Finance Bill

House of Commons, 13 May 2003.

[Sir Alan Haselhurst in the Chair] — Clause 1 — Rates of Tobacco Products Duty

Stephen O'Brien (Conservative, Eddisbury)

I beg to move amendment No. 1.

Stephen O'Brien (Conservative, Eddisbury)

As we commence the Committee of the whole House on the Finance Bill, may I welcome you to the Chair, Sir Alan, and draw attention to my entry in the Register of Members' Interests? We will deal with amendments Nos. 1, 2 and 3, standing in my name and those of my right hon. and hon. Friends, with the rates applying to tobacco and their implications, and with why the amendments have been proposed.

In considering these amendments, it is important to recognise the competing interests of the freedom of choice of consumers—people's freedom to be un-oppressed by the Government in the choices that they make in their own lives—and of the health background that has become an increasingly important consideration in recent years in relation to tobacco products. The plan has been to increase rates of excise duty on all tobacco products in line with inflation. The Budget stated that it would increase the rate by 2.8 per cent. with effect from 6 pm on 9 April 2003—the day the Chancellor made his Budget statement to the House. In the four Budgets between 1997 and 2000, the increases were inflation plus 5 per cent., and in Budgets since then the increases were inflation only, so the Government's current proposal is in line with the past three Budgets.

Although my colleagues and other Members will immediately have spotted that the amendments relate to tobacco products, they will also have noted that they relate not to the rate of duty on cigarettes—to which we do not propose an amendment—but that relating to the other categories of products: cigars, pipe tobacco, hand-rolling tobacco and other smoking and chewing tobacco. I hope that the reason for tabling these amendments will become clear, and that the Government will be persuaded to consider them favourably.

I began by mentioning the caveat of health issues because the focus tends to be on cigarettes. Because so much importance is attached to the behaviour that the rates of duty applying to tobacco products seek to influence, the message tends to be somewhat more emotively concerned with cigarettes. In order to ensure that the argument is as transparent and compelling as possible, those who think as I do on these matters have thought it important not to cloud the issue by dealing directly with cigarette tobacco products at this point, but I hope that the Government can learn some lessons if we are able to pursue the route proposed through the amendments.

Although the amendments do not deal with cigarette tobacco products, the problem that they identify and deal with is equally valid in terms of cigarette smoking and related tobacco products, and of other tobacco products. The outline of the problem that has informed me, my colleagues and a wide variety of outside bodies can be found in the Government's own document, entitled "Tackling Tobacco Smuggling"—it has become known as "TTS"—which was published by Her Majesty's Customs and Excise and the Treasury in March 2000. Paragraph 1 states:

"The increased availability of cheap smuggled cigarettes is undermining the Government's health objectives."

That sentiment is well understood. The amendments would change the rates because a balance must be struck—I believe that the Government also recognise this—between influencing behaviour on health grounds, necessary revenue collection and seeking to ameliorate the situation regarding revenue lost through smuggling and cross-border shopping. These revised rates would have a direct effect on all those factors.

Smuggling currently accounts for 21 per cent. of cigarette consumption and 52 per cent. of hand-rolling tobacco consumption, and the Treasury has lost a staggering £12 billion in revenue since 1997. The level of cross-border shopping, which must be distinguished from smuggling, continues to rise; it now accounts for 7 per cent. of cigarette consumption and 17 per cent. of hand-rolling tobacco consumption. That constitutes a further revenue loss since 1997 of £3 billion. No UK duty is paid on 28 per cent. of cigarettes, or on 69 per cent. of hand-rolling tobacco. Some 28 per cent. of UK cigarettes sell at £2 to £2.50 for a packet of 20, the remainder selling at full price.

In looking at the competing factors affecting the judgment that the Treasury must be required to make annually in considering these rates, it is interesting to note that the long-term downward trend in cigarette consumption has been broken. Tax increases since 1997 have resulted in a broadly flat overall level of tobacco consumption, including cigarettes and hand-rolling tobacco. I was naturally somewhat sceptical about this, thinking that those who have an interest in tobacco—be they smokers or producers—might be spinning me a line. So I turned to the Office for National Statistics, which in fact bears out these figures. For instance, in 1979—to pluck a year at random—cigarette and hand-rolling tobacco smokers accounted for 39 per cent. of the UK adult population. Between 1979 and 1992, the rate of consumption declined dramatically through the tremendous work of the previous Conservative Administration. In 1992, the rate was approximately 29 per cent.—a full 10 per cent. decrease. In 1997, the rate was about the same, and today it remains in the region of 27 to 28 per cent.

In terms of a percentage of the UK adult population, the graph for the consumption of cigarette and hand-rolling tobacco has therefore flattened, and has remained flat since 1992. So the attempt to focus on the behavioural drivers through the Treasury's annual setting of rates, the function of which is to have regard to the health of our citizens, worked dramatically between 1979 and 1992; however, the graph has remained broadly flat ever since, with the percentage remaining at just over a quarter of the adult population.

It would be fair to say that, on health grounds, much progress has been made, but it has stalled and steadied. However, the amount of cigarettes, hand-rolling tobacco and other tobacco products either smuggled into the country or bought through cross-border shopping has shot up dramatically. The statistics are far more difficult to establish, not least because smuggling is unsurprisingly not officially recorded. The revenue loss through smuggling and cross-border shopping has risen dramatically from between £0.5 billion and £0.75 billion in 1996–97 to about £4.5 billion in 2002, the last year for which records are available.

Rather than taking the rates as read and viewing them as the natural order of a Chancellor's Budget—the result of people wondering what price he is going to put on a packet of fags—it is better to focus on behavioural success and behavioural opportunities. That applies to health, to revenue and to shopkeepers—particularly the owners of corner shops, examples of which can be found in every constituency and which carry considerable overheads—who are suffering significant losses through smuggling and cross-border shopping. Constituencies are more affected the closer they are to the south coast of England, but they are not alone because smuggling goes on equally on the east coast and the problem is also prevalent in my own constituency—as I know from talking to owners of what are colloquially known as corner shops—even though Eddisbury has no coastline. A large black market has developed, and at times it has become, frankly, a legitimate industry.

I recently debated with the Minister secondary legislation through which the Government sought to allow an increased quota of certain products for personal use to be brought into the country. The concern remained that some cross-border shopping had resulted in on-sales, so the Government attempted to deal with the problem through that secondary legislation.

I have consulted people from a wide range of interests, as well as people in my own party who are focused on these matters, to establish what the solution should be for this year.

George Osborne (Conservative, Tatton)

My hon. Friend is making an excellent speech. Before he moves on, he might like to reflect on the fact that the black market encourages organised crime and has created serious law and order problems, as well as costing the Exchequer, small businesses and others in terms of revenue.

Stephen O'Brien (Conservative, Eddisbury)

My hon. Friend represents a neighbouring constituency. He recognises that, despite the fact that neither of us has a coastline in our constituencies, smuggling and the black market deeply concern many people who run legitimate, well stocked and provisioned businesses.

The Government have repeatedly recognised—it is not a matter of contention and would be agreed by all parties—that applying a rate to tobacco products is not simply a revenue-raising matter. It carries revenue-raising opportunities, as well established over many decades by Governments of both colours, but over the past 20 years it has become more widely understood—and I have sought to put it on the record with the information that I provided—that the rates provide behavioural opportunities in respect of health and revenue raising. The rates also affect the opportunities to acquire these products—whether brought from across the English channel, from other countries, or smuggled.

I have viewed health considerations particularly highly, as they are well aired and understood, though people sometimes have different points of emphasis or completely different points of view on the dangers of tobacco. As I say, we have to look at behaviour. I concluded that we should focus on non-cigarette products in order not to be distracted by more emotive health arguments attached to cigarettes, not least because evidence shows that cigarettes are the tobacco products of choice for under-age children and have peer group attractiveness for teenagers. We should therefore reflect on what it would mean behaviourally if we froze tax rates this year on certain products.

Kevin Brennan (Labour, Cardiff West)

I am trying to follow the logic of the hon. Gentleman's argument and I understand where he is going. However, is it logical to include rolling tobacco, but not to include cigarettes? After all, rolling tobacco is one of the commonest ways through which young people on low incomes get into smoking.

Stephen O'Brien (Conservative, Eddisbury)

I take the hon. Gentleman's point seriously and I have given considerable thought to it. Percentage sales of hand-rolling tobacco are small compared with cigarettes. If the hon. Gentleman will bear with me as I move through my argument, he may see that another balance has to be struck between the merits of what I am proposing now and the position in a couple of years' time when we can make a genuine comparison between the sales of cigarettes and of another set of tobacco products. We will all be better informed about any difference in the behavioural circumstances with respect to cigarettes and other tobacco products. We will be able to study where the graphs on health and revenue cross with respect to smuggling and cross-border sales and full UK duty-paid sales. We will also be able to assess the behaviour of young people. I hope that the hon. Gentleman will accept that children are primarily focused on ready-made cigarettes. Some may be interested in hand-rolling tobacco, but I am told—I do not have established evidence to give chapter and verse—that the bulk of such tobacco is sold to adults, defined as 25 years old and over. That is an adult lifestyle choice.

Rob Marris (Labour, Wolverhampton South West)

The hon. Gentleman talks about comparative figures and says that, if his amendment were accepted, we could assess them in a couple of years' time. Is he aware of the position in Canada, where I recollect that the provinces of Ontario and Quebec lowered the rate of excise duty on cigarettes because of smuggling from America? The consumption of cigarettes went up, so they are now raising the excise duties again because the earlier policy did not have the desired effect in terms of the behavioural changes that the hon. Gentleman is talking about.

Stephen O'Brien (Conservative, Eddisbury)

That is helpful. It reminds me that I did encounter data of that sort, though I cannot remember it as clearly as the hon. Gentleman does. I recall that it was one of the reasons why I felt that it would be helpful to leave out cigarettes for that purpose. It should also provide a comparative control group to assess the risks and the behavioural differences, partly because purchasing of cigarettes is more widespread and obtaining them is easier than other tobacco products.

Jonathan Djanogly (Conservative, Huntingdon)

Is it not the case, in Canada as in this country, that one simply does not know how many illegal cigarettes are being consumed? The statistics are effectively meaningless because, without knowledge of how many illegal cigarettes are in circulation, we cannot know whether smoking is increasing or decreasing.

Stephen O'Brien (Conservative, Eddisbury)

My hon. Friend makes a helpful point. It prevents us from getting hijacked by a sense of unreality in a debate that the amendments are designed to promote. We are dealing with cross-border and, more importantly, smuggling issues, and my hon. Friend the Member for Tatton (Mr. Osborne) mentioned black market operations in the UK. All the figures have to be regarded as estimates, but the Treasury, Customs and Excise, and many other interested groups—health groups and the Tobacco Manufacturers Association—are doing their best to get hold of reliable figures.

Over a period of years, estimates and approximations have been made. Although there has been some difficulty in ensuring confidence in the numbers, for the reason that my hon. Friend the Member for Tatton outlined, those numbers have become internally consistent. The information that we have makes it look as though that internal consistency has produced comparative data, year on year. The Government and health groups are thus able to refer to them.

The Government's actions are driven as much by health considerations as by revenue considerations. That was true of the previous Government, whom I supported: they, too, were keen to look at the balance between health, the raising of revenue, and the jobs involved in the very important industry that depends on tobacco manufacturing and the distribution and retailing of tobacco products. Over a long period of years, the figures have achieved at least an internal consistency. The challenge is to produce comparable figures on which the House can rely. That challenge would not be made worse by the amendments. However, some hon. Members may declare that no numbers exist that can be relied on, and that we will never know whether health issues are improving.

Pete Wishart (Scottish National Party, North Tayside)

I want to clarify the central tenet of the hon. Gentleman's argument. Is he suggesting that we reduce the proposed rate of duty on these tobacco products in an attempt to beat smuggling and organised crime? If so, that appears a very blunt instrument.

Stephen O'Brien (Conservative, Eddisbury)

I shall try to make sure that my argument comes to a form of conclusion, so that the hon. Gentleman gets a sense of where the proposal might lead. The amendment has not been tabled simply for the sake of it—far from it. There will inevitably be scepticism among hon. Members from time to time about such matters, but I am seeking to make a genuine argument, as the amount of effort that has gone into it proves.

My proposed solution would at least allow us to make a proper judgment. The primary argument for freezing tax rates on the specified tobacco product items—that is, excluding cigarettes—is that it would reduce, although not eliminate, the incentive to smuggle and to go cross-border shopping. Even tax rises by the level of inflation increase already very large price differentials. A packet of 20 cigarettes costs roughly £4.29 in the UK, compared with an official price of £2.69 in France, and street prices of between £2 and £2.50. Increases in tax since 1997 have also accompanied a rise in smuggling from just 3 per cent. to 21 per cent. We therefore have to determine what rates of duty have to do with that phenomenon, which is clearly of concern to the Revenue. That is the main business of the Committee as it considers the Finance Bill. However, it is also a concern for all hon. Members, as constituents regularly raise matters to do with health, both here and in other forums.

I remind the House of the Customs and Excise document published in March 2000. Known as the TTS document, it states that smuggling

"undermines progress on government health objectives by making cheaper cigarettes available through unregulated sources".

We can assume that the same applies to other tobacco products. The document adds that

"there are other undesirable effects. These include the law and order and social problems"—

noted by my hon. Friend the Member for Tatton—

"arising from the concentration of large groups of criminals in certain areas . . . And it has resulted in a decreasing respect for the law, as the numbers of people involved in the buying and selling of smuggled goods has risen to many thousands, possibly millions. In addition, large scale tobacco smuggling has the potential to create building blocks for organised crime networks run along business lines in a way rarely seen before in the UK, and to finance other serious criminal activity."

Moreover, it is also argued that, because smuggled cigarettes are sold through unregulated sources, children can buy them easily. The amendment deals with the non-cigarette side, in an attempt to test whether a better result might not be achieved if the price of tobacco were not raised continually, as that creates the enormous differential that has been described. As has been noted, tobacco can be especially attractive to children. However, the amendment is not susceptible to such arguments, as it would not promote tobacco use among children.

Rob Marris (Labour, Wolverhampton South West)

Does the hon. Gentleman accept that the vast majority of tobacco products smuggled into the UK come from countries in the eurozone? The euro has risen 10 per cent. in value in this calendar year. That will undercut any comparative figures that the hon. Gentleman is trying to use, and also what he is seeking to achieve with the amendment, because the price of cigarettes in France in sterling terms has effectively gone up 10 per cent.

Stephen O'Brien (Conservative, Eddisbury)

The hon. Gentleman makes an interesting point. At the grave risk of sounding as though I would much prefer to be at the Government Dispatch Box, rather than the Opposition one—although of course I would—I have not seen figures to support the contention that smuggling is primarily from the eurozone countries. I believe that the original source may be the eurozone countries, but the rise in criminal activity means that there are increasing numbers of intermediaries outside the eurozone. There is a fair argument to be had as to whether that exchange rate will make a huge difference. I think that the real concern is the current price differential.

George Osborne (Conservative, Tatton)

Perhaps I can help my hon. Friend, as a huge number of smuggled products are manufactured in the UK, and then exported abroad to countries such as Latvia, Moldova and Afghanistan. They are also exported to Kaliningrad. The products are then smuggled back into this country. They do not come from France, so the matter has nothing to do with the euro exchange rate.

Stephen O'Brien (Conservative, Eddisbury)

I am grateful to my hon. Friend, who puts the balance of the argument. Some smuggled goods clearly do come from France. I have seen various figures, although I am reluctant to place enormous reliance on them all. The nature of the activities involved makes it difficult for us to be sure about such figures.

One option that is open to the Government is to alter, in the Finance Bill, the rates on these tobacco products. It is therefore right for us to take a cool, calm look at whether the House is doing the right thing in terms of influencing matters—smuggling, cross-border shopping, and health issues—about which we are so rightly worried.

Lawrie Quinn (Labour, Scarborough and Whitby)

The hon. Gentleman is developing an argument about an experiment. Has he assessed what such an experiment would cost the Exchequer?

Stephen O'Brien (Conservative, Eddisbury)

I have looked at that. I have not had the Treasury model to play with, but I have been fairly persuaded by the evidence that I have seen. I am sure that the hon. Gentleman would want me to refrain from going through the body of that evidence—much of it is flagged among my notes—but I am convinced that concerns on these matters are shared by all hon. Members. They may approach the matter from a variety of angles, but there is a broad health concern. If the Government had the vision and courage to go down the sort of route proposed by the amendment, I think that there could be a net gain for the Revenue.

So much hand-rolling tobacco that is non-UK duty paid now comes into the country that reducing the price differential would have a beneficial effect. I do not propose that the Government should be braver, and reduce the differential still further. That would not necessarily be a responsible action, but the amendment offers us the opportunity to find out whether the approach would have some effect.

It is possible that those with whom what I propose might not necessarily find favour will say that it would increase UK tobacco consumption. I suspect that overall tobacco consumption is, in fact, set by other factors. It has to do with the price at which one acquires tobacco, but also the ease with which one acquires it and the incentive of a massive differential. There is becoming almost a culture of cross-border shopping, and there is something quite attractive to young people in acquiring cigarettes and tobacco products in marketplaces in which they are non-UK duty paid. There has been some interesting talk in the pub from time to time about that.

Lawrie Quinn (Labour, Scarborough and Whitby)

Following the line of my argument, I am sure that the hon. Gentleman would not want to leave the House in the dark on why he feels there might be a net gain. Approximately how much gain does he think the Revenue and the Exchequer would receive from his experiment?

Stephen O'Brien (Conservative, Eddisbury)

I am tempted to try to satisfy the hon. Gentleman's request, but I do not think that that would be responsible since I would be taking a stab at it. The effect is more likely to be neutral than to be a small net gain, but one need only examine the data to see where the graph lines cross. I cannot be sure; there might be a small net loss. What we should really focus on is the influence that the rates will have on those behaviours that we think are in the best interests of our constituents, as as regards access to products that some people believe have health considerations attached to them.

There might be some challenge to Treasury receipts; I cannot be 100 per cent. sure about that. The bigger issue is the direction in which we are going. Is it right automatically to assume that there should be an escalator each and every year, or should we reflect on underlying factors such as the massive rise in smuggling? We know that the Government are concerned about that. They have brought forward measures—somewhat late in the day in our view—to try to address it. They know about cross-border shopping, and it seems that nothing will persuade them to see that as something that they would necessarily want to stop.

It is important to the corner shops in all our constituencies to bear all these points in mind. I dare say that I am not the only Member of Parliament who has had representations from constituents who are doing their best to run those fine-margin businesses as a community service. They are not alone: community post offices and community pharmacies are also under threat, and we should do our best to help our constituents to retain those services.

I think it wrong to argue that increased UK tobacco consumption or reduced Treasury receipts would result from the amendments. We must accept that tobacco consumption has not changed since roughly 1992, in spite of a 27 per cent. real terms increase in cigarette tax. Smuggling has reduced the average price of cigarettes sold in the UK, and what has changed is from where and how tobacco products are bought, and at what price. The impact on Treasury receipts is likely to be broadly neutral, in fact, as more consumption will be captured in the tax net, though that does not necessarily imply more consumption. Catching consumption in the tax net is what rightly concerns the Minister and the Government. That would also give us data containing the right information for health planning.

To help us test the Government's primary arguments, publication in full of the Taylor report, which I request once more although I know that that the Government have consistently denied us publication, would have been helpful, even if all the arguments have been made in this place and the other place. The Government have always claimed that the report contains operational and sensitive information, but it is appropriate to ask for publication for no other reason than that it is apparently one of the best studies available, on which the Government have, presumably, relied, and which contains data that would allow us not to make experiments in the dark. The hon. Member for Scarborough and Whitby (Lawrie Quinn) said that we should not take a step in the dark, and the Taylor report would help shed some light on the subject. Once again, therefore, I formally request publication on the basis that the debate is ill served by continued Government secrecy.

I propose a freeze on duty to encourage UK smokers to revert to UK duty paid products and maintain UK revenue, while not, I believe, increasing total consumption, which is what matters. UK duty paid product is sold at a price to deliver Government health objectives for adults and children. The reason I single out non-cigarette tobacco products for a freeze is that the House could, by accepting the amendments, establish evidence of the differential in consumption and revenue raising between cigarettes and other tobacco products. Placing them on a comparable basis would provide a control group test.

While there has been legitimate concern about whether that would be a stab in the dark, I think that it would provide a glimmer of understanding about how the House can genuinely influence our constituents for the better by what we do. During the period of the present Government, there has been an enormous expansion in smuggling and the new phenomenon of cross-border shopping, which seems to be set fair, without let. Consumption has flat lined; we are not reducing consumption among the adult population, and it is increasing among children and, particularly, young women.

What I propose would be appropriate, and I hope that the House will give the amendment a fair wind.

Jon Trickett (Labour, Hemsworth)

Thank you for calling me, Sir Alan, and welcome to the Chair. When I last sat on a Finance Bill Committee, Labour was in opposition. I do not doubt that you, in your wisdom, will keep me well in order.

I listened carefully to the lengthy exposition of the hon. Member for Eddisbury (Mr. O'Brien), but I was not convinced by it. His logic appeared to favour tax harmonisation across the European Union: wherever there was a cross-border differential in prices as a result of taxation, the country charging the higher rate of taxation should reduce it to the lower rate on the other side of the customs border. That implies tax harmonisation across Europe, so I was surprised to hear Conservatives, who usually pose as the Eurosceptic party, argue for a self-denying ordinance in the Treasury that would require a reduction in taxation wherever such a differential arose. I would not want that, and I am not sure that many of my colleagues would, but it was interesting to hear that case made.

A contrary argument might have been made—that taxation on the continent should correlate more closely to ours, but the Tories always want to cut taxes, no matter what the implications are, and the tax harmonisation that they want would take us to the lower end of the spectrum.

We should remind ourselves of why we tax tobacco products. Some 120,000 deaths a year are directly caused by tobacco consumption of one kind or another. There is no real evidence that cigarette smoking is substantially more lethal than other forms of tobacco consumption. The Treasury has increased taxation on tobacco products, under both main parties, not just to safeguard revenue, but to try to bring about a change in behaviour to reduce tobacco consumption. Every study undertaken throughout the world has demonstrated an inverse relationship between price and consumption: the more tobacco products cost, the lower is their consumption. There is also a correlation between consumption and the impact on health of tobacco, so the argument in favour of raising prices, reducing consumption and thus increasing the nation's health is extremely powerful.

John Baron (Conservative, Billericay)

Does the hon. Gentleman accept that if taxes are increased to such an extent that smuggling becomes prevalent, thus swamping the domestic market with under-priced cigarettes, consumption could increase? That is Conservative Members' main concern. We believe that the link between tax increases and reducing consumption has finally been broken, and we are greatly concerned about that.

