested parties to try to find a way forward. There is universal support for that, and not of a party political nature, deriving from a genuine and rational wish to establish a better tax system, which would build on pre-legislative scrutiny and the rewrite exercise for the benefit of all of us.

In conclusion, I have often asked Treasury Ministers for an explanation or economic, arithmetical or algebraic justification of the formulae used to support their position. In a world of increasing transparency, with greater pressures for freedom of information, the Treasury must re-examine the need for clearer statements on the economic effect of its measures and their justification; the way in which things have been calculated; and indeed the very oil of the system—details on tax revenue. I have asked for forward monthly projections from the Treasury, which are required for resource accounting and with which Departments illustrate their cash flows, but so far the Treasury has been reluctant to make that information available.

If our country's financial institutions are to map the progress of the economy, it is important that information on the cash flow of the British economy be made available to them on a regular basis. On the question of simplification, however, I hope that the Treasury is willing to be more sympathetic and call the type of meeting which I have suggested. 6.19 pm

John Redwood (Conservative, Wokingham)

I have declared my interests in the Register of Members' Interests.

I, too, join my right hon. Friend the Member for Fylde (Mr. Jack) in paying tribute to those Opposition Members who have worked hard in Committee—I have read of their progress—and to my hon. Friend the Member for Arundel and South Downs (Mr. Flight) who has done sterling work, as a result of which there have been improvements to the legislation.

I am glad that my hon. Friend is asking the official Opposition to vote against the Bill on Third Reading in principle. We have heard Labour Members explain that the Bill presents a series of tax measures that they say are necessary to fund our health service. If only it were so. But when I have sought promises from Health Ministers that the taxes in the Bill would lead to the provision of consultants, nurses, doctors and other personnel whom I need in my local hospital, I can get no guarantee. I have every fear that we shall not get them quickly or in the numbers that we need.

When I read in my papers and hear in the House from time to time of the massive losses being built up in the Post Office, the financial catastrophe that is Railtrack and the massive increase in budgets for the Government's burgeoning welfare bills, I see that this legislation is part of the Government's policy of tax and waste. It is the high taxation side to pay for large bills, many of them going on things that the public does not want, or just reflecting bad management.

I am not just voting against the Bill because I object to the whole strategy; I am also voting against it because some of the taxes embedded in the legislation are especially damaging.

Paul Farrelly (Labour, Newcastle-under-Lyme)

Will the right hon. Gentleman give the House the benefit of his wisdom in relation to the Conservative party's policy on funding the NHS, or would he admit that we still await that?

Alan Haselhurst (Deputy Speaker, Saffron Walden)

Order. I hope that the right hon. Gentleman will resist that invitation while we are debating the Third Reading of the Finance Bill.

John Redwood (Conservative, Wokingham)

I am grateful, Mr. Deputy Speaker.

We need to spend money on sensible things and to raise taxes for that, but I believe that the Government are raising far too much and that a lot of it will not be well spent, which is what the public thinks.

The first tax in the legislation that I am worried about is stamp duty. Some amendments have been made, but the Bill does nothing for an area such as mine, with high and rapidly rising house prices, in which many people who are seeking to buy for the first time will be paying rather high levels of stamp duty compared with the modest sums that they have been able to save in their short careers so far.

That should matter to a Government who want more teachers, nurses and junior doctors, the very people who will have to pay those penal stamp duties when they are struggling to get together a deposit to buy their first flat or small house. In many parts of the country now where house prices are high and when the duties and thresholds incorporated in the legislation leave such people cruelly exposed, it makes it so much more difficult to populate the public sector with the good young talent that we need. Stamp duty is becoming one of the substantial barriers to their successful mobility and employment in places of high cost.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I have just spoken to my hon. Friend the Member for Sutton and Cheam (Mr. Burstow) and he agrees with me. Is it right that one pays stamp duty on one's first house purchase? Does not one pay it when one sells?

