Finance Bill

Public Bill Committee, 22 June 2004.

Standing Committee A

(except clauses 4, 5, 20, 28, 57 to 77, 86, 111 and 282 to 289, and schedules 1, 3, 11, 12, 21 and 37 to 39) - Clause 269 - Transitionals and savings

Howard Flight (Conservative, Arundel and South Downs)

I welcome you to our deliberations this morning, Sir John.

As we all know, the clause introduces the transitional arrangements. I am glad to note that it contains powers for the Revenue to make by order any other transitional provisions that may appear appropriate, as, despite all the Government amendments to schedule 34, it strikes me forcefully that the transitional arrangements are ludicrously complex and impenetrable and that other changes may need to be made.

There seem to me to be two different types of person. One is a member of a pre-1989 uncapped scheme grandfathered 15 years ago in 1989. I have encountered a great deal of upset about the fact that what was grandfathered 15 years ago has been retrospectively changed. Indeed, a lawyer friend who has been a lifelong member of the Labour party commented to me that he was disgusted with the lack of principle with which his colleagues had disregarded the fact that he had an arrangement to save his pension: he has not changed his employment, he is still a member of the same pension scheme and he now finds himself, towards the end of his career, with a load of different rules. He pointed to the fact that the Conservative party had established the principle of grandfathering, which has been thrown to the wind. The second category is self-evidently members of schemes—whether defined benefit or defined contribution—currently subject to capping.

I ask the Minister to put on the record the underlying principles that the Government followed in producing the transitional arrangements applicable to those two different categories of people.

The Government will be aware that various outside parties have said that the arrangements that have emerged are not quite what the Green Paper envisaged and in some cases are less attractive. It has been said that the Bill should provide a more precise definition of the valuation method for DB used to register for primary protection, which will be significantly more restrictive than expected; that protection applies to 20 times the pension available on early retirement at A-day rather than the full accrued pension; and that, for those too young to retire, retirement at the earliest permissible age is assumed. If early retirement

reductions are brought into the equation, primary protection will be much less attractive and less available.

The point has been made that the valuation basis is more prohibitive than was originally suggested. Point C5 of the consultation document says:

''For DB benefits, pre A-day pension rights may be based on earnings when the benefits or part of the benefits are first taken, rather than on historic earnings. So, the taking of the first benefits under a DB scheme sets the maximum final pensionable salary''.

I shall not go into excessive illustrations, but the point is readily made that some people lose out because the calculation may put them under the ceiling for protection, but as time goes by, and even with the £1.8 million, they may be over, particularly if they are younger when they come to take their pension on retirement.

Some of the amendments that we tabled to schedule 34 have been echoed by the Government, but I repeat that, having read through the explanatory notes, I found the schedule to be probably the least clear part of the Bill. It is an area of complexity and one in which the people who most want to know where they stand are those caught in the transitional process, so I think it pertinent that the Minister lay down the broad principles for those two categories, from which individuals can subsequently explore with their advisers precisely where they stand.

Ruth Kelly (Labour, Bolton West)

It is a pleasure to be here under your chairmanship yet again, Sir John.

As I said in opening the debate, we want to ensure that the move from the old pension regime to the new, simplified regime is as smooth as possible. I reject the charge that the hon. Member for Arundel and South Downs (Mr. Flight) made that we are somehow introducing retrospective taxation. He—or perhaps he and a few of his colleagues—seem to be the only people suggesting that that is how the new regime operates. We want to ensure that the transitional arrangements provide appropriate protection for existing pension rights, while being as straightforward as possible to understand and administer, and that they carry forward as little complexity as possible from the existing regimes.

I do not want to anticipate the debate that we are likely to have on the sixth group of amendments to the schedule, which suggest that we should carry forward all the previous regimes into the new, simplified regime.

I believe that the schedule, as amended, meets our objectives fully. It is in four parts. The first part will allow approved schemes to move into the new regime without the need to register doing so with the Inland Revenue. Schemes not intending to become registered schemes may give the Inland Revenue notice of that intention before 6 April 2006. There will be a tax charge that applies to such schemes that is equivalent to the existing withdrawal of approval charge on occupational pension schemes.

The second part of the schedule provides protection for those rights accrued before 6 April 2006 that, when

brought into payment, are likely to be worth more than the lifetime allowance.

Part 3 of the schedule covers individuals who have registered for enhanced or primary protection who also have lump sum rights of more than £375,000 that they can protect. In addition, there will be protection for lump sum rights accrued before 6 April 2006 that, although not in excess of £375,000, breach the limit of 25 per cent. of the total fund. Schemes will be able to make tax-free lump sums that exceed the new limit of 25 per cent. of the total fund if those rights were accrued before 6 April 2006.

Simplification also seeks to introduce a single minimum pension age of 55 for all by 2010. We debated that in the previous sitting. Without some extra protection, that could create some hard cases. In the current regime, a number of occupations have their own minimum pension age, ranging from 35 to 50. It is not possible to get from here to there in a single step. Members of schemes who already have rights to early pensions will, subject to meeting some conditions, receive transitional protection.

In general, members with the right to take pension at an age younger than 50 will continue to be able to do so, but in recognition of that early retirement, the value of the pension will be assessed against a reduced lifetime allowance. The lifetime allowance will be reduced by 2.5 per cent. for each year in advance of age 55 that the pension is taken.

Part 4 of the schedule covers a range of miscellaneous transitional issues, for example those schemes approved before 1970. I believe that those are sometimes referred to as old code schemes. They will be able to wind up before the end of 2006–07 and pay out all the benefits as a lump sum. Of the total benefits, 25 per cent. will be tax-free and the remainder paid as a lump sum taxed at the member's marginal rate of tax. That will ease the transition to the new regime for those insurance companies with old code schemes on their books, most of which have only small pension funds.

We are also protecting the rights of occupational schemes to pay the balance of five years' pension payments on the death of a member, even if that death occurs after the age of 75.

The clause allows the Treasury to make regulations on transitional issues. As the industry focuses on the detail of moving to the new regime, other difficult issues may arise. That is not surprising, given the complexity of the current rules and regulations. There will be further discussions between the Government and the industry about the exact workings of the transition. I do not accept, however, that the transitional rules are overly complex; they merely reflect the rules of the current pension regime. Those powers will enable us to respond flexibly.

We will discuss the other points raised by the hon. Gentleman when we debate the amendments that he has tabled to the schedule. I commend the clause to the Committee.

Howard Flight (Conservative, Arundel and South Downs)

The Financial Secretary says that she does not think that the rules are unduly complex, but she has not responded to my request to set out in understandable language the basic principles behind the transition arrangements for the two different types of people—those who belong to an uncapped pre-1989 scheme and those who belong to a capped scheme. Neither the arrangements in schedule 34 nor the notes set out any coherent pattern of broad principles. It is no good having a load of random rules; the Government must have come up with a basic principle to determine the transitional arrangements. It would be helpful to those affected if she bothered to set out those principles.

The capping arrangement introduced by the Conservative Government in 1989 quite clearly and correctly stated that those who were already members of pension schemes, because they were embarked on pensions saving, would be exempt so long as they stayed members of the scheme and in employment with its provider. They were grandfathered from the new arrangements. By definition, most of those people are probably in their 50s and moving towards retirement. The Financial Secretary is ignorant of many people's resentment at finding in their last decade of employment a grandfathered arrangement changed and new arrangements penalising them. Instead of being able to continue until retirement with whatever their contributions to that scheme were, they are grandfathered only if they have no further contributions to make to it. That is a major breach of the established grandfathering arrangements.

I would like the Financial Secretary to put on record the broad principles underlying the transitional arrangements, because they are not clear from the notes or the Bill.

Ruth Kelly (Labour, Bolton West)

The hon. Gentleman suggests an alternative to the arrangements that we have proposed. I fully accept that when in power the Opposition adopted an approach that meant that every pension regime in operation at that time was grandfathered. That is why we have a system in which eight pension regimes operate. We have responded to calls from the industry to introduce simplification with a single regime. We introduced a genuine and fundamental reform, removing all the past regimes and replacing them with a single regime for tax purposes. The approach that he advocates would not deliver any of the benefits of simplification, and we will discuss that when we debate his amendments to schedule 34.

Our proposal is radical and fair because it protects people's existing accrued rights under previous regimes and it introduces a simplified regime. The basic point that the hon. Gentleman wants me to put on record is that the lifetime allowance charge will not apply to pre-A-day funds where protection is cleared. Primary protection is there to give full rights to participate in the new regime, and enhanced protection allows pre-A-day rights to grow faster than inflation in return for a test that no further benefit accrual occurs after A-day, so rights accrued before A-day are protected in full, and future growth on pre-A-day rights can be protected. It is only post-A-day

contributions and service that need to be subject to the new regime. Of course, A-day is the date on which the regime is brought into force.

That is generous protection. It is more generous than the transitional protection arrangements that we first consulted on. The arrangements do not in any way seem retrospective. I commend the clause again to the Committee.

Question put and agreed to.

Clause 269 ordered to stand part of the Bill.

Schedule 34 - Pension schemes etc:

Howard Flight (Conservative, Arundel and South Downs)

I beg to move amendment No. 371, in

schedule 34, page 465, line 3, leave out sub-paragraph (2) and insert—

'(2) Any modifications of the rules of a pension scheme made by the regulations have effect until the first date after 5th April 2006 on which amendments of the provisions of the pension scheme referring (however expressed) to any limit contained in, or relevant in relation to approval under or for the purposes of, any provision of Part 14 of ICTA (pension schemes etc.) as it has effect at any time before 6th April 2006.'.

John Butterfill (Conservative, Bournemouth West)

With this it will be convenient to discuss amendment No. 372, in

schedule 34, page 465, line 16, at end insert—

'(c) modifications to give power, in prescribed circumstances, to prescribed persons to make prescribed amendments to pension schemes irrespective of whether such amendments would otherwise be provided by the rules of the pension scheme, the Pensions Act 1995 or otherwise.'.

Howard Flight (Conservative, Arundel and South Downs)

The amendment is designed to address a problem in paragraph 3, which is about giving the Revenue power to make regulations that modify existing schemes. Many defined benefit schemes provide benefits to be defined in part by reference to existing Revenue limits and the earnings cap, and they may require a percentage of a person's salary to be contributed in order to receive a matching employer contribution, although at present that is limited under the cap arrangements. As a result, when the existing cap arrangements go, such schemes could have a problem because they may find themselves with vastly increased liabilities. An example is a post-1989 member whose accrual was until then limited to a fraction of the salary below the earnings cap. For DC schemes, both employee and employer might find that the scheme requires much higher contributions.

The intention seems to be that the Revenue will make regulations ensuring that any such provisions in existing schemes continue to have effect as they would have done but for the Bill. However, paragraph 3(2) contains a time limit: 5 April 2009. The assumption seems to be that there should be a period in which to amend schemes to avoid the type of problems that I have just described. However, there are some schemes with very restrictive amendment powers, which may not allow such amendments.

Amendment No. 371 would allow the regulations to continue indefinitely. Amendment No. 372 calls for a statutory power to make such arrangements and to

ensure that there is an overriding statutory power to make amendments to existing schemes, whether or not the schemes' own amendment powers would permit such amendments. There are quite complex issues relating to who should have the power. For example, in a defined benefit scheme, it may be that both trustee and sponsoring employer should have to pay, or just the employer. Equally, for money purchase schemes, where both employer and employees may be affected, arguably it should be the two together. The amendment is designed to establish the statutory power to make appropriate regulations, but leaves the detail to be dealt with separately.

Ruth Kelly (Labour, Bolton West)

The Government are committed to ensuring that the move from the old pension regimes to the new system is as smooth as possible. We will achieve that by ensuring that the transitional arrangements are administratively as straightforward as we can make them, while being fair and flexible.

Amendments Nos. 371 and 372 are concerned with the first part of the schedule and the provisions that allow pension schemes a transitional period in which to make amendments to their rules to bring them into line with the simplified regime. Those provisions are intended to be used to protect schemes that have adopted the wording of the previous statutory system, as the hon. Gentleman suggests. Without that power, and the regulations made under it, many schemes would be obliged to change their scheme rules in advance of A-day. It is unclear whether they could do that in time for the introduction of A-day on 6 April 2006.

The pensions industry has lobbied us hard to include extra flexibility in the Bill. Where a scheme does not have time to make the necessary amendments, paragraph 3 provides a three-year window. During that period, they will be protected from being compelled by members to make unauthorised payments or payments in excess of existing Inland Revenue limits under their pre-A-day rules. For example, a pension scheme may include a rule that allows the payment of benefits up to current IR maximums. Revenue maximums will disappear under the new regime, but the regulations under this power will allow schemes to continue as if they had a further three years to run. Amendment No. 371 would allow the Inland Revenue to override pension scheme rules indefinitely. We do not believe that that is desirable. We believe that three years should be adequate for schemes to make the necessary adjustments. In practice, they are likely to have over four years in which to do so.

Howard Flight (Conservative, Arundel and South Downs)

The reason behind the amendments is not lazy schemes, but that there may be some schemes that, because of the rules, cannot make the necessary amendments. Have the Government focused on that? It is no good having a period for adjustment if the scheme cannot make the necessary changes. If the Government do not like our route, how else might the problem be dealt with?

Ruth Kelly (Labour, Bolton West)

I was going to deal with that point on the next amendment.

Amendment No. 372 would empower the Inland Revenue to insert a power of amendment into pension scheme rules that is unconstrained by the scheme's rules or by Department for Work and Pensions requirements under the Pensions Act 1995. I understand the hon. Gentleman's concern that certain schemes may not feel that they can adjust their rules in that way. For example, schemes could be prevented from changing their rules to fit in with the new regime, either because DWP rules prevent them from making the necessary changes or because the change would conflict with trust law or with existing scheme rules that prohibit any such changes being made. However, the amendment is unnecessary, because the Inland Revenue has agreed with the DWP that the DWP will make regulations under section 67 of the Pensions Act 1995 to suspend the requirements of that section and allow schemes to reproduce Inland Revenue modifications in their scheme rules.

On the narrow point of trust law, I do not believe that trust law would prevent schemes from making appropriate changes to their rules. Trustees will usually have a power in the trust deed to change the terms of the scheme. However, I accept that that power is usually exercisable only with notice or sometimes consent from scheme members. Sometimes it may be necessary to make a formal application to court. However, the processes of change are well known and should be achievable within the extended time limit allowed by the provision.

Under trust law, trustees will have a fiduciary duty to act in the best interests of all the beneficiaries. They would simply be fulfilling that duty and acting in line with trust law if they changed scheme rules to allow the scheme to move into the simplified regime without losing upper limits on payable benefits or becoming liable to make unauthorised payments. Furthermore, paragraph 3(1) already empowers the Inland Revenue to make regulations that modify scheme rules as appropriate. Such regulations can override any existing scheme rules that prohibit changes to the benefits payable by schemes, if they need to.

I have of course sent draft copies of these regulations to members of the Committee. The Inland Revenue will undertake a formal consultation on the most appropriate form for the regulations made under paragraph 3. We shall carefully consider any points that are made on whether the detail of the regulations covers all necessary issues. However, I urge the hon. Gentleman to consider seeking to withdraw the amendment, as it should be redundant.

Howard Flight (Conservative, Arundel and South Downs)

As I understand it, the Minister has given the key answer to the problem that we spotted: the DWP is empowered to address the problem, so the amendment is unnecessary. I therefore beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment made: No. 478, in

schedule 34, page 465, line 46, leave out 'that date' and insert '6th April 2006'.—[Ruth Kelly.]

Howard Flight (Conservative, Arundel and South Downs)

I beg to move amendment No. 378, in

schedule 34, page 467, leave out lines 15 to 18.

John Butterfill (Conservative, Bournemouth West)

With this it will be convenient to discuss the following:

Amendment No. 379, in

schedule 34, page 467, line 19, leave out sub-paragraph (5) and insert—

'(5) Subject to paragraph 9, for the purposes of this paragraph the value of the individual's uncrystallised rights on 5th April 2006 under an arrangement is to be calculated in accordance with section 201 (valuation of uncrystallised rights for the purposes of section 199) as if—

(a) at the end of subsection (4) of section 201 the words ''and no reduction were applied under the arrangement to take account of early availability'' were inserted and

(b) at the end of subsection (7) of section 201 the words ''(c) that no reduction had been applied under the arrangement to take account of early payment'' were inserted.'.

Government amendment No. 503.

Amendment No. 380, in

schedule 34, page 467, line 29, at end insert

'as if it was not subject to this paragraph 9'.

Government amendment No. 504.

Amendment No. 382, in

schedule 34, page 468, line 41, leave out '25' and insert 'PCPF'.

Amendment No. 383, in

schedule 34, page 468, line 46, at end insert

'and where PCPF is the pre-commencement pensions factor (see paragraph 19)'.

Government amendment No. 505.

Amendment No. 389, in

schedule 34, page 474, line 15, leave out '25' and insert 'PCPF'

Amendment No. 390, in

schedule 34, page 474, line 20, at end insert

'and where PCPF is the pre-commencement pension factor as set out in sub-paragraph (6)'.

Amendment No. 391, in

schedule 34, page 474, line 28, at end insert—

'(6) The pre-commencement pensions factor is the appropriate factor certified from time to time by the Government Actuary having regard to the individual's age on 6th April 2006 and the extent to which the individual before that date received a tax free lump sum in lieu of pension'.

Howard Flight (Conservative, Arundel and South Downs)

Several of our amendments are grouped together, although they are in fact somewhat different. Schedule 34 says that if an individual opts to defer taking an annuity, he will be treated as entitled to payment of the benefits. Why has that interpretation been made? Surely, benefits should be treated as uncrystallised if they are not being paid. Amendment No. 378 seeks an explanation of why that is not the case.

Amendment No. 379 is about valuing uncrystallised rights for the purpose of primary protection, which provides for the A-day value of the benefits to be indexed until retirement. There may be a technical problem, in that clause 201 deals with the calculation in the normal course of events, but in this case a problem could arise because of the assumption that on A-day the member becomes entitled to benefits even if they are under 50 and in good health. In such

circumstances, the scheme may apply reduction for early repayment—that is discussed in paragraph 18—thereby massively reducing the value of the protection, as even if the pension is deferred, it would be increased in deferment by limited indexation and paid unreduced. If the value of the primary protection is actuarially reduced, by the time the benefit is paid it is almost certain to exceed the level of primary protection anyway. The amendment is therefore designed to ensure that no actuarial reduction is applied when valuing such benefits for this purpose. It appears that one of the Government amendments may address that point in a slightly different way.

Amendment No. 380 is purely a drafting amendment. Paragraph 8 is subject to paragraph 9, but paragraph 9 merely envisages a value calculated in accordance with paragraph 8 being higher. That seems logically incoherent. Presumably, paragraph 9 is intended to say something along the lines of, ''as if the effects of this paragraph were ignored.''

Amendments Nos. 382 and 383 are designed to achieve fairness in protection arrangements if lump sums have already been taken. They are about the valuation of payments and benefits on A day for the purpose of primary protection.

The suggested 25 to 1 factor is different from the normal 20 to 1 factor because it addresses problems related to age that we have already discussed. The 25 to 1 factor goes beyond that by assuming that everyone with a pension in payment took exactly the same proportion of the pension previously as a tax-free lump sum. Clearly, some people may not have taken a lump sum and some may have taken more, some may have taken less, so the amendment to paragraph 19, which is also about how benefits in payment are valued irrespective of the form of protection sought, introduces the new pre-commencement pension factor—PCPF—that we touched on last week.

Essentially, there is no allowance for the unfairness that could occur depending on how much or how little tax-free lump sum has been taken. That is an issue that must be addressed. Amendments Nos. 389 to 391 relate to the same factors.

Ruth Kelly (Labour, Bolton West)

We now come to a group of amendments covering the valuation of rights for primary protection. We received representations from the Faculty of Actuaries and the Institute of Actuaries that cover the same ground as changes to valuation that we discussed and agreed when debating clause 171.

I will not detain the Committee with a detailed description of what is achieved by our amendments, merely to say that the mechanism is the same for transitional protection as for the unauthorised payment surcharge and the valuing of direct benefit rights for the purposes of the annual allowance that we discussed alongside the amendments to clause 177.

Taken with the previous amendments and new clause 17, our amendments clarify the valuation rules in all areas and provide a simple and consistent approach to valuation across the piece. Government

amendment No. 503 clarifies beyond doubt the test of the maximum benefits to be valued, in words with which the industry is familiar.

We received several representations about paragraph 9 of schedule 34 and how in some cases it could bring about a perverse result if someone's earnings had dropped and there had been a transfer of large pension rights from a previous employment. Through our amendments we have therefore taken a fresh approach to paragraph 9. All the actual rights under the employment will be valued on the basis of the member having reached his expected retirement date on 5 April 2006.

In order to stop manipulation of retirement ages, which was something recognised by the actuaries in their letter to the Revenue, the member's normal retirement date will be that which was his under the scheme on 10 December 2003, or 60 if he joined after that date. The value will be tested against the maximum pension that the scheme could pay the member on 5 April 2006 without losing tax approval. That approach is fair, the actuaries support it and I commend our amendments to the Committee.

Our amendments achieve pretty much the same results as those tabled by the hon. Gentleman, therefore I ask him not to press amendments Nos. 379 and 380. There are further Opposition amendments to paragraphs dealing with valuing benefits for transitional protection. We have already debated using single factors for simplicity, and that is what amendments Nos. 382, 383 and 389 to 391 seek to do. They replace a factor for valuing pensions already in payment of 25 with a factor set by the Government Actuary.

The Association of Consulting Actuaries recommended the 25 to 1 factor for valuing pensions already in payment. That is higher than the pensions factor, because it assumes that a lump sum has already been taken. I agree with the hon. Gentleman that it will not have been in all cases. He suggests that the matter needs to be addressed because of the unfairness that arises, but it is not clear how that would be done. The alternative of requiring members to acquire, and schemes to provide, proof of lump sums would be an administrative burden of some complexity, and it would all be for nothing.

We must value pensions already in payment, so that someone with a large pension has an opportunity to contribute another £1.5 million with tax relief. Valuing pensions in payment at 25 to 1 allows people to top up existing pension savings to the lifetime allowance, but we also take the already crystallised pension into account for the purpose of providing transitional protection. Therefore, as the provision relates to both sides of the equation, it will have no adverse effect overall. I therefore ask the hon. Gentleman to seek to withdraw the amendment.

