Finance Bill

Public Bill Committee, 13 May 2008.

(Except clauses 3, 5, 6, 15, 21, 49, 90 and 117 and new clauses amending section 74 of the Finance Act 2003)

Nicholas Winterton (Conservative, Macclesfield)

I welcome all hon. Members to this further sitting of the Finance Bill Committee. It is another very pleasant day, and we had a wonderful weekend, so I hope that everyone feels duly rested and recharged for the political conflicts ahead.

We are making steady but not over-rapid progress on this important Bill, and we are still on schedule 3. I understand from the Clerk that we had hoped to complete consideration of the schedule on Thursday but, sadly, that did not happen and we have three groups of amendments to discuss this morning. I have selected amendment No. 26 to schedule 3 in the name of Her Majesty’s Opposition. I am not sure which member of the Opposition team will leap to his feet, but I shall take a gamble on it being Mr. Philip Hammond.

Schedule 3

Philip Hammond (Conservative, Runnymede and Weybridge)

I beg to move amendment No. 26, in schedule 3, page 121, line 36, after ‘possession’, insert

‘, including a defeasible life interest,’.

I am pleased to hear that you had a good weekend, Sir Nicholas, although I learnt from my television screen on Sunday afternoon that it seemed to be more rainy in the north-west than the weather that we were enjoying in southern England. It might not have been so in Macclesfield, but it certainly was in Wigan.

The Committee will be pleased to know that the debate will be short, unless the Minister has something startling to say. The amendment is a simple probing amendment, and I make no claim to authorship. It would clarify a small technical point to which an outside professional body has drawn attention and make it clear that an interest in possession otherwise than for a fixed term could include a defeasible life interest. I have no great axe to grind one way or the other on whether a defeasible life interest is included in the Bill, but I understand from outside professional bodies that its drafting leaves them in some doubt whether a defeasible life interest is included or excluded. We therefore considered that it would be helpful to have definitive clarification from the Minister. I do not in all honesty believe that the Bill needs to be amended if the right hon. Lady can simply clarify the point for the benefit of the professionals who are interested.

Jane Kennedy (Labour, Liverpool, Wavertree)

Well, here goes! Amendment No. 26 operates on the part of the schedule that determines when entrepreneurs relief is available to trustees. It seeks, in particular, to make it clear that a beneficiary with a defeasible life interest in an interest in possession trust may qualify for relief. I hope that I can demonstrate that the amendment is unnecessary, although I appreciate the spirit in which it has been moved. I am aware of the debate among interested parties about whether a defeasible life interest would be considered an interest for a fixed term and, hence, excluded from the entrepreneurs relief. I assure the Committee that the fact that a defeasible interest may be terminated at some point does not render it an interest for a fixed term. More fundamentally, the amendment does not provide a definition of defeasible life interest, so it would fail to provide the degree of clarification that it may be intended to achieve.

I hope that I have provided the help that the hon. Gentleman was seeking and that, having heard my remarks, he will withdraw his amendment.

Philip Hammond (Conservative, Runnymede and Weybridge)

I am grateful to the right hon. Lady for taking the amendment in the spirit in which it was moved. She has now placed on the record the Government’s definitive view on what the drafting means. I accept that the amendment is unnecessary and so beg to ask leave to withdraw the amendment.

Nicholas Winterton (Conservative, Macclesfield)

For the information of the Committee, the weather in Macclesfield on Sunday was brilliant. We had blue skies over Macclesfield, as is appropriate. I took part in a seven-mile sponsored walk and it did me the power of good. I ended up with a pint of beer, which was very refreshing indeed.

Philip Hammond (Conservative, Runnymede and Weybridge)

I beg to move amendment No. 27, in schedule 3, page 122, line 31, leave out ‘as part of’ and insert ‘subsequently to’.

Nicholas Winterton (Conservative, Macclesfield)

With this it will be convenient to discuss amendment

No. 28, in schedule 3, page 122, leave out lines 37 to 39 and insert

‘date of the disposal referred to in subsection (3)’.

Philip Hammond (Conservative, Runnymede and Weybridge)

Clearly, Macclesfield and Wigan are miles apart, Sir Nicholas.

Amendments Nos. 27 and 28 address a more substantive issue than the previous amendment. They would amend the wording of new section 169K of the Taxation of Chargeable Gains Act 1992, which deals with the associated disposal of assets that have been used in connection with the business of a partnership or a company, the interest in which is being disposed of by the individual. In order for an associated disposal to be eligible for entrepreneurs relief, two conditions have to be met. I particularly want to draw the Committee’s attention to condition B, which will be inserted by new section 169K(3), which states:

“Condition B is that the individual makes the disposal as part of the withdrawal of the individual from participation in the business carried on by the partnership or by the company or (if the company is a member of a trading group) a company which is a member of the trading group.”

That has been described as the lock, stock and barrel approach to the disposal of associated assets. The assets must be disposed of as part of the individual’s withdrawal from participation in the business.

My first point, which I hope the Minister will begin to clarify and to which we might return later, is that the definition is rather vague. What does “withdrawal from the business” mean? Presumably it does not mean simply the sale of the shares or of the partnership share, or ceasing to be employed in the business, because if it did it would say so. It has to be a more complex concept, and there is concern that it is not clearly defined. The point of withdrawal from the business will be important in determining whether the proceeds of the sale of an associated asset are eligible for taper relief, so I suspect that that will be the source of some future legal clarification in the courts if we do not get it right and make absolutely clear the precise meaning of withdrawal of the individual from participation in the business. Does it mean on the same day, in the same month or in the same year? Does it mean that at the time the individual undertook the first action, he was planning in his mind the second action as some kind of package concept? Is it a motive test? Those are important questions.

My understanding of the Bill is that an individual could not withdraw from the business, whether it is a company or a partnership, and dispose of the asset at a later date, because that would not be part of his withdrawal from the business. The Minister might tell us that there are certain cases in which withdrawing from the business and disposing of an asset at a later date would constitute part of the withdrawal from the business, but we need some clarity on what those circumstances will be.

I shall suggest a couple of examples. Let us suppose that somebody owned farm land that was farmed by a partnership of which he was a partner or by a company in which he was a shareholder, and that he chose to dispose of his interest in that partnership or company. He made that known to his partners or co-shareholders and they were unable to raise the financial wherewithal to buy his interest in the asset—the farm land—that is used in association with the business—so he allowed them to continue to use the asset, perhaps while they tried to raise the finance to buy him out.

One can envisage many similar scenarios, for example a GP in a GP partnership who wished to retire and cease to take an active role in the partnership, but whose partners were unable at that time to buy out his interest in the separately held asset—the premises in which the partnership operated. Partners in a small accountancy firm might be in the same position. One can think of many examples where the interest in the property will be retained until either a new partner joins the partnership or a new shareholder brings capital into the company, or the existing partners and shareholders are able to raise the capital to buy out the associated asset.

It is important that the Minister explains what is intended here—whether there is an intentional barrier to an asset used in association with a business being eligible for taper relief and if so, to what extent that barrier is intentionally erected. The Committee needs to know whether there are other cases, which the Minister has not signalled, where there would be intentional barriers to taper relief being available—in other words, a defect in the way the provision will work. The group of amendments simply remove the requirement for a disposal to be part of withdrawal.

We have debated whether any business asset should be eligible for entrepreneurs relief and the Minister made it clear that as a matter of policy that was not the Government’s intention. I do not seek to reopen that debate. The group of amendments requires that the disposal be made subsequent to the individual’s withdrawal from the business. That would not cover a situation wherein somebody continuing the business could sell the asset and benefit from taper relief, but it would cover a situation wherein somebody who is withdrawing from the business can retain the asset, allow it to continue to be used in the business and then obtain taper relief on its subsequent sale.

It is tempting to think of the asset always as land or buildings, but it might be plant and machinery, or intellectual property. The individual who is exiting might own the patent upon which a manufacturing business is built, or a brand name which the company will continue to use in trading. It is not uncommon that a business needs to establish continuity by continuing under a trade name or a brand image, even if it will not be allowed to do so indefinitely.

The qualifying requirement in subsection (4) is also amended to require that when the asset is disposed of, it has been in use during the preceding year for the purposes of the business. It will need to be owned by the individual claiming the entrepreneurs’ relief and to have been in use in the business, but the individual himself will not need to have been engaged in that business. That is the soft exit provision, which will allow a partner who is retiring in circumstances where his partners cannot buy out the asset to avoid cratering the business by insisting on a third-party sale. There are real practical reasons for such a provision and I hope that the Minister can clarify what the Government’s intentions are and how in practice we can avoid some of the pitfalls that I have outlined.

Stewart Hosie (Scottish National Party, Dundee East)

My contribution will be brief, and it follows on from the points made by the hon. Member for Runnymede and Weybridge. Where a partner withdraws completely and can dispose of every asset immediately and fully, one would imagine that they would be able to benefit from the release. However, in the case that within the same financial year—this is not uncommon in small businesses—the business runs into difficulty and the individual is called back on a paid or consultant basis, have they breached the rules? Have they fully withdrawn, and will they still receive the relief that they initially anticipated receiving on withdrawal, although they have been called back in extremis? That is an important point. People have contractual obligations not to re-engage with another firm, but they may be called back to assist the partnership. Would the relief still apply in those circumstances?

Jane Kennedy (Labour, Liverpool, Wavertree)

The hon. Member for Dundee, East makes a fair point, which I shall address in a moment. I can confirm that on Sunday afternoon, Liverpool, Wavertree, was deluged with what appeared to be a mini tornado, which was so serious that it interrupted the broadcast of a particular event that was taking place in Wigan, much to the consternation of my best beloved and eldest son, who was not engaged in gardening as I was, it being otherwise good weather.

Amendments Nos. 27 and 28 would alter the rules governing the disposal of assets associated with a business. In particular, they would remove the requirement for associated disposals to be made alongside the withdrawal of an individual from the business in question. As such, they would dilute the targeting of entrepreneurs relief.

The amendments are unnecessary. In constructing schedule 3, the Government have deliberately focused entrepreneurs relief on individuals who are disposing of all or part of their business.

The hon. Member for Runnymede and Weybridge asked what “withdrawal from the business” means. I invite him to look at page 122, line 32, which uses the expression,

“withdrawal... from participation in the business”.

That does not answer the point made by the hon. Member for Dundee, East, which I shall come to in a moment, but the expression means just what it states. There is no specific time limit—[Interruption]. I will explain: there will be opportunities for a case to be made on a case-by-case basis.

Asset disposal occurs as part of the overall process of withdrawal, either before or after the material disposal of shares or partnership interests. We have not imposed intentional barriers to entrepreneurs relief—that was never our objective. What we have deliberately focused on, however, is the provision of relief to individuals who withdraw from participation in a business. The eligibility criteria are not meant to replicate criteria for the old taper relief. It depends on the facts of the case, but it is possible for someone to withdraw from a business and make an associated disposal at a later date. If the disposal is linked to the withdrawal from participation, the individual may receive relief. We need to take a fair view of the case based on the facts.

Philip Hammond (Conservative, Runnymede and Weybridge)

What the right hon. Lady says sounds reasonable in general terms: there will be an opportunity for a case to be made, case by case, and the outcome will depend on the case. However, she is saying that no one will ever be sure. Will there be a pre-clearance regime, whereby someone intending to make a disposal and a subsequent associated disposal can obtain Her Majesty’s Revenue and Customs pre-clearance, so that that the disposal, in the circumstances that have been defined, will be eligible for entrepreneurs relief? There was a pre-clearance authorisation procedure under taper relief.

Jane Kennedy (Labour, Liverpool, Wavertree)

I do not believe that to be the case. Clearly, an application for relief would be made. The case would have to be presented as I have described. There will be occasions when the facts of the case merit relief and other occasions when they do not. It is not fair for someone effectively to convert a business asset into an investment by holding on to an asset after leaving the business. The rules are flexible, as cases vary, so they need to cater for that. The key point, however, is that asset disposal—the disposal of shares or shares in a partnership—where relevant in the cessation of the business is all part of one overall event or process. I have accepted that the disposal does not have to take place all at one immediate moment.

Philip Hammond (Conservative, Runnymede and Weybridge)

The right hon. Lady said a moment ago that it would be unfair for a retiring partner or shareholder to be able to convert an asset into an investment asset and then secure taper relief on it. That will not happen, because of the provision that the payment of rent disqualifies someone from entrepreneurs relief. My examples were deliberately constructed to present examples where the partner, out of consideration as it were for the other partners or his co-shareholders, was prepared to leave an asset in the business, rather than destroy the business by insisting on selling it to a third party. He would not receive rent, so it would not be an investment because of the Bill’s provisions on rent.

Jane Kennedy (Labour, Liverpool, Wavertree)

I believe that I am right in saying that the hon. Member for Gosport raised that issue when we began to debate entrepreneurs relief, and we will discuss it in greater detail in the next group of amendments—I hope that I will then have something to say that gives some comfort to the hon. Member for Runnymede and Weybridge. The key point is how and why the assets are being disposed of. In response to the hon. Member for Dundee, East, if a partner withdrew and sold everything, but was called back in the circumstances he described—I accept that that is not uncommon—they could still qualify for relief, if the facts of the case merited it. If a partner came back as an employee or consultant, that, too, would not prevent application for relief. There is some scope in the arrangements for the kind of case described and for application to HMRC.

The amendments would allow some individuals to withdraw from active participation in a business, but to continue providing assets to the business. As I said at the outset, I believe that that dilutes the targeting of the relief and is therefore undesirable. We do not believe that such a scenario is a desirable target for the benefits of entrepreneurs relief in general. The amendments would have the perhaps unintended consequence of restricting entitlement in cases where a business ceases trading, but the individual only disposes of their share of the business at a later date. Under the current rules, an associated disposal may qualify at the time that the business ceases, and the amendments would prevent relief from being due in such cases.

One final point on the clearance procedure, about which the hon. Member for Runnymede and Weybridge asked, may help. There is no clearance procedure beyond the normal procedures for engaging with the tax office. The facts cannot be determined in advance, but the issue was not a problem with retirement relief. There is no reason to think that it would be a practical problem now.

Philip Hammond (Conservative, Runnymede and Weybridge)

The right hon. Lady is right that the matter must be determined on the basis of the facts. My understanding of the pre-clearance regime under taper relief was that the facts were set out by the taxpayer or his advisers. In effect, the scheme that was to be undertaken was set out, and HMRC gave a pre-clearance on the basis of approval, subject to all the matters set out in the taxpayer’s statement being carried out. If the taxpayer deviated or the facts changed, the pre-clearance would be void. However, the fact that it all hinges on what happens does not mean that it is impossible to obtain pre-clearance. If it were, the whole concept of a pre-clearance regime would fall apart.

Jane Kennedy (Labour, Liverpool, Wavertree)

I hear what the hon. Gentleman says, and I want to think carefully about his remarks and examples. I believe that the advice that I have been given is correct, but I want to test it against his remarks. I do not believe that the amendments are necessary for the reasons that I have explained. They would dilute the targeting of entrepreneurs relief. We will discuss a related issue under the next group of amendments, when we will examine this matter further, so I hope that he will withdraw the amendment.

Philip Hammond (Conservative, Runnymede and Weybridge)

I am not merely disappointed, but quite alarmed by what the Financial Secretary has said. I thought that she would explain how somewhere in the obscurity of the schedule, it was perfectly clear that a disposal at a later date in the circumstances that I outlined would be eligible for entrepreneurs relief. In fact, she has left me more concerned than I was at the beginning of the debate. She says that she is confident that her advice is right, but it is not clear what that advice is. I still have not heard whether a disposal a year or two years after an individual withdraws from a business, in the circumstances that I have set out, would be eligible for entrepreneurs relief.

We must avoid two things in this Committee. First, we must avoid creating more uncertainty in our tax system. The eight months since the pre-Budget report and the changes to the capital gains tax regime have been characterised by lack of certainty and clarity, which is hugely damaging to business interests. The thought of introducing complicated provisions, which are clouded with uncertainty as to what would, and would not, be allowed, and in what circumstances, and which apparently are not capable of being subject to a pre-clearance regime, fills me with horror.

I may be wrong, but I anticipate that on leaving the room after this sitting, I will hear from various professional bodies that they feel the same way. They will agree that there is a degree of uncertainty, which is becoming greater as the Financial Secretary attempts to answer the questions that are raised. I am very concerned about this issue. She has rightly observed that the next group of amendments touches on a similar area, but it is in this area that I wish to stand in the ditch. The next group of amendments merely pushes the envelope still further.

