Orders of the Day — Finance (No. 2) Bill

House of Commons, 2 May 2006.

[Sir Alan Haselhurst in the Chair]

New Clause 1 — Application of section 18 IHTA 1984

Alan Haselhurst (Deputy Speaker, Saffron Walden)

With this it will be convenient to discuss the following: Amendment (c) to the new clause, in line 1, leave out from 'Act' to end of line 4 and insert—

'all transfers of value made on or after 22nd March 2006 which would have been exempt under section 18 of the Inheritance Tax Act 1984 (transfers between spouses) if made immediately prior to 22nd March 2006 shall continue to be exempt.'.

Amendment (a) to the new clause, in line 2, at end insert—

'written into trust by will, life assurance policy and lifetime gift'.

Amendment (b) to the new clause, in line 3, after 'spouses', insert 'and civil partners'.

New clause 2—Application of section IHTA 1984 (No. 2)—

'Notwithstanding any provision of this Act, section 18 of the Inheritance Tax Act 1984 (transfers between spouses) shall continue to apply to transfers of value written into trust by will, life assurance policy and lifetime gift to spouses and civil partners for two years until——

(a) a full consultation has been undertaken about the operation of that section;

(b) a Regulatory Impact Assessment of the operation of that section has been completed; and

(c) the impact of the Act on transfers of value written into trust through wills, lifetime gifts and life assurance policies has been calculated.'.

New clause 3—Application of section IHTA 1984 (No. 3)—

'Notwithstanding any provision of this Act, all transfers of value made on the death of a person on or after 22nd March 2006 but before 6th April 2008 which would have been exempt under section 18 of the Inheritance Tax Act 1984 (transfers between spouses) if made immediately prior to 22nd March 2006, shall continue to be exempt.'.

Theresa Villiers (Conservative, Chipping Barnet)

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

The aim of the new clause is to ensure that husbands and wives continue to be free of the burden of inheritance tax when they transfer property to each other; to ensure that nothing in the Bill narrows the operation of the long-established spouse exemption from inheritance tax in section 18 of the Inheritance Tax Act 1984; and to ensure that all transfers covered by section 18 before Budget day will continue to be covered, regardless of other provisions in the Bill, including schedule 20. I am not sure that the Government are minded to accept new clause 1, but if they do so, my hon. Friend the Member for South-West Hertfordshire (Mr. Gauke) will wish to move amendment (c). The Opposition are happy to support that amendment, and hope to press the matter to vote, as it has the same general goal as new clause 1, but has more watertight drafting. In the unlikely event that new clause 1 and amendment (c) are accepted there would still be a number of significant problems with schedule 20, to which the Opposition propose to return in Committee.

Chris Bryant (Labour, Rhondda)

The hon. Lady said that her new clause applies to spouses. For the avoidance of doubt, will she accept amendment (b), which could improve it by including civil partners?

Theresa Villiers (Conservative, Chipping Barnet)

The hon. Gentleman makes a very good point, which I have already taken on board. In my view, section 103 of the Finance Act 2005 means that new clause 1 covers civil partners as well. Essentially, section 103 and the related delegated legislation give civil partners in this context the same rights as spouses. If we solve the problem for spouses, we automatically solve it for civil partners, too.

The Opposition believe that it is vital to save the spouse exemption for husbands, wives and civil partners for the reasons that it was introduced in its present form by the Callaghan Government in 1975—to reflect society's concern for the welfare of bereaved spouses, and to mitigate severe hardship when matrimonial homes had to be sold to pay the tax bill. There are two new modern reasons to reinforce the need to retain the exemption. The first has already been raised by the hon. Member for Rhondda (Chris Bryant). It is important to preserve the spouse exemption for civil partners, to whom it has only just been granted. As I said, if we are successful today in protecting spouses, section 103 of the Finance Act 2005 will protect civil partners. Secondly, rising house prices, particularly in London and the south-east mean that many more middle-income families are caught by inheritance tax, and could therefore be hit by the changes in the Bill.

The Law Society recently conducted a survey asking its members which of their clients would be affected. I shall quote just a few of the answers. They were people from

"every walk of life—teachers/nurses/engineers/computer professionals/office workers/ bank staff/engineers/manual workers—anyone who lives in their own home in the South of England . . . police officers . . . Civil servants, local government officers, doctors . . . shopkeepers: retired people of moderate means who have been prudent . . . office managers . . . self-employed small business men and women (taxi drivers, carpenters, joiners, plumbers, builders, decorators). Ordinary families working hard to pass saved income to children. Second-marriage couples with an average-priced property wishing to make flexible arrangements for spouse and children. All types, not necessarily high earners but prudent savers and budgeters. Any couple with a 3 bed detached or 4 bed semi who have young children. Regular middle income earners. A whole range of ordinary people—people who have tried to work hard and save for their children's future."

Ann Coffey (Labour, Stockport)

Will the hon. Lady tell me at what level she proposes to set inheritance tax?

Theresa Villiers (Conservative, Chipping Barnet)

We are not talking about the bands of inheritance tax—that is not the debate—but about new additional and penal inheritance tax charges that will apply to circumstances that are now altogether free of inheritance tax.

On Second Reading, the Paymaster General said that the measures on trust proposed in the Bill were aimed at preventing "wealthy individuals" from

"using trusts . . . to shelter their wealth from inheritance tax."—[Official Report, 24 April 2006; Vol. 445, c. 460.]

However, trusts seldom give rise to any tax advantages whatever; they are generally tax-neutral. As the impressive coalition of professionals campaigning against these measures has pointed out, the trusts penalised by the Bill are generally motivated by unobjectionable non-tax objectives: family and social objectives, which will become prohibitively expensive as a result of the proposed measures.

Since estate duty was introduced in 1894, trusts have received broadly the same tax treatment as outright gifts. For example, under current rules, a gift on a flexible trust to a spouse, with the remainder going to children at the age of 25, is taxed in the same way as an outright gift of the property to the spouse, which is then passed on to her children on her death. Thus, the tax exemption means that no tax is charged on the first death, but the capital is charged at the full rate when the surviving spouse dies and the property passes to the children.

Far from removing some sort of privileged status, as the Paymaster General claimed on Second Reading, the Government are effectively proposing to introduce additional new and penal tax charges on trusts, treating them more harshly than an outright gift. The Chancellor is actually tearing up a 100-year consensus, repeated only recently by the Revenue in its attempt to maintain a tax system for trusts that does not provide artificial incentives to set up a trust, but equally avoids artificial obstacles to using trusts where they would bring significant non-tax benefits.

Before Budget day, section 18 of the Inheritance Tax Act 1984 exempted gifts on trusts to spouses in exactly the same way as the system operated for outright gifts and transfers. Unless the Bill is amended, it will become almost impossible to set up a trust for a spouse without losing the exemption, as it will incur an immediate inheritance tax charge on the death of the first spouse. The spousal exemption will survive only in cases falling under the definition of an immediate post-death interest, complying with six very narrow and restrictive conditions set out in the new section 49A of the 1984 Act, as proposed in schedule 20.

No one has yet been able to say with certainty how the six opaquely drafted conditions will apply in practice. It seems clear that severe problems will be caused by conditions 1, 3 and 4. Condition 1 states that the gift must take effect by will or intestacy. That means that spouses will no longer be able to set up trusts for one another during their life time without incurring the new charges. A particular concern is that it is not clear that condition 1 will be satisfied where a trust has been established not under a will, but under a pension policy or death in service arrangements, leaving the threat of the new charges applying in those circumstances.

Condition 3 requires that the power to terminate the surviving spouse's life interest is exercised only by the spouse or with the spouse's permission. That sounds technically innocuous, but the net result is that a significant number of trusts created on divorce would fall outside the provisions of condition 3, with the risk of the new charges applying.

Condition 4 provides that the life interest for a surviving spouse will qualify for the exemption only if, following its termination, assets pass absolutely to the beneficiaries. With very limited exceptions, if the property remains in trust after the death of the live tenant, the spouse exemption will not apply. The net effect of those conditions is that, if there is any flexibility in the trust, the spousal exemption is lost and a bereaved spouse or civil partner will face an immediate inheritance tax bill.

Michael Fallon (Conservative, Sevenoaks)

Given that we are dealing either with divorce or the death of one spouse, which is more likely to be the man than the woman, is not the net effect of the restrictions effectively to penalise women rather than men?

Theresa Villiers (Conservative, Chipping Barnet)

My hon. Friend makes a powerful point. The measure will impact with disproportionate harshness on women.

Because of the rule against flexibility, the spouse exemption will be lost in virtually every case where a trust is set up. Until Budget day, a lawyer who drafted a trust without flexibility might easily find herself on the end of a negligence suit. Indeed, flexibility in trusts has been considered so important that Parliament specifically inserted flexibility into trusts via section 32 of the Trustee Act 1925. The Government's response is to say that if people want to keep their spouse exemption, they can change their wills or vary existing trusts and opt for outright gifts or the restrictive trusts that comply with the conditions that I have just outlined in the new section 49A, but this is not an adequate answer.

The proposals will have a disproportionate effect on many people who, for family reasons—not for tax reasons—do not wish to make outright gifts to their spouse. These people face the invidious choice between making arrangements that they believe are inappropriate for their family's welfare, or facing an unwelcome extra tax bill that could require the family home to be sold.

Helen Goodman (Labour, Bishop Auckland)

Can the hon. Lady explain what sort of family reasons those would be?

Theresa Villiers (Conservative, Chipping Barnet)

Certainly. I will come to that in a moment.

Flexibility is built into modern trusts to help people deal with the complexity of family life in modern Britain and provide responsibly for the future of their families. The Law Society survey to which I referred earlier reported one of its members as saying:

"I prepare at least one will every week of my working life—the majority of my clients who have set up life interest trusts in their will do so to protect children from a first marriage whilst looking after the second spouse or as protection for the children of the same marriage—all this talk of tax evasion is nonsense. The traditional family set-up is no more—trusts have evolved in line with this—it is a shame that the Government has sought to undermine this."

Typical everyday instances where people set up flexible trusts include, as the quote suggests, the need to provide both for a spouse from a second marriage and for the children of a first marriage. A trust can be an invaluable aid in achieving the difficult task of mediating between the interests of step-parents and stepchildren. Trusts are also used to provide for children when a surviving spouse is young and likely to remarry and possibly have children from a subsequent marriage, or to enable trustees to continue to look after the interests of a spouse when old age may mean that mental capacity is affected, or when people are not confident enough that they can foretell all the family circumstances that will apply in a few years. One must remember that wills may be made well in advance of death and in the expectation that they will hold good and provide the right answer for many years to come.

Helen Goodman (Labour, Bishop Auckland)

Can the hon. Lady explain why a person would want to set up a trust, rather than changing their will if, for example, they got married again or had more children? I do not see the need for a complicated trust device with special rules.

Theresa Villiers (Conservative, Chipping Barnet)

The trust allows the testator to split the property between his second spouse and his children in a way that he believes is sensible and balances their interests. The typical arrangement is for the second spouse to be given access to the income from the property and the right to live in a property, but for the capital to be preserved and passed on to the children on death.

The legislation ignores the realities of modern family life. Trusts provide an invaluable prop for those who are juggling the competing and sometimes conflicting interests of different family members—a prop that the Government wish to kick away. As Stephen Pallister of solicitors Charles Russell pointed out:

"Thinking of the numerous and obvious reasons why a spouse might leave their estate for the other on death—health, financial difficulties, unstable personality, second marriage and wanting to preserve the capital for the children of a first marriage, etc.—this is a gross mistake by the Government."

Even if people are prepared to sacrifice the flexibility that I have mentioned to avoid the new charges, there are further flaws in the Government's argument that there is no problem with their proposal because people can change their wills or trusts to prevent the new charges from applying. The first problem is that the power to vary the trust is exactly the type of flexibility that the Government seek to outlaw through the restrictive conditions on receiving the spousal exemption, so it seems odd that they are defending their actions by encouraging people to use the system that they propose effectively to outlaw.

Secondly, many variations can be carried out only by going to court—for example, where children are involved—which may not give people permission to vary the trust. The costs of a High Court hearing in the chancery division are prohibitive and will not be justifiable in most of the cases covered by the new rules. Furthermore, there must be a question mark over how well the courts will cope with the significant burden of hearing so many cases.

Frankly, it is not easy to see exactly what tax problem the Revenue is targeting with its proposals. It has indicated informally that its concern is a situation in which the surviving spouse gives up their life interest and distributes all assets to the trust for the next generation. If that is the Revenue's concern, then it is attacking the wrong target. It is not the flexibility in the trusts that allows people to reduce their tax bill in the situation that I have outlined, but the use of the potentially exempt transfer system, which exempts the transfer of the life interest from inheritance tax, if the spouse survives for seven years after they have given up the life interest.

Sharon Hodgson (Labour, Gateshead East and Washington West)

Is it not the case that setting up trusts is just a way for a few wealthy individuals to avoid paying inheritance tax?

Theresa Villiers (Conservative, Chipping Barnet)

As I have said, setting up a trust does not provide inheritance tax advantages. People set up trusts in order to look after their families.

Rather than clobbering all flexible trusts, why not retain the current, long-established rules for trust taxation, which have worked well, but provide that if a spouse's life interest terminates during their lifetime and the assets pass to a continuing flexible trust, then it automatically gives rise to a chargeable transfer, in which case the potentially exempt transfer regime does not apply? That would achieve the result that the Revenue wants more effectively, and it would do so without inflicting the collateral damage of infringing on people's freedom to provide prudently for the future of their families in the way in which they want to and of requiring 1 million wills to be rewritten. We are prepared to work with the Government and expert groups to draft a targeted amendment along those lines.

Dawn Primarolo (Labour, Bristol South)

The hon. Lady has acknowledged that any transfer to a spouse is exempt. Will she explain why somebody would set up a trust during their lifetime to transfer assets that are exempt from inheritance tax to their spouse?

Theresa Villiers (Conservative, Chipping Barnet)

The problem in relation to the creation of lifetime trusts is not nearly as serious as the problem in relation to the creation of trusts on death, because the creation of lifetime trusts is much more unusual. The significant problem concerns the limitations on someone's right to set up a trust on their death.

Dawn Primarolo (Labour, Bristol South)

As the hon. Lady has acknowledged, there will be no change to the rules on the transfer to the spouse on death of all interest in all property. Those rules will not be changed at all by these arrangements, so what is the point that she is trying to make?

Theresa Villiers (Conservative, Chipping Barnet)

The Paymaster General is right that there is no change to the rules on making outright transfers to the spouse. The Government propose to change the rules where trusts are set up for spouses, which is a significant restriction of the spousal exemption. Section 18 of the Inheritance Tax Act 1984 explicitly refers to the ability to set up trusts, and the Paymaster General proposes to limit the ability of people to set up such trusts.

Ann Coffey (Labour, Stockport)

Will the hon. Lady explain to the Committee why she feels comfortable in supporting trusts that protect the wealthiest members of our society from paying inheritance tax?

Theresa Villiers (Conservative, Chipping Barnet)

Trusts protect a wide range of some of the most vulnerable people in our community. If Members do not believe me, they should think back to my quotations from the Law Society—from people who are working on the ground managing people's arrangements for their wills. It is probably in the interests of lawyers for the proposals to go through, because everyone will have to go to them to get their wills changed, yet they care so passionately about the ordinary, middle-income, hardworking, prudent people whom they represent that they are campaigning against the changes in order to enable them to continue to be able to set up the trusts they wish.

Philip Dunne (Conservative, Ludlow)

I am sure that my hon. Friend is aware that for the past six or seven years every solicitor practising family law who has been asked to draw up a will has recommended to their clients that in the event that they have children or have been divorced, or both, it is in their interests that their will is written into a trust, irrespective of the value of assets in their estate. Moreover, given that average house prices are approaching the point whereby several years hence the majority of estates are likely to fall within the inheritance tax net, we are talking not about the rich but about householders.

Theresa Villiers (Conservative, Chipping Barnet)

I am grateful to my hon. Friend. For many years, it has been a standard part of more or less every will drafted for a family to include a trust because those arrangements make sense in balancing the different interests of different family members.

While I am broadly sympathetic to the objectives of the Liberal Democrat amendments, I prefer the approach taken in new clause 1 and amendment (c). I appreciate the importance of safeguarding the interests of civil partners, but new clause 1 and amendment (c) already cover that when read in conjunction with the existing legislation.

On new clause 2, I agree that postponement of the measures to give time for consultation and reflection would be very welcome. Amendment (a) and new clause 2 refer to life assurance. On Second Reading, the Chief Secretary said that life assurance policies are not affected by the Bill. If that is the Government's aim, I am not convinced that they have yet achieved it. Although reassurance on the point was rushed into the explanatory notes at the last minute, Kevin Martin, president of the Law Society, later disclosed:

"The Revenue has confirmed to us that the Finance Bill does indeed contain nothing on this. There is no specific exclusion for life policy trusts as has been widely claimed. Millions of wills and life policy trusts may be caught."

The Revenue's assurances on life policies seem to be based on the view that premium payments are not additions to the trust because they are made pursuant to the terms of the policy contract. That contested view of the legal position is scant comfort for the policyholders who could be hit with the new IHT charges. Skandia Life has said that as many as 4.5 million people could be affected. In any event, life policies settled on accumulation and maintenance trusts would still be affected. The problem has not been solved, and I hope that the Government will consider taking appropriate measures to tackle it in the Bill.

I urge the Government to accept new clause 1 and amendment (c) and reverse their decision to impose new inheritance tax charges on trusts for spouses and civil partners. I urge them to scrap all the penal new inheritance tax charges that they are proposing. First, no proper consultation has taken place on these new taxes. The Chancellor left them out of his Budget speech and the Revenue failed to mention them in the entirety of a detailed two-year consultation process that it carried out on the taxation of trusts. Secondly, these taxes are retrospective. They apply to existing wills and trusts, many of which will be expensive, difficult and in some cases impossible to amend. Thirdly, no effective assessment has been made of their impact. Upwards of 1 million wills of ordinary working people may need to be reviewed and rewritten, with all the huge costs that that would entail. Finally, they would amount to a tax on prudent families and impact harshly on thousands of ordinary, hardworking people whose only crime is to provide responsibly for their families and to plan for an uncertain future.

If these harsh new tax proposals are anything to go by, the future that middle England faces in Brown's Britain is more uncertain and grim than ever.

Chris Bryant (Labour, Rhondda)

I intend to speak briefly because I want to make only two points.

First, although the hon. Member for Chipping Barnet (Mrs. Villiers) sounded reasonable, she exaggerated the need for any changes to the Government's proposals. Indeed, the hon. Member for Ludlow (Mr. Dunne), who perhaps owns property that far exceeds the expectations of any of my constituents, gave the game away when he said that half of all properties in Britain will soon—in a matter of a few years—go over the threshold. Not a single property in the Rhondda sells at £300,000. The idea that 50 per cent. of estates in the next few years will reach £325,000 is extraordinary. The hon. Gentleman's mathematics need to be better because between 94 and 96 per cent. of estates do not reach that threshold today and will not do so with the increases in the threshold that the Bill proposes.