The hon. Gentleman outlined the purpose behind amendment No. 378. Sub-paragraph 8(4), which it seeks to delete, provides clarity. It states clearly that funds in draw-down are crystallised funds and are therefore to be valued as such under paragraph 10 using a factor of 25 to 1. One effect of the amendment

would be that funds in draw-down would be treated as uncrystallised pension rights and valued at 20 to 1. However, that would introduce an additional distortion between pensions in payment and pensions moving into draw-down. It would be unfair and unreasonable to value funds in draw-down using a factor of 20, the factor for uncrystallised pensions, rather than 25, the factor for crystallised pensions. It would create an anomaly in the valuation rules for draw-down pensions and other pensions in payment. As the higher factor has already been set at 25 to take account of tax-free lump sums already paid, that factor should be used to value funds in draw-down. If the lower factor of 20 is used to value funds in draw-down, the absolute value of an individual's total pension rights would be smaller than if the higher factor were used. It follows that the amendment would cause a reduction in the value of an individual's pension rights for the purposes of primary protection.

Government amendment No. 503 deals with a point raised by several respondents to the Revenue. There is an issue about whether a pension that a person receives as a result of the death of a spouse or someone on whom they were dependent is counted as a pension for the purposes of transitional protection and the ongoing operation of the new system. It was not our intention that it should be, and the amendment puts the matter beyond doubt. I therefore commend it to the Committee.

Howard Flight (Conservative, Arundel and South Downs)

I am glad that the Minister has confirmed that the Government's amendments address the point raised in amendment No. 379. The Minister has convinced me on amendment No. 378, or at least answered the question, and I would not want to propose anything that damaged people's positions.

I am not sure that the Minister has convinced me on amendments Nos. 382, 383 and 389 to 391. Her main point is that that the 25 to 1 factor assumes that people have already taken their maximum tax-free lump sum. That is saying that, for those who have not, hard luck. However, the point is not sufficiently material that we would wish to put it to a vote. I therefore beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendments made: No. 503, in

schedule 34, page 467, line 22, leave out from '199)' to first 'an' in line 33 on page 468 and insert

'on the assumption that the individual became entitled to the present payment of benefits in respect of the rights on that date.

(6) Section 201 has effect for the purposes of sub-paragraph (5) as if the reference to such age (if any) as must have been reached to avoid any reduction in benefits on account of age in paragraph (a) of section (Valuation assumptions) were to the relevant age; and for this purpose ''the relevant age'' is—

(a) if on 10th December 2003 the terms of the arrangement made provision for a reduction in the amount of benefits payable in respect of rights under the arrangement on account of the holder of the rights being below a particular age, that age, and

(b) otherwise, 60.

9 (1) This paragraph applies if any of the individual's uncrystallised rights on 5th April 2006 are rights under one or more arrangements under a pension scheme or schemes within paragraph 1(1)(a) to (d).

(2) The value of the individual's uncrystallised rights on 5th April 2006 under the arrangement, or the aggregate of the values of the individual's uncrystallised rights on 5th April 2006 under such of the arrangements as relate to a particular employment, is the lower of—

(a) the value, or the aggregate of the values, calculated under paragraph 8, and

(b) the amount arrived at in accordance with sub-paragraph (3).

(3) The amount arrived at in accordance with this sub-paragraph is—

20{**multi**}MPP

where MPP is the maximum permitted pension.

(4) ''The maximum permitted pension'' means the maximum annual pension that could be paid to the individual on 5th April 2006 under the arrangement or arrangements if it or they were made under a pension scheme within paragraph 1(1)(a) without giving the Board of Inland Revenue grounds for withdrawing approval of the pension scheme under section 591B of ICTA.

(5) For the purposes of sub-paragraph (4) it is to be assumed—

(a) if the individual was in the employment to which the arrangement or arrangements relates or relate on 5th April 2006, that the individual left the employment on that date, and

(b) if the individual had not reached the lowest age at which a pension may be paid under a pension scheme within paragraph 1(1)(a) to a person in good health without giving the Board of Inland Revenue grounds for withdrawing the approval of the pension scheme, that that fact would not give the Board such grounds.

(6) For the purposes of this paragraph'.—

No. 504, in

schedule 34, page 468, line 39, leave out 'an' and insert 'the'.—

No. 505, in

schedule 34, page 469, line 16, at end insert—

'(2A) But a pension, annuity or right is not a relevant existing pension if entitlement to it was attributable to the death of any person.'.—[Ruth Kelly.]

Ruth Kelly (Labour, Bolton West)

I beg to move amendment No. 506, in

schedule 34, page 469, line 44, leave out from beginning to end of line 2 on page 470 and insert

'if notice of intention to rely on it is given to the Inland Revenue in accordance with regulations made by the Board of Inland Revenue.

(2) But this paragraph ceases to apply if—

(a) relevant benefit accrual occurs under the arrangement, or any of the arrangements (see paragraph 13),

(b) a transfer of sums or assets held for the purposes of, or representing accrued rights under, the arrangement or any of the arrangements is made that is not a permitted transfer, or

(c) an arrangement relating to the individual is made under a registered pension scheme otherwise than solely for the purposes of a permitted transfer.'.

John Butterfill (Conservative, Bournemouth West)

With this it will be convenient to discuss the following:

Government amendment No. 508.

Amendment No. 384, in

schedule 34, page 470, line 20, at end insert 'in a prescribed manner'.

Government amendments Nos. 571, 572, 511 and 573.

Amendment No. 386, in

schedule 34, page 472, line 6, leave out 'pregnancy or childbirth' and insert

'being on maternity leave, adoption leave, parental leave, paternity leave (each as defined in accordance with the Employment Rights Act 1996) or in other prescribed circumstances'.

Government amendments Nos. 513 to 519.

Ruth Kelly (Labour, Bolton West)

Government amendment Nos. 506, 508, 511, 513, 519 and 571 to 573 alter the way that enhanced protection arrangements operate in relation to calculating benefits accrued by defined benefit or cash benefit schemes. The changes come about because of a late representation by the Association of Consulting Actuaries. It was concerned that the proposals for calculating earnings after 5 April 2006 would be administratively burdensome.

As set out in the December 2003 consultation paper, enhanced protection was a simple proposition. There is no test of the pension fund against the lifetime allowance in return for there being no relevant benefit accrued after 5 April 2006. Schedule 34 as it stands attempts to do the same for defined benefit and cash benefit arrangements, by specifying that the pre-A-day service, the scheme accrual rate and what constitutes pensionable pay cannot change and by setting a limit on the amount of earnings that can be pensioned.

The amendments take a different approach to the same issue. The member's rights are valued on 5 April 2006. They can increase thereafter in line with the retail prices index without endangering enhanced protection but, as an alternative, at the first benefit crystallisation event, the member's rights on 5 April 2006 can be recalculated according to various assumptions. Provided that the aggregate of the benefits taken do not exceed the higher of those two amounts, enhanced protection still applies and is not lost.

The amendments also restrict the transfers that can be allowed in order to retain the right to enhanced protection. The purpose of the amendment is to avoid transfers being used to manipulate valuations and, thus, increase the protection given.

The amendments seek to clarify how enhanced protection works and I commend them to the Committee.

That brings me to two amendments tabled by the hon. Member for Arundel and South Downs. Amendment No. 384 deals with the surrender of excess pension rights. That is where, at A-day, someone has accrued pension rights in an occupational pension scheme in excess of what would have been allowed under Revenue rules.

I believe that it is common ground between us that such excess rights should be surrendered before an individual acquires enhanced protection. Otherwise, we would be giving protection to rights in excess of what the member was entitled to. The amendment seeks to put conditions on the surrender of such rights.

I agree that the reduction of pension rights should be dealt with in a proper and consistent manner, but I do not believe that it is necessary for the Inland Revenue or the Treasury to prescribe the conditions and regulations. DWP legislation already prescribes the circumstances in which an individual may surrender pension rights. Inland Revenue officials are liaising with DWP officials on the matter to clarify whether any amendment to DWP regulations will be needed to facilitate the surrenders envisaged in schedule 34. I believe that the proper place for

requirements concerning surrenders of pension rights is in DWP regulations and scheme rules.

I look forward to hearing whether those points meet the hon. Gentleman's concerns.

Howard Flight (Conservative, Arundel and South Downs)

As I understand it, one of the Government amendments addresses the point that is raised in amendment No. 386, which is grouped with these amendments.

Ruth Kelly (Labour, Bolton West)

I am just about to come to amendment No. 386. I appreciate fully the hon. Gentleman's intentions in tabling it, but I believe that it is drawn too widely. Only absence due to ordinary maternity leave, ordinary adoption leave and paternity leave as defined in the Employment Rights Act 1996 give rights to adjustments in pensionable earnings. In drafting Government amendments Nos. 512 and 508, we took into account the purpose of his amendment and permitted adjustments to pensionable earnings for absences due to pregnancy, maternity, paternity and adoption. The Government amendments are better focused than his and I therefore commend them to the Committee.

Howard Flight (Conservative, Arundel and South Downs)

Amendment No. 384 raises an issue that the Financial Secretary recognises must be addressed. In essence, she has assured us that it will be covered by DWP arrangements, so it does not need to be covered in the Bill. Government amendments Nos. 512 and 508 deal with my points about relevant earnings that may be lower for allowable reasons beyond just pregnancy or childbirth.

Amendment agreed to.

Amendments made: No. 508, in

schedule 34, page 470, line 12, leave out from beginning to end of line 34 and insert—

'(a) the value of the uncrystallised rights of the individual on 5th April 2006 under an arrangement, or

(b) the aggregate of the values of the uncrystallised rights of the individual on 5th April 2006 under arrangements,

is arrived at in accordance with paragraph 9 unless such rights as, in accordance with regulations made by the Board of Inland Revenue, are to be treated as representing the relevant excess have been surrendered.

(6) In sub-paragraph (5) ''the relevant excess'' means the amount by which the value of—

(a) the individual's uncrystallised rights, or

(b) the aggregate of the values of the individual's uncrystallised rights,

(as arrived at in accordance with paragraph 9) exceeds what it would be if arrived at under paragraph 8.

(7) For the purposes of this paragraph and paragraphs 13 and 13A, a transfer of sums or assets held for the purposes of, or representing accrued rights under, an arrangement is a permitted transfer if—

(a) all sums and assets held for the purposes of, or representing rights under, the arrangements relating to the individual under the pension scheme under which the arrangement is made are transferred by the transfer,

(b) the sums or assets held for the purposes of, or representing accrued rights under, the arrangement are transferred so that sub-paragraph (8) applies in relation to them, and

(c) the aggregate of the amount of those sums and the market value of those assets'.

No. 571, in

schedule 34, page 470, line 36, at end insert—

'(8) This sub-paragraph applies in relation to sums or assets held for the purposes of, or representing accrued rights under, the arrangement if—

(a) they are transferred so as to become held for the purposes of a money purchase arrangement that is not a cash balance arrangement, or two or more more money purchase arrangements that are not cash balance arrangements, under a registered pension scheme or recognised overseas pension scheme, or

(b) where the transfer occurs in connection with the winding up of the pension scheme under which the arrangement is made and the arrangement is a cash balance arrangement or a defined benefits arrangement, they are transferred so as to become held for the purposes of, or to represent rights under, a cash balance arrangement or defined benefits arrangement relating to the same employment as the arrangement and made under a registered pension scheme or recognised overseas pension scheme.

(9) Where there is a permitted transfer—

(a) if the transfer is a permitted transfer by virtue of sub-paragraph (8)(a), this paragraph (and paragraphs 13 and 13A) apply in relation to the arrangement, or each of the arrangements, to which the transfer is made, and

(b) if the transfer is a permitted transfer by virtue of sub-paragraph (8)(b), this paragraph (and paragraphs 13 and 13B) apply as if the arrangement to which the transfer is made were the same as that from which it is made.'.

No. 572, in

schedule 34, page 470, line 38, leave out from 'arrangement' to 'a' in line 8 on page 471 and insert—

(a) in the case of a money purchase arrangement that is not a cash balance arrangement, if a relevant contribution is paid under the arrangement (see paragraph 13A), and

(b) in the case of a cash balance arrangement or defined benefits arrangement, if, when a benefit crystallisation event or transfer that is a permitted transfer by virtue of paragraph 12(8)(a) (a ''relevant event'') occurs in relation to the individual and the arrangement, the relevant crystallised amount exceeds the appropriate limit (see paragraph 13B).

13A For the purposes of paragraph 13(1)(a)'.

No. 511, in

schedule 34, page 471, line 18, leave out 'sub-paragraph (1)(b)' and insert 'paragraph 13(1)(a)'.

No. 573, in

schedule 34, page 471, line 26, leave out from beginning to end of line 11 on page 472 and insert—

'13B (1) For the purposes of paragraph 13(1)(b) ''the relevant crystallised amount'' is—

(a) if the relevant event is the first relevant event occurring in relation to the individual and to the arrangement or any other cash balance arrangement or defined benefits arrangement related to the arrangement (''the first relevant event''), the amount crystallised by that event, and

(b) otherwise, the aggregate of the amount crystallised by the relevant event and the amount crystallised by the relevant event, or by each of the relevant events, which has or have previously occurred in relation to the individual and to the arrangement or any other cash balance arrangement or defined benefits arrangement related to the arrangement.

(2) If the relevant event is a permitted transfer which is not a benefit crystallisation event, sub-paragraph (1) applies as if the amount crystallised by the event were the aggregate of—

(a) the amount of any sums held for the purposes of, or representing accrued rights under, the arrangement, and

(b) the market value of any assets held for the purposes of, or representing accrued rights under, the arrangement.

(3) For the purposes of this paragraph (and paragraph 15) another arrangement is related to the arrangement if—

(a) the other arrangement relates to the individual, and

(b) both the arrangement and the other arrangement relate to the same employment;

and whether an arrangement relates to an employment is to be determined in accordance with paragraph 9(6).

(4) For the purposes of paragraph 13(1)(b) ''the appropriate limit'', in relation to a relevant event, is the greater of—

(a) the value of the individual's rights on 5th April 2006 under the arrangement, or (where there is or are one or more other cash balance arrangements or defined benefits arrangements related to the arrangement) the aggregate of the value of the individual's rights under the arrangement and the other arrangement or arrangements, arrived at in accordance with paragraphs 8 and 9, as increased by the relevant indexation percentage (see sub-paragraph (5)), and

(b) what would be the value of those rights, so arrived at, on the assumptions specified in sub-paragraph (6).

(5) For the purposes of sub-paragraph (4)(a) ''the relevant indexation percentage'', in relation to a relevant event, means whichever is the greatest of—

(a) the percentage by which an amount would be increased if it were increased for the period beginning with 6th April 2006 and ending with the date on which the relevant event occurs at an annual rate of 5%,

(b) the percentage by which an amount would be increased if it were increased for that period at an annual percentage rate referred to in regulations made by the Board of Inland Revenue, and

(c) the percentage by which the retail prices index for the month in which the relevant event occurs is higher than that for April 2006.

(6) The assumptions referred to in sub-paragraph (4)(b) are—

(a) that the individual's age on 5th April 2006 were what it is at the time of the first relevant event (so that neither paragraph 8(6) nor section (Valuation assumptions)(a) applies in arriving at what would be the value of the rights under paragraph 8), and

(b) that the amount of the earnings which would have fallen to be taken into account under the arrangement for calculating the amount of benefits payable to or in respect of the individual (if the individual became entitled to the present payment of benefits in respect of the rights under the arrangement on that date) were the lesser of the two amounts specified in sub-paragraph (7).

(7) The amounts referred to in sub-paragraph (6)(b) are—

(a) the current amount of the relevant pensionable earnings immediately before the first relevant event, and

(b) the post-commencement earnings limit (see paragraphs 15 and 16).

(8) But sub-paragraph (6)(b) applies in relation to an arrangement under a pension scheme within paragraph 1(1)(c) or (e) as if for ''the lesser of the two amounts specified in sub-paragraph (7)'' there were substituted ''the amount specified in sub-paragraph (7)(a)''.

(9) In this paragraph ''the relevant pensionable earnings'' means the description of earnings (or the portion of the description of earnings) of the individual by reference to which the amount of benefits payable to or in respect of the individual would have fallen to be calculated if the individual became entitled to the present payment of benefits in respect of the rights under the arrangement on 5th April 2006.

(10) For the purposes of sub-paragraph (7)(a) ''the current amount'' of the relevant pensionable earnings immediately before the first relevant event is the amount of the relevant pensionable earnings which, at that time, would fall to be taken into account in calculating the amount of benefits payable to or in respect of the individual under the arrangement if the individual became entitled to the present payment of benefits at that time (but subject to sub-paragraph (11)).

(11) If at that time the individual is absent from work in connection with pregnancy, maternity, paternity or adoption, the

current amount of the relevant pensionable earnings at that time includes what would be likely to be included in that amount if the individual were not so absent.'.

No. 513, in

schedule 34, page 472, line 14, leave out

'the pension scheme under which the arrangement'

and insert

'any pension scheme under which the arrangement or any other arrangement related to the arrangement'.

No. 514, in

schedule 34, page 472, line 18, leave out 'benefit crystallisation' insert 'first relevant'.

No. 515, in

schedule 34, page 472, line 20, leave out 'relevant earnings' and insert

'individual's employment income from the employment to which the arrangement relates'.

No. 516, in

schedule 34, page 472, line 23, leave out from second 'the' to end of line 24 and insert 'first relevant event occurs.'.

No. 517, in

schedule 34, page 472, line 27, leave out 'relevant earnings are' and insert

'individual's employment income from the employment to which the arrangement relates is'.

No. 518, in

schedule 34, page 472, line 28, at end insert—

'(7) For the purposes of this paragraph and paragraph 16 the amount of the individual's employment income includes, in relation to any time when the individual is absent from work in connection with pregnancy, maternity, paternity or adoption, what would be likely to be included in that amount if the individual were not so absent.'.

No. 519, in

schedule 34, page 472, line 40, leave out 'relevant earnings' and insert

'individual's employment income from the employment to which the arrangement relates'.—[Ruth Kelly.]

Ruth Kelly (Labour, Bolton West)

I beg to move amendment No. 520, in

schedule 34, page 473, line 31, leave out 'and (5) or paragraph' and insert 'or'.

John Butterfill (Conservative, Bournemouth West)

With this it will be convenient to discuss the following:

Government amendments Nos. 521 to 523.

Amendment No. 393, in

schedule 34, page 475, line 7, after 'scheme', insert

'or a contractual right under his contract of employment with a sponsoring employer'.

Government amendment No. 524.

Ruth Kelly (Labour, Bolton West)

Pensions receive favourable tax treatment to encourage people to save for retirement. The deal between the Government and the pension saver is that that favourable tax treatment is conditional on using most of the savings built up in that way to generate retirement income, and not for other purposes. As part of the reform of tax rules for pensions, we intend to set the minimum age at which tax-privileged pensions can be drawn at 55 from 2010. That minimum benefit age will apply to all pensions that qualify for tax relief. Moving the minimum benefit age to 55 is not designed to prevent people from stopping work when they are younger than 55, if they can afford to do so using resources other than

pensions, but they will not be able to use pensions built up with tax relief until the age of 55.

It would, of course, be unfair to introduce such a change in a way that cut across people's contractual rights to take an occupational pension at an earlier age. People with such rights may well have planned for their future on that basis, or even taken redundancy from their employer in the expectation that their occupational pension would become payable before they reached the age of 55. Because of that, provisions in the schedule protect the rights of employees in occupational pension schemes to retire before 55, provided certain conditions are met: first, that the right was in place before 10 December 2003 and, secondly, that the right is an absolute right and not subject to any conditions such as the consent of the employer.

Amendments Nos. 520 to 522 are tidying-up amendments that correct and clarify references to minimum pension age. Following representations on the December 2003 consultation document, we are now proposing a relaxation of the original proposals.

Amendments Nos. 523 and 524 would extend the protection to individuals who join their occupational pension scheme after 10 December 2003 but before 6 April 2006—A-day. They will be able to retire at the scheme's minimum pension age or normal retirement age provided that on 10 December 2003 the occupational pension scheme offered such a date to all existing members.

Amendment No. 393 is also about rights to take an early pension. We have always been clear that the contractual rights under discussion are those conveyed by membership of an occupational pension scheme rather than by a contract of employment, on the basis that contractual rights in an occupational pension scheme apply to all members, while rights in a contract of employment apply on an individual basis at the discretion of the employer. Those latter rights could, for instance, be used to sugar a redundancy programme, or finesse the retirement package of senior executives. We see no reason to give protection to such rights.

The provisions in schedule 34 and our amendments are all in line with the Government's policy to encourage greater participation in the labour market by older workers and protect existing contractual rights to draw a pension from the age of 50. I therefore commend them to the Committee. I hope that, in view of the generous proposals we are putting forward, the hon. Gentleman will not choose to press his amendments.

Howard Flight (Conservative, Arundel and South Downs)

I am glad to note the Government's tidying-up of some aspects of who will and will not be affected by the change of the minimum retirement age from 50 to 55.

Amendment No. 393 is designed to deal with a situation that the Government have not addressed and towards which the Financial Secretary has stated that they are not sympathetic. The concession, as defined in schedule 34 and the Government amendments, assumes that all such rights to retire at 50 will be written into the pension scheme. They may arise in the contract of employment, however. The employer has

the discretion to allow early retirement from the age of 50 but, as a matter of contract, may have confirmed that, in the event of redundancy, benefits can be taken without reduction from the age of 50. Our amendment seeks to bring that situation within the protected territory.

If someone were fired at 50—not on the ground of ageism, I hope—and they have been led to understand that, if that happened, they would have the right to take a pension at that age, it is only fair that they be included in the protection provided. I was not totally clear about the Financial Secretary's reaction to that, so I ask for her clarification.

Ruth Kelly (Labour, Bolton West)

We have always been clear that the contractual rights being protected are those conveyed by membership of an occupational pension scheme. The hon. Gentleman refers to a discretionary right granted by an employer as part of a redundancy package. That is not the sort of right that we seek to protect. Does he really think that such a situation should be protected under the transitional arrangements? The employer could use those rights to sweeten a redundancy package or as part of a remuneration package of a senior executive. We sought to exclude such a situation from our proposals.

Howard Flight (Conservative, Arundel and South Downs)

I accept to some extent what the Financial Secretary has said, but the Government ought to consider the other side of the coin. From the perspective of the employee, he has been led to understand that, if the employer fires him, he will be able to draw his pension at the age of 50. It will be a nasty experience if he gets fired and subsequent legislation has changed that situation.

I hope that the Government think again on that point and consider whether they can craft something that avoids the exploitation that they are seeking to avoid but deals fairly with individuals in that situation. I cannot see the point of principle against dealing fairly with individuals in that situation.

Ruth Kelly (Labour, Bolton West)

I do not quite understand the cut-off point in the hon. Gentleman's proposal, or why he thinks that, if someone is fired, it is appropriate to take a pension at the age of 50, rather than at a different age. We have, as a point of principle and Government policy, suggested that the minimum retirement age be raised to 55, and we see no reason to treat individuals in the unfortunate situation that he described any differently merely because they have been fired. Presumably, their employer would offer individuals in that situation a different redundancy package in future.