Will the Financial Secretary consider the following proposal and perhaps clarify the issue in the next debate? If there is no pre-clearance regime, if the provision is woolly because decisions will be made on a case-by-case basis, and if she cannot answer specific questions at the Dispatch Box about whether or not the examples I have given will qualify, for the sake of clarity will she consider giving an assurance that HMRC will publish specific guidance, with examples, showing cases where it would normally be expected that a disposal of an associated asset, after the withdrawal of an individual from that business, would be eligible for entrepreneurs relief?

Secondly, we must avoid inadvertently—I assume that this has been done through inadvertence, not malice—creating a situation in which the withdrawal of an individual from a business leads to the collapse of that business, because the other individuals are not in a position to acquire an asset that he holds and which is used in association with the business. That is not an uncommon structure, and it would be a disaster if we inadvertently created such a situation.

Jane Kennedy (Labour, Liverpool, Wavertree)

The hon. Gentleman talks about a pre-clearance procedure. I understood that there was no general pre-clearance procedure. Assuming that the Bill receives Royal Assent, guidance will be published shortly. I want to think carefully about the hon. Gentleman’s remarks, particularly given the importance he attaches to this group of amendments, which is clearly based on his interface with those groups that have been talking to him about their impact.

Philip Hammond (Conservative, Runnymede and Weybridge)

While I fully accept that some of the amendments I have tabled to this schedule overtly seek to extend the envelope of eligibility, in amendment No. 27, I am trying to prevent our sleepwalking into excluding a group of situations which I do not think anyone wants to exclude. Because the Minister has engaged with that point, I shall seek leave to withdraw the amendment, but I give her notice that we will have to return to this point. I hope that she will consider carefully the examples that have been offered.

If I have missed something, and if the architecture of the Bill provides a perfectly clear answer, and the danger that I have highlighted does not exist—this is not a party political point—I will happily accept that. But if that danger does exist I hope that the Government are prepared to do something to address it. In that spirit, may I ask the Financial Secretary whether she would be prepared to give the Committee an undertaking that the guidance will be made available in draft before Report so that we can understand how the Government expect this to work?

Jane Kennedy (Labour, Liverpool, Wavertree)

I give that undertaking, and I will make all due effort to ensure that that happens.

Philip Hammond (Conservative, Runnymede and Weybridge)

I am grateful to the Minister.

Emily Thornberry (Islington, South and Finsbury) (Lab) rose—

Nicholas Winterton (Conservative, Macclesfield)

Order. Before the hon. Lady makes her intervention, I must say that I take a slightly dim view of the fact that someone who has just come into the Committee and not heard the argument should seek to intervene. However, she has a right to do so, and I am quite happy to call her to speak. I merely make that observation to the Committee.

Emily Thornberry (Labour, Islington South and Finsbury)

I fully intended to apologise to the Committee for missing part of the debate. The point I am about to make may already have been clarified, but I am keen to make it, because in certain quarters of my constituency, perhaps surprisingly, it causes some concern. In amendment No. 27, which I believe we are debating at the moment, I understand that after the word “possession”, the Opposition wish to insert “defeasible life interest”. I do not know whether that is still the position.

Nicholas Winterton (Conservative, Macclesfield)

Order. The hon. Lady used the right amendment number, but the wording to which she refers was from the previous amendment, with which we have dealt.

Emily Thornberry (Labour, Islington South and Finsbury)

I am glad that matter has been dealt with, as it is a matter of concern. It seems to amount to the same thing.

Philip Hammond (Conservative, Runnymede and Weybridge)

In response to your earlier comment, Sir Nicholas, QED is the appropriate answer. If the hon. Lady reads the Official Report she will find that the Minister has replied very helpfully in respect of amendment No. 26, and clarified the point. I am genuinely grateful to the Minister. I hope that we can agree that no one is seeking to create a class of unintended losers. Goodness knows, this Government have understood that that is not a sensible thing to do. I look forward to seeing what the right hon. Lady brings forward, and I beg to ask leave to withdraw the amendment.

Philip Hammond (Conservative, Runnymede and Weybridge)

I beg to move amendment No. 33, in schedule 3, page 125, line 41, at end insert

‘in respect of any period commencing on or after 6th April 2006’.

Nicholas Winterton (Conservative, Macclesfield)

With this it will be convenient to discuss the following amendments: No. 35, in schedule 3, page 126, line 7, at end insert ‘and’.

No. 34, in schedule 3, page 126, line 13, leave out from ‘business’ to end of line 17.

No. 37, in schedule 3, page 126, line 24, at end insert ‘and’.

No. 36, in schedule 3, page 126, leave out lines 28 to 31.

Philip Hammond (Conservative, Runnymede and Weybridge)

New section 169P of the TCGA 1992 deals with the restriction imposed in respect of the disposal of an associated asset that has not been used entirely for business purposes throughout the period of ownership, or where rent has been received for the use of that asset. Although I touched on the provision in relation to the previous group of amendments, in this case, the situation is one where the asset during the period prior to cessation of or withdrawal from the business has been used not wholly for business purposes, or where rent has been received. The classic example used in such tax cases of an asset used not wholly for business purposes is that of a farm with a residential farm house on it. There can be no issue in principle that where an asset is used partly for non-business purposes, some form of apportionment must be made. That is a fair approach.

The problem is that there is no starting date for the period over which apportionment must be made. The wording appears to apply to a period beginning with the date when the asset is first acquired. That means that relief will be denied in some cases where common sense suggests that it should be available. The amendment suggests a start date—not quite plucked at random—of two years before the start of this tax year. Therefore, previous use of an asset would be disregarded provided that it has been in business use for the past two years and remains so until the point of disposal. The two years mirror the taper relief regime requirement. The measure is not susceptible to manipulation or avoidance strategies, as it is dependent on what happened in a previous period—the last two years. For the purpose of the clause, there is nothing that anybody can do now to change the status of an asset to claim some advantage. I hope that the Minister will respond to that substantive point.

The second problem in proposed new section 169P, is found on page 126 of the Bill, where four tests are set out. Tests (a) and (b) are defined by reference to the period in which the asset is in the ownership of the individual. Tests (c) and (d) are defined by reference to the period that the asset has been in use in the business. They are different tests, and it is easy to envisage—again, using the farm land example—an asset that may have been in use in a business for many years, but that may have been owned by the individual in question, perhaps through inheritance, for a significantly shorter period. There is an issue about those two different tests.

If, for any part of the period that the asset has been in use in the business, the individual has not been involved in the carrying on of the business, or if for any period rent has been received, relief is proportionately denied. For example, in a farming business where the land is owned separately, if the individual inherits land but the land has been in use in the business for a longer period, entrepreneurs relief will be partially disallowed. It appears that even if the asset has always been used in the business, he will only be entitled to relief for the fraction of the gain that represents the fraction of his period of involvement in the business out of the total period of use of the asset in the business.

Let us put this into numbers. Let us say that a piece of farm land has been used by a farming business for a hundred years; if the current generation or individual inherited the land and became involved with the farming business five years ago, he would be entitled only to five one-hundredths of the gain eligible for entrepreneurs relief—that is how I and others outside the House read the Bill. I cannot believe that Ministers intend that. If there is some obscure provision that makes good this problem, I am sure that the Minister will tell us. Again, we need to hear what is policy and what is potentially a query or question mark around the drafting. Is it really the Government’s policy that if farm land has been used for a hundred years in association with a business, but the individual currently making the disposal has only been involved in the business for five years, only five one-hundredths of the gain are eligible?

Finally, where relief has to be apportioned, either because of the rental test or because of the ownership or involvement tests, there is a just and reasonable test for apportionment. To be fair, there are some bases for what is just and reasonable set out in new section 169P(5), but we need a commitment from the Minister to publish HMRC guidance about how the tests will apply. The tests set out in subsection (5) are vague, to put it mildly. They do not say specifically that every case will be a pro rata apportionment; they simply say that regard will be had to the various factors—length of time held and the period of involvement. We and practitioners need to understand how regard will be had to those factors and what formula will be applied. The Bill does not make that clear.

There are also a couple of issues in relation to amendment No. 34, which would deal with the rental issue by deleting reference to receipt of rental as a disqualifying characteristic. We understand that a property letting business is not in itself a trading business, but where the asset is used for the purpose of an associated trading business, it appears to be different. As the Minister will know, the acquisition of assets from outside the business to be used in conjunction with the business was positively encouraged by the taper relief regime, which allowed taper relief for such assets. An asset that is acquired and financed separately and let to a company or a partnership is a vital part of the financing strategy of many small businesses. It allows flexibility if partners change or if not all practising partners are able to invest in the asset.

The problem with the proposed new section is that its impact is retrospective. Even if the arrangements were changed and rent stopped being paid now, the lack of a start date, which I referred to earlier, means that that asset will forever be caught by the provisions. That needs to be considered very carefully in the context of how it undermines the financing arrangements that are often used in small businesses and of how it introduces added complexity.

In the document published to support the Budget note “Capital Gains Tax: Relief on Disposal of a Business (Entrepreneurs’ Relief)”, example 6 set out an a situation in which Mr. R has been a member of a trading partnership for several years. He leaves the partnership and disposes of his interest, realising gains of £125,000, all of which qualify for entrepreneurs relief. He also sells the partnership office building, which he owned outright but let to the partnership, realising a gain of £37,000. I hope that the Minister picks up on that point, because it is from the Treasury’s note. The note states:

“The disposal of the office building is ‘associated’ with Mr. R’s withdrawal from the partnership business, and the £37,000 gain therefore also qualifies for entrepreneurs’ relief (assuming there is no restriction on the amount of gain qualifying for relief as a result of non-qualifying use).”

The phrase in brackets suggests that the non-qualifying use is the payment of rent, but I suggest to the Financial Secretary that the term “let to the partnership” ordinarily implies that it was let for rent. The example given in the Budget note is at the very least extremely confusing, because it states that where the building has been let to the partnership, relief will be available unless there is a non-qualifying use, but the Bill states that any letting in the normal sense—for rent—will disqualify that asset entirely. Perhaps the Minister will consider those points and our concern about how that provision will distort and undermine financing structures commonly used in small businesses and once again, leave us with the tax system driving the business structure, which I think we all agree is not the optimum situation.

Jane Kennedy (Labour, Liverpool, Wavertree)

The group of amendments would relax the conditions under which entitlement to entrepreneurs relief for associated disposals may be restricted. Those restrictions apply where an asset was only partly deployed for business use or where the asset or individual was involved in the business for only part of the qualifying period. Amendment No. 33 would apply those restrictions by reference to the situation after 6 April 2006, effectively disregarding anything that happened earlier. The hon. Member for Runnymede and Weybridge argues that we should effectively write off everything that happened before April 2006. However, where an asset was only partly in business use, we believe that it is right to restrict the relief, and that is part of how the relief is targeted. I shall address his point about rent received in the past shortly.

Amendments Nos. 34 to 37 would remove one of the restrictions entirely so that receiving rent for the use of an asset would not prejudice entitlement to entrepreneurs relief on that asset. When considering the extent to which an asset was used for business purposes, it is right to restrict the relief if the conditions for an associated disposal were only partly met. Where an individual receives rent for the use of an asset, the amount of entrepreneurs relief should be restricted. Where an individual is receiving rent in exchange for the use of an asset by a business, that is more akin to an arm’s-length investment and is not an appropriate target for relief.

However, the restrictions involve looking back over the entire period of ownership of an asset, which could involve substantial periods before the introduction of entrepreneurs relief in April 2008, as the hon. Gentleman has pointed out, and I acknowledge that that is considered by some to have overtones of retrospection. Amendment No. 33 seeks to mitigate that element by taking out of account that period of ownership before 6 April 2006.

The restriction in cases where rent was paid for use of the asset has also attracted adverse comment for a second reason. Receipt of rent, whether at a market rate or otherwise, did not result in any restriction on the availability of business asset taper relief on disposal of the asset in question. I acknowledge the concerns voiced by the hon. Gentleman. I am aware that the approach under the Bill differs from the taper relief treatment of assets provided in exchange for rent. The amendments would deal with that point by removing the restrictions altogether, but that approach is not appropriate.

As I said, the hon. Gentleman has touched on a legitimate concern regarding the receipt of rent, so although I do not believe that his amendments are the right way forward, I undertake to consider his case for disregarding rent received before April 2008 when assessing entitlement to entrepreneurs relief. The hon. Gentleman asked if guidance will be available. It will be, and I shall invite HMRC to publish draft guidance for consideration before we discuss the matter on Report, or sooner if possible.

Mark Field (Conservative, Cities of London and Westminster)

I thank the Minister for making that concession in relation to the amendments, but I want to know the Government’s thinking. Part of our confusion arises from the fact that we do not quite understand the Government’s intentions, given the various changes in taper relief and the desire to simplify the capital gains tax and related regime. What is their thinking in introducing the additional level of complication caused by working out the reliefs? Can the right hon. Lady explain in a couple of sentences why the Government are trying to drive forward such a complicated proposal?

Jane Kennedy (Labour, Liverpool, Wavertree)

As I said in my opening comments, our intention was to consider the individual at the point at which the claim for relief was sought. The involvement of that individual was the focus of the work on the proposals. However, I acknowledge the criticism that the hon. Member for Runnymede and Weybridge made of the example in the explanatory note. I will seek to clarify the matter for consideration on Report. The purpose of the proposal was to make sure that entrepreneurs relief was targeted in the appropriate way as intended when we set out the reasoning behind it. I shall return on Report to the genuine concerns expressed by the hon. Gentleman today. I hope that he accepts my response in the spirit in which it is intended and acknowledges that it would not be helpful at this stage to press the amendment to a Division.

Philip Hammond (Conservative, Runnymede and Weybridge)

What I am hearing from the Minister is that, as a matter of principle, she wishes to exclude assets when rent is being received, but that she might be persuaded that the retrospection implied in the drafting of the Bill would be unfair and unreasonable, at least in some cases. I am grateful to her for taking that on board. I just hope that when we discuss the Bill on Report, other matters will not drown out consideration of such important details and that we shall have a proper opportunity to scrutinise the Government’s proposals.

Detailed points arising from other Bills are often dealt with extremely well by our colleagues in the other place. It hardly needs to be said that one of the great problems with Finance Bills is that we do not have the luxury of taking a high-level view and allowing detailed issues to be resolved up there, so we have to get it right on the first go, but in view of what the right hon. Lady said, I beg to ask leave to withdraw the amendment.

Nicholas Winterton (Conservative, Macclesfield)

I have received representations relating to a stand part debate on schedule 3, and I am persuaded that a short stand part debate would be appropriate.

Philip Hammond (Conservative, Runnymede and Weybridge)

As we have had several debates on schedule 3, I would not rise at this stage if it were not that some issues have arisen since amendments were tabled. I would like to run through those five—or perhaps six—points now, in the hope that the Minister will be able to comment on them.

There is an overall concern that entrepreneurs relief has been lifted from the old retirement relief. That system had become complex and, at the time it was abolished, had begun to throw up problems. It appears that some of those problems have been imported into the entrepreneurs relief. May I ask the Minister to consider whether the restriction on personal companies is appropriate in a world where the limited liability partnership is available as an alternative business structure, and is not subject to any such restrictions? Are the Government pushing entrepreneurs towards the limited liability partnership route? That would be the effect of the different treatment of partnerships and companies. People who expect to have equitable interests below 5 per cent. would be strongly advised to go down that route, where they would not be subject to a disqualification—which they would be in a company—for holding less than 5 per cent. That seems inequitable. Unless the Minister says that there is a deliberate strategy to encourage certain types of business to go down that route, it looks like a careless failure to update the dusted-off retirement relief to reflect that alternative business structure, which was not available when retirement relief was operating.

Then there is the whole or part of a business test for a disposal, which is distinct from taper relief, where all business assets were eligible. That test, which also applied in retirement relief, is difficult and problematic and is likely to lead to complex disputes and probably litigation.

The second issue is transitional relief. Why did the Government set their face against at least a transitional—perhaps five years—lifting of the many restrictions on reliefs? Instead, they forced a mad scramble for the exit door, with sub-optimal outcomes for both the economy and individuals, which left many aggrieved. Would be vendors who could not get it done in time for the abolition of taper relief are yet another group looking forward to the opportunity to give the Government a good kicking in a general election.