John Redwood (Conservative, Wokingham)

I have always had to pay it on purchase. I do not know where the hon. Gentleman has been, but it is a tax imposed when one buys a property. It is particularly hard for someone with a big student loan, who has tried to save for two or three years and put together a small deposit, to then discover that the biggest cost that they will have to face in addition to the legal bills and other necessary expenses will be stamp duty to a Chancellor belonging to a Government who say that they want such public sector workers to be able to work in expensive parts of the country as well as in cheaper parts, and then weep crocodile tears about the housing problems that they face.

The second tax that I wish to express concern about is the one highlighted by my hon. Friend the Member for Arundel and South Downs as his principal reason for opposing the legislation—that is, the taxation that is likely to be enacted for the oil industry. Here, again, one would hope that the Government would listen and learn from their own experiences if not from those of Governments in other parts of the world. Surely they can understand that the decision to impose a large one-off tax on the telecoms industry a few years ago was one of the main reasons for the precipitate collapse in investment expenditure and employment in that industry. What was once the proud growing industry that led the renaissance of the British economy in the 1990s is now a disaster area that is leading the economy down. We hope that that will not spread to every part of the economy, but it was a very big chunk of it to hit so heavily. Please will the Government understand the damage that will be done by taking that much money out of a high-investing industry? Will they recognise that their oil taxation, which is on a smaller scale and is therefore unlikely to do so much damage will, none the less, do some damage to the investment and employment prospects of that industry?

Tom Harris (Labour, Glasgow Cathcart)

I intervene on a point of clarification. The right hon. Gentleman mentioned the one-off tax on telecoms. Was he referring to the auction of digital bandwidths? We must be very clear that an auction is not a taxation policy. The Opposition have made mistakes about that many times before. The process was freely and voluntarily entered into by the telecoms industry.

John Redwood (Conservative, Wokingham)

It certainly was not. It was a tax on staying in business, because if the companies wished to stay in business, they had to buy a licence. The Government did not offer enough licences, of which they were the monopoly supplier, so the measure acted in exactly the same way as a tax and they were taking huge sums out of a very successful industry. Surely the hon. Gentleman can at least grasp the very simple point that if £22.5 billion is taken out of the pockets of companies that were going to invest a great deal, they will spend less and get into financial difficulties. Indeed, some of them went bankrupt or needed financial reconstruction.

Rob Marris (Labour, Wolverhampton South West)

The right hon. Gentleman seems to be setting out a very curious scenario that does not at all accord with my recollection of history. Companies were bidding for licences, and the Government were selling a state asset—access to the airwaves—for a decent price, in contradistinction to what happened when his party was in office. In Italy, for example, where a similar process was undertaken, some of the telecommunications companies simply dropped out of the bidding or failed to bid, as some in the United Kingdom did. He is trying to blame the Government for the commercial decisions and mismanagement of telecoms companies in the United Kingdom.

John Redwood (Conservative, Wokingham)

Labour Members protest too much. The policy was a tax and it did a lot of damage. I am warning the House and the Government that they are now imposing a less dramatic tax on the oil industry, but one that will have a proportionate effect on investment and jobs in the oil industry. The danger in the oil industry is that if even a marginal increase in taxation coincides with a lower oil price or some other worsening of the terms of trade of an oil company, it could lead to a very big cancellation of investment programmes.

The Government are therefore in a paradox. If they are lucky, the oil price will increase a lot, which will conceal the impact of their taxation, but have all sorts of other unpleasant consequences for the economy. If they are unlucky, the oil price will go down, which will magnify the impact of their tax increases and lead to the cancellation of projects or to a desire in the industry not to pursue marginal North sea projects that will be very damaging. A previous Labour Government found that out in the 1970s, so one wishes that the current Government had some folk memory of those experiences and had learned from them.

Ruth Kelly (Labour, Bolton West)

Does the right hon. Gentleman not accept that, by introducing a 100 per cent. first-year capital allowance, it is the Government who are taking the risk of lower oil prices and not the companies?

John Redwood (Conservative, Wokingham)

One must consider the impact of all the oil tax measures that the Government are proposing, and not just the capital allowances. As the oil industry has made clear to the Government, the overall impact will be negative, and if circumstances deteriorate further on the demand or price side, further cancellations will result. I am surprised that the intelligent Minister cannot understand that.