Jon Trickett (Labour, Hemsworth)

I shall come to that point in a moment or two. I was trying to remind the Committee that we should go back to first principles and establish why the Treasury, for many years and under all Governments, has increased taxation on tobacco products.

In the past, the Conservatives adopted an inflation-plus policy; each year, revenue would increase beyond inflation. The Labour Government decided to change the rules and, because of smuggling, to increase the amount only by inflation—the issue raised by the hon. Member for Billericay (Mr. Baron). Like the hon. Member for Tatton (Mr. Osborne), I am a member of the Public Accounts Committee, which looked into the issue and found that most smuggling is carried out not as a small private enterprise by people in white vans but on a massive scale. Imperial Tobacco was, apparently, systematically exporting tens of millions of cigarettes and other tobacco products each year, which were later smuggled back to the United Kingdom. After careful consideration by Customs and Excise and the PAC, measures are being taken and a memorandum of understanding is about to be signed. That will make a substantial difference.

Rather than adjusting tax rates and, in effect, abandoning the consensus about taxing tobacco products for health reasons, we should be trying to tighten the activities of Customs and Excise and other enforcement authorities so as to reduce smuggling. That would secure our objectives for both health and revenue.

With those few points, I conclude my remarks. I await the rest of the debate with interest.

David Laws (Liberal Democrat, Yeovil)

The debate is extremely important and I am grateful for the opportunity to make some comments on the level of duties on a variety of tobacco products.

I share some of the concerns expressed by the hon. Member for Eddisbury (Mr. O'Brien), although I would not go as far as his proposal that the increase in indexation proposed by the Government should be reduced. The detail of the evidence given by the hon. Gentleman is not sufficient to allow us to make that move.

The amendment is a probing measure that invites the Government to reflect on their strategy for the taxation of a variety of tobacco products, and to consider whether it is working in the context of both the huge increase since 1996–97 in the share of smuggled tobacco products sold in this country and the changes that the Economic Secretary was forced to make last year to legislation on the single market. The changes reflect the fact that we are in a single market, so we cannot use some of the measures previously adopted by the Government to constrain people from legally importing tobacco products.

The reason why we are focusing particularly on hand-rolled tobacco is that the greatest proportion of smuggling occurs in that market—a point made by the hon. Member for Eddisbury. I promise that I shall not go back over all the figures cited by the hon. Gentleman, but we need to consider the amazing proportion of the hand-rolled tobacco market accounted for by smuggling. The latest figures suggest that about 52 per cent. of that market is smuggled tobacco, which is extraordinary. Throughout British history, one can think of few other products where there was such a high proportion of smuggling. When we add to that the 17 per cent. of tobacco legitimately purchased across borders, we find that no duty is paid on almost 70 per cent. of the hand-rolled tobacco consumed in the UK.

When we consider changes in duty and the effect of the escalators introduced by the Conservative Government, which were escalated by the Labour Government for a period after 1997, we find that the consumption of hand-rolled tobacco has risen by about 47 per cent. since 1997. It currently accounts for 25 per cent. of UK cigarette consumption. The strategy does not, therefore, seem to have been especially successful.

We would have thought that the Department responsible for such matters—the Treasury, which is stuffed full of economists—would be cautious about maintaining its present policy, which is based entirely on trying to police the trade, as opposed to trying to deal with some of the fundamental underlying problems: in essence, the vast duty differential between the UK and other countries, including those on the continent, which provides a massive incentive for individuals to engage in illegal activity as well as legally to bring across the channel huge amounts of goods on which duty is low or not paid at all.

Our current policy on this matter reflects a change in the approach that we have taken for many years. I freely acknowledge that, some years ago, our party was in favour of increasing tobacco taxation and hypothecating it to the national health service, a policy picked up by Labour when it came into government. We acknowledge that the huge smuggling activity, across the channel and elsewhere, puts a cap on the extent to which we can increase tobacco duty in the interest not only of health objectives but also of revenue raising.

George Osborne (Conservative, Tatton)

I am grateful to the hon. Gentleman for being so candid about the mistakes made by the Liberal Democrats in formulating their previous policy. Does he agree that if tobacco revenue was hypothecated to the health service, it would be extremely difficult for him to move an amendment to lower duty because that would be to cut money for the NHS?

David Laws (Liberal Democrat, Yeovil)

I accept that it would not make sense to hypothecate all tobacco revenue, although it certainly could be done at the margin.

I am most grateful to the hon. Gentleman for referring to alterations from previous policies, as I was about to invite Members from other parties to acknowledge that their policies have also changed over time. I hope that brief reference will encourage Members on both sides of the House to reflect that such debate is worth while and that we should all be honest about our history.

The hon. Gentleman has been involved in politics long enough to know that the significant increases in tobacco taxation in recent times began in 1993, when the then Chancellor of the Exchequer, the right hon. and learned Member for Rushcliffe (Mr. Clarke), introduced his 3 per cent. escalator, over and above the rate of inflation and the indexation that we are discussing. In true style, the right hon. and learned Gentleman pugnaciously defended his approach in the Budget statement of November 1996, describing it as

"necessary masochism in the wider public interest.—[Official Report, 26 November 1996; Vol. 286, c. 168.]

That necessary masochism, as he termed it, was continued by the Labour Government in 1997, when they stepped up the escalator to 5 per cent., which they maintained for a number of years before deciding in 1999 that the automatic link should be broken, while implementing the 5 per cent. rise in the March 2000 Budget on the basis that it would encourage existing smokers to smoke less or quit and discourage young people from taking up the habit. All parties, at different times, have therefore supported the strategy of increasing tobacco duty. It has no doubt been a useful revenue raiser for parties in government, and a desire has also existed to increase the price of tobacco products to deter their use, which, as we all know, is extremely damaging to health.

Other EU countries with high duty rates and prices compared with other countries have similar concerns to those that have been expressed in this country over the past couple of years. Canada and its experiences were mentioned in an intervention, but we should recall that Denmark voted recently to reduce tobacco duties and to bring that measure into effect later this year. I hope that the Treasury will follow the experiences of other countries in the EU closely. I hope that it will look at the evidence on which the decision in Denmark was based, and that it will also follow closely the experiences in Denmark after it reduces duties, to see whether the policy has the effects that the hon. Member for Eddisbury was suggesting.

We prefer to ask the Government to take seriously the arguments being made now about the huge duty differential between ourselves and other countries. We also ask the Government to consider seriously whether it will ever be possible to reduce significantly the market in smuggled tobacco while we have such duty differentials. We have had similar debates over recent years about the level of duties in the UK, many of which considered the evidence, whereas the hon. Member for Eddisbury appears to want to conduct an experiment without amassing the appropriate amount of evidence. One good example of that evidence-based approach was the previous Government's decision to reduce the taxation of spirits, which has to some extent been followed under this Government.

We therefore know why successive Governments have decided to maintain high duties on tobacco products. First, it has been as a consequence of medical concerns about the consumption of tobacco. Secondly, it has proved to be an extremely good way of raising money for Governments, which suggests some contradiction in relation to the first motivation. The increases since 1996–97 in the share of our market accounted for by smuggled tobacco and tobacco, on which no duty is paid, should give all of us in the UK reason to wonder whether the existing strategy is working and reasons to take the issue very seriously. I join the hon. Member for Eddisbury in regretting very much that when Martin Taylor considered this issue a few years ago, and produced what we believe was an extremely detailed report, which was rumoured to touch on the issue of duty differentials and whether they were too wide, the Government did not allow his report to be aired in public. They have been criticised for that a number of times in the House, including by the Treasury Committee.

Pete Wishart (Scottish National Party, North Tayside)

Can the hon. Gentleman help the House by naming any health professional body that agrees that the freezing or reduction of duty on cigarettes would be a good thing in terms of the health issues?

David Laws (Liberal Democrat, Yeovil)

I am grateful to the hon. Gentleman. That is precisely the type of issue that needs to be considered as part of a study into whether the existing duty differentials are working. Although I am sure that no or very few individuals would suggest that a lower price for tobacco products in this country would have anything other than adverse effects on health, many individuals, even in the health field, would be extremely concerned about a system in which no duty is paid on 28 per cent. of cigarettes, and in which smuggled hand-rolled tobacco accounts for 70 per cent. They would also be extremely concerned that a large amount of the Government's health policy in respect of tobacco products was being undermined by the fact that a huge amount of consumption in this country is of products on which no duty was paid.

That trend is being exacerbated, undoubtedly, by the Government's responsibilities in respect of the single market, as was demonstrated by the decision that the Economic Secretary had to take last October to dismantle some of the Government's draconian steps to stop tobacco and other dutiable goods being brought into this country. It is too early to say what will be the effects of the Government's policy reversal. When we look at the figures in the year ahead, we may find, as some tobacco manufacturers have suggested on the basis of the early data, that the proportion of tobacco consumed in this country that is smuggled or brought in legitimately with no duty paid increases markedly as a consequence of that policy reversal.

Rob Marris (Labour, Wolverhampton South West)

May I point out to the hon. Gentleman that it was not a reversal of Government policy? The Government were turned over in the courts and followed the law.

David Laws (Liberal Democrat, Yeovil)

The hon. Gentleman is playing with words. What he is saying is that the Government's policy was overturned in the courts, so the Government had to change their original policy in a serious way. Some of the major measures suggested by Martin Taylor that the Government implemented were precisely the measures that have now had to be dismantled, whereas some of the proposals in respect of narrowing duty differentials appear to be precisely those that the Government have not been willing to discuss.

The stage has been reached at which the Government and the Treasury ought to commission a serious and public piece of work that is seen to be independent from all interests, to consider three issues. First, it should consider the economic impact of current duty differentials, and what would be the effect of narrowing them. I know of few economists who at this moment think that a reduction in tobacco duty would be self-funding—that it would increase demand in this country in such a way that it would pay for itself. The Institute for Fiscal Studies certainly did not seem to reach that conclusion when it reviewed the issue a couple of years ago. The increase in smuggling, however, may have changed the dynamics of that calculation. As the hon. Member for Eddisbury also mentioned, we need to consider other costs, such as the effects on small businesses, the economic incentives that we are creating for people to travel backwards and forwards between the United Kingdom and the continent, and the far-from-negligible policing costs for the Government of having to convert a strategy that could be based on narrowing duty differentials into one based entirely on policing.

Secondly, clearly, we must understand better the health effects of any reduction of duty levels. As the hon. Member for Eddisbury said, it is notable that recently, when tobacco duty has been increasing rapidly, we seem to have been least successful in reducing consumption. Consumption seems to have levelled out precisely when duty has been increasing significantly. That may tell us that the strategy has not been working recently because it has created such incentives for people to bring in non-duty-paid goods that it has undermined the effect of the Government's attempts to increase tobacco prices.

Thirdly, as the hon. Member for Eddisbury also mentioned, there is the issue of crime, and the fact that the huge illegal smuggling activity is fuelling a significant crime wave, not least in the south-east corner of the country. That and the associated crime, and the causes to which that profit is put, ought to be a great concern for the Government.

I hope that the Government will not hide behind the concept that the present rate of duty is exactly right. I hope, too, that the Economic Secretary will acknowledge the huge increase in smuggling over recent years and the need to take that into account in Government policy. I also hope that he will acknowledge that the Government's U-turn on the tobacco escalator—the scrapping of the automatic escalator—reflects their understanding that there is a limit to the extent to which tobacco duties can be allowed to rise without introducing such large incentives to smuggling that the basis of the policy is undermined.

George Osborne (Conservative, Tatton)

The hon. Member for Yeovil (Mr. Laws) said that we all had to be honest about our past. Saying that I used to smoke is my contribution to meeting that request. At times, I am in danger of having the zeal of the convert, because I see the damage that smoking does. By instinct, and like many people, I recognise the value of having high duties as a way of discouraging people from smoking. However, as the hon. Gentleman said and as my hon. Friend the Member for Eddisbury (Mr. O'Brien) pointed out in his good speech, the issue is much more complicated than that, and it is right for the Committee to explore how the rates of duty that the Government set impact on tobacco smuggling and consumption.

As many people have said, smuggling is a massive problem. A fellow member of the Public Accounts Committee reminded us that it had recently carried out an investigation into tobacco smuggling. It broke with all precedent by summoning before it the representatives of a private company—the management of Imperial Tobacco—to explain to the Committee what the company's relationship was with the smuggling problem and Customs and Excise.

I have several concerns that have already been elucidated by other hon. Members, but I will touch on them briefly. My hon. Friend the Member for Billericay (Mr. Baron) pointed out the health concern. The Government's legitimate objective of using fiscal measures to discourage consumption is clearly undermined if those same measures lead to a huge increase in smuggling. One of the features not yet touched on in the debate is the fact that between 2 billion and 3 billion of the cigarettes that are smuggled are counterfeit. They are not actually the cigarettes that they claim to be. That could have serious health implications. People might think that they are smoking low-tar cigarettes because that is the way that they are packaged when, in fact, they are smoking counterfeit cigarettes that are not low tar. There are serious health concerns which should be addressed.

I touched on law and order when I intervened on my hon. Friend the Member for Eddisbury. Tobacco smuggling is a huge boon to organised crime in this country and it goes hand in hand with other activities such as drug smuggling and the trafficking of human beings for prostitution and immigration purposes. It is striking that many of the smuggled cigarettes that we consume come from places such as Latvia, Moldova, Afghanistan and Kaliningrad. Such places are associated with many of the other serious crime problems that we face.

There is another aspect to my concern about law and order. Because one in five cigarettes are smuggled in, because one in five smokers use illegal products and because they are purchased off the back of a lorry by the owners of pubs, clubs and corner shops, many otherwise law-abiding people are brought into contact with the criminal fraternity. That can have a corrosive effect.

As is legitimate in a debate on a Finance Bill, Members have touched on the revenue concern. In one year that the Public Accounts Committee considered, £3.5 billion was lost as a result of tobacco smuggling. That is the equivalent of 1p on the basic rate of income tax, so we are talking about a very large sum of money.

My next remark is not intended as criticism of the present Government, because all Governments have pursued this policy. The underlying cause of the problem is the variable rates of duty available in this country and in other countries, particularly those near us in Europe. If the price of a packet of cigarettes were very low, there would be a limited incentive to smuggle them into this country. Therefore, it is legitimate to ask about the impact of those rates on smuggling and consumption.

I have two questions for the Economic Secretary—one is general and the other more specific. First, what sort of work and modelling has been done in the Treasury on the effect on cigarette consumption, smuggling and revenue of freezing or reducing the duty? When Richard Broadbent, who is otherwise a very impressive individual, came before the Public Accounts Committee, he was questioned by its Chairman on this issue. Mr. Broadbent replied:

"I do not know and I am not sure we are able to calculate with any degree of certainty—and we have not calculated—what the impact might be of such a step downward in rates in the UK".

That is very surprising because, when the Chancellor sets his Budget, I should have thought it perfectly reasonable to ask what the effect of reducing duty would be. What modelling has been done? Can the Economic Secretary tell us now or write to me later with detailed evidence of the modelling?

Stephen O'Brien (Conservative, Eddisbury)

I am grateful to my hon. Friend for making that important point. It is quite clear that the absence of any such modelling at official level in the Treasury must reinforce the argument for looking at the proposals in the amendments. There must be some form of ability to test whether the strategies for smuggling and cross-border shopping are having an effect in the way that most of us desire.

George Osborne (Conservative, Tatton)

I am grateful to my hon. Friend for making that point. It is, of course, normal practice in this place for the Opposition to do the Government's work for them by trying to work out what would actually work. As the debate has gone on, I have watched as the Government Whips and Treasury Ministers have spoken to each other. I am an optimist. Perhaps they will accept the amendment. That would be a good thing.

It would be interesting to know what work has been done. As the hon. Member for Yeovil said, clearly some thought went into the issue when the Government stopped the escalator effect on cigarette duty. They must have known or guessed what impact that would have had. It would be interesting to hear from the Economic Secretary what the Laffer curve effects—if I can cite another economist—would be on reducing duty. Would that increase revenue?

Pete Wishart (Scottish National Party, North Tayside)

Is the hon. Gentleman seriously asking the Government to determine their fiscal policy on the basis of trying to deal with smuggling?

George Osborne (Conservative, Tatton)

I am asking the Government to tell me whether they would further their objectives for improving the health of the nation, for cracking down on problems of law and order and for raising revenue by reducing the duty. That suggestion may be counter-intuitive, but we have shown in other areas of taxation how that can work.

John Bercow (Conservative, Buckingham)

Will my hon. Friend give way?

George Osborne (Conservative, Tatton)

I cannot resist.

John Bercow (Conservative, Buckingham)

I am very grateful to my hon. Friend for giving way. I fear that his optimism about the Government's reaction to the amendments is positively Panglossian. However, at least his position is not obscurantist or neanderthal, something to which the stance of the Scottish nationalists bears a striking resemblance. Can he tell me what proportion of the cost of a packet of 20 cigarettes is now accounted for by tax and excise duty? When I introduced a ten-minute Bill covering the matter nearly three years ago, the figure was more than 79 per cent.

George Osborne (Conservative, Tatton)

I cannot give my hon. Friend a precise figure, but 80 per cent. is the figure that I have seen. That is extremely high and certainly higher than in any other country in the EU and I imagine anywhere else in the world.

My specific question is about Imperial Tobacco, which was raised earlier in the debate by a fellow member of the Public Accounts Committee. It may astonish the Committee to learn that half of all the smuggled cigarettes in this country are Regals or Superkings. A huge proportion of the smuggled products are produced by Imperial Tobacco. When we examined the issue, we found that a third of its exports went to five places: Latvia, Kaliningrad, Afghanistan, Moldova and Andorra. Indeed, when the hon. Member for City of Durham (Mr. Steinberg), who is also a member of the Committee, asked the chief executive of Imperial Tobacco whether

"you honestly believe that the 2 billion cigarettes that you exported"—

to these five places—

"were going to be smoked by the people of those countries",

Mr. Davis, the chief executive of Imperial Tobacco replied, "Yes".

For all those reasons, Customs and Excise was unable to conclude a memorandum of understanding with Imperial Tobacco even though it had concluded a memorandum with Gallaher and British American Tobacco. It has been reported in the press recently that Customs feels that Imperial Tobacco has made huge progress and is close to signing a memorandum. It would be interesting to hear the Economic Secretary say something about that.

John Baron (Conservative, Billericay)

I welcome you to the Chair, Mrs. Heal. I want to focus on the adverse effects of tobacco smuggling in support of one or two previous contributions, most notably that made by my hon. Friend the Member for Tatton (Mr. Osborne). Smuggling will increase because of the measures in the Bill, and there are many dire effects of that.

Clause 1 sets out the new rates of tobacco duty, which increased by 2.8 per cent. from 9 April, in line with inflation. Conservative Members share the Government's desire to reduce tobacco consumption in this country. No one disputes the harmful effects of smoking—it is the single largest cause of preventable illness and premature death in the United Kingdom. As we have heard, it kills approximately 120,000 people every year and causes 85 per cent. of deaths from lung cancer. The Government have confirmed that tobacco is the only legal product that kills one in two people who use it.

I urge the Government to think carefully about how they intend to address one of the main drivers that affects tobacco consumption in Britain, especially among the more vulnerable groups in our society: tobacco smuggling. There is a flourishing trade in black-market tobacco products in the UK and one cannot escape the fact that that is caused, to a large extent, by the substantial price differential between cigarettes sold in the UK and in other European countries. A packet of 20 cigarettes is about £2 cheaper in France than here. It is little wonder that the National Audit Office has estimated that the number of cigarettes smuggled in 2001 rose from 14 billion to 17 billion and that more than one in five cigarettes consumed in the UK are smuggled. The proportion of consumed cigarettes that are smuggled has increased from 3 per cent. in 1997 to 21 per cent at present. That is a phenomenal increase.

There are two profound consequences of that. First, there is a tremendous loss of revenue to the Exchequer. As my hon. Friend the Member for Eddisbury (Mr. O'Brien) said, the combined effect of a steep rise in smuggling and cross-border shopping means that about 28 per cent. of cigarettes and 69 per cent. of hand-rolling tobacco do not attract UK duty. Estimates suggest that the total revenue lost since 1997 is something like £15 billion. Indeed, the NAO recently published a report claiming that Customs and Excise is losing up to £7 billion a year owing to fraud and lost taxes and that half that is lost owing to tobacco smuggling. That sum of money is enormous. How many hospitals could be built and how many extra doctors and nurses could be recruited with that money? That is certainly worth thinking about.

Secondly, the increase in smuggling has been a major contributor to the fact that the long-term downward trend in cigarette consumption has been broken. Indeed, one could argue that consumption might be on the rise and that the problem is underestimated. For example, a survey published in the British Medical Association's journal "Tobacco Control" at the end of last year revealed that one in five children aged under 16 are regular smokers, which is twice the Department of Health's original estimate.

There is little point increasing taxes and thus creating an ever-larger differential with prices across the channel if we do nothing to stop the smuggling that undoubtedly ensues from that. It is a silly policy that is costing this country many billions of pounds in lost revenue. The policy is contributing to the increase in cigarette consumption, especially among our young, because cheaper smuggled tobacco products and cigarettes are now so prevalent in the UK. In other words, because smuggled cigarettes are so much cheaper, they are swamping the market and consumption is rising. That is the exact opposite of what we are trying to achieve.

The Government should take the issue more seriously and re-examine their assumptions. Without a real clampdown on smuggling, the policy of ever-higher taxes will lead to a market that is increasingly supplied with cheaper smuggled cigarettes. That will encourage a long-term increase in consumption, although I believe that that has already started, and a consequential loss of life. I hope that the Government will re-examine their policy.

Jonathan Djanogly (Conservative, Huntingdon)

Many of my hon. Friends have discussed in detail loss of revenue owing to smuggling and I shall not go over all those arguments again. They made sophisticated arguments, and none more so than my hon. Friend the Member for Eddisbury (Mr. O'Brien), and I thought that it would be more appropriate to make a more basic observation.

The tax increases will hit the poorest members of our society disproportionately. Taxes that are paid on things always attack the poorer members of society but the tobacco tax is especially disproportionate. We must face the essential point that people who cannot afford to go on a booze cruise are likely to be the people who will be induced to buy smuggled goods off a barrel in the street. The impact of the measure is doubly disproportionate toward poorer people.

The hon. Member for Hemsworth (Jon Trickett) said that he was surprised that our party was talking about Europe, but this is not a question of what my colleagues or I say about other countries. The fact of the matter is that this country's policy is to dig its head in the sand. It is no wonder that hundreds of thousands of people go abroad to buy cigarettes from our European neighbours every year because they are less than half the price of those sold in this country. It is a straightforward and unsophisticated argument.