The third point relates to proposed new section 169I(6)(b) on page 120, line 42. The requirement to be an officer or an employee is iniquitous because it does not mirror the provisions in respect of limited liability partnerships. The Government should reconsider that. If they have a principled objection to investors who are not involved in the day-to-day running of the business benefiting from entrepreneurs relief, the provisions for the disposal of interests in limited liability partnerships are defective. The practical effect is that an investor taking a role in a limited liability partnership will be entitled to entrepreneurs relief on the disposal of his interest, while an investor in shares in a company, if he is not an officer or employee of that company, will not be entitled to entrepreneurs relief.

Mark Field (Conservative, Cities of London and Westminster)

I am following with great interest what my hon. Friend says. Does he not think that the measure runs entirely counter to the Government’s intention in the Legal Services Act 2007? Limited partners, for example, have a number of outside investors coming into law firms who are seeking to develop their business overseas and have an outside investment. My hon. Friend’s point is not simply an academic issue—it is something that is likely to have practical relevance in very short order.

Philip Hammond (Conservative, Runnymede and Weybridge)

My hon. Friend is right, and he has much more knowledge than I in that field of legislation. A theme is developing. The Minister has not been particularly forthcoming in clarifying matters, but I am seeking to understand why on the one hand there is a clear Government policy decision to encourage one type of behaviour and discourage another, while on the other, what we actually have is vague drafting, a lack of clarity or the use of provisions from old, redundant legislation, which will give rise to unintended consequences. If we know that the Government intend a consequence and we do not like it, we can have a political debate, but I suspect that in many areas, it is not that the Government have deliberately set their face against an outcome, but have inadvertently created a trap into which some classes of entrepreneurs may accidentally fall.

The Opposition do not advocate nominal directorship, and I have said so already in the course of our proceedings. It would be bad legislation if we created an environment that drove people who are passive investors to become notional employees or officers of a company, simply for tax relief purposes. I would like confirmation that that is also the Government’s view. At present, there is no provision to allow the sale of an asset used in a business before the individual withdraws. We have discussed in relation to one of the amendments a circumstance in which the asset is sold after the individual has withdrawn from the business. What about the real-world scenario, where an asset is sold before the individual withdraws? For example, a farmer who is merrily farming his 100 acres is made an unrefusable offer by a developer who wants to buy four acres for an enormous sum of money. That is probably unlikely in present market substances, but let us imagine another day when the sun is shining. Having made the decision to sell that piece of his holding, the farmer decides that he can retire and wishes to sell the remainder of the farm. In those circumstances, he would not be entitled to relief on the initial sale of the land, which may be by far the more valuable asset with a bigger capital gain, but will be entitled to relief only on the subsequent sale of the remainder of the farm. Perhaps the Minister will confirm that that is the case, and whether she thinks that it is proper. I draw attention to proposed new section 169I(8)(b), because if that farm was operated by a partnership, the partners would be able to dispose of that land and obtain the benefit of entrepreneurs relief. Sole traders, however, are once again disadvantaged.

A point made by the Law Society—I am not an expert on trusts—is that many trustees carry on business. There are strong reasons why trustees, particularly those controlling trusts that comprise farmland, may wish to continue business. Under the Bill, trustees are eligible for entrepreneurs relief only if the asset is used by a beneficiary of the trust in the carrying-on of a business by the beneficiary. There are also very tough restrictions on the ability of trustees to obtain entrepreneurs relief on the disposal of shareholdings. Why is entrepreneurs relief not routinely available to trustees when carrying on a business in their own right?

Finally, the concept of a disposal being part of the withdrawal of an individual from participation in a business is far from clear. Those who make a living dealing with these matters think that there is scope for endless debate and that it is inevitable that there will be litigation on what constitutes a withdrawal. Would the Financial Secretary come up with a crisper definition of the term “withdrawal from business” that ordinary unadvised entrepreneurs can understand? We must bear in mind the fact that the maximum value of entrepreneurs relief is £80,000. We are not talking about large-scale corporate disposals with the involvement of lots of high-powered lawyers and accountants. In many cases we are dealing with entrepreneurs who will have the benefit of relatively straightforward advice from the local auditors and accountants whom they routinely use. With that, I have concluded the exhaustive list of points that needed to be made about schedule 3.

Jane Kennedy (Labour, Liverpool, Wavertree)

I had hoped to have a very brief debate on schedule 3 stand part, if any. The hon. Gentleman has raised some new matters, but I do not accept that entrepreneurs relief is simply a rehash of retirement relief. It shares some of the same features, but it differs in a number of important respects. For example, there is a shorter and simpler qualifying period and there is no minimum age for qualification.

In earlier debates on the schedule, we discussed why there were no transitional provisions. A period of notice of the changes was given when the announcement was made at the pre-Budget report, although I accept that entrepreneurs relief was not announced until January. There has been a period of consultation, and people had time to act if they wished to do so. The hon. Member for Runnymede and Weybridge asked why there was an officer or employee requirement, and said that that would unfairly influence behaviour in an unwelcome way. I reiterate that relief is targeted at people who have a full stake in the business. Partners have that stake. External investors in companies do not participate in the same way, and so are subject to an extra employee or officer test. It is not our intention to encourage the creation of artificial partnerships. As I have said, I will monitor the progress of entrepreneurs relief. The hon. Gentleman asked whether passive investors will simply become officers of the company. The officer or employee test is a pragmatic way to check active participation in a business. As I have said, passive investors have other tax advantage options open to them, such as the enterprise investment scheme.

The hon. Gentleman asked why we should have personal company rules, and whether all new businesses will be set up as limited liability partnerships as a result. Businesses will continue to be set up in a variety of ways for a variety of commercial reasons. Tax, including the availability of entrepreneurs relief, will be just one factor that people can take into account in deciding on the business structure that is right for them. The differences between the capital gains tax rules for partnerships and companies reflect their different natures. As far as entrepreneurs relief in companies is concerned, the requirement to hold at least a 5 per cent. stake in the company strikes a fair balance.

The hon. Gentleman asked why there is a test on the disposal of all or part of the business. That is part of the targeting of relief on people who withdraw from a business. Entrepreneurs relief is not intended to replicate the taper relief. As I have said repeatedly, entrepreneurs relief is aimed at entrepreneurs. If relief is to be extended to trustees who hold shares in the same company, it is right that the individual beneficiary should have a direct stake in the company, as well as being directly involved in the business as an officer or employee of the company.

We have discussed the definition of “withdrawal from participation”. I do not think that it is difficult to define. I am sure that the hon. Gentleman is right about lawyers seeking to argue the case, but the provisions in the schedule complement the simplified capital gains tax regime with focused tax relief for entrepreneurs. Taken together, that major reform of the capital gains tax regime will deliver a system that is more sustainable and straightforward for taxpayers, while remaining internationally competitive. Having answered as many of the hon. Gentleman’s questions as I can, I hope that he will allow schedule 3 to go forward under a fair wind.

Philip Hammond (Conservative, Runnymede and Weybridge)

The genesis of entrepreneurs relief took place in the panic reaction to the tidal wave of anger that followed the announcements in the PBR. If Treasury Ministers have learnt one thing over the past seven or eight months, they should be trying to soothe people who are angry. The Minister has just told the Committee that people had a satisfactory period of notice, because they knew what the new rules were since the PBR last year. However, they did not know what the new rules were at all, because Downing street was briefing within 24 hours that there would be some kind of U-turn on the announcement in the pre-Budget report. No one knew where they stood until January. Even then, the level of trust in Government announcements was so eroded that people were still not confident that they understood the system. The right hon. Lady said that people had had the opportunity to act if they wanted to, but I can tell her that that statement will provoke anger among many people who have tried and failed to exit businesses before the cut-off date for taper relief, having had to wait until January to see what the final shape of the regime would be.

The Minister told us that the structure of the relief was designed to reflect the fact that shareholders enjoy full participation in a business, and that investors in a company do not. I am afraid that that just reinforces the prejudice among Conservative Members about the Government not understanding how smaller and medium businesses work. In practice, limited liability partnerships and limited companies are now alternative structures, which can be used in most cases for the same purposes in setting up a business. There is no difference in fact, and now a clear tax advantage is being given to the limited liability partnership, which in itself sends a signal.

I am disappointed with the Minister’s response in the stand part debate. She has said that she will return to schedule 3 on Report, and I am grateful that she will do so. We are happy to engage in any discussions between now and Report, so I shall not ask my hon. Friends to vote against schedule 3 at this stage of the Bill’s proceedings.

Clause 8

David Gauke (Conservative, South West Hertfordshire)

Sir Nicholas, what a great pleasure it is to serve under your chairmanship—this is my first opportunity to speak during our proceedings. I am delighted to learn that the sun was shining over the fine county of Cheshire at the weekend—long may that continue. The sun was also shining over the fine county of Hertfordshire on Sunday.

I would like to take the opportunity to make a few remarks on the Government’s policy on inheritance tax and the provisions contained in clause 8, with the details set out in schedule 4. We have tabled a number of amendments about those details, which I will address when we reach that point.

The Conservative party welcomes attempts to address the issue of the increased burden of inheritance tax. In 1997-98, 3 per cent. of estates paid inheritance tax, but according to the most recent figures, that is now up to 6 per cent. Research for Scottish Widows showed that 37 per cent. of households are now worth more than the inheritance tax threshold. The average detached house price last September was £326,000—above the then threshold for inheritance tax of £300,000. The average house price may have changed since then. None the less, inheritance tax is a concern for a far wider group of people than was the case not so long ago. In my constituency, relatively modest properties in towns such as Rickmansworth, Berkhamsted and Tring—attractive towns, I would concede—are well above the inheritance tax threshold. There is great concern about inheritance tax and it would be churlish for us not to welcome the move of allowing the nil-rate band to be transferred between spouses and civil partners, as clause 8 and schedule 4 would permit.

Not everybody welcomes those provisions. In The Guardian of 12 October, Polly Toynbee was most critical. I am sure, Sir Nicholas, that like me you read Ms Toynbee’s articles with great interest. She stated:

“This was more than a horrible humiliation for the Prime Minister. This was the week that social democracy ebbed away in England.”

Indeed, she makes a clear distinction between what is occurring with the devolved Administrations in Scotland and Wales, and what is happening in England. She went on to describe inheritance tax as “a Labour talisman”.

In a recent pamphlet, the Fabian Society described the announcement of the Government’s policy on the issue as

“a profoundly depressing moment for those interested in fair taxation”.

We do not share that view. We think the fact that inheritance tax now applies to a much wider group of people is unfair. There is consensus that there is a role for it, but to apply it to relatively modest homes and estates seems wrong. When inheritance tax hits ordinary families in ordinary homes, it is right that it is reformed.

However, we do agree with some of the criticisms made by the likes of Polly Toynbee and the Fabian Society. The policy was a response to the Conservative party’s policy on the matter, and the announcement by my hon. Friend the Member for Tatton (Mr. Osborne) in Blackpool on 1 October, about raising the threshold for inheritance tax to £1,000,000. The Fabian Society paper describes the Prime Minister’s “panic-stricken failure” to stand his ground, and the pre-Budget report as a “panic-driven surrender”.

A letter to The Guardian on 15 April 2008 by various notable figures on the left of British politics, referred to

“the Government’s retreat in the face of a rightwing challenge over inheritance tax”.

The letter was signed by 14 Labour MPs, including one Parliamentary Private Secretary. I know that Parliamentary Private Secretaries are not necessarily all expected to support Treasury policy these days, but it is striking that there was such distrust and opposition from Labour figures to the policy. I note, however, that none of the signatories to the letter is serving on the Committee—members have clearly been selected with some care.

I refer again to Polly Toynbee’s article of 12 October when she wrote about the Prime Minister. It is an important point because it gets to the motivation of the policy under clause 8 and schedule 4. She wrote:

“But when Cameron threw ‘phoney’ at him in Prime Minister's Questions, it stuck like napalm. He could duck the bottles thrown over his election funk, but ‘phoney’ will stick because his comprehensive spending review smacked of panicky, comprehensive cowardice.”

The criticism was that the move was tactical, and it was reiterated this weekend by the right hon. Member for North Tyneside (Mr. Byers) in an article in The Sunday Times, in which he stated:

“In the past year far too many decisions about tax have been taken to try to secure a tactical advantage. This has led to some damaging mistakes. Whether in relation to the changes to inheritance tax, capital gains tax, the treatment of nondoms or the abolition of the 10p income tax band, the whole approach has been about political positioning.”

Many hon. Members, in the House and in Committee, might have that concern about the policy and think that it is an act of political calculation in response to a policy announcement at the Conservative party conference that was undoubtedly extremely popular.

Jeremy Browne (Liberal Democrat, Taunton)

Does the hon. Gentleman still regard the Conservative policy of raising the inheritance tax threshold to £1 million as wise, rather than giving greater assistance to those who are losing out as a result of doubling the 10p rate?

David Gauke (Conservative, South West Hertfordshire)

Of course, we are not discussing an either/or case. The inheritance tax policy was wise, as was the raising of the threshold. The policy responded to the legitimate concerns of a large number of people. It was to be fully funded by introducing a levy on non-domicile people within the United Kingdom. I do not regard the matter as an either/or approach. As for the 10p rate, we will all hear a statement about it later today, and we have called on the Government to reopen the Budget. We shall learn this afternoon precisely what they propose to do.

Philip Hammond (Conservative, Runnymede and Weybridge)

We might.

David Gauke (Conservative, South West Hertfordshire)

We might. It will take some days before we learn the full details and, on the basis of recent experience, we should not rush to make a judgment.

Nicholas Winterton (Conservative, Macclesfield)

Order. I advise the hon. Gentleman that, hopefully, we are debating the transfer of the unused nil-rate band in respect of inheritance tax. I have allowed him pretty wide discretion in dealing with inheritance tax, but the clause is fairly narrowly drawn and relates to the transfer of the unused nil-rate band.

David Gauke (Conservative, South West Hertfordshire)

I am grateful to you, Sir Nicholas. I shall return to that precise point.

One of the issues that has been disputed is when the Government decided to introduce a transferable nil-rate band. There was an exchange on 6 November 2007 in the House of Commons when the Leader of the Opposition raised that very question with the Prime Minister, and said:

“look me in the eye and tell me that you were planning to reform inheritance tax before our party conference. Can the Prime Minister look across the Dispatch Box and just say it?”

The Prime Minister gave a clear response:

“The answer is yes—unequivocally yes...All the records will show it, under whatever rule they are released under the Freedom of Information Act.—[Official Report, 6 November 2007; Vol. 467, c. 33.]

There was a press release on 8 November, two days later. It was certainly presented in such a way that it seemed the Government had made the decision to allow a transferable nil-rate band before the Conservative party conference in October 2007. In examining when the Government made that policy decision, it is worth looking at the Treasury press release of 8 November. It states:

“We have records of officials considering the proposal on January 9 2007.”

That is very clear. There was consideration on 9 January, no doubt in the run-up to the Budget of 21 March 2007. It is notable that, although that Budget set out thresholds for 2010-11 for inheritance tax, there was nothing on the transferable nil-rate band. Indeed, the press notice that was issued alongside that Budget states that the reason behind detailing the threshold for 2010-11 was:

“To continue to provide a fair and targeted system, with certainty for families”.

Given that that was the position in March 2007, it would appear that there was no intention at that point to pursue this proposal, although it had been looked at.

On 27 July 2007, the new Chancellor received the paper detailing proposals on the transferable nil-rate band. To be fair to him, on 20 August 2007 he confirmed that the proposal was under discussion. I do not know what is significant about 20 August 2007, other than that it was the day after the publication of an article by my hon. Friend the Member for Tatton criticising inheritance tax and dropping what could be described as a fairly broad hint that a Conservative Government would look at that matter and that there may be proposals on the way. We are aware that the Chancellor was looking at these proposals at that point.

On 3 September 2007, the Chancellor received further advice on the proposals and on 5 September he asked officials to work up final proposals. I hope that I am giving a fair account of what happened. Then, we learn, subsequent detailed costings followed before the pre-Budget report set out all details on inheritance tax reform on 9 October 2007.

It was rather frustrating. The Treasury letter was quite detailed on how the policy was developing, but it is rather like a detective thriller with the last chapter ripped out. On 5 September the Chancellor asked officials to work up final proposals. Then we heard little more than that there were various costings. I will come back to the point about detailed costings. We did not receive the detail. We did not learn unequivocally—to use the Prime Minister’s word—that the Treasury had decided to implement the policy before 1 October.