Philip Dunne (Conservative, Ludlow)

Clearly, I am not familiar with property values in the Rhondda, but I know those in my constituency of Ludlow, where the average property value exceeds £200,000. I understand that the average property value in the south-east of England exceeds £300,000.

Chris Bryant (Labour, Rhondda)

The hon. Gentleman can speak for his constituency, but I dare to suggest that if he considers the whole country, his statement that 50 per cent. of estates will be valued at more than £325,000 in the next few years is a gross exaggeration.

When the hon. Member for Chipping Barnet gave her list of teachers, fire officers and others, she appeared to suggest that all of them—every teacher in the country—will suddenly have to put together a new will and a new trust. She clearly has not met teachers in my constituency, or in the majority of constituencies, who will not get anywhere near the £325,000 figure. Consequently, her comments constitute scaremongering, which is an inappropriate approach to the Bill.

Secondly, the reason for my opposition to new clause 1 and my wholehearted support for the Government's proposals is that there are two alternative directions of travel in which we can move on inheritance tax. One is to undermine inheritance tax—not necessarily by pledging to abolish it, but by suggesting that one disagrees with it and would like to abolish it even if one does not have the gumption to say so. On the other hand—I may be about to step into old-fashioned shoes—some of us believe in inheritance tax for the simple reason that the greatest source of inequality and inequity in British society is inherited wealth. If we do nothing, especially when the wealthiest in our society are doing extremely well, to undermine the progress towards greater inequality, we undermine the fabric of the society in which I want and choose to live.

The hon. Lady was wrong to table new clause 1. We need to do what the Government propose and try to ensure that there are not many different ways of exempting oneself from inheritance tax and that there are not ways that are especially available to the wealthiest in society, who can afford expensive consultants on tax and other matters.

John Thurso (Liberal Democrat, Caithness, Sutherland and Easter Ross)

Will the hon. Gentleman give way?

Chris Bryant (Labour, Rhondda)

Of course I give way to the hon. Gentleman, whose honour itself is inherited.

John Thurso (Liberal Democrat, Caithness, Sutherland and Easter Ross)

The hon. Gentleman is too kind. I quite understand the logic of his argument, but will he tell me whether he would like the Government to remove all exemptions to inheritance tax and to apply it to everyone across the board with no exceptions?

Chris Bryant (Labour, Rhondda)

No. This is another area in which the hon. Member for Chipping Barnet exaggerated earlier. She seemed to suggest that spouses and civil partners were suddenly going to face a new problem in relation to inheritance tax. I do not believe that to be true; it is an exaggeration. However, the Paymaster General might want to clarify the one genuine point that the hon. Lady raised when she described the situation of someone who remarries and wants to ensure that some of their property goes to the children of their first marriage, and that the second wife is happy with that arrangement, as is often the case. Perhaps the Paymaster General could clarify precisely how that will still be possible.

To return to the question that the hon. Member for Caithness, Sutherland and Easter Ross (John Thurso) asked me, of course there should be exemptions, and the most important are those for spouses and civil partners.

John Redwood (Conservative, Wokingham)

Is the hon. Gentleman saying that prospects under Labour are so poor in his part of the world that no one there will ever reach the inheritance tax threshold?

Chris Bryant (Labour, Rhondda)

No. The right hon. Gentleman misunderstands the economy of south Wales, just as he did when he was Secretary of State for Wales. I must point out to him that there are more people in paid employment with good prospects today because of the national minimum wage, which he opposed. However, if I continue in that vein, Sir Alan, you will tell me that I am straying somewhat from new clause 1, and I did promise to draw my remarks to a close fairly swiftly.

Inheritance tax is about paying a fair share, and the proposal by the hon. Member for Chipping Barnet tries to undermine the concept of a fair share. We are right to oppose new clause 1.

Julia Goldsworthy (Liberal Democrat, Falmouth and Camborne)

As we have heard, there is a divergence of opinion on what the Bill means. The Red Book suggests that only £15 million would be raised by the changes to inheritance tax and trusts, and that the new regulations would affect only a small number of people. However, the evidence given to the Treasury Committee by John Whiting suggested that the changes would affect a lot of everyday arrangements and a huge number of individuals. The Times suggested that they would affect 100,000 families, and the Society of Trust and Estate Practitioners went further, estimating that at least 1 million wills would be affected. The society also estimated that the average cost of rewriting a will was £250. If we multiply that by 1 million, we see that the cost to individuals of rewriting their wills would stand at £250 million, while the benefit to the Treasury of the changes would be £15 million. It is easy to see the disparity between the number of people likely to be affected and the amount of money raised.

Skandia estimated that up to 4.5 million life insurance policies could be affected by the changes, because so many families have life insurance policies written into trusts. Given that the nil rate band does not stay in line with inflation, more and more families will be drawn into the lower end of the system. Therefore, it is not only those who presently fall into the inheritance tax band who will be going back to their solicitors to change their life insurance policies. This will also affect people who are unsure at what point in the future their estate might fall into the inheritance tax band.

Ann Coffey (Labour, Stockport)

Will the hon. Lady tell us at what level her party proposes to set inheritance tax?

Julia Goldsworthy (Liberal Democrat, Falmouth and Camborne)

I am very pleased to tell the hon. Lady that we will shortly be announcing a fundamental review of the taxation system, in which all will be revealed. That review will look into making the taxation system fairer and more progressive.

Dawn Primarolo (Labour, Bristol South)

When the hon. Lady announces the outcome of that review, will it contain the principle that the rules apply to everyone and that no one is allowed to get round them? If so, how would her party enforce them?

Julia Goldsworthy (Liberal Democrat, Falmouth and Camborne)

As I said, the system will be fairer and simpler. The hon. Members for Rhondda (Chris Bryant) and for Chipping Barnet (Mrs. Villiers) do, in fact, agree on something. Fundamentally, the issue raised by new clause 1 is that of spouse exemption and whether that is changed by the Bill. There is a real lack of clarity, and all the new clauses and the amendments to them are intended to make the situation clearer. Even if the Paymaster General argues that it is already clear, members of the public and professionals have a different interpretation of what the regulations mean.

I can see the good intentions of new clause 1, but its argument is slightly circular—that anything exempt under the new Act will continue to be exempt—and does not make sense. The amendment tabled by the hon. Member for South-West Hertfordshire (Mr. Gauke) improves his Front-Bench team's phrasing and overcomes that tautology. New clause 2, tabled by Liberal Democrat Members, extends that and calls for a further period of time to have elapsed so that the implications of the legislation can be made absolutely clear, not least for individuals who have died since the Budget either intestate or with their will written into trust. At the moment, the cases of those individuals are subject to considerable uncertainty. I am glad that the hon. Member for Rhondda approves of amendment (b), which, for the avoidance of any doubt whatever, makes it clear that civil partners will also fall under the spousal exemption.

New clause 2 seeks a delay in the implementation of the Act until its impact is fully assessed and understood. Debate in the House and outside shows continuing disagreement about the extent of that impact. Making it explicit that a full consultation will take place would be appreciated, as that did not happen before the proposals in the Bill were put forward. I understand that a partial regulatory impact assessment has been undertaken, but the new clause would ensure that there would be a full regulatory impact. Is the Paymaster General prepared to publish that partial regulatory impact assessment before the relevant clauses are considered in Committee? Will she also provide longer-term projections of the revenue that she estimates the measures will gather? The Red Book gives only a limited time scale and shows that, according to the Government's estimates, the amount of money will be small. Clearly, the professionals think that the opposite might be the case. All the measures in new clause 2 would help to inform the public and make clear what the impact and the revenue implications for the Treasury will be.

As I said, new clause 3 echoes the theme of the amendment tabled by the hon. Member for South-West Hertfordshire and extends it. As well as making it absolutely clear that there will be no retrospection for applied transfers of value written into trust made prior to 22 March, it makes provision for people who have died intestate with dependants since 22 March. Currently, their estates are in limbo, and it is not clear how the new regime will apply to them. Fundamentally, it preserves the existing rules of exemption for two years until the new system and its implications are fully established. It also sorts out what happens in relation to people who die in the intervening period.

Surely the fundamental anomaly is that, under the existing regulations, someone can still make a lifetime gift free of inheritance tax if they do not die within seven years. That has not been redressed by the Bill. The changes proposed by the Bill impact on people who are not cash-rich, cannot make cash gifts in kind and thereby avoid inheritance tax, and have houses that have increased greatly in value in the many years that they have lived in them. In my constituency, for example, average house prices are increasing so rapidly, and the gap between house prices and incomes is so great, that more and more households are falling into inheritance tax.

Can the Paymaster General be explicit about what mischief has been done that the Government are trying to overcome, and about their assessment of the impact of any avoidance under the existing trust regime? Will the Government respond to the Treasury Committee's request that they should provide detailed information about how they arrived at their estimate that the new rules on the tax treatment of certain trusts will affect only a "minority of a minority" of the 100,000 discretionary trusts? Will they do that before clause 57 and schedule 20 are considered in Committee?

If, as the Government claim, existing spouse exemptions and other reliefs from inheritance tax will continue to apply when a trust is set up in the case of an individual with dependants dying intestate, can they explain why the professionals beg to differ? Can they specify where that is explicit in the Bill, and can they clearly demonstrate why the new clauses and the amendments to new clause 1 are not necessary? Along with the professionals and many members of the public, I would welcome more clarity, certainty and evidence-based policy-making in this regard.

John Redwood (Conservative, Wokingham)

My hon. Friend the Member for Chipping Barnet (Mrs. Villiers) has identified an extremely important problem, which the Government would be well advised to take seriously.

I do not expect to be a beneficiary of any trust of this kind. I have created no such family trusts in my own family. I no longer have a spouse, so I have no direct interest in that context, either. I sought and gained a clean-break divorce settlement, so the divorce did not trigger the establishment of any trust. I therefore believe that I have approached the matter with independent judgment.

Having exercised my independent judgment, I conclude that there are many people of modest means who, quite legitimately, have taken advice and set up trusts to look after their family interests. In many instances, that was done not on the advice of people who said that it was a tax-efficient way of doing things, but on the advice of those who said that it was the best way of protecting family interests against competing claims within the family—the best way of meeting the legitimate needs and requirements of the children, as against the legitimate needs and requirements of a new spouse or another relative. It might not always be a case of family breakdown; other relatives could be involved, such as grandparents, grandchildren, aunts or uncles. There are numerous combinations for which trusts make a great deal of sense.

One answer that we need to tease out of the Government involves the extent to which the legislation appears to be retrospective. We would all feel easier about it if the Government recognised that over the past nine years they have presided over a tax and legal regime that made it perfectly rational and sensible for families to organise their affairs through trusts. Now they seem to be blowing the whistle. I consider that the Government are legislating retrospectively, in practice if not technically, when they say that they do not like the arrangements that people have made to deal with future events and force them to change those arrangements—arrangements that were made on the basis of good advice and were legal and sensible under the law of the time, which happens to have been approved and supported by this Government over the past nine years.

Rob Marris (Labour, Wolverhampton South West)

I understand what the right hon. Gentleman is saying. Did he support the Inheritance Tax Act 1984? As I recall, that Act changed the previous regime of capital transfer tax to the current inheritance tax regime and was open to the very criticisms that he is now making in regard to retrospectivity and people who plan for the future.

John Redwood (Conservative, Wokingham)

I did not support it because I was not a Member of Parliament at the time. [Interruption.] I am telling the hon. Gentleman the truth. I did not support the legislation, and I dare say that if it contained an element of retrospection I would—as a well-known independent voice—have pointed it out.

Ivan Lewis (Labour, Bury South)

The right hon. Gentleman was a member of the Cabinet.

John Redwood (Conservative, Wokingham)

The Minister may recall that I resigned from the Cabinet over matters of principle because I had reached a point at which I did not agree with that Government. The Minister has walked into a heffalump trap of his own making: I am not the person to tease over sticking to my principles.

Ivan Lewis (Labour, Bury South)

The right hon. Gentleman wanted to be leader.

John Redwood (Conservative, Wokingham)

It was a long time ago, but if the Minister reads my resignation statement he will see that my resignation was not about that; it was about issues of disagreement between myself and the Government. I hope that he will withdraw his uncharitable remark about my wishes on that occasion.

I hope that the Paymaster General will deal with the issue of retrospection. In this and earlier debates, a number of Members have drawn attention to the high cost, for families of modest means, of going over ground that they thought had been resolved at the time of the original trust settlement—when the grandparents made their offer, when the divorce was agreed, or when something else triggered the arrangement.

The Labour party seems to want to stretch the debate to discover what are the general intentions in relation to inheritance tax. I know that you are very careful to maintain order, Sir Alan, but I will say this: of course I think that a much higher threshold for inheritance tax would be helpful generally and would deal with some of the problems that we seem to be encountering across the Floor today.

Helen Goodman (Labour, Bishop Auckland)

If the right hon. Gentleman thinks that, can he also tell us whether agrees or disagrees with the right hon. Member for West Dorset (Mr. Letwin), who says that equality is a problem in this regard? How does the right hon. Member for Wokingham (Mr. Redwood) reconcile those two ideas?

John Redwood (Conservative, Wokingham)

I am a great believer in equality of opportunity, and the way to have a much richer and more prosperous society is to give greater freedom and to set lower taxes, so that more people can participate in such prosperity. That is exactly the point that I was trying to tease out of the hon. Member for Rhondda (Chris Bryant). I hope that he is proud to represent his constituency and that he expects some of his constituents to use the opportunities provided under even a Labour Government to build businesses and buy properties, for example, in order to become more prosperous, thereby coming into the tax regime that this Government have so carefully designed to entrap them.

Chris Bryant (Labour, Rhondda)

The trouble is that when inherited wealth is allowed to ride untrammelled across society, it is much more difficult to achieve equality of opportunity.

John Redwood (Conservative, Wokingham)

I do not think that that is true; indeed, there are many examples to the contrary. I have not inherited any wealth up to this point and I do not have great prospects in that regard, but I do not begrudge those who come from much richer families than mine doing so. If that money trickles down through the generations, it very often does far more good than if it trickles into the sticky hands of the Chancellor of the Exchequer, which seems the only alternative on offer in today's debate.

It would be much better if the inheritance tax system recognised that a person is not very rich just because they have a flat or house that might now be worth a lot of money. There are a number of elderly residents in Kensington and Chelsea living in two or three-bedroom flats that are perhaps worth the best part of £1 million who might be on quite low incomes. Is the Labour party saying that those people must move to realise their asset and to show that they have some wealth? I want to live in a country where, if such people want to carry on living in their two-bedroom flats, they can do so. They should not be treated as rich because, even though they have low incomes and have no other assets to pay all the taxes that Labour now wants to impose on them, they happen to live in a part of the country that has rather high flat and house prices.

I hope that the Paymaster General will deal with the inequality of house prices nationwide, which is not always, as Labour seems to imply, good news for those in high house price areas. Such people could be worse off than those in low house price areas because they have to pay a disproportionately higher proportion of their assets and income in order to secure and maintain their property. In other words, the principle can work in the opposite direction.

The final issue is what should happen in future. If the Paymaster General can persuade us that there is no effective element of retrospection and that there is an injustice to tackle, we have then to test whether she has found a route to tackling the injustice and inequality that she sees, and whether she would do so in a way that would make Britain a more prosperous and equal society. I suspect that she will achieve the opposite of what she wishes to achieve.

I do not want to live in a country where only the super-rich can prosper by—thanks to their access to the really good lawyers—finding a way around the more complicated regulations that the Government have come up with. I do not want to live in a society that sends out the message that it is better to go offshore or live abroad. I know that offshore trusts have been popular with some Labour donors and Ministers, but they are not a particularly good thing to encourage. It is much better to have an honest, low-tax system that is the same for everybody, and which encourages more enterprise and success.

I hope that the Paymaster General will think twice, three times or however long it takes and understand that her proposals contain several objectionable parts. First, retrospection will disrupt family arrangements. Secondly, the suspicion that all trusts are evil tax dodges is clearly not true. Thirdly, on the Paymaster General's idea that such complexity will squeeze the rich and help the poor, I suspect that the rich will escape because they will have access to good lawyers and accountants and can always go offshore. In short, I urge the Government to drop this proposal.

David Gauke (Conservative, South West Hertfordshire)

I had hoped that we might find a few areas of consensus on this issue. There is clearly a range of views on inheritance tax, but I disagree with the hon. Member for Rhondda (Chris Bryant), who suggested that the new clause is an attack on the principle of IHT. Not all my colleagues will agree, but I think that there is a role for inheritance tax in our system. It may not apply to many people in the Rhondda, but it does to a lot of people in South-West Hertfordshire. The rate may also be open to question, but I do not disagree with the basic idea of inheritance tax.

In addition, the saloon bar wisdom is that wealthy people get around paying inheritance tax by using trusts. I see nothing wrong with trying to address genuine tax evasion; wealthy people should not be able to evade the tax when ordinary people in South-West Hertfordshire, Falmouth and Camborne or anywhere else are stuck with the liability.

As my hon. Friend the Member for Chipping Barnet (Mrs. Villiers) said, the Government have expressed the view that, essentially, trusts should be tax-neutral, and I support that. As she also noted, the Revenue's policy in reforming the income and capital tax treatment of trusts has been to create

"a tax system for trusts that does not provide artificial incentives to set up a trust but, equally, avoids artificial obstacles to using trusts where they would bring significant non-tax benefits."

I see nothing wrong with that. Since 1894, when estate duty was introduced, certain types of trust have been equated with outright ownership, and taxed accordingly.

Perhaps the Paymaster General will correct me if I am wrong, but I believe that there is a consensus about the value of the spousal exemption. As my hon. Friend the Member for Chipping Barnet said, it was introduced in its current form in 1975, but in some form or other it dates back to 1896. The need for the exemption is easy to understand; in most cases, an inheritance leads to a windfall, but a death usually results in a fall in income and an element of hardship for the surviving spouse.

In addition, there is usually a shared family home. Given the emotional concerns that follow a loss, it would be unduly harsh for a spouse to have to sell a house to pay an inheritance tax bill. Clearly, the particular circumstances of spouses need to be considered, and the Civil Partnership Act 2004 has extended the number of people in that category. We need to ask a couple of questions about the Bill. Does it continue to apply to tax trusts in the same way as to outright gifts, and does the spousal exemption continue to apply?

The Government might argue that the spousal exemption will apply in respect of immediate post-death interests, but the professional advice that I have seen maintains that that will not work because, in practice, it is almost impossible to meet the conditions. Moreover, it is held to be

"nigh on impossible for one spouse to leave their estate in trust for the other and obtain the spouse exemption."

As my hon. Friend the Member for Chipping Barnet pointed out, there are specific conditions in the draft proposals in respect of inheritance tax that make it very difficult for most trusts to work and still obtain the spousal exemption under the immediate post-death interest definition. Condition 3 requires that the surviving spouse interest can be ended only during her lifetime with her consent. Consequently, a will that states that the surviving spouse has a right to live in a house until remarriage, when the assets pass to the children—the experts say that that is fairly common—will breach that condition and will not be able to benefit from the spousal exemption.

Condition 4 states that, on termination of a surviving spouse's interest, a person will become entitled to the capital outright. However, if the trustees have the right to defer a child's absolute entitlement—again, that is fairly common—then that condition is breached and the spousal exemption is not available.