The amount of revenue lost was mentioned earlier in the debate and I said that I was always dubious about the figures that are bandied around. I have seen a figure of £3.5 billion cited as the amount of lost revenue, although I heard my hon. Friend the Member for Billericay (Mr. Baron) cite a figure of £7 billion. I am not sure which figure is true, but that confirms my view that we do not know how much is being lost, although I am happy to accept the figures that my hon. Friend mentioned. Additionally, when we talk about lost revenue, we do not discuss the hundreds of millions of pounds that we also spend on extra customs officials, special equipment and operations to root out smugglers.

The Government receive significant revenue from tobacco but by setting the tax rate so high that British people increasingly buy legally from the continent—that has nothing to do with smuggling—they will lose out on the potential tax take while doing nothing to improve public health in this country.

John Healey (Labour, Wentworth)

May I welcome you to the Chair, Mrs. Heal, on my first opportunity to serve under your chairmanship in the Committee of the whole House?

We heard a reflective and detailed exposition from the hon. Member for Eddisbury (Mr. O'Brien) that raised genuine concerns and questions about the current policy and although I respect that, I must tell him that his contribution might have been more appropriate in the Standing Committee. However, what is discussed on the Floor of the House is a matter for his and his colleagues' judgment and choice.

The hon. Member for Yeovil (Mr. Laws) made a somewhat less detailed and reflective contribution, although it was nevertheless considered. He described amendment No. 61 as a probing amendment. It would make a negligible change to the Bill and it does not disguise his interest in tax harmonisation throughout the European Union, which lies behind many of his remarks.

David Laws (Liberal Democrat, Yeovil)

I am happy to confirm that my party believes in tax competition, not tax harmonisation, and that is precisely what the debate is about.

John Healey (Labour, Wentworth)

The hon. Gentleman urged us to have a smaller, if not harmonised, differential on excise duties. We will follow closely what other European countries do. The hon. Gentleman is right that Denmark is reducing excise duty on tobacco, but in January France increased the duty and VAT on a packet of cigarettes by 34p and Germany recently increased it by 63p. So the UK is not alone or isolated in its policy of high taxation to reduce smoking.

The hon. Members for Yeovil and for Eddisbury asked about the publication of the Taylor report. That call is not new and my reasons for refusing its publication have not changed. The Taylor report contains internal private advice that was supplied to the Chancellor and we will not publish it.

Stephen O'Brien (Conservative, Eddisbury)

It is difficult for Opposition Members to gainsay what a Treasury Minister says about an internal report that was commissioned to provide private information. It would be fair for the Economic Secretary to reflect on the idea that it would be better if internal reports were not publicly announced as great triumphs of consultation. There were high expectations about the report's probity and that encouraged many outside bodies to do a lot of work and make representations. If the report cannot be published, much of that good will has been wasted with only the Government benefiting, not the nation.

John Healey (Labour, Wentworth)

The Taylor report was undertaken four years ago. Since then, the Government have published an unprecedented amount of data and analysis. They have made an unprecedented assessment of the amount of revenue lost and the problem posed by smuggling. They have also put in place unprecedented investment to tackle that.

Michael Jack (Conservative, Fylde)

Is the Minister willing to supply a copy of the document to the Information Commissioner and ask whether, in the commissioner's judgment, it contains matters that for security reasons prevent it from going into the public domain? We would all feel happier if we had a proper assessment of the Treasury's need to keep the report to itself.

John Healey (Labour, Wentworth)

The Government made their position clear several years ago and we have no intention of altering that now.

George Osborne (Conservative, Tatton)

On a point of order, Madam Deputy Speaker. Is it in order for a Minister to refer to a document in the House and not place a copy of it in the Library?

Sylvia Heal (Deputy Speaker, Halesowen and Rowley Regis)

The Minister is entirely in order.

John Healey (Labour, Wentworth)

Thank you, Mrs. Heal.

John Bercow (Conservative, Buckingham)

rose—

David Laws (Liberal Democrat, Yeovil)

rose—

John Healey (Labour, Wentworth)

I have a great deal of time for the hon. Member for Buckingham (Mr. Bercow) but he only recently arrived in the Chamber, so I shall give way to the hon. Member for Yeovil.

David Laws (Liberal Democrat, Yeovil)

The Economic Secretary says that he will not publish Mr. Taylor's report. Will he confirm the press reports at the time which suggested that Mr. Taylor made recommendations in the report on the duty differentials between this country and the continent?

John Healey (Labour, Wentworth)

The hon. Gentleman tempts me into the realm of speculation and I shall not respond.

John Bercow (Conservative, Buckingham)

Will the Economic Secretary give way?

John Healey (Labour, Wentworth)

The hon. Gentleman is so persuasive that I shall give way just this once.

John Bercow (Conservative, Buckingham)

I am grateful to the Economic Secretary for giving way and happy to reciprocate his good regard. However, it will not do to say, "This is our position. It is a clear position and therefore I am not going to consider changing it, notwithstanding powerful arguments in support of so doing." Aside from any commitments to his boss, what intellectually is his answer to my right hon. Friend the Member for Fylde (Mr. Jack) on the idea of putting the issue before the Information Commissioner? What is his intellectual response to that?

John Healey (Labour, Wentworth)

The Government have determined their position. I am afraid to say that that has not changed and I do not entertain seriously the suggestion proposed by the right hon. Member for Fylde (Mr. Jack).

The clause increases excise duty on all tobacco products in line with inflation. Its purpose is to maintain the real cost of smoking by ensuring that the level of duty on all tobacco products keeps pace with inflation in line with recent years, as the hon. Member for Eddisbury said. Our aim is to encourage people to smoke less or quit, and to discourage children and young people from taking up the habit. To that extent, the general approach reflects what this and previous Governments have done to use high prices as part of maintaining the pressure to reduce consumption. Some 35 per cent. of the population smoked 20 years ago. Five years ago that was down to 28 per cent. and there has been a slight fall since then to 27 per cent. in 2001, the latest year for which figures are available. I congratulate the hon. Member for Tatton (Mr. Osborne) on his personal contribution to that statistic.

Amendments Nos. 1 to 3 would freeze excise duty on all tobacco products other than cigarettes. We cannot accept them as their likely effect would be to increase smoking. Amendment No. 61 would raise excise duty on hand-rolling tobacco by marginally less than inflation. It is hard to understand the purpose of that marginal change proposed to the new duty rate. The tax effect would be an increase of about one quarter of one penny on a typical 25 g packet of hand-rolling tobacco.

I emphasise that we do not take lightly or without regard to wider considerations the decision to increase tobacco duties in line with inflation across the board. The policy as set out in the 1999 pre-Budget report is to have Budget-by-Budget decisions that take into account a wide range of factors, as hon. Members urged us to do, including the Government's health objectives. When there have been reasons to do so, we have taken a different approach. For example, the Chancellor froze duty on hand-rolling tobacco in his first three Budgets in response to a difficult smuggling problem, as hon. Members recognised. However, with £209 million invested in an anti-smuggling strategy, the revenue lost as a result of cross-channel passenger smuggling of hand-rolling tobacco declined from around £700 million three years ago to just £95 million last year. Duty rates policy was adjusted accordingly, precisely the linked decision that the hon. Member for Billericay (Mr. Baron) wanted.

In two years, Customs and Excise has succeeded in not only halting the growth in cigarette smuggling and keeping the illicit market share to 21 per cent., but reducing the volume of cigarettes successfully smuggled into the UK by almost 1 billion. That is a reduction of nearly 5 per cent. and the first time in more than a decade that that has happened. If we had not made the investment and taken that action, the forecast for the illicit market would now be around 31 per cent. That means that 7.5 billion cigarettes were prevented from entering the illicit market in the UK in 2001–02 through the efforts of Her Majesty's Customs and Excise to bring the problem under control.

My hon. Friend the Member for Hemsworth (Jon Trickett) serves in a distinguished way on the Public Accounts Committee. I pay tribute to his work and to that of the hon. Member for Tatton, especially for their important inquiry into tobacco smuggling and the export activities of Imperial Tobacco. The hon. Member for Tatton asked about a memorandum of understanding. The company has worked closely with Customs and Excise. They have made good progress and there is a reasonable prospect of its signing a memorandum of understanding shortly. However, as the PAC and hon. Members on both sides of the House acknowledged, internationally organised gangs smuggle the majority of tobacco into the UK. It enters the UK in large volumes through freight, and no duty whatsoever is paid on the product. About 70 per cent. of that smuggled tobacco is unaffected by the duty rates in our neighbouring European Union countries.

We are concerned about wider issues such as smuggling, but for this Budget, we decided to maintain the real level of duty across all tobacco products in support of the Government's health objectives. That is what the clause seeks to do, and that objective would be undermined by the amendments in two ways. First, they would reduce the cost of the products in question in real terms by preventing the level of duty from keeping pace with inflation. Secondly, they would increase the price differential between cigarettes and other tobacco products. That may encourage cigarette smokers to engage in down-trading—rather than giving up, smokers may respond to the relative increase in price by shifting their consumption from cigarettes to cheaper products. There is already a trend for smokers to down-trade from cigarettes to hand-rolling tobacco in particular, as my hon. Friend the Member for Cardiff, West (Kevin Brennan) pointed out in his intervention. The amendments would only reinforce that trend.

Indeed, the representations that we received from health and anti-smoking groups such as Action on Smoking and Health, the Royal College of Physicians and Cancer Research UK in the run-up to the Budget made it clear that they believed the tax rate on hand-rolling tobacco should be increased to

"reduce the incentive to switch from cigarettes".

Likewise they believed that

"cigar prices should be kept in line with cigarettes and increase at the same rate".

They may have wanted us to go further, but that sensible approach coincides with our policy of keeping prices high. A duty freeze would only encourage greater consumption.

David Laws (Liberal Democrat, Yeovil)

I am grateful to the Economic Secretary for giving way again, and accept the argument that he is developing. However, he seems to be suggesting that we have arrived almost by accident at exactly the right rate of duty on tobacco products. He said that the Government have dumped the 5 per cent. escalator. How did they reach the verdict that tobacco duties now are exactly right in real terms, and will he publish the evidence for that?

John Healey (Labour, Wentworth)

The hon. Gentleman's assertion that we feel we have got the balance exactly right is absurd. As I have explained, our policy operates Budget by Budget, and was set out in the 1999 pre-Budget report. We have taken a particular decision for this Budget.

My hon. Friend the Member for Hemsworth (Jon Trickett) clearly outlined the health consequences of accepting the amendments. Smoking is the largest single cause of preventable illness and premature death in the UK. It kills 120,000 people each year and costs the British taxpayer about £1.5 billion a year in treatment bills alone. The amendment would only add to the smokers' death toll and increase NHS costs for the treatment of smoking-related diseases. On that basis, I urge the House to reject the amendments if the hon. Member for Eddisbury presses them to a vote, and to support clause 1 unamended.

Stephen O'Brien (Conservative, Eddisbury)

The Minister's response demonstrates the stubborn approach to the Taylor report that has caused widespread disappointment for a number of years. When he checks the Official Report, he might like to reflect on the point made by my right hon. Friend the Member for Fylde (Mr. Jack), not least because it will be pursued by other people. It would therefore be appropriate for the Government to answer it fully and properly.

My hon. Friend the Member for Tatton (Mr. Osborne) asked whether the Government used a model when they looked at the complex interrelation of health policy, revenue raising, smuggling, cross-border retail and wholesale trade and freedom of choice under a civilised and democratic system of Government, which has been challenged in the past day or so. It would be good if that model were publicly aired so that when Members on both sides of the House looked at these difficult and important issues on behalf of their constituents they had a common basis of information and understanding. A lot of arguments and interventions today, including those made in response to my speech, queried the veracity of the evidence base, so it would be of great benefit if the Treasury produced that model so that we could all be better informed when making such arguments in future.

I hope that the Minister does not resent the fact that we have had this debate in Committee of the whole House, as we have heard a particularly good exposition of pressing issues that affect the health of our constituents and the prosperity of people who run corner shops and other outlets. We have also heard great concern about the loss of revenue properly raised on smoking products by all Governments. I am glad that those important points were taken seriously. I am also encouraged by the Minister's decision that the rates applied by the Government were for this Budget alone. He put particular emphasis on the word "this", and we are clutching at that straw. Perhaps some of the serious arguments made in today's debate will find favour in future and, in light of the publication of the Taylor report, it would be particularly helpful if the Treasury model were made available. With those comments, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 1 ordered to stand part of the Bill.

Clause 4 — Rates of Hydrocarbon Oil Duties

Michael Jack (Conservative, Fylde)

I beg to move amendment No. 60.

Michael Jack (Conservative, Fylde)

I remind the Committee of my business declarations, which have been properly included in the Register of Members' Interests.

Our debate will focus on important and wide-ranging aspects of the Government's environmental policy against the background of the derogation of duty on diesel produced from oilseed rape, better known as biodiesel. I want to look at whether that derogation is set at the correct level. The farming industry and I do not believe that it is, hence the amendment. I want to examine the arguments that the Treasury have made to back up its position, and I give notice that if the Minister cannot agree with me in substance—either refusing to accept that the matter needs to be re-examined or not accepting my amendment—I will wish to divide the House, as I believe that the matter is of considerable importance.

The background to the issue is the Government's commitment to sustainability. In a section of the Red Book entitled "Protecting the Environment", paragraph 7.2, which is headed "A strategy for environmental taxes", says:

"Taxes and other economic instruments can provide incentives for behaviour that protects or improves the environment".

The former Minister of Agriculture, Fisheries and Food, the right hon. Member for Newcastle upon Tyne, East and Wallsend (Mr. Brown), pointed out in the foreword to "Towards Sustainable Agriculture" that that document

"highlights the role of agriculture in helping to achieve sustainable development."

It went on to outline how that role might be fulfilled, stating:

"Agriculture plays an important part in that strategy. It can help society in the quest for a better quality of life for everyone, now and for generations to come."

Those are lofty and supportable objectives, but unless agriculture is properly encouraged to play its part, those objectives of the wider Government strategy on sustainability will not be met.

In their overall approach on energy policy, the Government have made it clear that in the field of electricity generation there are renewables obligations that must be met by those who supply electrical energy. The mechanism for achieving that objective is effectively that all those who are distributors of electricity have to buy a quantity that is renewable and pay a premium for that. The costs of that premium are absorbed in the cost of the electricity.

In advocating a lower rate of duty on biodiesel than that which currently applies, the first challenge for a Treasury Minister is to make it clear that there is a cost attached. I wrote to the Economic Secretary following representations on the matter from Mr. Graham Secker, the managing director of Cargill plc, and in his reply the right hon. Gentleman stated that the Government

"cannot support these fuels at any cost."

That is almost like saying that the Government cannot afford to give anything, but the Economic Secretary knows that a derogation of 20p per litre has already been given. It is a good first defensive line, so let us deal with it straight away.

If the Minister genuinely wanted to encourage the use and the growth of biodiesel from the production of oilseed rape, he could have moved from a derogation of 20p per litre to a derogation of just over 28p per litre, as my amendment proposes, and he could have recouped the entire cost, over the total number of litres of diesel sold in the United Kingdom, by a fractional change in the duty rate charged on other forms of diesel fuel. He could, if he had so wished, have made that an even smaller increment if he had imposed it across the whole range of liquid hydrocarbon fuels derived from mineral sources.

The question is how to pump-prime the exercise to get biodiesel production up to speed. In the same letter, the Minister went on to say that he did not want to

"over-compensate biodiesel producers for bringing their product to market".

The Cargill company has done some detailed analysis to show why, in its judgment, 28.2p as opposed to 20p per litre reduction in duty is the right figure. I shall return to that shortly.

In his interesting letter, the Minister seeks to broaden the logic of the argument in order to justify his position. Instead of staying close to the issue of biodiesel versus other forms of green energy, he states that the reason why a more generous derogation of duty is not possible is that that would interfere with

"the 'price' of other environmental programmes that could also tackle climate change (for example, better home insulation)."

I do not disagree that pound for pound, better home insulation delivers a greater CO2 saving than does biodiesel, but I would have extreme difficulty in running my diesel car on home insulation. The Minister's attempt to compare apples and pears fails the first test of whether there is a logical basis for the Treasury's position on the matter.

Then the Minister goes even wider in his letter. According to him, my proposal

"could affect our ability to provide essential public services such as schools and hospitals."

I did not know that the Government's investment in schools and hospitals rested on the differential of 20p to 28p of duty on biodiesel. Perhaps it illustrates the fragility of the current economic situation that the entire investment rests on that argument. With such fragile and inconsistent logic, the Minister triumphantly states in the letter:

"That is why we decided that a 20 pence per litre duty cut relative to ULSD"

that is, ultra-low sulphur diesel—

"is sufficient recognition of the environmental benefits both from biodiesel and bioethanol and provides best value for money."

The Minister has drawn that from a report commissioned by the Department of Trade and Industry and the Department for Environment, Food and Rural Affairs from Sheffield Hallam university. I have a copy of that report, which is quite a thick document. I should be grateful if the Minister would cite the page on which the conclusion is reached that 20p, as opposed to 28p, is the right amount to stimulate agriculturally based biodiesel. In the time that I have had the report, I cannot claim to have read every word of the closely argued economic text, but that is not the conclusion that I have reached from my reading of it.

Although the Minister did not say so in his letter, the document is about comparing different ways of saving CO2. With reference to kilograms of carbon dioxide saved for every pound spent, the Minister would be entirely right in quoting from page ix of the report the figure of 478.5 for loft insulation. One of the other comparators that gives better value for money, electricity from short rotation coppice, saves 19.6 kg of carbon dioxide per pound of public investment. The only problem is that the one power station that burned short rotation coppice has just gone out of business.

Biodiesel from oilseed rape comes top of the liquefied fuels that have a carbon dioxide-saving property. If we compare like with like, biodiesel has a good basis, but the same report goes on to counsel us:

"Currently, there is no agreement on these estimates which provides a sound basis of consensus for setting a justified level of derogation for biodiesel".

In other words, the report admits that there is a flaw in the logic of all this comparative activity. Yet that is the platform on which the Minister bases his argument that his 20p is the right number.

In the interests of greater illumination of the facts of the matter, I tabled a question last week:

"To ask Mr. Chancellor of the Exchequer, if he will publish the calculations which he used to determine that £0.2710 shall be the biodiesel duty rate, as shown in clause 4 of the Finance Bill."

Given all the hard work, justification, letter writing and consideration of the matter in previous Finance Bills, one would think that by now the Minister would have no difficulty in giving me an answer. What was the reply?

"I shall let the hon. Member have a reply as soon as possible."

It is pathetic that the Economic Secretary was not able to share with the House the logic and calculation on which the rate of duty is based, so we are left to make up our own mind. Being a seeker after truth, I moved to the pre-Budget Report 2002 of the House of Commons Environmental Audit Committee, HC 167. I thought I might find an answer there about the basis for the calculation. In paragraph 10 of the report, on page 9, I discovered that the Committee had questioned the Economic Secretary on the level of biofuel duty. He said:

"The dynamics for the intervention that we believe we need to make in the case of bioethanol or biodiesel is different from that of the fuel gases"

—that is, liquid petroleum gas. The Committee made this comment on that arcane and incomprehensible sentence:

"We found his comments arcane, and requested further information on the extent to which the Treasury had carried out a comparative appraisal of the costs and benefits of different fuels."

It went on to state:

"We are concerned not only over the basis of such environmental costings but also at their selective use."

The more we look at the justification for the Treasury's position, the more we find that there seems to be a great secret. Perhaps this calculation falls into the same category as the points made about the Taylor report in respect of the previous amendment. For some reason, a Committee criticises the Economic Secretary for not coming clean and for selective use of information, and a question to which I wanted an answer was not answered.

Paragraph 13 of the report states:

"Promotion of biofuels could provide huge benefits in carbon savings, and indeed a recent report has suggested that a quarter of the UK's agricultural land could in principle provide sufficient biofuel to satisfy total transport demand."

The Committee concludes its observations thus:

"We are also concerned, in this context, at a certain tension between the Treasury's traditional desire for secrecy in relation to tax changes, and its new-found zeal for consultation and long-term signals."

That is a profound finding, as it suggests that there would be potential for an agricultural revolution if the duty rate was right. However, we do not know how the Treasury calculated its figures and some very interesting questions are raised about its conduct in these matters.

I therefore turned to the National Farmers Union for greater solace. It rightly reminded me—this is built on the back of what the Environmental Audit Committee said—of the following:

"Crops sequester carbon from the atmosphere as they grow, and recycle carbon when used as fuels, rather than re-introducing locked-up carbon into the atmosphere as fossil fuels do."

I make that point because it underscores the importance of the carbon cycle and the sustainability of an energy policy that is more strongly founded, certainly in relation to diesel fuel, on the use of biofuel. As I shall demonstrate in a few moments, the economics currently do not add up.

Let me return to the Sheffield Hallam university report, which goes into considerable detail about whether a good return is available for the expenditure involved. Through the arable area payments scheme, oilseed rape growers effectively receive a subsidy under the common agricultural policy. Those arrangements may change, but the status quo is the arable area payments scheme. The duty derogation that I propose in the amendment would give further encouragement on top of that scheme to induce farmers to move to the production of oilseed rape for the purposes of producing biodiesel. The Sheffield Hallam report refers to the oilseed rape contribution in reducing carbon dioxide and greenhouse gases:

"This demonstrates that biodiesel from OSR is more cost effective as a means of saving net carbon dioxide and GHG emissions than CNG".

As you, Mrs. Heal, may recall from discussion of previous Finance Bills, compressed natural gas is also a road fuel. The argument in favour of giving that fuel a duty derogation was sustained on health grounds and not CO2 grounds. Given the problems that the Government may have in meeting their international obligations in future, there is a powerful case to suggest that the production of biodiesel from oilseed rape should be encouraged. The report states that biodiesel gives a better return for the public purse on CO2 and greenhouse gas emissions than compressed natural gas as an alternative road fuel. That powerful finding features in a report that the Government prayed in aid in justifying not doing anything about the issue. As I said, the report also counsels us about the validity of the basis of the Government's arguments on their calculations.

I think that I have undermined the position that the Government have taken in justifying their stance and not doing anything about this matter in terms of the Environmental Audit Committee and Sheffield Hallam university reports. On the duty rate itself, I wish to deal with the effect that the current position would have. In a letter that Cargill sent to me, it gives the following counsel:

"If the Government were to follow EU guidelines targeting 2% biodiesel by 2005, this 400,000 litres per month"—

the current rate of production—

"must be expanded some 80-fold to 32 million litres per month".