Mark Todd (Labour, South Derbyshire)

If this lengthy discourse is intended to demonstrate that tax policy is at least partly informed by political decision making, I am not sure that that is a tremendously profound argument.

David Gauke (Conservative, South West Hertfordshire)

I am grateful to the hon. Gentleman because he makes a reasonable point. Of course this was a policy that was more than influenced by the proposals made by my hon. Friend the Member for Tatton on 1 October. Our case is that that was the clinching aspect in the Government adopting this approach. It is significant that the hon. Member for South Derbyshire, who is an extremely reasonable man, concedes that point, but the Prime Minister does not.

Jeremy Browne (Liberal Democrat, Taunton)

The hon. Gentleman seems to be making a persuasive case that there is no need to elect a Conservative Government because his party is such an effective think-tank that the current Government are pleased to take on its policies in their entirety.

David Gauke (Conservative, South West Hertfordshire)

It would be fair to say that the intellectual weather is being created by the Conservative party. Unfortunately, the Government are not as strong at implementing Conservative policies as a Conservative Government would be. I will come back to that point in a moment.

It is worth exploring how the policy formulation worked in this case. To be fair to the Government, there was a reason why further details were not provided. According to the Treasury letter, information was identified as falling into the exemption to disclosure set out in section 35(1) of the Freedom of Information Act, which relates to the formulation or development of Government policy when it is not in the public interest to disclose that information. Imagine the frustration that Ministers must have felt if vital evidence proving that the decision was made before 1 October was there, but officials declared that it was not in the public interest to release the documents and validate the Prime Minister’s words, particularly given the widespread scepticism of the media about the Government’s claims that the decision was entirely unrelated to the Blackpool announcement.

Nicholas Winterton (Conservative, Macclesfield)

Order. I am a very kind and caring Chairman. The hon. Gentleman is making a fascinating and entertaining speech, but it is not entirely relevant to the clause before us. Can I give him some advice? He is going a little bit too wide. If he could come back to the clause itself, the whole Committee would be very grateful.

David Gauke (Conservative, South West Hertfordshire)

I am grateful for your advice, Sir Nicholas. I will stay off the leisure wear or otherwise of Treasury officials, but I should like to make one brief point on the freedom of information request on the formulation on this policy. Section 35(1) of the Freedom of Information Act 2000 was the reason why further details as to when the policy decision was taken were not revealed, yet section 35(2) states:

“Once a decision as to government policy has been taken, any statistical information used to provide an informed background to the taking of the decision is not to be regarded... as relating to the formulation or development of government policy”.

Why is that significant? It is significant because we were told that a number of costings were prepared by Treasury officials. If any decision was made to implement the policy before 1 October, any costings subsequently produced could have been released under section 35(2). The Committee may draw its own conclusion from the fact that they were not.

I should like to make a number of observations, raise some concerns about these specific provisions and explore at greater length the issues contained in the amendments concerning the various groups that do not benefit from the nil-rate band. It is worth observing that the transferable nil-rate band relates only to married couples and civil partners, so the divorced and unmarried will not be able to benefit from those provisions. In other contexts, the Prime Minister has effectively said that recognising marriage within the tax system discriminates against children of single or unmarried parents, so I would be grateful to know whether the Financial Secretary believes that the tax system should recognise marriage in the way it does within the provision on the transferable nil-rate band and whether that principle could and should be recognised more widely.

Of course, another group of people who are excluded by those provisions are siblings, and there have been recent cases in the European Court of Justice and the European Court of Human Rights in which siblings have addressed that issue with regard to inheritance tax. Will the Minister shed further light on the Government’s position on that and on whether there is an argument for recognising the position of siblings in those circumstances? There is also the point about whether that helps all spouses, which we will explore in a moment. The amendment that relates to estate duty is particularly important, and we will come back to that.

A number of married couples and civil partners are already able to benefit from the existence of nil-rate band trusts. If a couple have been properly advised, they could already benefit from a transferable nil-rate band. I do not know whether the Financial Secretary has any information on the extent to which nil-rate band trusts are already used, but she probably needs that information to assess the cost of that policy. If transferable nil-rate band trusts are in widespread use, the cost of the policy will be somewhat reduced, but the number of people benefiting from the change would perhaps not be as great as has been presented. I will be grateful if she looks at that point.

There is also the issue of the administration of the policy. In many circumstances the transferable nil-rate band could be used in cases where a spouse has died some years ago, but in those circumstances it might be difficult for the surviving spouse or their heirs to locate all the necessary documentation. That point was raised on the “Money Box” programme on 3 May—I am not sure whether the Minister heard it. It highlighted that the relevant form for benefiting from the nil-rate band states that it must be accompanied with the death certificate, the marriage certificate, the will, documents relating to the grant of representation and any deed of variation. Of course, the marriage and death certificates might be available from the Public Record Office, as the Financial Secretary, to be fair to her, will probably point out. The will and grant of representation will be held by the courts in some cases, but not in all. That raises the question of how the new policy will be enforced: will it be a light-touch regime, or will Her Majesty’s Revenue and Customs rigorously enforce the requirement to produce all of those documents?

A related and ongoing point is that the better the record keeping, the more easily the policy can be implemented. Will there be any attempt to try to publicise the requirement to retain records? Having introduced the policy, we do not want to find individuals running into difficulties because they cannot locate all the documents that they need to use the new rate band. There could be a considerable number of years between the death of the first and the second spouse; I am sure that the Minister will agree that that is a legitimate concern. Guidance as to how HMRC wishes to deal with that matter will benefit the Committee.

In conclusion, we will raise our concerns and scrutinise the policy, but we recognise that it is an attempt, for whatever reason, to deal with inheritance tax and the fact that far more people are hit by it now than was once the case. In that sense, we welcome it, but we question why the Government have introduced it. As the hon. Member for South Derbyshire pointed out, political considerations may have played more than a small part in that—not his phrase but, I think, the implication of what he was saying. If we have succeeded in taking the Government in a particular direction, we are certainly pleased about that. We have various questions about how the policy will be administrated and will be grateful if the Financial Secretary can address those matters.

Colin Breed (Liberal Democrat, South East Cornwall)

I will not detain the Committee for very long, because this is a fairly simple and short clause. We all know that inheritance tax is a tax on transfers of value on death and also on certain lifetime transfers. It was introduced way back in 1984. In a previous life I was involved in it, and to think that it was 24 years ago seems amazing. When someone dies, their estate is chargeable to inheritance tax. The clause and the provisions in schedule 4 insert new section 8A into the Inheritance Tax Act 1984 to allow a surviving spouse or civil partner to benefit from the unused part of the IHT nil band of their partner.

At present, the first £300,000 is chargeable at a nil rate and the excess value is taxed at 40 per cent. The amendments mean that in future the remaining partner could pass on £600,000 free of inheritance tax on their death. On that basis, we support widening the exemption so that families can increase the chance of exempting the family home or their estate from IHT. However, there are a couple of aspects that we would like some clarification on. We seek the Minister’s reassurance on issues brought to our attention by the Association of British Insurers.

Under new section 8A(5), is the amount of nil-rate band that can be claimed on the death of the surviving partner limited to one marriage? What repercussions will that have for the taxpayer? Does the amendment to the penalty provision applicable when someone provides incorrect information make the person making the claim liable for any error, even if it was the deceased who gave that misinformation or lied on the original claim? Those are interesting and technical points, which I am sure the Minister will be able to give some reassurance on.

Another point, which has been touched on by the hon. Member for South-West Hertfordshire, is in respect of those people who may have already paid some of the old estate duty because a spouse died a very long time ago, and are now liable for inheritance tax because they will not be able to claim the nil band. I think that one of the amendments to the schedule addresses that issue. It is an issue for a relatively small number of people, but I think that it will be unfair, even with those few people, if we do not address that. I will leave my remarks about that aside, but, overall, we are supportive of the clause and hope that we can address those other aspects in the discussions on the schedule.

Mark Field (Conservative, Cities of London and Westminster)

I confess that I support anything that mitigates the effects of inheritance tax. Therefore, although elements of the proposal are slightly unsatisfactory—I agree with a number of the comments made by my hon. Friend the Member for South-West Hertfordshire—it is a step in the right direction. I appreciate that now is not the time for a long discourse on inheritance tax—I see you nod sagely, Sir Nicholas—but one of the biggest problems about inheritance tax is that some of the wealthiest do not have to pay it, because they are able to order their affairs over many years with lifetime trusts.

One of the biggest concerns, as my hon. Friend said, is that so many people now find themselves subject to inheritance tax as a result of rising house prices. Part of the difficulty with that is that there is no opportunity for such individuals to mitigate the effect during their lifetime. Their main home is obviously the place in which they have to live. Such people regard themselves as being asset-rich but cash-poor, and they are not in any position to mitigate that. Although at one level it might warm the Minister’s heart to know that 6 per cent. of estates pay inheritance tax, dare I say that it is often the wrong 6 per cent. that pay?

One can argue—I could understand such an argument, although I might not entirely agree with it—that if we are to respect the idea of a life well lived, very wealthy people should be able to pass on certain things at their death. The worry is that the tax affects more than just middle England in our constituencies, Sir Nicholas. I note that there is great sun here in London, along with that in Cheshire and Hertfordshire. It is a coincidence that Hertfordshire, and, technically I should say Chester and west Cheshire, are two of the only counties in which I have lived outside London.

Emily Thornberry (Labour, Islington South and Finsbury)

Get on with it.

Mark Field (Conservative, Cities of London and Westminster)

I lived in Islington, North as well for a while. Thankfully those political memories are well in the past, which is just as well, as I would not have wished to infringe either on the hon. Lady or on her next door neighbour in Islington, North.

My hon. Friend the Member for North-East Hertfordshire has raised some legitimate concerns. First, there is the sense of injustice felt by siblings living together, or unmarried couples whose relationship is of long standing, who will not qualify for any benefit under the nil-rate band. I hope that the Government will give some thought to that problem, not necessarily within the context of this year’s Finance Bill, but perhaps in the years ahead to ensure a just settlement.

I am particularly concerned about paperwork, particularly where the two relevant deaths are many years apart. I speak from my own experience as executor to my late father’s will some 17 years ago—I have no idea where those papers are now. We would like some reassurance that there will be a soft-touch approach by HMRC to such cases because, I hasten to add, if someone like myself has not got hold of those papers, I suspect that many others will have found that various papers have been mislaid, perhaps during two, three or four different moves. I hope to get some reassurance that no great rigour will be expected in that regard, and that the evidence will be straightforward and easy to obtain from any beneficiary.

I hope that we can initiate a strong debate, not only on the clause, but when we come to the meat of the matter in schedule 4, in respect of which my hon. Friends have made a number of recommendations and proposals. I hope also that the Minister will have some robust words of reassurance with regard to the important elements mentioned by my hon. Friend the Member for South-West Hertfordshire and the hon. Member for South-East Cornwall.

Jane Kennedy (Labour, Liverpool, Wavertree)

As the hon. Member for South-West Hertfordshire has said, clause 8 introduces schedule 4. There is a tax-free allowance or a nil-rate band levied on the estates of the deceased that takes the first part of every estate out of charge. Any excess is charged at a marginal rate of 40 per cent. As previously announced, the threshold of the individual nil-rate band for the current financial year is set at £312,000. It is set to increase in future years—to £325,000 in 2009-10 and to £350,000 in 2010-11. In addition, the inheritance tax legislation includes an exemption for transfers of assets to a spouse or civil partner. Many people use this spouse exemption to leave everything they own to their surviving spouse or civil partner without triggering an inheritance tax charge.

The changes announced in the pre-Budget report build on the long-standing spouse exemption. Under the new rules, if any nil-rate band remains unused on the death of the first spouse or civil partner, it may be carried forward for use on the second death instead. That means that if none of the nil-rate band is used up on the first death, the nil-rate band for the second death will be doubled. In 2008-09 it may be possible to exempt up to the first £624,000 of a widow or widower’s estate from inheritance tax, and, on the basis of the planned increase in the nil-rate band, that amount will rise to £700,000 by 2010. That ensures that the heirs of all married couples and civil partners will be able to benefit from both partners’ individual nil-rate bands, without the couple needing to have undertaken complex legal and financial planning. The change will reduce the number of tax-paying estates. For 2008-09 the Government estimate that only about 4 per cent. of deaths will give rise to an inheritance tax liability.

The hon. Member for South-West Hertfordshire asked a number of questions. I will try to deal with each in turn, particularly the pertinent questions—I will not be drawn down any of the other lines of debate, Sir Nicholas. The inheritance tax powers relief reflects the formal rights and responsibilities that marriage and civil partnership relationships necessarily entail. The hon. Gentleman asked about siblings: he will be aware of the European Court of Human Rights judgment in the case of Burden v. United Kingdom. We welcomed that judgment, which recognised that cohabiting couples are not in a comparable position to a married couple or civil partnership for the purposes of inheritance tax.

The hon. Gentleman also asked about documentation, as did the hon. Member for Cities of London and Westminster. This is a valuable relief, so it is right that individuals have to provide relevant documents to support their claim. We are aware, however, that where the first death occurred before the 2007 PBR announcement, the estate may not have retained all of the relevant documents. That is why in such cases HMRC guidance requires in support of a claim only copies of documents that can be obtained from public sources. I assure the hon. Member for South-West Hertfordshire that HMRC has already published guidance on its website about the documents that should be kept and that information is also included in the pack that people receive when they are dealing with the estate of a deceased spouse or civil partner.

The measure reduces the number of tax-paying estates by about 40 per cent., to only 4 per cent. of estates. Those are the facts, irrespective of what other commentators may claim. The number of tax-paying estates in 2008-9 is estimated to be about 23,000. More broadly, the measure provides the certainty and reassurance of a double allowance for 12 million married couples or civil partnerships.

The change ensures that heirs of all married couples and civil partners will benefit, without the couple needing to have undertaken complex legal and financial planning, as I have said. The costs were scored as normal in the PBR and Budget reports and, for the Committee’s information, they are costed at £1 billion in 2008-9, £1.2 billion in 2009-10 and £1.3 billion in 2010-11.

The hon. Member for South-East Cornwall asked about occasions when there had been more than one marriage or civil partnership. The transfer is limited to one extra nil-rate band for a good reason: it is a pragmatic step to prevent any one individual accumulating a large allowance. We consider that one extra nil-rate band is sufficiently generous. It hardly needs saying that that is sensible, but it was worth it for the humour.

Colin Breed (Liberal Democrat, South East Cornwall)

I thought that may be the case. It is a matter of balancing the benefits of a large number of allowances against the disbenefits of a large number of wives.

Jane Kennedy (Labour, Liverpool, Wavertree)

We will simply nod at that. The hon. Gentleman also questioned the penalty provisions. We will return to those in the debate on amendment No. 64, when I will give further details.

The clause will provide welcome simplification and reassurance for millions of married couples and civil partners. The hon. Member for Cities of London and Westminster talked about those who are asset-rich and cash-poor and who believe that their ability to demonstrate a life well lived in having a benefit to pass on to their families was being undermined. He described the effect of the rise in house prices.

Well over a year before this measure was announced in the pre-Budget report, I met a constituent in Liverpool, Wavertree who had worked as a joiner for Liverpool city council for the whole of his working life—more than 40 years. Early in his life he had married and he and his wife bought the house that they lived in for the whole of that period. They bought the most expensive home that they could afford. It was a large, comfortable family home. It was not a huge dwelling and by London terms was perhaps relatively modest; none the less, they kept that home and cherished it throughout their married life.

When the man came to me he was angry and distressed because he believed that the value of the property had risen to the point where his family would not benefit from the relief from inheritance tax. It had done precisely what he hoped it would do when he bought it: it was the only thing of value that he had to pass on to his family. I felt a huge amount of sympathy for the case that he made. For that reason, I believe that the measure that we are making is a good one. I believe that it will be the cause of enormous relief to many families across the country who have seen the value of their homes increase in the way that I have just described and for whom it is the only benefit that they can leave to their families.

I am sure that having heard the debate, notwithstanding the questions that have been raised, the Committee will agree to see clause 8 stand part of the Bill.

David Gauke (Conservative, South West Hertfordshire)

I am grateful for the right hon. Lady’s remarks. The example that she gave of the joiner who had worked all his life demonstrates why there are concerns about inheritance tax. She expressed that very clearly and I am glad that she takes a similar view to my party, as opposed to that of Ms Toynbee and the Fabian Society. I will not dwell on that point.