Howard Flight (Conservative, Arundel and South Downs)

My right hon. Friend might also be aware that large numbers of new participants in the North sea have not got any profits on which to use a capital allowance.

John Redwood (Conservative, Wokingham)

My hon. Friend makes a very valuable point. Of course, that is exactly what I had in mind when I was saying that if other conditions deteriorated further, more companies would find themselves in that position, which reinforces the fact that the overall balance of tax measures will be negative in the industry.

My third worry about the Bill is the measures that my hon. Friend the Member for Arundel and South Downs highlighted in relation to Jersey. I think that the offshore Crown dependencies that are part of the Great Britain island group have done an amazing job for their people and demonstrated that good honest businesses that generate many well-paid jobs can be run by keeping corporate and financial taxes low and keeping regulation within bounds. I regret that the Government are not standing up for that important set of principles and for the offshore islands within the European Union in the way that they should.

I fear that the measures in the Finance Bill are only part of a series of measures that are going to be taken gradually to make it more difficult for the offshore islands under the Crown to pursue their legitimate and decent businesses with the benefits of lower taxation and lighter regulation that are essential to their well-being. These islands are great success stories. They have little other natural advantage, but they have attracted talent and now have home-grown talent. They have good levels of employment and income as a result of concentrating primarily on financial services, and encouraging them through lower taxation and light regulation.

The Bill is another step in the wrong direction. It may not be the killer step, but it is part of a process in which the terms are going to deteriorate for the offshore islands. It may also spark more political opposition on the islands to their continuing relationship, in its current form, with the United Kingdom. That is something that I rather regret, and we ought to be very worried about it.

My fear about the Bill is that, when it targets specific areas or places for extra taxes without understanding the impact that it will have, it is too draconian. In other ways, however, it does not measure up to the growing storm clouds here and elsewhere in the world that might have benefited from a rather different response from a Government concerned about our future prosperity, the value of our savings, and our livelihoods.

The Government would be well advised to take the message of the United Kingdom stock market a little more seriously. It has now been falling solidly for two and a half years. It has been falling not just because of the world background, and it is certainly not just because a few big companies in the United States of America have made mistakes, or worse, in their accounting practices and undermined confidence recently on Wall street. It is falling partly because too much tax has been taken out of companies by the Government, and partly because the Government are moving towards greater hostility to the idea of making a profit on enterprise and being able to reinvest it.

The savings rate is too low, and our pension funds are in a state of crisis, as we debated recently in the House. The Finance Bill reaffirms the £5 billion a year tax hit on those very pension funds, which should be providing a better future for many of our constituents than they are now going to do, because of this continuing tax raid.

The Finance Bill is the product of a tax-raiding Chancellor who really believed that British business was so successful and so profitable that it did not matter what taxes he threw at it. I fear that we are going to discover that mistakes have been made in the Bill in its taxation of savings, its taxation of the housing market, its taxation of profits and, in particular, its taxation of the oil industry. Times are tough and different out there now. The Bill does not recognise that; it is part of the Government's policy of tax and waste, when we need a policy that promotes savings and enterprise.

Chris Grayling (Conservative, Epsom and Ewell)

This has been a wide ranging and fairly complex Finance Bill. As my right hon. Friend the Member for Fylde (Mr. Jack) mentioned, it is the first experience of a Finance Bill for my hon. Friends the Members for Cities of London and Westminster (Mr. Field) and for Fareham (Mr. Hoban) and me. I have been impressed by the good spirit that has existed both in Committee and in these debates today. Having listened to all the arguments, however, there are still a number of points on which I take great issue with the Government over what they are trying to do.

The issues relating to business taxation touched on by my right hon. Friend the Member for Wokingham (Mr. Redwood) a moment ago are at the heart of my concerns. The debate about national insurance contributions has taken place under a different umbrella, but that is part of a complex range of issues relating to business taxation which reflects a careless approach to business by the Government. I do not think that they understand what they are doing. Nor do I think that they understand the implications of their actions for individual companies and for industrial sectors. Moreover, the Government are doing this at a time when it is only too clear that business is under pressure. I was flicking through the financial pages this morning, and thinking that, in recent years—probably since the late 1980s— I could not remember seeing quite such consistent bad news right across the corporate spectrum.