As a point of principle, the Government are increasing the minimum retirement age to 55. It is on that basis that we will be able to offer many other benefits, such as flexible employment. Where there is a clear contractual right to draw a pension earlier, we will seek to preserve that right in the legislation.

Howard Flight (Conservative, Arundel and South Downs)

I am surprised that the Financial Secretary is not more sympathetic to the point that I am making. It is simple. It arises where a person has

been a member of a business and its pension scheme for a long period. While there is no specific rule in the pension scheme, the person has been told by the employer that, in the event of being fired at 50, the employer will allow retirement at that age. It is common to have such an understanding. In that situation, it would be wholly wrong to blast in and say, ''Hard luck, mate.''

I think that the Financial Secretary is wrong to assume that there will automatically be redundancy payments to make up for that. The business may not be able to afford them. Therefore, unless the Government have something to offer to deal with those situations, where appropriate, we will want to vote on the amendment.

Amendment agreed to.

Amendment made: No. 479, in

schedule 34, page 474, line 28, leave out 'on 5th April 2006' and insert

'at any time (treating the references there to 5th April 2006 as to that time)'.—[Ruth Kelly.]

Howard Flight (Conservative, Arundel and South Downs)

I beg to move amendment No. 392, in

schedule 34, page 474, line 28, at end insert—

'Pre-1989 individuals

20 (1) This paragraph applies to any individual who was on 5th April 2006 a person in relation to whom section 590C of ICTA (earnings cap) did not have effect (''a pre-1989 individual'') in relation to the pension scheme under which the arrangement was made (''the pre-1989 scheme'').

(2) Notwithstanding anything else in this Act, no charge to income tax will arise in respect of benefits paid to in respect of a pre-1989 individual under the pre-1989 scheme except to the extent that a charge to income tax would have arisen in any event.'.

Howard Flight (Conservative, Arundel and South Downs)

This is the amendment regarding which I made some comments when we debated clause 269. It is designed to permit continued grandfathering for all people in pre-1989 schemes. The Financial Secretary was silly to say, ''We can't possibly do that, or our simplification wouldn't work.'' That seems wrong. The new simplification would go ahead, but a fair, non-retrospective provision would be made available for the relatively small number of people who continue to be members of pre-1989 schemes that were grandfathered.

I have already said that, particularly in respect of pension saving, the provision is in principle retrospective. It is unfair suddenly to say to people, many of whom will be reasonably close to retirement, ''I'm sorry, mate. You were grandfathered back in 1989, but we are putting an end to that. The effect will be negative as long as there are no more contributions to your scheme from here on. If there are, you will be caught.'' Therefore, the provision cuts off the employer's contractual promise to go on paying into the scheme until the employee retires. No doubt the Government's view is that the provision is mostly to do with fat cats. The view may be, ''They don't have a bad deal anyway, so what the hell? They don't matter.'' It is not our job to protect fat cats on principle.

Mark Todd (Labour, South Derbyshire)

Why not?

Howard Flight (Conservative, Arundel and South Downs)

I should be delighted to protect the hon. Gentleman. However, there is an important point of principle here. If a clear precedent of grandfathering has been set—as grandfathering was introduced 15 years ago, it mostly affects those who are approaching retirement—it is morally wrong suddenly to change things. Whatever the Minister may say, it amounts to retrospection.

Rob Marris (Labour, Wolverhampton South West)

Not today, but earlier in our proceedings on the pensions part of the Bill, the hon. Member for Arundel and South Downs differed slightly from the hon. Member for Tatton (Mr. Osborne) and proposed a rough and ready approach to certain provisions. Why is he now not prepared to have a rough and ready approach to those whom he describes as fat cats?

Howard Flight (Conservative, Arundel and South Downs)

I recollect using the phrase ''rough and ready''. I cannot recollect the context, but I believe that I was being descriptive, rather than supporting such an approach. I seem to remember saying something along the lines that people may accept a degree of rough and ready justice. In fairness, it is different having a rough and ready approach, whether it is right or not, for people who have not been promised something else previously. I am surprised that, as a lawyer, the hon. Gentleman should rest comfortable with a complete disregard of what was in effect a legal principle laid down in 1989 that a person in a scheme before that date who stayed in the scheme would not be subject to the changes.

Norman Lamb (Liberal Democrat, North Norfolk)

Does the hon. Gentleman have any idea of the number of people likely to be affected?

Howard Flight (Conservative, Arundel and South Downs)

I do not think that anyone has a precise number, but it must be extremely small. First, the Government say that only a limited number of people are affected by the new lifetime limit anyway and, secondly, the provision relates only to those who have continued to work in the same business and have been in the same pension scheme since 1989. Therefore, implicitly, it is a relatively small proportion of those who the Government are satisfied are affected by the lifetime cap. The fact that the absolute amounts of money are not that huge lends support to the argument that it would have been a more principled stance to stick by the existing rules for those people.

Rob Marris (Labour, Wolverhampton South West)

The hon. Gentleman, in responding to my intervention, suggested that I had put forward a position. I recall that I merely asked him a question, to which he replied.

There is a drafting error in amendment No. 392—perhaps the error is in the amendment paper. After the words

''arise in respect of benefits paid to''

in proposed new paragraph 20(2), the word ''or'' is missing.

Howard Flight (Conservative, Arundel and South Downs)

I thank the hon. Gentleman for his excellent legal drafting abilities. He is correct.

Quentin Davies (Conservative, Grantham and Stamford)

One more point must be made. It is clear from the debate that a relatively small number of people would be affected by the amendment. If we do

not accept my hon. Friend's amendment, we may create an incentive for people who are highly paid, who are in danger of going above the lifetime earnings limit, who have been with the same employer since 1989 and who were already highly paid at that time to leave their employment by A-day and to take their benefits in order to preserve them. It seems perverse to force highly paid people, who may be making a great contribution to the economy, reluctantly to leave their job simply because the financial penalties of remaining in it and in their pension scheme would be considerable. They would incur a great opportunity cost if they remained.

It is important that we never create in our tax law an incentive for people to behave in an economically perverse manner. Nothing can be more perverse than someone leaving employment and going into idleness or unemployment, or taking their pension earlier than they otherwise would have wished. I hope that the Financial Secretary will address that point when she responds.

Ruth Kelly (Labour, Bolton West)

The amendment seeks to retain tax regimes that were in place prior to 1989. It would defeat the key objective of this reform, which is tax simplification. Pre-1989 members come in at least two varieties: members who joined their scheme between 1970 and 1987, and those who joined between 1987 and 1989. There are also some members of the pre-1970 regime, who are referred to as old code members.

Norman Lamb (Liberal Democrat, North Norfolk)

I wonder whether the Financial Secretary could indicate whether the Government have made any assessment as to the number of people involved in those categories.

Ruth Kelly (Labour, Bolton West)

We certainly have made such an assessment. The intention behind involving the National Audit Office was to verify the number of people who were likely to be affected. It suggested a total of some 10,000, at about 1,000 a year.

The pre-1970 regime came to an end 34 years ago, yet there are still old code members. Insurance companies, pension schemes and the Revenue must retain knowledge of how that regime operated and how it interacted with the successor regimes. The amendment tabled by the hon. Member for Arundel and South Downs would force the pensions industry and the Revenue to do the same for pre-1989 members. It would involve running two systems in parallel for the old regime and the new, simplified one.

If the hon. Gentleman will not listen to me, perhaps he will heed the words of people in the pensions industry. Only a small minority of people recommended his approach. The Association of Independent Financial Advisers stated:

''These proposals are refreshingly radical, especially in sweeping away the complexity of numerous layers of legislation. The growth and promotion of private pension provision should be improved.''

The Society of Pension Consultants stated:

''The proposals should lead to a substantial reduction in administrative costs for employers, pension funds and pension providers. Even more importantly, for the great majority of people, they will sweep away many of the regulatory restrictions which make pensions baffling and discouraging for many.''

Those are the industry's words, not mine. Simplification will reduce administration and make pensions easier to understand for the vast majority.

Quentin Davies (Conservative, Grantham and Stamford)

The Financial Secretary is enjoying the laudatory comments that she is quoting, but do they not relate only to the Government's reforms as a whole—the system of having a new lifetime cap, and the simplifications, to which we all pay tribute? They are surely not germane to the point about the treatment of members of pre-1989 schemes. I cannot believe that the flattering remarks that she is reading make any sense if they simply narrowly apply to that special case.

Ruth Kelly (Labour, Bolton West)

I am about to deal with the point that was raised—[Interruption.] Hon. Members should contain themselves and listen to the response. I was making the point that, in the past, every single pension tax reform maintained the previous system. That is why we have ended up with eight separate pension regimes. The pension industry was practically in despair. All the major representatives came to me, on several occasions, and said, ''Please go ahead with your pension reform proposals. We desperately need a simpler system.'' Operating the previous eight regimes, and taking a further one forward, would be extremely disappointing and would not contribute to our aim of increasing pension saving in the future, nor would it reduce the administrative costs on schemes, which we consider quite an important part of our proposals.

Let us see what the amendment tabled by the hon. Member for Arundel and South Downs would mean in practice. I will not go through all the detail of how his amendment might work. However, I will briefly outline some of the areas where complications would arise if we were to retain the previous, pre-1989 regime.

Take the example of continuous service. If the member's employment status changes, a view would have to be taken on whether he had retained his pre-1989 status. Concurrency—the ability to hold an occupational scheme pension and a personal pension at the same time—is a feature of the new regime, but not of the old. Which rule would apply? Would every person joining a personal pension have to be asked if they were a pre-1989 member? Flexible retirement for occupational scheme members is allowed under the new system, but not the old.

Retained benefits—I am delighted to see you in the Chair, Sir John, as I know that you have a keen interest in abolishing the retained benefits rule, as has the hon. Member for Arundel and South Downs—would have to be kept and expanded to deal with benefits accrued after 6 April 2006. Which lump sum limit would apply? Would it be 25 per cent., as under the new system, or the greater of 3N over 80 or the commutation of 2.25 times the maximum pension commuted at 12 to 1?

I could go through all the other areas where complexity would arise. It is not a silly point to say that the system that the hon. Gentleman proposes

would introduce vast complexity to the arrangements. It would drag us back to the previous set-up, which the pension industry itself wants abolished.

The alternative proposition is to offer people protection for rights that they have accrued under the previous regime. We are offering not only fair protection rights for previously accrued benefits, but extremely generous transitional arrangements to protect rights that have been accrued. Indeed, if someone registers for enhanced protection and they have already accumulated a lump sum of £1.5 million or above, they will be able to see that grow on the stock market and not have it tested in the future.

On the point raised by the hon. Member for Grantham and Stamford (Mr. Davies), the system that we propose is more generous to people currently in work. Under the new rules, they could take their benefits and continue to work, because we are introducing flexible retirement for the first time through the proposals. That section of the population would clearly benefit from the new regime.

The rationale behind our regime is extremely clear. It has been welcomed by all the major representative groups in the pension industry, as well as individual pension providers, who will see their administrative costs fall. Not only is it radical, it is fair, and it is for that reason that I recommend it to the Committee.

Howard Flight (Conservative, Arundel and South Downs)

The hon. Member for North Norfolk (Norman Lamb) asked a perfectly good question of the Financial Secretary. She gave half the answer, which was about the 10,000 people affected by the new lifetime limit, and we already knew about them. She did not give any answer about how many of those people were in pre-1989 schemes. If she has that information, I would be grateful for it—my assessment being that the number will be relatively small.

The Financial Secretary seems to forget that, as PricewaterhouseCoopers has pointed out, we have moved from eight to six schemes and that, as I pointed out, the transitional arrangements are extremely complex. Our amendment correctly involves the issues that she has raised, but, equally, the grandfathering of pre-1989 people could be done in a different way by making the transitional arrangements for them equivalent to being grandfathered.

The Financial Secretary boasts that the arrangements are generous. In some contexts they are, but, as she is well aware, for those people lucky enough to be in 1989 schemes they are not so generous. Those people are disadvantaged because if contributions to their pension schemes continue until they retire, they lose the protection against being capped that they were granted back in 1989.

It is pretty glib of the Financial Secretary to cast the matter off, saying, ''It's all better, really. It doesn't matter.'' She is deaf if she has not heard the dissatisfaction from those affected by the proposals. The general principle is one of endeavouring to simplify, although the simplification is not quite as great as she claims. She has quoted her laudatory congratulations, but they do not focus on the specific

issue and the Government could address a point of principle without over-cluttering the transitional arrangements. Therefore, we wish to put the matter to a vote.

Question put, That the amendment be made:—

The Committee divided: Ayes 6, Noes 13

Ruth Kelly (Labour, Bolton West)

I beg to move amendment No. 525, in

schedule 34, page 476, line 41, leave out from beginning to end of line 2 on page 477 and insert

'have been entitled under the arrangement on 5th April 2006 on the assumption that the individual became entitled to the present payment of a lump sum under the arrangement on that date.

(7) In calculating an amount in accordance with sub-paragraph (6) the valuation assumptions apply but as if the reference to such age (if any) as must have been reached to avoid any reduction in benefits on account of age in paragraph (a) of section (Valuation assumptions) were to the relevant age; and for this purpose ''the relevant age'' is—

(a) if on 10th December 2003 the terms of the arrangement made provision for a reduction in the amount of benefits payable in respect of rights under the arrangement on account of the holder of the rights being below a particular age, that age, and

(b) otherwise, 60.

24A(1) This paragraph applies if any of the individual's uncrystallised lump sum rights on 5th April 2006 are rights under one or more arrangements under a pension scheme or schemes within paragraph 1(1)(a) to (d).

(2) The value of the individual's uncrystallised lump sum rights on 5th April 2006 under the arrangement, or the aggregate of the values of the individual's uncrystallised lump sum rights on 5th April 2006 under such of the arrangements as relate to a particular employment, is the lower of—

(a) the value, or the aggregate of the values, calculated under paragraph 24, and

(b) the maximum permitted lump sum.

(3) ''The maximum permitted lump sum'' means the maximum lump sum that could be paid to the individual on 5th April 2006 under the arrangement or arrangements if it or they were made under a pension scheme within paragraph 1(1)(a) without giving the Board of Inland Revenue grounds for withdrawing approval of the pension scheme under section 591B of ICTA.

(4) For the purposes of sub-paragraph (3) it is to be assumed—

(a) if the individual was in the employment to which the arrangement or arrangements relates or relate on 5th April 2006, that the individual left the employment on that date, and

(b) if the individual had not reached the lowest age at which a lump sum may be paid under a pension scheme within paragraph 1(1)(a) to a person in good health without giving the Board of Inland Revenue grounds for withdrawing the approval of the pension scheme, that that fact would not give the Board such grounds.

(5) Whether an arrangement relating to an individual relates to an employment is to be determined in accordance with paragraph 9(6).'.

John Butterfill (Conservative, Bournemouth West)

With this it will be convenient to discuss the following:

Government amendments Nos. 526 to 545

Amendment No. 394, in

schedule 34, page 480, leave out line 31 and at end insert—

(VULSR{**multi**}CSLA)+ALSA

(VULSR xFSLA

Amendment No. 395, in

schedule 34, page 480, leave out line 35 and insert—

VULSR{**multi**}CSLA

VULSR xFSLA

Government amendments Nos. 546 and 547.

Ruth Kelly (Labour, Bolton West)

This group of Government amendments covers the ability to protect large lump sums under the new system.

The amendments seek to do two things. First, amendments Nos. 528, 529 and 531 allow people who have claimed primary protection for their pensions and who have large lump sums—by ''large'' I mean over the £375,000 that will be allowed under the new regime—to protect those lump sums in a simpler way than that proposed in the Bill. The member will have a protected amount, which he will be able to take from any of his schemes as he sees fit. This is a relaxation of the approach in the Bill, which contains an additional requirement that the lump sum must be taken as an equal percentage of the benefits from each arrangement. It is an administrative relaxation, and I recommend it to the Committee.

Amendments Nos. 525, 526, 527, 530, 531 and 533 to 547 are similar in purpose to those that we discussed on changing the valuation procedure of protected pension rights. The changes put the lump-sum valuation on to the same basis. The protected value will be the lower of the value of the accrued lump sum, without the imposition of any early retirement factors, and the maximum lump sum allowed under the Inland Revenue's discretionary approval regime on 5 April 2006, using various assumptions that are set out in detail in the explanatory note. That method of valuation was requested by the actuarial profession in response to the publication of the Bill. This group also contains a few amendments that make consequential changes arising from earlier amendments on valuation and lump-sum benefits. This is a sensible change arising from consultation and I therefore commend it to the Committee.

Opposition amendments Nos. 394 and 395 seek to correct a transpositional error in the Bill. I agree with the intention behind them. We have taken advice and we believe that the amendments are technically correct. I therefore recommend that the Committee accept these amendments, too.

Howard Flight (Conservative, Arundel and South Downs)

We welcome the Government's amendments in relation to lump sums and see no reason why people should not be free to take whichever pot they choose. We are delighted that our vital amendment has been accepted.

Amendment agreed to.

Amendments made: No. 526, in

schedule 34, page 477, line 8, leave out 'paragraph 24' and insert 'paragraphs 24 and 24A'.

No. 527, in

schedule 34, page 477, line 20, leave out 'paragraph 24' and insert 'paragraphs 24 and 24A'.

No. 528, in

schedule 34, page 477, line 22, leave out '(6) and' and insert '(5) to'.

No. 529, in

schedule 34, page 477, line 23, at end insert—

' ''(5) If sub-paragraph (2) does not apply, the permitted maximum is the available portion of the member's lump sum allowance.'.

No. 530, in

schedule 34, page 477, line 29, leave out 'paragraph 24' and insert 'paragraphs 24 and 24A'.

No. 531, in

schedule 34, page 478, line 8, leave out 'Whether or not' and insert

'If (and for so long as)'.

No. 532, in

schedule 34, page 478, line 12, leave out 'sub-paragraph (1)' and insert 'sub-paragraphs (1) to (3)'.

No. 533, in

schedule 34, page 478, line 19, leave out 'paragraph 24' and insert 'paragraphs 24 and 24A'.

No. 534, in

schedule 34, page 478, line 21, leave out

'rights on 5th April 2006'

and insert

'pension rights on 5th April 2006, calculated in accordance with paragraphs 8 and 9'.

No. 535, in

schedule 34, page 478, leave out lines 27 to 40.

No. 536, in

schedule 34, page 478, leave out line 41 and insert—

'(2) For the purposes of sub-paragraph (1) there is to be deducted from the aggregate of the lump sum and the amount of the sums and the market value of the assets designated as available for the payment of unsecured pension so much (if any) of that amount as represents rights which are attributable to a disqualifying pension credit.'.

No. 537, in

schedule 34, page 479, line 4, leave out '(6) and' and insert '(5) to'.

No. 538, in

schedule 34, page 479, line 5, at end insert—

'''(5) There is to be deducted from the aggregate of the amount of the lump sum and the annuity purchase price—

(a) if the annuity is purchased (in whole or in part) by the application of sums or assets representing the whole or part of the member's unsecured pension fund, the aggregate of the amount of those sums and the market value of those assets, and

(b) in any case, so much (if any) of the aggregate of the lump sum and the annuity purchase price as represents rights which are attributable to a disqualifying pension credit.'.

No. 539, in

schedule 34, page 479, line 24, leave out 'paragraphs 26 and 27' and insert—

'(a) paragraphs 25 and 27 (in the case of an individual in relation to whom paragraph 12 applies), or

(b) paragraph 26 (in the case of an individual in relation to whom paragraph 12 does not apply),'.

No. 540, in

schedule 34, page 479, line 38, after '2006,' insert

'calculated in accordance with paragraph 29A,'.

No. 541, in

schedule 34, page 479, line 40, after '2006,' insert

'calculated in accordance with paragraph 29B,'.

No. 542, in

schedule 34, page 479, line 41, leave out from beginning to end of line 11 on page 480 and insert—

'29A (1) Subject to sub-paragraph (2), the value of the individual's uncrystallised lump sum rights under the pension scheme on 5th April 2006 is the aggregate of the value of the individual's uncrystallised lump sum rights under each arrangement in respect of the individual under the pension scheme, calculated in accordance with paragraph 24(5), on that date.

(2) If the pension scheme is a relevant pension scheme, the value of the individual's uncrystallised lump sum rights on 5th April 2006 under an arrangement—

(a) which relates to a particular employment, and

(b) in relation to which the excess lump sum condition is met (see sub-paragraph (5) or (6)),

is the amount arrived at in accordance with sub-paragraph (7) or (8).

(3) A pension scheme is a relevant pension scheme if it falls within paragraph 1(1)(a) to (d).

(4) Whether an arrangement relating to the individual relates to a particular employment is to be determined in accordance with paragraph 9(6).

(5) If no other arrangement relating to the individual under a relevant pension scheme relates to the employment to which the arrangement relates, the excess lump sum condition is met in relation to the arrangement if—

(a) the value of the individual's uncrystallised lump sum rights under the arrangement calculated in accordance with paragraph 24(5), exceeds

(b) the amount arrived at in relation to the arrangement in accordance with paragraph 24A.

(6) If one or more other arrangements relating to the individual under a relevant pension scheme or relevant pension schemes relates or relate to the employment to which the arrangement relates, the excess lump sum condition is met in relation to the arrangement if—

(a) the aggregate of the values of the individual's uncrystallised lump sum rights under the arrangement and the other arrangement or arrangements, calculated in accordance with paragraph 24(5), exceeds

(b) the amount arrived at in relation to those arrangements in accordance with paragraph 24A;

and the amount by which the aggregate of those values exceeds that amount is the ''lump sum excess''.

(7) Where the excess lump sum condition is met by virtue of sub-paragraph (5), the value of the individual's uncrystallised lump sum rights under the arrangement is the amount arrived at in accordance with paragraph 24A.

(8) Where the excess lump sum condition is met by virtue of sub-paragraph (6), the value of the individual's uncrystallised lump sum rights under the arrangement is the value of those rights calculated in accordance with paragraph 24(5), less the appropriate proportion of the lump sum excess.

(9) The appropriate proportion of the lump sum excess is—

V

AV

where—

V is the value of the individual's uncrystallised lump sum rights under the arrangement, calculated in accordance with paragraph 24(5), and

AV is the aggregate of the values of the individual's uncrystallised lump sum rights under the arrangement and the other arrangement or arrangements, calculated in accordance with paragraph 24(5).

29B (1) Subject to sub-paragraph (2), the value of the individual's uncrystallised rights under the pension scheme on 5th April 2006 is the aggregate of the value of the individual's uncrystallised rights under each arrangement in respect of the individual under the pension scheme, calculated in accordance with paragraph 8(5).

(2) If the pension scheme is a relevant pension scheme, the value of the individual's uncrystallised rights on 5th April 2006 under an

arrangement—

(a) which relates to a particular employment, and

(b) in relation to which the excess rights condition is met (see sub-paragraph (5) or (6)),

is the amount arrived at in accordance with sub-paragraph (7) or (8).