The immediate post-death interest conditions prohibit flexibility, the need for which was questioned earlier. Again, my hon. Friend the Member for Chipping Barnet dealt with that very well. Complex family arrangements are best dealt with through flexibility. We have heard about the case of a widowed second wife, where there are children from the first marriage, which even the hon. Member for Rhondda acknowledged was an issue. There also cases such as that of a young widow who is expected to remarry and have more children; a widow and children with special needs; a childless marriage where both spouses want their assets to go to their respective nephews and nieces; where a property is complex and may impose management demands best performed by trustees rather than the widow; or where a testator has less than full confidence about the distribution of the property.

Those are all legitimate, reasonable circumstances that a trust is able to address. The trust is a great intellectual achievement of English law and it seems a great pity to dismiss it as the Government seem to be doing. They seem to have a prejudice against trusts as a method of addressing those issues, which relate not to tax evasion or tax minimisation but to personal circumstances.

Dawn Primarolo (Labour, Bristol South)

If I were to tell the hon. Gentleman that the Government have made provision for precisely the situation he describes and that a straightforward trust set up for one beneficiary—an ex-spouse or civil partner—which goes to them before passing absolutely to another person on the death of the beneficiary, retains their existing inheritance tax treatment, including the spousal exemption, would all his problems be settled?

David Gauke (Conservative, South West Hertfordshire)

The right hon. Lady should not take my word; the advice provided by professional after professional is that what the Government are proposing simply will not work. In nearly every case, there is a degree of flexibility, for which the Government are not providing.

Dawn Primarolo (Labour, Bristol South)

So the hon. Gentleman is saying that he does not believe me when I say that there is flexibility for a spouse or an ex-partner to receive an interest that is eventually passed wholly to a subsequent beneficiary. I am telling him that clearly, but he would rather believe people outside the Chamber than me and civil servants.

David Gauke (Conservative, South West Hertfordshire)

I am inclined to believe specialists who work extensively in the field—[Interruption.] If the civil servants had consulted a little more widely—although that is another issue—we might not have found ourselves in these difficulties.

I think that the Government's great concern is that a widow could receive a life interest, terminate the trust and make a lifetime gift and, if she survived for seven years, benefit from provisions relating to potentially exempt transfers. I should be interested to hear from the Paymaster General about the particular difficulties that she considers exist and where the current spousal exemption is being abused. However, as my hon. Friend the Member for Chipping Barnet rightly pointed out, the Government's proposals are an ineffective way of addressing their concern. Better ways could be found by looking at the potentially exempt transfer route, which would address the matter much better than using such an over-sized sledge hammer to hit that particular nut.

I wait with anticipation to hear whether the Paymaster General will argue that one can always vary a trust on death, thereby resolving many of the problems or injustices. However, such a solution requires both that the trust is one that can be varied and a degree of flexibility, which is clearly not something that the Government want to encourage in trusts, although it would be useful in those circumstances. Variation could also be achieved with the consent of the beneficiaries, but that would not be possible if they were minors. In that case, it would be necessary to go to the court, with all the expense that would incur. If the Government chose to use that argument, it would not be persuasive.

The Government say that the provision will affect only a few people and several Labour Members have suggested that it would apply only to a tiny minority of the wealthy. However, over the past few days, I have been bombarded with documents produced by professionals pointing out that they regularly advise the inclusion of a trust in fairly normal wills, and that it is a common, run-of-the-mill device used to protect a family and to address particular family circumstances. As a matter of course, trusts are involved in wills, not for taxation reasons, but because they provide flexibility. The Government appear not to know that, which suggests a lack of consultation, which has marked the process throughout.

Why have the Government done this? Perhaps saloon bar wisdom and the lack of consultation means that they were not aware of the problems that they have caused, but I wonder whether another element is involved, so I want to offer one or two friendly words of warning to the Labour party. The whole approach smacks of a good old go at the toffs, and we have heard one or two comments along the lines this afternoon that just the wealthy and rich are affected, that the policy does not really matter and that it will play quite well perhaps back in the Rhondda.

The Labour party has been extremely successful in the past three elections, and one of the reasons is that the Prime Minister has managed to distance himself from the perception that the Labour party is a bunch of class warriors. Not for the first time, the Chancellor of the Exchequer has waded in and tried to play the class card, just as he did with Laura Spence and Oxford university, when he rushed in and got the facts wrong, did not understand the matter and rather embarrassed himself. I fear that the Government and the Chancellor have done exactly the same thing with this policy. They think that they have made an attack on the very wealthy and the privileged few, when the reality is that large numbers of ordinary people, not the wealthy, will be affected by this policy. The Government have made a misjudgment, and I suggest that they back off; they could start today by accepting the new clause.

Quentin Davies (Conservative, Grantham and Stamford)

This has been a very interesting debate so far, and I want to make three points and to ask a question. Sir Alan, you have allowed the debate to range over the philosophy of inheritance tax—very judiciously, if I may say so—because it is important for the public that we have the opportunity to discuss such matters in the Chamber and this is the obvious opportunity to do so.

Perhaps I can start by saying that my personal view of inheritance tax—a view for which I argued, with no success whatsoever, when I was shadow Paymaster General in the shadow Administration in the 1997 Parliament—is that we should reduce the rate of inheritance tax to 10 per cent. That would put out of business the whole industry of providing ways to avoid inheritance tax by structuring and persuading people to give away their property, they hope, more than seven years before they die and would stop people leaving the country to shelter their assets from inheritance tax. Instead, we would make this country something of a haven for people with assets to shelter from inheritance tax or estate duty, or whatever may exist in their own countries. There would be a major Laffer curve effect, and we would reduce the marginal rate from 40 to 10 per cent. We certainly would not reduce the revenue by anything like that amount; the revenue might even increase. That is my own view of how to deal with the problem, but I have so far failed to persuade my hon. Friends, let alone anyone else, that that is the way forward. Perhaps, one day, we shall make progress along those lines.

Helen Goodman (Labour, Bishop Auckland)

Can the hon. Gentleman explain how the Laffer curve could possibly affect the revenue from inheritance tax? One can understand how it could affect work incentives and the take from income tax, but how could it possibly affect the revenue from inheritance tax?

Quentin Davies (Conservative, Grantham and Stamford)

I do not think that the hon. Lady was listening because I tried to explain how that would happen. First, to avoid inheritance tax quite honourably, sensibly and rationally, a considerable number of people try to give their money away to their children more than seven years before they expect that they might be in danger of dying. Clearly, that is a loss to the Revenue. Clearly, there is an element of gambling about it, but I do not think that people would do that if the rate were only 10 per cent., because of the considerable disadvantages and considerable risks; not least that their children may marry the wrong person, so half the money would go to someone else. There are all sorts of risk of that kind, so people would not go in for those schemes as much as they do currently.

Secondly, people are sometimes influenced in their choice of country of residence by the inheritance tax regime. If we have a 40 per cent. regime in this country, people will not come here with large assets and those with substantial assets will tend to move away. I am explaining this at some length because the hon. Lady obviously did not follow the argument when I presented it in slightly more summarised form a few minutes ago, but it is a serious argument and I suggest that she think about it.

The Laffer curve effect means that one reduces the rate of a tax and, as a result, induces behavioural changes. As a result of that, the revenue from the tax rises. That is what I was arguing—I think reasonably—we could achieve through reducing the rate of inheritance tax. I make that point today because I have tried to make it before in private conversation and got nowhere. Perhaps someone who is listening will pick the idea up and it will eventually get somewhere.

My second point is for the hon. Member for Rhondda (Chris Bryant), who has unfortunately just left the Chamber. He used an extraordinarily bad argument and I am sorry that he is not present. I think that, if he thinks about it, he will confess that it was a bad argument. He said that very few people in his constituency—and, of course, a considerable minority in the country as a whole—have assets that approach the inheritance tax threshold or ever think of setting up a trust in the course of their lives. That is irrespective of the connection between the two things; there may be good arguments, which have nothing whatever to do with inheritance tax, for setting up trusts.

It is perfectly true that the great majority of our fellow citizens do not find themselves in danger of paying IHT or thinking about trusts. However, the hon. Gentleman then suggested that it did not matter if we were making a bad law, because it would affect only a minority of people. That is a bad principle for any legislature to operate on and I would be very sorry indeed if anybody in the British House of Commons thought, on reflection, that that was a sensible way for us to work in this legislature.

Any injustice or perversity is to be avoided and to be regretted if it happens. We must hope, in all our deliberations and decisions, to improve the rationality and fairness of the corpus of law in this country and not to detract from them. If there are problems with the Government's Bill and if it would increase unfairness and perversity, we should reject the proposals, and we should do that irrespective of the number of people who might be sufferers from that irrationality or unfairness. That is a general point of principle.

My third point is that the Government owe us some explanation of their agenda. We have not heard one so far in the debate. They clearly have an agenda—reflected in the Bill—to have a go at trusts. There was an interesting discussion between the Paymaster General and my hon. Friend the Member for South-West Hertfordshire (Mr. Gauke) about the extent to which the proposals in the Bill would remove the exemption from inheritance tax, which the right hon. Lady tells us the Government intend to maintain, in the case of inter-spouse transfers on death—that is to say, inheritance by one spouse from another—in the event that that transfer or inheritance takes places by means of a trust. I cannot see any rational reason at all for saying, "Well, we think that it is a good idea to have an exemption from inheritance tax for spouses, but not if the spouses, for whatever reason, have arranged their affairs so that transfer takes place on death by means of a trust or so that the assets pass into a trust on death." We need to know why the Government want to make such a change and if it is a change that they intend to make, as opposed to an effect that they did not anticipate when they drafted the Bill.

Irrespective of that point, which is a matter for debate between my hon. Friend the Member for Chipping Barnet and the Paymaster General, there are many other areas where the Bill indisputably, and without any apparent reason, attacks trusts in one way or another, or makes the result of people setting up a trust a damaging and perverse one, which it otherwise would not be. For example, the Bill would ensure that the beneficiaries of accumulation and maintenance trusts would have to come into full title of the assets, and could dispose of them without any restriction, when they were 18 years old. It is amazing to me that anybody in this Chamber, irrespective of their political party, thinks that it is a frightfully good idea to give a large amount of capital, in relation to that family's total assets, to a young person of 18 to dispose of quite freely. Is that sensible? The right hon. Lady may want to give her son such an amount at the age of 18, but I certainly would not want to do that to my children because it would be extremely dangerous. Why should the Government try to change the law so as to force that to happen?

Equally, the Government are changing the law to ensure that the only beneficiaries of accumulation and maintenance trusts can be either those who are benefiting from a criminal injuries order, or the beneficiaries of trusts set out by parents. However, let us consider trusts set up by grandparents, people who wish to set up a trust for the benefit of their own children and the children of a dead sister or brother who have been left in difficulty, or, indeed, people with no children who wish to leave money in a trust for the benefit of the children of their dead brother or sister. Why should we penalise such trusts as against trusts set up by parents? What is the Government's agenda?

I am mystified by why the Government have suddenly got it into their head to have a run at trusts. Was it, as has been suggested, a purely emotional and symbolic thing? Did the Paymaster General suddenly think that trusts are nasty because they are associated with richer people? I am sure that that is not the explanation because I know her too well to think that she would suddenly have such a rush of blood to the head and thus decide to draw up such legislation.

Was a rational calculation made of the amount of money that could be squeezed out of the public by changing the rules on trusts? The hon. Member for Falmouth and Camborne (Julia Goldsworthy), who speaks for the Liberal party—she has also left the Chamber—disposed of that one. She said that on the Government's figures, the provisions will result in a net increase in revenue of £15 million. She gave us an estimate of the cost of rewriting trusts and of taxpayers rearranging their affairs that ran to hundreds of millions.

However, even if the hon. Lady's substantial estimate was a little excessive, on the figures that she gave to the Committee, one can easily envisage that a modest estimate of the costs would be tens of millions. On the test of proportionality to which, I think, the Paymaster General and her Government are committed, the provisions thus fail because the incremental revenue bears no relation to the cost to taxpayers, which is basically a cost to the economy. Although the change might be a good thing for the accountancy and legal professions, it will mean that people will incur large costs that are gratuitously imposed by a piece of legislation with a motive that none of us really understands.

Before we go any further, it would be extremely helpful if the Paymaster General gave the Committee an explanation. Perhaps I have, naively, missed an obvious point, but, if so, I am reassured that no hon. Member on either side of the Chamber appears to have grasped it. What was the objective behind targeting trusts? Why have trusts been scheduled for punishment in such a way? What is the rationale behind the approach? We must have rational government in a sophisticated democracy. If the Government bring forward new measures and want to change the law, the burden must be on them to demonstrate that the change is beneficial and sensible. They must show that they have thought the change through from the point of view of the country's economic interests, fairness and justice to individuals and the proportionality of cost, because they are the classic principles on which good law, including good tax law, must always be based.

Brooks Newmark (Conservative, Braintree)

I am getting the sense that I am in a minority in the Committee as I do not have a legal string to my bow. However, my lack of legal training gives me a distinct advantage when it comes to new clause 1, and amendment (c) to it, because I can, at the very least, appreciate the value of clarity. The new clause is a simple appeal for certainty in a Bill that contains less of that quality than might be desired. The number of people who may be affected by the proposed changes to the taxation of trusts has given all hon. Members cause for concern.

Perhaps my closest brush with the law on wills and trusts comes from "Bleak House", which provides a useful parallel to the Government's proposals. The catalogue of potential beneficiaries at the heart of Jarndyce and Jarndyce, where inheritance is squandered, indolence is encouraged and legal proceedings are interminable, bears close comparison to the lists of those who stand to suffer, if the proposals that we are considering are carried into law—namely widows, minors and the vulnerable.

Indeed, Finance Bills as a whole have more than a passing similarity to Jarndyce as Finance Bills

"in course of time become so complicated that no man alive knows what it means"

and nobody

"can talk about it for five minutes without coming to a total disagreement as to all the premises."

The Dickensian fog may have lifted from the Chancery courts but it still sits heavily on schedule 20 and particularly on proposed new section 49A of the Inheritance Tax Act 1984. The Government should be committed to the principle of proportionate rather than punitive taxation, and that commitment is not clear in these provisions.

New clause 1 has a modest aim: to ensure, setting aside all other confusions, that no inheritance tax will be payable on transfers of value between spouses, and not as the hon. Member for Rhondda (Chris Bryant) would have us believe, to avoid inheritance tax completely. The spousal exemption exists to prevent punitive double taxation of an estate. That is a sound proposition, founded on an inoffensive principle. It has, as my hon. Friend the Member for Chipping Barnet (Mrs. Villiers) said, been the subject of consensus since capital transfer tax was introduced by the Labour Government in 1975. The Chief Secretary echoed the need for just such a principle when he spoke on Second Reading about the need to ensure that people pay their fair share of tax. I know from my brief experience in consideration of the National Insurance Contributions Bill that that particular Labour mantra is very much in vogue. The Paymaster General used it four times in one speech. I am glad that she has taught it to colleagues on the Treasury Bench, but the mantra is as nebulous now as it was then.

The use of trusts as a vehicle for asset protection has made them the target of another Dawn raid because they are perceived as being unfair. The fact that trusts exist to protect assets from more than the taxman does not seem to concern the Government overmuch. It is true that the caveat for those suffering from a disability has been preserved, but only for a very limited class of beneficiaries in which no one can be thought of as vulnerable if they are not first found incapable under the Mental Health Act 1983 or are claiming disability benefits. That is a sop to fairness, but in reality it is deeply regressive and inflexible. It takes care of the mad, but not the bad or the sad. It also fails to draw the sting of schedule 20 because fairness has always been at the heart of trusts.

Most often the very reason why trusts exist is to allow for flexible and equitable distribution of assets in the face of changing and unforeseen circumstances. The Government have been keen to acknowledge that trusts have a positive role to play in assisting people to manage their tax affairs, and in particular in holding assets on behalf of vulnerable people. However, vulnerability is not linked, and never has been, exclusively to disability.

Members of the legal profession made a number of representations to me on the many beneficial effects that trusts may have in restraining a rake's progress or in keeping a fool and his gold well acquainted. Many sound arguments that relate to the age at which the interests of younger beneficiaries should vest regrettably go beyond the scope of new clause 1. No doubt, the issue will be revisited in Standing Committee. However, I regard beneficiaries under a trust as vulnerable if their interests would not be adequately protected without that trust.

That point becomes germane in the context of new clause 1 if we consider the number of trusts created at present to protect the interests of children in the event that a parent should remarry. That is a common situation, and it is merely one item on the exhaustive list given by my hon. Friend the Member for Chipping Barnet. As a result of the proposal, many older testators may begin to favour outright gifts to their surviving spouse, rather than risk settling assets on trust, which may fall foul of the spousal exemption and be liable to inheritance tax. Such outright gifts do not allow any measure of flexibility. Furthermore, they do not allow testators to be sure that their children will be provided for if the surviving spouse should decide to favour the other's interests over theirs. Children in that position are undoubtedly vulnerable, so we must ensure that they are protected as before.

Sadly, that state of affairs is not unforeseeable, and it is a nightmare scenario for anyone trying to provide responsibly for a family. Modern matrimonial arrangements are complex, but there should be no doubt about whether people with multiple families will continue to benefit from the existing spousal exemption. We would not want to be responsible for encouraging an epidemic of wicked stepmothers if the provisions encourage the use of outright gifts to the detriment of the prudent protection of children. New clause 1 clarifies interference with the taxation of trusts, which is invidious in principle and may prove unworkable in practice.

Trusts and their taxation are not a subject on which I profess expertise, yet I can readily understand the implication for the average prudent family of any interference with the spousal exemption. The objective of new clause 1 is to offer simple peace of mind to the many people who may be affected by the proposals. Even the legal profession is uncertain about the runaway scope of the changes, and I am more worried about the uncertainty than I am about mere outrage, although we have seen evidence of both. The Law Society, the Chartered Institute of Taxation, the Society of Trust and Estate Practitioners and many other professional bodies have pleaded for clarity. New clause 1 would achieve it by including in the Bill an assurance that surviving spouses will not be subject to inheritance tax if their affairs are structured to maintain flexibility and protection for others.

Stewart Hosie (Scottish National Party, Dundee East)

I am not a tax accountant or a lawyer, and, given the nature of our debate, I am grateful for that. I am grateful, too, for the briefing that right hon. and hon. Members have received from the Law Society of Scotland. I shall ask the Paymaster General a number of questions at the end of my speech, as Members on both sides of the House are deeply concerned about the legislation's impact, intentional or unintentional. The Chartered Institute of Taxation said that

"all the professional bodies hope that HMRC and the government will listen to our representations and modify the proposals to ensure that spouses and civil partners remain exempt and that young and vulnerable people can continue to be protected through trusts without suffering a financial penalty."

Similarly, the Law Society president said:

"This measure will affect millions of ordinary people and not just the very wealthy that the Government claims to be targeting."

The briefing helpfully suggests that it is anomalous that wills involving trusts for the spouse should attract more tax than wills without trusts:

"If no trust is made, no inheritance tax is due until the death of both spouses in a marriage (or partners in a civil partnership). But under the new proposals, if a trust is made, inheritance tax could now be due . . . after the death of the first spouse and again after the death of the second."