I am grateful for the right hon. Lady’s remarks on administration, paperwork and documentation. I hope that in the implementation of this policy HMRC will pursue the approach that she has outlined of not requiring documentation that will not be easily available from public records. She touched briefly on the question of recognition of marriage within the taxation system. The Conservative party supports that principle. There are other taxes where a stronger case could be made for such recognised, but I think that it should be recognised. We note that, in principle, the Government support that view in the context of inheritance tax, if not elsewhere.

I apologise if I missed the point about the number of nil-rate band trusts in existence. I am not sure whether the Government have it, but the number is relevant when working out the actual cost of the policy to the Exchequer. When making the announcement, the Government did not particularly acknowledge the number of families that would benefit from the arrangements in the immediate aftermath of the pre-Budget report. I did not spend a great deal of time on the matter earlier, but in a period of rising house prices—although, admittedly that is not the case at present—it may still be worth while for married couples to have a nil-rate band trust, and they are likely to continue to do so. However, the significance of the policy to the Exchequer and to a number of people will depend on whether they already have such a trust in place.

The Financial Secretary would not be drawn on when the decision was made to introduce a transferable nil-rate band. She is being very wise, which is more than could be said of the Prime Minister on 6 November 2007, when he unequivocally stated that the Government had been planning to take such action before 1 October. The Committee will be pleased to know that I shall not expand on that point. We shall not oppose clause 8 because it is a step towards dealing with a serious concern that affects many people. It is not as big a step as we would want, but we welcome the Government’s proposals.

Schedule 4

David Gauke (Conservative, South West Hertfordshire)

I beg to move amendment No. 62, in schedule 4, page 131, line 39, leave out from beginning to end of line 7 on page 132 and insert—

‘(3) Where a claim is made under this section, the nil-rate band maximum at the relevant time is to be treated for the relevant purposes as increased by the relevant percentage specified in subsection (4) below (but subject to subsection (5) and section 8C below).

(3A) For the purposes of subsection (3) above—

(a) where the claim specifies that it is made in relation to the death of the survivor (“a death claim”)—

(i) “the relevant time” is the time of the survivor’s death, and

(ii) “the relevant purposes” are the purposes of the change to tax or additional tax on or by reason of the death of the survivor;

and

(b) where the claim specifies that it is made in relation to an immediately chargeable lifetime transfer (meaning a chargeable transfer which is not made on death and which was not a potential exempt transfer) (“a lifetime claim”)—

(i) “the relevant time” is the date on which that chargeable transfer was made, and

(ii) “the relevant purposes” are the purposes of the charge to tax on that chargeable transfer (not being additional tax payable by reason of the death of the survivor).

(4) For the purposes of subsection (3) above, but subject to subsection (4A) below, “the relevant percentage” is—

where—

E is the amount by which M is greater than VT in the case of the deceased person; and

NRBM is the nil-rate band maximum at the relevant time.

(4A) Where a claim has been made under this section in relation to an immediately chargeable lifetime transfer (“the spent transfer”) and the survivor’s death did not occur within 7 years after the date on which that chargeable transfer was made (“the spent transfer date”), then for the purpose of all claims under this section in relation to occasions (whether immediately chargeable lifetime transfers or the death of the survivor) on or after the seventh anniversary of the spent transfer date the adjustment specified in subsection (4B) below shall be made for the purpose of calculating the relevant percentage under subsection (4) above.

(4B) Subject to subsection (4C) below, E for the purpose of the formula in subsection (4) above shall be reduced by R per cent of itself where—

PNRB is the amount which would have been survivor’s nil-rate band maximum at the time of the spent transfer if no claim had been made under this section in relation to the spent transfer;

TNRB is the survivor’s nil-rate band maximum as computed in the light of the claim made under this section in relation to the spent transfer; and

ELT is the amount by which the value transferred by the spent transfer, added to the value transferred by any chargeable transfers made by the survivor within 7 years before the spent transfer, exceeded PNRB.

(4C) Where an adjustment was made under subsection (4A) above in calculating the relevant percentage in relation to the spent transfer, the adjustment specified in subsection (4B) above shall be made in relation to the amount to which E was adjusted on that occasion; and this subsection shall apply cumulatively where lifetime claims have been made in relation to successive spent transfers each of which has given rise to an adjustment under subsection (4B) above.’.

Nicholas Winterton (Conservative, Macclesfield)

With this it will be convenient to discuss the following amendments: No. 61, in schedule 4, page 131, line 41, leave out ‘on’ and insert

‘or additional tax on or by reason of’.

No. 63, in schedule 4, page 132, line 28, leave out from beginning to ‘(if’ in line 30 and insert—

‘(a) in the case of a lifetime claim,

(i) by the survivor within the period of two years from the end of the month in which a lifetime transfer was made, or such longer period as an officer of Revenue and Customs may in the particular case allow, or

(ii) (if no such claim is made and the survivor dies before the end of that period) by the personal representatives of the survivor within the permitted period;

and;

(b) in the case of a death claim,

(i) by the personal representatives of the survivor within the survivor within the permitted period, or

(ii) ’.

David Gauke (Conservative, South West Hertfordshire)

I shall start with amendment No. 61. Traditionally, and in the majority of cases, an inheritance tax charge is triggered by the death of an individual. At that point, there will be a charge on the estate under section 4 of the Inheritance Tax Act 1984. However, there are other circumstances in which a charge may be triggered, such as in the event of a lifetime transfer—a potentially exempt transfer that turns out not to be exempt because it happens within seven years of the death. Let us consider circumstances in which person A makes a gift in, say, 2005, dies two years later and can no longer benefit from the provisions of potentially exempt transfers. In assessing the tax payable, it is necessary to look back at those gifts.

I should be grateful if the Minister confirmed my understanding of the arrangements. Is it the intention that the transferable nil-rate band will be available for both the estate on death and for any lifetime gifts? The Law Society has expressed concern that the drafting of the proposals is not as clear as it could be. I draw attention, in particular, to the provision that states:

“for the purposes of the charge to tax on the death of the survivor”.

It is possible to construe that as relating simply to the charge triggered by death in relation to the estate, not the lifetime transfer. I have acknowledged that such interest has been shown by the Law Society, and its proposed clarification when referring to the purposes of the charge to tax on the death of the survivor is to state

“or additional tax on or by reason of”

the death of the survivor, thus unambiguously incorporating the lifetime transfer. It would be unfair if the transferable nil-rate band should not extend to a gift made by the surviving spouse in his or her lifetime, and I do not believe that the Government intend that it should not.

Stephen Hesford (Labour, Wirral West)

The hon. Gentleman posed the example of a person who makes a gift in 2005, whose death two years later ensures that it does not qualify for the saving provisions. Is it not the case that all that has happened there is that the saving provisions have not applied and that therefore there is a death and an associated inheritance tax situation to deal with? There are not two situations, there is just one: the individual does not benefit from the rules that they tried to benefit from because they died too soon.

David Gauke (Conservative, South West Hertfordshire)

I am grateful to the hon. Gentleman—I think. He may help me to explain my point. In the case of a gift that does not benefit from the transferable nil-rate band, it is possible, although I do not want to press this interpretation too hard, that the benefit gained from the transferable nil-rate band would only apply with regard to the estate on death, and not with regard to a lifetime gift. I do not think that that is the Government’s intention.

Stephen Hesford (Labour, Wirral West)

It will all just come back into the pot.

David Gauke (Conservative, South West Hertfordshire)

No, I do not think that it does. If there is an ambiguity, it is that the element of the estate that was given away in the lifetime of the surviving spouse may be liable for inheritance tax, where as if the nil-rate band of the deceased spouse had been included, that would not be the case. That is the concern that I am raising.

A slightly more complex but related arrangement exists with regard to amendments Nos. 62 and 63. Those of us who served on the 2006 Finance Bill will recall lengthy debates and considerable controversy regarding the Government’s proposals on trusts and their concern that trusts were being used as an avoidance mechanism for inheritance tax. As a consequence of the Finance Act 2006, establishing a trust in certain circumstances may trigger an immediate liability for inheritance tax, which is a slightly different arrangement from that for an ordinary lifetime gift. The concern raised by the Law Society, which I do not think is a matter of ambiguity or clarification as the schedule does not currently address it, is that in creating a trust for one of her children, for example, the surviving spouse would immediately face a liability for inheritance tax and would not be able to make use of the transferable nil-rate band against the lifetime chargeable transfer made by the survivor.

Amendment No. 62 is a lengthy one and I am sure that the Financial Secretary and you, Sir Nicholas, will be pleased to know that I do not intend to go through it line by line. I have described the essential purpose of amendments Nos. 62 and 63 because the concern appears to be legitimate. I would be grateful for clarification from the Financial Secretary on those amendments.

Jane Kennedy (Labour, Liverpool, Wavertree)

I confess that I do not have a great deal of sympathy with the amendments. Where lifetime transfers occur within seven years of someone’s death, they are counted as part of the death estate for inheritance tax purposes. Amendment No. 61 seeks to clarify that any transferred nil-rate band can be set against the whole estate, including those transfers made within seven years of death, and not only the part left behind at the point someone dies. I would like to reassure the Committee that amendment No. 61 is unnecessary. As drafted, the Bill refers to the transferred nil-rate band applying to

“the charge to tax on the death of the survivor”

and that is already sufficient to encompass lifetime transfers on which an inheritance tax charge subsequently crystallises on death.

Amendments Nos. 62 and 63 relate to the situations in which transfers of assets during someone’s lifetime give rise to an immediate inheritance tax charge. The Bill allows unused nil-rate band from a first death to be transferred for use by the estate of the surviving spouse on their death—the hon. Gentleman used the example of a widow seeking to make provision for her children. The amendments would allow unused nil-rate band from a deceased spouse to be transferred to the survivor during their lifetime, in order to reduce the immediate inheritance tax charge triggered if assets exceeding the current nil-rate band were transferred into trust. We do not believe that that change is either necessary or appropriate.

In developing this measure, we have focused on providing a simple mechanism for ordinary married couples and civil partners to be sure that their heirs will benefit from both partners’ individual inheritance tax nil-rate bands. The Bill seeks to obviate the need for the planning that would otherwise be required to exploit fully the nil-rate band of the first partner to die. Allowing any unused nil-rate band to be transferred when the surviving spouse dies achieves that intent. We do not believe that it is right to extend the measure to reduce lifetime inheritance tax charges. The inheritance tax charges on transfers into trust are designed to ensure that assets held in trust bear a fair share of inheritance tax.

We wish to reassure ordinary families that if a married couple own property in excess of the nil-rate band, they can be sure that both of their individual nil-rate bands will ultimately be taken into account, without the need for complex legal and financial planning. However, we are not minded to go further and provide relief to those who can afford to transfer more than £300,000 into trust while they are still alive. I fully accept that there are many reasons why someone might want to transfer assets into trust, but I believe that the current rules provide a generous enough exemption for such transfers, and that the changes the amendments seek are unnecessary.

The amendments also appear to contain some technical deficiencies—I appreciate that the Law Society may have been behind them, but we do not think that they work as they are perhaps intended to. In particular, they do not make the consequential changes to the commencement provision required for the transfer of unused nil-rate band to be effective before the surviving spouse dies. I therefore hope that the hon. Gentleman will not press his amendment to a Division. If he does, I shall invite my hon. Friends to resist it.

David Gauke (Conservative, South West Hertfordshire)

With regard to amendment No. 61, if the Financial Secretary is saying that it is the Government’s intention that lifetime gifts, should they not be potentially exempt transfers, will benefit from the proposal, then we welcome that clarification. The drafting produced by the Law Society is clearer than in the Bill, but if we have clarification that should be sufficient.

I note the Financial Secretary’s comments on amendments Nos. 62 and 63, but there is more to be said for them than she gives credit for. There is quite an argument—I put it no stronger than that—for permitting the nil-rate band to be used in such circumstances, although I accept that these proposals do not deal with the priority cases. They do not deal with the joiner to whom she referred, for example. There is an argument for consistency in this matter. We raised a number of concerns in 2006 about the proposals on creating an immediate liability to inheritance tax on trusts. It is not my intention to press this matter to a vote and I beg to ask leave to withdraw the amendment.

David Gauke (Conservative, South West Hertfordshire)

I beg to move amendment No. 44, in schedule 4, page 132, line 25, at end insert—

‘(8) For the purposes of the operation of this section, section 18(2) shall be ignored.’.

Nicholas Winterton (Conservative, Macclesfield)

With this it will be convenient to discuss the following amendments: No. 45, in schedule 4, page 133, line 44, at end insert—

‘2A (1) Section 18 (transfers between spouses) is amended as follows.

(2) After subsection (4) insert—

“(5) Subsection (2) shall cease to have effect from 6 April 2008.”’.

No. 46, in schedule 4, page 136, line 36, at end insert—

‘(6) Where the deceased person died before 13 March 1975, section 8A applies as if any property then left to the survivor was not charged to estate duty, whether or not it was.’.

David Gauke (Conservative, South West Hertfordshire)

Amendments Nos. 44 and 45 address the issue of transfers to spouses who are non-domiciled in the UK. There is a long-standing limit on the transferable nil-rate band for non-domiciled spouses of just £55,000. That has stood since 1994 and has not been reformed. The Bill will reform the law relating to residents and domiciles. There is an argument for looking at the issue in the context of that reform and of the reform making the nil-rate band transferable.

The position of spouses who are non-domiciled is not as strong as that of domiciled spouses. I wish to probe the Government’s approach on the matter. Is the Financial Secretary convinced that the discrimination—I use that word in a neutral way—between domiciled and non-domiciled spouses is consistent with European law? For example, it would appear that a UK person is treated in a different way from people who are domiciled in other member states. The schedule may be an opportunity to look at the matter again. Amendment No. 44 would allow a non-domiciled spouse a full nil-rate band transfer. Alternatively, amendment No. 45 would abolish the non-domicile limit. I would be grateful to know the Government’s reason for the continuation of the £55,000 limit and whether they will review it.

Amendment No. 46 is the most significant of all the amendments that we have tabled on schedule 4. The issue was touched upon by the hon. Member for South-East Cornwall. It is about looking back to when the first death occurred some years ago. It is to be welcomed that, as part of the package, the Government’s approach looks back. The measure is not just about the death of the first spouse after 9 October 2007. It also looks back.

There is a distinction between inheritance tax and capital transfer tax on the one hand and estate duty on the other. Under inheritance tax and capital transfer tax, there was a full spousal exemption so that, when the first spouse dies and leaves his or her estate to his or her spouse, the nil-rate band has not been used at all, because it is entirely exempt from the IHT or capital transfer tax regimes.

With regard to estate duty, the situation is somewhat different, and transitional provisions were made between 1972 and 1975, which complicates matters. Essentially, estate duty was charged on the first death, but the property affected could be left out of the charge on the second death, which is the other way round from the current arrangements. Consequently, on the survivor’s death, the property could be left out of the estate for IHT purposes under the surviving spouse exemption, although that is now of little value, as I understand it, because it has not been indexed. When the deceased spouse leaves his estate to the surviving spouse, the nil-rate band is not used up if the deceased spouse died under the capital transfer tax or the inheritance tax regime, but if he died under the estate duty regime, he has essentially used up his nil-rate band. Consequently, if the first spouse died before 1972—there is also still an issue if he died before 1975—the surviving spouse is not able to benefit from the policy on the transferable nil-rate band.

That is not just a hypothetical case, as there are real examples. Mr. David Jackson raised that matter with his Member of Parliament, my hon. Friend the Member for Beckenham (Mrs. Lait), who wrote to the Financial Secretary on that point and raised the matter during the Budget debate in March. Mr. Jackson’s mother was widowed in 1969 and died in January 2008. In response to Mr. Jackson’s concern that the transferable nil-rate band would not be of benefit to his mother’s estate, the Financial Secretary said that the test is whether the deceased was the survivor of a marriage and whether there was any unused nil-rate band when the earlier death occurred. In those circumstances, Mrs. Jackson was the survivor, but there was no unused nil-rate band.

Another example is that of Dr. William Bain, who died in 1969, widowing his wife Elizabeth, who died in December 2007. Both of their sons have been in contact with hon. Members: Duncan Bain with my hon. Friend the Member for Chichester (Mr. Tyrie); and Edmond Bain with my hon. Friend the Member for Tatton. They have a letter from HMRC stating:

“There was no spouse relief available under Estate Duty Legislation and as such all transfers were chargeable.”