(3) A pension scheme is a relevant pension scheme if it falls within paragraph 1(1)(a) to (d).

(4) Whether an arrangement relating to the individual relates to a particular employment is to be determined in accordance with paragraph 9(6).

(5) If no other arrangement relating to the individual under a relevant pension scheme relates to the employment to which the arrangement relates, the excess rights condition is met in relation to the arrangement if—

(a) the value of the individual's uncrystallised rights under the arrangement calculated in accordance with paragraph 8(5), exceeds

(b) the amount arrived at in relation to the arrangement in accordance with paragraph 9(3).

(6) If one or more other arrangements relating to the individual under a relevant pension scheme or relevant pension schemes relates or relate to the employment to which the arrangement relates, the excess rights condition is met in relation to the arrangement if—

(a) the aggregate of the values of the individual's uncrystallised rights under the arrangement and the other arrangement or arrangements, calculated in accordance with paragraph 8(5), exceeds

(b) the amount arrived at in relation to those arrangements in accordance with paragraph 9(3);

and the amount by which the aggregate of those values exceeds that amount is the ''rights excess''.

(7) Where the excess rights condition is met by virtue of sub-paragraph (5), the value of the individual's uncrystallised rights under the arrangement is the amount arrived at in accordance with paragraph 9(3).

(8) Where the excess rights condition is met by virtue of sub-paragraph (6), the value of the individual's uncrystallised rights under the arrangement is the value of those rights calculated in accordance with paragraph 8(5), less the appropriate proportion of the rights excess.

(9) The appropriate proportion of the rights excess is—

V

AV

where—

V is the value of the individual's uncrystallised rights under the arrangement, calculated in accordance with paragraph 8(5), and

AV is the aggregate of the values of the individual's uncrystallised rights under the arrangement and the other arrangement or arrangements, calculated in accordance with paragraph 8(5).'.

No. 543, in

schedule 34, page 480, line 16, leave out 'that occasion' and insert

'the individual and the pension scheme'.

No. 544, in

schedule 34, page 480, line 18, leave out from beginning to end of line 24 and insert

'the individual becomes entitled to all the pensions payable to the individual under arrangements under the scheme (and to which the individual did not have an actual entitlement on or before 5th April 2006) on the same date.'.

No. 545, in

schedule 34, page 480, line 26, leave out

'for sub-paragraphs (5) to (7)'

and insert

'the reference in sub-paragraph (2) to the arrangement under which the member becomes entitled to the relevant pension were to the pension scheme and for sub-paragraphs (5) to (8)'.—[Ruth Kelly.]

No. 394, in

schedule 34, page 480, leave out line 31 and at end insert—

(VULSR{**multi**}CSLA)+ALSA

(VULSR xFSLA

No. 395, in

schedule 34, page 480, leave out line 35 and insert—

VULSR{**multi**}CSLA

VULSR xFSLA —[Mr. Flight.]

No. 546, in

schedule 34, page 480, line 39, leave out '29' and insert '29A'.

No. 547, in

schedule 34, page 481, line 12, leave out '29' and insert '29B'.—[Ruth Kelly.]

Howard Flight (Conservative, Arundel and South Downs)

I beg to move amendment No. 396, in

schedule 34, page 481, line 20, leave out '30' and insert '20 to'.

Paragraph 32 widens the definition of a relevant pension scheme provided in paragraphs 30 and 31 to include a scheme to which a block transfer has been made and deems reference to an existing pension scheme to include schemes where there has been such a transfer. We think that the references should be extended and not limited to paragraphs 30 and 31. They should also cover paragraph 20, which protects the right to take a pension at an age below 55.

Ruth Kelly (Labour, Bolton West)

Part 3 of schedule 34 deals with transitional arrangements for pensions that have not come into payment by 6 April 2006. Given the complexity of the rules and regulations, it is not surprising that, as the industry begins to focus on the details of the move to the new regime, new issues arise.

The amendment concerns one of those new issues. It would extend the scope of block transfers, so that a protected right to a low normal retirement age is not lost on such a transfer. For example, if there were a block transfer of money dealers from one bank's scheme to that of another bank, the transfer brokers would keep their protected right to a low normal retirement age.

I have good news and bad news for the hon. Gentleman. I sympathise with the underlying aim of the amendment. It is in the spirit of the transitional rights that we have identified to protect pre-A-day rights and we see merit in it. However, unfortunately, the amendment is technically defective. We want to examine the issue in greater detail before proposing an appropriate Government amendment. On the understanding that we will consider the issue sympathetically, I urge him to withdraw his amendment.

Howard Flight (Conservative, Arundel and South Downs)

I am glad that the Financial Secretary accepts that there is an issue. I am not clear whether she is saying that the Government will produce their own amendment and I would be grateful for clarification on that. I cannot see how the issue could be addressed other than by an amendment. Subject to that, I will not put it to a vote.

Ruth Kelly (Labour, Bolton West)

Yes, we will produce an amendment.

Howard Flight (Conservative, Arundel and South Downs)

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Ruth Kelly (Labour, Bolton West)

I beg to move amendment No. 480, in

schedule 34, page 482, line 4, leave out from first 'scheme' to second 'the' in line 27 and insert

'is within any of paragraphs (a) to (e) of paragraph 1(1),

(b) the member has an actual (rather than a prospective) right to a pension under an arrangement under the pension scheme, and

(c) under the arrangement a lump sum death benefit is payable if the member dies within the guarantee period.

(2) The guarantee period is the period of five years beginning with the day on which the member became entitled to the pension or, if later, the day on which the pension was first paid.

(3) If the member dies after having reached the age of 75 and before the end of the guarantee period—

(a) paragraph 14 of Schedule 29 (pension protection lump sum death benefit),

(b) paragraph 16 of that Schedule (annuity protection lump sum death benefit), and

(c) paragraph 17 of that Schedule (unsecured pension fund lump sum death benefit),

apply in relation to the member and the arrangement with the following modifications.

(4) Each of those paragraphs applies as if sub-paragraph (1)(a) were omitted.

(5) Paragraph 14(1) applies as if paragraph (d) were omitted.

(6) Paragraph 14(2) applies as if the reference to the pension protection limit were to the transitional protection limit.

(7) Paragraph 16(2) applies as if the reference to the annuity protection limit were to the transitional protection limit.

(8) Paragraph 17(3) applies in relation to a lump sum falling within paragraph 17(1) as if the reference to the permitted maximum were to the transitional protection limit.

(9) Section 195(1) (special lump sum death benefits charge) does not apply to any pension protection lump sum death benefit, annuity protection lump sum death benefit or unsecured pension fund lump sum death benefit paid by virtue of sub-paragraphs (3) to (8).

(10) If the member dies before having reached the age of 75 and before the end of the guarantee period—

(a) section 195(1) does not apply to so much of any pension protection lump sum death benefit, annuity protection lump sum death benefit or unsecured pension fund lump sum death benefit paid under the arrangement as does not exceed the transitional protection limit, and

(b) if the arrangement is a defined benefits arrangement, paragraph 14(1)(d) of Schedule 29 is to be treated as satisfied in relation to so much of the lump sum death benefit paid under the arrangement as does not exceed the transitional protection limit.

(11) The transitional protection limit is—

where—

P is the amount of pension to which (had the member lived) the member would have been entitled under the arrangement in respect of the period beginning with the day of the member's death and ending with the last day of the guarantee period, and

TPLS is the amount of any pension protection lump sum death benefit, annuity protection lump sum death benefit or unsecured pension fund lump sum death benefit previously paid in respect of'.

The introduction of the new pension regime and the intention to make it apply immediately to all pension schemes from 6 April 2006 requires a series of provisions to ensure that the transition from the old schemes to the new one is fair. The subject of the amendment is the transitional arrangement that

should apply to the right of occupational pension schemes to pay the balance of five years' pension payments on the death of the member, the five-year guarantee lump sum, even if—this is the substantive point—that death occurs after the age of 75.

Death benefits are a complex area of tax simplification. They have been misunderstood in some quarters. In particular, the issue of whether schemes can continue to offer a five-year guarantee paid as a tax-free lump sum has generated much discussion. In the new pension regime, the facility to repay a tax-free lump sum under the five-year guarantee will be removed, bringing occupational pension schemes in line with personal pensions. In its place, all schemes will be given the flexibility to pay a lump sum death benefit as an additional pension benefit, test it against the lifetime allowance and, provided that it does not exceed the dead member's unused lifetime allowance, pay it to the survivor tax free. That means that, instead of being limited to paying the unused balance of the pension payments to the survivors, employers will be able to pay a larger tax-free amount as a death benefit.

Value protection is another new option available in the new regime. It represents the repayment, on the death of the member before age 75, of an amount representing the initial capital value of the pension, less any instalments paid before the date of death. All value protection repayment lump sums will be taxed at 35 per cent. That is equivalent to the existing tax charge on capital payments from income draw-down.

However, there will be some individuals in receipt of a pension that started before 6 April 2006 who have a five-year guaranteed pension in place as we go into the new regime. Under the old rules, any lump sum consisting of the balance of the pension payments in the guaranteed five-year period would be paid tax free to that person's spouse, even if the death occurred after the age of 75.

In the new regime, no return of capital will be permitted after age 75, and value protection repayment lump sums will be taxed at 35 per cent. Clearly, it is only right that transitional protection be extended to people who have a five-year guarantee arrangement already in place to allow a tax-free lump sum to be paid if death occurs within five years of retirement. The amendment redrafts paragraph 34 to remove any possible doubt about the continued ability of occupational schemes to offer tax-free lump sums on death, and I commend it to the Committee.

Howard Flight (Conservative, Arundel and South Downs)

We are happy with the Government's proposals.

Amendment agreed to.

Amendments made: No. 481, in

schedule 34, page 483, line 23, after 'election' insert 'on or'.

No. 482, in

schedule 34, page 483, line 27, leave out 'before 6th' and insert 'on or before 31st'.

No. 483, in

schedule 34, page 484, line 20, leave out 'continues to apply' and insert 'applies'.

No. 484, in

schedule 34, page 485, line 2, at end insert—

'Application of PAYE to certain annuities in payment at commencement

43A (1) Taxable pension income for the tax year 2006–07 or any subsequent tax year determined in accordance with section 612 of ITEPA 2003 for an annuity to which this paragraph applies is to be treated as being PAYE pension income for the tax year by virtue of section 683(3) of that Act (PAYE income).

(2) This paragraph applies to an annuity in payment on 5th April 2006 which—

(a) would be within paragraph 1(1) but for paragraph 2, or

(b) would be within paragraph 1(1)(d) if the annuity did not provide for the immediate payment of benefits.'.—[Ruth Kelly.]

Howard Flight (Conservative, Arundel and South Downs)

I beg to move amendment No. 397, in

schedule 34, page 485, line 10, leave out

'an employer of an individual makes a relevant consolidation contribution'

and insert

'a relevant consolidation contribution is made'.

John Butterfill (Conservative, Bournemouth West)

With this it will be convenient to discuss amendment No. 398, in

schedule 34, page 485, line 18, at end insert

'or a transfer from an arrangement not falling within paragraph 1(1) which was established before 6th April 2006'.

Howard Flight (Conservative, Arundel and South Downs)

Paragraph 45, to which amendment No. 397 relates, is about allowing unfunded, unapproved top-up promises to be merged into registered schemes without triggering a liability under the annual allowance charge. Allowing such consolidation, if people want it, is sensible. The amendment seeks to draw an explanation from the Financial Secretary as to why that flexibility is not extended to funded, unapproved top-up schemes by similarly allowing transfers from them into registered schemes. In essence, amendment No. 398 deals with the same point.

Ruth Kelly (Labour, Bolton West)

The two amendments seek to change paragraph 45 of schedule 34, which is concerned with the transitional arrangements concerning unfunded retirement benefit schemes.

I apologise to the Committee, because the explanatory note for the paragraph referred to

''unfunded unapproved pension promises under the previous pension regime''.

It should have been ''unfunded pension promises''. I apologise for that typographical mistake, which may have caused some confusion.

Unfunded retirement benefit schemes can be either approved or unapproved, or in the new regime, registered or unregistered. Those schemes are in effect a promise to pay the employee a benefit in the future, but with no underlying employer contribution.

Paragraph 45 allows that, where there is an unfunded promise before 6 April 2006, an employer can consolidate the promise by making a contribution to a registered pension scheme. Provided the contribution is made in the period from 6 April to 7 July 2006, it will not count towards the pension input for the tax year 2006–07. That means the contribution is not taken into account when determining whether

an employee is liable for an annual allowance charge for 2006–07.

The hon. Gentleman has put forward two amendments to paragraph 45. Amendment No. 397 is very widely drawn and seeks to remove the requirement that the employer makes the relevant consolidation contribution and open it up, so that anyone can make a contribution to discharge the employer's liability.

It is difficult to see why anyone other than the employer would want to discharge any employer's liability in respect of unfunded promises made by them. I suppose that another company within the same group might want to consolidate such unfunded promises. However, we have received no representations on that point. I will happily consider it further should it prove to be an obstacle in practice. In any event, it is not appropriate to open up the provision so widely that anyone can consolidate an unfunded pension promise, as the amendment would allow. The amendment could open up a possible loophole, so I ask the hon. Gentleman to consider withdrawing it.

Amendment No. 398 seeks to extend the meaning of ''relevant consolidation contribution'' by including a transfer from an ''arrangement'' that is not deemed to be a registered pension scheme and which was established before 6 April 2006. The term ''arrangement'' is not defined in the amendment, but the hon. Gentleman said that it was a funded unapproved pension scheme.

There is no need to make separate provision for transfers from unapproved funded pension schemes because clause 177(5) already provides for the transfer of any sum from one pension scheme to another at any time. That clause also makes clear that the transfer is not treated as a contribution, so although it is not relieved from tax it will not count towards the pension input amount. It has the same effect as the hon. Gentleman's amendment, and on that basis I hope that he will not press his amendments.

Quentin Davies (Conservative, Grantham and Stamford)

There is just one contingency that I would like the Financial Secretary to address. It relates to an employer having an unfunded pension liability and the proposal in the amendment tabled by my hon. Friend the Member for Arundel and South Downs that anybody should be allowed to discharge that unfunded liability.

The Financial Secretary says that she cannot conceive of any circumstances in which anyone other than the employer might want to discharge the employer's liability. One such case immediately occurs to me. A company is taking over another company, which has unfunded liabilities The company being taken over does not have the money to fund its liabilities, which is part of its problem, but another company with the money is taking it over, and part of the arrangement, the undertaking, the deal or the contract by which the takeover takes place is that those unfunded pension liabilities will be discharged

by the offeror—the company taking over the other one.

Would it not be irrational to prevent such an arrangement taking place? Would not the amendment allow that to take place in a sensible fashion? I see from the Financial Secretary's body language that she does not disagree with me.

Howard Flight (Conservative, Arundel and South Downs)

I am glad to note that the issue about funded, unapproved top-up schemes has been covered in clause 177. I would be interested to hear the Financial Secretary's response to the most helpful contribution by my hon. Friend the Member for Grantham and Stamford, because that was one of the areas in which we thought that another party might pay the unfunded amount.

Ruth Kelly (Labour, Bolton West)

The point made by the hon. Member for Grantham and Stamford is important. However, it should be covered by the fact that the taking-over company would become the employer for those purposes. The issue is covered by the proposed legislation.

Quentin Davies (Conservative, Grantham and Stamford)

Not necessarily, because the offeree company might then be put into liquidation. The offeror company might purchase the shares and then cancel them, so the payment into the fund—in other words, the consolidation of the unfunded liability—might need to take place in the name of the offeror company. If such an arrangement is otherwise sensible and rationale, what possible purpose can there be in drafting tax law to prevent it?

Ruth Kelly (Labour, Bolton West)

I am not aware that that particular point is an obstacle, but I will look into it and write to the hon. Gentleman.

Howard Flight (Conservative, Arundel and South Downs)

May I just make the point the other way round? Unless there is some very good commercial reason, nobody will have any interest whatever in funding, and so there seems to be an argument for having fairly wide, rather than narrow, drafting. Narrow drafting could block up a very valuable commercial arrangement such as the one that my hon. Friend the Member for Grantham and Stamford has commented on.

We will not put this issue to a vote, but I ask the Government to think further about the point, because they seem to be looking through the wrong end of the telescope. It is better to have a wider draft than a narrow one. I cannot see any mischief that could arise from a wide draft.

Ruth Kelly (Labour, Bolton West)

I want to clarify one particular point. There are problems with the proposal that the hon. Gentleman has put to the Committee. For example, somebody could try to manipulate the taxation relief by deliberately creating an unfunded pension scheme before 5 April 2006 and then making a contribution to it in excess of the annual allowance limit. Restricting the consolidation contribution to the employer avoids the possibility of such manipulation arising. We do not want to create an unintended tax loophole by drawing the provision too widely, although we will look at the individual points that have been raised and if there does prove to be an obstacle in practice, we will return with proposals.

Howard Flight (Conservative, Arundel and South Downs)

I thank the Financial Secretary for her comments and, on the basis of what she said, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendments made: No. 485, in

schedule 34, page 485, line 38, leave out

'Paragraphs 50 to 52 have'

and insert

'Paragraph 50 or 51 has'.

No. 486, in

schedule 34, page 486, line 2, leave out

'to which an employee has been'

and insert

'of which an employee is'.

No. 487, in

schedule 34, page 486, line 9, leave out 'would be' and insert 'is or are'.

No. 488, in

schedule 34, page 486, line 11, leave out 'has been' and insert 'is'.

No. 489, in

schedule 34, page 486, line 13, leave out 'has been' and insert 'is'.

No. 490, in

schedule 34, page 486, line 15, leave out 'have counted' and insert 'counts or count'.

No. 491, in

schedule 34, page 486, line 17, leave out

'none of paragraphs 50 to 52 apply'

and insert

'neither paragraph 50 nor paragraph 51 has effect'.

No. 492, in

schedule 34, page 486, line 19, leave out 'applies' and insert 'has effect'.

No. 493, in

schedule 34, page 486, line 25, at end insert

'or

(b) the scheme was entered into before 1st September 1993 and has not been varied on or after that date with a view to the provision of benefits under the scheme.'.

No. 494, in

schedule 34, page 486, line 28, after '2003' insert

'(charge on benefits from non-approved schemes)'.

No. 495, in

schedule 34, page 486, line 32, after first 'the' insert 'appropriate fraction of the'.

No. 496, in

schedule 34, page 486, line 36, after 'scheme' insert 'is or'.

No. 497, in

schedule 34, page 486, line 38, leave out

'The amount referred to in sub-paragraph (3)(a)'

and insert

'For the purposes of sub-paragraph (3)(a)—

(a) ''the appropriate fraction'' of the amount of the market value of the assets of the scheme on 5th April 2006 is the same fraction as the fraction of the assets of the scheme to which the employee would have been entitled had the scheme been wound up on that date, and

(b) the amount of the market value of the assets of the scheme on that date'.

No. 498, in

schedule 34, page 487, line 1, leave out from 'paragraph' to end of line 2 and insert

'has effect if paragraph 50 does not.'.

No. 499, in

schedule 34, page 487, line 8, leave out paragraph 52.

No. 500, in

schedule 34, page 487, line 22, at end insert

'and

(b) property which is part of or held for the purposes of the fund or scheme does not constitute relevant property for the purposes of Chapter 3 of Part 3 of that Act (settlements without interest in possession).'.—[Ruth Kelly.]

Schedule 34, as amended, agreed to.

Clause 270 - Commencement

Howard Flight (Conservative, Arundel and South Downs)

At one stage, I thought that we would never reach this clause, such has been the marathon so far.

It being twenty-five minutes past Eleven o'clock, The Chairman adjourned the Committee without Question put, pursuant to the Standing Order.

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

Standing Committee A

(except clauses 4, 5, 20, 28, 57 to 77, 86, 111 and 282 to 289, and schedules 1, 3, 11, 12, 21 and 37 to 39) - Clause 270 - Commencement

Howard Flight (Conservative, Arundel and South Downs)

I welcome you to chair our deliberations this afternoon, Mr. McWilliam.

I shall make only two points as we come to the end of the pension fund provisions. First, the clause provides for the Treasury to implement what it sees fit, when it sees fit. Does it intend to implement any of the measures ahead of A-day?

Secondly, and a related point, the Green Paper stated that the changes would come into effect a year earlier. The Minister will be aware that the changes are of considerable import to those aged 74 or 75. I have received many letters from people saying that they had expected to be able to make use of some of the changes relating to not having to buy an annuity at 75, but now, because the changes have been postponed for a year, they are just outside. Will the Government at least consider advancing the new option not to have to buy an annuity—admittedly it is specifically designed for certain religious groups—to a date earlier than the present start date of April 2006?

John Healey (Labour, Wentworth)

I welcome you to the Chair this afternoon, Mr. McWilliam.

As the hon. Member for Arundel and South Downs (Mr. Flight) said, we have reached the final clause on pensions simplification and, as I am sure my hon. Friend the Financial Secretary would have said if she had been here this afternoon, in many ways we have reached the end in the Committee proceedings. However, in a sense this is the point at which the next stage of pensions simplification starts, because the clause sets out the date when the new regime will take effect.

I accept what the hon. Gentleman says about the importance of these issues, but it will take some time to prepare some of the schemes for such radical simplification. My hon. Friend considered all the arguments and the 2004 Budget before deciding to move implementation to April 2006. It was not a move that she took lightly, but we want to see the benefits of the new regime as soon as possible.

The hon. Gentleman asked whether the fact that only parts of the pensions simplification legislation come into force on 6 April 2006 means that we might

bring the start date forward. I assure him that we do not intend to do so. The new simplified regime for pensions will come into effect, as announced, on 6 April 2006 and not sooner.

The provision to allow orders or regulations made under the pensions simplification provisions at any time after the passing of the Bill is intended to ensure that any orders or regulations that are necessary to give effect to the simplified regime for pensions taxation can be made in advance of 6 April 2006.

Perhaps I may conclude, as I believe my hon. Friend the Financial Secretary might have done, in the way that she started the debates on pension simplification. She quoted the words of Geof Pearson, Sainsbury's pensions manager, who said:

''Although we helped shape the policy, it needs a Government that listens to the pensions industry. Sometimes we need to congratulate politicians and civil servants and now is the time."

I commend the clause to the Committee.

Question put and agreed to.

Clause 270 ordered to stand part of the Bill.

Clause 271 - Certain receipts not to be tarrif receipts

Howard Flight (Conservative, Arundel and South Downs)

As the Committee will be aware, clauses 271 and 272 are the results of consultation with the oil industry, and they are broadly what it expects. Some issues have been raised about their impact on how companies in the sector do business. I cannot resist making the point that when debating the extra 10 per cent. oil tax we said that it was not a particularly sensible way of optimising a depleting oil reserve and a changing corporate structure that was likely to exploit it, so we are pleased that the clauses and schedule 35 go some way towards addressing those concerns.