Quentin Davies (Conservative, Grantham and Stamford)

I am particularly grateful to the hon. Gentleman for giving way, as I am interrupting his speech to say that he just mentioned a briefing from the Chartered Institute of Taxation, although I have not seen it. It reminded me that I should have mentioned in my earlier intervention—I forgot, Sir Alan—that I am an adviser to the Chartered Institute of Taxation.

Stewart Hosie (Scottish National Party, Dundee East)

I thank the hon. Gentleman, and I am sure that the Committee Chairman will be delighted to hear that.

It is interesting to note that the briefing is signed not just by the Chartered Institute of Taxation and the Law Society, but by a large number of other bodies. It discusses the key topic of inheritance tax on life assurance policy pay-outs, stating:

"It is usual for a life assurance policy pay-out to be written in trust for the spouse or children".

It identifies two problems that may result from the new legislation, and continues:

"The proceeds may now be liable to inheritance tax in two circumstances. First, if the life assured dies before the ten-year anniversary when the trust was originally taken out and the trust is not ended at the ten-year anniversary . . . Second, if the person taking out the life cover is in ill health at the ten-year anniversary of the trust."

We heard earlier today that the life insurance company, Skandia, believes that some 4.5 million policies may be affected as a result of the changes.

I have a few questions for the Paymaster General. How many people will be affected by the new regime? Estimates seem to range from almost none to many millions. Will spouses be affected by double taxation—a key point, on which absolute clarity would be particularly helpful? How many policies currently written into trusts may be affected, and have the Government considered that problem? How many wills will need to be changed? Finally, what consultation was carried out with the industry—the life insurance industry, the pensions industry and the legal profession? All relevant bodies seem to be saying that it was very little, and perhaps that explains why the Government are in such a pickle over this problem.

Philip Dunne (Conservative, Ludlow)

I remind the Committee of my entry in the Register of Members' Interests. I am a settlor of a trust, which I set up for my children with assets that I generated from my own endeavours—in other words, they were not inherited by me prior to my becoming a Member of the House.

I am also the beneficiary of a trust and should like to explain why it was set up. My father set it up in order to gift some assets to me, as a result of my asking a question to his adviser about whether I would be able to borrow against those assets for my other activities. So concerned was my father when he heard that he could be making me a gift that I might then seek to leverage on receipt that he put the assets into a trust, precisely in order to protect them. He was not prepared to allow me, even though I was over 25, to use those assets for a purpose other than he had intended.

Dawn Primarolo (Labour, Bristol South)

Given that the hon. Gentleman does not have control, is the trust subject to inheritance tax?

Philip Dunne (Conservative, Ludlow)

I am pleased to say that my father survived more than seven years after the gift was made, so it benefits from the potentially exempt transfer regime.

Dawn Primarolo (Labour, Bristol South)

I am grateful to the hon. Gentleman, who makes my point that changes to trusts are covered either by the spousal exemption or the seven years provision.

Philip Dunne (Conservative, Ludlow)

I should like now to deal with the deficiencies of the regime, which I am afraid that the Paymaster missed out of her speech. The first has been mentioned—the retrospective nature of the legislation. I intervened in that regard earlier but would like some definition of the numbers of people involved. It is difficult to secure accurate figures, but my understanding is that approximately 70 per cent. of people in this country die without making a will. Out of a population of 60 million, about 18 million make a will. The Law Society believes that about 15 million people have a will, so the legislation will affect all those who currently have an estate worth more than the inheritance tax threshold of £285,000. It will affect all who anticipate that, during the balance of their lifetime, their estate might fall within the inheritance tax net and all who set up a trust within their will. I pointed out earlier that that applies to virtually everyone who has made a will in the last six or seven years and who has children or a previous wife. It will also affect anybody who wishes to leave assets to their children or to grandchildren under the age of 25. Trusts would arise by virtue of the age of the potential beneficiaries.

The estimate by the Society of Trust and Estate Practitioners is of the order of 1 million people. I have examined the basis for that calculation. It arose from a survey STEP undertook of its members immediately after the Budget statement. Only 11 per cent. of members responded, and they indicated that about 830,000 trusts would be affected. Extrapolating that figure to all the solicitors' firms that are members of STEP would produce a figure of around 8 million.

Helen Goodman (Labour, Bishop Auckland)

The hon. Gentleman is surely not suggesting that half the people who make a will have assets that are over the inheritance tax threshold. That would be ridiculous.

Philip Dunne (Conservative, Ludlow)

I did not intend to suggest that. I am trying to demonstrate that there is an enormous disparity between the real figure and the figure quoted by the Paymaster General in a rather defensive letter to the newspapers shortly after the Budget, suggesting that the measure would affect tens of thousands of people. There is no doubt that the figure will be substantially larger.

I argue that millions—not 8 million, but some number of millions—of trusts and wills will need to be reviewed and arrangements altered over the transitional period in order that those assets will not fall within the inheritance tax net. That is the point that I was trying to make by citing the much larger number. Clearly, not all will have any prospect of falling within the net, but a very large proportion will.

There are approximately 150,000 divorces every year in Britain. Regrettable though that is, the partners to the divorce will, under present legislation, almost by definition have to enter into a trust when they set up a will in the event of their divorce.

Dawn Primarolo (Labour, Bristol South)

I am advised that divorcing couples tend to make a clean break. Solicitors who are involved in divorce cases say that trusts are not widely used in those circumstances. Perhaps the hon. Gentleman could elaborate on the facts.

Philip Dunne (Conservative, Ludlow)

My understanding is that trusts are used by the courts for the settlement of assets in every divorce case that goes through the courts. I accept that that would not necessarily be the case in the event of clean breaks, but it would apply in other cases where significant assets were involved. Those generally go through the courts.

A further category that contributes to the numbers affected are couples who have recently entered into civil partnerships as a result of the legislation that came into effect earlier this year. Many of the new partnerships that have been registered will have taken the trouble to enter into a will, and, where assets are involved, those wills will need to be changed over the transitional period.

Collectively, we are discussing large numbers of people. That undermines the Paymaster General's argument that the measure will affect a small number of people and generate a small amount of revenue.

On the revenue front, I suggest to the Paymaster General, and I should like her to deal with this in her closing remarks, that she has misled the House. She indicated that the revenue gain from the proposal would be about £15 million in the first year. Let me suggest to her why that figure is so woefully wrong. Given the number of trusts and wills that will need to be reviewed and the cost of so doing with professional advice, there will be a significant VAT gain to the Exchequer from the measure. A big-four accountancy practice is currently writing to all its clients, where it is aware that trusts or wills exist, quoting a fee of £295 plus VAT—in total, £347—for the mere exercise of reviewing those people's current trust or will. It also suggests that a further fee will be incurred if people decide to make changes after the Finance Bill has been enacted.

Rob Marris (Labour, Wolverhampton South West)

The hon. Gentleman might suggest to people that rather than going with the big four, they should join a trade union and get a free will.

Philip Dunne (Conservative, Ludlow)

Unfortunately, I cannot do so, because, as a result of data protection legislation, I do not have the names and addresses of the people to whom the practice has been writing. I am sure that other organisations are willing to offer a cheaper service, but the review charge calculated by the Society of Trust and Estate Practitioners is £341 rather than £347, so anyone who wants to take professional advice must incur a significant fee, which, because it is subject to VAT, will generate substantial revenue to the Chancellor. Some 1 million to 1.5 million such arrangements may need reviewing, which would generate roughly three times the revenue for the Treasury that the Paymaster General has indicated.

The retrospective nature of the legislation raises a more fundamental issue, which is the credibility of the UK as an appropriate place for people with assets to invest or to seek to conduct their business. For many years, it has been an important tenet of tax legislation that retrospective legislation is not encouraged. Because this provision has been introduced with no consultation whatsoever with the industry, it fundamentally undermines this country's long-established reputation for fairness in its taxation dealings. I urge the Paymaster General to consider whether it is worth putting at risk this country's reputation among the wealthy and, in particular, the wealthy from overseas who might want to live here and do business here, by leading such people to think that long-established provisions on tax can be changed without consultation at the drop of a hat on a retrospective basis.

Rob Marris (Labour, Wolverhampton South West)

The measure is not retrospective, although it may change people's expectations. When people of our generation took out mortgages in 1984, we got mortgage interest relief at source, which was later phased out. Our expectation as purchasers was that we would get MIRAS for the 25-year life of the mortgage, but there was no contract with the Government to that effect. The Government changed the position, but the change was not retrospective, although it changed our expectations, and the same is true of this legislation.

Philip Dunne (Conservative, Ludlow)

I accept that this legislation includes a transitional period over the next two years, but I still argue that many trusts that have existed for decades—centuries in some cases—will be significantly penalised. [Interruption.] The hon. Member for Rhondda (Chris Bryant) is laughing at the notion that trusts have existed for centuries. I have received representations from the Historic Houses Association—I am sure that other hon. Members have received such representations, too—pointing out that one of the reasons why this country has such a strong built cultural heritage, unlike many continental countries where different forms of taxation have existed and trusts, in particular, have not been involved in tax planning, is that trusts have been able to protect assets from one generation to another. That is not, as the hon. Member for Rhondda may think, a tax avoidance measure, but a measure to preserve assets as a whole, so that they continue to be viable, economically efficient assets rather than being split up among a family.

That takes me to my next point: what is the purpose of such trusts? There is a perception among Members on the Government Benches that they are set up purely to evade tax. As I illustrated with my own case, trusts are usually set up to protect assets from individuals who cannot be trusted, or for valid planning reasons, particularly in relation to the increasingly acute problems arising from multiple families as society, sadly, evolves into individuals having more and more multiple families during their lifetime. If the Bill goes through, it will fetter the choices of spouses who are in a position to do so to allocate assets to provide maintenance for children, especially in the case of a second family where there are also children from the first family. I do not think that that is Government's intention. I assume that they have not thought this through, and I urge them to do so.

I should like to draw attention to one or two deficiencies in the Bill's drafting. I am sure that we will cover them in greater detail in Committee. The argument was made rather hastily following the Budget—by the Paymaster General, I believe, although it may have been by one of her ministerial colleagues—that a specific carve-out for life policies will be written into trust, but nothing in the Bill does that. Will the Paymaster General to put me right on that, either now or when she winds up?

Dawn Primarolo (Labour, Bristol South)

If the hon. Gentleman will forgive me, we are not discussing the Bill and the clause—I only wish we were—but his party's new clause. I will of course reply to his point at the appropriate time in Committee, and I look forward to doing so.

Philip Dunne (Conservative, Ludlow)

I look forward to that, too. Given that we are digressing for a moment or two, with your indulgence, Sir Michael—

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

Order. The hon. Gentleman should not pray in aid my indulgence. As has been said, he must address his remarks precisely to the new clause that we are discussing.

Philip Dunne (Conservative, Ludlow)

I am grateful, Sir Michael.

Several people, including spouses who are elderly or incapacitated by mental infirmity, will not be in a position to vary their trust arrangements or wills over the transitional period, and their estates will therefore suffer inheritance tax unnecessarily. I urge the Paymaster General to address that point specifically.

Rob Marris (Labour, Wolverhampton South West)

As I understand it, new clause 2 suggests that everything be put on hold for two years. We may all be in some difficulty here, Sir Michael, because although this is not technically a stand part debate, the nature of the amendments means that in a sense it is. Will my right hon. Friend the Paymaster General say succinctly what the position was before 22 March and what it will be if her proposals are accepted by the Committee? For my part, and I suspect that of other right hon. and hon. Members, there is some confusion as to what the law was before 22 March and what it will be if the Government's proposals go through unamended.

Dawn Primarolo (Labour, Bristol South)

Mr. Lord—

John Bercow (Conservative, Buckingham)

Sir Michael.

Dawn Primarolo (Labour, Bristol South)

I beg your pardon, Sir Michael, and thank the hon. Gentleman very much. Would he like to come and sit on this side of the Committee?

The hon. Member for Ludlow (Mr. Dunne) accused me of misleading the Committee, as the record will show. He may disagree with me—I certainly disagree with him—but I would not be as direct as to suggest that he may be motivated by personal interest in this Chamber, nor do I expect him to accuse me of misleading the Committee when I have not. I hope that he will withdraw that remark. I appreciate that he holds views that are deeply opposed to mine, but I have presented information to the Committee and I shall continue to do that. To suggest that a Minister or any hon. Member actively seeks to mislead is utterly wrong. I hope that he will now withdraw that suggestion.

Philip Dunne (Conservative, Ludlow)

I am delighted to clarify my remarks to the Paymaster General. I intended not to suggest that she had actively and deliberately misled the Committee but to point out that she had inadvertently misled the Committee because she had not understood the Bill's full implications.

Dawn Primarolo (Labour, Bristol South)

That is probably as close as I shall get to receiving an apology but, when the hon. Gentleman reads Hansard, he will see exactly what he said.

I shall begin with some of the other points that the hon. Gentleman raised. He asked why no consultation had taken place and said that there was nothing wrong with the sort of trust that we are considering. I shall revert in a moment to the general point about trusts that the hon. Member for Grantham and Stamford (Mr. Davies) made. Let me refer to a couple of quotes. On 12 April, the Daily Mail, that well-known Labour paper, reported:

"A trust allows you to pass money to your heirs while protecting it from tax and keeping control over how the money is used . . . Why set up one? First and foremost, to ensure your heirs receive the maximum amount of money free from inheritance tax."

If that is not sufficient, let us consider The Sunday Telegraph of 16 April.

Theresa Villiers (Conservative, Chipping Barnet)

Does the Paymaster General prefer the view of the Daily Mail or that of the Law Society, the Chartered Institute of Taxation, the Society of Trust and Estate Practitioners, the Low Incomes Tax Reform Group, the Law Society of Scotland, the Institute of Chartered Accountants of Scotland, the Association of Chartered Certified Accountants and the Association of Private Client Investment Managers and Stockbrokers, which say that the trusts under attack from the proposals have nothing to do with tax and everything to do with providing responsibly for one's family?

Dawn Primarolo (Labour, Bristol South)

I find it best to answer one question at a time, and I shall come to those organisations and the hon. Lady's opening remarks shortly. To suggest that the way in which the Government prevent the trusts from being misused somehow damages women's rights is breathtaking, and I shall deal with that shortly.

The hon. Member for Ludlow need only read The Sunday Telegraph of 16 April or The Sunday Times of 23 April, which make it clear that those trusts were being used to avoid inheritance tax by retaining control. The hon. Member for Chipping Barnet (Mrs. Villiers) mentioned transfer to the spouse. What could be more damaging to a spouse than to be told that a trust had been created that transferred the interest to her, only for her to find that she had no access to the capital and that, in three months, her interest was terminated and had passed on to somebody else, when she had been used as the shield to establish the trust, with the very purpose of avoiding inheritance tax? Even to suggest that using spouse relief in that way strikes a blow for women's independence is rather odd.

Julia Goldsworthy (Liberal Democrat, Falmouth and Camborne)

I would be interested to know what evidence the Treasury had gathered of inheritance tax avoidance through the trust schemes. It is interesting to know the advice of the Daily Mail and The Daily Telegraph, but what is the evidence?

Dawn Primarolo (Labour, Bristol South)

Of course, I shall come to that. I took part in a debate with one of the hon. Lady's colleagues earlier today and I find the Liberal Democrat position inconsistent and daft. This morning, her colleague argued that the Liberal Democrats want to narrow income inequality, yet this afternoon, she argues that she is happy for it to be perpetuated for the few who hang on to their money through the sort of wills that we are considering.

The hon. Member for Grantham and Stamford rightly asked whether the Government were against trusts. He made an important point, and I would like to take this opportunity to clarify the situation. Of course the Government have not suddenly taken against trusts. He knows full well that we are talking about two particular types of trust. We believe that trusts have an important role to play in helping people to manage their affairs—of course they do—but we also believe that a person's choice whether to use a trust structure should not be tax-driven. That should not come as a huge surprise to the hon. Gentleman in the light of the changes that this Government have already made to trusts in previous Finance Bills.

I hope that the hon. Gentleman would agree that it is unfair that some people exploit the trust rules in order to avoid inheritance tax. The right hon. Member for Wokingham (Mr. Redwood) made a similar point earlier. The Government are not labelling respectable people as tax avoiders. We are saying that a system has emerged in which two types of trust—accumulation and maintenance trusts, and interest in possession trusts—can, in certain circumstances, be configured to provide an unfair tax advantage at the expense of other taxpayers. That is what we are seeking to put right.

Dawn Primarolo (Labour, Bristol South)

I shall just make this point, then I will give way.

The hon. Member for Chipping Barnet said earlier—I am paraphrasing slightly—that if there was nothing in the Bill that affected spouse exemption, the Conservatives would be happy. I would like to say that there is nothing in the Bill that affects spouse exemptions under the normal inheritance tax rules. We will come to the question of children and civil partners—all are protected. I have a feeling, however, that I shall not be allowed to stop there, so I will go into the detail of the relevant clause in order to address the points that hon. Members have raised. First, however, I shall give way to the hon. Member for Grantham and Stamford, then to the right hon. Member for Wokingham.

Quentin Davies (Conservative, Grantham and Stamford)

I am grateful to the right hon. Lady for giving way, and for addressing the points that we have raised this afternoon. She says that the Government have no agenda against trusts, and that she accepts that trust law can help people and families to organise their affairs in a rational way. She went on to say that she was worried only about tax avoidance and tax evasion. But what is the tax point involved in saying that the beneficiaries of maintenance trusts—I gave an example earlier—must have full disposal of their assets at the age of 18? Surely she can see the danger of a young person being given money in that way, and that it could be undesirable for individuals and families to have to act in that way. What is the tax point involved?

Dawn Primarolo (Labour, Bristol South)

I answered that question on Second Reading. The point is that 18 is the age of majority. People can get married or serve their country at that age; they can do all the things that adults can do. People might want to write trusts in which the beneficiaries do not get control of the assets until they are 25, 35, 45 or even 52—that seems a good age today—but this is not about when the individuals get control of the assets, it is about when they come into tax. That is the point that is being made. The hon. Gentleman also knows that, with certain trusts, the beneficiary never materialises. The trusts go on in perpetuity. This relates to situations in which a spouse has the use of a property, for example, and on their death, the property transfers to the children of the first marriage. We need to discuss that matter further. We are not talking about when trusts end but when they never end, control remains and the beneficiary does not have access. That is the problem with which we are trying to deal.

John Redwood (Conservative, Wokingham)

What does the Paymaster General think would be the revenue cost over a five-year period were the Committee to pass the Opposition amendment as opposed to her proposal? I want to get a feel for how big the problem is over a five-year period, as such things take time to work through.

Dawn Primarolo (Labour, Bristol South)

The Opposition new clauses would completely negate the Government's legislation, so everything scored in the Red Book would be lost. The right hon. Member for Wokingham understands—I was going to say "needs to appreciate", but that would be totally unfair, as I know that he does—that tax law is about making sure that a situation holds now and does not continue, as well as making sure that no other person is encouraged, and that large numbers of people are not encouraged, to use tax avoidance in that way. Surely, if inheritance tax is raised under certain circumstances with those exemptions—whether a gift and the seven-year rule or the spouse exemption on transfer—the Committee should expect the regime to operate in such a way. There is always a consequence, and if a tax regime is used in a way that it should not be and left unchallenged, the problem will get greater and greater—a point that hon. Members often make to me, saying, "Why are you acting now? Why didn't you act last year? How do you work the balance?" That is the clear answer to the right hon. Gentleman's point.