The letter refers to the Motherwell plant, which will make biodiesel, but use waste food and animal products to do so. The Economic Secretary prayed that plant in aid in his letter to me, and implied that, because of what was happening at Motherwell, we did not need to do anything to encourage the production of biodiesel from oilseed rape. However, as I shall show in a moment, that is not the case. Cargill states:

"It is our understanding that the Motherwell plant is adding some 4.5 million litres per month, leaving a further 27 million litres"

to meet the European Union target. It goes on to state:

"This is simply not possible from the available quantities of RVO and tallow. At current market prices of rapeseed oil and crude mineral oil, the 20p per litre derogation for biodiesel is insufficient to stimulate the growth of additional UK rapeseed, nor the investment in biodiesel production facilities capable of producing this 32 million litres . . . per month required to meet the near-term targets."

Rob Marris (Labour, Wolverhampton South West)

I am listening carefully to the right hon. Gentleman's Cargill figures, but will he repeat them? Perhaps I misunderstood, but I thought that he said that Cargill had suggested that an 80-fold increase was needed on 100,000 litres, but that that produced a figure of 32 million litres, which is not an 80-fold increase. Will he go through the figures again?

Michael Jack (Conservative, Fylde)

I apologise if the hon. Gentleman did not hear. Let me read the paragraph again:

"If the Government were to follow the EU guidelines targeting 2% biodiesel by 2005, this 400,000 litres per month must be expanded 80-fold".

I apologise if I misquoted the document and referred to 100,000 litres. Let us put the matter down to acoustics, if we may, but I am grateful to him for asking for clarification.

In further seeking to justify his position, the Economic Secretary said in other remarks to Cargill that the 20p per litre figure for the current derogation was higher than the derogations available in Spain and Austria, but lower than those in Germany, France and Italy. It is interesting to consider the production figures. Cargill kindly sent me a chart showing that Spain effectively does not rate on the same scale in overall production. Austria produced less than 50,000 tonnes of biodiesel in 2002, but the situation is different in areas where there is a better derogation than ours. The figure goes up to 200,000 tonnes in Italy, 350,000 tonnes in France and 450,000 tonnes in Germany. There does genuinely seem to be a correlation between the rate of duty derogation and the amount that is produced.

I turn to an even more detailed analysis of why Cargill feels that the 28.2p per litre derogation that I seek through my amendment is correct. Its calculations show that

"the derogation has failed to create a level playing field between biodiesel and ULSD"—

ultra-low sulphur diesel. It continues:

"A derogation of 28.20 pence per litre would be necessary based on current prices for new-crop 2003 rapeseed oil and on a total production cost of £488.05 a tonne for biodiesel (which equates to an ex-tax price of 42.70 pence per litre). This compares with ULSD wholesale price of 14.5 pence per litre before tax. A rate of 28.20 pence per litre would, therefore, compensate for the difference in the production costs of ULSD and biodiesel. If such a derogation was forthcoming, Cargill would anticipate producing between 150,000 and 200,000 tonnes of biodiesel annually. This would initially represent 1 per cent. of total UK diesel sales."

There we have it—a comprehensive argument that illustrates the weakness of the Treasury's case for the current derogation of 20p, and highlights the fact that if the Treasury is convinced of its argument, it has refused to share it with this House and with the Environmental Audit Committee.

My argument is entirely in compliance with the Government's approach to sustainability, both in general terms and in agriculture. I argue it from the point of view of the positive effect that it would have on UK agriculture and on employment in rural Britain. I argue it on the basis of an expert opinion from within grain purchasing—namely, the Cargill company, which has a great deal of knowledge. It is up to the Minister to give the House as much detail as I have given, so that if he intends to stick to 20p, he can justify it. I have suggested to him a way of making a fractional increase in the duty on other forms of liquid hydrocarbon fuels. The policy would cost the Treasury not one penny and is entirely compliant with the approach that has been taken to electricity in relation tothe renewables obligation. That is a sound, powerful, well-argued and sustainable economic case, and I look forward to the Economic Secretary's reply.

John Baron (Conservative, Billericay)

Clause 5 increases the duties on red diesel and fuel oil by 1p per litre in addition to inflation. The farming industry continues to be in crisis, and that measure does nothing to help. Indeed, it can only add to the costs to an industry that already has many problems. Farmers in my constituency have certainly suffered in recent years. In 1996, the total income from farming stood at around £5 billion; by last year, it had more than halved, to £2.4 billion. The average farmer earns about £3.60 an hour, and more than two-thirds of farmers work for more than 60 hours a week.

John Bercow (Conservative, Buckingham)

Less than the minimum wage.

John Baron (Conservative, Billericay)

As my hon. Friend says, less than the minimum wage.

Farming incomes rose slightly in 2002, but during the foot and mouth outbreak in 2001 they were at their lowest in real terms since the depression in the 1930s. The agricultural industry accounted for 0.7 per cent. of the total economy in 2001, down from 3 per cent. in 1973—quite a steep decline. Agriculture accounts for 15 per cent. of rural businesses. However, in the two years prior to 2002, more than 3,000 VAT-registered businesses closed, with a net loss of 25,000 agricultural jobs. Meanwhile, agricultural borrowing is rising, with an estimated total debt of £10 billion, yet investment is at its lowest for 30 years. It is not a pretty picture. Furthermore, despite the fact that food prices for consumers are rising, the share that farmers receive is static or falling. For example, the average price of a pint of milk in the shops is about 35p, but farmers receive an average of only 9p per pint.

Meanwhile, like most small businesses, farmers have been subjected to regulation after regulation. I shall not go into all the detail, but needless to say, since the beginning of the year there have been numerous regulations on various aspects of the industry. It is important to allow farmers to farm free from too much interference and bureaucracy. The current round of common agricultural policy reform is a case in point. There is little doubt that the current round of the CAP keeps prices to the consumer artificially high. Although reform is imperative, EU enlargement means that mid-term review will neither fulfil the need for reform nor allow British farmers the necessary freedom to farm for the market.

Rob Marris (Labour, Wolverhampton South West)

Would the hon. Gentleman get rid of milk quotas?

John Baron (Conservative, Billericay)

That should be considered, but the mid-term review is proving a great disappointment to many farmers in my constituency and, I am sure, throughout the country because it does not fundamentally deal with the reforms that are required. That causes consternation, especially about the promises that the Government made or suggested, before the review.

Farming is struggling, and there is burdensome regulation and little prospect of CAP reform. The Government should do what they reasonably can to help farming through a difficult period. Increasing the duties on red diesel and fuel oil by 1p per litre above inflation makes life more difficult for the farmers in my constituency and throughout the country. That cannot be in the national interest. They should do much more here and in the international marketplace to create better conditions for British farming to thrive, so that we produce more domestically grown goods both for the home market and export.

Agriculture accounts for more than three quarters of the management of land in rural areas. The Government tend to forget that. Agriculture has a dual purpose of producing food and overseeing environmental management, which is important to the economy, not least because agriculture generates more than £7 billion of the £9 billion a year that rural tourism generates. Farmers and growers are the custodians of our landscape and we would do well to remember that. The countryside is a resource, but everyone should enjoy it. Agriculture plays a key role, which needs to be better recognised.

The Government should scrap the increase in red diesel and fuel duties and not lumber farming with yet another increase in costs, especially at such a difficult time.

Jonathan Djanogly (Conservative, Huntingdon)

My right hon. Friend the Member for Fylde (Mr. Jack) is very knowledgeable about this subject. I was amazed to learn that 25 per cent. of farmland could fuel the country. It is a remarkable figure, and I do not know how well it is known.

Farming should be greatly encouraged. I recently visited a farmer in my constituency—a Mr. Field—who has devoted one of his fields to the production of a biocrop. I had an interesting time learning about that. Its advantage is that it means winners all round. Farmers—who are currently having a hard time, as other hon. Members pointed out—can use it to diversify. Many are desperately searching for ways in which to diversify while maintaining the quality of their land and doing that in an environmentally friendly way, not only for their land but for the energy that they produce.

The comparatively low duty on biodiesel is still not enough to encourage commercial use of the fuel, which is environmentally friendly but not competitive with fossil diesel under the current tax structure. The British Association for Bio Fuels and Oils wants the rebate to be increased from 20p per litre to 40p per litre. As long as such a rebate was guaranteed over a period of time, it would probably lead to major firms being willing to begin production. However, there are no guarantees over a period of time. I get the feeling that it is a side issue for the Government and they want to get away with paying lip service to the needs of the environmental lobby. We should be more serious about biodiesel. It is environmentally friendly, it provides excellent opportunities for diversification for farmers, and it helps a rural sector that deserves more input than it is receiving from the Government today.

Stephen O'Brien (Conservative, Eddisbury)

First, I would like to address the points made by my right hon. Friend the Member for Fylde (Mr. Jack) on the amendment tabled in his name, which is fully supported by my right hon. and hon. Friends in Her Majesty's official Opposition's shadow Treasury team. At the same time, I should like to speak to the amendment to clause 5, which has, for the House's convenience, been grouped with this amendment. Both amendments relate to the rates of hydrocarbon oil duties, but they none the less employ very different arguments.

In an attempt to maintain some kind of logic in this discussion on amendments that straddle two clauses which deal with very different sets of circumstances—despite being banded together under a common title—I would like to pay tribute to my right hon. Friend the Member for Fylde. His speech was a lesson to us all in identifying, researching and introducing an original perspective on the deliberations of the House. A Committee of the whole House is one of the few occasions on which we genuinely get the opportunity to consider carefully the effects of measures on which the Government naturally have to take decisions that are all-encompassing, in terms of brackets of categorisation. We discover, however, that those effects can have a direct impact when we drill down into the detail.

It would be an inefficient use of the House's time, and also less than respectful to the fine arguments that my right hon. Friend has deployed, if I were to try to demonstrate that I have understood them, although I like to think that I have. I would, however, like to place it on record that Her Majesty's official Opposition not only fully endorse my right hon. Friend's remarks but congratulate him on his tremendous exposition of the arguments. It will be very difficult for the Minister to resist them.

I note the support that the National Farmers Union has given in relation to this issue. Its chairman with responsibility for alternative crop uses has said:

"The Chancellor recognised in his statement . . . that bioethanol has a valuable role to play in reducing pollution levels. We will continue to press for the necessary duty cut to get the industry off the ground."

My right hon. Friend mentioned the manufacturing plant that was in administration or, at any rate, in some form of financial distress. I heard from a radio source—I therefore have no documentary evidence to back this up—that the title to and ownership of the raw material of such a plant remains in the hands of the farmers. We should therefore be in no doubt that what is required is, to coin a phrase, the pump-priming facility that the Treasury is uniquely capable of providing. The raw materials, the initiative and the incentive are all there, and the NFU has stated that it wants to be able to get projects such as this off the ground. Previous efforts have not, however, been sufficient to provide meaningful encouragement to Britain's fledgling bioethanol industry.

Michael Jack (Conservative, Fylde)

I am most grateful for my hon. Friend's generous words. He has mentioned bioethanol. Is he aware that British Sugar is looking closely at the question of substantial investment in this area, particularly in relation to bioethanol and the use of raw materials derived from the sugar production process and possibly even from potatoes? Does he agree that such developments would be dependent on a more generous derogation on the duty, to pump-prime what could be some very major investment?

Stephen O'Brien (Conservative, Eddisbury)

My right hon. Friend is absolutely right. That information, albeit in summary form, has come in my direction as well. These are large and detailed matters, and the Committee of the whole House gives us the opportunity to ensure that they are put on record and that the Treasury Minister has the opportunity to consider them. None of us necessarily expects or even wants an immediate answer relating to some of the detailed points. Sometimes, following a good discussion, a Minister has to go away and consider—but we expect him to return with a reply that is both responsive and responsible.

I have had to look into these matters in my constituency. One of my constituents is an amazing entrepreneur, Stephen Whittaker, who has been studying the conversion of used vegetable fats into what he calls e-diesel. It has been enormously successful. An old calf-rearing shed has been converted into a number of small vats. He now has a lorry, and has secured contracts with some of the country's major retail chains and hauliers. He has had to contend with all sorts of planning issues, and he naturally called on me for assistance and support. I feel that such initiatives should be supported in all their guises, and that the Treasury and local planning authorities should help whenever they can.

There is a genuine demand for alternative fuels, and they can be provided through incredibly hard graft, dedication and often sacrifice on the part of entrepreneurs and their families. Huge capital risk is needed to get such projects off the ground. We may never hear of the failures: some entrepreneurs, in the cause of what may be the country's best interests over time, and certainly the best interests of the environmental agenda, may well prove to be sacrificial martyrs.

The real opportunities lie in major capital investments such as those mentioned by my right hon. Friend the Member for Fylde, and the possibilities that he says British Sugar is considering. The main barrier in such instances may be not access to capital, but access to confidence in a resulting cash flow in a competitive context. That is the pump-priming opportunity that will persuade a business to make a decision. At present there is not a sufficient incentive. The proof lies in whether the decisions allowing for investments have yet been made. The Treasury should recognise that what we are discussing is both worthy and highly beneficial, and unlikely to cause consternation or controversy between parties.

Clause 5 provides for an increase in duties on rebated gas oil, known as red diesel, of 1p per litre, in addition to a rise in line with inflation of 0.09p per litre. Fuel oil use falls into two main categories. The first—with which we need not concern ourselves here—accounts for about two thirds of total use according to the latest estimates. The caveat relating to statistics has already been issued today. That first category covers domestic heating boilers. The remainder is used in what are currently known as non-road vehicles, which in the past have been used mostly in agriculture—tractors and other farm vehicles. Nowadays, following the collapse of farming as a share of the rural, let alone the general, economy over the past three or four years, plant that is hired and operated on construction sites constitutes a larger element. I understand that it is right to describe such vehicles as "non-road" because they are not used on public road sites, but JCBs are used as tractors and categorised as such, and the same applies to plant hire vehicles, cement mixers and rollers. They use fuel oil that is marked with a dye and chemical markers, which is why it is known as red diesel.

My hon. Friend the Member for Billericay (Mr. Baron) ably represented the interests of farmers in and around his constituency. An attempt has been made to justify the additional duty increase on environmental grounds. It has been argued that as red diesel currently has a higher sulphur content than road diesel, it contributes to local air quality problems. That may sound very worthy from a Government who are seeking to put forward yet another of their "green" taxes, but as we have discovered over time, they have always been revenue-raising and highly dubious. That was demonstrated not least in relation to the previous clause and the true vires of a "green" initiative that will deliver the goods.

An increase in the level of duty should therefore lead to a reduction, it is said, in red diesel use, ameliorating the environmental impact. However, agriculture, for example, is an essential user of fuel, and farmers will use only as much fuel as individual activities demand. The industry's current financial difficulties also mean that farmers will be looking towards the most efficient use of fuel on farm, so it is highly unlikely that the increased duty will lead to a reduction in usage.

So the environmental arguments for the increase must also be questioned, given that the duty on rebated ultra-low sulphur diesel is also being increased by 1p. The increase in duty will in fact result in an increase in the industry's fuel bill of about £25 million. This increase in duty comes at the same time as the Government's themselves campaigning against the European Parliament's proposal to harmonise fuel qualities for non-road diesel in line with those for ultra-low sulphur road diesel. I pay tribute to the Government for the UK's successfully arguing that the proposed harmonisation—an ever-present danger of the EU's agenda, as we all know—would impose an unacceptable increase in costs of about 2p per litre on the agricultural industry, with marginal environmental benefit.

I am simply arguing, on exactly the same ground, that red diesel should not face an unacceptable extra 1p per litre increase in such costs. Sulphur levels in red diesel are set to fall over the next five years, from their current level of 2,000 parts per million to 350 parts per million. If the current duty increase reflects the perceived environmental cost of red diesel, the benefits that lower sulphur levels are adjudged to bring should also be reflected by removing the extra 1p per litre, recognising that lower sulphur red diesel is, or is shortly expected to become, available.

The farming industry continues to be in crisis, and frankly this measure does nothing to help. If the Government are allowed to persist with it instead of accepting this amendment, a further body blow will be struck to the UK's rural economy and to our struggling farmers. Compared with 1995, income from farming in 2002 was down 62 per cent., at £2.36 billion; in 1996, it stood at £5 billion. Britain's rural economy continues to be mired in one of the deepest recessions that it has experienced since the first world war. The Government's inflation-busting increase in fuel duty on red diesel will do nothing to help our struggling farmers, who are still recovering from the Government's mishandling of the foot and mouth crisis and the slump in farm incomes.

Paul Boateng (Labour, Brent South)

That is quite unnecessary.

Stephen O'Brien (Conservative, Eddisbury)

Well, the Chief Secretary will be interested to know, particularly given the reward that he receives—I wonder whether everybody in the country feels that it is fully earned—that in the year to December 2002, UK farmers earned, on average, £11,107. They work some of the longest hours of anyone; 75 per cent. work more than 60 hours per week, and on average they earn just £3.60 an hour. Labour's latest sting on rural Britain will see more family farms go bust, and falling incomes will come under intense pressure, forcing even more farmers to quit the industry. My constituency contains many farmers, whom I seek to represent, and there is a real feeling there and across rural Britain that this measure is yet further proof—if proof were needed—that Labour does not understand the countryside or the wider economic contribution that farming makes to Britain's economy. That ignorance is costing Britain dear. So there is a solution—

Stephen O'Brien (Conservative, Eddisbury)

I am grateful for your comment, Mrs. Heal, and having made the point I am happy to move on. However, this is a very serious issue for that part of the industry.

It is not just the farming community that is suffering. I have received correspondence from EWS, the rail freight company, which says that it uses rebated gas oil—red diesel—off-road, of course. The cost to EWS alone will be £1.81 million and, when additional costs imposed on other operators are added, the cost to the rail freight industry will be at least £2 million a year. We understand that the increased costs to the passenger rail industry—an industry already in terrible straits—will be more than £10 million, and the Government's measure will make it harder, not easier, to improve an essential public service.

The correspondence continues:

"The Government wishes to encourage the transfer of freight from road to rail. This tax will have the opposite effect. The environmental benefit of rail freight is considerable with significantly lower noxious emissions per tonne moved than by road. Therefore the imposition of an environmental tax that will lead to more traffic on the roads will actually have the reverse effect to that intended by the Chancellor."

The next sentence makes an interesting comparison in the light of the farmer, Mr. Field, in the constituency of my hon. Friend the Member for Huntingdon (Mr. Djanogly):

"The rail freight industry has a good track record of reducing its environmental impact. The Class 66 locomotive, used by most rail freight operators, produces one-tenth of the polluting emissions of older locomotives; this tax imposition fails to recognise our achievements in this area."

Rob Marris (Labour, Wolverhampton South West)

Will the hon. Gentleman explain why the class 66 was developed to be much less polluting? I would suggest that it was because the cost of fuel increased. Vehicles were then made less pollution-emitting and were built to use less fuel per gallon, thereby lessening the amount of carbon dioxide emitted.

Stephen O'Brien (Conservative, Eddisbury)

I certainly salute the hon. Gentleman's knowledge of class 66 locomotives, but I hope that his intervention does not signal his belief that operational efforts to produce more fuel-efficiency should be diminished simply because of the genesis of what drove the need in the first place. The current tax imposition will hardly encourage further improvement in that respect.

One important aspect of the red diesel imposition is overall environmental benefits. My hon. Friend the Member for Aylesbury (Mr. Lidington) put it well when he asked:

"Is this Government measure not absurd when balanced against the negative environmental impact it may bring about by forcing more farmers, custodians of our landscape, onto the scrap heap?"

As he rightly says:

"Agriculture is not just important economically; farmers and growers are the custodians of a landscape that is valued by the people in the cities as well as villages and which is a prime asset for our tourist industry."—[Official Report, 16 October 2002; Vol. 390, c. 391.]

Some have argued that the Government's proposed inflation-busting increase on red diesel is an attempt to remove proper cost recognition for farmers and, by diminishing the differential, to remove the incentive for fraud and misuse, thus ensuring anti-avoidance. We all want compliance with proper use; otherwise it penalises farmers who need the product. In any event, Governments have introduced new rules to try to stamp out avoidance.

I shall not take up the Committee's time in reading it out, but a new pamphlet was issued by Her Majesty's Customs and Excise on precisely that point. It is entitled "Buying red diesel, or rebated kerosene/paraffin for your own use" and includes new rules from 1 April 2003. Clearly, the publication of that document is part of the Government's investment in anti-avoidance. In order to buy diesel from 1 April this year, the document insists that people give information on name, address, postcode, phone number, VAT registration and VAT number, vehicle registration number—if the oil is collected—and intended use. That is a serious example of a compliance procedure based on red tape and bureaucracy. To my mind, all red tape is anathema, though it may be necessary for anti-avoidance.

Any counter-argument that the Treasury may have been advised could add to its potential armoury against our proposals today would be wholly misconceived, because anti-avoidance can be achieved through other measures. This is a direct slap in the face of the interests of farmers, who are already suffering enough and are doing their best to bring themselves out of the deepest recession in farming since the 1930s.

I have one other point that most properly belongs in the stand part debate. I leave it to your discretion, Mrs. Heal, as to whether you prefer me to leave it until then or to make it now.

Stephen O'Brien (Conservative, Eddisbury)

I shall leave it to the stand part debate. We hope that we will receive recognition for our arguments on behalf of all current users of red diesel, especially the farming community. However, if we are not satisfied by the response from the Economic Secretary, we will press the matter to a vote.

John Healey (Labour, Wentworth)

Clause 4 increases the main excise duty rates on hydrocarbon oils in line with inflation with effect from 1 October. The excise duty rate for biodiesel will also be increased to maintain the differential with ultra-low sulphur diesel in cash terms. I shall address the detailed points made by the right hon. Member for Fylde (Mr. Jack) in a moment.

Last year, the Chancellor described oil prices as high and volatile. In recent months, the military conflict in Iraq has contributed to exceptional volatility in crude oil prices. For example, prices this year have fluctuated from more than $32 a barrel to $24 a barrel, resulting in increases in pump prices for motorists. The oil price has started to fall recently to about $25 a barrel compared with the last few months, but when the Chancellor was making his Budget decisions he saw that there was a risk that international uncertainty could lead to continuing price volatility in oil markets. In those circumstances, instead of increasing fuel duty on Budget day, he deferred the increase until 1 October, by which time the risk of oil price instability should have reduced.

This is the first increase in fuel duty since 2000. The freezes that we have imposed have meant a cut in real terms, and since 2000 fuel duty has fallen by 5p per litre. Indeed, even delaying the introduction of the duty changes until October, for example, will cost £300 million in revenue forgone.

Income from fuel duty enables us not only to provide essential public services but to take account of the environment. Fuel duties and the regimes that we have introduced have contributed to the fall in transport-related emissions and play a continuing role in helping us to meet environmental targets such as those set at Kyoto.