Clause 271 is intended to reduce the price of extracting the smaller reserves in the North sea by making certain receipts exempt from tariff pricing. The expectation is that savings will be passed on through the supply line, thereby increasing the attractiveness of extraction. The industry expects it, and thinks that it is the best it can get.

There is a potential drawback. The Revenue is embarking on a review of the costs outside the tariff scheme to ascertain whether they are all allowable for tax. That could put costs back into the system, so I would welcome the Economic Secretary's comments on that.

John Healey (Labour, Wentworth)

As the hon. Gentleman said, the clause is the result of extensive consultation with the industry, and it is broadly what it expects and welcomes. I do not want to reopen the debate on the supplementary charge, but I am pleased to see, as part of the package that we have introduced alongside the charge, strong signs that the level of exploration, activity and investment in the North sea is increasing.

Clause 270 and schedule 35 are good examples of the Government and industry working together to achieve a joint aim, which is to ensure the maximum

economic recovery of oil and gas reserves from the North sea. We recognise that the North sea is entering a mature phase where future developments depend on extending the life of existing infrastructure. Officials and Ministers have spent considerable time consulting the industry over exactly what types of new business need to benefit from this measure.

New finds are usually smaller and often need to pay tariffs to use the existing infrastructure of bigger, older fields that can represent up to 60 per cent. of the total operating costs. Some new fields are only marginally profitable. The change to a lower tariff charge will improve the economics of those marginal projects and so ensure their development.

Where the offering of services to older fields is truly new business, we want those projects to benefit from the removal of petroleum revenue tax. The legislation contains rules to ensure that such new business will benefit, while existing business that has already been found to be economic will not. It ensures that help is provided where it is needed without unnecessarily reducing benefits to taxpayers. New business that will be eligible for the reduction means business under contracts agreed after 9 April 2003, which was the date of the 2003 Budget.

We also want to encourage new business from overseas, such as the importing of gas from Norway. The provisions will help in that respect, too. The measure has been warmly welcomed by the industry, and I commend the clause to the Committee.

Question put and agreed to.

Clause 271 ordered to stand part of the Bill.

Schedule 35 agreed to.

Clause 272 - Petroleum extraction activities: exploration expenditure supplement

Howard Flight (Conservative, Arundel and South Downs)

The clause gives a credit for the costs of exploration if they cannot immediately be deducted for tax. The industry has expected the clause and believes that it is the best that it will get, but the credit is of value only if the field under exploration is profitable, something that obviously cannot be guaranteed because of the very nature of exploration. Therefore, there is some question as to whether the credit will encourage any of the major operators, although some of the smaller operators may feel that they will benefit.

Question put and agreed to.

Clause 272 ordered to stand part of the Bill.

Schedule 36 agreed to.

Clause 273 - Restrictions on expenditure allowable

Howard Flight (Conservative, Arundel and South Downs)

This is an anti-avoidance measure designed to stop connected-party transactions, which

increase the cost of qualifying expenditure. I am advised that the tax planning that it addresses possibly did not work anyway, and that there is therefore no particular objection from the industry to the proposal.

Question put and agreed to.

Clause 273 ordered to stand part of the Bill.

Clause 274 - Terminal losses

Howard Flight (Conservative, Arundel and South Downs)

Again, this is an anti-avoidance measure. It is designed to correct an imbalance in the rules on terminal losses. It had been possible to circumvent the intended restrictions on loss carried back by transferring fields to operators for a short time during which they were guaranteed to make a loss. The industry views the proposal as sensible.

Question put and agreed to.

Clause 274 ordered to stand part of the Bill.

Clause 275 - Supplies to producers of commodities

Andrew Tyrie (Conservative, Chichester)

The clause is seemingly innocuous and inoffensive. Its purpose, which is to avoid the double taxation on certain fuels that is a consequence of the introduction of the climate change levy, is certainly sensible. However, a few points must be made about it.

The reason that we need the clause is the ever-increasing complexity of the levy itself. Many argue that it was designed the wrong way round. If its purpose really is environmental, the means of achieving the objective would be to put a tax on carbon-rich energy sources and to tax the producers of energy according to the pollution that they produce. It would also be worth examining the use of the tax system to affect the production of so-called greenhouse gases. However, because the Government did not do that, they now find themselves in a mess and introducing clauses such as this one.

The Government avoided introducing certain taxes because they did not want to hit domestic customers, so they went for a tax on firms. I believe that they were ultimately interested in revenue raising, despite their protestations of revenue-neutrality. The tax was designed back to front, which is why we have complexity.

Edward Troup, the head of business tax policy at Customs and Inland Revenue—the new joint department—has advised Governments of both political persuasions. He recently said something that has a bearing on this clause:

''Once the Government started down this particular road''—

the climate change levy road—

''from the wrong end of town, the complexities, dead ends and diversions it would find itself in were inevitable.''

Clause 275 is one of those complexities.

The Engineering Employers Federation made a similar point. It said:

''we have highlighted numerous anomalies and market distortions arising from the current design of the climate change levy and presented survey evidence on the impact''.

It is also worried about the issue. In previous years, we had lengthy debates about the climate change levy in Committee and on the Floor of the House. I do not think that the broader issues need to be reopened. The only point that needs and should be made at this juncture is that this complexity is an attempt to iron out the anomaly that is directly caused by the design of the tax. It is almost certainly not having the effects that were intended, or at least announced as the intention, when the Government introduced the tax.

I suspect that we will find, as time goes by, that the philosophy of the tax is askew, and sooner or later we will need a fundamental rethink. In the meantime, we will have to make do with letting clauses such as this through to try to mop up some of the more egregious difficulties, anomalies and complexities.

John Healey (Labour, Wentworth)

This is indeed a narrow clause and I will not be tempted towards the broader territory through which the hon. Member for Chichester (Mr. Tyrie) roamed, except to say that, since its introduction in 2001, the climate change levy and the associated climate change agreements are starting to have a proven beneficial effect on the level of emissions and the UK's contribution to the global challenge that, we must recognise, is so serious—that of global warming.

On clause 275, it is in the nature of an energy tax that, where taxable energy supplies are used to make other taxable energy supplies, the initial supply should be exempted to avoid the problem of double taxation, as the hon. Gentleman said. The climate change levy has had such exemptions in its legislation ever since its introduction in 2001.

However, technological advances mean that there are new energy products on the market, such as biodiesel and bioethanol, which are produced from renewable material such as rapeseed, waste vegetable oil, tallow and, in the case of bioethanol, sugar and wheat. CCL legislation needs to be updated to take account of such products, to ensure that they are not subject to the problem of double taxation in the levy.

The clause will provide that cover. It will also provide that any necessary changes to the scope of the exemption be made by statutory instrument. That will allow us to incorporate supplies that are used to create further new fuels in the exemption without having to wait for the annual Finance Bill. This modest measure is welcomed by environmental groups and by the industry. It will also be a useful source of encouragement for the use of new, more environmentally friendly fuels in the future. I commend the clause to the Committee.

Question put and agreed to.

Clause 275 ordered to stand part of the Bill.

Clause 276 ordered to stand part of the Bill.

Clause 277 - Transitional tax credit in Northern Ireland: new scheme

John Healey (Labour, Wentworth)

I beg to move amendment No. 157, in

clause 277, page 231, line 14, leave out '2012' and insert '2011'.

This is an important but relatively small amendment. As drafted, the clause would mean that the relief scheme for aggregates in Northern Ireland, and the regulations made under it, will come to an end on 31 March 2012. The amendment brings forward by one year the end date of the scheme.

The change is necessary to reflect the terms of the European Commission's approval for the extended relief scheme. That decision was announced on 7 May 2004, after the publication of the Finance Bill. The Commission accepted what was a bold and radical case for a new relief scheme for the aggregates industry in Northern Ireland—one that we advanced and the Commission processed and approved in almost record time. It added one condition to accepting the UK's state aid application in the field. The Government were seeking approval for the new scheme to run until 31 March 2012, which would have meant that businesses would have received tax relief for a period of 10 years after the introduction of the original scheme in 2002. However, the environmental guidelines on state aid, which provided us with the basis for the UK's application, stipulate that companies subject to such reliefs should be expected to pay a substantial amount of the tax over a 10-year period. As companies in Northern Ireland subject to the old relief paid no tax at all in the first year of the original five-year scheme, the Commission decided that tax relief should apply for only nine years overall and that the new scheme should therefore end on 31 March 2011.

In practice, the Commission decision is unlikely to have a significant impact because the UK is free to seek a renewal of the relief at the end of the scheme if the Government decide at that time that they wish to continue with it and there is a case for doing so. I hope that, on that basis, the Committee will accept the amendment.

Amendment agreed to.

Question proposed, That the clause, as amended, stand part of the Bill.

Rob Marris (Labour, Wolverhampton South West)

I would like my hon. Friend the Economic Secretary to explain the thinking behind the clause, because it appears to introduce yet more subsidies for Northern Ireland by extending the transitional relief, albeit that the amendment has cut that back by one year. Perhaps he could explain why that is necessary in terms of the structure of the economy of Northern Ireland. Some 60 per cent. of the gross domestic product of that economy is down to the Government, as opposed to about 40 per cent. in the rest of the United Kingdom. If—

John McWilliam (Labour, Blaydon)

Order. The Economic Secretary has explained that the amendment is intended to enable us to comply with a European ruling. The economy of

Northern Ireland is beyond the scope of the amendment.

Rob Marris (Labour, Wolverhampton South West)

Forgive me. I misunderstood and thought that we were on the stand part debate.

John McWilliam (Labour, Blaydon)

We are. I beg the hon. Gentleman's pardon.

Rob Marris (Labour, Wolverhampton South West)

I will, of course, be guided by you when it comes to how broadly the discussion can range, Mr. McWilliam. However, it is in the context of the relationship between the finances of Great Britain and Northern Ireland that I wish to ask my question.

John McWilliam (Labour, Blaydon)

Order. The clause is limited to the aggregates regulations, so unless the hon. Gentleman can relate their impact to the whole economy of Northern Ireland, he is in trouble.

Rob Marris (Labour, Wolverhampton South West)

With respect, Mr. McWilliam, I was just about to try to do that. It appears to me—I may have misunderstood—that, pursuant to clause 277, the aggregates levy regime would be rather more favourable in Northern Ireland than in Great Britain. If that is the case, will the Economic Secretary explain why and put his reply in the context of the financial arrangements between Great Britain and Northern Ireland?

John Healey (Labour, Wentworth)

I had not proposed to elaborate on this matter to the Committee, but I am happy to do so. The short answer to my hon. Friend's question is that Northern Ireland, unlike the rest of the UK, shares a land border—quite a long one, with many crossing points—with another European member state. There are other features of the Northern Ireland economy—particularly in the case of the aggregates industry—that mean that it is a special and unique case as far as the UK is concerned. My hon. Friend may know that the Northern Ireland Affairs Committee has taken a particular interest in this matter and has produced two reports on it. Under the able guidance of its Chairman, it has contributed considerably to the Government's thinking.

Given the unique circumstances in Northern Ireland, our original relief scheme was introduced at the inception of the aggregates levy in 2002 for companies in Northern Ireland that manufacture value-added products using aggregate—in other words, concrete, mortar and asphalt—to allow the sector time to adjust to the changed market conditions brought about by the introduction of the levy: for instance, by increasing the use of recycled material and other non-taxed alternatives. The relief was due to diminish over the five years and end after that.

Since the introduction of the original levy in 2002, we have consulted widely with the industry—in passing, I pay tribute to the Quarry Products Association of Northern Ireland and its director, Gordon Best, for the role that he has played—commissioned detailed expert research into the impact in Northern Ireland of the operation of the scheme, and listened to the concerns of wider business in Northern Ireland. In doing so we have gathered evidence confirming that, given Northern Ireland's

unique circumstances, the levy as currently structured, even with the five-year digressive relief, was simply unlikely to achieve the aims we had set for it: to reduce the environmental impact of quarrying, and to increase the use of recycled or alternative materials to primary aggregates and therefore the level of virgin aggregate extraction.

John Burnett (Liberal Democrat, Torridge and West Devon)

The hon. Member for Wolverhampton, South-West (Rob Marris) has raised a valid and extremely important point. In due course there will be a peace dividend for Northern Ireland, and other regions of the UK will be looking more closely at the level of Government investment and expenditure paid in that area.

John Healey (Labour, Wentworth)

That is indeed valid, if not rather broad in the context of the aggregates levy in Northern Ireland.

My hon. Friend was asking in particular why, in the circumstances of the design of the aggregates levy, special provision was required for Northern Ireland. I hope that I have explained both the reason for the initial relief scheme and our judgment, based on evidence, that the scheme was insufficient to achieve the environmental aims that we had set for the levy in Northern Ireland.

We announced at the pre-Budget report that we would introduce a new scheme, were we to get European Commission state aid approval to do so, to extend the scope and the duration of the original scheme. Relief is tied to industry agreements to improve levels of environmental performance under the new scheme, which will deliver the gains in Northern Ireland that we wish to see in a way that the previous arrangement and operation of the levy simply would not. I hope that my hon. Friend is now rather clearer. The new scheme is more generous, better suited to Northern Ireland's circumstances, and strongly welcomed by Northern Irish industry and our own Northern Ireland Affairs Committee. I hope that this Committee will give its approval.

Question put and agreed to.

Clause 277, as amended, ordered to stand part of the Bill.

Clause 278 - Lorry road-user charge

Andrew Tyrie (Conservative, Chichester)

This is another apparently innocuous clause that, if we scratch it, looks less nice underneath than it appears on the surface. I wish that we could just nod this through without making a few remarks, but we cannot. The primary purpose of the clause is to assign responsibility for preparing the lorry road user charge to Customs and Excise. The clause has a secondary purpose in new subsection (4)(b), which is that the charge

''shall be administered and enforced in accordance with such provisions as Parliament may determine''.

In other words, I presume that the provision confers general powers that would enable the Government to

vary whatever is introduced by order. Perhaps the Minister can tell me whether that is the case, as I could not tell from reading the provision.

The introduction of that charge raises some big questions, which we have hardly debated at all. My first thought was, ''When will we get a chance to debate these matters?''. The progress report that was published with the Budget seems to be a support document for the clause, as it cannot be linked to any other. I see that there is an agreement or an acceptance that there will be a debate when the legislation—the framework legislation, judging by its description—on the structure of collection and administration of the charge and key provisions is introduced in spring 2005.

Several timetables—technical and legal—are set out in the document and parliamentary scrutiny barely gets a mention in any of them. Page 17 is the only spot on which I can find it, so that is why I am so concerned to ensure that some points are put on the record. For example, in paragraphs 1.4 and 1.5, there are lengthy timetables setting out how the legislation will come into force. There is no mention of legislative scrutiny.

I will only allude to the big questions that the Customs and Excise will have to consider when the provisions are passed to it. I will not try to answer them. That is for a later date. It is worth anyone who is interested in the proposed new charge taking a look at the extraordinary document by Professor Alan McKinnon, entitled, ''Lorry Road User Charging: A Review of the UK Government's Proposals'', which is no doubt being studied intently by Customs, although it does not yet have responsibility until the clause is enacted. It is a devastating assault on the Government's proposals in principle and practice.

John McWilliam (Labour, Blaydon)

Order. I am listening to the hon. Gentleman quite carefully and I am looking at the clause. He seems to be dealing with the question of the level of the charge and whether it should be levied at all. The clause is quite narrow. It details only how and by whom such a charge, if any, should be dealt with.

Andrew Tyrie (Conservative, Chichester)

I am trying to set the framework for what I think Customs will want to consider when it assumes responsibility for the clause. The primary purpose of the clause is to give it that responsibility, and I would like to make some suggestions about what Customs will want to consider. I hope that that is in order, particularly as a Government consultation document on the subject was published with the Budget and this is the only opportunity to discuss those issues. With your permission, Mr. McWilliam, I will continue.

Professor McKinnon's document is a devastating attack on almost every aspect of this proposal, which Customs is almost certainly examining.

John McWilliam (Labour, Blaydon)

Order. The hon. Gentleman is clearly out of order. The clause does not deal with the lorry road user charge per se, or the basis on which it is levied. It details how the charge is dealt with after it has been levied. The clause is incredibly narrow, if he cares to examine the wording. He should be careful as he is discussing matters far too broadly.

Andrew Tyrie (Conservative, Chichester)

That is all right. I will give it a rest.

John Healey (Labour, Wentworth)

Thank you, Mr. McWilliam. As you quite rightly say, the clause is limited. As the hon. Member for Chichester said, its primary purpose is to assign responsibility for operating a lorry road user charge to Customs and Excise. Responsibility will pass to the new, integrated Revenue and Customs department when that is set up.

The clause also specifies the accounting arrangements for money collected as lorry road user charge. It deals only with those two points. It does not confer general powers and subsection (2) does not give the Government any power to do anything beyond those two points without further reference to Parliament.

Fuller details of the scheme will follow in future Bills. That may be the opportunity for the hon. Gentleman to pose his bigger questions, although there are always opportunities in the House for the Opposition to raise points and to ask big questions.

The inclusion of the clause in this year's Finance Bill will give suppliers certainty when they are preparing to bid to provide the services set out in our recently published procurement prospectus, so that they know with whom they will be negotiating and, eventually, contracting.

The lorry road user charge is being developed to modernise the method of taxing heavy goods vehicles. We will charge them according to the distance that they drive in the UK—

John McWilliam (Labour, Blaydon)

Order. Now the Minister is going wide.

John Healey (Labour, Wentworth)

Thank you for that guidance, Mr. McWilliam.

The provision is part of our programme of modernising the method of taxing heavy goods vehicles. Customs is already working on developing the lorry road user charge in close co-operation with the Department for Transport, other parts of government and, in particular, the industry, which has played an influential role in the development of our ideas.

The clause and the publication of progress report 3, alongside the Budget, mark a new phase in the lorry road user charge programme. It is an important step, which has kicked off the procurement exercise for the technology involved, and I commend the clause to the Committee.

Question put and agreed to.

Clause 278 ordered to stand part of the Bill.

Clause 279 - Delivery of accounts etc

Howard Flight (Conservative, Arundel and South Downs)

We broadly welcome this clause and the clauses related to it.

John McWilliam (Labour, Blaydon)

Order. I have looked closely at this clause and the next one and they seem to be

inextricably linked. If the hon. Gentleman wants to take both together, I give him total liberty to do so.

Howard Flight (Conservative, Arundel and South Downs)

I thank you for your common-sense guidance, Mr. McWilliam, but I do not have much to say on the clauses.

Personal representatives of estates where no inheritance tax is payable, or where simplified inheritance tax accounts are late, negligent or fraudulent are the taxpayers who will be affected. From Royal Assent, with the exception of larger estates and certain other particular situations, an inheritance tax account will be required only where there is tax to pay. The other clauses deal with penalty rules.

One of the few bits of positive progress in taxation has been the probate office system for dealing with estates below the inheritance tax threshold. The much reduced arrangements have worked extremely well and have saved families the legal expense entailed by a full probate. As I understand it, these measures go further, based on the success of the simplification that has already taken place. The only problems that could arise for personal representatives are where delays occur. I am out of order, Mr. McWilliam, but I hoped that these clauses would give me the chance to present new clause 6. However, that will have to wait until Thursday.

Dawn Primarolo (Labour, Bristol South)

I am grateful for the hon. Gentleman's succinct summary of clauses 279 to 281, which create a one-stop shop and remove a further 30,000 or more estates from the accepted procedure. I look forward to debating new clause 6 and commend the clause to the Committee.

John McWilliam (Labour, Blaydon)

The problem with new clause 6 is that it does not hang on any of those three clauses, so we could not hang it on anything.

Andrew Tyrie (Conservative, Chichester)

I only want to ask one slightly mischievous question. The Paymaster General has explained with admirable clarity what the clause is all about, as has my hon. Friend the Member for Arundel and South Downs. It is important that we keep an eye on the explanatory notes. I had to read the first line of the first paragraph of the summary notes on clause 279 several times before I could work out whether it meant anything at all. I know that the Paymaster General does not have time to clear all such notes before they go through, but she should take a look at this one. I will give it a go, so that the Committee can get a feel. It says:

''This clause, together with clause 280''—

as you, Mr. McWilliam just said, they go together—

''reconstructs the enabling powers to allow the current regulations to be amended to provide for the extension of the existing simplified procedures.''

After a while, it began to dawn on me that I knew what that meant. However, it took me three or four goes. Perhaps the Paymaster General got there in one go, but she did much better—brilliantly, in fact—in the opening line of her speech. Can we have a look at the explanatory notes and keep an eye on them for mumbo-jumbo?

John McWilliam (Labour, Blaydon)

I advise the Committee that the only thing before it is the clause, the schedule or the amendments. The explanatory notes belong to whoever wrote them, however accurate they may be. They are not a matter for the Committee.

Dawn Primarolo (Labour, Bristol South)

None the less, I take the hon. Gentleman's point. ''Provided for the extension of existing simplified procedure'' might have been a more succinct and clearer way of putting it. I am always happy for his assistance him in making sure that any explanation of the legislation is as clear as possible. I am grateful to him for spotting that.

John Burnett (Liberal Democrat, Torridge and West Devon)

Valuation is a subjective matter. It is an art, not a science. Particularly where there are assets such as real estate and one is on the border, there will be occasions when a genuine valuation is obtained that takes the estate below the threshold. If that valuation is, in due course, challenged and if the valuer concerned has made a genuine stab at the valuation, presumably, there will not be penalties if an estate is judged to be worth more than the value in the exemption.

Dawn Primarolo (Labour, Bristol South)

As I understand the legislation—we are ranging across all the clauses—where genuine error is demonstrated, or something unforeseen occurred in the process, the reasonable excuse provision—it is not called that but something else that escapes me for the moment—would be applied, as it is elsewhere in the Inland Revenue with regard to penalties.

The purpose of the amendments is to ensure that both unrepresented and represented taxpayers have the opportunity to use the one-stop shop and have confirmation that the return is correct. If any inquiries arose from that, they would be pinpointed and the taxpayer would be told immediately.

As the hon. Gentleman often pushes me on a number of clauses across any Finance Bill, because he has served on many, I assure him that the appeals procedure used against any penalties would, in this process, be the same as in any other. Therefore, reasonableness would be used as a measure.

Question put and agreed to.

Clause 279 ordered to stand part of the Bill.

Clause 280 - Grant of probate

Rob Marris (Labour, Wolverhampton South West)

I want to ask my right hon. Friend about line 3 of clause 280, which refers to

''refusal of grant of probate where inheritance tax unpaid''.

I ask this as a former solicitor. Will she assure me that the words ''grant of probate'' in that context, and in the clause generally, also refer to letters of administration? A grant of probate, as she may know, is made when someone dies with a will. A grant of letters of administration is made when someone dies intestate, but inheritance tax may still have to be paid.