The right hon. Gentleman also spoke about retrospection, but I completely reject the idea that there is any retrospection. The Government have provided for a two-year transition. If the provision is not enforced until 2008, how can there be retrospection? Everyone will have the opportunity to make the necessary changes.

The hon. Member for Chipping Barnet then adopted the "Let's make it up, because it must be true if we say it," approach. She said that pension and death-in-service payments will be caught by the Bill. That is absolutely not the case. Let us have some rational debate, and hear what the Opposition say about why their new clauses are better. When we discuss that in Standing Committee—the Opposition chose to discuss it in Committee and not on the Floor of the House—we can go through all those issues. It is utterly ridiculous, however, to table a new clause and then say, "Because I say so, it must be true."

Theresa Villiers (Conservative, Chipping Barnet)

The point about retrospectivity is that many trusts cannot be varied. One would have to go to court and spend a large amount of money on it, and even if a court hearing were to take place, not all courts will allow the trust to be varied. Therefore, the provisions are retrospective, because not everyone will be able to adapt the existing arrangements to comply with the new rules.

Dawn Primarolo (Labour, Bristol South)

The hon. Lady does not know what she is talking about. Legally qualified Conservative Members pointed out on Second Reading that the legal advice is always to review one's will regularly—at least every two years. If I decide that I want to vary my will, I do not have to go to the High Court to do it; I vary my will. The regulations in place for a variation of a will after death or in the circumstances of incapacity—as raised on Second Reading—are clear. Opposition Members are trying to isolate the measure completely from the interaction of all the inheritance tax and trust rules, and they are simply wrong.

Brooks Newmark (Conservative, Braintree)

rose—

John Bercow (Conservative, Buckingham)

rose—

Dawn Primarolo (Labour, Bristol South)

I will give way first to the hon. Member for Braintree (Mr. Newmark) and then to the hon. Member for Buckingham (John Bercow), and then I would appreciate it if I could make some progress on the new clause.

Brooks Newmark (Conservative, Braintree)

My hon. Friend the Member for Chipping Barnet (Mrs. Villiers) was spot on in referring to the retrospective nature of the Bill. Retrospectivity in this context means that individuals will have to change trusts that are already in place. Non-retrospective legislation would say "From this point on"—or, in the case of this Bill, in two years' time—"these will be the rules." The Bill is retrospective because it will force people to change existing wills and existing trusts.

Dawn Primarolo (Labour, Bristol South)

I know that the hon. Gentleman is new to the House, but pretending that the world began only when he entered it is utterly ridiculous. Did the Conservative Government agree that when they reduced mortgage interest relief at source—MIRAS—they were doing something retrospective? No, they did not. When they reduced the married couples allowance, were they taking retrospective action because of the expectation that existed? Of course they were not. When they reduced advance corporation tax relief, was that a retrospective measure because all the companies said that they had expected to receive it in perpetuity? Of course it was not. That is such a ridiculous point that I am surprised that the hon. Gentleman wanted to make it.

John Bercow (Conservative, Buckingham)

I am a bit suspicious. I have a high regard for the Paymaster General, but she treated a serious and thoughtful inquiry from my hon. Friend the Member for Chipping Barnet (Mrs. Villiers) as an opportunity to launch into a stream of rather unnecessary invective. May I ask the Paymaster General a simple question? Is she seriously saying that it is ordinarily possible for someone to alter the terms of an existing trust as quickly, simply or inexpensively as that person could alter his or her will? That was the gravamen of the question that my hon. Friend asked, and it deserved a more serious response.

Dawn Primarolo (Labour, Bristol South)

The hon. Gentleman and I have known each other for quite a long time. He knows very well that I have not even started on the invective yet.

The point is that the wills set up the trusts, either in the lifetime of an individual or on death. The will is the trigger, and those who want to change their wills can do so. The trusts make it possible to plan for a tax that has not yet been triggered, to retain control of assets whose control will be determined after death. They control the assets beyond death to determine who will get them and who will not. I do not think it unreasonable for us to say that if a trust specifies a certain beneficiary after a certain event, that beneficiary should receive the product.

Rob Marris (Labour, Wolverhampton South West)

Will the Paymaster General give way?

Dawn Primarolo (Labour, Bristol South)

I will, but it will be the last time.

Rob Marris (Labour, Wolverhampton South West)

I am grateful to the Paymaster General for her generosity.

I am becoming a little confused by some of the comments made by Opposition Members. Perhaps I have misunderstood the Government's proposals. I thought that the proposals did not affect trusts that had been set up, say, a year ago—trusts that already exist. If that is the case, the hon. Member for Chipping Barnet (Mrs. Villiers) is wrong; if not, could the Paymaster General explain why?

Dawn Primarolo (Labour, Bristol South)

People have two years in which to ensure that there is a proper end to a trust. In that sense, such trusts are affected; otherwise, it would be a bit like our saying, "Just because you have already successfully planned a tax avoidance, we will leave it in place."

It may help the Committee if I explain the purpose of the measure and what it does before dealing with the new clauses. As I have said, the purpose is to stop inheritance tax avoidance through the use of certain types of trust—not all trusts. Before the Budget, it became clear that some wealthy individuals were using trusts in that way. The avoidance worked in different ways, and was often highly technical, but the end result was the same: substantial assets passed from generation to generation with no inheritance tax ever being paid.

I have made it clear that the Government consider it unfair that a small number of wealthy people should be able to exploit trusts in that way by combining rules. The new rules prevent such unfair avoidance, while protecting straightforward and sensible arrangements made by honourable people.

This measure brings accumulation and maintenance trusts and interest in possession trusts into the mainstream tax rules for discretionary trusts. It does not, therefore, create a new regime; it merely brings such trusts into the regime that applies to all the others. The money put into a trust during a person's lifetime—

Theresa Villiers (Conservative, Chipping Barnet)

Will the Paymaster General give way?

Dawn Primarolo (Labour, Bristol South)

If I can explain what the provision does, it might help in dealing with the misunderstandings. In respect of money put in trust during a person's lifetime, charges apply on assets over the IHT threshold—currently £285,000—at 20 per cent. on entry. So assets over the value of the threshold get charged at 20 per cent. on entry, and at 6 per cent. every 10 years after that. The only exemption for trusts created during life is that applying to trusts for disabled people, an issue to which we will return.

Where money is put into trust on a person's death, the IHT is due on the estate, as is normal, unless spouse relief or some other exemption applies. If a trust is then set up, it is exempt from charges if it is for a disabled person; if it is an accumulation and maintenance trust set up by a partner for their bereaved child, who will take the assets outright at the age of 18; or if it is an interest in possession trust for the benefit of one person with outright ownership of the assets, passing to another person when the trust ends. That is a very straightforward arrangement and it is in line with existing trust arrangements.

David Gauke (Conservative, South West Hertfordshire)

Will the Paymaster General give way?

Dawn Primarolo (Labour, Bristol South)

Perhaps the hon. Gentleman will allow me to make at least some headway on the reasons why the new clauses and amendments, including his own, are unacceptable. Having done so, I will of course give way to him.

All the new clauses and amendments before us are unnecessary, because what is asserted will happen will not, in fact. Ever since Budget day, when the Government announced that we planned to change the IHT rules for trusts, there has been enormous misunderstanding, which has continued today. Bearing that in mind, let me remind the Committee what spouse relief is about and what impact our proposals in clause 157 and schedule 20 will have on such relief.

Spouse relief is an inheritance tax exemption on transfers from one spouse to another. So if property starts in the ownership of one spouse and ends up in the ownership—I stress, ownership—of the other, the situation is straightforward: the transfer is exempt from IHT. That means that the bequest rules apply if a gift from one spouse to another is made when both spouses are still living, so let us be clear: our proposals in clause 157 and schedule 20 have no relevance at all to such cases. For the vast majority of people with straightforward affairs, all that they need to know about the IHT proposals is that spouse relief exists and that a transfer can be made to their spouse. The potential overlap between spouse relief and our proposals only arises, therefore, in cases where partners want to use trusts on or after Budget day to make a less than straightforward gift or bequest.

David Gauke (Conservative, South West Hertfordshire)

Will the Paymaster General give way on that point?

Dawn Primarolo (Labour, Bristol South)

No; please let me make some progress on these points.

Transferring assets into trusts is very different from making an outright gift; some people have tried to argue that they amount to the same thing, but they do not. The recipient of an outright gift can do with it as they please, with or without the consent of the person who made the gift—they are the absolute owner. However, if a person places money in a trust, it must be used by the trustees in accordance with that person's wishes. It is the fact that control can continue long after the settlor's death that makes the difference.

Inheritance tax rules for interest in possession trusts have conferred the same exemptions that would apply if putting assets into trusts were identical to making an outright gift. The result has been that interest in possession trusts can be—and regularly is—used as a highly flexible money box and a long-term shelter from inheritance tax liabilities. That usually requires the settlor to get rid of assets in his lifetime but, where the spouse relief is available, it is possible for the settlor to hold on to his assets until death and completely wipe out any inheritance tax liability, in both the present and the future—all without giving the surviving spouse or civil partner any influence whatsoever over the assets in their name.

Of course, some cases are not avoidance-driven, and a number of exemptions provide appropriate protection for the people involved. First, spouse relief will continue where an interest in possession trust is set up in a person's will to give a life interest to a bereaved spouse or civil partner provided that, when such interest ends, the assets are taken outright by someone else. No further flexible power is necessary in the trust, because it has delivered its objective.

David Gauke (Conservative, South West Hertfordshire)

Will the Paymaster General give way on that point?

Dawn Primarolo (Labour, Bristol South)

I want to make three points. Opposition Members continually claim that various eventualities will not be covered or that different outcomes will arise. When I tell them that they are wrong, they want to ask other questions. Let us deal first with what is on the table.

Secondly, spouse relief will continue if a person dies without a will and their assets are passed to a bereaved spouse or civil partner, whether or not a trust is created under the intestacy rules. Thirdly, the rules will continue to provide for post-death changes where people die with an out-of-date will. If that will provides for a trust that would not qualify for spouse relief under our new rules, the interested parties will have the opportunity that they have always had to put things right. That is another answer to the question about retrospection.

David Gauke (Conservative, South West Hertfordshire)

I have two questions. First, will not the possibility of variation allow people to get around the tax avoidance that the Paymaster General mentioned earlier, and so make these provisions ineffective? Secondly, the right hon. Lady described the conditions under which an immediate post-death interest will apply and inheritance tax is not payable. Does she accept that, in the vast majority of cases, trusts contained in wills will not meet those conditions?

Dawn Primarolo (Labour, Bristol South)

I accept that people who transfer assets under the spouse exemption provisions do not need a trust to safeguard that exemption. I also accept that the gift provisions do not require a trust to be imposed between donor and recipient, and that assets should be transferred to a recipient when that is the donor's clear intention. Assets should not be held in a halfway house that means that the recipient does not get control and that the state does not get the inheritance tax to which it is entitled. Ending that possibility is precisely what the proposed changes are designed to achieve.

The new clause and the other amendments would once again make it possible for the wealthy few to use inheritance tax exemptions and rules to get reliefs beyond their entitlement. By the targeted use of changes to the particular types of trust being used in such cases, the Government propose to preserve the rules and make sure that they are used as they were always intended. For that reason, if the hon. Member for Chipping Barnet and her hon. Friends push the new clause to a vote, I shall ask my hon. Friends to oppose it and I look forward to debating the provision in detail in the Standing Committee.

Theresa Villiers (Conservative, Chipping Barnet)

I shall review briefly some of the comments that have been made. We began with the hon. Member for Rhondda (Chris Bryant) who expressed with passion his support for inheritance tax and his criticism of the exemptions.

We then heard from the hon. Member for Falmouth and Camborne (Julia Goldsworthy) who drew on a theme mentioned by many Opposition Members. She pointed out that the proposed changes could affect as many as a million wills and referred to the 4.5 million people who would probably have to review their life assurance policies. She also mentioned the problems in relation to people who have died since the Budget.

My right hon. Friend the Member for Wokingham (Mr. Redwood) referred to the fact that many people of modest means will be affected by the proposed changes. He pointed out that they are retrospective. I agree with him wholeheartedly, especially because it may not be possible to vary existing trusts. They are affected by the provisions and the courts may refuse variations. It may also be difficult to vary wills, especially when the person who made the will has lost capacity. There will be retrospective effects.

My hon. Friend the Member for South-West Hertfordshire (Mr. Gauke) said that the current rules generally deem trusts to be tax-neutral, so they are treated similarly to outright gifts. He pointed out that the Government's proposals would impose penalties on trusts that do not apply to outright gifts. He referred to the long history of the spouse exemption and to the practical difficulties of meeting the six exacting conditions of the draft proposals. Most tellingly, he drew attention to the suspicion that prejudice must be motivating the Government's approach to trusts and argued for a more targeted solution, rather than taking a sledgehammer to crack a nut.

My hon. Friend the Member for Grantham and Stamford (Mr. Davies) said that it was important to improve the rationality of the proposals. He, too, pointed out that the Bill seems to attack trusts for no good reason. My hon. Friend the Member for Braintree (Mr. Newmark) noted that the provisions would hit the vulnerable. He sought clarity and emphasised the importance of retaining the spousal exemption to prevent double taxation of the single estate of a husband and wife.

The hon. Member for Dundee, East (Stewart Hosie) talked about the impact of the proposals in Scotland, where thousands of people could be affected. He made the good point that the Government have not held proper consultations. My hon. Friend the Member for Ludlow (Mr. Dunne) emphasised the point about retrospectivity and said that the proposed changes would affect a wide range of people, giving instances of their impact on divorce.

The proposals on spousal exemption will have a significant impact on a wide range of ordinary, hard-working people. If the Paymaster General is not prepared to take our word for that, she should take the word of the professional organisations to which I referred earlier. They say:

"The Government's proposed changes to inheritance tax on trusts amount to a tax on prudent families. They will affect millions of ordinary families and not, as the Government has suggested, only the super-rich."

Unless the proposals are amended, in line with our new clause and the many more amendments that we shall table in the Standing Committee, they could leave a million people having to redraft their wills, facing a legal bill of about £275 million. The measure will hit the vulnerable, the young and the bereaved, so I intend to press the new clause to a Division.

Clause 61 — Computer equipment

Dawn Primarolo (Labour, Bristol South)

Prior to 6 April 2006, employers who made computer equipment available for private use by their employees could do so tax-free, providing that the annual amount of the benefit in kind was £500 or less—that is the equivalent of £2,500 of computer equipment, inclusive of VAT. The clause removes that tax exemption. With effect from 6 April 2006, a tax charge will arise on the benefit in kind that arises in those circumstances. However, the clause does not change the position when an employer provides the use of computer equipment solely for work purposes and private use by the employee is not significant.

The question that everybody has been asking is: why are the Government doing this? It is perfectly true that many employees have benefited from the tax exemption, but the home computer initiative has been used extensively by groups that we would not generally expect to have difficulty accessing information technology. For example, 25 per cent. of those participating in the home computer initiative are higher rate taxpayers—more than twice the proportion among taxpayers as a whole. Furthermore, nearly one third of HCI participants are from white-collar industries—often defined as industries with a greater proportion of higher-than-average earners.

Peter Luff (Conservative, Mid Worcestershire)

What the Paymaster General is saying is news to the industry, which was not consulted about the problems that the Treasury suddenly discovered at the eleventh hour, just as the ink was drying on the Budget. On the specific point that she just raised, would she say the same thing to the 15,000 nurses who have benefited from the HCI scheme or the 21,000 Tesco employees, who are probably not at the top end of the earning schedule? The evidence was that that level of employee was benefiting more and more from the scheme.

Dawn Primarolo (Labour, Bristol South)

The information comes from the industry. The hon. Gentleman interrupted me rather early on in my remarks. I was certainly not saying that nobody had benefited from the HCI scheme. The case that the Government are putting is that the benefits have slowed down to a point at which the growth is very small. In particular, it is not targeted on the remaining groups that we need to assist—those on low pay. I was just about to turn to that point.

Last month, the Low Pay Commission published the findings of its review of benefits in kind, salary sacrifice schemes and the accommodation offset. It found that take-up rates were often quite low and many part-time low-paid workers would gain no advantage from salary sacrifice schemes for home computers and other benefits in kind. Her Majesty's Revenue and Customs has evidence that, unfortunately, the tax exemption was being used beyond the scope of its original intention.

On the one hand, the initiative has reached a number of people and has increased usage. On the other hand, it is not targeted particularly at the low paid and its effectiveness has been slowing down, and, in addition, it is being used beyond its original intention. For example, the HCI packages included items such as game consoles and MP3 players and allowed employees to buy equipment out of their gross pay, rather than borrow it. Furthermore, the cost of computer equipment has fallen markedly since 1999 when—

Peter Luff (Conservative, Mid Worcestershire)

Will the right hon. Lady give way?

Dawn Primarolo (Labour, Bristol South)

I wonder whether the hon. Gentleman will let me make some progress. I, too, have read the brief from the industry that he has and that has been circulated. If he listens to all my remarks and then contributes to the debate, I will be happy to return to any outstanding matters.

The cost of computer equipment has fallen markedly since 1999 when the exemption was introduced. Figures produced by the Office for National Statistics show that an equivalent computer that cost £2,500 in 1999 would have cost under £700 in 2005. The Government have therefore concluded that the time has come to remove the exemption and to focus Government support in a better way to improve access to technology for groups with the poorest existing access, such as the unemployed, the elderly and the low paid.

Peter Luff (Conservative, Mid Worcestershire)

Will the right hon. Lady give way?

Dawn Primarolo (Labour, Bristol South)

I will, but this is the last time that I will give way to the hon. Gentleman. I will then try to make my case and then he can contribute to the debate. If there are any outstanding issues at that stage, I will reply to them.

Peter Luff (Conservative, Mid Worcestershire)

This is a debate in which it would be good to have answers to questions. I asked the right hon. Lady's Department questions a month ago, but I have not had answers, so I have to ask those questions now, in this format—otherwise I might have been able to accelerate her speech. Will she please do the Committee the courtesy of producing the evidence that she has about the so-called abuse of the scheme? It does not exist. The industry specifically asked for MP3 players not to be included in the scope of the scheme, but the Treasury insisted that they should be. The industry would be happy to see them excluded. The other equipment to which she referred was not being offered under the terms of the scheme; it was being offered as part of marketing brochures alongside it. The full price was paid. If she has that evidence, please will she produce it? It is important that we see it.

Dawn Primarolo (Labour, Bristol South)

I am happy to produce that evidence. Indeed, I am happy to produce it to the hon. Gentleman for the company in his constituency for which he has been making the case. The evidence comes from its marketing websites. I think that he will be somewhat shocked when he sees the extent to which packages were being put together involving items that were not supposed to be included in the HCI. That is in addition to the difficulty with take-up. I cannot say that I will put the information in the post to him tonight, but I will certainly do so tomorrow morning and he can look at the evidence. Alternatively, I can give him the website addresses and he can look at them himself—he does not have to take my word for it.