Precisely when the storm clouds seem to be gathering, the Government have chosen to put significant additional taxes on business. I fundamentally disagree with the comment made by the hon. Member for Kingston and Surbiton (Mr. Davey) following my intervention. Whatever the rights and wrongs of the debate on the euro, they cannot be dealt with now, but the new taxation measures on business will affect business now, they will affect profitability this year, they will cost jobs, they will cost investment and they will make a cash difference to companies when they can ill afford it. The consequence of that—inevitably, in my view—will be seen in the employment market.

We have discussed extensively the Bill's impact on the North sea oil industry, which is probably the most acute example of the Government's failure to understand the consequences of what they are doing. The Government, in all their arguments on the North sea, remind me of a mugger who takes someone's wallet, but is kind enough to give him back the bus fare home.

The Government talk about the capital allowance that they are making available, but at Question Time a couple of weeks ago the Chancellor referred to the £500 million that he is levying from the industry. He cannot take £500 million out of an industry that employs 300,000 people and is a significant part of the employment base, not just in Scotland, but across the country, without affecting jobs and investment.

The Budget's cumulative tax measures will have an adverse effect on businesses beyond North sea oil. We have discussed the impact of the aggregates levy and the climate change levy. In Committee, we talked about the problems that the aggregates levy will pose in remote areas where such companies are often the principal local employer and a real driving force in the local economy, yet its continuing provision will remove funding from those companies and local communities and take it back to the metropolitan areas. That, inevitably, will affect communities in such areas.

There are, undoubtedly, good points for business in the Budget—no Government ever do everything badly—but equally there are fundamentally ill-thought-out measures. We have discussed the shortcomings of the mandatory e-filing proposals as well as the implication of the zero tax rate for small listed companies and the failure to extend that same benefit to unincorporated companies. Likewise, the measures to tackle the deductions to payments to subcontractors where there are undoubted anomalies go some way to solving the problems, but it is far from clear that they have dealt with all the difficulties that my constituents and others have raised with me.

The Bill also contains inconsistencies. We heard this afternoon and in Committee that the Government wish to raise duties on alcopops to tackle health and social issues, but they are also cutting duty on strong ciders, which we know are also a contributing factor to the problems that the Government are trying to address through the alcopops measures. There are vehicle excise duties adjustments for low-emission cars, yet, as I argued in Committee, the measures for vans do not reflect the changes in that marketplace.

My other big concern is key workers and the impact of the tax increases on the labour shortages in London and the south-east, to which my right hon. Friend the Member for Wokingham referred, as well as in other parts of the country that are affected by high housing costs and other high costs of living. We discussed the raised national insurance contributions during proceedings on the National Insurance Contributions Bill, but this Bill will enact a freeze in personal allowances, which will add another burden. That burden will be relatively small, but it will also be another straw on the camel's back for public service workers who find it increasingly difficult to live and work in the south-east.

As my right hon. Friend the Member for Wokingham said, the more the Government tax those people, the more difficulty they have buying a house under the stamp duty system. That will make it less likely that they stay and work in our high-cost areas and less likely that we will have good, effective public services in those areas. If that happens, we will undermine the very areas that deliver the tax revenues that support public services across the country.

I believe that the Finance Bill fails badly, and it comes from a Government who do not understand that if they put up taxes on an industry, it will cut jobs and invest less. The Government do not understand that if they increase the complexity of tax rules and tax regulations for small businesses and make their life more complicated, fewer people will take the trouble, invest the time and work the long hours that it takes to run a small business.

The Government do not understand that if they put up taxes for key workers, even in relatively small amounts, those people will not stay in the most expensive parts of our country. They will look to work elsewhere, and our labour and skill shortages as well as the absence of teachers, nurses and doctors will get worse.

This Budget, and this Finance Bill, fail to address problems that are manifesting themselves throughout our country. For that reason—along with many others that we have discussed in detail over the past couple of months—I shall be joining my colleagues and voting against Third Reading.

Mark Hoban (Conservative, Fareham)

I share the experience of my hon. Friend the Member for Epsom and Ewell (Chris Grayling)—this is my first Finance Bill. I thought it would be remiss of me not to participate in its closing stages.