Dawn Primarolo (Labour, Bristol South)

I assure my hon. Friend that the answer to his question is yes. While I may not be as familiar with that area as he clearly is with his skills as a solicitor, I know that clauses 279 to 281 are absolutely in line with the current arrangements.

John McWilliam (Labour, Blaydon)

I draw the hon. Gentleman's attention to the fact that the wording he refers to comes from section 109 of the Supreme Court act 1981. It is the title of that section, and that is all. Whatever is in it, is in that particular piece of legislation, not this one.

Question put and agreed to.

Clause 280 ordered to stand part of the Bill.

Clause 281 ordered to stand part of the Bill.

Clause 290 - Meaning of ''notifiable arrangements'' and ''notifiable proposal''

Dawn Primarolo (Labour, Bristol South)

I beg to move amendment No. 554, in

clause 290, page 241, line 20, after 'enable' insert

'or might be expected to enable'.

John McWilliam (Labour, Blaydon)

With this it will be convenient to discuss the following:

Amendment No. 367, in

clause 290, page 241, line 22, leave out paragraph (c) and insert—

'(c) have as their main purpose the obtaining of that tax advantage or making that tax advantage available to another person.'.

Government amendment No. 563.

It may also be convenient to take clause stand part along with those amendments, because this is a group of clauses dealing with broadly the same sort of thing. It might be easier for hon. Members if we do it that way, and then they will not get out of order.

John Burnett (Liberal Democrat, Torridge and West Devon)

On a point of order, Mr. McWilliam. I might have misheard you, but this is an important series of clauses. When we debate clause 290, will you allow us to range far and wide on the disclosure provisions as a stand part debate initially?

John McWilliam (Labour, Blaydon)

I thought that was what I said.

John Burnett (Liberal Democrat, Torridge and West Devon)

I am sorry. Owing to earlier years' service in the Marines, I do not hear too well, so it would help if you would speak up.

Howard Flight (Conservative, Arundel and South Downs)

This is probably the most controversial part of the Finance Bill. In a sense, clause 290 is the most important issue of focus. [Interruption.] It lays down that the notifiable arrangements to be reported will be prescribed by Treasury regulations. We have now seen the draft regulations—[Interruption.]

John McWilliam (Labour, Blaydon)

Order. There seems to be a constant conversation in Committee, quite apart from what the hon. Gentleman is saying. It would be helpful, at least to me, if it could cease so that I can hear what he is saying.

Howard Flight (Conservative, Arundel and South Downs)

I thank you, Mr. McWilliam. I certainly do not think that hon. Members were endeavouring to shout me down.

Since the regulations were published, there has been a fair amount of criticism and complaints. In particular, five City law firms have written to the Revenue—I will revert to that in due course. At the heart of the issue, as far as we see it, is the fact that the reporting of the tax avoidance schemes being marketed is in essence a no-brainer. People know when they are marketing them, and when such a scheme is being marketed to them. I submit that those schemes represent overwhelmingly the greater part of the nuisance that these clauses are designed to address, and I make the up-front comment that framing the clauses much more widely than that has led to a lack of clarity about what will and will not be required.

To some extent, the regulations have narrowed down what is in the Bill. I understand that some of them will clarify what they will not cover. However, unlike the VAT clauses, which impose obligations primarily on taxpayers, the obligation in these clauses is on promoters. As the clauses deal mainly with marketing schemes, our basic argument is that they and the regulations should be cut down so that they are much more tightly aimed at such schemes. The compliance burden on businesses must be balanced against the benefits. Indeed, even with the amendments that we have tabled, there is a risk that major burdens will be placed on businesses and on the Inland Revenue itself, as only £1.5 million has been provided to finance the staff who will have to deal with the reports.

Before turning to the amendment, on the assumption that it will not be accepted, I would appreciate more guidance on what ''main benefit'' means and how it differs from the main purpose test, which is in amendment No. 367 and in some anti-avoidance legislation. If a structure is economically advantageous and would exist irrespective of tax relief, can the tax advantage still be a main benefit? Is the intention to deter transactions entered into to avoid tax, or alternatively, to identify all transactions that avoid tax, irrespective of the motivation?

In the regulations, the focus is on employment products and financial products. That is broadly welcome and sensible, but the way in which financial products are defined under the equation is open to fairly wide interpretation. Amendment No. 367 suggests that it would be better to define more closely the main identifiers of notifiable arrangements, with the aim of excluding from notification normal commercial transactions that are merely structured in a tax-efficient way. In other words, transactions that simply reflect Lord Clyde's famous dictum about the shovel in the store would not have to be reported. There is a fundamental difference, grey though the territory is, between standard tax planning and clever tax avoidance schemes. Ideally, it would be sensible to switch from main benefit to a main purpose test in order to focus on the real driver of the transaction. After all, that is a theme in other anti-avoidance legislation.

I said earlier that I would return to the 12-page letter sent by five eminent City law firms to the Revenue. It highlights several concerns about the definitions of promoters in the clauses and in draft

guidance. I wish to put on the record a summary of their concerns. First, because the notification date for notifiable purposes is earlier than that for notifiable arrangements, a scheme may have to be disclosed earlier if a client uses a promoter. As a result, the measure may discourage taxpayers from seeking external advice.

There is a potential conflict between client and tax adviser if they take different views on the likelihood of a proposal being a notifiable proposal. If a tax adviser made a protective disclosure when uncertain of whether a proposal was notifiable, it could be detrimental to a client's position in subsequent litigation. Separately, such disclosures could also overwhelm the Revenue, as has occurred with the money laundering rules and regulations.

The definitions of the relevant date for the promoter could be unfair in a situation in which a promoter is not the initiator of a notifiable arrangement and may not know when the arrangement becomes available for implementation. In some circumstances, a tax adviser may assist a client but never become aware that he is involved in a notifiable proposal or when such a proposal becomes available for implementation. There are difficulties about the definition of promoter where non-tax advisers are involved. The definition of notifiable proposal could give rise to the perverse scenario that A and B enter into a transaction where tax benefit accrues to B and A's tax adviser is the promoter, and it is not clear in the context of law or accountancy partnership who is the promoter.

The lawyers also raise the concern that there is a distinct possibility that there will be multiple promoters in the case of one notifiable arrangement. The tests set out in the Tax Avoidance Schemes (Prescribed Descriptions of Arrangements) Regulations 2004 may place undue compliance burdens on promoters who may not be aware of an arrangement meeting the relevant description of financial products or may not have the relevant expertise to determine whether it meets the description. The lawyers have identified other issues relating to the definition of tax advantage in the regulations, which they believe is drawn too widely.

The letter goes in some detail into the formula used in the arrangement regulations. The formula gives rise to a wide range of concerns, which are explained at some length. The letter also criticises the time limit for notification, which we shall come to later. After pointing out some minor drafting errors, the letter concludes by looking at the transitional provisions for schemes entered into prior to the commencement date. As I understand it, the Government amendments address most of those concerns.

We and the lawyers are concerned that in a number of places the provisions have to be explained or clarified in the Revenue's guidance notes. While that is helpful on the surface, it is not right that compliance with an important regime, which includes fines, can depend on guidance, which will start to have the tenor of tertiary legislation. Surely the regulations should be sufficient on their own.

John Burnett (Liberal Democrat, Torridge and West Devon)

It is surely not acceptable to be taxed by Inland Revenue fiat. The hon. Gentleman and I have discussed these matters in the past. Guidance notes are not the law. It is as simple as that. We are here to pass the law. We must pass clear laws, and it must be apparent what those laws are. If the Revenue has an interpretation, that is a matter for it. In the final eventuality, it is for the courts to decide on the basis of the laws that we pass in this House.

Howard Flight (Conservative, Arundel and South Downs)

I thank my hon. Friend for his robust and sharp summary of the point that I was making. I agree with him wholly.

I have been almost overwhelmed with comment and advice from outside parties, as I am sure has the Minister. While the clauses seem to have been set out rationally, the key issues seem to be who has to disclose, how they disclose, when they should disclose and what they should disclose. Those key points appear in various clauses: ''who'' is in clauses 291 and 298; ''how'' is partly in this clause, but a little strays over into clause 292; ''when'' appears in clauses 292 and 293; and ''what'' is again in this clause and in clause 291. Those are the key issues to be addressed.

We shall come to other issues of concern. The starting point is vague, whether it is five days or longer; there is a potential problem for barristers where the Bar Council rules that they cannot comply; and, as I touched on earlier, the net effect could be that people do not take professional tax advice, which is probably undesirable for both the Revenue and clients.

I am particularly concerned that the reporting requirements should not throw sand in the commercial mechanics of takeovers. The objection of everybody—including the Government—to the general anti-avoidance regulations regime that had the same effect in Canada was that if there had to be clearance for every commercial transaction, it slowed down commerce dramatically.

In a typical takeover situation, the deal is worked out initially in terms of commercial reality and financial engineering, and it then goes to the tax advisers to be structured in the most tax-efficient way, which is totally reasonable. As I understand it—I hope that the Paymaster General can persuade me to the contrary—deal by deal, the advice given in those situations falls within the parameters of the regulations and what has to be reported. Although in practice people may simply go ahead, make the report, wait for their number, feed it to everybody and do goodness knows what else, the less lack of certainty the better for normal commercial health. I would be delighted if she could give us some comfort and tell us that such a situation is not intended to be covered by these clauses and in particular by the regulations.

We saw this practice last year with schedules 21 and 22 on employment-related equity, and previously with the law and regulations pertaining to money laundering. There is a growing trend to draft legislation incredibly widely to catch everything and then to say, ''Oh, we don't really mean that—we'll narrow it down by regulations and guidance to what we're really after, but the law has been drafted that

widely so that we have a big stick to hit people with if we think they're being naughty boys.'' That is a most unacceptable form of law because it leaves innocent people in a position of great uncertainty. The trend should be reversed. If we continue in the same direction, we will end up with many of the legal failings of continental Europe, where law—particularly tax law—becomes political and unclear. It would have been wiser of the Government, for starters, to introduce much simpler legislation that focused specifically on schemes that were being marketed.

I want to make a personal comment. Over the past four or five years, a number of businesses have asked me whether I think that they should use this or that scheme. I have said, ''No—this is clearly silly, clever-cuts stuff and the Revenue will ensure that it is outlawed pretty quickly.'' They have come back two or three years later and said, ''Howard, why did you give us that advice? We find that everyone else has been using these marketed schemes.'' What has the Revenue been doing that everybody, everywhere, knows about many of the marketed schemes? They are not secret. Many businesses have discussed them with the Revenue, so we cannot put the situation down to ignorance. I question why the Revenue has not been more on its toes and tackled many of the schemes. Admittedly, that would have involved the problem of more anti-avoidance legislation, which is a nightmare, as we all know.

There is the matter of efficacy, too. The objective is that the Revenue should at least be much more quickly aware of what is being marketed. That is sensible. However, there will still be the issue of how effectively the Revenue and the Treasury deal with it. Perhaps the Government hope that reporting will be a deterrent, but given the US experience, that is a fairly grey area, particularly if we end up with all manner of things being reported because the requirements are drawn so broadly. That will overwhelm the Revenue and potentially make its task of getting on top of nuisance schemes that should be outlawed pretty quickly by law rather than Revenue diktat all the more difficult. The regulations that the clause unveils are much too wide, as are the related clauses. I look forward to the Minister giving us some comfort that her amendments and the discussions about the regulations will hone the territory into something more manageable and effective.

John Burnett (Liberal Democrat, Torridge and West Devon)

I do not want to repeat what the hon. Gentleman said because I entirely agree with him. I return to the point that we discussed in the changes to inheritance tax about criminalising the innocent. We seek clear, unambiguous laws passed by this House, not interpretations that could be made by officials or Ministers.

I would be the first to pay tribute to the Revenue. It has a fair culture that I have admired for many years, and it is a superb service. I hope that any merger between the Revenue and Customs preserves the equity, confidentiality and fairness that the Revenue has for centuries provided to taxpayers in this country. Its lack of prejudice is to a large extent the best in the

world. It treats taxpayers fairly and deals with compliance mercifully and reasonably.

I wish to précis what the hon. Gentleman said. There are three things that I would like to know. Who has to make disclosure; by what legislation is that understood; and why should those persons make disclosure and what should they disclose? The Revenue wants to obey the law. It is not a corrupt institution. There is the odd bad apple, but they do not arise very frequently. The Revenue, as well as taxpayers, must know where it stands, and it is for us in Parliament and no one else to say where it stands.

A fundamental principle of British tax law is that people can organise their tax affairs to mitigate or even obliterate their tax liability. One does not have to volunteer to pay the most tax on any transaction.

Dawn Primarolo (Labour, Bristol South)

Does the hon. Gentleman accept that the clauses are not about making people pay the most tax even though they are not liable, but ensuring that they pay the tax that the law of the land says they should? If there is any unacceptable behaviour to discuss in the 12 clauses, it is from those who know that they have a tax liability and seek to extinguish it in ways that they choose to keep secret from the Revenue, sometimes with less than candid returns. That is what the clauses are about.

John Burnett (Liberal Democrat, Torridge and West Devon)

That is an extremely helpful intervention from the Paymaster General. I thought that I might tease her out, and she has been helpful. Many people will concentrate hard on what she has said. As I said, one does not have to volunteer in any transaction to pay the most tax. At its simplest, the high street solicitor will advise—

Dawn Primarolo rose—

John Burnett (Liberal Democrat, Torridge and West Devon)

Of course I give way. I cannot resist and the Paymaster General knows that. I am just a pawn, or putty, in her hands.

Dawn Primarolo (Labour, Bristol South)

Whatever. I, and, I am sure, the Committee, would be grateful if the hon. Gentleman elaborated his point by reference to the Bill. Will he refer his point to the clause that deals with the avoidance with regard to gilt strips and explain on what basis that was considered to be acceptable behaviour?

John Burnett (Liberal Democrat, Torridge and West Devon)

I understand what the Paymaster General is saying. She is nodding her head. There are schemes of an artificiality and an ambiguity that have a history. She and I debated that history when talking about bonuses in gold bullion and so on. Those bonuses were legal and entirely proper until the anti-avoidance legislation was passed. We are in difficult territory. I concede that. However, I reiterate the principle that people can organise their tax affairs so as to mitigate the burden of taxation.

Members of Parliament enjoy many privileges. One of those privileges is a generous London allowance, which means that many Members have two dwellings. It is up to Members to elect—within the two-year time limit—which of those two dwellings is to be considered their principal private residence. They will presumably do so on sound grounds. What is uncertain for many tax advisers and clients, if the latter are aware of it, is

to what extent they can organise their affairs so as to mitigate their tax liability. It is a difficult area.

The Paymaster General talked about gilt stripping. I referred her to discussions that we had years ago about bonuses paid in gold bullion that thus escaped national insurance contributions. If the law on those gold bullion bonuses stated clearly that, if bonuses were paid in that fashion, they were not liable to national insurance contributions, it was entirely lawful for the taxpayer to do that. There might be an element of artificiality—we would all concede that—but that is where we hit the horns of the dilemma. I would be grateful if the Paymaster General referred to the gold bullion scheme and told the Committee her views on such a scheme in the light of the legislation before us.

Dawn Primarolo (Labour, Bristol South)

I can answer the hon. Gentleman's question immediately. If the legislation had been in operation, the scheme would have been closed before it became operational and the Inland Revenue would have been aware of it and known what to do much faster. Other taxpayers would not have been open to the loss of revenue that they had to make good because of the avoidance scheme.

John Burnett (Liberal Democrat, Torridge and West Devon)

I have one question to ask the Paymaster General. Why? I am happy to take another intervention. The law of that time was the law. In that bullion scheme, national insurance contributions were to be escaped. If someone is using the law as it stands, why should the Government not comply with the principle that it is open to anyone so to organise their affairs as to mitigate the amount of tax payable?

Rob Marris (Labour, Wolverhampton South West)

Let me point out to the hon. Gentleman, who I think is a lawyer, that the word that he has used at least twice today is well established law. ''Artificiality'' is the word to focus on. He will remember the Ramsay case from about 1988, heard by the Judicial Committee of the other place, which focused on the question of a series of transactions, the hallmark of which was artificiality. Any such schema would not be affected for tax-mitigation purposes. Therefore, in theory, it has been fairly settled law for 15 years or more. However, to set it in concrete in practice is much more difficult, and that is partly what the Bill seeks to do.

John Burnett (Liberal Democrat, Torridge and West Devon)

I am grateful for that intervention. There was a series of cases. As the hon. Gentleman rightly says, Ramsay was a leading case, but Ramsay is rather more complex, as I am sure he would concede. It was followed by another case—it usually comes to mind smartly, but it is not doing so at the moment, for which I apologise—which effectively said that, if a step were imposed in a tax-avoidance transaction with no commercial reality, it could be struck out. Perhaps someone can remind me of that case.

Howard Flight (Conservative, Arundel and South Downs)

The Paymaster General merely referred to the reporting of the gold bullion schemes, not to them being illegal. In other words, the issue raised by the hon. Gentleman's question is at the heart of the problem: as long as such schemes are within the law,

they will be within the law until the law changes. As he knows, that is the legal situation.

The issue is what to report and what not to report. It is pretty clear that such marketed schemes are good examples of schemes that should be reported. The problem is what other tax-avoidance structuring needs to be reported that is not a marketed scheme.

John Burnett (Liberal Democrat, Torridge and West Devon)

The hon. Gentleman's point is the same as that of the hon. Member for Wolverhampton, South-West—artificiality.

Dawn Primarolo (Labour, Bristol South)

That is not the point. Perhaps I can help the hon. Gentleman. If I have understood what he has said, the argument that he appears to be advancing cannot be the case. His argument is that anything is fair game as long as there is no specific, detailed legislation against it. I think that what I, my hon. Friend the Member for Wolverhampton, South-West and the hon. Member for Arundel and South Downs have been saying is ''No, that cannot be the case'', and disclosure seeks to deal with that.

John Burnett (Liberal Democrat, Torridge and West Devon)

That is a rather unsubtle interpretation. I am trying to tease out from the Paymaster General exactly what she is trying to hit.

Rob Marris (Labour, Wolverhampton South West)

Tax avoidance.

John Burnett (Liberal Democrat, Torridge and West Devon)

Hang on a minute. The hon. Member for Wolverhampton, South-West says that the Paymaster General is trying to hit tax avoidance. That is not fair, because much tax avoidance—

John McWilliam (Labour, Blaydon)

Order. Hon. Members should avoid sedentary interventions, because they are not that helpful, besides which I have been listening carefully and the Paymaster General has not made a speech yet.

John Burnett (Liberal Democrat, Torridge and West Devon)

Thank you, Mr. McWilliam, but she has made some important interventions and I am delighted to have them.

The point that I am trying to make, which I think the hon. Member for Arundel and South Downs has made too, is that tax avoidance is not to be denied. It is the principle that one can use the tax system to organise one's affairs to mitigate the amount of tax that one has to pay. I have remembered the case. It was Furniss and Dawson.

I have some sympathy with the Paymaster General about the artificial schemes, and certainly the bullion scheme. I am not saying that there should necessarily be a free-for-all on such highly artificial schemes. Promoters are a narrow group of individuals who are promoting and marketing artificial schemes, and there is scope and reason to impose on them where they fall foul, for example, of the Furniss and Dawson rule or the Ramsay rule, where there is an interposition in a transaction of an entirely uncommercial stage purely for tax avoidance. The Inland Revenue should not always be laggards, and I see the necessity for the proposals.

It is difficult for us to pass legislation that deals with such matters, but it is important that, when doing so, we deal with them in Bills and in regulations that are passed through this House. Taxpayers and their advisers must know exactly what is being proposed. We seek clarity this afternoon, both from the

Paymaster General and from the laws of this country. I look forward to hearing from her who has to make the disclosure, why the disclosure has to be made, and what should be disclosed.

Finally, there is the importance of professional privilege, particularly legal professional privilege. Lawyers, barristers and solicitors should know exactly where they stand. If that doctrine is to be eroded, we must have an opportunity to debate that, and to stand up for this country's ordinary taxpayers, so that they themselves, and their advisers, know if and when they are in jeopardy.

Rob Marris (Labour, Wolverhampton South West)

Following that interesting speech from the hon. Member for Torridge and West Devon (Mr. Burnett), it seems to me that we are ranging a bit widely here, Mr. McWilliam, and perhaps you will guide me if I go wrong.

John McWilliam (Labour, Blaydon)

Order. Wide? We have just had most of the Second Reading speech.

Rob Marris (Labour, Wolverhampton South West)

The hon. Gentleman asked three questions. Who has to make disclosure? It says in clause 292 that it is the promoter. Why does it have to be made? So that the Inland Revenue can look at the artificiality, or otherwise, of the scheme. What should be disclosed? That is in clause 290, which tells us about notifiable arrangements and notifiable proposals.

John Burnett (Liberal Democrat, Torridge and West Devon)

The hon. Gentleman has drawn the Committee's attention to those provisions. Is he entirely clear, having scrutinised them, about the exact extent of disclosure, exactly who is in jeopardy, who should disclose and what should be disclosed?

Rob Marris (Labour, Wolverhampton South West)

The hon. Gentleman asks me the questions that he asked in his speech. He asked for certainty, reiterating that matters should be in legislation, and referring to Acts of Parliament and regulations. That is precisely what we have in front of us: a Bill, a draft Act of Parliament, which, in subsection (1)(a), refers to regulations that will be made. There will, therefore, be the legislative certainty he seeks. In clause 290 and the following clauses, it is fairly clear—with respect to him, either he overlooks the point or I misunderstand part 7—that the legislation is about disclosing to the Inland Revenue. It is not per se about the tax bill that may or may not fall upon the taxpayer. It is simply about disclosure.

John Burnett (Liberal Democrat, Torridge and West Devon)

Does the hon. Gentleman believe that there should be a blanket trawl available to the Inland Revenue of every scheme and every arrangement? Does he believe that, in the normal course of a client's affairs, their affairs should be kept confidential and privileged?

Rob Marris (Labour, Wolverhampton South West)

I do not think that there should be a blanket trawl and, from the way I read part 7, nor do the Government. If the Bill goes through both Houses of Parliament, clauses will become sections of an Act, providing certainty that, with the amendments that are likely to be made, they will not provide for a blanket trawl.

Legal professional privilege, or confidentiality of communication as it is known in Scotland, has been a concern of the Law Society of England and Wales, of which I am a member, and it is covered by clause 298.

John McWilliam (Labour, Blaydon)

Order. I was just about to make that point. Although I suggest that we take the amendments broadly because they are inter-related, clause 298 is quite specific and narrow. It will not be in order to repeat arguments about clause 290 in any subsequent clauses if those arguments have been adequately advanced.