Mark Francois (Conservative, Rayleigh)

The evidence of one or two websites is not enough to damn a whole scheme. If the Government have such compelling evidence of abuse, will the Paymaster General explain why so little hard evidence was produced in the regulatory impact assessment that they rushed out last week?

Dawn Primarolo (Labour, Bristol South)

The Opposition change their argument as they lose each point. The issue with regard to abuse of the scheme—as well as its lack of targeting, the importance of better focusing it, and the problems of not consulting where there are abuses in the scheme because of forestalling—are well known by all Members. If the hon. Gentleman will allow me to continue to make my case, he will be able to make his and further points can be made.

Following the publication of the digital strategy in April 2005, the Government have continued to acquire an evidence base to enable them to consider focusing their support. In November 2005, the Government published their "Inclusion through Innovation" report. It examined where information and communication technology might deliver the most benefit to excluded groups and considered how that might be achieved. The report found that barriers to using ICT included a lack of relevant content, poor awareness of where to access ICT and a lack of preliminary skills, such as literacy or English language skills. The report also noted that digital inclusion does not mean simply

"connecting everyone to the internet".

Community ICT access and intermediaries all form part of a multi-channelled approach that will deliver for the targeted groups. The Government are making the case that it is necessary to use those resources to target the groups in greatest need and in which take-up is lowest.

To ensure the best use of ICT in tackling this type of social exclusion, I am announcing today that the Government are setting up a dedicated digital inclusion team—[Hon. Members: "Oh."] The industry does not mind being represented on the team, so it does not think that the team is to be ridiculed. The team will champion examples of excellence in using highly effective and efficient ICT to tackle the key drivers of exclusion. It will also promote local and national leadership and understanding of the considerable potential of ICT to make a significant improvement to the life chances of excluded people and areas.

Adam Afriyie (Conservative, Windsor)

Will the right hon. Lady give way?

Dawn Primarolo (Labour, Bristol South)

No, I will not give way to the hon. Gentleman. Perhaps he will let me make some progress.

Furthermore, I can today announce that we are changing the aims and objectives of the digital strategy to focus on digital inclusion, which reflects the shift in the Government's focus towards a more targeted approach. The strategy is a genuinely cross-government programme that recognises that only concerted action across Government Departments will realise our objectives. As I have said, access to ICT is about more than access to computers. Other technologies, such as digital television, give disadvantaged groups the opportunity to engage with ICT. The UK has a world-leading position in digital television, with more than 70 per cent. of households now accessing that technology.

The Treasury will work collaboratively with industry as we look towards meeting the goals of the digital strategy. We will keep the focus on targeted interventions to help those with specific difficulties. We will build on the success of more than 6,000 UK online centres, more than half of which are located in the 2,000 most deprived wards in England, so that 95 per cent. of the population live within 5 km of such a centre. Because we want to ensure that future generations gain access to technology, the Government are giving £50 million over the next two years for schools to invest in home access to ICT for their students and a further £10 million to provide internet connectivity to the home access network. The announcements make substantial inroads into achieving our objectives, but we will conduct a review in 2008 to explore whether further action is necessary to close any residual digital divide.

I have written to representatives from industry to invite suggestions on the most effective way to focus our support on targeted groups. The Department of Trade and Industry will review the options put forward over the next few months and consider how the Government's objectives can be met.

I would like to provide the reassurance for which I know that some have already asked—the hon. Member for Mid-Worcestershire (Peter Luff) has done so—on computer equipment provided for business purposes. Clause 61 does not change the position for computer equipment provided solely for work purposes when any private use by the employee is not significant. We acknowledge employers' concerns in this area and I know that HMRC has been approached by representative groups to work through the issues. I have asked HMRC to work with those representative bodies to ensure that clear practical guidance is produced to help to keep employers' compliance costs to a minimum.

The Government's policies of liberalisation and competition have led to the strong take-up and use of ICT. The creation of new and innovative services and falling prices have all contributed to that. The HCI has played its part in the strong take-up, but it is not appropriate for the Government to keep the scheme going beyond its useful lifespan. The announcements that I have made today will ensure that all can benefit from technology in a cost-effective manner. I commend the clause to the Committee.

Mark Francois (Conservative, Rayleigh)

I want clause 61 to be deleted from the Bill for the chief purpose of saving the popular home computing initiative from abolition by the Government. As we are asking the Government to relent, even at the eleventh hour, I will begin by wishing the Paymaster General a happy birthday. I congratulate her on reaching the age of 29—on a seasonally adjusted basis.

The genesis of the home computing initiative was section 45 of the Finance Act 1999, which said that employers could provide computer equipment including

"printers, scanners, modems, discs and other peripheral devices designed to be used by being connected to or inserted in a computer"

for the use of employees and their families at home without the employee incurring a benefit in kind for the purposes of income tax. The measure was designed to help to spread computer literacy among the population. In March 1999, the Chancellor himself proudly told the Daily Record:

"Britain can no longer afford to lag behind America. Inequality in computer learning today will mean inequality in earning power tomorrow".

Between 1999 and 2003, however, relatively few companies took advantage of the tax exemption, largely because it was not widely known or appreciated. In 2003, a working group was formed under the office of the e-envoy to examine how a specific scheme to loan computers to employees, including for private use, might be implemented. Partly as a result of that, the Income Tax (Earning and Pensions) Act 2003 included, in section 320, additional tax incentives specifically to encourage companies to loan computer equipment to their employees up to a maximum tax-free value of £500 a year. It is that section of the ITEPA 2003 that clause 61 would delete. That would have the consequence of effectively sounding the death knell of the scheme, which is why I am asking the Committee to reject the measure.

The home computing initiative, as we have come to understand it, was effectively launched in January 2004 by the Department of Trade and Industry, which, by that time, had taken on board departmental sponsorship of the project. The DTI published specific guidelines for employers and employees on the home computing initiative, thus effectively popularising the scheme. The DTI press release at the time, which contained supporting endorsements from Sir Digby Jones of the CBI and Brendan Barber of the TUC, promoted the scheme in the following terms:

"For employers HCI schemes are about maximising potential in the work place. Basic computer and technology skills are now regarded as essential for the majority of jobs. With home computer access IT confident employees have greater capacity to contribute to an organisation's overall performance and adapt more easily to new roles and opportunities. HCI schemes can also generate employer National Insurance savings."

In practice, the scheme has usually been financed by so-called salary sacrifice, in which employees accept a small decrease in pay in return for being loaned computer equipment by their employer. The employer in turn benefits by paying a reduced rate of national insurance contributions to the Treasury.

We believe that it is ultimately for financial reasons that the Treasury wishes to abandon the scheme. That was effectively confirmed by the Prime Minister last Wednesday when, in reply to a question asked by my hon. Friend the Member for Mid-Worcestershire (Peter Luff), the Chairman of the Trade and Industry Committee, he said:

"we have to ensure that in any such initiative we obviously balance the revenue that is coming in with the support that is being given."—[Official Report, 26 April 2006; Vol. 445, c. 570.]

The decision is thus ultimately financial, as I shall go on to emphasise.

Michael Wills (Labour, North Swindon)

As far as I understand the case that the hon. Gentleman makes, he seems to agree with the objectives of the initiative. I am sure that he would agree that in such a fast-moving world, it is important to keep reassessing the effectiveness of initiatives. If the digital inclusion team that my right hon. Friend the Paymaster General announced came up with a scheme that would better meet Labour Members' objectives, which I understand he shares, would he support that, or is the home computing initiative the only possible scheme that he can imagine supporting?

Mark Francois (Conservative, Rayleigh)

I shall outline how we believe the scheme can be revised so that it should survive. I am not saying that there should be no modification of the current scheme. I shall outline, as I have said, how we believe that the scheme could be modified both to save money for the Treasury and to improve its operation. I hope that the hon. Gentleman will be patient.

Peter Luff (Conservative, Mid Worcestershire)

Does my hon. Friend agree that there are two separate points, the first of which is how best to achieve the objectives that are shared across the House? It is difficult to disagree with a word about the objectives in what the Paymaster General said. Secondly, there is the issue of how we move from the one scheme to the other. Would it not have been much better if the Government had signalled now that they want to change the method, if they do—I do not think that they need to do so—and give the industry a year to adjust to a new method, rather than writing a P45 directly from the office of the Chancellor of the Exchequer for the workers in the HCI industry?

Mark Francois (Conservative, Rayleigh)

I agree with my hon. Friend. We are looking to the Government this evening for some indication, when the Paymaster General replies, that they intend to retain the scheme, even in a modified form. We are not saying that there can be no change. However, we want an indication from the Minister that if the Government believe that there is abuse, they will modify the scheme to respond to that while maintaining its inherently positive characteristics. I shall press the Paymaster General on exactly that point in a moment.

The scheme has proved popular, with about 500,000 people taking advantage of it effectively to hire a computer from their employer to help to improve their IT skills as part of a modern knowledge-based economy. This is especially important when we are seeking to improve IT skills to allow the UK to continue to compete with economies such as China and India in the 21st century. According to a recent analysis carried out by Hewlett-Packard, China and India between them now produce more than 120,000 IT graduates each year. How are we to compete effectively with that if we are bringing in measures to reduce the spread of IT literacy among our population, which is what the proposed change threatens to do?

A Cabinet Office press release was timed to coincide with the launch of the new initiative in January 2004. It highlighted survey findings that employees with a PC at home had better IT skills and were more familiar with the internet. The DTI guidelines on HCI were entitled, "Maximising Potential in the Workplace". Along with advice on implementing the scheme, numerous references were made to skills. For example, in the CBI's booklet, Sir Digby Jones was quoted as follows:

"Of all the workforce skills required today, there's no question that basic IT literacy is one of the most important . . . Getting IT into the DNA of the workforce must therefore be a primary objective for every organisation that wants to adapt to the high-skills economy of the future."

David Taylor (Labour, North West Leicestershire)

Does the hon. Gentleman accept that the spreading of IT skills of the type that he is describing in the workplace has been under way in a number of areas for quite some years? For example, there is the CLATES qualification, the ECDL and the driving licence system, and other methods have also had significant success with fewer costs and with less of the vulnerability that has been shown to be part of the present scheme that is now being reformed.

Mark Francois (Conservative, Rayleigh)

I accept, with the hon. Gentleman's background in accounting, that some other measures have helped in that regard. Nevertheless, the scheme that we are discussing has been particularly effective and particularly popular, and that is all the more reason not to scrap it. I shall outline the specific advantages as I continue, though I take the hon. Gentleman's point.

In 2005, the Minister of Communities and Local Government, the right hon. Member for South Shields (Mr. Miliband), told his regional press the following about the scheme:

"As technology and IT-based business becomes an even bigger part of our regional economy, it is vital that the workforce develops the skills that will keep us competitive. That process should begin in the home so that everyone has the opportunity to become comfortable and competent with computers. That is why the Government is offering tax breaks which reduce the cost of computers to employees while saving money for their employers."

To coincide with the second anniversary of the scheme in 2006, Brendan Barber, the general secretary of the TUC, said:

"Experience has shown that when a business implements an HCI scheme, demand for learning services and training rises significantly."

In short, the HCI scheme has been hailed as an important part of the drive to improve the nation's IT skills, by the Government, in the form of the DTI, and the umbrella bodies of both British industry and the trade union movement combined.

The scheme has enabled almost half a million people to obtain a computer through HCI. Equipment is not only more affordable, but it usually comes with added peace of mind because of features such as warranty cover for the length of the hire agreement and technical support. So, for many who would not ordinarily have had a PC at home, whether because of lack of access to credit, affordability or simple technophobia, HCI has provided a low-risk, cut-price option which allows them to access the world of information technology, to the benefit of themselves, their families, their employer and, ultimately, the wider economy as a whole.

The Government have sought to argue that they are looking for a scheme that is of more benefit to retired people and jobseekers. However, scrapping a scheme that was already working for those in employment and was, indeed, primarily for the benefit of low-paid workers is not the answer.

Kevan Jones (Labour, North Durham)

I get confused these days about what the Conservative party is. Is the hon. Gentleman really saying that he is supporting trade unions, for example, and is supporting also the TU learning fund, which has brought learning, including IT skills, into many workplaces throughout Britain, to some of the lowest paid workers? Are we now getting a call from the Conservative Benches in support of the initiatives that have been introduced by the Government that have helped many workers in workplaces in my region, but which they opposed last year?

Mark Francois (Conservative, Rayleigh)

I can tell the hon. Gentleman that the trade union movement, from the general secretary of the TUC downwards, are opposed to the abolition of the scheme, not least because at a local level many trade union officials have put a lot of work into persuading employers to adopt it. The hon. Gentleman must understand, irrespective of the learning fund, that the scheme is one that the trade union movement wants the Government to retain. I have a few quotes to drum that point home in case the hon. Gentleman did not get it the first time around.

Scrapping a scheme that was already working for those in employment will not solve the Government's problem in respect of others. According to the HCI Alliance, 60 per cent. of the scheme's participants are in blue-collar industries and 75 per cent. of them pay the standard rate of tax, or lower. Moreover, as Intel, the computer supplier, argued in a recent letter to me:

"As this scheme is run through the employer even the most financially excluded are able to join. The fact that blue collar workers in the future will be denied such an incentive is genuine cause for concern. This has the potential to create inequity within low paid, hard working families and workforces. 21,000 Tesco workers recently adopted this scheme, many would not have a computer today if this had not been offered to them."

Similarly, Brendan Barber—I hope that the hon. Gentleman is listening—general secretary of the TUC, who has also personally endorsed the scheme that we are trying to save, wrote to the Chancellor requesting a rethink and issued the following statement on 3 April, stressing the value of the scheme, in particular, to the low paid. He said:

"The Home Computing Initiative has helped thousands of low paid workers without confident IT skills buy their first ever computer. Unions up and down the country have been promoting the scheme, often linked to training schemes. The sudden closure of the scheme would mean that many hours of voluntary union effort would go to waste."

Any politician—Tory, Labour, Liberal Democrat or otherwise—will understand the clear intent that lies behind that statement.

Adam Afriyie (Conservative, Windsor)

rose—

Mark Francois (Conservative, Rayleigh)

On that basis, I will give way to my hon. Friend the Member for Windsor (Adam Afriyie).

Adam Afriyie (Conservative, Windsor)

I thank my hon. Friend for giving way after being so generous in giving way earlier, unlike the Paymaster General. It was clear that the right hon. Lady wanted to establish her case for the abolition of the HCI. The only case that I heard her make was against the Government—a case against abolishing the HCI and a case against the Bill. It seems to me that if there is a better way of approaching the provision of information technology to workers at home, surely that better approach should be described and implemented before the existing scheme is removed. It seems that we are in a bizarre situation when a scheme is being removed that has clearly been successful, but there is nothing to replace it.

Mark Francois (Conservative, Rayleigh)

I thank my hon. Friend for that contribution. The Paymaster General's case can best be described as citing a number of instances of abuse. She referred to a few websites and that was about the extent of it. In the course of my remarks, we can test exactly how much abuse there has been, and then the House can take a decision before we enter the Lobbies.

Let no one argue that the home computing initiative does not benefit people on modest incomes. The Trades Union Congress, companies such as Intel and others have clearly demonstrated that it does. As for the take-up of the scheme, it has taken off in the past year or so and has proved particularly popular in the national health service, with more than 100 trusts and hospitals across the country promoting the scheme to their work forces, including King's College hospital, the Norfolk, Suffolk and Cambridgeshire strategic health authority, the West Midlands ambulance service and even the Sedgefield primary care trust—I hope that that is not the reason why the Chancellor wants to get rid of it. A number of charities have adopted the scheme, including St. John Ambulance, the Institute of Cancer Research, the Royal London Society for the Blind and the Motivation charitable trust, which works with people with a mobility disability and is based in Bristol, not far from the constituency of the Paymaster General.

The scheme has been adopted by a number of private sector organisations, including the British Chambers of Commerce, the Great North Eastern Railway and Yorkshire Water. In total, according to the HCI Alliance, more than 1,000 public and private sector organisations have adopted the HCI scheme to date, often with local trade union support, to help to improve their employees' IT skills. All of that will be put at risk if we do not delete clause 61.

Dawn Primarolo (Labour, Bristol South)

The hon. Gentleman has listed all those fantastically important schemes, but can he explain why the proportion of households owning a computer has risen by only four percentage points since 2004?

Mark Francois (Conservative, Rayleigh)

I have already explained to the Paymaster General that the scheme was on the brink of taking off. Sweden has the highest personal computer penetration in the world, and one reason is that it has been running a successful scheme for a number of years.

Dawn Primarolo (Labour, Bristol South)

Will the hon. Gentleman give way?

Mark Francois (Conservative, Rayleigh)

As a courtesy to the Paymaster General, I shall do so.

Dawn Primarolo (Labour, Bristol South)

I am grateful, because I do not want the hon. Gentleman to dig himself into a hole. He said that the scheme was just taking off, but from 1999 to 2003 the increase was 29 percentage points.

Mark Francois (Conservative, Rayleigh)

If the Paymaster General had done me the courtesy of listening, she would know that I explained that between 1999 and 2003 the scheme was relatively unpopular, so the Department of Trade and Industry effectively rebooted and relaunched it in 2004, with clearer and better publicised guidelines. The scheme has now begun to take off, and 500,000 users around the country are dependent on the scheme. It is rather worrying that the Paymaster General—a Treasury Minister—will not listen to basic statistics.

Peter Luff (Conservative, Mid Worcestershire)

What I have heard from the Paymaster General confirms my worst suspicions. She does not have the slightest idea of what is happening on the ground, as Her Majesty's Revenue and Customs have seriously misled her about the true facts. When the scheme was rebooted, as my hon. Friend said, in January 2004, it took several months for the industry to gear up, but the advantages are only being experienced now. That is why the costs of the scheme are projected to increase every year in the Red Book.

Dawn Primarolo (Labour, Bristol South)

Four per cent.

Peter Luff (Conservative, Mid Worcestershire)

It is no good the hon. Lady saying that, as the scheme was on the verge of success at the precise moment at which the Government scrapped it.

Mark Francois (Conservative, Rayleigh)

As I shall argue, the ultimate reason for the scrapping of the scheme by the Government is its cost. My hon. Friend has hit the nail on the head and the Paymaster General should explain why, if the scheme is not popular, the Treasury's own projections in the Red Book and the regulatory impact assessment to 2011 forecast an increase in costs? If take-up is not good, why does the Treasury expect it to cost more? The Paymaster General must dig herself out of that hole.

Dawn Primarolo (Labour, Bristol South)

I said that there was misuse.

Mark Francois (Conservative, Rayleigh)

I shall come on to that, and I shall prove that it is not taking place on a scale that would justify the abolition of the scheme.

The initial decision to scrap the home computing initiative, once it was discovered hidden in the Budget of 22 March, was greeted with incredulity, not least by the HCI Alliance, which only a few days before had discussed with the Treasury ways in which it could be updated. Moreover, it is evident that the Brownite Treasury hardly bothered to tell the Blairite DTI—the scheme's sponsoring Department. Even on Budget day, the DTI promoted the scheme on its website:

"The real beauty of HCI schemes is that they have the potential to improve performance in almost every area of the organisation. As well as traditional drivers—reducing costs, increasing profitability— they can also contribute to more recent imperatives such as corporate responsibility, individual learning and workplace development."