We are talking about a relatively small number of people. My hon. Friend the Member for Runnymede and Weybridge has tabled a parliamentary question asking how many cases there are in which the first spouse died before 1972, with the surviving spouse living in October 2007. I believe that the Treasury does not have an answer to that, in the sense that it does not know, rather than that it has not responded—I am sure that the Financial Secretary will correct me if I am wrong. Such cases do exist, and I have given a couple of examples to show that.

All members of the Committee will be somewhat sympathetic to those circumstances. Life has not dealt those families the best of cards, in the sense that most of the cases will involve wives who were widowed at a relatively young age and who lived on for many years. Having heard the announcement in October 2007, they could be forgiven for thinking that they would be able to benefit from their deceased husband’s nil-rate band. Of course, for technical reasons, there is no nil-rate band.

This is a question of fairness. It is unfortunate that this relatively small group of people appear to have been left out of the Government’s provisions. I am sure that that is unintentional. I hope that the Minister will look at the matter sympathetically to see whether we can perhaps address what appears to be an anomaly. I can see the logic of the Government’s policy, but a small number of widows and widowers will not be able to benefit from it.

Colin Breed (Liberal Democrat, South East Cornwall)

I want to emphasise the points made by the hon. Gentleman. There are examples and I have been sent one. I cannot put it more succinctly than Mr. Harvey, who writes:

“My mother died recently and I have been informed by HMRC that despite the new regulations introduced last year on nil-band transfer the executors of her estate cannot use the nil-rate band allowance from her deceased spouse (my father) who died in 1971. My father left everything to my mother but as they had some small savings and there was a house, albeit in joint ownership, the value of the estate was more than the then-limit of £12,500 and my mother, who only had a very small widow’s pension, had to find £850 to pay death duties at the time. HMRC admitted that now having to pay IHT on my mother’s estate is unfair but pointed out that they are only able to work from the regulations which were in existence at the time, ie Estate Duty rather than Inheritance Tax. Ironically, the only reason my mother’s estate will now be liable for IHT is because of the value of the house - the same one - which caused the initial demand for payment back in 1971.”

It is quite clear that others will find themselves in this situation. Although it is a relatively small number of people, as Mr. Harvey puts it:

“It seems particularly unfair for a generation who were frugal and careful with money to a degree almost unheard of today. I also presume that this outcome for what must be a group of mainly elderly widows was never actually intended as part of the new legislation.”

I am sure that that is the case. I hope that fairness prevails and I hope that the amendment will be given proper consideration.

Jane Kennedy (Labour, Liverpool, Wavertree)

Amendments Nos. 44 and 45 are related to the inheritance tax rules for transfers to spouses who are domiciled outside the UK. As has been described, spouse relief is limited to the first £55,000 of assets transferred when the surviving spouse is domiciled outside the UK. This is a long-standing feature of the inheritance tax legislation. Amendment No. 44 seeks to operate the transfer of nil-rate band as if the limit for such transfers had not existed at the date of the first death. Amendment No. 45 seeks to disapply the limit for all transfers of assets to spouses domiciled outside the UK from April 2008 onward.

The restriction on the spouse exemption dates back to 1975, when the unlimited exemption for all other spousal transfers was first introduced. It is necessary to ensure that inheritance tax is not avoided through transfers of assets to their intended beneficiary via a non-domiciled spouse. Without the restriction an individual could easily transfer an unlimited quantity of assets to their non-domiciled spouse, who in turn could pass the—now offshore—assets back to the intended UK beneficiary without inheritance tax ever biting.

The potential cost to the Exchequer is hard to estimate but could be very substantial indeed. Members of the Committee with particularly long memories—I suspect that includes you and I, Sir Nicholas, and perhaps the hon. Member for Gosport—may recall that a similar amendment was tabled by the hon. Member for Bournemouth, West (Sir John Butterfill) during the passage of the Finance Bill in 1995. The Government of the day argued against the amendment for precisely the same reasons as I have just given.

(Except clauses 3, 5, 6, 15, 21, 49, 90 and 117 and new clauses amending section 74 of the Finance Act 2003)

Philip Hammond (Conservative, Runnymede and Weybridge)

On a point of order, Mr. Cook. I apologise for interrupting proceedings, but members of the Committee have just heard the Chancellor announce a proposed package of amendments to the Budget provisions on income tax changes. He told the House that the proposals would be introduced through the medium of the Finance Bill, which we are considering. Can the Minister advise the Committee at what stage the Government will introduce such proposals? Will they be tabled as new clauses or amendments to the Bill while it is being discussed in Committee, given that we have already dealt with the relevant clause, or does she intend not to release the proposals in detail until the Bill is discussed on Report? As members of the Committee will know, there is a great deal of public interest in the issue, and an important event is taking place next week. Given the gap between statements and the detail that has followed in the past, it would be greatly for the convenience of the Committee and the public if we could have the detailed proposals in the form of written amendments or new clauses to the Bill at the earliest possible opportunity.

Frank Cook (Labour, Stockton North)

I have allowed the hon. Gentleman to register such an issue. It is not a point of order for the Chair, but perhaps the Minister wants to make an observation.

Jane Kennedy (Labour, Liverpool, Wavertree)

There might be at least one new clause. Our intention is to bring it forward as early as possible to enable Her Majesty’s Revenue and Customs and the employer systems that work through pay-as-you-earn to respond quickly to today’s announcement. However, we have yet to consider the most appropriate form of amendment, and we undertake to let hon. Members know such details as soon as possible.

Schedule 4

Frank Cook (Labour, Stockton North)

I remind the Committee that with this we are discussing the following amendments: No. 45, in schedule 4, page 133, line 44, at end insert—

‘2A (1) Section 18 (transfers between spouses) is amended as follows.

(2) After subsection (4) insert—

“(5) Subsection (2) shall cease to have effect from 6 April 2008.”’.

No. 46, in schedule 4, page 136, line 36, at end insert—

‘(6) Where the deceased person died before 13 March 1975, section 8A applies as if any property then left to the survivor was not charged to estate duty, whether or not it was.’.

Jane Kennedy (Labour, Liverpool, Wavertree)

At the end of this morning’s sitting, I was responding to the debate on amendments Nos. 44, 45 and 46 and inviting those who are old enough and have served the House long enough to recall a similar amendment that was tabled in 1995. The Government of the day argued against that amendment in similar terms to those that I have been using

Amendment No. 46, however, is different in effect. It relates to the transfer of the nil-rate band from estates that were subject to the old estate duty regime. Under estate duty, a relief for transfers to a surviving spouse was available only from March 1972 onwards, so for deaths under estate duty, the balance of unused allowance from the deceased’s estate may be diminished. That outcome arises as a direct consequence of the legislation that was in place at that earlier time. The hon. Member for South-West Hertfordshire described a particular case in some detail, and I shall look into it. He referred also to a parliamentary question tabled by the hon. Member for Runnymede and Weybridge.

David Gauke (Conservative, South West Hertfordshire)

I have had a chance to look at the matter again, and can clarify that my hon. Friend the Member for Runnymede and Weybridge tabled a parliamentary question to the Cabinet Office in respect of the national statistician, who made it clear that she did not have the figures for the number of widows or widowers who lost their spouse before 1972 and who are still alive today.

Jane Kennedy (Labour, Liverpool, Wavertree)

That is what I understood to be the case, and I agree with the analysis set out by the hon. Gentleman.

Nevertheless, amendment No. 46 would apply the provisions under schedule 4 as if an unlimited spouse relief has been in place for deaths occurring under the estate duty regime. Our analysis suggests that it does not achieve that effect, because a construction based on treating the first death as if part of the first spouse’s estate was not charged to a state duty does not change the way in which schedule 4 determines how much unused allowance is available. In any event, the fundamental point is that the Bill takes a consistent approach for all cases, and whatever allowance was unused on the first death may be transferred for use on the second death.

In drawing up this measure, we deliberately opened up entitlement so that unused nil-rate band can be transferred regardless of when the first death occurred. However, in the interest of keeping the rules as straightforward as possible and recognising that the information available may be limited, we chose to stop short of attempting to reassess deaths that occurred over 30 years ago as if a different set of rules applied at that time. The amount of time that has passed and the complexity of some families’ arrangements means that taking an alternative approach is difficult both to conceive and to operate. I appreciate that both the hon. Member for South-West Hertfordshire and the hon. Member for South-East Cornwall cited difficult cases, but it is hard to see how we could reopen old cases old in a way that would enable consistent and fair handling to be delivered. We therefore continue to believe that the approach taken in the Bill strikes a pragmatic balance between making an allowance for deaths that occurred before the measure was announced and keeping the rules simple and practicable. [Interruption.]

Frank Cook (Labour, Stockton North)

There is a Division in the Chamber: I could become deaf for 10 seconds if the Financial Secretary wishes to continue.

Jane Kennedy (Labour, Liverpool, Wavertree)

Thank you, Mr. Cook. On the European Union point about non-domiciled spouses, the different treatment of domiciled and non-domiciled spouses can be justified on the grounds of the potential avoidance risk of extending the rate. It is therefore not contrary to the European Union rules, so I hope that the hon. Gentleman will not press his amendment.

David Gauke (Conservative, South West Hertfordshire)

I shall take 10 seconds. I note the comments about the Government in 1995. The parallels between the Government of 1995 and this Government are not a matter that I need go into now. I accept the hon. Lady’s points on amendments Nos. 44 and 45, but I still think that amendment No. 46 raises an issue of grave concern for a small number of people and I shall press it to a vote. I beg to ask leave to withdraw the amendment.

David Gauke (Conservative, South West Hertfordshire)

I beg to move amendment No. 64, in schedule 4, page 135, line 39, at end insert—

‘(3A) The amendment made by paragraph 6 has effect in relation to incorrect accounts, information or documents delivered on or after the day on which this Act is passed.’.

I shall briefly explain the purpose of amendment No. 64 by setting out a scenario to which it is relevant. A personal representative makes a mis-statement before 9 October 2007. In circumstances in which the first spouse has died and left the estate entirely to the surviving spouse, the spousal exemption will apply and no inheritance tax will be paid. The personal representative may not have undertaken all the checks that he should have done to ascertain that no potentially exempt transfers have been made—no potentially exempt transfers that failed in the previous seven years. If a gift had been made beforehand, it could be liable to inheritance tax.

Given that no IHT would be triggered on the estate as a consequence of the death, because of the spousal exemption, no tax was at stake when the mis-statement was made. However, tax is now at stake as a consequence of the announcement in the pre-Budget report on 9 October 2007 of the transferable nil-rate band and of the provisions in schedule 4, particularly paragraph 6. An element of the nil-rate band, which would be otherwise unused, will have been used. Therefore, on the death of the surviving spouse, we would not see a doubling of the nil-rate band for assessing inheritance tax payable on the death of the second spouse—a percentage would be reduced because of the potentially exempt transfer. Suddenly, those potentially exempt transfers come into play. That does not excuse the mis-statement, but what penalty would be in place at the time that mis-statement was made? Under the current way of looking at such matters, given that no tax was at stake, the penalty would be zero. At other times, there would be a fine. In 1989, for example, the fine would have been £1,500. As a consequence of the provisions contained within schedule 4, in particular paragraph 6, the personal representative could be liable for that mis-statement up to the level of tax that should have been paid. In those circumstances, there is an element of retrospectivity.

Clive Efford (Labour, Eltham)

Will the hon. Gentleman give way?

David Gauke (Conservative, South West Hertfordshire)

Certainly, in the circumstances.

Clive Efford (Labour, Eltham)

I wonder if you will allow me, Mr. Cook, to make this intervention, as I believe that we are not going to have a stand part debate as part of our deliberations on the schedule? The hon. Gentleman mentioned the inheritance tax threshold. Will he clarify, as I have heard nothing in any of the debates about inheritance tax, exactly what the Conservative party’s position is? What threshold does he envisage a future Conservative Government, should there ever be such a thing, setting out?

Frank Cook (Labour, Stockton North)

Order. That inquiry is not within the remit of the amendment. While the inquiry may be interesting to all of us eventually, the hon. Gentleman must wait until we reach that point.

David Gauke (Conservative, South West Hertfordshire)

Thank you, Mr. Cook, I shall refrain from using this as an opportunity to publicise our policy of increasing the inheritance tax threshold to £1 million. The amendment is about the nature of the retrospective element of the penalties that may apply to a personal representative, because of the circumstances that I have outlined. The Law Society raised that concern, and it is a reasonable point. As I stressed, the provision does not seek to condone a mis-statement in any way, but because of events, whether in Blackpool or in the House of Commons, a personal representative may suddenly find himself in a different position from that which applied when he made the mis-statement. The amendment would ensure that the change in any penalties for which he is liable would come into effect only when the Bill became law. It would not be backdated to some point in the past at which the personal representative would not have been aware of what was to happen in the future.

Jane Kennedy (Labour, Liverpool, Wavertree)

Amendment No. 64 relates to the penalty provisions that apply where someone has provided incorrect information to HMRC. I hope that I can deal with this point quickly. Schedule 4 makes a change to the current provisions, to take account of the new possibility that the overstatement of unused nil-rate band on a first spouse’s death, could result in an underpayment of tax on the second spouse’s death.

Amendment No. 64 makes explicit provision for that change to have effect only in respect of incorrect information or documents delivered after Royal Assent. Making the change proposed in the amendment is unnecessary. There is no specific commencement provision in the Bill for the changes to the penalty provision, so by default, the new rules will take effect from Royal Assent. I appreciate that the amendment is the result of concern expressed by the Law Society, based on what the hon. Member for South-West Hertfordshire said, so I will reiterate what I have said. Hon. Members will be happy to hear that inheritance tax penalties are not charged on deceased persons. If they are charged, it is the personal representatives—those who administer the deceased’s estate—who are liable. If incorrect information or documents are submitted to HMRC by a personal representative, that may lead to a penalty.

As I have said, the new penalty rules under schedule 4 apply only to incorrect information delivered after the Bill receives Royal Assent. They are not there to trip up innocent individuals, such as the hon. Member for Cities of London and Westminster, who described the work that he did on his father’s estate. If there was an error, but the personal representative could show that it was not due to negligence on their part, there would be no penalty. I appreciate the concerns, expressed by the hon. Member for South-West Hertfordshire and raised initially by the Law Society. I hope that I have been able to allay those fears and that as a consequence the amendment, while useful in its way, will not be pressed to a vote.

David Gauke (Conservative, South West Hertfordshire)

I am grateful to the right hon. Lady for that clarification. She has addressed the issue that I raised so I beg to ask leave to withdraw the amendment.

Clause 9

Jeremy Browne (Liberal Democrat, Taunton)

I beg to move amendment No. 7, in clause 9, page 4, line 39, at end insert—

‘(5A) Within six months of the commencement of this section, the Chancellor of the Exchequer must lay before the House of Commons a statement setting out the purpose of alcoholic liquor duty, and must seek the approval of the House of Commons, by resolution, for such a statement.’.

Frank Cook (Labour, Stockton North)

With this it will be convenient to discuss amendment No. 6, in clause 9, page 4, line 41, at end add—

‘(7) No further amendment may be made to section 5 of ALDA 1979 within three years of the commencement of this section, unless the condition set out in subsection (8) has been satisfied.

(8) The condition referred to in subsection (7) is that the Chancellor of the Exchequer shall have compiled and laid before the House of Commons a report containing an assessment of the impact of the increases in alcohol liquor duty on—

(a) the competitiveness of licensed premises, and

(b) the level of employment in alcohol-related industry,

and the House of Commons shall, by resolution, have approved that report.’.

Jeremy Browne (Liberal Democrat, Taunton)

I ought to declare an interest because I am member of the Campaign for Real Ale and a very keen supporter of the licence and brewing trade in Somerset and across the country. I have spoken to many people who will be affected by this aspect of the Bill. The 2008 Budget announced a 6 per cent. rise across the board in alcohol duty, which equates to 3p on the average pint of cider, 4p on a pint of beer, 14p on a bottle of wine and 55p on a bottle of spirits. That is way in excess of inflation. What also upset a lot of people who are interested in these matters is that the Chancellor announced what is in effect a tax escalator for alcohol in future years, so we know that the price of alcohol will continue to rise above the rate of inflation.