Dawn Primarolo (Labour, Bristol South)

I will not venture down the route of discussing legal privilege, which, as my hon. Friend the Member for Wolverhampton, South-West stated, is dealt with in clause 298. It demonstrates that legal privilege is protected. If the hon. Member for Torridge and West Devon wishes to return to the matter when we discuss the clause, he can. Rule 702 of the Bar Council rules, which provides for confidentiality of barristers' papers, is also dealt with, but it is subject to the demands of the law and it would not prevent disclosure. My hon. Friend has drawn that out as well.

We have ranged over a considerable amount of the material covered in all 12 clauses. I will do my best to respond to the amendments and clause 290, although in fairness to hon. Members, if I am able to dispose of their points quickly, I will do.

It is not the intention of the disclosure rules to stop accountants advising their clients on the tax breaks and the concessions that Parliament has introduced. That is entirely acceptable tax planning. Frankly, however, there is a world of difference between that and advisers designing outrageous schemes with the deliberate aim of exploiting tax loopholes that are plainly contrary to what the legislation seeks to achieve. I am grateful to the hon. Member for Arundel and South Downs for touching on that point several times. He seeks clarification on how the Government will try, through the disclosure clauses, to achieve that desirable end.

I find it unbelievably strange that the tax planning industry knows no bounds when it comes to the complexity, understanding and exploitation of the meaning of words, conveying different meaning in order to deliver a tax relief that was not intended, or a tax rebate for tax that was never paid, yet it apparently struggles to come to terms with the Government's proposals on disclosure.

Let us be clear. Disclosure will not of itself affect the tax treatment for a particular transaction. Nor will the fact that a scheme falls within the new rules invite any judgment about the nature of the scheme. That is made clear by Government amendments to clause 290 and to clause 295.

I come to the point that the hon. Member for Arundel and South Downs made about legitimate commercial activity, which was reinforced by the example he gave of people seeking his advice, as he is knowledgeable in that area. He referred politely to dubious schemes. The 100 Group of Finance Directors said in its response to the new rules:

''We have no quarrel with the policy objective to detect and deter the use of 'tax abusive' schemes in order to protect the Exchequer''.

The Exchequer is every citizen in this country. It is the money collected from the citizens of this country in

order to fund the many tasks that they expect the Government of the day to deal with.

The heart of the issue is the question of abusive schemes. The tax-avoidance market thrives on secrecy. When occasionally the Inland Revenue gets to see such schemes—someone may send the information anonymously, or whatever—often the condition at the top is that it must not be disclosed to anyone because the Revenue must not find out. The promoters do not want the Revenue to know about a scheme at least until they have finished marketing it. I put a simple proposition to the Committee. If the promoters were not up to mischief, why would they fear transparency and disclosure? Either they are conducting legitimate business or they are not.

Richard Bacon (Conservative, South Norfolk)

The right hon. Lady makes an interesting point, which perhaps I may put back to her. She asks what the promoters have to fear from transparency. It may be slightly wide of the clause, but what does the Treasury have to fear from transparency in the disclosure of the financial models in private finance initiative bond transactions? Currently, they are not being disclosed, but they used to be.

John McWilliam (Labour, Blaydon)

Order. That is wide.

Dawn Primarolo (Labour, Bristol South)

This is a serious discussion about the loss of huge amounts of revenue to the Exchequer, which is in the interests of every citizen in the country. If the hon. Member for South Norfolk (Mr. Bacon) wants to raise wider issues about the Government, he has every opportunity to do so.

Rob Marris (Labour, Wolverhampton South West)

Does my hon. Friend agree that in certain circumstances certain taxpayers might be saved money by the provisions? They could find out early on from the Inland Revenue that what they hoped was a nice tax wheeze was never going to work and they could save having to pay a fat fee to the promoter.

Dawn Primarolo (Labour, Bristol South)

Indeed, that may be the case, but it is rather further down the line. On Second Reading, the hon. Member for Bognor Regis and Littlehampton (Mr. Gibb), who sits on the Conservative Benches, made an excellent speech about corporate responsibility and tax planning. He argued strongly, and I agreed in many respects, that the few tax planners and promoters who design such schemes know exactly what they are doing, how they are going to do it and the consequences for the Exchequer. He made a moral argument, but I am not going to go down that route. The Government are seeking to take the issue forward through disclosure.

Howard Flight (Conservative, Arundel and South Downs)

Perhaps the Paymaster General is coming to the fundamental point that within the spectrum of what we would call avoidance we broadly all perceive that there are bogus-type schemes that get marketed, and that there is accepted tax planning consultation and structuring with which the Revenue is familiar. The problem is the dividing line between the two. It seems to me that marketing is a key practical dividing line. The whole activity of thinking up clever-cuts schemes and marketing them is what is being sought. However, the clauses, and in particular

clause 290 on the regulations, do not use that as the dividing line, and that has led to concerns about a lack of clarity on reporting and concerns about people not knowing where they stand.

Dawn Primarolo (Labour, Bristol South)

With respect, I will come to that. However, I will say that some of the schemes are designed for specific use by a client, and they produce hundreds of millions of pounds of savings on the tax that is liable. Therefore, they deny the Exchequer the money to which it should have been entitled.

I agree with the hon. Gentleman that this goes to the heart of why disclosure is the way forward. He has spoken about it before, as I have, in various debates. The dividing line between acceptable tax planning and unacceptable tax avoidance is very difficult to draw with precision. Therefore, the Government are approaching the matter on the basis that the disclosure rules are designed to reflect that. They will operate entirely in a non-judgmental way and they are aimed at those types of transactions where, in the Inland Revenue's experience, there is a risk of unacceptably high avoidance.

John Burnett (Liberal Democrat, Torridge and West Devon)

Unacceptably what?

Dawn Primarolo (Labour, Bristol South)

Unacceptably high. I am talking about where the risk is highest for likely avoidance.

John Burnett (Liberal Democrat, Torridge and West Devon)

I simply do not understand that point—it must be a matter of principle, and it is not a matter of the extent of the taxation.

Dawn Primarolo (Labour, Bristol South)

The hon. Gentleman cannot have it both ways: he cannot complain that somehow this is a trawl across the entire tax system and yet object to the fact that the Government are targeting it on two specific areas—employment and financial projects—and then through the regulations are putting in a series of filters to get us towards precisely what the offending proposals may or may not be.

The hon. Gentleman has only to examine this Finance Bill, let alone the others with which he has been involved since 1987, to see the huge challenge that is posed by dealing with this matter. I think that I am right in saying that there have been 50 major anti-avoidance measures within Finance Bills since 1997. He just has to examine this Finance Bill to see what the Government are having to do to keep up with this matter. As he rightly said, that is no way to proceed in Government, and instead of closing the door after the horse has bolted we need to take suitable measures. I hope that the existence of disclosure will deter some elements, although I am depressed to hear from my Revenue official that there are those who are already seeking to get round the rules. Unfortunately, that is the current position.

The two Government amendments correct a potential misunderstanding about the way in which the disclosure rules will operate in practice. When the Board of Inland Revenue allocates a reference number to a scheme or arrangement disclosed to it, it is not in any way expressing a judgment on whether the scheme is legally effective in achieving a tax advantage. The reference number is a purely administrative matter. If it stops some tax planners in their tracks, good. It may have a deterrent effect, but it will not represent a judgment.

Clauses 290 and 295 might be taken to imply that the Inland Revenue is making such a judgment. Such uncertainty is not intended. If the clauses are not amended, they will create uncertainty about which schemes need to be disclosed—the very points that hon. Gentlemen are making—and, as the hon. Member for Arundel and South Downs rightly said, that could prejudice any future litigation by the Revenue to challenge the scheme in the courts. It is therefore important to correct any potential misunderstanding by means of Government amendments.

The two amendments resolve any uncertainty about the issue. The first clarifies the definition of a notifiable arrangement as one that might be expected to produce a tax advantage, rather than one that does produce such an advantage. It removes the implication that a qualifying arrangement needs to generate a tax advantage successfully in law.

The second amendment makes it explicit that the number allocated by the Inland Revenue to a scheme or arrangement should not be regarded as a judgment that that scheme or arrangement successfully generates a tax advantage. Taken together, the two amendments resolve uncertainty, and I commend them to the Committee.

The Opposition amendment seeks to replace the main benefit test for notifiable arrangements with a test relying on the purpose of the arrangements. In the context of the rules, which are primarily aimed at scheme promoters, the Government remain firmly of the view that it is preferable to define notifiable arrangements by reference to a main benefit test, which is an objective test that will be easier for promoters to apply, as it measures the likely outcome of the arrangements. A test that depended on the purpose of the arrangements would require, at least in part, knowledge of the intentions of the person who is putting the arrangements in place. It would create difficulty in particular cases, as it might be unclear whether the intention of the promoter, or the intention of the client was the relevant consideration.

The second leg of the amendment would restrict the test to requiring that obtaining a tax benefit was the main purpose, rather than one of the purposes, of the notifiable arrangements. That would make the disclosure rules largely ineffective because disclosure would be required only if the Revenue could prove that the tax benefits outweighed any other benefits from the scheme. It would strike down the purpose of disclosure for transparency. If the hon. Member for Arundel and South Downs seeks to press his amendment, I will ask my hon. Friends to oppose it.

John Burnett (Liberal Democrat, Torridge and West Devon)

Will the Paymaster General give way?

Dawn Primarolo (Labour, Bristol South)

It might be helpful if the hon. Gentleman bears with me a little, because I wish to address some important issues around regulation, promoters and points that he and the hon. Member for Arundel and South Downs have made.

This group of clauses provides for disclosure of schemes and arrangements that have as a main benefit the obtaining of a tax advantage. The test is narrowed by further conditions that focus on whether the

arrangements are a financial product or an employment product. The conditions are set out in regulations. The clauses define promoters as including anyone who is directly involved in the design and marketing of schemes and arrangements within the criteria for disclosure. The Revenue will allocate a reference number to these schemes and arrangements. Promoters will be required to notify clients of that reference number and taxpayers will have to enter that number on their tax returns.

I turn to the issue of regulations acting as the additional filters when the clause has set the scope. In response to the Finance Bill, the Chartered Institute of Taxation said:

''We have commented in the past on the excessive reliance on statutory instruments for the details of tax law. However, here we can accept that the use of Sis is necessary and appropriate in the circumstances.''

Three sets of draft regulations have been up for consultation since 17 May. The draft Tax Avoidance Schemes (Information) Regulations set out the procedural rules for disclosure. The draft Tax Avoidance Schemes (Promoter and Prescribed Circumstances) Regulations set out certain circumstances in which a person is not to be regarded as a promoter for the purpose of the disclosure rules. The draft Tax Avoidance Schemes (Prescribed Descriptions of Arrangements) Regulations prescribe arrangements that must be notified under the disclosure rules, where the arrangements have as a main benefit the obtaining of a tax advantage. Basically, that addresses the who, wherefore and how that the hon. Members for Arundel and South Downs and for Torridge and West Devon touched on. The closure date for consultation on those regulations is 30 June, so further issues might be submitted in the coming period that the Government will want to take note of. I thought that it would help Committee members if I mentioned that so that they can see what our intentions are when we discuss subsequent clauses.

Extensive consultations on the new disclosure regime have been taking place since the Bill was published, and so far three key issues have emerged, which we propose to address through changes to the legislation. Although the consultation period has not finished yet, I want to say where we have now reached.

The first of the three key issues that concern us is the definition of promoter; the hon. Member for Arundel and South Downs mentioned that. That and the second issue, which is the definition of what has to be disclosed, may be too wide. The third issue is a concern that the 1 August operative date will be impossible to meet.

On the definition of promoter, the Government want to ensure that the rules strike the right balance as to the range of people who are required to report. Clause 291 is drafted very widely to bring those involved in providing tax services within the scope of the regime. It also provides vires to narrow the range of people required to report by prescribing in regulations the circumstances in which a person is not to be treated as a promoter.

Let me respond to the point made by the hon. Member for Arundel and South Downs. When we publish revised regulations, we shall exclude from the definition of promoter anyone not involved in those parts of the scheme that give rise to a tax advantage—for example, someone dealing only with the company law aspects of a scheme—and most people responsible for the organisation or management of the arrangements, unless connected with the designer of the arrangements. These changes will ensure that only those who are at the heart of a scheme or arrangement, and are capable of meeting the obligations, are treated as promoters.

Harry Cohen (Labour, Leyton and Wanstead)

I support the proposals overall, but has the Paymaster General satisfied herself in her own mind that there is a distinction between a promoter developing these schemes and those who are developing these schemes in-house for a very big corporation? I am thinking of the example of the Murdoch press, which in my opinion does not pay its fair share of tax. Such a corporation will have a whole army of promoters, but they will probably be in-house developers of tax avoidance schemes. Will they be captured by these clauses?

Dawn Primarolo (Labour, Bristol South)

I can assure my hon. Friend that the clauses provide for disclosure under those circumstances, and identify, in a subsequent clause that we will come on to discuss, exactly what in-house promoters, as he called them, whether at the company or a connected company, will be required to do.

Howard Flight (Conservative, Arundel and South Downs)

It may be difficult, but I would be grateful if the Paymaster General could answer the following question for me, as I still do not know the answer. Let us imagine that whoever is now bidding for Marks and Spencer succeeds in winning the bid. Naturally, as they put together the transaction for taking over the business, they would go to their accountants and lawyers and get advice as to how to structure that in the most tax-efficient way. Anyone who runs a self-employed business and is coming up to retirement will naturally go to their accountant, and potentially their lawyer, and ask, ''What is the most efficient way I can sell this business?'' I do not believe either of those activities should fall within what the Government are after, but there seems to be no clarity as to whether they would or would not.

Dawn Primarolo (Labour, Bristol South)

It would be helpful if I moved on to explain to the hon. Gentleman the definitions of what has to be disclosed, as that will address the pertinent point he is putting to me.

There is a series of filters in the regulations that narrows down the kind of arrangements that have to be disclosed. They come down to the two ultimate tests, focusing on employment products and financial products respectively, as set out in the draft regulations. The Government believe that the employment products test meets its objective and, apart from some minor technical refinements, expect it to remain as it is. The consultation has confirmed that view. However, and I think this addresses the hon. Gentleman's point, we recognise that the financial

products test as drafted is, frankly, proving difficult to apply in practice.

John Burnett (Liberal Democrat, Torridge and West Devon)

Difficult to what?

Dawn Primarolo (Labour, Bristol South)

Difficult to apply in practice, was what I said. When we publish revised regulations, we shall drop the formula requiring promoters to calculate the value of the tax benefit versus the difference between the economic benefit and the cost of the arrangements.

John Burnett (Liberal Democrat, Torridge and West Devon)

I will deal with the facile interventions made by the hon. Member for Wolverhampton, South-West later. The Paymaster General has kindly dwelt at some length on the points I asked her about, and about which the primary legislation is immensely nebulous, although I shall leave that to one side.

The Paymaster General talked earlier about wanting to catch transactions where the tax benefit outweighed other benefits, or where that was not a relevant consideration. Surely she will agree that other benefits could be commercial, and if those commercial benefits were such that they were of paramount importance, it would be incumbent on individuals in company law to proceed on that basis.

Dawn Primarolo (Labour, Bristol South)

With regard to the revised regulations, it may help if I tell the hon. Gentleman what the next point is. I am sure that he is not going to dispute with me that the concept of main benefit is widely used in existing tax legislation, so it is hardly unfamiliar to advisers. The second point concerned putting in place new filters that focus on factors identified with the innovative use of sophisticated financial products to gain a tax advantage that could be sold at a premium, as contrasted with the routine use of financial products that an adviser in the relevant tax field might be expected to put forward.

That deals with the point raised by the hon. Member for Arundel and South Downs about not interfering with the proper advice that might be given to a client who was seeking that advice, and including a list of financial products to which disclosure does not apply. ISAs and finance leasing will be on that list. Those changes will ensure that disclosures are required only in respect of financial product-based arrangements that pose the greatest potential risk to the Exchequer. As I said, the closing date for consultation on the regulations is 30 June, so I should not wish to mislead the Committee, or anyone still wishing to make submissions, that the Government will not listen sympathetically to any further points that are made.

The other point that the hon. Gentleman raised concerned the operative date of 1 August. I do not propose to change the planned date for the disclosure regime. However, in recognition of the fact that promoters will have little time to put appropriate systems in place and train staff between the finalisation of the rules and the start date, we shall make the following changes to the commencement rules and regulations.

Where the relevant date for disclosure falls on or after 1 August, the time limit for making the disclosure will be 30 September 2004, or five days, whichever is later. There has been no evidence of arrangements

involving financial products being actively marketed since Budget day. In view of that and the changes that we shall be making to the draft regulations, and to demonstrate how fair the Government will be with regard to the disclosure rules, there will no longer be a requirement to disclose arrangements from 18 March or 23 April 2004, as is currently set out in clause 302. Instead, promoters will be required only to disclose arrangements involving financial products where the relevant date falls on or after today. Promoters will be given until the 31 October 2004 to make the disclosure in respect of the financial product arrangement with the relevant date falling on or between 22 June 2004 and 31 July 2004.

However, there is evidence that arrangements involving employment products have been actively marketed, so I am not proposing any changes to the requirements in clause 302 for those to be disclosed where the relevant date falls on or after 18 March or 23 April 2004, as appropriate. Regulations will allow promoters until 31 October 2004 to make disclosures in respect of employment products where the relevant date falls on or before 31 July 2004. Those changes will therefore give promoters sufficient time to make the transition without compromising the objectives of the new scheme.

I am extremely grateful, Mr. McWilliam, for your tolerance in allowing me to respond on clause 290 to the detailed points made by the hon. Members for Arundel and South Downs and for Torridge and West Devon. I want to indicate the Government's intention on a number of other issues, but I am keen to ensure that the Committee is clear that, in establishing clause 290 and clauses that we have yet to discuss, we will approach the issues in a proportionate, fair and sensible fashion, while still attempting to ensure that we receive disclosure of the abusive schemes that we seek to deter. That will place the Government in a sensible position in which to take decisions on future actions. I commend this clause to the Committee.

John McWilliam (Labour, Blaydon)

It may be for the convenience of the Committee if I give some indication of my intentions for the rest of the evening. There will be at least one Division in the House at 5 o'clock and perhaps two, but in any event I propose to suspend the sitting from 5 until 5.30 to enable hon. Members to have a bit of a break. We shall return at 5.30 and crack on with consideration of the Bill.

Howard Flight (Conservative, Arundel and South Downs)

I thank the Paymaster General for her valuable description of some important refinements and changes that will be made to the regulations, which will answer a number of issues. There is one issue that I did not mention earlier, but the hon. Member for Torridge and West Devon touched on it and I would like to comment on it in the light of my experience over 30 years of a good relationship with the Inland Revenue and of discussing issues and solving problems in a practical manner. I am a little rusty now, because I have been here for seven years. However, one is aware that, since then, quite a lot of things have crept in from north America and other parts of the world that have led to a more aggressive stance. To some extent, the Government have

contributed to that. I am advised, for example, that many bogus swap deals creating artificial losses were entered into by oil companies, which were annoyed and offended at the extra 10 per cent. tax limit on them, for which they felt there was no consent. Taxation is ultimately about consent; it is not just about Governments with large majorities. I hope that we will return to the constructive relationship with the Revenue that has been a hallmark and a great advantage of this country, rather than the aggressive ''you fight, we fight'' situation that we have been moving towards.

I will not press my amendment to a vote, but there is still a long way to go to sort out what will and will not be reportable. Although we still think that the word ''purpose'' is ultimately better and it follows the US model, there is a question as to the difference between benefit and purpose. However, much progress has been achieved this afternoon.

John Burnett (Liberal Democrat, Torridge and West Devon)

I, too, am grateful to the Paymaster General. I would just like to leave her with a couple of points to consider. This relates to fairness for the taxpayer. Will the Inland Revenue publish its anonymised rulings in relation to the schemes? Will those rulings be available to taxpayers as a form of guidance? That would be a considerable help. In addition, the Revenue is quite often well aware of schemes, because they have been used for years. You may well have been aware of them yourself, Mr. McWilliam.

A simple example is the pref trick. It has not been able to be used for some years now, but it was in common use in corporate takeovers. It involved changing the class of shares from ordinary shares to preference shares and the use of renounceable letters of allotment. Stamp duty on many corporate takeovers was therefore avoided. It was negligent for a law firm not to use that form of tax avoidance. If the Revenue, or at least the stamp duty office, did not know about it, it was grossly negligent itself because it was used over many years. That is just one small example. Are we going to allow the Revenue arbitrarily to change its mind and to decide that a system that it has acquiesced in for years should be reportable when it is not now reportable?

Howard Flight (Conservative, Arundel and South Downs)

I thank the hon. Gentleman for raising an important point. The Jones case will be heard before the Inland Revenue Commissioners around 14 June. It is a very bad case of the Revenue wantonly reinterpreting an old provision.

John McWilliam (Labour, Blaydon)

Order. That is sub judice.

John Burnett (Liberal Democrat, Torridge and West Devon)

I will avoid any reference to that case. You quite rightly intervened at that point, Mr. McWilliam. Nevertheless, the hon. Member for Arundel and South Downs has made a powerful point, which he grafted on to the point that I made earlier. We cannot allow the Inland Revenue to chop and change. I want to see a system of anonymised reporting, and if the Revenue makes a ruling, we cannot have it chopping and changing in the future. We want a transparent, fair system.

I return to the points that I made earlier, which are relevant. Who is the promoter, what should they

disclose and why should they disclose it? We want to be certain on those matters and it is incumbent on the legislators—the people promoting this Bill: the Government—to make that abundantly and accurately clear so that all taxpayers know where they stand.

Dawn Primarolo (Labour, Bristol South)

On whether anonymised schemes will be published, I made it clear to the Committee that the disclosure of a scheme and the allocation of a reference number to it—it is not a clearing or ruling system—conveys no status apart from the fact that the scheme has now been disclosed to the Revenue. In order to achieve what the hon. Member for Arundel and South Downs is suggesting in terms of publication, we would have to move to a full ruling system. Discussions and consultations on that, over a considerable time, have shown business and advisers to be against the introduction of a general anti-avoidance regulation. If he wants to advance that as a suggestion, that is entirely a matter for him, but it is not the purpose of the amendments.

I am grateful to the hon. Members for Arundel and South Downs and for Torridge and West Devon for praising the Revenue. The Revenue is charged with acting on our behalf to be fair to all taxpayers, and it needs to be given the proper tools by Parliament to discharge its duty. That is what these clauses propose.

Finally, the hon. Member for Arundel and South Downs made a point about the motivations of those who, in anger, frustration or political disagreement, are driven to use schemes that they know go against the intention of the law, such that they conceal them. I could not possibly comment on that. My experience as a Treasury Minister since 1997 demonstrates, unfortunately, that the advent of tax planning in an aggressive, consistent and systematic assault on the Exchequer is recent, and growing very fast. It is incumbent on any Government to deal with that, and the Government are doing so to try to level the playing field for fair, honest taxpayers. That is what we are seeking to achieve.