I see a number of strands in the Bill. Let me say first that from time to time the Treasury has betrayed what could be described as a lack of understanding of the way in which businesses and people work. One example is the complexity of the relief for community and sports clubs, which have to jump through a number of hoops to claim it. Requiring treasurers of such small clubs to calculate how much expenditure is allowable and how much is not places a burden on them that I think will restrict take-up in many instances.

Mandatory e-filing has been mentioned. A few days ago it was reported that the Inland Revenue could not even allow its staff to use e-mail. How much confidence will small businesses have in their ability to transmit their tax returns to the Revenue electronically if at this stage the Revenue cannot even sort out its own e-mail system? It is legitimate for people to ask whether it is appropriate for them to deal with the Revenue when it has manifestly failed to provide services for its own staff.

In this and other debates, we have discussed the differential tax treatment of small businesses. It was interesting that the Paymaster General carefully used the word "company" rather than the word "business" this evening when welcoming the changes. In fact, many small businesses will lose out. I am not thinking just of sole traders; many other large unincorporated businesses and, in particular, partnerships will not be able to take advantage of the reliefs. Those that can will see a move towards incorporation, along with the costs involved in becoming a limited company—the costs of maintaining registers of shareholders, directors, mortgages and debentures, and of opening books for public inspection. The Government should consider changing the balance to remove the possibility of any deliberate or even implicit policy in favour of incorporation.

Rob Marris (Labour, Wolverhampton South West)

The hon. Gentleman seems to be advancing a curious, if interesting, argument. If I have not understood it properly, perhaps he will correct me. He seems to be saying that if the costs of incorporation outweigh the tax breaks in the Bill, a small business will not incorporate. So what? The business will be where it is now. If the costs of incorporation are less than the tax breaks, it will incorporate. Again, so what? It will still be ahead of the game.

Mark Hoban (Conservative, Fareham)

What we do not want to do is impose unnecessary regulatory burdens on small businesses. Yes, there will be a financial incentive if the tax benefits of incorporation exceed the costs, but do we really want to impose those costs? We do not want to place an ongoing burden on small businesses; we want those businesses to focus on building themselves up, rather than complying with rules and regulations dreamt up to keep them occupied.

Rob Marris (Labour, Wolverhampton South West)

rose—

Mark Hoban (Conservative, Fareham)

I am loth to give way to the hon. Gentleman again, but as he asks such penetrating questions I will do so.

Rob Marris (Labour, Wolverhampton South West)

Would the hon. Gentleman prefer the tax breaks not to be there at all? That seems to be the thrust of his argument.

Mark Hoban (Conservative, Fareham)

It manifestly is not the thrust of my argument. I would like a level playing field for businesses, be they incorporated or unincorporated. They should not be forced to choose one legal form or another simply to benefit from tax breaks. The Government have shown a lack of understanding of how business operates and how people run their personal affairs.

We have also seen the benefits of consultation, and the way in which certain aspects of the Bill have been discussed with representative bodies has been very valuable and has cut down the amount of time that we needed to spend discussing them in Committee. It is interesting to note, however, that the area of greatest disagreement has been the one on which there has been no consultation—oil taxation. The Government need to learn the lesson that consultation makes for a better Finance Bill—one that gains the acceptance of the community for which it is trying to create a suitable tax regime. The oil industry has been in uproar because the Government failed to consult it.

This is a long and complex Finance Bill. My right hon. Friend the Member for Fylde (Mr. Jack) was right—we need simpler tax legislation to reduce the burden of compliance on business and its advisers and to make it far easier for people throughout the country to understand their own tax affairs, without recourse to expensive legal and tax advice.

Mark Field (Conservative, Cities of London and Westminster)

As with many Finance Bills, I suspect that this one will be remembered as being good for lawyers and tax accountants. They, perhaps alone, will admire the increasing complexity introduced by a somewhat meddlesome Treasury team.

My hon. Friend the Member for Arundel and South Downs (Mr. Flight) spoke skilfully about many matters throughout our proceedings. As he said, we find the oil and gas provisions and the straitjacket imposed on the Channel Islands and other Crown dependencies especially objectionable, and that is why we will vote against Third Reading.