I—and I am sure everyone in the Committee—share the concern which has been expressed by many of our constituents about the phenomenon that is widely described as binge drinking. Nobody who has been out in a town centre—particularly on a Friday or Saturday night—and has seen people who have drunk to the point of illness and needed to go to accident and emergency wards for treatment, can regard that as anything other than a serious social phenomenon. However, I am sceptical about the impact of price on binge drinking. We have talked previously about price elasticity of demand, and we come to that again with reference to alcohol. The Government appear to be telling us that the measures are to address public concerns about excessive consumption of alcohol and binge drinking. However, the Committee has to ask itself whether it believes that, for example, one of our constituents who goes out with his or her friends and drinks 10 pints of premium alcohol will be deterred significantly by the cost of their evening rising by 40p. If they are, they may choose to drink only nine and a half pints of premium alcohol instead of 10.

I find it hard to believe that the impact on binge drinking would be profound. The measures have already come in, so we know that they have not had the desired effect, unless members of the Committee can assure me that when they go out in town centres on a Friday or Saturday evening they find that everybody is sipping low-alcohol or soft drinks and the idea of getting drunk has not occurred to them. My suspicion and concern is that those who are most price-sensitive regarding alcohol are those who do not intend to drink to excess, for example, a retired person who likes having a couple of pints of beer in the early evening in a village pub, who may be likely to have one and a half pints rather than two. The impact on binge drinking will be non-existent, but the impact on the pub trade may be significant, and the impact on the individual obviously is significant.

Patrick Hall (Labour, Bedford)

I have heard Ministers justify the increase in terms of helping to fund the increase in the winter fuel payment and trying to deal with child poverty, but I am surprised that the hon. Gentleman said that price has no effect on binge drinking. Surely—perhaps he will come to it—the incredibly low price in supermarkets must affect the accessibility of alcohol to many people, including children.

Jeremy Browne (Liberal Democrat, Taunton)

I am grateful for that intervention, and I shall come to the issue of sales. I hope that I did not say that price has no effect. I am just sceptical about how profound that effect is, and I believe that for some categories of consumer it has close to no effect. The point that was I trying to make is that the consumer who is most prone to binge drink is probably also the consumer who is least affected by price. The consumer who drinks in moderation—I cited the example of an older drinker in a village pub—may be more susceptible to price as a factor in their consumption.

Angela Eagle (Labour, Wallasey)

I do not want to divert the hon. Gentleman too much from his speech but I would like to say, in case he wishes to develop the argument further, that the Government do not and have not said that the increases in alcohol duties announced in the Budget address binge drinking. That is not our argument.

Jeremy Browne (Liberal Democrat, Taunton)

I am grateful for that intervention but also confused by it, because I read that the Minister of State, Department of Health, the right hon. Member for Bristol, South (Dawn Primarolo), told the British Medical Association’s public health conference, which is an audience that is likely to be persuaded of the virtues of trying to improve the health of the nation:

“Our estimates suggest that higher taxes, if they do feed through to price, will mainly affect the 7 per cent. of the population who drink one third of all alcohol consumed in Great Britain. And that, in England alone, the total number of lives saved up to the end of March 2013”

will be

“3,250 lives by the Department’s calculations.”

We are now in a confusing position where the Treasury maintains that those measures have nothing to do with public health, but the Department of Health, when talking to the BMA, claims that those measures will save 3,250 lives by 2013. For the Committee’s benefit, that is roughly half the number of people killed annually in road traffic accidents in the UK, which is a large number. We do not know which Department is making the most persuasive case, but perhaps we will hear now.

Angela Eagle (Labour, Wallasey)

We need to be precise in the terms that we are using. I have just reminded the hon. Gentleman that the Government do not claim that the increase in the Budget will “address binge drinking”, which is the phrase that he used initially in his speech. If the Minister of State, Department of Health was talking about price, people need to be aware that she used the caveat,

“if they do feed through to price”,

in reference to the duty increases. In those circumstances, there might be a positive effect, not necessarily on binge drinking, but on overall levels of alcohol consumption, which is not the same as binge drinking, as the hon. Gentleman will know if he is being reasonable.

Jeremy Browne (Liberal Democrat, Taunton)

Perhaps the Exchequer Secretary will clear this matter up at the end. If she is arguing that the tax changes are not designed to have an impact on binge drinking at all, the Government ought to make that message clearer to a wider audience, because some of the signals that are being sent out are confusing. When the hon. Member for Bedford intervened, he appeared to make the case that the benefits of those tax increases would be used to tackle child poverty and for other desirable features of public policy that have nothing to do with alcohol consumption. Some Ministers appear to be saying that they believe that the measure will have a beneficial impact, but that that will be directly linked to the issue of alcohol consumption, and some might just regard it as a general revenue-raising measure.

Justine Greening (Conservative, Putney)

I hate to bring the hon. Gentleman on to his actual amendment, but is he saying that the Liberal Democrats think that this tax could only have one purpose?

Jeremy Browne (Liberal Democrat, Taunton)

No, I think that taxes can have a variety of different impacts at the same time. We have discussed, with regard to tobacco and environmental taxation, that it is possible to affect behaviour and raise revenue simultaneously, which is a point that many Labour MPs in particular, but not exclusively, have not hitherto grasped. No doubt they will rapidly wake up to it when asked to vote on this set of proposals.

Justine Greening (Conservative, Putney)

In that case, is the hon. Gentleman’s amendment, which mentions setting out the purpose of alcoholic liquor duty, a mistake?

Jeremy Browne (Liberal Democrat, Taunton)

Not at all. If it had been a mistake, I would not have tabled it. The amendment was tabled because I think that it is reasonable that the Government make it clear why they are choosing to increase massively the tax on all the ranges of alcohol that I talked about at the beginning of my contribution. We can have lots of slightly glib exchanges about the proposals in my amendment, but the crux of the matter is that 27 pubs close on average every day. Last year, 1,409 pubs closed in Britain. Of course, lots of others are affected by that, including brewers and small brewers across the country. It is only reasonable for publicans and the people who are affected by that business to know the Government’s motivation for pricing their customers out of their front door. If the motivation is public health, some people may think that that is a reasonable trade-off. Some hon. Members may think it is worth those pubs closing because there will be a benefit in terms of the number of lives saved. From her quote, the Minister of State, Department of Health seemed to say that that was a worthwhile trade-off. Some people may think that, considering the extra revenue raised, it is worth losing some pubs to benefit child poverty, which was mentioned in the intervention I took from the hon. Member for Bedford. It is reasonable to ask the Government to set out why they think the price of losing businesses across the country every single day is worth paying, as the previous Chancellor said.

Emily Thornberry (Labour, Islington South and Finsbury)

Will the hon. Gentleman help to clear up some confusion in my mind about Liberal Democrat policy on that matter? Although he gives the impression that he is a big supporter of real ale, I understand that Vince Cable is a big supporter of smoothies and says they are good for people. He wants to reduce VAT on smoothies from 17.5 per cent. to 5 per cent. to encourage people to drink them, presumably in public houses. He would like to make up the lost revenue by raising tax on alcohol. What is the hon. Gentleman’s position?

Jeremy Browne (Liberal Democrat, Taunton)

I am grateful to the hon. Lady for quoting my hon. Friend the Member for Twickenham (Dr. Cable)—that is the normal format of referring to hon. Members. I am all in favour of people drinking smoothies if that is what they wish to do. I do not have medical expertise, but I understand it is more healthy to drink smoothies to excess than to drink alcohol to excess—although perhaps anything in excess is not particularly good for people.

We are considering what the Government are putting forward. The two amendments I have tabled ask the Government to review what the impact of duty rises is on businesses and to give a statement about the purpose of those duty rises. It does not seem unreasonable to ask why the Government are, as a matter of policy, making it harder for thousands of businesses across the country to operate and why we are losing those businesses, namely pubs, at record rates. I am surprised that the Committee does not think that that is a reasonable subject to examine.

What are the current problems for pubs and, in some cases, brewers? One problem is cheap off-sales, which was mentioned in an intervention. That is causing difficulty in the industry because it is almost impossible to go to a supermarket and not find a promotion being offered on beer in particular and on other forms of alcohol. Obviously, that makes it harder for publicans.

Another problem is changing leisure patterns. Some people stay at home, stay in their gardens, or watch DVDs at home instead of going to the pub. The smoking ban, which I voted against—although I know there are a range of opinions in all political parties—has compounded the problems for some publicans. The effect varies considerably from one pub to another depending on the customer base of the establishment.

Commodity prices have also had a sizeable impact on pubs and on the brewing industry generally. Of course, pubs must pay their utility bills and heat and light their premises. In addition, like most small businesses, they have to pay petrol prices to transport alcohol and other goods and services. Most important of all from the point of view of brewers—and this is often passed on to pubs—the ingredients of, for example, beer have become much more expensive to acquire. Brewers are struggling to hold their prices down and probably take a lower share of profit on each pint that they sell on to the pub. In turn, pubs are trying to hold prices down at a time when consumers are feeling the pinch. As a result, the profits of both brewers and the pub sector are being squeezed. That state of affairs upsets many people in the brewing industry because they feel that their problems are being compounded by above-inflation increases not only in this Budget, but in future Budgets.

Amendments Nos. 7 and 6 would require the Government to review the impact of duty rises on businesses and set out what the effect would have been if the duty rises had not gone forward. We would then be able to consider for next year’s Finance Bill whether future above-inflation increases ought to take place. In addition, the Government would be required to make a statement on the purpose of duty rises so that this Committee and the House could have some clarity on the intention behind the Government policy. We would then be able to see whether the trade-off of the loss of business and livelihoods in the brewing and pub sectors was a worthwhile price to pay for whatever the overall policy is. We are currently unclear about the policy that the Government are pursuing.

Justine Greening (Conservative, Putney)

I did not hear the hon. Gentleman talk specifically about his amendments. He talked a lot about the issue that we are all concerned about, which is that pubs are closing down all over the country. For what it is worth, here are my thoughts. I alluded to my concern about amendment No. 7 earlier. It talks about setting out a statement of

“the purpose of alcoholic liquor duty”.

To me, that does not seem workable. Governments of all colours will have a variety of purposes with any tax policy. Some policies will work together and some will be contradictory and require trade-offs. The chance of there being only one purpose is very slim.

Jeremy Browne (Liberal Democrat, Taunton)

Allow me to explain in more detail. Perhaps I should not have rushed my speech and I should have given more background. I will give a direct quote from last year’s Finance Bill Committee from the then Financial Secretary when this issue was debated. I was not a member of the Committee. The hon. Member for Wentworth (John Healey) said:

“the view that the Government take—it is the view that we have consistently taken in the Treasury—is that that sort of social harm and social concern is best tackled by social legislation and by working with the trade in self-regulation, rather than by taxation, which, in this circumstance, is an instrument that is not best suited to deal with the social problems that we are discussing.”

He was talking about excess drinking.

“In fact, it would be likely to penalise the vast majority of responsible drinkers rather than affecting the minority who cause us concern.”——[Official Report, Finance Public Bill Committee, 8 May 2007; c. 36.]

He was absolutely explicit last year that higher taxes on alcohol were not a way of tackling the social concern of binge drinking. The position of the Treasury on that is far less clear this year and it seems reasonable that we explore that.

Justine Greening (Conservative, Putney)

I hear what the hon. Gentleman is saying, but he seems to fundamentally miss the concept of price elasticity of demand. I am afraid that the world is not black and white. It is pretty clear-cut that, if there is a price increase, according to the figures used by the Government and the trade, it will almost certainly have a negative effect on demand at some level. Anyhow, let us move on from amendment No. 7. It was obviously not worded as the hon. Gentleman intended, let alone in a way that would be workable.

I have a lot of sympathy for the hon. Gentleman’s argument on amendment No. 6. We will come on to why the pub trade and trades associated to alcohol are so important to the economy in a debate on a future amendment that I tabled. Again, I was slightly concerned that he was talking about bringing forward a report within three years. I think that the problem is more urgent than that. If over the next three years we lose pubs at the same rate as last year, when we lost 1,400, an awful lot of pubs will go to the wall with businesses and jobs lost, before we see the Government getting to grips with the matter. I have some sympathy with the amendments, but I do not believe that they would achieve quite what the hon. Gentleman intended.

Mark Field (Conservative, Cities of London and Westminster)

Like my hon. Friend the Member for Putney, I can understand where the hon. Member for Taunton is coming from in tabling the amendments. I think that they are in part probing amendments to raise this debate. However, it seems at odds with the Methodist tradition in the Liberal party that he is promoting more alcohol consumption.

I, too, have a lot of sympathy with what is happening in the pub trade. Fundamentally, the biggest single issue is our different lifestyle patterns. That is the single most important thing, rather than any additional taxation. For better or worse, people are spending far less time in pubs. Perhaps they look towards gastro-pubs or bars where they can take their family, or they want to spend more time at home, around the television and the like. The smoking ban has also had its part to play—one of the great unintended consequences of the smoking ban is the disruption for people living in the vicinity of pubs and bars, particularly in our bigger cities. That is almost the biggest single issue that comes through my mailbag, except for the antics of the parking department of Westminster city council—I suspect that many of my colleagues have also written to me on that ground alone over the past seven years.

I take on board that the raw ingredients of beer—hops, in particular—have gone up tremendously in price. The Government have a difficult balancing act with the alcohol issue. Clearly there are health reasons for wishing to raise the price of alcohol. My instinct, when I saw the increases, was not to be wholly supportive. The Conservatives had some sensible plans on alcopops, which unfortunately did not see the light of day. However, the reality is that alcohol has become unbelievably cheap, in relative terms, over the past 20 years. There is no doubt that that availability has meant not just a binge-drinking problem, but ever greater consumption of alcohol. Some people among us cannot synthesise alcohol too well and have some severe health problems as a result. For others, we can readily buy and drink a bottle of wine on a daily basis, in a way that only 20 years ago was beyond the means of most people.

I felt that there was a sensible balance being drawn by the Government. We in the Conservative party had our own plans, which I do not think were wholly at odds with that, although I was comfortable about the idea of going through the lobbies when it came to those matters being voted upon. The misguided element here, from the hon. Member for Taunton, is that alcohol duty will inevitably have a variety of different causes. I can see that the pub lobby is understandably concerned about its longer-term future. The real issue is to be more innovative. Let us have more gastro-pubs—those have been extremely successful in London; I see a great success there. Ultimately, I fear that the old-fashioned British pub is a dying breed, because of changing lifestyles. Therefore, the pub industry has to innovate and find new ways of moving forward.

Inevitably, any report would probably tell us what we already know. Inevitably, we are looking at health reasons in part, and social reasons in part. Obviously, alcohol is an addictive drug of sorts and, as a result, is a relatively easy hit for taxation. The relative amount of tax on alcohol today is still considerably lower than was the case some 20 or so years ago. Moves in that direction—perhaps driven by revenue concerns, which I can understand as well—are broadly things that we in the House should support, as part and parcel of an overall approach to the whole issue of alcohol in our society. Many of us will be spending time abroad in mainland Europe in the months ahead. How alcohol is consumed there—across the Mediterranean particularly—is very different from here.

Jeremy Browne (Liberal Democrat, Taunton)

One goes to southern Europe and sees people consume alcohol in far lower quantities, but by and large it is cheaper to buy in southern Europe than it is in the United Kingdom. I am confused by the hon. Gentleman’s argument. He seems to be saying that people are primarily motivated by price, but then he draws the opposite conclusion from his travels abroad.

Mark Field (Conservative, Cities of London and Westminster)

The hon. Gentleman is probably confused because I have only got about a third of the way through my argument. The societal attitude towards alcohol in the Mediterranean countries is different from here and, in a negative direction, different again in Scandinavia. As a result, we need to look at all those things in the round. It is perhaps all too easy to suggest that a 5 per cent. increase in the price of alcohol will close down hundreds of pubs across the country. It is a far more complicated situation than that. Fine, let us have a report and ensure that we have a sensible, balanced policy, but there are some real problems in our society with how alcohol is consumed and what alcohol consumption means, and the way in which drinking alcohol to excess is somehow seen as being cool, clever or something that our celebrities get up to with impunity. All those factors should be borne in mind when looking at this issue, rather than simply trying to equate one budgetary year’s increase in alcohol levy with pub closures.

Ben Chapman (Labour, Wirral South)

May I tell the hon. Gentleman that drinking patterns may be slightly different outside London? In my constituency the local traditional pub is still at the heart of both rural and urban communities. It would be interesting to know what calculation has been made of the effect of the changes on those traditional pubs. Also, in out-of-London constituencies we now have many micro-breweries and it would be similarly interesting to know what the effect would be on those.