Even more embarrassingly for the Government, the DTI was in the process of rolling out an HCI scheme for its own staff, as was the Department for Work and Pensions, which has far more staff than the DTI. In addition, the CBI, which actively advocated the scheme for two years at the Government's behest, reacted to the change with consternation. On 30 March, Sir Digby Jones commented:

"This flies in the face of everything the country is trying to achieve on skills. Seventy-five per cent. of people affected by this change are lower paid taxpayers. They will want to know why the Government has deprived them, and their families, of this opportunity . . . computer literacy has to be a given in a globally competitive economy."

In addition, as we have heard, Brendan Barber of the TUC wrote directly to the Chancellor requesting an urgent rethink, as indeed did my hon. Friend the Member for Tatton (Mr. Osborne).

Stewart Hosie (Scottish National Party, Dundee East)

The hon. Gentleman mentioned flexibility and competitiveness. In the Budget, the Chancellor said that

"of 3.4 million unskilled jobs today, we will need only 600,000 by 2020."—[Official Report, 22 March 2006; Vol. 444, c. 292.]

Does he agree that the scrapping of the scheme, which created flexibility and competitiveness by giving people skills, would be disastrous if we wish to create skilled labour to replace unskilled labour?

Mark Francois (Conservative, Rayleigh)

I agree. The Chancellor said little about the initiative in his Budget speech but, equally, he said little about the national health service. However, he evidently tried to hide what was being done. Our role in the House is to try to expose that, and then try to persuade the Government to change their mind.

There was adverse reaction from employers who have promoted the scheme to their employees, as the Government encouraged them to do. Andrew Unsworth, the head of e-Government at the city of Edinburgh council, which is Labour-run—at least until Thursday—sent the following e-mail this morning. [Interruption.] That would be lucky for the Labour party. Mr. Unsworth said:

"City of Edinburgh Council has run two very popular schemes for our monthly staff since March 2005. Take-up rates were over 2000 employees, nearly 16 per cent. of those eligible.

We were preparing to launch another scheme making computers available to our weekly and fortnightly paid staff who are predominantly on lower rates of pay. These pay groups may not otherwise be in a financial position to afford computer equipment. We viewed this as an excellent way for employees to benefit from a computer and its educational properties for both them and their families."

He continued:

"This scheme provided an excellent platform to improve literacy, communication skills and overall education for employees and their families. City of Edinburgh is currently introducing more computers to schools and several staff had indicated that they were participating in this scheme for the benefit of their children.

City of Edinburgh Council have followed the HCI guidelines very closely and only included computer packages in their scheme. I would hope that the government would consider reversing its decision in this matter even if it means tightening the guideline to prevent the alleged abuse of the scheme."

Similarly, Mike Clayton, finance director of Essex fire authority, wrote to me on the 24 March:

"Take up for the scheme was excellent with over 1 in 5 employees joining. The level of take up was particularly high for firefighters where over 1 in 4 chose one of the computer packages available."

Mr. Clayton amplified his point:

"15,000 nurses took up the scheme last year. Many low paid nurses, fire officers and other key workers have access to IT for the first time because of HCI. Given the importance of computers in the lives of nearly all citizens, I hope that this proposal can be withdrawn and the take up of computers extended."

Kevan Jones (Labour, North Durham)

The hon. Gentleman has concentrated on the low-paid gaining access to computers, but is it not the case that higher-rate taxpayers accounted for 25 per cent. of the take-up of the scheme, even though they account for 10 per cent. of taxpayers? His arguments would be more credible if the scheme ensured that the money went to the low-paid, as people who pay a higher rate of tax can afford computers without Government assistance.

Mark Francois (Conservative, Rayleigh)

We have already established—and everyone accepts— that 75 per cent. of people who benefited from the scheme were on the standard rate of income tax or lower. The hon. Gentleman wishes to raise the issue of higher rate taxpayers and may wish to know that the general secretary of the TUC made a similar suggestion. I would be interested to hear the Government's answer to that proposal and to find out whether they would be prepared to retain the scheme on that basis—

Kevan Jones (Labour, North Durham)

rose—

Stephen Hesford (Labour, Wirral West)

rose—

Mark Francois (Conservative, Rayleigh)

I have given way several times to the hon. Member for North Durham (Mr. Jones) and I want to make some progress. I may give way later to the hon. Member for Wirral, West (Stephen Hesford), particularly given that we greatly enjoyed his intervention on my Second Reading speech last week.

I move on now to deal with the reaction of the IT industry, including the companies that had been created to fulfil the home computer initiative objectives by facilitating the supply of computing equipment to both public and private sector enterprises, many of which will go out of business if the provision goes through. The Government's regulatory impact assessment, which was rushed out just last week in response to the furore over this issue, admits that, exceptionally, no small firms impact test has been carried out in this instance, although that would usually be the procedure. It also notes in paragraph 62, in classic Whitehall jargon:

"HMRC does expect there to be an impact for HCI providers. Particularly those in the small business sector that have been set up specifically to provide HCI schemes . . . will be impacted more significantly in the short term than businesses with more diversified business models".

The IT industry body, Intellect, put it more succinctly after the Budget:

"There are about 2,000 individuals working in this industry that Gordon Brown has just signed redundancy notices for".

Before Ministers seek to accuse anyone of crying wolf in this matter, I have to inform the House that the programme of redundancies in the companies established to support the HCI initiative has, unfortunately, already begun. Last month, Red PC became the first company to fall victim to the abolition of the HCI when it was reported that it was about to call in the liquidators. On 24 April, another company, Encompass, announced that it was closing down. As the managing director subsequently told the press:

"As a small company solely involved in providing HCI, I was completely knocked back by the Chancellor's decision. The government's Digital Strategy sets targets for 2008 so I thought the HCI scheme would run until then, and at the very least we would have 12 months notice. To be given 15 days is appalling."

At a time when unemployment is unfortunately on the rise again, it will be a great shame to see further high-tech companies going into liquidation if clause 61 remains in the Bill.

Most importantly millions of people across the country who might have been able to take advantage of the scheme to improve their and their families' IT skills are now to be denied that opportunity. The Chancellor will now disappoint them if the scheme is withdrawn. Moreover, even those on the existing scheme will be allowed to benefit from it only until whatever agreements they have reached with their employers have expired. That is confirmed by paragraph 71 of the regulatory impact assessment:

"Changes to the exemptions for computers and mobile phones were announced in the Chancellor's Budget statement on 22 March 2006 and will take effect from 6 April 2006. However those people already participating in schemes based on the law as it applied prior to 6 April will not be affected until the period of their current agreement expires and they enter into a new agreement."

In other words, at that point they will be caught by the changes. Even the 500,000 people who are benefiting now will not do so for much longer, once their individual agreements with their employers expire.

Stephen Hesford (Labour, Wirral West)

rose—

Adam Afriyie (Conservative, Windsor)

rose—

Mark Francois (Conservative, Rayleigh)

I promised to give way to the hon. Member for Wirral, West and I shall keep my word.

Stephen Hesford (Labour, Wirral West)

I am obliged to the hon. Gentleman, who has moved on to the point that I wanted to raise. The problem is his umbrella assertion that there is an HCI industry. I do not readily accept that there is such an industry that will be abolished by the legislation. I believe that the figures quoted by my right hon. Friend the Paymaster General are correct and that there has been a take-up over the last couple of years of only 4 per cent. That being the case, it is not clear what industry has supposed to have grown up over that time. The hon. Gentleman is talking about an industry that sells computers, which has been around for a long time. That industry will continue, irrespective of whether this particular legislation goes ahead. The hon. Gentleman has not taken into account the fact that the scheme will move on to a different phase, focused on provision for the elderly and the unemployed who really need these IT skills—[Interruption.]

Mark Francois (Conservative, Rayleigh)

I thank the hon. Gentleman for giving way before I was tempted to intervene on him. He is trying to play games with the statistics. He said that the scheme had only a 4 per cent. take-up, but that is nonsense. I have already provided one example of an organisation that saw take-up of 16 per cent. and it has been at that level or higher for a number of organisations. The take-up among employers pushing the scheme has been very healthy and I have already argued that the scheme was about to take off with other organisations—[Interruption.] I have to ask Government Members who are intervening from sedentary positions why, if the scheme was so bad, both the Department of Trade and Industry and the Department for Work and Pensions were about to roll it out for their own employees. Perhaps some Government Member could stand up and answer that question. I will gladly give way to anyone prepared to do so. Silence.

Perhaps the greatest problem in the whole sorry saga is the effect on individuals who have benefited from the scheme. I have already explained how even their benefit will be time-limited. In order to understand how they will be affected, I cite the example of one HCI provider, the company Futuremedia, which established a website to allow subscribers to provide feedback on the scheme. Here are some examples from respondents outlining the benefits that they believe the scheme confers. I have taken four representative examples. One respondent said:

"I joined so that my twelve-year-old daughter would not be disadvantaged when it comes to homework, research and preparations for exams. To date it has proved to be money well spent."

The next respondent said:

"I joined because it gave me the chance to involve myself in the process of gaining new skills. This without the direct pressure of any direct work-related scheme but with help at hand and the knowledge I could work at my own pace in my own time."

A third said:

"I joined as I was looking for a computer for myself but couldn't afford to buy one outright; when the offer came along I decided to apply as it was a cheap and easier way of affording a new computer."

The fourth said:

"As a man approaching my 50th birthday I find it vital to be dragged into the 21st century learning computer skills, as more and more they become an everyday part of life."

Those are just a few of the numerous examples of how HCI was benefiting people in exactly the way intended, allowing them to gain both IT skills and the chance to learn about other subjects online and giving access to a PC to those who could probably not otherwise afford it. All that could be lost if we do not delete clause 61.

For all those reasons, we believe that the scheme needs to be retained not only for the UK IT industry, which could quite conceivably be harmed by the clause, or the 2,000 or so whose jobs could be lost, but for the many employees in the country who would have taken advantage of HCI in the future to help maintain Britain's competitiveness. We believe that not least because all the indications are that HCI was just beginning really to take off.

I now move on to options to save the scheme by producing a revised system, under which it could operate alternatively in future—

Adam Afriyie (Conservative, Windsor)

Just before my hon. Friend moves on to establishing his case for a revised scheme, does he agree that the low take-up of technology at home is not the only problem, because about 500,000 people will have to change their behaviour, which has associated costs? If it costs £50 or £100 to change the arrangements, that could well work out in the region of £25 million to £50 million in additional costs incurred by business.

Mark Francois (Conservative, Rayleigh)

My hon. Friend is right. Many people entered into the arrangement in good faith, having been encouraged to do so by their employers. Indeed, they were ultimately encouraged to do so by the Government. Now, suddenly, that benefit is effectively being withdrawn, or will be once their individual contracts with their employers expire. Those people will understandably feel let down—[Interruption.]

Peter Luff (Conservative, Mid Worcestershire)

Will my hon. Friend give way?

Mark Francois (Conservative, Rayleigh)

I will briefly, but then I want to outline the alternative.

Peter Luff (Conservative, Mid Worcestershire)

The Paymaster General is muttering from a sedentary position something about it being for work. My hon. Friend should be allowed to answer that point, because the Paymaster General obviously does not understand the purpose of the scheme. A DTI document published in January 2004 lists among the benefits for employees' education for their children, entertainment, e-mail and purchasing goods and services; it was clearly intended for home use. It was all about spreading understanding of computing, so I repeat that the Paymaster General obviously does not understand the purpose of the scheme.

Mark Francois (Conservative, Rayleigh)

In my experience, the Paymaster General mutters a lot from a sedentary position. [Interruption.] I really think that she should go away and re-read her brief. Having heard her remarks—I shall listen, of course, to what she says in her wind-up speech—I am not certain that she realises what exactly she is abolishing.

Dawn Primarolo (Labour, Bristol South)

On a point of order, Mrs. Heal. I have not said a dicky bird. I have been sitting in my place listening to the debate. I do not mind being criticised by the hon. Gentleman, but does he need to make things up?

Sylvia Heal (Deputy Speaker, Halesowen and Rowley Regis)

Order. That is not a point of order for the Chair. May I ask all those participating in the debate to concentrate on the matters in hand? Let us have a little calm.

Mark Francois (Conservative, Rayleigh)

Those who know the Paymaster General well can judge for themselves.

On the options to save the scheme, the Treasury has sought to justify the scrapping of the home computer initiative by citing abuse. On Second Reading the Paymaster General appeared to have no other defence of the Chancellor's ill thought-out decision than to make noises about iPods from a sedentary position. It is true that a loophole existed. A number of products that are entertainment rather than educational, and so are not exactly in the spirit of the scheme, such as MP3 players, game consoles and digital cameras, were ordered in some cases and qualified for the tax exemption because the HCI guidelines from 2004 gave only broad definitions. So there was a loophole which some people attempted to exploit.

However, the Treasury has produced little clear evidence, even tonight, of the extent of the abuse that it claims was occurring, which we believe was only at the margins. As I pointed out in an intervention, there was little hard evidence of the abuse in the Government's own regulatory impact assessment, which they produced last week in a desperate attempt to justify the abolition of the scheme.

Michael Wills (Labour, North Swindon)

Will the hon. Gentleman give way?

Mark Francois (Conservative, Rayleigh)

In a moment.

In any event, it would not be difficult to tighten up the rules by producing guidelines that give details about the items to which the tax exemption would not in future apply. It is very simple to do that if the intention is to combat the abuse. Throughout the Bill—

Michael Wills (Labour, North Swindon)

Will the hon. Gentleman give way?

Mark Francois (Conservative, Rayleigh)

In a minute.

Throughout the Bill, we will debate ad nauseam all sorts of anti-avoidance proposals that the Government have introduced in the Bill—some of which are highly complex and technical—to try to prevent what the Treasury determines to be abuse. It would be simple to produce relevant guidelines; they would be less complicated than some of the measures that we will debate on real estate investment trusts and group relief. If the Treasury wanted to maintain the scheme, it could easily produce guidelines.

There is a precedent. In Sweden, the Government have for some time operated a scheme similar to the HCI. There were similar concerns there about people seeking to exploit the tax advantages to purchase equipment outside the original spirit of spreading IT skills. However, in 2004, instead of scrapping the scheme, the Swedish Government found a workable solution, by tightening up the rules on qualifying equipment.

For example, the rules stipulated that in future only one personal computer would be allowed per employee; some had attempted to order more than one. The monitor size of those PCs was restricted to 30 in. Peripherals and accessories were divided into two categories; those primarily used connected to a PC, such as keyboards and printers, which were allowed, and those whose primary usage did not involve a PC, such as digital cameras and MP3 players, which were specifically not allowed.

Such restrictions would be relatively simple to introduce, were HMRC to produce a list of equipment that would continue to qualify, perhaps reinforced by another list of equipment that was specifically excluded from the scheme, such as iPods and MP3 players.

Michael Wills (Labour, North Swindon)

Will the hon. Gentleman give way?

Mark Francois (Conservative, Rayleigh)

In a minute.

The Government cannot hide behind excuses, such as the difficulty of defining qualifying equipment, because we have just provided them with an empirical example showing how another nation tackled the problem. Moreover, the Government's own regulatory impact assessment concedes that continuing the scheme with tighter guidelines on qualifying equipment, which is characterised in the RIA as option 2, would virtually halve the estimated cost of the scheme to the taxpayer, as projected by the Treasury out to 2010–11, thus allowing the scheme to survive, retaining its key benefits at a reduced cost to the taxpayer on a more tightly defined basis. That should constitute a win-win all round. I urge the Government to take the opportunity while there is still time.

Michael Wills (Labour, North Swindon)

Will the hon. Gentleman give way?

Mark Francois (Conservative, Rayleigh)

In a moment.

I come to an important point—the definition of "not significant", which the Paymaster General briefly addressed in her introductory remarks. If the existing exemptions are removed by clause 61, an associated issue arises; how computers provided by employers to employees will be taxed. As the RIA states at paragraph 22:

"If significant private use is made of a computer provided for business purposes a tax charge will arise on the private use element based on the value of the computer and the extent of the business and private use. Employers will also be liable to Class 1A National Insurance contributions."

That could lead to a significant compliance burden for employers if they are required to police the extent of private use by their employees. As the British Chambers of Commerce states in The Times today,

"Businesses have already seen the cost of implementing government regulation rise to over £50 billion since 1998, so to introduce in the small print of the Budget another measure such as this one will further serve to burden employers and impact on their ability to compete effectively."

The Government have responded by arguing that there will be no tax or NIC liability if such use is deemed "not significant", but have not clarified how that will be defined. If clause 61 remains part of the Bill, it is vital that that is clarified so that both employers and employees know where they stand.

The RIA states at paragraph 73 that HMRC will

"invite employer representatives to work with them as they develop guidance which will articulate their approach for handling compliance and administration issues that flow from the changes announced in the Budget."

I think I heard the Paymaster General reiterate, but I will ask her to repeat beyond peradventure in her winding-up speech, that the Government are planning to consult industry so that they can clearly define "not significant" and the matter can be clarified once and for all.

If that is the Government's intention, can the Paymaster General estimate how long the process will take? For instance, does she anticipate that it will be concluded successfully by July, as suggested in paragraph 74 of the RIA? Even better, if clause 61 were removed from the Bill, the current exemptions would remain in place and the issue would not arise. As The Times argued this morning in a leader sub-titled "The Treasury sends another nasty message to business",

"Treasury officials have promised to take a 'practical' view of how much private use should be regarded as 'significant'. The most practical approach, when the issue is debated in the Commons today, would be to withdraw it. We are watching."

That is another good reason for deleting clause 61. I shall now give way to the hon. Member for North Swindon (Mr. Wills).

Michael Wills (Labour, North Swindon)

I am extremely grateful to the hon. Gentleman for finally giving way. He has moved on from the point on which I wanted to ask him to clarify his intentions. However, I will take advantage of his generosity and ask him to be a little more specific about how he intends to define the scope of the reformed HCI, as he would regard it. Does he accept that the technology is moving so fast that it is difficult to draw the parameters? When the scheme was originally defined, it was appropriate for the technology. He acknowledges that abuses take place, although there is some disagreement about the extent. Those have come about partly as a result of changes in technology that were not conceivable. Although he has tried to provide a constructive alternative, two or three years down the line the technologies may well have moved on again. Is it not right to try and address abuse in the light of the rapid changes in technology?

Mark Francois (Conservative, Rayleigh)

I thank the hon. Gentleman for conceding that we have tried to be constructive about the matter. I welcome the fact that as a former Minister in the Department of Trade and Industry, he has put that on the record. Those canny Swedes thought of that possibility, too. They realised that as technology moved on, particularly in such areas, the list would need to be reviewed regularly to make sure that the definitions remained current. It should be perfectly possible for us to do that too. We come up with an inclusive list and an exclusive list and we review them periodically—say, once a year—to make sure that the definitions remain current. That seems, to coin a phrase, not to be beyond the wit of man, or indeed woman.