The right hon. Member for Fylde may not agree with my response to his arguments, but I shall attempt to advance the debate in the same spirit in which he introduced it. We introduced the duty incentive for biodiesel of 20p per litre in July 2002, since when the production of biodiesel has increased sevenfold. That is a small beginning, and it is early days, but that sevenfold increase has occurred in only nine months. The incentive was chosen carefully to reflect the environmental benefits offered by the fuel. An incentive above that level—for which the right hon. Gentleman argued—would not offer value for money for the taxpayer, and it would not be right for us to seek those environmental benefits at any cost.

The right hon. Gentleman subjected that point, and others that I have put to him in correspondence, to a forensic examination. I am familiar with the Cargill analysis and I have met the company's representatives personally. Officials have also been in regular contact. The right hon. Gentleman also mentioned British Sugar. I have met representatives of that company and they, too, have had regular contact with officials. British Sugar has been able to supply detailed and high-quality information, evidence and analysis. That has been very valuable to the Government, and the information has helped us to move to a position where we believe that a similar bioethanol duty differential is also justified.

The principal policy purpose of the duty differentials is to secure a contribution to climate change. I am glad that the right hon. Member for Fylde does not disagree with my contention that home insulation, for example, has a more cost-effective impact on climate change, pound for pound. I hope that the right hon. Gentleman will bear in mind the policy purpose that I have outlined. The principal issue when it comes to cost is to set the duty incentive at a rate that reflects the environmental benefits offered by the fuel.

The right hon. Member for Fylde was right to say that the Sheffield Hallam university report looked at the different ways to secure the saving in carbon dioxide emissions that we seek. It assessed the environmental benefits offered by the different methods of securing that saving. That is why the right hon. Gentleman did not find the precise analysis that he was seeking in the report.

However, I know that a number of Labour Members have made arguments similar to the right hon. Gentlemen's. I am the Minister responsible for such matters, and I assure the Committee that the Government remain open to new arguments and evidence. We announced in the pre-Budget report in November that we believed that a duty differential to support bioethanol development could bring environmental benefits that justified that differential. Furthermore, my right hon. Friend the Chancellor confirmed in his Budget that the proposal would come into force in January 2005. That policy development came about because we had new evidence and analysis, and were persuaded of the case.

The right hon. Member for Fylde also mentioned road fuel gases, and gave the impression that the treatment of those gases was unfair and inconsistent with the treatment of biofuels. I reject those arguments, and I have rejected them in correspondence as well.

The duty rates for different fuels reflect the different environmental benefits that those fuels might offer. The environmental benefits of road fuel gases are found principally in local air quality benefits, rather than in climate change emissions. I note that there would need to be additional investment in infrastructure to distribute the road fuel gases.

The wider comments from the right hon. Member for Fylde on the future treatment of road fuel gases, and the benefits that could accrue in terms of carbon dioxide emissions, have their place. He might wish to make his comments more fully, but I shall take what he said today as a contribution to the consultation on the future tax treatment of road fuel gases. My right hon. Friend the Chancellor announced that consultation in the Budget, and we will be undertaking it over the summer, jointly with the Department for Transport.

It was not clear whether the right hon. Member for Fylde was advocating that 25 per cent. of the British countryside should be covered in rapeseed. However, in pressing the case for widespread rapeseed cultivation, he was arguing not just for greater biodiesel production but, in effect, for a production subsidy on non-food crops. Agricultural support is not the principal policy purpose of the biofuels duty differentials. Our reference point for decisions in this policy area are the environmental gains to be achieved through reduced carbon dioxide emissions, at a reasonable cost to the public purse.

The contributions from Opposition Members were rather confused. On the one hand, the Government are urged to support—more strongly and at greater cost— biodiesel as a cleaner fuel; on the other, we are urged to maintain support for red diesel, which is a relatively dirty fuel. That is rather mixed logic from the Opposition.

The second amendment is designed to limit the duty increase on rebated gas oil, or red diesel as it is commonly known, to 0.9p a litre. In other words, the increase would be limited to what is needed to revalorise the duty. I am glad to note that the Opposition endorse the principle of revalorising that duty, and I hope that they will therefore support the revalorisation contained in clause 4, but I am puzzled by the rationale behind the amendment. It is limited to rebated gas oil. It does not seek to mitigate increases on fuel oil, light oil used as furnace fuel and ultra-low sulphur gas oil, which are also provided for in clause 5. Since each of those fuels is, to some degree, in competition with others, the purpose of the amendment is confused and obscure. If accepted, it would lead to a larger duty increase being applied to the ultra-low sulphur version of gas oil, which is less polluting and more environmentally friendly than the higher-sulphur forms of gas oil. That would be perverse.

Let me explain the rationale behind the Government's proposals. In the UK air quality strategy, published in February, we set challenging new targets for local air quality. Rebated fuels can have much higher sulphur levels than the made road fuels, as the hon. Member for Eddisbury recognised, and their use continues to contribute to local air pollution.

The hon. Gentleman laid special emphasis on the interests of farmers, and it is important to put that into perspective. Red diesel is used in many sectors of the economy, both as a motor fuel and as a heating fuel. The measure is not specific to farmers, and farming groups have welcomed many of the Budget's proposals, including the freeze in lorry excise duty, extension of the capital gains tax business asset taper relief to landowners and the proposal that stamp duty should not be paid on leases where the net present value is less than £150,000.

There are no fully reliable figures for the amount of red diesel used by farmers, but oil industry estimates, which are probably the best we have, suggest that the cost of the duty increase to the farming and food-producing industries should be around £10 million in real terms. That is £10 million out of an additional revenue from the measure of £80 million.

We understand the value of the rebate to those who depend on it, but we are keen to pursue and meet our environmental objectives. That is why we will consult over the summer, as the Chancellor announced in the Budget statement, to establish whether preferential duty rates for such fuels would offer worthwhile environmental benefits. In doing so, we will consider, as we always do for questions of environmental taxation, the economic impact, social benefits and social redistributive costs.

At the moment, I see no justification for the amendment. I do not accept it and urge my hon. Friends to vote against it and to support the clause.

Michael Jack (Conservative, Fylde)

Mr. Winterton—

Nicholas Winterton (Conservative, Macclesfield)

Sir Nicholas!

Michael Jack (Conservative, Fylde)

My apologies, Sir Nicholas. Thank you for calling me.

I appreciate the kind words of my hon. Friend the Member for Eddisbury (Mr. O'Brien) about my earlier comments. I thank the Minister for his characteristically courteous and careful reply to many of my points. He bent somewhat in the direction of our arguments, and I welcome the fact that he has spoken extensively with industry representatives and that he plans further consultation during the summer. That is encouraging.

However, although the Minister was critical of some of my logic, I sensed something of a tortured nature to his own remarks. Instead of looking within the transport fuels section to find comparisons on the environmental benefits of biodiesel and ultra-low sulphur diesel, conventional diesel and other road fuels, he chose to deploy the wider argument of value for money in terms of carbon dioxide saving.

If I were to follow that thin line of logic to its ultimate conclusion, as the Member of Parliament for the constituency in which nearly all Britain's nuclear fuel is made, I might say that it suggests the interesting thought that the Treasury really wants to spend a great deal of money on enabling us to have more nuclear power stations, thus producing more of our electricity with zero carbon dioxide. I suspect that if I were to advance that argument in too broad terms, Sir Nicholas, I should rightly be ruled out of order and, secondly, that the Economic Secretary would not be persuaded. However, that is the logical intent of what he said.

There is an incontrovertible argument on vehicle fuels. I remind the Economic Secretary of what the National Farmers Union said about the role of oilseed rape in carbon sequestration. The NFU pointed out:

"Crops sequester carbon from the atmosphere as they grow, and recycle carbon when used as fuels."

If we do not encourage the production of more biofuels now, the fuel that will be used will come from mineral sources. By definition, it will not be sustainable and extra carbon dioxide will be emitted.

If the Minister wants to remain true to the Government's intention to reduce carbon dioxide, he should, even at this late hour, accept our amendment. He is not rising to agree with me, but the arguments put by the Opposition are sustainable and I wish to push the amendment to a Division.

Clause 5 — Rebates on Hydrocarbon Oil Duties

Stephen O'Brien (Conservative, Eddisbury)

Naturally, we are disappointed that the Government did not accept amendment No. 4. However, now that we are debating clause 5, which deals with rebates on hydrocarbon fuels, I wish to flag up a point made by the Federation of British Historic Vehicle Clubs. I am sure that a number of Members are interested in motor vehicles, and I should declare an interest as vice-chairman of the all-party group on classic cars and vehicles, as well as the proud owner of a defunct and yet to be restored 1954 Ford Popular. I am also on the hunt for a 1952 Austin K9 ex-Desert Rats signals lorry. Both those vehicles run on leaded petrol—[Interruption.] The Chief Secretary to the Treasury has prompted me to explain that I want an Austin K9 because I want to revive the memory of travelling across the Sahara and back in one in 1979, and relive my adventures.

The Federation of British Historic Vehicle Clubs has been in contact with the Economic Secretary, and I wish to flag up its concerns. We all accept the genuine importance to our country's culture of preserving our classic car heritage, and acknowledge the dedication of car owners and members of historic car clubs. Now that the car is well over 100 years old, it is an accepted part of our history. Two years ago, during the debate on the 2001 Budget, the Chancellor said that he was reducing the duty payable on road fuels by 2p a litre if they met low-sulphur criteria, but the resulting legislation excluded from that benefit the small amount of leaded petrol that continues to be sold in this country. Under EU legislation, up to 0.5 per cent of petrol sold may be leaded. In the UK, leaded petrol is taxed at a significantly higher rate than unleaded because of its lead content, so it is unreasonable that the reduction in duty does not apply to it. The president and executive of the Federation of British Historic Vehicle Clubs represent a large membership and, we believe, on the basis of somewhat dated figures, a historic movement worth a staggering £1.6 billion per annum in this country, employing in excess of 25,000 people. I can vouch for the large numbers in my constituency and in the neighbouring constituency of North Shropshire who are engaged in historic vehicle preservation and use.

Having had a meeting with the Treasury and Customs and Excise, representatives of the clubs were given great encouragement that their arguments had been understood and accepted. There may also have been an exchange of letters, but those have not been put in the public domain, as far as I am aware. Nevertheless, that is the fount of the confidence that has been represented to me.

The Government's position is that they do not wish to encourage the use of leaded petrol. The duty differential with other fuels is already significant. Speaking from my own experience, I know that older vehicles are very unhappy on anything but leaded fuel, and as testament to my inadequate mechanical practices, are very unhappy generally. With leaded petrol, at least I give my vehicle a slightly greater chance of being able to perform as it should than if it had to use unleaded. The conversion of such vehicle engines is problematic. Many of them are extremely sensitive, having run many miles in the past, and contain metals, especially valve systems, which are easily corroded by the additives necessary to produce unleaded fuel. Anybody who has a side-valve engine knows the difficulty of grinding a side valve. With eight of them for four cylinders, that becomes extremely tedious.

Apart from wishing for an easier life for those with side-valve engines, I support the representations that have come my way and argue that the duty differential with other fuels is already more than sufficient. The pump price is so great that no one would use leaded fuel unless they had to.

A further argument against the initiative is that the benefits of low sulphur without the use of modern technology—that is, catalytic converters—are minimal. The historic car clubs dispute that. They say that even if it is true, it is irrelevant, as the tax was reduced on leaded replacement petrol, which was developed specifically for older vehicles without modern technology. Perhaps it was not earlier understood that leaded petrol would automatically become low sulphur when that became the only base fuel available.

I do not intend to press the matter to a vote, but I raise it in order to give the Minister an opportunity to tell us whether any progress has been made on an issue that affects many people and the hobby that they all enjoy. If the hon. Gentleman wants to take the matter further, we will have an opportunity to consider it again on Report.

John Healey (Labour, Wentworth)

I shall respond briefly to the hon. Gentleman's point, and then address clause stand part. We carefully considered the representations on the matter before Budget 2003 and decided against the duty treatment that the hon. Gentleman advocates because we believe that it would send out the wrong environmental signals if we cut the duty on a fuel that was considered to be harmful. I remind him that with respect to historic vehicles, there is a vehicle excise duty exemption for cars registered before 1973.

Clause 5 increases the effective rates of duty on oils other than the main oils used as road fuels by 1p per litre above inflation. These increases apply to red diesel—that is, diesel that has been marked to show that it must not be used in road vehicles—and to fuel oil and light oil used as furnace oil. The increase came into effect from 6 pm on Budget day.

The policy rationale for the clause is that rebated fuels typically have much higher sulphur levels than the main road fuels. Their use continues to contribute to particulate emissions.

George Osborne (Conservative, Tatton)

Will the Minister tell us how much such fuels contribute to particulate emissions?

John Healey (Labour, Wentworth)

The hon. Gentleman is sharp in mind and sharp to get to his feet. I was about to explain that red diesel has a permitted sulphur content of 2,000 parts per million, as opposed to 50 parts per million in the main road fuels. Most of the red diesel in UK vehicles has a sulphur content of about 1,300 parts per million—26 times the permitted level for the main road fuels. That gives him a measure of the differential.

Duty represents only a small percentage of the price of rebated fuels as compared with road fuel. The deferred increase envisaged for ordinary motorists will be greater with revalorisation than the total paid by users for rebated fuels. The duty on such fuels continues to be more than 40p a litre below that paid by ordinary motorists in respect of main road fuels. As my right hon. Friend the Chancellor announced in his Budget statement, in addition to the increase and as part of our continuing commitment to improving local air quality, the Government will consult in the summer to establish whether preferential duty rates for rebated oils with a low sulphur content would offer worthwhile environmental benefits.

Finally, kerosene, a low-sulphur oil that is used mainly for domestic heating, will continue to enjoy exemption from duty.

I commend the clause to the Committee.

Question put and agreed to.

Clause 5 ordered to stand part of the Bill.

Clause 9 — Bingo Duty

Stephen O'Brien (Conservative, Eddisbury)

I beg to move amendment No. 6.

Nicholas Winterton (Conservative, Macclesfield)

With this it will be convenient to consider amendment No. 69 and Government amendments Nos. 70 and 71.

Stephen O'Brien (Conservative, Eddisbury)

It may help the Economic Secretary to note that the aims that the amendments seek to achieve could probably have been most elegantly and simply achieved by other unselected amendments. For understandable reasons, not least including legal drafting, we are not proceeding with those amendments, so I shall not seek to detain the House or debate them, although I should say that I refer to amendments Nos. 5 and 68.

In any event, amendments Nos. 6 and 69 would achieve what we seek to achieve, and I hope that the Economic Secretary will be minded to accept them after he has heard the arguments, as they would improve the Bill and deliver on the very aims that were flagged up by the Chancellor himself. Indeed, the only point of attempted levity in the Chancellor's hour-long Budget speech, as recorded in the Official Report of 9 April, arose when he said:

"I turn now to bingo. I will abolish the bingo tax . . . just as I have abolished direct taxes on the pools and on betting on horse racing."

The phrase "just as I have" implies a direct equivalence, and that was the expectation given to all those who are interested in bingo, whether they are providers or the millions of people throughout the country who play the game. Bingo is a pastime of interest and enjoyment to many communities around the country. I have been privileged to visit my local bingo club in Winsford in my constituency, where I recently had the pleasure of presenting a very large cheque to a young lady who had been going there with her mother for many years and had won the sweep across the country—they are all computer-linked these days. She said that it would not change her life, but she was going to live in Spain.

The Chancellor went on to say:

"The tax on bingo players' stakes and the tax on bingo prizes will be replaced in the same way as the tax on betting and the pools."—[Official Report, 9 April 2003; Vol. 403, c. 278.]

He then went on to make the joke that did not work. I ask the Minister to keep in mind the phrases that the Chancellor used—"just as I have" and

"will be replaced in the same way".

The language that he used clearly created an expectation of a direct equivalence.

Bingo is currently liable to duty at a rate of 10 per cent. on all moneys staked. Betting and football pools have both in the recent past moved on to a gross profits tax basis—in the case of betting, with the active support and encouragement of that industry. A move to gross profits tax for bingo, which the industry has indicated in the past it would not welcome, was announced by the Chancellor in April 2002—just over a year ago—without prior notice to or discussion with the Bingo Association, which represents by far the greatest number of bingo operators and interested groups. At that point, there were no indications of how any new system might work or of what the rate might be. I understand that the Bingo Association has held lengthy and detailed discussions with Customs and Excise, including extensive modelling by the Henley Centre, in order to examine all possible options. The industry favoured a system that made participation fees VAT-exempt and levied GPT—gross profits tax—at a rate of 15 per cent., in line with betting and the pools: "just as" or "in the same way", to keep in line with what the Chancellor was leading the whole industry and all those who play bingo to expect. The Bingo Association voiced objections to any system that maintains VAT.

The problem, which will come as no surprise to the Government, is that bingo is still liable to VAT on participation fees—or "par fees", as they are known—and will be double-taxed because of the way in which the GPT calculation has been set. The gross profits calculation does not allow VAT to be treated as a cost, thereby implementing double taxation. The system will not deliver even the limited benefits that the Chancellor outlined and could in many circumstances leave clubs worse off. The tax burden on bingo remains significantly higher than on any other gaming product, at 30.7 per cent. The bingo industry rightly considers that that amounts to discrimination against bingo players.

I do not know whether that is something that the Government are happy to stomach, or whether they intended it, but the Government's promise of a fairer tax regime in relation to bingo rings hollow in the ears of bingo players across the country. The Government's proposed changes to the way in which the bingo industry is taxed leaves it at a serious disadvantage to the rest of the gaming industry. The Chancellor's sleight of hand is evident. The Government's proposed tax system will not even deliver the limited benefits that he previously promised. The tax burden on bingo remains significantly higher than on any other gaming product. Britain's bingo players, and the industry, deserve a fair deal, but once again they are being let down.

Conservative Members, as Her Majesty's official Opposition, will lend support if the Government recognise that, on this occasion, there has been sleight of hand or—let me be generous—an oversight, and that they had intended, as the Chancellor clearly stated, to put bingo on the same footing as the pools and the betting industry. That has not happened, hence we will support Government action in amending to the Bill to ensure that bingo players and the gaming industry have a level playing field. Amendments Nos. 6 and 69 would achieve that.

We are considering a problem that is simple to solve. Have the Government the will to live up to the Chancellor's words in the Budget statement as recently as 9 April? Conservative Members have not attempted to generate artificial anger, although it is easy to suggest that we have made such attempts. Representation after representation has been made on the issue. It is appropriate to cite the bingo club in my constituency—Top Ten Bingo in Dingle lane in Winsford—from which I received a letter. I did not solicit it, but it happened to arrive in my post this morning after I had prepared my remarks. It is so relevant that I shall quote from it. It is dated 9 May and states:

"Dear Mr. O'Brien,

As you know in his budget speech, the Chancellor announced that he was abolishing bingo duty. This follows his statement last year when he made it clear that he wanted to benefit both the players and the industry.

A consultation paper was issued in which the Minister"—

the Economic Secretary is named—

"wrote:-

'We want to deliver the same (as for bookmakers) successful reform for bingo that should allow bingo companies to invest more in growth of their clubs and increase their prize payout, which in turn should help boost attendances'."

Mr. Ryder, the club's general manager, continues:

"These aims cannot be realised because unlike the betting industry VAT will still apply to bingo. This means that the amount available to pay the new tax, invest more in clubs and to give extra meaningful prizes will be totally insufficient. Indeed in the medium term, according to research carried out by the Henley Centre, both stake money and prize levels are likely to decrease by 2007."

I mentioned the centre earlier, and Mr. Ryder's reference to it suggests that he is a member of the Bingo Association or has heard of its work. The letter goes on:

"There will therefore not be the growth in the industry for which we had hoped."

I am sure that the Economic Secretary takes the matter seriously. Mr. Ryder quotes his words in a consultation paper. Top Ten Bingo is a highly reputable club and an attractive venue for all those who enjoy the sport and entertainment.

Adam Price (Plaid Cymru, Carmarthen East and Dinefwr)

The hon. Gentleman referred to the differential tax burden on bingo when compared with other parts of the gaming industry. Does he accept that the new proposals, which increase the tax burden, discriminate against smaller clubs in particular? They would especially benefit from the abolition of par fees to which he referred.

Stephen O'Brien (Conservative, Eddisbury)

The hon. Gentleman makes an important and telling point. I am sure that his constituency has many typical bingo outlets that are probably similar to those that characterise the sort of constituency that I represent on the English-Welsh border. Club ownership obviously varies from constituency to constituency, but the detailed scrutiny of a Committee allows us to look out for areas that will suffer from genuine cost burdens, new regulatory impacts, and a challenge to all those who run community services and provide the community's lifeblood. People feel that they can come together in such places and be part of the community.

Mr. Ryder's letter continues:

"The most disturbing matter for the industry is that the Chancellor has raised false expectations. Our customers are asking where are the price reductions and the bigger prizes they were led to expect."

That goes to the heart of the point made by the hon. Member for East Carmarthen and Dinefwr (Adam Price). Local bingo halls, perhaps single businesses or those with a very small company base, will have to recover a certain proportion of their overhead costs in order to stay in business. To do that, they need a level playing field, so as to be able to compete against the pools and the betting industry. They also need the incentive to back not only the sustainability of their businesses but their growth, which is what the Minister was seeking to encourage in the quote that I read out, and which he wanted the industry to understand that he was encouraging.

The absence of the removal of VAT is occurring alongside the unwelcome imposition of the gross profits tax. These businesses have accepted the GPT, but they remain burdened by VAT, unlike those with whom they have to compete and also the smaller businesses. That must also apply to the larger businesses, because they are seeking to attract people with the potential for winning prizes. We know from the extraordinary experience of the lottery that, as soon as there is a rollover from one week to the next, a whole load more tickets are suddenly bought. There is no logic to that, because the odds are always the same, mathematically, whether we choose the same numbers or different ones, from week to week. Mathematically, that is illogical, but from the point of view of encouraging business, it is very real.

George Osborne (Conservative, Tatton)

I do not want to pick my hon. Friend up on his maths, but if the stake is larger in the lottery, the effective odds are better in a rollover week.

Stephen O'Brien (Conservative, Eddisbury)

That depends entirely on individual circumstances, but the mathematical basis remains constant.

George Osborne (Conservative, Tatton)

There is a bigger stake.

Stephen O'Brien (Conservative, Eddisbury)

Indeed, there is a bigger stake but, for my hon. Friend's maths to work, one would have to participate in the game to the same proportion. This discussion, however, is stretching the nature of our purpose here today to its limit.