Rob Marris (Labour, Wolverhampton South West)

I apologise to the hon. Member for Torridge and West Devon, who called me facile, because I assumed—clearly I was wrong—that he had looked at the draft Tax Avoidance Schemes (Promoters and Prescribed Circumstances) Regulations 2004, the draft Tax Avoidance Schemes (Prescribed Descriptions of Arrangements) Regulations 2004 and the draft Tax Avoidance Schemes (Information) Regulations 2004.

John Burnett (Liberal Democrat, Torridge and West Devon)

Will the hon. Gentleman give way?

Rob Marris (Labour, Wolverhampton South West)

Let me finish. Those draft regulations were circulated to you, Mr. McWilliam, and Committee members under a covering letter written by the Paymaster General dated 13 May, which was six weeks ago.

John Burnett (Liberal Democrat, Torridge and West Devon)

Those regulations are not entirely clear. The hon. Gentleman is aware of that. That has been the tenor of the Paymaster General's comments in the past half hour.

Rob Marris (Labour, Wolverhampton South West)

We are debating the draft regulations. The Paymaster General has already said that certain parts will be changed. However, it is clear that the hon. Gentleman has not gone through them.

Amendment agreed to.

Clause 290, as amended, ordered to stand part of the Bill.

Clause 291 - Meaning of ''promoter''

John McWilliam (Labour, Blaydon)

With this it will be convenient to discuss the following:

Amendment No. 569, in

clause 291, page 241, line 32, leave out from 'taxation' to 'and' in line 36 and insert

'if he makes the notifiable proposal available for implementation to five or more persons.'.

Amendment No. 570, in

clause 291, page 241, line 38, leave out '(ii)'.

Government amendment No. 556.

Amendment No. 3, in

clause 291, page 241, line 41, leave out

'is to any extent responsible'

and insert 'has the primary responsibility'.

Government amendment No. 557.

Howard Flight (Conservative, Arundel and South Downs)

Parties who are involved in the design, organisation or management of arrangements will be caught under clause 291, irrespective of whether they are involved in the tax structuring, because someone else in their organisation provides tax services. Examples would include auditors advising on accounting questions, corporate finance or insolvency specialists involved in transactions, lawyers preparing documents in cases where their own tax specialists are not involved, and trust departments of banks. Equally, providers of tax services would be caught if they were involved in a transaction where a client who was unknown to them was seeking to secure a tax advantage.

The definition of promoter should be restricted to parties who are providing tax structures or tax services in relation to the notification arrangements or proposals in question. There are two amendments on that: Nos. 569 and 570. Amendment No. 3 would not answer fully all the points that I have just made, but it would remove secondary parties from the frame. The existing wording makes any adviser who is involved to any extent liable to report the arrangements to the Inland Revenue, thereby imposing a disproportionate obligation on advisers who are not primarily involved in marketing. In defining the promoter as the person with primary responsibility for the arrangements, amendment No. 3 targets the obligation for reporting in a more focused way on the person who is marketing the scheme.

Going back to the more fundamental point that I made earlier, amendments Nos. 569 and 570 would

limit the definition of promoter to situations in which schemes are being marketed. Surely the new direct tax disclosure regime aims to focus on pre-packaged, mass-marketed tax planning schemes. In our view, it would be wiser to start with measures that we believe are likely to catch 75 to 80 per cent. of what is being sought and to make them work, rather than having arrangements that might not work because they are trying to bite off too much in one fell swoop.

The general aim of the disclosure regime is that, other than with marketed schemes, the concept of disclosure is not an issue with the vast majority of advisers, taxpayers and auditors. In introducing the new disclosure requirement, however, it would be wiser to focus on the sort of pre-packaged schemes that have caused concern in recent years. Those are the schemes that the authorities really want to know about. As drafted, the rules encompass a vast regime of tax planning activities, particularly the great deal of advice that flows from the usual client-adviser relationships pertaining to everyday transactions. I fear that that will give rise to a huge administrative burden on business, on the profession and on the Revenue.

As an aside, I am sure that the Government have considered the US experience in this regard, and I hope that the Paymaster General will be able to comfort me that I have less reason to worry that the Revenue will be snowed under than I fear. As I said, the amendment would limit the disclosure requirements to proposals that have been made available to several persons. The figure of five or more has been chosen as a minimum number to give an indication of real marketing activities. If we are to focus on marketing, we can dispense with the trigger of notifiable arrangements, which becomes unnecessary.

The Minister has said that, at least for now, the Government are not thinking of backing a little towards a key focus on marketing schemes, which we believe would be a very positive step towards making these arrangements work. I hope, however, that she will want to accept my amendment so that some comfort may be given by limiting the number of people who will be caught by the requirements under the clause.

Dawn Primarolo (Labour, Bristol South)

The disclosure rules are designed to apply to all promoters who, in the course of a trade, profession or business, have responsibility for the design and organisation of a notifiable scheme or arrangement. That includes accountants, tax advisers, solicitors, lawyers, barristers and financial institutions such as banks. The definition of promoter is set out in the clause, which restricts it to someone

''in the course of a trade, profession or business which involves the provision to other persons of services relating to taxation''.

That seems perfectly reasonable, but representatives of the accountancy and banking professions have pointed out that defining a promoter in that way might inadvertently exclude banks from any requirement to disclose in a way that we do not intend, because of the particular way in which banks promote these schemes. It is fairly common for banks to devise and market financial products, with which the hon. Gentleman may be familiar, whose purpose is to generate a tax

advantage, without providing their clients with any advice that relates directly to taxation. They could be contributing to the design and modernisation of a scheme, but they are not directly in the business of providing services related to taxation, so there is a risk that they would not be caught by the rules.

Banks have a significant involvement in that market, and it would be unfair if the disclosure rules did not apply to them in the same way as they do to other promoters. That is the point that has been made to the Inland Revenue in consultations. The purpose of the Government amendment is to remove any doubt that banks are subject to disclosure rules as other promoters are. It makes it explicit that they are subject to the rules if they have responsibility for the design, organisation or management of a scheme or arrangement, even where they do not directly provide advice relating to taxation.

That does not represent a widening of the rules, or a change to the underlying policy. It merely confirms the original intention that the rules should apply to all promoters fairly and equally. It does so by using two definitions of banks from existing tax legislation. On their own, those definitions do not go the whole way towards bringing banking groups into the new regime, but subsection (1)(b) and (c) bring in non-banking companies in a banking group.

The Opposition amendments to clause 291 go further than simply clarifying the definition of a promoter. They would narrow that definition in various ways. Amendment Nos. 569 and 570 would reduce the occasions when a promoter must make a disclosure of a scheme that has been designed but not implemented. They would do so by limiting the disclosure requirement to cases where the proposal is made available to five or more persons.

I simply cannot accept or support the amendments. They do not reflect the scale of the potential exposure to the Exchequer, because it could involve five or four individuals who have an enormous amount to gain. The amendments also draw a distinction between notifiable arrangements and notifiable proposals. Notifiable arrangements are where arrangements have been entered into and the transaction has taken place, while notifiable proposals are descriptions of arrangements that have not yet taken place and may never do so.

The amendments are intended to leave in place the obligation on promoters to disclose all notifiable arrangements but to limit the disclosure for notifiable proposals to schemes that have been widely marketed. I understand the hon. Gentleman's good intentions, but the amendments would unfortunately open up the opportunity for promoters to provide bespoke advice to their clients that would never be disclosed to the Revenue. The exposure of the Exchequer could be enormous, and it is not proportionate.

If the amendments were accepted, the bespoke advice would not need to be disclosed as a notifiable proposal. After advising a client to use a scheme, the adviser would step back and ensure that he or she did not know whether the scheme was entered into. That

way, there would never be a relevant date when the promoter needed to make a disclosure, and it could be arranged so that no one else needed to disclose either. They would simply sidestep all the rules.

I hope that hon. Members do not think that I am being cynical, but such is the ingenuity of those who seek to get around the rules that it would be foolish for us to accept amendments that provide ways around the rules that we are already able to understand. It would undermine our legislation and create a significant defect in the disclosure rules that would be exploited by those who are determined to continue to do so. For that reason alone, I must resist the amendment.

Amendment No. 3 would narrow the definition of a promoter to any person who has primary responsibility for the design, organisation or management of the notifiable arrangements. It would do so in respect of notifiable arrangements, but not in respect of those who design them or those who make arrangements available for their implementation. That may be what the Opposition seek to achieve—I do not actually think so—but it is difficult to understand the purpose of such a distinction; it would almost certainly create confusion in practice. If that is not what was intended, the amendment is defective.

The amendment would introduce the subjective concept of a person who has primary responsibility for the design, organisation or management of notifiable arrangements. It would make compliance more difficult for the majority of scheme promoters who want to comply with the disclosure rules. People have been telling us that they think the Government's proposal is good way forward and that we should make it work. If the amendment were accepted, it would not be clear in many cases who has primary responsibility, and restricting the definition of promoter in this way would offer a potential escape route to those who are looking for ways to continue to avoid disclosing. Therefore, I cannot accept amendment No. 3, either.

The hon. Member for Arundel and South Downs referred again to the information that will be coming to the Revenue. Each of the clauses sets the scope and, if there are regulations, provides the filters. I am satisfied that the Revenue's advice at this stage indicates that the filters should produce the disclosures that we seek and that they are proportionate to the challenge that we face, which can be dealt with competently and efficiently by the Revenue. If he presses his amendments to a vote, I will ask my hon. Friends to support the Government's amendments but to oppose those of the Opposition.

Howard Flight (Conservative, Arundel and South Downs)

What the Paymaster General said in her latter comments goes to the heart of the issue, which is whether the narrowing down from what is in the clauses via the regulations focuses on what is wanted. I accept that amendment No. 3, which was tabled very early, is inadequate by itself, but the purpose of the amendments was to focus on the key territory and to seek to avoid reporting that is far too wide. Time will tell, but I urge the Government to be practical in their

use of regulations and to cut them down to achieve what I believe everybody knows they are really after.

Amendment agreed to.

Amendments made: No. 556, in

clause 291, page 241, line 40, leave out from 'of' to 'he' in line 41 and insert 'a relevant business'.

No. 557, in

clause 291, page 242, line 2, at end insert—

'(1A) In this section ''relevant business'' means any trade, profession or business which—

(a) involves the provision to other persons of services relating to taxation, or

(b) is carried on by a bank, as defined by section 840A of the Taxes Act, or by a securities house, as defined by section 209A(4) of that Act.

(1B) For the purposes of this section anything done by a company is to be taken to be done in the course of a relevant business if it is done for the purposes of a relevant business falling within subsection (1A)(b) carried on by another company which is a member of the same group.

(1C) Section 170 of the Taxation of Chargeable Gains Act 1992 has effect for determining for the purposes of subsection (1B) whether two companies are members of the same group, but as if in that section—

(a) for each of the references to a 75 per cent subsidiary there were substituted a reference to a 51 per cent subsidiary, and

(b) subsection (3)(b) and subsections (6) to (8) were omitted.'.—[Dawn Primarolo.]

Clause 291, as amended, ordered to stand part of the Bill.

Sitting suspended.

On resuming—

Clause 292 - Duties of promoter

Howard Flight (Conservative, Arundel and South Downs)

I beg to move amendment No. 368, in

clause 292, page 242, line 6, after 'period', insert

'of not less than 30 days'.

John McWilliam (Labour, Blaydon)

With this it will be convenient to discuss the following:

Government amendments Nos. 558 to 560.

Amendment No. 4, in

clause 292, page 242, line 19, at end insert

'and shall, to the extent, that he is aware of the existence of any other person who is a promoter in relation to the same notifiable arrangements, deliver a copy of the prescribed information to such other person in the prescribed manner.'.

Government amendments Nos. 561, 562 and 564 to 566.

Amendment No. 6, in

clause 297, page 243, line 33, leave out from 'promoter' to end of line 35.

Government amendments Nos. 567 and 568.

Government new clause 22—Power of Board to specify form and manner in which information is provided under Part 7.

Howard Flight (Conservative, Arundel and South Downs)

The clause deals with the duties of a promoter and when and how they are carried out.

Together with clause 293, which deals with non-UK advisers, it provides an outline of the requirements. The time limit imposed is prescribed in the regulations as five days. We feel that such a limit is tight but manageable for mass-marketed pre-packaged schemes, which should be the main objective. However, the time limit causes concern for advice flowing from the normal adviser-client relationship. In particular, it takes no account of the practicalities of business organisation: the need to confirm details, agree with colleagues, exact interpretation, confirm with clients that something has gone through, and so on. That is assuming that the trigger point can be satisfactorily identified in what is often a continuous flow of discussion and information against a tight time scale imposed by business pressures.

While requiring disclosure in five days by promoters, the Inland Revenue is allowed 30 days to register the item and return with a number for the scheme. We can understand and accept the Revenue's wish to have a five-day time scale for the notification of schemes of the type that they want to tackle. However, to impose the time limit on general business relationships shows a lack of appreciation of the practicalities of business. A notification period of 30 days is the minimum that would be acceptable and practical for such disclosures.

It is difficult to propose an amendment to the Finance Bill because a two-stage approach is needed: notification for the pre-packaged scheme should be within five days, but the notification period for more general advice should be 30 days. That would require a rewriting of clause 292. However, I hope that the Minister will give us some comfort that five days is fine for the pre-packaged product ready to be marketed, but that there they may be leeway for individual cases.

Amendment No. 4 is designed to ensure that, if there is more than one promoter, each promoter obliged to make a report keeps other promoters involved so that they know that they are not required to do so.

Amendment No. 6 relates to clause 297. The reporting obligation relates to arrangements falling within certain designated categories that the Treasury believes could give rise to tax advantages. There is no requirement on the Treasury, in making such a designation, to show that tax advantages arise from the arrangements. Therefore, it is surely inappropriate for taxpayers to be required to identify the nature and timing of tax advantages. That also creates an unnecessary additional compliance burden. Once the Revenue has been informed of the existence of arrangements, it will be able to determine the tax advantages flowing from them.

Dawn Primarolo (Labour, Bristol South)

The group of amendments covers several different issues. As the hon. Gentleman explained, amendment No. 368 would allow promoters a minimum period of 30 days to provide the Inland Revenue with the information relating to any notifiable proposal. The detailed rules and several of the practical issues, including this one, are set out in regulations, and I touched on that in the debate on amendments to clause 290.

The consultation on the draft regulations has not concluded and I do not wish to prejudge its outcome, but I am not aware of any persuasive argument for allowing longer than five days, except in the early days of the new regime, and I have already dealt with that.

The promoters will already have the information that the Revenue requires at the time that they sell or market the scheme, so they should be able to comply. They know what the schemes are, and to market them they must know what they are about, so I do not know why five days is considered unreasonable. They can get schemes into operation in less than five days in order to duck under legislation being introduced at the end of the financial year, so they can certainly manage it in the situation under discussion.

Howard Flight (Conservative, Arundel and South Downs)

I entirely agree that five days is perfectly practical for schemes being marketed. The issue is the grey territory, where as I mentioned there may be an obligation in takeover or active business situations. In those situations, five days is not practical.

Dawn Primarolo (Labour, Bristol South)

With respect to the hon. Gentleman, the promoters either know that they are selling a scheme or they do not. They either know the contents of the scheme that they are recommending or they do not. If they know, they should disclose it, and if they do not, they should not be recommending it.

The hon. Gentleman mentions a grey area. Schemes are amended as they are tried out on the market, and they can be refined as advice is subsequently given. He has not made any case for why the promoter cannot comply with the Revenue within five days but can give speedy advice to clients. The disclosure requires the same compliance.

I am not attracted to increasing the time limit to 30 days. It would seriously undermine the effectiveness of the disclosure rules. We are discussing highly sophisticated, specialised and able groups of professionals, and five days is not a hurdle to them.

John Burnett (Liberal Democrat, Torridge and West Devon)

The Paymaster General has talked about highly professional and able people, but they have a right to know where they stand as well. Have I understood her correctly? Does a proposal becomes notifiable when it is sold or when it is marketed to the public?

Dawn Primarolo (Labour, Bristol South)

We are not talking about a general anti-avoidance regulation, but about disclosure of information to the Inland Revenue. The promoters will have the information that is required by the Revenue at the time they market or sell the scheme, so they should be able to comply with the five days. I have no intention of going back over my rather long contribution on clause 290, where I specifically set out the issues relating to the regulations.

No case has been made for 30 days. People would prefer it, but it opens up a window that would make the operation of these rules intolerable.

John Burnett (Liberal Democrat, Torridge and West Devon)

Will the Paymaster General give way?

Dawn Primarolo (Labour, Bristol South)

The hon. Member for Arundel and South Downs has moved his amendment. If I can respond to that and his other amendments, the hon. Member for Torridge and West Devon can then make his point and of course I shall come back to him.

John McWilliam (Labour, Blaydon)

Order. It may assist members of the Committee if I remind them that I said when I was allowing the debate to go particularly wide on clause 290 that that clause encompassed all this group of clauses. I caution the Committee that, if hon. Members, having had the latitude that I have given them, insist on making arguments that have already been made, I shall have to take that into consideration when I make a judgment about tedious repetition.

Dawn Primarolo (Labour, Bristol South)

I understand that amendment No. 4 addresses the situation where a number of people are promoters of a particular scheme by requiring the promoter who notifies the Revenue to copy that notification to all other promoters. The purpose is to enable those other promoters to be satisfied that their duty to disclose details of those arrangements has been discharged by the notification.

The amendment does not achieve that purpose, as it applies only to the disclosure of the notifiable arrangement. The Government expect the majority of disclosures to be made in respect of notifiable proposals, which are likely to involve more than one promoter. Therefore, the amendment would not ensure that other promoters knew when the disclosure requirement in respect of the notifiable proposal had been complied with. It would simply impose another compliance burden on some promoters in certain circumstances.

The Government recognise that there are concerns about the way in which the disclosure rules apply where there are multiple promoters for one scheme, and I have outlined some of the steps that will be taken to address those concerns. I shall not try your patience, Mr. McWilliam, by going over the steps again, but they will be included in the revised regulations, to which I referred in the debate on clause 290. The changes will ensure that only those at the heart of the scheme or arrangement are treated as the promoters. I hope that that deals with the points raised by the hon. Member for Arundel and South Downs. I am happy to offer, even before he asks me, to write to him to reiterate the points that I made on clause 290 and to say why that would be the case, instead of repeating it now.

Taxpayers who use the notifiable schemes are required by clause 297 as part of their normal tax return to provide the Revenue with the scheme number, and they must also disclose when they expect the tax advantage relating from the notifiable arrangements to arise. Amendment No. 6 would remove the latter obligation, but by doing so it would lead to unnecessary inquiries into the taxpayers' tax returns. Again, I can see the hon. Gentleman's motivation, but the amendment could increase inquiries, and we should avoid that.

Clause 297 also requires taxpayers to put the number on their tax return every year until any tax advantage arising from the scheme has been exhausted. The aim is to enable the Revenue to see in which year or years there is tax at risk. The Revenue will want to consider making inquiries into taxpayers'

tax returns for these years, in accordance with the normal risk assessments.

The amendment would deny the Revenue that information—I hope that I will be forgiven for again stretching beyond the clause by referring to such powers. That would cause the Revenue to commence inquiries in some cases when no tax was at risk. That would not only be a waste of Revenue time but create additional and unnecessary compliance burdens for the taxpayer for all the reasons that we have previously discussed with regard to these clauses.

The Government are of the view that those who use the schemes at which the rules are aimed will have no difficulty in knowing the time when the tax advantage arises, either because the promoter will tell them, or because they will have designed the scheme themselves.

I turn to the Government amendments grouped here, apart from Government amendment No. 559. Those amendments deal with the power to prescribe in regulations the form and manner in which the information about notifiable schemes is provided to the Revenue. They address two points. First, an inconsistency in the language has raised questions as to whether it means different things in different places. For example, clauses 292, 293 and 294 refer to information ''in the prescribed manner'', but clause 296 refers to ''the prescribed form'' alone. Meanwhile, clause 297 refers to

''the prescribed form and manner'',

and to

''the prescribed time or times''.

We concede that that could lead to uncertainty. Therefore, the amendments tidy things up by using standard wording.

Secondly, as it is currently drafted, the legislation requires Revenue forms on which disclosure is to be made to be prescribed in regulations. It would be inappropriate for Parliament to introduce a new statutory instrument each time the Revenue wishes to make a minor change to the form. Accordingly, these amendments remove the power of the Board of Inland Revenue to prescribe the form and manner of disclosures in regulations and replace it with a power to specify the form and manner through the Revenue's normal administrative processes.

Parliamentary draftsmen have inserted a new clause, rather than an amendment to the existing clause. I am advised that it would be inappropriate to include it in any existing clauses. I would be happy to share the reasons why with the Committee but, for time's sake, I think we are all prepared to accept the wisdom of parliamentary counsel on this issue.

It is important to recognise that these amendments together with the new clause do not give the Board any new power. Any change in the content of the form affecting the information to be disclosed will continue to require new regulations.

Government amendment No. 559 makes a drafting change to ensure that there is no inconsistency in language between clauses 292 and 295. The duties of a promoter are described in clause 292. As currently drafted, it refers to ''proposed arrangements'', which is

a term that is not defined and does not appear elsewhere in the clauses. During consultation, the Revenue received representations that the use of the term creates confusion and the amendment therefore removes that reference and replaces it with

''notifiable arrangements implementing the notifiable proposal''.

That makes the language consistent with that in clause 295(1), which refers to ''notifable arrangements'' and to ''notifiable proposal''. Both of those terms are defined in clause 290.

As a result of those concluding remarks, I hope that the hon. Member for Arundel and South Downs will accept that his proposed amendments do not achieve the effect that he desires and that at present no convincing argument has been advanced as to why five days should not remain the period in the legislation. I entirely accept that some have expressed a preference for a longer period, but that is not justified. I, therefore, ask him to consider his position on that and I commend the Government amendments to the Committee.

Rob Marris (Labour, Wolverhampton South West)

The Government amendments have been ably explained by the Paymaster General. As I understand them, they are mostly a tidying-up exercise. Amendments Nos. 4 and 6 are not so much about that. We have already dealt with amendment No. 3 under clause 291. For obvious, reasons amendment No. 5 was not selected, because it can be dealt with by a stand part debate on clause 294. My understanding is that, as a general indication, the lower the amendment number, the earlier it was tabled. That does not necessarily mean that amendment No. 4 was the fourth that was tabled, but there is a strong tendency that a low amendment number indicates an amendment that was tabled early. As I understand it, they are batched together. This is putting a slight gloss on it, but that suggests to me that four of the top six amendments—

John McWilliam (Labour, Blaydon)

Order. May I assist the hon. Gentleman? Amendments are numbered as they come in. They are grouped as they occur in the Bill.

The rest of the debate is in Hansard.