To summarise, the HCI scheme has been important in spreading computer literacy among our population, including the lower paid, in order to help our country compete in the 21st century. As such, the scheme should be retained and not effectively wound up, as the Government propose. It should be possible to devise a revised version of the home computer initiative that allows the scheme to survive for its intended purpose, while introducing safeguards to combat the alleged fraud. If the Scandinavians are able to do that, I see no reason why we could not do it as well. The situation is a good example of the old maxim, "Where there's a will, there's a way".

The key question is whether there is a will on the part of the Government to save the scheme, or whether the Chancellor is so desperate for the £300 million in revenue which the Treasury's Red Book estimates would be raised by scrapping the HCI scheme from 2006–07 to 2008–09. Will avarice take over, and will the scheme be cancelled regardless of its obvious merits? Option 2 in the Treasury's regulatory impact assessment would allow the scheme to survive on a honed-down basis.

If we do not hear a convincing argument from the Government tonight—I do not find the digital inclusion team convincing—we shall simply assume that the money that the Chancellor is hoping to recoup has taken precedence over all other considerations and that a financially desperate Chancellor, who loves to talk about the technological revolution and the need to promote a high skills economy, has simply taken the cash. That decision is doubly detrimental, because it will damage our ability to compete in high skills industry with the likes of China and India in the 21st century.

I urge Ministers to draw back from that course while there is still time and to work co-operatively with other parties, industry and scheme users to save that very important scheme. I shall listen to the Paymaster General's reply with genuine interest in the hope that, on behalf of the 500,000 scheme users and the 2,000 employees who will be directly affected, common sense may yet prevail and that that particularly bad decision by an analogue Chancellor may yet be reversed.

Rob Marris (Labour, Wolverhampton South West)

I thank the hon. Member for Rayleigh (Mr. Francois) for his speech, a large part of which was thoughtful, although he will not be surprised to learn that I disagree with much of what he said. If clause 61 passes into law, computers provided for use at home solely for business purposes will continue to be allowed, and I shall return to that point.

The hon. Gentleman accepts that times change. The Paymaster General has said that the take-up rate for the HCI scheme in the first four years after its introduction in 1999 was 29 per cent. and that it then fell to 4 per cent., which shows the operation of the law of diminishing returns. I know that the hon. Gentleman was not a Member of the House in 1999, but I strongly suspect that his party failed to support the HCI when it was introduced and when it was reviewed in 2003—he can correct me on that point, if I am wrong. He, along with the hon. Member for Mid-Worcestershire (Peter Luff), now supports the HCI, and the thrust of his speech seemed to be that times change and that the scheme has reached lift-off.

It is true that times change, but we must put the matter into context, which the hon. Gentleman addressed only at the beginning and end of his speech when he discussed India, China and globalisation. He issued a challenge to the House, which I shall answer. The hon. Gentleman, and most Conservative Members in the Chamber, want to retain the HCI, because it is an attempt to upskill our society.

The Government have spent a huge amount of taxpayers' money on trying to upskill our society, and they continue to do so. I will not reel off the figures, because we have all heard them, but Labour Members agree that that spending was certainly correct, whereas Conservative Members are somewhat divided. For example, the education maintenance allowance was piloted in my constituency, and, although I cannot prove it, I posit as cause and effect the fact that staying on rates at 16 greatly increased. That measure involved investing a lot of money in a long-term process of upskilling our economy, which is the context in which we need to understand the HCI.

The hon. Gentleman mentioned the trade union learning fund. I served in the Committee that considered that legislation, where Conservative Members opposed it. The trade union learning fund has been very successful as part of a mosaic of measures to upskill our economy. The HCI was part of that mosaic, and the Government now say that they would rather that other things were part of it, too.

As far as I am aware, the HCI did not cover students or pensioners, unless they happened to be in paid employment. As part of the mosaic of upskilling, the Government have been pouring computers into schools. All hon. Members visit schools in their constituencies— I am sure that you have done so in the west midlands, Mrs. Heal—where interactive white boards have been installed, many teachers have been provided with laptops, and increased numbers of computers have been made available to pupils. Indeed, some schools in Wolverhampton are successfully piloting the use of personal digital assistants—I do not know whether PDAs fall within the category of computers, because, as my hon. Friend the Member for North Swindon (Mr. Wills) has said, technology moves on so quickly.

Shortly before the Budget, the hon. Member for Rayleigh asked about support for the scheme by the Department for Work and Pensions and the Department of Trade and Industry. However, the Budget included a lot more money for education, and what is known in the vernacular as "Brown money" consists of money that goes directly to schools—from memory an average secondary school can receive up to £198,000 in the following financial year. It is surprising that the hon. Gentleman has suggested that the abolition of the HCI is simply an act of desperation by the Chancellor, because the Budget included far more extra money for education, which affects skills both directly and indirectly, than will be saved by the abolition of the HCI. The further education White Paper was produced at the beginning of March, and adult learning grants allow people to upskill to level 2 and under-25s to upskill to level 3. The HCI was part of that mosaic of upskilling.

Whether Conservative Members like it or not, those taking advantage of the HCI disproportionately consisted of higher-rate taxpayers. As my hon. Friend the Member for North Durham (Mr. Jones) has pointed out, that is not the case in absolute numbers, but it is true proportionally. In round terms, higher-rate taxpayers make up about 10 per cent. of taxpayers, but they made up 25 per cent. of those who benefited from the scheme. That is not to say that we should abolish the scheme just because higher-rate taxpayers benefited disproportionately, but it is worth bearing that point in mind against the backdrop of where the Government want to go on skills provision. We must consider the HCI in that context.

Kevan Jones (Labour, North Durham)

Does my hon. Friend agree with the Low Pay Commission, which has pointed out that many part-time women workers would not benefit under the scheme?

Rob Marris (Labour, Wolverhampton South West)

I did not know that, although it does not surprise me. Although the HCI had some success, times change and we must move on.

It is unfortunate that the HCI appears to have been axed overnight rather than its withdrawal being phased over a year. It is entirely proper for the Treasury to examine whether a tax measure produces a certain effect and whether that effect could be produced through the better use of taxpayers' money. The Opposition would rightly berate any Government who introduced a measure to help with skills and who did not change it for years and years rather than keeping it under review to see whether it worked, whether behaviour changed as a consequence of it and whether they should put taxpayers' money into something else.

Peter Luff (Conservative, Mid Worcestershire)

I am grateful to the hon. Gentleman, who is a colleague on the Trade and Industry Committee. On the abolition of the scheme, I would not be so angry if a year's notice had been given on the intention to ban the scheme, which would have been the right way to proceed. The Paymaster General must address why the change is so sudden, because the matter could have been handled much more elegantly and effectively and with less serious consequences for the employees who risk losing their jobs.

Rob Marris (Labour, Wolverhampton South West)

I am sure that the Paymaster General will address that issue later, if she catches your eye, Mrs. Heal. I believe that the hon. Gentleman has a constituency interest in the matter, for which he is rightly fighting. In terms of the economy as a whole, however, we must consider whether, for example, fewer computers will be purchased because of the abolition of the initiative. I do not know the answer to that, but I suspect that many fewer computers will be bought. While, sadly, there may be the P45s to which the hon. Gentleman referred in his constituency, in terms of the economy as a whole more people may be employed in outlets such as Dixon's, which is going to call itself Curry's, or wherever, selling computers to people direct instead of their being refracted through their employers. I do not know the research on that, and I do not know whether the Treasury does.

The hon. Member for Rayleigh mentioned what was said in The Times, and probably in other newspapers, about the idea, which I am sure that the Government do not have, of taxing personal e-mails. I would draw an analogy with company cars. I am sure that the House has spent a lot of time over the years discussing the taxation of company cars. The matter has come to rest in the past few years because, as a House and as a society, we have reached a modus vivendi and a balance as to how much company cars should be taxed. In most cases, company cars are used for business purposes as well as domestically. A car is an expensive piece of kit. Why have a car that one uses at work, and that one then has to park at work, or, if one can prove that there is no secure parking at work, drive home and leave there? When one then went to the supermarket, one had to go in a different car that one had bought oneself. We all recognised that that was a bit silly.

The taxation of part of the value of company cars is done on a fairly rough and ready basis. People do not go round saying, "How many miles have you driven?" There used to be banding. I think that there still is—I do not have a company car any more—but they are pretty broad bands. One does not have to clock every mile as regards whether it is business and personal. There is a contradistinction between the cost of enforcing something and simply getting in some tax while not spending too much on enforcement.

Perhaps we can have a similarly rough and ready approach to computers provided by employers for business use at people's homes by assuming that, say, 75 per cent. is business use as against 25 per cent. that is personal use. Otherwise, we could go on and on, ad infinitum, with the taxpayer subsidising computers at home for people's private use, which was a measure to kick-start IT literacy and competency in 1999. That may be the route that Sweden is taking, and good luck to it if it does.

The Government are absolutely right to set the Bill in the context of the mosaic of upskilling measures for our economy, and absolutely right to review it, but I wish that they had given it a little more time instead of doing it overnight.

Julia Goldsworthy (Liberal Democrat, Falmouth and Camborne)

I welcome the announcement of a dedicated digital inclusion team and hope that it will really tackle exclusion issues. Will the entirety of the £370 million in savings that the abolition of the scheme will generate be transferred into that, or will some go into the Treasury pot?

If the clause remains in the Bill, it will signal the end of a very successful scheme that has helped 500,000 people, more than 75 per cent. of whom were in the lower-income tax brackets. Those people gained access to computers at home, not only for them but for their families. Siemens told us that its participation rate is more than 35 per cent.

Can the Paymaster General tell us more about how the decision to end the scheme was made? I understand that it was made a matter of hours before the Budget with very little consultation with the Department of Trade and Industry. The explanatory notes give this reason for the decision:

"There is also evidence to suggest that the exemption has been applied beyond the scope of its original intention. Some HCI providers have offered packages that include games consoles and MP3 players and allow employees to buy equipment through salary sacrifice arrangements rather than borrow it".

Will the Paymaster General not only write to the hon. Member for Mid-Worcestershire (Peter Luff) with that evidence but place it in the Library so that all Members can have access to it?

The Government claim that there are fundamental problems in two key areas, yet neither need be terminal for the scheme. All that is needed is clearer definition of the existing regulation. The Government would be more believable if, when they gave their reasons, they accompanied them with the hard evidence which, as yet, we have not seen.

The first problem is that of the definition of a computer, which in the original regulation is defined as "computer and peripheral equipment". There is a precedent in terms of how that has been resolved in other countries. Sweden tightened up its definitions of "eligible equipment" and "ineligible equipment", and made it clear that only one computer per household would be eligible. It might be worth paying attention to another Scandinavian precedent—that of Denmark, which cancelled the scheme but brought it back a year later. The Government might be forced to eat their words in future. There are ways of coming up with a series of workable definitions that continue to bring benefits to employees and their families. It should not merely be a case of robbing Peter to pay Paul in order to improve inclusion in other deprived groups.

On the wider issue of salary sacrifice, I understand from the HCI Alliance that the Office of Fair Trading has to approve every single hire agreement that goes through the scheme, so that if a claim fell outside the terms of the scheme, it would not qualify for the exemption. If the Government were able to provide evidence of such abuse, that would help clarify the situation. Certainly, the HCI Alliance has no evidence that it was being abused in that way or beyond the definitions of the regulation.

Withdrawal of the scheme will create a massive compliance problem for employees and employers. The regulatory impact assessment is very helpful. It explains that if the exemption is removed, all employees are technically required to log the time that they spend at home on their work computer using it for leisure purposes, such as checking e-mails or playing computer games, because it will be taxable. The removal of the scheme will create further confusion, not remove it.

Paragraph 18 of the RIA states:

"Where employers and their employees enter into new agreements to loan computer equipment for private use on or after 6 April, the employee will be liable to pay tax on the cash equivalent of the benefit in kind. Employers will be liable to class 1A NICs on the same amount."

The RIA goes on to say in paragraph 22:

"Some employees may be provided with computer equipment or mobile telephones solely for business use. In this situation as long as any private use that it is made of the equipment is not significant there will be no liability to tax. If significant private use is made of a computer provided for business purposes a tax charge will arise on the private use element based on the value of the computer and the extent of the business and private use. Employers will also be liable to class 1A National Insurance contributions."

I will be grateful if the Paymaster General can explain what "significant" means and how employers are planning to fill out their tax returns.

Stewart Hosie (Scottish National Party, Dundee East)

How does the hon. Lady understand the following example? If an employee has a computer for business use and learns to use a new computer package or software development tool that is not directly related to the work that they do but is in line with what the company does, does that count as personal or business use?

Julia Goldsworthy (Liberal Democrat, Falmouth and Camborne)

I am sure that the hon. Gentleman could have an interesting discussion about that with the taxman.

Dawn Primarolo (Labour, Bristol South)

I can help the hon. Lady on this point. It may be confused in her mind, but it is not confused in employers' minds. The interpretation of what is significant use was in operation before 1999, when the exemption came in, and employers managed to operate it perfectly well. I have said to the Committee that I am happy to ensure that that is restated in that way. Employers have used it before and knew what it meant, and it will not be an intellectual challenge for them.

Julia Goldsworthy (Liberal Democrat, Falmouth and Camborne)

I hope that employees feel the same way as employers.

Another major problem is the way in which the scheme has been axed with no warning. That has had a negative impact on a variety of businesses. Last week, Meriden announced profit warnings, which are partly due to its significant involvement with the HCI scheme.

On a smaller scale, I was contacted by a business called BizApp, which is based in Cheltenham and was expressly set up to help smaller businesses access the scheme. It now faces the loss of six jobs. It established its business because it identified precisely the same problem about which the Government are now talking: it is difficult for smaller businesses to access the scheme. It found a solution, by automating the process and providing the three-year warranty and support package that so many people found attractive and that small businesses could manage to administer. It wrote:

"We became involved in HCI in 2004 and realised very quickly it was impossible for the industry to bring HCI to the Small to Medium Business Sector because the process was still too complex . . . We therefore developed an online platform which automated the whole process. This was no easy task because it was necessary to ensure that all the relevant legislation was adhered to and the platform allowed resellers who use our platform to make substantial savings over the manual methods."

The company was therefore clear that it had identified a problem and found a way in which to overcome it. However, it now faces making its staff redundant because the Government claim that there is insufficient participation from those on lower incomes and more deprived sectors. It is illogical that it cannot now participate in the process of helping people access the scheme.

It is disturbing that the Government have taken so long to provide any indication of the mechanisms on which they will focus their resources. It is interesting that option 2 was rejected because it did not help people from deprived backgrounds. Option 3 announces all the savings and gives no idea of how the Government would target support. That is important because many businesses have invested in and built up infrastructure to provide the HCI. They could use their expertise and investment to provide the scheme to people from more deprived backgrounds, yet all elements of certainty for their business have been taken away. That will have an impact on their confidence to invest in any future scheme and future Government proposals.

Kevan Jones (Labour, North Durham)

I have been listening carefully to the hon. Lady. How will low paid workers, the unemployed or the elderly, to whom my hon. Friend the Member for Wolverhampton, South-West (Rob Marris) referred earlier, benefit from the scheme?

Julia Goldsworthy (Liberal Democrat, Falmouth and Camborne)

I can give the hon. Gentleman a precise example of someone to whom I spoke this morning and who is using the HCI to buy a computer for his mother, who is a pensioner. The whole point of the HCI was to bring computers into private use and encourage their use in the home. Why, therefore, has the Paymaster General rejected modifying the scheme to ensure that the abuses that she mentioned do not take place?

Peter Luff (Conservative, Mid Worcestershire)

For the second time in the debate, the Paymaster General indicates that she does not understand the purpose of the scheme that she is abolishing. She shook her head in dismay at the example that the hon. Lady provided, when, according to the Department of Trade and Industry document, which was produced jointly with the Department for Education and Skills and other Departments, that is exactly the sort of purpose for which the scheme was established. It was to take computers into homes, not for business purposes. The Paymaster General clearly does not understand that point.

Julia Goldsworthy (Liberal Democrat, Falmouth and Camborne)

The hon. Gentleman makes a good point. The scheme was an initiative to bring computers into the home. Why, therefore, did the Paymaster General reject option 2 and why was the new scheme announced only today? I hope that she will reply in her winding-up speech.

Michael Wills (Labour, North Swindon)

I welcome today's announcement by the Government of the digital inclusion team. It is welcome not least because it focuses on the overriding objective of ensuring that all those who are potentially excluded from the benefits of access—everyone who has spoken said that such access was essential—to fast-changing new technologies remain the priority. The emphasis will be on them, not some specific scheme, which, I accept, was relevant when it was introduced and was, incidentally, opposed by Opposition parties at the time. We should focus on the ends, not the means. I therefore greatly welcome the digital inclusion team but I want to ask for reassurance about two matters.

First, my right hon. Friend the Paymaster General spoke generally about those who are potentially excluded from the new technologies. I should be grateful for an assurance that one of the key focuses of the new digital inclusion team will be lower paid workers, especially those on the national minimum wage for whom access to new technologies could be crucial to help them upskill and move up the employment ladder, as my hon. Friend the Member for Wolverhampton, South-West (Rob Marris) rightly stressed.

The second point is more technical. My right hon. Friend referred to digital television. Of course, that could be enormously important. We are about to move to a switchover from analogue to digital television and that will clearly be important in many different ways. However, I hope that she will reassure me that she will not ask the digital inclusion team to rely on digital television as the main passport to literacy in the new technologies. It is important to bear in mind that there will be a plethora of ways in which to access the new technologies and that the computer is likely to remain important for most people, if not everybody, in that regard. I should therefore be grateful for some reassurance on those points.

Peter Luff (Conservative, Mid Worcestershire)

Although you rightly rebuked us, Mrs. Heal, for getting a little excitable earlier in the debate, I know the Paymaster General well enough to realise that she will not take it personally. In that spirit, I join my hon. Friend the Member for Rayleigh (Mr. Francois) in wishing her an extremely happy birthday. I am sorry that she has to pass it here.

I have two separate concerns. First, was the scheme a good thing—yes or no? A related question is whether it could have been improved. Secondly, was the manner in which it was abolished satisfactory? Although my colleague on the Committee, the hon. Member for Wolverhampton, South-West (Rob Marris), said that I spoke from constituency interest, as Chairman of the Select Committee on Trade and Industry, I am also worried about the impact of the scheme on the Government's strategy for bridging the digital divide to build new societies. The scheme was originally believed to have played an important part in the process. I freely declare my constituency concern, but I also have a genuine anxiety about the broader issues that precipitate change in Government policy raises.

The scheme's demise deserves a tribute along the lines of Mark Antony's celebrated speech in "Julius Caesar":

"Friends, Romans, countrymen, lend me your ears;

I come to bury Caesar, not to praise him.

The evil that men do lives after them,

The good is oft interred with their bones".

I come to praise the home computing initiative, not to bury it—the Chancellor has done that. The good that the scheme has done lives on. The computers are in homes and much good has been done. The scheme has made a contribution to fulfilling the Government's key objectives of improving IT skills and productivity and increasing access to the internet in UK homes.

I repeat that the Paymaster General made several sedentary comments earlier that suggest that she does not understand the purpose of the scheme. It was not a business scheme but was provided by businesses to their employees for personal use. That was what made it so strong, successful and important. I hope that she has now understood that. The scheme was not for business use of computers at home.

The rest of the debate is in Hansard.