In addition to what Mr. Ryder says his customers are asking for, he says that they now realise that the expectations that the Chancellor raised are not going to be met. They also realise that, as bingo players, they are being unfairly treated compared with those using betting shops. This will often relate to two halves of a couple living in the same household, so conversations about this take place, however much people might believe that they do not. Mr. Ryder goes on to point out that

"the majority (75 per cent.) of bingo players are women"—

I did not know that statistic until I read it here—

"and the reverse is probably true of betting shops",

as I have just instinctively pointed out, although I did not have the evidence to do so until I read what Mr. Ryder had written. He goes on to say that

"this does not represent 'social equality', a phrase much used by the Chancellor on budget day and Tony Blair. I am therefore writing to express my great disappointment and dissatisfaction at what is now being proposed. I will be forced to face customers expecting improvements as a result of previous budget promises, that will be impossible for me to meet. I feel that the Chancellor is totally to blame for this and that the only way to redress matters is for bingo participation fees not to be subject to VAT."

As I said earlier, I prepared my remarks on this amendment before I read what Mr. Ryder had to say on the matter. He has put it very well, but I am afraid that I am not going to decline the opportunity to give the House some of the remarks that I had prepared earlier. The recommended solution is to make participation fees VAT-exempt. During discussions with Customs and Excise, it was made clear that the discretion to take such a step exists. If that proves impossible, however, it would be possible to get to the same position by reducing the gross profits tax to 4 per cent. The latter option would provide significantly less benefit to the consumer and the industry; it is, however, what has ended up in the amendments.

I wonder whether the Minister is prepared to give an absolute guarantee at the Dispatch Box today that he likes the look of what were amendments Nos. 5 and 68, to the extent that he will adopt them. Former amendment No. 68 is, of course, a better version of former amendment No. 5, although there might be a small EU law issue as to whether bingo being singled out would qualify under the broad categories applicable under the EU directive governing VAT. On the other hand, the Minister could achieve the same result by accepting our current amendments. Perhaps he will give a guarantee that he is prepared to accept the amendments that we were unable to pursue because of the amendment of the law provision—about which I had some issues, as we were seeking relief from an exemption in relation to bingo, rather than providing for an exemption, to which the terms of the amendment to the law resolution relate. I had to accept what had been decided, however, so I had to adopt this course.It is our duty to do our best to find a solution. Bingo could decline rapidly, in relative terms, unless the Government are prepared to acknowledge the seriousness of the issue.

The reforms announced on 9 April will not deliver the Government's stated objectives. The VAT element is largely responsible for the significantly larger tax burden on bingo. A KPMG study carried out in 2000 showed that it was being taxed at 34.1 per cent. then, but the current differential is still very great, and to make matters worse double taxation is now being introduced.

If the Government want to move, they can move very fast; if they want to stall, I dare say that they can do that. It is clear that they could remedy the problems inherent in what the Chancellor seems to have been determined to suggest he was delivering—something that is now being discussed by businesses throughout the country, and increasingly, by bingo players: naturally, when they get together the subject will arise, and the conversation is not one that I imagine the Government would wish to take place. I am suggesting a remedy—a way in which the Government might be able to make themselves more popular with bingo players. That may be the right way to bring about a better law, but I must say that it goes against my instincts.

Our amendment would deliver the Government's stated objectives and implement reform. It was on this basis that the industry accepted the move to GPT. Amendments Nos. 6 and 69 would remove the unfairness in the current system, and would enable the Government to live up to the expectations that they deliberately peddled to bingo players and the industry—while also being open to the charge of having been somewhat economical with their explanations in the Budget speech, and having previously failed to deliver on clearly stated objectives.

A considered response from the Minister would be helpful, and unless he can give the categorical guarantee and reassurance that I seek, we will press the issue. I could advance further arguments, but I hope that the Government have listened to what I have already said, and I do not want to take up more of the Committee's time.

David Laws (Liberal Democrat, Yeovil)

I have three questions. First, is it Government policy for bingo taxation to be neutral in relation to other forms of gambling? Secondly, following the Budget, is it neutral in that sense? Thirdly, if it is not, what would it cost the Exchequer in an average year to achieve neutrality?

Nicholas Winterton (Conservative, Macclesfield)

The Committee is grateful to the hon. Gentleman for his brevity.

George Osborne (Conservative, Tatton)

I shall not be quite so brief, Sir Nicholas; nevertheless, I hope to make a relatively short contribution. I congratulate my hon. Friend the Member for Eddisbury (Mr. O'Brien) on an excellent speech. I always suspected that he was an expert on the bingo industry—even before he went to Winsford to present the prize. In fact, I have gone one better than him and called bingo numbers on several occasions in Cheshire. I discovered that when the number 10 is pulled out, it is called "Tony's den". That is something that the right hon. Member for Birmingham, Ladywood (Clare Short) wants to change, and I would approve of that.

On a serious note, my hon. Friend the Member for Eddisbury is right to bring to the House's attention the very real concerns of the bingo industry and of bingo players across the country, and he has done so in a very eloquent way. As he said, the Chancellor's objective was to create the right environment for bingo to maintain its role in the community and to reach maximum growth; indeed, the Economic Secretary told us last year that reform will not only benefit bingo players and bingo companies, but strengthen the increasingly important role played by bingo clubs within the wider community and help to ensure that the next 20 years are ones of growth and success. That is what the Economic Secretary set out to achieve, so presumably he was very disappointed when the Bingo Association told him that, as a result of the proposals announced in the Budget, clubs will be no better off, and in some cases will be worse off than before. If that is what the industry is saying, he will presumably want to think again about these proposals extremely carefully.

My hon. Friend the Member for Eddisbury referred to KPMG's interesting study on this issue, carried out in 2000, with which Members are doubtless very familiar. It found that the effective tax burden on the bingo industry was 34.1 per cent., which is considerably higher than that on arcades, at 19.9 per cent., on casinos, at 21.7 per cent., on pools, at 15 per cent., or on betting generally. It is true that this reform would reduce somewhat the effective rate of tax on the industry, but only to 30.7 per cent., which is still far above that for all other forms of gambling. Such a rate would continue to discriminate against the bingo industry. Indeed, because of the way in which the reforms are structured, they may lead to an increase in the burden for smaller clubs—a point made by my hon. Friend and by the hon. Member for East Carmarthen and Dinefwr (Adam Price).

The industry feels that the proposals announced in the Budget are a betrayal. Given that they were introduced to help the industry, the Economic Secretary should listen on this occasion. I welcome the fact that the Government have already tabled an amendment to delay the implementation of some of these proposals; that was a particular concern of the industry. Nevertheless, that does little to help smaller bingo clubs in particular.

I end my contribution by pointing out what the Bingo Association itself had to say:

"Bingo clubs and players want fair play. They want to be treated in the same way as those who bet and play the pools."

[Interruption.] I see that my hon. Friend the Member for Eddisbury wants to intervene and interrupt the Bingo Association.

Stephen O'Brien (Conservative, Eddisbury)

In that context, my hon. Friend might find it interesting to note that the Bingo Association wrote to the Economic Secretary on 8 May; indeed, I have a copy of the letter in front of me. It states that in advising him,

"Customs and Excise have leant very heavily on the Nottingham University Business School's evaluation of GPT on bookmakers."

It continues by pointing out that there seems to be an excessive reliance on the assumption that what is true for bookmakers is true for the bingo industry. I hope that that is a helpful reinforcement of the valid points that my hon. Friend is making.

George Osborne (Conservative, Tatton)

Indeed it is, and I should hate to think that Customs and Excise—or, indeed, the Treasury—did not have a proper understanding of the bingo industry. However, in the light of these proposals and of our knowledge of the industry, that appears to be the case. The Bingo Association makes a very straightforward point: it wants the Chancellor to live up to his promises. It believes that current proposals should be amended to include VAT exemption from participation fees, removing the unfair discrimination against millions of women—and presumably men—who play bingo, and giving bingo clubs across the country, many of whom are struggling to survive, the chance of future success.

John Healey (Labour, Wentworth)

The hon. Member for Eddisbury (Mr. O'Brien) urged me to make a considered response to his points, and I shall attempt to do so. I want to deal thoroughly with the issues because millions of bingo players in every constituency across the country are potentially affected and should potentially benefit from our proposals. First, I shall explain the background and purpose of the reforms and explain our decisions. Secondly, I shall respond to Opposition Members' plea to make the reforms more generous and deliver a bigger tax saving to the bingo industry. Thirdly, I shall assure the House that Ministers and our officials have listened to the industry about the changes necessary to make the reforms work as well as possible, and I shall explain the amendments that the Government have tabled to that end.

The reforms are the latest elements of our wider programme to reform the taxation of gambling in this country by replacing across the board duty regimes that have been in place since the 1960s with simplified systems of taxation that reflect the modern age and support the future competitiveness of the UK's gambling industries. Following our reforms to betting and pools taxation, my right hon. Friend the Chancellor announced in the last Budget that he would examine the scope for abolishing the duty on bingo players' stakes and replacing it with a tax on bingo companies' gross profits. What the Chancellor proposed is what we are now doing—abolishing bingo duty and moving from a turnover to a gross profits tax.

That was the main purpose of our consultation last summer. As a result we have been able to deliver reform in the Budget in a way that both modernises the tax system and gives real financial support to the industry. Although the hon. Member for Moray (Angus Robertson) has just taken his place, I will give way to him. [Interruption.]

Angus Robertson (Scottish National Party, Moray)

May I confound the intervention from a sedentary position to the effect that I was just placing a bet? Unfortunately, I have had parliamentary duties elsewhere and I am grateful to the Economic Secretary for allowing me into the debate. What message would he give to the Carlton Clubs in Inverness, which has many bingo establishments, including several in my constituency? The clubs have written to me complaining that they will have to pay an additional £500,000 this year, limiting the company's ability to increase prizes or to reinvest.

John Healey (Labour, Wentworth)

I would say to the Carlton Clubs that we would be delighted to see any detailed analysis of evidence that would bear that contention out. It goes against the analysis that we have undertaken, against the discussions that we have had with the bingo industry and against the research commissioned by the Bingo Association on behalf of the industry, which was submitted to us as part of the consultation process. I shall touch on that again in my later remarks.

George Osborne (Conservative, Tatton)

Once the Financial Secretary has examined the detailed analysis, which I am sure that the hon. Member for Moray (Angus Robertson) will forward to him, and it turns out to be correct, will he re-examine the Government's proposals?

John Healey (Labour, Wentworth)

Just as we have done with betting taxation and pools taxation reform, so we shall do with bingo taxation reform—monitor implementation, be prepared to receive fresh evidence and, if a good case can be made, consider further reform and refinement of the regime that we are putting in place. I will return to the point later.

I shall now deal with the second set of three questions asked by the hon. Member for Yeovil (Mr. Laws) this afternoon. Our approach to the reform of bingo taxation is consistent with our approach to betting and pools, but it is not neutral across the gambling regimes because industry-specific factors need to be taken into account. For example, with the challenges faced by the betting and gambling industry, we were mindful of a strong move towards moving betting offshore and on to the web. That consideration clearly applies to that part of the gambling industry, but not to bingo. Introducing a neutral regime across the different gambling industries is not our policy aim. Therefore, we have not calculated the cost to the Exchequer of pursuing that objective.

David Laws (Liberal Democrat, Yeovil)

I thank the Minister for giving way, and for his candid response that he has not achieved tax neutrality across all forms of gambling. Given the special factors that he mentioned in relation to one particular sector of the gambling market, does he see any prospect of moving towards neutrality? Is that his objective in the years to come?

John Healey (Labour, Wentworth)

No.

I turn now to the points raised by the hon. Member for Tatton, and to those raised by the hon. Member for East Carmarthen and Dinefwr (Adam Price) in an intervention on the hon. Member for Eddisbury. Those hon. Members were concerned about the apparent position of small bingo clubs.

There seems to be a claim that some small bingo clubs will be worse off as a result of the reforms confirmed by my right hon. Friend the Chancellor in last month's Budget. As the reforms cut the tax for all bingo clubs, regardless of size, it is hard to see how that could be the case.

In discussions since the Budget, the bingo industry raised the point with officials. We have invited industry members to submit evidence to substantiate the fear, but we have not yet received the information. However, we can draw some comparisons with the experience in other regimes. The analysis conducted by Nottingham university of the impact on small bookmakers of changes in the betting regime suggests that modelling a gross profits tax in that way on gambling industries would not have the effect of making smaller concerns worse off.

In addition, the bingo industry has told the Government consistently that small clubs pay a higher effective rate of tax than larger clubs. That is largely because small clubs' profit margins are narrower. Moving to a profits-based tax would mean that their effective rate of tax would be equalised. Therefore, it is once again hard to see how the claim that small clubs are proportionately penalised and worse off can be sustained.

By abolishing the duty on stakes and on added prize money, the Government are encouraging lower prices and higher prizes for bingo players. Those factors will help attendance and turnover at clubs. By setting GPT at 15 per cent., we are delivering a £25 million tax cut to the bingo industry. The bingo industry itself estimates that that will deliver a £240 million benefit to players, in the shape of lower prices and higher prizes. That was set out in the Bingo Association's press release of 9 April, in response to the Budget.

Understandably, the bingo industry has argued for the removal of the duty on bingo stakes and prizes, and for the removal of value added tax on participation fees. However, during the consultation the industry also estimated the impact that a GPT at 15 per cent. and the retention of VAT on par fees would have on the industry. The industry drew on the analysis by the Henley Centre, commissioned for the Bingo Association. The evidence was submitted to the Government in December, as part of the consultation process. Based on the work of the Henley Centre, that evidence estimates that setting GPT at 15 per cent. and retaining VAT on par fees would increase prizes by at least £18.75 million, would increase admissions by at least half a million a year, and would increase prizes as a percentage of bingo spend from 67.2 per cent. to 68.7 per cent. It was also stated that the move would increase bingo industry profitability from £117 million a year to £191 million a year.

All I can suggest to the hon. Member for Eddisbury is that he encourage his constituent Mr. Ryder to examine the Henley Centre's analysis quite closely, just to check that he is not misinterpreting or misquoting the results of the work that it did for the Bingo Association, and which were submitted to the Government.

I have spoken with representatives of the bingo industry since the Budget, and officials have held detailed discussions. I know that the industry wishes that our reforms had delivered a bigger tax cut. That is not surprising. I know that it wishes that we had altered VAT treatment on par fees. I have discussed those issues with some leading figures in the industry, and I know they appreciate that I understand their concerns. However, all Governments need to make difficult decisions about the scope and size of tax changes in every Budget. That is never more true than in deciding where to draw the line when giving a relief from tax. Many people may appreciate how far we have gone, but many more will usually argue that we should go much further.

Adam Price (Plaid Cymru, Carmarthen East and Dinefwr)

Let me return to the disproportionate impact on smaller clubs. One difference between smaller and larger companies, as those of us who have been in business know, is that larger companies have better access to professional expertise and advice on perfectly legal tax avoidance.

On another point, what has the Minister to say about the fear that the changes are being rushed through and the burden that that truncated time period will place on smaller clubs?

John Healey (Labour, Wentworth)

I emphasise that we developed our proposals after detailed consultation with and shared analysis from the industry, but if the hon. Gentleman will allow me, I shall explain later, in relation to one of the Government amendments, precisely how we shall continue that consultation and how we are ready to adjust our plans in light of what the industry tells us.

There will always be those who urge us to go further on any Budget decision that allows a tax relief. Inevitably, there will be criticism of almost every tax relief that we introduce. In the eyes of some people, they do not go far enough, and that is so whether the relief is for small cars, small breweries, film makers, bookmakers or bingo clubs. However, we wanted to support the bingo industry, and we have done so fairly and affordably. We have tried to do that in a spirit of close and ongoing consultation with the industry.

David Laws (Liberal Democrat, Yeovil)

I appreciate that there are many competing priorities in every Budget and that Ministers have to decide between them. Does the Minister understand, however, why the bingo industry is likely to be frustrated with his announcement of a moment ago that he has no intention of trying to move towards any equality between different forms of gambling in the way that they are taxed? What is his estimate of the cost of achieving neutrality for the bingo industry?

John Healey (Labour, Wentworth)

The phrase "flogging a dead horse" comes to mind. The point is not revenue neutrality. The bingo industry is understandably disappointed because we have not decided to go as far as the industry urged during consultation. It argued for a formula of tax changes and reliefs that would have cost the Exchequer £80 million a year.

I appreciate the spirit in which the hon. Member for Eddisbury moved the amendment. However, it beggars belief to hear Conservative Members berating us for not doing enough to support the bingo industry. The hon. Gentleman may do well to recall the impact on bingo clubs of tax reforms under Conservative Governments. In 1980, the tax on stakes was 5 per cent. Did the Conservatives cut or abolish it? No: they increased it to 7.5 per cent. In 1981, in a Budget described by the present shadow Chancellor as ground-breaking, they were back for more, increasing the tax on stakes to 10 per cent. In the space of two years, the Conservatives doubled the tax on stakes. In the same period, they doubled the tax on added prize money from 5p in the pound to 11p.

Richard Bacon (Conservative, South Norfolk)

Ancient history.

John Healey (Labour, Wentworth)

It is not ancient history. The hon. Member for Eddisbury professes concern about the decline in bingo clubs, but what happened to the bingo clubs following those taxation changes was that their numbers significantly declined.

When Lord Howe became Chancellor, there were 1,697 bingo clubs in the UK. By 1982, the number had fallen to 1,556 and at the end of the second Thatcher Government there were only 1,115. By the end of the Major Government, there were just 782. Today, there are only 688—1,000 fewer bingo clubs—so I hope that Conservative Members will understand my reaction when they take up cudgels on behalf of an industry that they taxed too much and ignored for too long when they were in government.

George Osborne (Conservative, Tatton)

The Economic Secretary pointed out the decline in the number of bingo clubs. Could he tell me, first, whether the number has increased or decreased since Labour came into power; and, secondly, whether he will judge the success of the proposals by the number of bingo clubs that open in forthcoming years?

John Healey (Labour, Wentworth)

To answer the hon. Gentleman's first question directly, let me repeat what I have just said. By the end of the Major Government, or in other words at the beginning of the Blair Government, there were 782 bingo clubs in the UK; six years later, there are 688. There were 1,000 fewer clubs than in the 1980s.

It is true that there is pressure on the bingo industry and that there is a long-term decline. However, it is also true that part of the purpose of our reforms is to try to assist the bingo industry to deal with the challenges presented by those problems. As I said, I understand the feelings of those in the industry who wish that we had gone further. I assure them that, first, we shall examine the evidence offered by the industry, as we have done before; secondly, we shall keep the reforms under way, as we have done for the reforms to betting and the pools; and, thirdly, we shall continue to look at the case for further change, as we do every year as part of the Budget process. For this Budget, however, I cannot accept amendment No. 6, which would cost £60 million and would require us either to increase taxes elsewhere or to reduce the money that we are spending elsewhere. We are not prepared to do either.

George Howarth (Labour, Knowsley North and Sefton East)

Can my hon. Friend confirm that, although there has been a continued, but less steep, decline in the number of bingo halls since the Labour Government came to power, the number of people attending bingo events has increased, mainly as a result of the liberalisation of advertising in the bingo industry?

John Healey (Labour, Wentworth)

My hon. Friend makes an important point: the health of the industry cannot be judged simply by the number of clubs alone. One of the purposes of our reforms is to try to encourage greater participation in bingo. As I mentioned, the evidence submitted to us by the Bingo Association, as part of the consultation process, suggests that, as a result of our reforms, there will be an extra 500,000 players a year.

In direct response to the point made by the hon. Member for East Carmarthen and Dinefwr (Adam Price), I stress that we are still willing to talk to and listen to the industry. That is why we are introducing two amendments on the implementation and administration arrangements. I shall briefly explain the background to the amendments to exemplify my general point.

When we held consultations on the abolition of bingo duty, we asked bingo operators how long they would need to introduce the changes necessary to comply with a gross profits tax system. The industry's responses were clear: three months from the date of the announcement would be sufficient. We thus announced in the Budget on 9 April that bingo duty would be abolished and replaced by a tax on bingo companies' gross profits from 4 August this year. However, at a meeting held shortly after the Budget to discuss implementation, the industry told officials that previously unforeseen issues had been identified, which meant that it would not be ready to operate the tax by that date. The industry asked the Government to delay the start of the new tax to allow it sufficient time to amend its systems. We have listened to the industry's concerns and are amending the Bill to delay the tax reform until 27 October—the date that the industry now prefers. In addition, the bingo industry asked whether the start and end of the accounting periods could be amended so that they matched more closely the industry's accounting practices. That would avoid the need for bingo operators to make amendments to their accounting systems. We therefore propose to amend the accounting periods as suggested in the second Government amendment.

Finally, in our discussions with the bingo industry since the Budget, we have been asked to examine how the calculations of the gross profits tax will interact with the treatment of VAT on par fees, which is the subject of amendment No. 69. I am considering that specific issue further.

In summary, this clause, with the two minor amendments, will put in place a sensible reform of an outdated duty system. As it stands, the package of reform will deliver a £25 million tax boost to the industry, which should benefit both players and companies. On the detail of implementation and reform, we are undertaking, and we will maintain, a continuing close dialogue with the industry. On that basis, I urge my hon. Friends to support the clause and the two Government amendments but to reject the other amendments.

Stephen O'Brien (Conservative, Eddisbury)

For the first time in Committee, I have been disappointed by the Economic Secretary's tone, because we are dealing with today's Finance Bill, this Chancellor and his Budget statement on 9 April this year—today's world, here and now. The Economic Secretary is attempting to engage in some kind of historical record swapping, about which, of course, I have no clue—he is talking about a time decades ago, way back in history. What I do know, however, is that I receive representations today about those who enjoy bingo and who want it to be put on a level playing field. The Chancellor deliberately raised their expectations in his Budget statement, and those have been dashed. We have a right and a duty, on behalf of those who make representations to us, to test why those expectations have failed to be met.

However much the Economic Secretary thinks that it may help his case, it is irrelevant to parrot historical facts: he knows that I will not have come armed with them, and that it would waste the Committee's time to argue about them. He has demeaned what has been a good debate to date by scattering around statistics suggesting that bingo has declined more under one party than another, when in fact the whole industry is in crisis because it has declined. More to the point, he scatters those statistics around as if there is no connection with sociological factors, geographical factors, economic factors or the public's preference for television, cinema, the internet or other competing entertainments. He merely chooses to make an assertion.

What happened, in truth, is that we hit a raw nerve: the Chancellor has been found out to have deliberately led expectations, with crisp phrases such as "as if", "the same as" and "just as in the case of" in relation to pools and gaming. When we look at the detail, however, we find yet again that the Bingo Association, whose representations have been good and well articulated, has been let down. It and the people whom it represents, both the businesses and people who play bingo—millions of women, primarily, up and down the country—are right to feel let down. The Economic Secretary has put up a poor defence.