Even the Government's own advisers now highlight the fact that the Chancellor's growth projections are likely to prove grossly optimistic. Projections made only a matter of weeks ago now look hopelessly out of date. We are expecting to have growth of 2.25 per cent. in the current year, rising to 3.25 to 3.5 per cent. in the next financial year. On that basis alone, we have had vast acceleration in public expenditure. A Government who promised the end of boom and bust have placed their foot firmly on the spending pedal at just the wrong time in the business cycle.

Spending on health is rising, not just for the next five years as shown in the Budget, but presumably at similar rates for the period beyond 2006–07. It seems that it will largely be business that continues to be milked. Many of us have spoken in past years about the Government's redistributive agenda, which may have seemed out of keeping with a generally fairly successful economy, but we had an interesting discussion on property and capital taxes in what seemed a fairly innocent debate on clause 115 and, as my hon. Friend the Member for Epsom and Ewell (Chris Grayling) said, it seems that the Government regard London and the south-east as fair game for a higher burden of tax, be it inheritance tax, a vast increase in stamp duty or a whole array of other corporation and income taxes; yet there is little evidence of the investment in the public sector to which the Paymaster General refers as being focused on that area.

As the Member of Parliament for Cities of London and Westminster, I have been the first to give credit where credit is due. To a large extent, in their first five years the Labour Government have been able to be true to their watchword of stability in the economy. They have gained many plaudits for that from the business community, of which I was a member before 7 June last year. Many business people admired what the Government had done, especially when we take into account the fears that existed before May 1997. However—there is always a "however" on the Opposition Benches—although the Treasury has played the hand that it inherited in 1997 skilfully, it is fair to say that it was a very good hand. That fact has, perhaps, not been recognised as readily as Opposition Members hoped.

In keeping with the comments of my right hon. Friend the Member for Wokingham (Mr. Redwood), I am concerned about the sense of denial and complacency in much of what the Treasury—and the Government as a whole—say about the future of the economy. For the good of the economy and the country, I hope that I am wrong, but I suspect that when we gather next year to consider another Budget and another Finance Bill—I fear that the wish of the hon. Member for Kingston and Surbiton (Mr. Davey) for a biannual Finance Bill will not come true for some years to come—the economic climate will be very different. By then, we will see the damage to business of much of the meddling to which we have referred.

I wish Treasury Ministers the very best, because it is in the interests of this country that we have a strong economy—not least in respect of the investment in the public and private sectors that we all want to see. However, difficult times lie ahead. We have put prudence to one side, and the foot is firmly on the public expenditure pedal at what is probably entirely the wrong time.

I shall be interested to hear what the Financial Secretary has to say. I thank her and her ministerial colleagues for providing a constructive basis for our discussions in Committee, on Report and on Third Reading. However, I shall join my hon. Friends—notably my hon. Friend the Member for Arundel and South Downs—in voting against granting the Bill a Third Reading, because some serious problems lie ahead.

Ruth Kelly (Labour, Bolton West)

I welcome this opportunity to bring the debate on Third Reading of the Finance Bill to a close. This, too, was my first Finance Bill, and I have enjoyed it very much. I want to begin by thanking my hon. Friends and other hon. Members, the special interest groups and others who took a great interest in the Standing Committee's proceedings. Their close attention to detail and their unflagging enthusiasm have done much to smooth the Bill's passage. We certainly heard some interesting speeches—from both sides of the House—today and in Committee.

Government is all about choices, and the Finance Bill is no exception. We have chosen in favour of economic growth and prosperity; in favour of enterprise and innovation; in favour of a sustainable future. Liberal Democrats and the hon. Member for Arundel and South Downs (Mr. Flight) have accused the Government of being Panglossian—of putting too rosy a glow on our economic success. I am the first to admit that there is great uncertainty about the world economic outlook, but the fact is that the macro-economic framework that we have put in place is the right one.