Of course, I am happy to note that the Economic Secretary has clarified what was surprisingly unclear in what we have argued is, in places, an ill drafted Finance Bill. I am glad that he took notice of some of the representations made by the Bingo Association, and, of course, we accept those Government amendments—we do not take issue with them. I also noted that the Minister said that he was considering further amendment No. 69, which I tabled with my hon. Friends. That is of some encouragement, but of course the key is amendment No. 6, on which he puts a price. In the overall order of things, given the expectations that the Chancellor raised deliberately in the minds of all those who have a concern about today's world and about moving forwards, rather than about the spurious historical context that the Minister was trying to pray in aid—it did not work, I hasten to add—£60 million is a figure about which this wasteful Treasury can think again, given that it has never sought to justify, although it is about to be put under much more pressure to do so, the significant waste in government. That amount, £60 million, could easily be found, given the enormous 20 per cent. increase, from £13.5 billion to £17 billion, in administrative costs at the centre—the head office of the Government—and I urge the Government to find it.

George Osborne (Conservative, Tatton)

Indeed, that would also encourage the industry to grow. Therefore tax revenues from the industry would actually increase.

Stephen O'Brien (Conservative, Eddisbury)

My hon. Friend rightly makes the point that we are all trying to aim for that. In the papers that I have seen and in the letter that was copied to me and sent to the Economic Secretary, the Bingo Association also makes that point. It is a patient, well argued and articulate case.

I recognise that any Minister in the position of the Economic Secretary is faced with what inevitably will be carefully scrutinised representations from all sorts of competing interests. Inevitably, the Government will always say, "There will be special pleading on this and special pleading on that." The key is that special pleading gets discounted, and anyone making representations to any Government of any colour knows that. What matters is that, when people come forward with suggestions that would help the Government to deliver their objectives, the Government should listen.

The Government have set objectives and the Chancellor used phraseology in the Budget statement that confirmed those objectives. However, when the detail comes out in the Finance Bill, we find that the objectives have been trimmed. The real nub of our argument, which has quite properly been supported by the Liberal Democrat spokesman, is that there was an expectation of a level playing field. That expectation has not been met. That is why people feel let down. It would be right if the Economic Secretary had acknowledged that we have a fair argument.

I am disappointed to hear that the Economic Secretary is not prepared to accept amendment No. 6. We shall certainly press it to a vote.

Clause 14 — Vehicle Excise Duty: Rates

Stephen O'Brien (Conservative, Eddisbury)

Clause 14 amends the general rate of vehicle excise duty and the specific rate for private and light goods vehicles with effect from 1 May this year. The Committee need not be detained long on this clause, but there is a point that requires consideration.

The vehicle excise duty on cars and vans increased by £5, which represents the revalorisation rounded to the nearest £5. The increase impacts lower capacity vehicles and lower emission cars by a larger percentage. For example, a car of less than 1,549 cc has seen general VED increase from £105 to £110, an increase of 4.8 per cent., whereas a car of more than 1,549 cc has seen general VED increase from £160 to £165, an increase of 3.1 per cent. I understand, of course, that the differential is due to the £5 rounding.

Not only are both increases above inflation—a fact no doubt noted by drivers up and down the land—but the £5 increase penalises cleaner cars to a greater extent. Recognising that the £5 is the normal rounding, the Red Book that accompanied the Budget stated:

"The Government has reformed vehicle excise duty (VED) to provide incentives for motorists to choose the least polluting vehicles"

—a worthy aim for which there is support across the Chamber, as we look to the environmental responsibilities of our generation towards those who come after us. There is a need to provide incentives to buy less polluting cars, but the £5 increase, which I recognise has been accepted practice, runs contrary to that need and has the greatest impact on the least polluting vehicles. It would be possible to specify a precise number instead of rounding up the level to £5, but I understand the efficiency of having a round number in paying VED when one goes to the post office or wherever else for renewal.

John Dawson, director of the AA Motoring Trust, recently said:

"The news on road tax is disappointing because we had hoped that he"—

the Chancellor—

"would allow these new bands, which he has only recently set, to bed in with drivers."

While that is a supplementary argument that reflects disappointment on the part of the AA, it reinforces the fact that there is disappointment generally not only that the new bands have not been allowed to bed in with drivers, but that the increase has a discriminatory impact against the least polluting vehicles.

I invite the Minister to accept that one of the ways in which the problem could most easily be addressed is by deploying the easy and rather more normal mathematical approach of rounding down the figure rather than rounding it up. Such an approach would have produced numbers that helped to secure the differential with which the Government are seeking to incentivise people who wish to use the least-polluting vehicles. It would also have been in line with the objectives that the Government have set. As I said, we do not take issue with those concerns—far from it. As Conservatives, we want the best conservation and it is our approach to take our environmental responsibilities seriously. Incentivisation is being reduced because the figure has been rounded up, but the problem would be simply cured by rounding it down.

I do not wish to detain the Committee and I do not expect to divide it, but it is important that the Economic Secretary acknowledges the problem. Perhaps he will also take the opportunity to explain how he will address it in future, if not this year.

Jonathan Djanogly (Conservative, Huntingdon)

The motor industry is worth some £44 billion a year in this country and it contributes 3.5 per cent. of UK GDP and supports 827,000 jobs. That makes it a pretty important part of our economy. In 1997, the Chancellor took £33.6 billion from motorists. In 2003, he is taking £42.6 billion. We have seen an average annual growth rate of 4 per cent. at a time when inflation is 2.4 per cent.

Vehicle excise duty in this country is still far higher than in our European neighbour countries. Even with a freeze for British hauliers, they could increasingly relocate to the continent to avoid paying our exorbitant duty. The Chancellor needs to take note of the importance of interaction between the tax system and the single market so as not to lose tax take.

The duty is not having much effect in encouraging motorists to buy cleaner cars or in discouraging them from buying polluting ones. Some 80 per cent. of best-selling cars are currently in the two middle categories—B and C. The Toyota Prius and the Honda Insight, which are in the AA category, last year managed 291 and 28 sales respectively. As GreenConsumerGuide.com says, vehicle excise duty

"should be seen as the minor device that it is, not elevated to become the government's flagship green motoring policy".

The motoring industry needs stability, so the Government must commit to having a stable regime over a long period if cleaner fuel incentives are to have any effect. Currently, only 10 per cent. of cars on sale qualify for the new category, and they are unpopular as they suffer from relatively high prices in respect of the performance of comparable cars. The Chancellor has refused to say what will happen beyond 2004. I suggest that that is inadequate for an industry that is understandably suspicious of this Government. In effect, the Government expect the car industry to respond in line with their changes to the rate of tax every year, but car production has to be phased over many years. That is why, once again, the Government's green credentials are being battered.

John Gummer (Conservative, Suffolk Coastal)

I declare an interest, in the sense that I try to help a number of companies to improve their environmental performance.

I merely wish to say to the Minister that my hon. Friend the Member for Huntingdon (Mr. Djanogly) made a crucial point about the need for a system that enables the car industry to know where it stands and encourages it to provide more continuously the green answers that are required. In that, as in several other areas, the Government have not provided a sufficiently clear and long-term policy that will encourage people to undertake the necessary investment. If fine-tuning takes place every year, but there is no permanent long-term system, we will not achieve the environmental ends that are desired by hon. Members on both sides of the House—although there are not many of them on one side to join in with the discussion.

I hope that the Minister will give an undertaking that the Chancellor will take this issue seriously, overcome the demands of the Treasury moguls who always dislike the idea of such long-term planning, and ensure that the industry knows that for a significant number of years we will have a policy that increasingly makes the purchase of vehicles that are least likely to pollute a valuable and continual offering to the public.

John Baron (Conservative, Billericay)

I welcome you to the Chair, Sir Michael.

Clause 14 increases vehicle excise duty by £5 for every car and van, although the rate of duty for lorry and motorcycle drivers has been frozen. The imposition of that tax, which will affect the majority of road users, is very wrong. Coming on the back of the already crippling cost of petrol in this country, this tax rise is symptomatic of the fact that this Government are at war with motorists and are failing in their commitments to invest in our roads. A combination of sky-high taxes and rising crude oil prices means that the car has already become the most expensive item in the household budget, hitting hard-working individuals, families and pensioners in the process.

Our fuel tax is the highest in Europe. The average UK retail price of diesel is more than 20p per litre higher than any other EU country, and under Labour the price of petrol has increased by nearly £1 a gallon. The combination of those costs has had profound implications for motorists. The total tax take, as my hon. Friend the Member for Huntingdon suggested, has gone up by nearly 50 per cent. since 1997, to an estimated £43 billion in 2002. The average annual petrol and diesel bill is about £250 a year higher under this Government.

While costs soar and the Government continue to treat the road user as a convenient way of imposing taxation by stealth, drivers are not experiencing any benefits in turn. The Government have failed to meet their road-building programmes. They have cut road spending and cancelled vital road improvements. Highways Agency figures show that not one inch of new bypass was built anywhere in the UK during 2001. Certainly, in my constituency of Billericay and the surrounding district we are seeing very little by way of road improvements. The consequence of that failure has been a continued increase in congestion. The statistics are damning. Since 1998, average journey times have risen by 16 per cent. Since 1997, motorway congestion is up by 250 per cent. Those are Government figures. On top of that, the Government recently announced that their pledge to reduce road congestion by 5 per cent. by 2010 is unlikely to be met. Instead, they suggest that the best they are likely to achieve is a situation in which congestion in 2010 is no worse than it is now.

In short, the Government are abusing the motorist. The highest fuel taxes in the western world pay for the worst maintained roads in the EU. In south Essex, people are experiencing little benefit from all the taxation. Indeed, the reverse is true. The Government should listen to the legitimate anxieties of motorists throughout the country. Costs are unacceptably high and the latest increase will only make matters worse. 6.15 pm

John Horam (Conservative, Orpington)

I support the points of my right hon. Friend the Member for Suffolk, Coastal (Mr. Gummer) and of my hon. Friend the Member for Huntingdon (Mr. Djanogly), who stressed the need for a long-term strategic approach to taxing motor vehicles. At one stage in the past, we had almost all-party support for the fuel duty escalator. My right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) instituted that when he was Chancellor and the current Chancellor continued the policy until it was aborted at the time of the famous fuel protests. We all understand why that happened. The policy was pushed too far in an extreme way and the Government undoubtedly learned some lessons.

However, the downside of the experience is that there has been no subsequent strategy, simply a series of ad hoc adjustments. I accept that many go in the right direction and try to prevent people from buying cars that have higher emissions. That is admirable, but the policy has not been strong enough or clear enough to enable the consumer, let alone the industry, to work out a long-term strategy.

As my hon. Friend the Member for Billericay (Mr. Baron) said, the Government's transport policy is a mess. If anything is worse than the policy on motor cars, it is that on transport in general. The original plans that the Deputy Prime Minister made when he was in charge of such matters have clearly been shot to ribbons, and nothing as coherent has been proposed subsequently. The Government have the opportunity to tackle the matter through taxation. They expressed their aspirations to act on that in their recent document, "Taxation and the Environment". They have done some good things, but they should adopt a much stronger and more strategic approach to the issue.

John Healey (Labour, Wentworth)

The clause introduces a new rate of vehicle excise duty for cars and vans from 1 May. Rates for most car and van owners will increase in line with inflation, rounded up to the nearest £5. That follows past practice when increasing VED rates in line with inflation. Consequently, no motorist will pay more than £5 more.

The clause also introduces a new lower triple-A VED band for the least polluting cars: those with carbon dioxide emissions of 100g per kilometre or less. Motorists with cars in that band will be able to pay up to £110 less than motorists who pay the highest rate of VED. That further improves the incentives to choose less polluting cars.

I acknowledge the point of the hon. Member for Eddisbury (Mr. O'Brien), although I do not accept that it is a problem in the way he describes. The Government have carefully targeted motorists who use fuel-efficient cars for reductions in car VED. The changes in clause 14 mean that there is a minimum difference of £90 between the top and lower bands in the new system. Since 1997, the average car VED bill has fallen by £24 in real terms and £8 in cash terms. Those are reductions of 16 per cent. and 5 per cent. respectively.

The hon. Member for Huntingdon (Mr. Djanogly), the right hon. Member for Suffolk, Coastal (Mr. Gummer) and the hon. Member for Orpington (Mr. Horam), who chairs the Environmental Audit Committee, all stressed the need for stability and a long-term approach to trying to influence purchasing decisions and thereby the beneficial impact on the environment that we want to achieve. May I say to all three Members that, in making policy in this area, we are mindful of the need for stability? That is one of the reasons why we announced the levels of company car tax a full three years in advance, so that purchasing decisions, lead times and predictability could be as advantageous as possible.

The new band demonstrates that, in this area of VED, we are also taking a long-term approach to encourage the use of cleaner vehicles. The hon. Member for Orpington and the right hon. Member for Suffolk, Coastal will know that, in the Government's powering future vehicles strategy last year, we set ourselves the target of seeing 10 per cent. of new cars sold having carbon dioxide emissions of 100g per kilometre or less by 2012; that is the very rate that we are now setting in the triple-A band.

Jonathan Djanogly (Conservative, Huntingdon)

As I explained in my speech, last year only 350-odd cars in the new band were sold. Clearly, this has not caught on in a massive way. Can the Minister give the House an assurance that the Government are now taking the issue of supporting the environmental cause in relation to cars slightly more seriously than he has described so far?

John Healey (Labour, Wentworth)

I think the hon. Gentleman is making my point for me. This structure for VED is not designed to reflect current purchasing decisions and choices. It is designed to build incentives for the longer term, and to encourage more people to buy and use more fuel-efficient cars in the longer term.

We have begun an evaluation of the CO2-based VED system, which is due to be completed by the autumn. It will focus on the impact that the new system is having on consumer choices, as well as on the impact on the environment. It will also take into account the concerns that we have heard from the industry. On that basis, I commend the clause to the House.

Question put and agreed to.

Clause 14 ordered to stand part of the Bill.

Clause 22 — Non-Business Use of Business Property

Stephen O'Brien (Conservative, Eddisbury)

Clause 22 is the primary legislation element of a matter that we considered under secondary legislation—the draft Value Added Tax (Supply of Services) (Amendment) Order 2003—last week. It was suggested in the debate that we might be putting the cart before the horse. The Minister and I went through the order at some length. I felt that we had some very serious issues to consider, in addition to the extraordinarily complex domestic and EU law implications involved. In the light of that discussion, we have been able to move some issues forward but, sadly, an awful lot have moved backwards.

I shall try to set the scene for this complex and important matter, which could have a serious effect on many people. We also need to have anti-avoidance in our minds at all times, however, and to decide where the legitimate line—the grey line, perhaps, between the black and white—is to be drawn. Discussion of clause 22 might seem like déjà-vu for the Minister and me, but the issues certainly merit the full consideration of the Committee of the whole House.

The members of the Committee who were present last week—including my hon. Friend the Member for Huntingdon (Mr. Djanogly), who so ably delineated some of the points on that occasion—will know that the background to the measure is that when a business purchases an asset that is to be used for both business and non-business purposes, EU law provides that the input tax incurred on the purchase of that asset is deductible, but that the business must account for an output tax charge arising over the lifetime of that asset. This treatment is known as the Lennartz approach, after the Lennartz case, the details of which I shall ensure are placed on the record. The case is known as Lennartz v. München III, case C-97/90, reported in 1995, STC514. [Hon. Members: "Ah!"] I am delighted that so many Members immediately recognise the reference. No doubt a series of interventions will demonstrate their detailed knowledge of both the facts and the exceptionally complex and fascinating legal arguments involved in the case, which have ensured that I have not had too many hours' sleep recently.

There is an alternative approach—to apportion the VAT incurred and treat the part relating to non-business use as not being input tax, and therefore not being deductible. There is then no output tax on the non-business use. There is also no VAT in the event of a sale of the part of the assets allocated to non-business use.

Customs and Excise has presumably had to take counsel's advice on the view it has had to develop, which in itself presents us with serious issues. Following an earlier discussion about these matters, the Minister was kind enough to write me a letter dated 12 May, which I received last night. I thank him for ensuring that it was faxed to my office.

Customs and Excise takes the view that because buildings depreciate very slowly—say, over 40 years—and can be disposed of with exemption from VAT, the Lennartz approach provides an opportunity for delay and the avoidance of VAT payment. Clause 22—along with the statutory instrument that we were required to examine last week before considering primary legislation; the Government have yet to secure authority for it through the normal processes of the House—seeks to prevent the use of the Lennartz approach in the case of land and buildings where there is non-business use.

Non-business use includes private use by an individual; one can well imagine the circumstances in which that might take place. More important, it includes use by a charity. We are not talking just about the highly paid or sophisticated investor, but about charities trying to make good use of good will and the funds they have secured with the help of volunteers and hard work. Those charities now face a challenge.

Some education and grant-funded research is also regarded as non-business use. Therein lies one of the most telling problems that might affect people who will not expect to be hit—especially in university towns that are experiencing enough pressure as it is, given the Government's policy on tuition fees.

Jonathan Djanogly (Conservative, Huntingdon)

For the first time today, my hon. Friend refers to the serious impact on charities. Will not charities, more than many other institutions, want to adapt their premises over a period to change the use of those premises? Could not the Bill have dramatic implications for charities in that regard, and does it not constitute an attack on charities for that reason alone?

Stephen O'Brien (Conservative, Eddisbury)

My hon. Friend makes a very important point, and I hope that the Government will listen to it a little more keenly than they did in Committee last week. I know that they will feel that it is inappropriate to attack them for being hostile to charities, but we must measure them by their deeds, not their words. We have advanced our argument on why we consider this provision an attack on charities, educational establishments and grant-funded research establishments. It has been denied, yet the Government persist with the deed that gives rise to the initial complaint, so such an approach is appropriate.

My hon. Friend the Member for Huntingdon, whose point is perfectly valid, is well regarded in his constituency for the work that he does on behalf of charities, not least the Thalidomide Trust. That puts me in mind of the fact that trustees may find themselves in the most desperate conflict in the light of this provision. Trustees have an obligation to deploy the assets entrusted to them for charitable purposes in the best possible service of those objectives, but potentially they will incur higher liabilities for doing so. If they are not allowed to do so because a serious tax consequence may result from the change envisaged under clause 22 in an effort to address the relief sought to overcome the Lennartz case, there is the potential for damage to charities.

If the Economic Secretary is going to persist in the arguments that he sought to deploy in Committee, let us park the issue of charities. But for the fact that the Government happen to have a majority at the moment, they would have experienced difficulties, given the comments made by certain of his colleagues in Committee. I am glad to say that they found the discussion interesting and persuasive, but I accept that a party system is in place and that their party currently enjoys just a few more votes than ours does; hopefully, that will not last for long.

Under the terms of the clause, private businesses will be obliged to use the second type of treatment, which I outlined, to deal with non-business use of land and buildings. So the problem is that, as I said, the principal taxpayers hit by this clause will be educational establishments and charities. They will suffer by taking all of the non-deduction for VAT upfront, significantly adding to their costs. However, the Economic Secretary said in Committee that in general, we do not have to worry about them because they have the 90 per cent. rule. It was the hon. Member for Torridge and West Devon (Mr. Burnett) who mentioned the example of a charity that moves from 50:50 use to 75:25 use, for which the 90 per rule does not apply. Through clause 22, the Government are seeking to deploy a remedy to Lennartz, which is applicable and is currently being marketed relatively widely in the City. Indeed, the Economic Secretary has referred to the need to find a remedy, because he was concerned that a legitimate tax-avoidance scheme already existed under the Lennartz precedent.

As we know, there are certain categories: tax planning, which is a wholly legitimate procedure that one would expect responsible people to adopt; tax avoidance, which is fine so long as it does not stray over the grey line into any form of illegality; and anti-avoidance. According to the Government, the difference between tax avoidance and anti-avoidance is that they are keen that there should be no avoidance of what they intended to raise under certain tax concepts. A further category is tax evasion, which we all revile and abhor. We certainly support the Government's efforts to deal with tax evasion issues, but this is not such an issue. They are seeking to remedy a scheme that is currently out there and being marketed. They want to make it part of their anti-avoidance package, but Lennartz currently already gives that authority. That will be important when we consider the powers that this Government believe they have to legislate to overcome Lennartz. There is severe doubt as to whether they have the authority to do that; they certainly cannot be sure that such authority will not be challenged in the courts. If such a challenge is made, we will be left with uncertainty. The one thing that we should not do is to produce law that we know is going to be challengeable, and which is subject to such uncertainty. The Economic Secretary has yet to answer those points, but because we discussed them in Committee I have the comfort, at least, of knowing that I could not have given him more notice of my argument. I shall therefore carry on with it.

From a practical perspective, the provisions in the clause will be difficult to implement. If we assume that buildings have a life of 40 years, how can we be sure about the relevant proportions of business use and non-business use throughout the 40 years? Should one use general projections or take the projections for the first five years and then have a review? Or will the provision for immediate use be set in stone? The main problem is how to predict the future. What will the trustees of a charity have to consider? What will be in their interest? In relation to the business element of the shared premises, it is impossible to predict the progress of a business over 40 years. In 1970, there were only six companies left of the 100 that formed the first FTSE list. Broadly speaking, businesses run on a 20-year cycle, so a 40-year provision is totally impractical.

John Gummer (Conservative, Suffolk Coastal)

Does my hon. Friend agree that one of the problems with property in this country is a degree of inflexibility in its use? The Government should be congratulated on trying to achieve some change to that, but the provisions will make that change more difficult to achieve, not easier. Of all countries in Europe, we need most to increase the flexible and imaginative use of the buildings that we have.

Stephen O'Brien (Conservative, Eddisbury)

My right hon. Friend and I had contact when he was a Minister and I was in a business related to building materials, and I am grateful for his remarks. There have always been advantages and disadvantages in the fact that our built environment—albeit much of it is beautiful, with many historic and cultural connections—has the longest demolition rate in the world. On average, it takes 997.6 years to demolish a building in this country. That is an extraordinary statistic, but it is true, because most buildings are remodelled rather than demolished. In contrast, in southern Ireland, most people build a new house next door to the old, which becomes the outbuildings. We have a different approach, and that is why flexibility is the key. My right hon. Friend puts his finger, as ever, on the salient and practical point, from the experience that he has had in government and in business.

The Bill contains no provisions that allow adjustment to the apportionment originally made. If the percentage of non-business use to business use changes downwards over the useful life of the building, it is conceivable that no deduction would be made for significant taxable use, especially in the event of the sale of a building. As a procedural point, Customs and Excise believes—it would have been helpful to have some advice—that it does not have to apply the reasoning in the Lennartz case, as there is provision to derogate, in local law, from the application of the article in the EU directive under which Lennartz was decided.

As I said in Committee, many advisers doubt whether that view is correct. The reason is that the UK provision derogates not only from the article under which Lennartz was decided, but from a further article that does not provide for derogation. The derogation can result in consequences that are disproportionate—that is the key word, because that is how the derogation works—to the aims of the directive. It is understood that Customs and Excise has obtained counsel's advice on whether it can implement clause 22.

John Taylor (Conservative, Solihull)

On that important point, my hon. Friend gives me considerable cause for concern. If there is an absence of adequate clarity in the provisions that will guide the taxpayer and the duty payer in the next 12 months, will not the bravest and the richest face two or three years of litigation with the authorities? Does he agree that it is not as important that the law be fair as it is that it be certain?

Stephen O'Brien (Conservative, Eddisbury)

I pay tribute to my hon. Friend, whose legal expertise is well known to his many friends and colleagues in the House, and to a vast range of people outside. I would certainly defer to his insightful expertise. I would not be prepared to hazard an answer from the Dispatch Box to the technical and legal question whether, in a case brought by an individual or enterprise against the tax authorities, a provision could be voided for uncertainty. That is a legal principle, obviously known to the law, but I do not know whether such a case could be brought. My hon. Friend is right, in terms of fairness. We legislate for the people of this country, whether they be rich or people with normal income, taking the average of the population. The people involved may be charity trustees, doing good work, but the Bill would mean that they were suddenly caught up by the difficulty that has been described.

As has been stated, clause 22 seeks to address an opportunity to delay or avoid VAT. The arguments in favour are similar to those raised by the German Government in a case against a taxpayer, Mr Seeling. The Advocate General of the European Court of Justice has opined that the German approach is invalid.

As it happens, the Fourth Standing Committee on Delegated Legislation discussed these very matters on 7 May. Judgment on the Seeling case was due on 8 May. I suggested that it would be useful to adjourn our meeting, in the hope of greater elucidation from the judgment to be given the following day. The Minister declined my request.

John Taylor (Conservative, Solihull)

It is not my intention to interrupt my hon. Friend's flow, but now that he has introduced the German case, will he tell us which jurisdiction was involved? Was it a Lander jurisdiction, a German national jurisdiction, or a European jurisdiction? While my hon. Friend reflects on that question, it is interesting for other hon. Members endeavouring to follow the matter to make a judgment about how persuasive we might find such a case. I suggest that a provincial German jurisdiction would not be persuasive in English courts, that a national one would scarcely be more persuasive, but that a European jurisdiction case may be imperative in our courts.

Stephen O'Brien (Conservative, Eddisbury)

That is the very point. Wolfgang Seeling was involved in a case against Finanzamt Starnberg. The court of first instance was the Bundesfinanzhof in Germany, but the case was referred to the European Court of Justice, and that is why it is on a par with the Lennartz case—the very case that has made the Government so concerned to find a remedy. The Government see a mischief that they want to cure, whereas I believe that they have seriously underestimated the uncertainty involved and the legal necessity to go down a different route.

I could spend a lot of time pretending to be a barrister. I am not one: I am simply trying to understand why the Government feel that there is such a great mischief to be sorted out. What really concerns me is that they have framed the whole matter in terms of anti-avoidance. It is as though I had some ghastly, guilty purpose in trying to stop the Government proposing what they consider to be an obvious anti-avoidance measure. The provision cannot be framed as anti-avoidance if it is based on an uncertain legal genesis and authority and, above all, if it is disproportionate. It is under that test that the Government are seeking derogation under the relevant EU directive.

The Seeling case was decided in the European Court of Justice. After the discussion in the Delegated Legislation Committee—in which I had placed much reliance on what I thought would be the outcome—I was delighted to discover that Herr Seeling was vindicated and supported by the court. It is important to recognise that the Lennartz and Seeling cases cast a cloak of uncertainty over what the Government seek to do in clause 22.

John Gummer (Conservative, Suffolk Coastal)

I still do not understand, either from the record of previous debates or from tonight's debate, what case the Government make for saying that those decisions are unsuitable. It is possible to suggest that what the courts have shown in both cases is perfectly reasonable. Some of my colleagues believe that anything that the European Court says is unreasonable, but I do not happen to take that view. If the court has made those decisions, the Government must explain why it is not reasonable to accept that judgment and allow it to work in this country. Secondly, they must explain how they see this as an avoidance measure and how their proposals will defeat avoidance. They seem to me to have done neither of those things.

Stephen O'Brien (Conservative, Eddisbury)

My right hon. Friend will be aware that the Government say that an anti-avoidance measure is needed and that they suggest that the Customs and Excise arguments are based on article 6(2) of the directive, allowing a derogation. If that is so, we need to see the counsel's opinion received by Customs and Excise in order to satisfy ourselves about the genesis and effectiveness of what is a serious proposal.

Our concern is that a belief exists—I cannot tell whether it is correct, because I have not seen the evidence—that the Government think that there is a mischief to be remedied under the precedence of Lennartz, a European Court of Justice decision, which the Government clearly feel carries sufficient authority to make them propose domestic legislation to try to remedy the problem. I question whether they have the authority to do so because of EU law—complicated, not surprisingly—but various schemes are being marketed in this country which the Government believe are encouraging people to buy premises to use partly for business and partly for non-business purposes in order to delay or avoid paying VAT in a way that the Government believe is not genuine.

If the Government can demonstrate that that is a proper problem, we are with them 100 per cent. of the way. If, however, they cannot satisfy what, from my long ago legal training, I believe to be the Furniss v. Dawson test of substance over form, it is wholly right to examine the substance. The problem is that the Government have got the form wrong, let alone the substance—the evidence of which we have not seen. On the basis of the Seeling case, the position has become interesting.

John Taylor (Conservative, Solihull)

In as much as my hon. Friend refers to the test of substance and form, might there also be some application of the test of dominant use? For example, to reduce the point to street level, in the case of a residence over a shop, would not Customs and Excise—the duty-charging authority—tend to consider dominant use in considering the apportionment? Or does my hon. Friend prefer his own test?

Stephen O'Brien (Conservative, Eddisbury)

To be frank, I care only whether the proposal is right or wrong in terms of process and law. No dominance test has been cited in any argument so far because we are dealing with apportionment. The issue is whether that is taken upfront, over the life period of premises during the course of a business, which will vary, or during the course of non-business use, which will also vary. All that is unpredictable, and all of it creates uncertainty. The Government are concerned that the situation is being used in order to be abused, which is why we must address the point.

Interestingly, the Government's position appears to be based on what they believe is their ability to derogate from article 6(2). It is somewhat disingenuous to dismiss the Seeling case, as they have tried to dismiss it, as an argument made only in the domestic courts of Germany. In fact, it is a decision of the European Court, which seems to confirm that if the ability to derogate is absent, clause 22 will be ultra vires under the article.

I accept that Seeling does not deal directly with the question of derogation. However, it confirms the following effect of the Community legislation, namely that it is not within a member state's gift to determine whether a taxable person applies article 6(2). That choice is afforded to the taxable person, not the taxing authorities. That is the important point. I refer the Minister to paragraphs 40 to 43.

We are not necessarily in the business of saying that the Government should be getting less than their due. We may argue about why they are raising the tax and about other aspects of their processes and their promises and further expectations, but we are not arguing that just because the tax authority ends up with less tax than it seeks it is not wholly legitimate in trying to remedy that. However, according to the judgment, that is no reason to apply the provision of the directive and interpret it differently. That is in paragraph 54.

The key question is whether there is a power of derogation from article 6(2). In that regard, it should be noted that the UK does not appear to have sought specific authority to derogate from article 6. Instead, it relies on the fact that article 6(2) provides sufficient authority for the derogation contemplated.

As the Minister will understand well, derogations are not unrestricted; they are not a means whereby tax authorities can deny taxable persons the treatment that the Community legislature intended. Furthermore, the derogation in article 6(2) is a simplification, not an anti-avoidance measure. Derogations for anti-avoidance purposes need to be sought specifically under the procedures provided for by article 27 of the sixth VAT directive, but the Government have not done that. They have placed their whole argument on anti-avoidance. They have tried to distinguish article 6(2) from all the arguments that I have made, which are taken from the whole legislative proposal, yet they have not even applied for derogation for anti-avoidance purposes under article 27 of the sixth VAT directive.

It is thus possible that the derogation power in the article is limited and not as wide as the Government propose. The derogation under article 6(2) that member states may derogate from the provisions of the article provided that such derogation does not lead to distortion of competition—a point that was also made—could be interpreted in two ways.

The first interpretation is that any derogation is to be construed narrowly; for example, Advocate General Jacob's opinion in Kühne at paragraphs 19 and 20. On such a narrow construction, it could be argued that the derogation permitted to member states is not to apply a charge for private use where, by allowing no private-use charge to be made, there was no distortion of competition. That means that derogation is not applicable to the recovery by the taxpayer of the input VAT, but only to the recovery by the Government on any private-use element.

The alternative and perhaps broader view was expressed by the same Advocate General in Lennartz at paragraph 75. That broader view suggests that an input tax restriction could be justified where the goods are to be put to private use in certain circumstances, but that such an input tax restriction cannot prevent input tax deduction on a genuine business expenditure. It follows that even on that wider view there is a need to provide a mechanism whereby increased proportions of business use, after the initial apportionment, could be recognised as giving rise to recoverable VAT.

Accordingly, one could argue that, whether one takes the stricter or the wider view, the initial deduction would still be required to be allowed by the member state in situations where the relative proportions of taxable and non-business use varied over time, where the private-use charge reflected the variable use over time. It should also be noted that the derogation within article 6(2) is subject to the provision that such derogation does not lead to distortion of competition; whether there is any such distortion should be determined on a case-by-case basis and should refer to an actual distortion of competition rather than a theoretical one.

As I hope the Minister realises, I have tried not to be too slothful since our discussion on 7 May. What came out on 8 May was a one and a half page synopsis—my best attempt—of a long judgment, but it was a genuine attempt to understand, given that, critically, I asked in the Standing Committee for a copy of the counsel's opinion to Customs and Excise, as that is the whole driving force behind the advice given to Ministers on the clause and the statutory instrument that we debated in the Standing Committee.

I have had a letter—I am glad to have been accorded such courtesy by the Economic Secretary—which says that counsel's opinion is internal advice, and its disclosure is therefore governed by the code of practice on access to Government information. We know that the Attorney-General made legal advice known in advance of the engagement in the Iraqi war. While that was seen as reasonably exceptional, it was by no means breaking with all precedent.

It is therefore a precedent that, for the greater benefit and understanding of the House, in passing legislation, it is found to be uniquely helpful to have legal advice—I do not think that I am making up precedent as I go along—that that is where the legal precedent for that request comes from. Although we explored at length Upstairs why this loophole, as the Government see it, is being closed, it is similar to, if not precisely the same as, the tax opportunity and—many would argue—loophole in the arrangements for the Labour party headquarters purchase in Old Queen street. My right hon. Friend the shadow Chancellor, who is in his place, has written to the chairman of the Labour party about that, and I gather that he has only just received a reply; he had certainly not received one when he raised the issue on 7 May. That begs questions as to why we are addressing this issue but not that.

I dealt with this matter at length Upstairs, and although it is tempting to rehearse it in the Committee of the House, it is more important that I have had a response, as I am trying to move the argument on. I have had a response from the Economic Secretary—[Interruption.] It takes time to go through such complicated matters, and I am sorry if the hon. Gentlemen's attention is flagging. We are here to scrutinise legislation and not to put in place bad law that is ill thought through and will not provide a remedy. For once, that is the purpose for which both he and I have been elected: to do our job and to scrutinise the Government's business.

John Taylor (Conservative, Solihull)

Will my hon. Friend reassure his colleagues that he will resist with all his force anyone who has the impertinence to tell him not to do his job properly in scrutinising this legislation with the care that he has been showing? In light of the fairly recent House of Lords case of Pepper v. Hart, which permitted their lordships, on a disputed point about the interpretation of a statute, to call for the Hansard to enable them to see what Members have said in the Chamber and in Committee, is there not an analogy by which we should press for a change in the convention and have access to the legal advice to the Government?

Stephen O'Brien (Conservative, Eddisbury)

I would not want to stray into the highways and byways of Pepper v. Hart, as it may come to a request for the Hansard of the Fourth Standing Committee on Delegated Legislation on 7 May to understand what was placed on the record about the extraordinary arrangements that led to the acquisition of the Labour party's new headquarters in Old Queen street. We should move on before we stray down byways on which I would properly expect to be called to order.

What we were concentrating on is that I have asked for the counsel's opinion that is underpinning the Government's whole approach. I have understood from a clear letter that that will not be forthcoming, and although the Economic Secretary's reaction that he would look into the matter seriously and check the vires was proper, and he was clear about that in Committee, he has refused to provide that counsel's opinion. The real problem is that we have now had the result of the Seeling case, and he has given me no countervailing opinion as to why this issue is distinguishable from the remedy—and the mischief that he is trying to remedy—in the clause, and why Seeling came out in favour of my arguments rather than in support of his.

Furthermore, the Economic Secretary was quick to suggest, in his defence of what I believe is an ill-considered and ill-thought-out proposal in clause 22—which has a strange alliance with the arrangements that the Labour party employed for its headquarters—that there were not that many advisers. Perhaps I was making them up. However, since the discussion on 7 May, I dare say that he has also had the opportunity—certainly his advisers will have done—to check out the websites. I have been contacted by a number of people who have said that they are glad that the arguments have been raised, because they reflect their concerns. The Institute of Chartered Accountants, the Chartered Institute of Taxation and the Law Society's tax committee have all given a great deal of thought to the issue, and they are very concerned.

I do not believe that we have taken a shotgun approach, which is what was expected after the Budget and what the Minister tried to suggest. This is thought-through professional advice, and the grapeshot is turning into rifle and rapid fire.

Jonathan Djanogly (Conservative, Huntingdon)

I have also received a copy of the letter, and I thank the Minister for that. I do not have it in front of me, but I seem to recall that the reason why counsel's opinion was not provided had to do with the fact that it discussed tax avoidance schemes. Presumably, those who wish to use them should not see the advice. However, surely the whole purpose of this provision is to review the anti-avoidance scheme. To that extent, in the spirit of co-operation and with the aim of doing what the clause is intended to, we should see that advice.

Stephen O'Brien (Conservative, Eddisbury)

I am grateful to my hon. Friend. He served on that Committee and made a valuable contribution. He has clearly been persuaded by the arguments.

It is important to recognise that the Institute of Chartered Accountants has said:

"In accordance with the rules laid down in article 17 of the sixth directive, the court further stated that"—

this relates to the Lennartz case—

"a rule or administrative practice imposing a general restriction on the right of deductions in cases where there is limited but none the less genuine business use constitutes a derogation from article 17 of the directive and is valid only if the requirements of article 27(1) or article 27(5) of the directive are met. This clause"—

clause 22—

"therefore appears contrary to EC law. In our view, the intention of this provision, namely the denial of initial input tax recovery can only be achieved if derogation under article 27(1) is sought and granted. Until such time, this clause may result"—

as rightly pointed out by my right hon. and hon. Friends—

"in further litigation, creating uncertainty and costs for both taxpayers and customs, with the end result likely to be that this clause is held to be illegal. Surely we should not be party to such an attempt by the Government. They have not yet put up a sufficient case or defence for it. Unless and until a derogation has been obtained, the clause should be removed from the Finance Bill."

That is the institute speaking.

In conclusion—I know that this will be a relief to some—this is an important issue that should be placed on the record. I repeat that we are not anti-avoidance, but anti-uncertainty. We have moved from the serious issue of trying to analyse the mischief and the remedy that the Government proposed to finding that they seem not to want to provide us with the basis upon which they have introduced these provisions. However, we have countervailing legal precedent.

We are compelled to vote against clause stand part, because it is a matter of authority, proportionality and the absence of the advice to enable proper scrutiny of an argument that has been fully made. We have a duty to prevent uncertainty and to stop legislation appearing in a Finance Bill, of all Bills, that could make it void on the ground of illegality. That is the last thing that we should allow. It is our first duty to prevent it.

Michael Howard (Conservative, Folkestone and Hythe)

On a point of order, Sir Michael. My point of order relates to the timetabling of the Bill. My hon. Friend the Member for Arundel and South Downs (Mr. Flight) set out earlier today why we need proper scrutiny and debate in the Committee considering this Bill. It is now abundantly clear from our proceedings that such scrutiny cannot occur in the time allowed.

The Order Paper lists 10 clauses and three schedules due for debate today. The Committee has not had an opportunity to debate all those measures, and that state of affairs was caused by the Government's decision to limit debate on one of the longest-ever Finance Bill's to just seven days in Committee and then to guillotine that debate.

Among the vital issues that we will not have time to scrutinise are many of the details of the new tax on leases, in particular how it is to be implemented. That issue is of huge concern to business, not least because for some small firms it could lead to a 10-fold increase in their tax bill. The manner in which the tax is being introduced, with details still unclear and a consultation process that was curtailed, has been described by the Law Society as "astonishing". It wanted the measure to be deferred to 2004. That is what our amendment would do, but it will not be discussed in Committee.

Yesterday, the right hon. Member for Birmingham, Ladywood (Clare Short) warned of

"increasingly poor policy initiatives being rammed through Parliament".—[Official Report, 12 May 2003; Vol. 405, c. 38.]

That is precisely what is happening with this Finance Bill. Are there any steps at all, Sir Michael, that you can take to secure a real opportunity for the House to consider such important matters?

Kenneth Clarke (Conservative, Rushcliffe)

Further to that point of order, Sir Michael. May I urge you to consider whether the Procedure Committee should become involved? Perhaps you could advise the Speaker on that. The issues raised go beyond the important events of today and yesterday, and I fully support what my right hon. and learned Friend the Member for Folkestone and Hythe (Mr. Howard) said.

I am a member of the Joint Committee that is considering the future of the House of Lords. One of the very few matters on which that Committee remains unanimous is that this House should retain sole charge of issues of taxation and finance. Finance Bills have only recently been guillotined or timetabled. There is no tradition of that or of filibustering them. They have usually been handled by agreement. However, it seems that large sections of the Bill will not be debated on the Floor of the House. The Committee is timetabled, so they will almost certainly not be debated Upstairs. So whole sections of the Bill will be passed without a word of debate or scrutiny. People will draw comparisons between what we do in this House and the scrutiny that the House of Lords gives to Bills on non-finance matters. It is time that we reconsidered our procedures and re-established some of the old conventions, which used to give this House some authority in such matters.

Michael Jack (Conservative, Fylde)

Further to that point of order, Sir Michael. May I ask whether you have seen any examples in the debate so far of Members who have spoken out of order or of unnecessary time wasting on which the Chair has had to comment?

Eric Forth (Conservative, Bromley and Chislehurst)

Further to that point of order, Sir Michael, and in particular the point of order raised by my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke). You will be only too aware, Sir Michael, as I am sure the House is, that even in normal circumstances when the Government arbitrarily restrict the debate on other Bills in this House, voters and the public at large can expect at the very least that the other place might step in and use its latitude to provide proper scrutiny when we have been unable to do so thanks to the Government's actions. However, we cannot rely on that for this Bill.

Surely it is doubly incumbent on the House, yourself, Sir Michael, and the House authorities to ensure that we discharge our responsibility in giving this Finance Bill—indeed, all Finance Bills—the most thorough scrutiny. We are being denied that opportunity, as today has proved beyond all doubt. What can be done to protect us, the House and, indeed, the taxpayer from this Government tyranny?

Dawn Primarolo (Labour, Bristol South)

Further to that point of order, Sir Michael. The House needs to be reminded of a number of things. The two days of debate on the Floor of the House for the Finance Bill were agreed through the usual channels. All the matters for debate today were nominated by Her Majesty's Opposition and the minority parties—15 by the Conservatives and seven by the Liberal Democrats and nationalists. The record shows that when the timetable was discussed earlier, it took precisely two minutes to agree it for today and tomorrow, and there was no Division.

Opposition Members were in complete control of today's timetable yet, on clause 1, they spoke for one hour, 37 minutes, with no vote. They chose to discuss all the clauses in the Bill. If they knew that they needed to spend a long time on each one, why did they nominate all of them for debate?

The Bill is still amendable. When I moved the timetable motion earlier, I said that I would use my best endeavours to ensure that there was a proper debate on its provisions. However, I can only act in good faith, and it was in good faith that I made an agreement with the hon. Member for Arundel and South Downs (Mr. Flight), and transferred two schedules planned for debate on the Floor of the House into Committee. In good faith, we discussed the two days scheduled for debate through the usual channels. In good faith we agreed that timetable, as the record shows, in two minutes with no Division—that is how the Opposition parties dealt with this matter. What else can I do, Sir Michael, but act in good faith if Opposition Members bring the House into disrepute?

Michael Howard (Conservative, Folkestone and Hythe)

rose—

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

No, I have heard enough from Members on both sides of the House to deal with the point of order.

I understand Members' concern about the time allowed for debate today but, given the programme motion, which was agreed by the whole House earlier today, the Committee has no alternative but to conclude the proceedings as set out in the Order Paper and I, as the Chair, have no alternative but to obey the wishes of the House. Let us now move on.

John Gummer (Conservative, Suffolk Coastal)

On a different point of order, Sir Michael.

John Gummer (Conservative, Suffolk Coastal)

It is as different as it could be.

John Gummer (Conservative, Suffolk Coastal)

Would it be possible for you, Sir Michael, and the Speaker to prepare a note to be issued by the Speaker's Office so that on occasions when our constituents ask why parts of any Bill have not been discussed we can give them an explanation?

David Wilshire (Conservative, Spelthorne)

rose—

David Wilshire (Conservative, Spelthorne)

On a point of order, Sir Michael. There are now four clauses and three schedules that have not been debated. That leaves this House with only one way to show its disapproval of this action—to vote against the proposals because we have not considered them. Last night, when this happened during Northern Ireland business, there was a programme motion and every clause was voted against. I understand from the Clerks that tonight, by rigging the wording of a programme motion, the Government are going to try to deny us the right to express a view on those four clauses and three schedules by insisting that they be rolled up and voted on en bloc. Is that not an even worse abuse of democracy?

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

I have to say to the hon. Gentleman that last night's business was guillotined, which is different from today's business. The matter that we are dealing with is provided for in the Sessional Order relating to Bills that are programmed. The two are dealt with in different ways.

It being more than six and a half hours after the commencement of proceedings on the programme motion, The Second Deputy Chairman of Ways and Means, pursuant to Order [this day], proceeded to put forthwith the Questions necessary for the disposal of the business to be concluded at that hour.