On coming to power in 1997, we gave the Bank of England independence, and an independent Monetary Policy Committee is delivering pro-growth low inflation. It has the right symmetrical inflation target to deliver the dual objectives of growth and low inflation. We also have a tough fiscal framework. Over the next five years, net debt will rise no higher than 31 per cent., according to the figures in the Red Book. We now have the most open and transparent fiscal framework that I know of in any of the major G8 countries. The evidence of the success of that framework is clear. Long-term interest rates are at their lowest level for 40 years. We have had the longest period of sustained low inflation since the 1960s. Employment has risen by 1.5 million since 1997, and in the past year we have enjoyed the strongest growth of any of the seven largest industrialised economies

John Redwood (Conservative, Wokingham)

rose—

Ruth Kelly (Labour, Bolton West)

If the right hon. Gentleman will allow me, I shall make a little progress.

The hon. Member for Kingston and Surbiton (Mr. Davey) highlighted the prospects for manufacturing. Of course, I acknowledge that world trade growth was near zero in 2001—down from 12 per cent. in 2000. It was inevitable that UK manufacturing would be hit when world trade growth collapsed, and that the internationally exposed sectors of the UK would be affected. Manufacturing output fell in all industrialised nations, but by less in the UK than in our major competitors. For example, manufacturing output in Japan fell by 13.75 per cent. last year—more than twice the fall in this country.

The first signs of tentative recovery in the manufacturing sector are appearing. The Red Book forecasts that output will gradually pick up in the second half of the year. The answer is not artificially to massage down the exchange rate, as the Liberal Democrats proposed. That has been tried in the past, and it does not work. It leads only to higher inflation, and boom and bust.

John Redwood (Conservative, Wokingham)

If everything is so stable and well run, why have we had boom and bust in the stock market and in the telecom and high-tech industries over the past five years?

Ruth Kelly (Labour, Bolton West)

It is clear that stock markets across the industrialised world have fallen, or does the right hon. Gentleman believe that the UK stock market has been especially badly affected? The causes have been the uncertainty of the world economic climate and the vulnerability of corporate profitability which, as the hon. Member for Arundel and South Downs pointed out, has resulted from the recent Enron and WorldCom events.

I turn now to some of the issues raised in the debate. The hon. Member for Arundel and South Downs claimed that the Budget was somehow bad for business. It is not; it is good for business. It promotes enterprise, growth and productivity.

The Government have introduced measures to extend the research and development tax credit to all companies. The Budget cuts the small companies rate of tax by 1p and, by means of a 10p cut, reduces the starting rate to zero. We have introduced measures to reduce the administrative burden of VAT for small companies, and to improve their cash flow. We have also introduced the community investment tax credit. The Budget will increase enterprise and promote entrepreneurship in the UK economy.

The other major point raised in the debate concerns the North sea oil regime. It is right in principle to tax a scarce resource produced under Government licence. Every oil-exporting country has a special tax regime for that purpose. The Government are clear about our principles—to raise a fair share of revenue for the country, and to promote investment.

That is what we have done with the 10 per cent. supplementary charge on oil, and with the 100 per cent. capital allowance. The reform is right in principle, and we now have a stable oil taxation regime for the future.

Opposition Members have criticised the Bill for its complexity, even though 152 of its pages introduced tax relief, 160 simplified the tax system and more than 200 pages were repealed.

I know that the right hon. Member for Fylde (Mr. Jack) has a great interest in simplification. He has demonstrated a long-standing interest in the tax rewrite project, and I was privileged to serve on the consultative committee before I became a Minister. However, he suggested that the Bill has not been scrutinised thoroughly. In fact, the Government have involved just those representative bodies that the right hon. Gentleman suggested in the extensive consultation that has been carried out on the measures.

The Bill means that the UK will remain a stable, low-tax environment, favourable to business, enterprise and innovation. The overall tax burden is lower than the EU average, and lower than each of our main EU competitors. The atmosphere and climate in the UK are right for economic growth.

The Bill supports innovation and entrepreneurs. It releases productive potential as it promotes sustainable development. It joins the hands of business and communities in the cause of regeneration.

Innovation, enterprise and regeneration: those are the Government's ambitions, for the Bill and for Britain. I believe that we are achieving them, and I commend the Bill to the House.