Mark Field (Conservative, Cities of London and Westminster)

I am the one whom the hon. Gentleman criticises for being too London-centric, but I hope that he will forgive me, given my own experience. In the 7 square miles that make up my constituency we have the highest number of licensed premises of anywhere in the country and one of the biggest watchwords has been innovation.

Bob Blizzard (Labour, Waveney)

Has the hon. Gentleman visited all of them?

Mark Field (Conservative, Cities of London and Westminster)

I am working my way through, and if my liver will stand it, I am sure that it will be a joy to come to both sides of the Wirral to see some real old-fashioned English pubs in action. Mr. Cook, I am sure that we do not want this discussion to go even further off the point than I have already been veering. Suffice it to say that I hope that the hon. Member for Taunton will consider withdrawing the amendment, but this has been a worthwhile debate and I look forward to hearing what the Financial Secretary has to say.

Stewart Hosie (Scottish National Party, Dundee East)

I have a deal of sympathy with amendment No. 7. There is significant merit in knowing the reasons behind any tax, including alcoholic liquor duty. The problem with amendment No. 7 is that it calls on the Chancellor to bring forward a statement on his purpose, but the Chancellor’s purpose for alcoholic liquor duty is revenue yield; it stops and starts there. To be fair to the Financial Secretary—I think that this may be a first—the Government were explicit in this year’s Budget in not making any claims to implement an attack on binge drinking or ill health, or any of the other good social things that one would want to see tackled by a rise in duty. This was about revenue yield, pure and simple.

The amendment would have been better had it asked for Ministers to bring forward the purposes of alcoholic liquor duty, in the opinions of their Departments or themselves. I am sure that the Justice Secretary would have said that the purpose was to resolve crime and binge drinking. I am sure that the Minister with responsibility for public health would have said exactly the same as his counterpart in Scotland, that it is to try to drive down chronic ill health caused by too much alcohol consumption over either a very short or a very long period. Of course, the Treasury would stick to its view that it is about revenue yield. While I am sympathetic to the amendment—and it would be useful to bring all the information together so that it is not sat in different ministerial silos, to understand why we are doing things and what the consequences might be, and if for no other reason, to make sure that there were no contradictions between different Department policies—it simply does not do what I suspect the hon. Member for Taunton expected it to do. I therefore join the chorus from the rest of the Committee and hope that he will withdraw it and that perhaps it might see the light of day again in a slightly more finessed form, when it might command a little more support—or not.

Angela Eagle (Labour, Wallasey)

It is a pleasure to respond to this brief debate. I am contemplating the hon. Member for Taunton, who is a member of CAMRA, in his woolly jumper tucked into his trousers, with his open-toed sandals, voting against the smoking ban and trying to maintain the culture of UK pubs. Of course, I met representatives of CAMRA as part of the Budget process and its members did not turn up in woolly jumpers, but I now have that vision of him. He announced with such pleasure his membership of the organisation at the beginning of his speech.

Clearly, it is important that we think about the effect of excise duties on alcohol. As the hon. Member for Putney pointed out, there is often more than one purpose. It is over-simplistic to think that there could always and forever be one set purpose to either shifting upwards, downwards or leaving the excise duties the same in all circumstances and as circumstances change. That is the nature of Budgets; different things have to be balanced.

As has been pointed out, clause 9 increases all alcohol duty rates charged on beer, wine or made-wine, cider, and spirits by 6 per cent. above the rate of inflation with effect from 17 March 2008. Together with VAT, that is equivalent to 4p on a pint of beer, 14p on a bottle of wine and 55p on a bottle of spirits. I understand as well as anybody the nature of and pressure on pubs. There has been a fair, if brief debate, on some of that in response to the hon. Member for Taunton’s amendments today and I have sympathy.

I noticed in the newspapers today that thousands of pubs have put 10p on a pint, not 4p, because when excise duties go up, pubs take the opportunity to reflect some of their other costs. The hon. Member for Taunton is right to talk about the cost of the basic commodities that make beer, for example. However, pubs tend to claim that the increase is all somehow down to tax, which it clearly is not. If the supermarkets and the off-trade carry on discounting and the pubs pass on more than the cost of excise duty increases, the differential between the on-trade and the off-trade gets wider and that makes it harder for pubs to survive in the way that they did in the past.

The hon. Member for Cities of London and Westminster was right when he pointed out that because we have had a period of sustained economic growth and incomes have risen, alcohol has become increasingly affordable. That is one issue that we looked at when we were considering the appropriate price of excise duties in the Budget. At today’s prices, an average bottle of wine in a supermarket in 1997 would cost £4.44 and it costs £4 today. Despite the passage of the years, and, I accept, partially because of what is happening in the off-trade rather than the on-trade, alcohol has gone down in price and become much more affordable. We felt that it was time to increase the duty.

The hon. Member for Dundee, East is an astute and an assiduous reader of the Red Book and he was right when he pointed out that no claims were made this year for the effects of the increase in alcohol duty rates, other than raising revenue to ensure that we can continue to tackle child poverty, help pensioners, and support families in a time of global uncertainty.

Justine Greening (Conservative, Putney)

The Minister said that she felt that alcohol was becoming more affordable so this was a good mechanism to increase tax and help deal with child poverty. Did she do any analysis of the group of taxpayers who will end up paying more tax when it is passed on in prices compared to the people to whom she is likely to be giving the money back in tax credits? It may well be that they are one and the same. Has the Treasury done any analysis of the net effect?

Angela Eagle (Labour, Wallasey)

When you have an on and off-trade and there is no direct relationship between the levels of excise duty and price, the net effect of excise duties is complex. With alcohol there is a complex relationship between the levels of excise duty and pricing, and it varies depending on how the alcohol is being retailed. For example, the off-trade tends to continue discounting while the on-trade, as we have seen from newspaper coverage today, can put prices up higher than excise duty rates in pubs. It is complex and it is difficult to find models that would work with any degree of certainty. We would have to make so many assumptions to come out with a response as to how it would work that, except in general terms, it is not possible to do in detail what the hon. Lady suggests.

Amendment No. 7 would require the Chancellor to make a statement about the purpose of the increases in alcoholic liquor duty. Opposition Members have been quick to point out, quite rightly, that there might be more than one purpose. It might seem trivial but it is true. Excise duties often exist for more than one purpose, and the relative importance of those purposes can change over time. The idea that there could be one statement about “the purpose” that would last for all time is rather fanciful. The reasons for the increase in duty are fairly obvious, and have often been repeated. We changed the duties in that way to assist us in financing the extra winter fuel payments for people over 60, and to assist with the help that we give families with children to help them out of poverty. We do not need an annual statement about that in the way that the hon. Member for Taunton’s amendment would require.

Amendment No. 6 would require the Government to produce a report on the impact of increases in alcohol duty on licensed premises and on employment in the alcohol sector. My hon. Friend the Member for Wirral, South mentioned small brewers, and I would like to point out the very positive effect of small breweries relief. It is not an issue in the amendment, but it exists in the structure. It was introduced a few years ago to encourage the thriving of small breweries and it has been extremely successful. There are other things that the Government can do—when they can get past the European Commission—to assist in other areas. Small breweries relief is a prime example, which my hon. Friend will see when he speaks to any small brewers whom he might come across. We now have increasing diversity in the small, specialist brewing companies and that is very welcome.

Amendment No. 6 would require the Government to produce a report on the impact of increases in alcohol duty on licensed premises and on employment in the alcohol sector. As with all tax policy decisions, we will be monitoring the impact of alcohol duty on a range of factors, including its impact on the industry. To that extent, the amendment is superfluous as it is something that we do all the time with all our excise duties.

However, there are a number of factors—again they have been hinted at and mentioned explicitly by the hon. Member for Cities of London and Westminster—which have an impact on competitiveness and jobs in any industry. It would be difficult to identify the specific impact of alcohol duty rise against other factors, such as changing the culture of the pubs and their customers and people have also mentioned the smoking ban. I am aware of current pressures on the pub trade, and I met representatives from the trade several times in the run-up to the Budget, to hear people present their views on the current situation and the cost pressures in the industry.

Hon. Members will acknowledge that there has been a general change in people’s habits, which has contributed to the decline in the numbers of pubs. Innovation and a different kind of response and leisure approach, which the hon. Member for Cities of London and Westminster mentioned, is also important. In other words, tax and especially excise duty, are not, I dare suggest, the main issues for pubs.

We have great sympathy for anyone running a business and trying to attract new customers. There are those in the pub trade who wanted us to introduce excise duty that was aimed more specifically at the off-trade, which at the moment does discount—sometimes greatly—the cost of alcohol as a result of which excise duties are not passed on in off-trade prices. However, constraints on how the European Union rules apply on alcohol duty mean that it is not possible for us to have differential rates for the same drink if bought in a supermarket rather than a pub. Trying to level the playing field a bit more between the on-trade and the off-trade is not legal nor is it one that we can pursue.

When making decisions on alcohol duty rates, we took account of several factors and listened to the views of the alcohol industry in all its diversity as well as the retailers in their diversity. Following a sustained period of rising real incomes and the fact that alcohol is much more affordable now than it was in 1997, we believed that it was right that alcohol duty should play a part in tackling some of the challenges of child and pensioner poverty, and it provided us with tax revenues in order to do so.

Justine Greening (Conservative, Putney)

: Did the Treasury work out in respect of the 27 million drinkers in the United Kingdom an estimate of the average amount of duty each drinker would pay? Is there an assessment of how much it would cost a typical drinker?

Angela Eagle (Labour, Wallasey)

It depends on how much people drink. Such calculations can be pretty meaningless, and depend on individual behaviour, what sort of drinks people drink, how often they drink them and whether they buy them from the supermarket. Obviously, the excise duty would be the same whether they bought drinks from the on- or the off-trade but, with regard to the effect of prices, it is almost impossible to provide a model that would capture the cost for each drinker, as their behaviour affects what the costs are likely to be. Where people buy their alcohol contributes to the price, so we would not expect to carry out such calculations along the lines suggested by the hon. Lady.

Given that alcohol is more affordable than it was in 1997, we believe that alcohol duty increases could play a part in tackling the challenges and helping to finance our action on child and pensioner poverty. I hope that the hon. Member for Taunton will withdraw the amendment and, if not, I urge colleagues to reject it.

Jeremy Browne (Liberal Democrat, Taunton)

I am grateful for the opportunity to make some concluding remarks to what has been a useful discussion. I regret deeply the fact that the Minister took such a condescending and stereotypical approach to people who enjoy traditional British beer. I say so with all sincerity, because millions of people throughout the country do not buy into the metropolitan view of the world that new Labour has hitherto advanced with diminishing success. A lot of them will in time come to think that the rather dismissive remarks and attitudes of the Treasury are not necessarily to their taste.

Angela Eagle (Labour, Wallasey)

It was a joke, Jeremy.

Jeremy Browne (Liberal Democrat, Taunton)

Quite a lot of people who run pubs and small brewers do not think that the joke is as funny as is thought by those at the Treasury.

Siôn Simon (Labour, Birmingham, Erdington)

Is the hon. Gentleman saying that the Minister is being beerist?

Jeremy Browne (Liberal Democrat, Taunton)

No. I am saying that there are people outside the metropolitan elite circles with which the hon. Gentleman takes pride in acquainting himself who do not think that the closure of village pubs and above-inflation increases in the price of beer as a matter of Government policy at a time when brewers are struggling with other factors is as big a joke and as funny as lots of Labour Members think.

Angela Eagle (Labour, Wallasey)

The hon. Gentleman must not put words in my mouth. All right, I confess that I had a little joke about CAMRA. He revealed himself as a member of that organisation, and I made a little stereotypical joke about CAMRA members, many of whom I met in the run up to the Budget. I find them perfectly reasonable. He must not put words in my mouth and say that I think that pub closures are fine and that I do not care about such things. He must take the time to listen to what I say and not distort my words. I also ask him, in the weeks ahead, to develop a sense of humour. It might help us all.

Jeremy Browne (Liberal Democrat, Taunton)

I apologise if the Minister’s flippant attitude towards this issue did not amuse me as much as it should have done. I only wanted to touch on that issue. Let me declare a few more interests. There are a number of small beer and cider brewers in my constituency who provide a significant source of employment. Dozens of people in my constituency and thousands of people across the country work in small breweries. Beer sales have gone down in Britain in recent years: much of the slack in alcohol consumption has been taken up by wine drinking, as was mentioned earlier in the discussion about social changes. However, nearly all wine is imported, whereas quite of lot of beer is brewed in this country.

There is an impact on brewers and employment not only in areas like mine but right across the country, as a result of bringing in measures that could suppress demand for beer and other alcoholic products. I was simply asking for an assessment to be made of that impact and whether it was a trade-off with which the Treasury was happy. The Minister said that those matters were kept under constant review, but that simply is not the case. If it were, the Chancellor would not have announced above-inflation increases as an escalator for the next three years. Even if the review finds an adverse effect on businesses and employment, the Government are committed to above-inflation increases, so the matter is not under constant review at all. It will not be reviewed during the lifetime of this Parliament. Not until after the next general election can we step back in the Treasury and see whether damage has been done to this sector.

Damage is potentially being done to employment. It is also being done to real communities. The hon. Member for Cities of London and Westminster made a good point about changing social and drinking patterns. I tried to make that point in my earlier contributions, and I will try to make a point now that does not contradict it but expands upon it. The social heart of many villages and small towns in areas like my constituency is removed when their post office, their shop or their village pub is closed. It is not the job of Government to prop up businesses that are unable to attract customers—I am not saying that—but neither is it the job of Government, when those businesses are teetering on the brink, to make it harder for them to remain viable. That is undoubtedly the impact of this proposal.

I may have had another humourless moment, but the Minister went on to say that pub landlords routinely increase their beer prices by more than the taxes that the Treasury have imposed, and that they use the Treasury as an excuse for a wider set of price rises. I assume that her point was that they are trying to make their businesses more profitable while blaming the Government for raising the prices that they charge their customers. The people who run many of these businesses work extremely long hours, and they probably do so for low profitability. If one added up the number of hours and worked out the profitability, many of them would be working for less than the minimum wage on an hourly basis.

The idea that these people are not trying to squeeze out every penny of competitive advantage to try to attract new custom, and have the luxury of being able to afford to charge their customers far more because those customers are just rolling through the door and are completely insensitive to price increases, is delusional. If any of the Treasury Ministers spent a day with a rural publican who is struggling to make ends meet they would come back to this House less likely to believe that they are artificially inflating their prices.

I finish with an observation made by the then Treasury Minister, the hon. Member for Wentworth, in Committee last year:

“the general case for using taxation as a means of regulating consumption has not been made. It is not best suited to this area of policy.”——[Official Report, Finance Public Bill Committee, 8 May 2007; c. 36.]

My view—and I maintain it regardless of the scorn of the Exchequer Secretary or anybody else—is that it is simply disingenuous to claim that the backdrop for the increases in duty on alcohol is not wider public concern about excessive drinking in some sections of the population, about binge drinking, about people being sick in town centres and about increased rates of liver disease. That is the political and social backdrop against which the Budget took place, and in the minds of millions of our fellow citizens, the changes have been put through because in some way they go towards addressing a wider social problem about which people are genuinely concerned. People who run pubs and small breweries see themselves as victims of a Government who are able to bring in above-inflation increases year after year, despite any assessment made by the Treasury, on the back of a perfectly legitimate wider social concern.

Justine Greening (Conservative, Putney)

Amendment No. 6 states that a report has to be laid before the House within three years. It may be useful to obtain the Treasury’s view of the impact on the industries, which say that it is dramatic. My concern is that three years is too long to wait to press the Treasury to look at that more carefully, and I wonder whether there is a reason why the hon. Gentleman has given the Treasury that long.

Jeremy Browne (Liberal Democrat, Taunton)

It is within three years, and if the Treasury—it appears that it does not—shared the concerns that I have expressed and to which the hon. Lady has alluded, it would no doubt wish to bring forward a review more quickly. I was talking about the lifetime of above-inflation increases, which will compound the problem for many people in those industries year on year. If they think that it is bad now, they will find it harder next year and even harder the year after that.

I will finish with this observation. Ten or 20 years ago there was a joke that the best way to make sure that a politician lost votes was to go to the electorate and say, “I’m going to put up the price of your beer”. It is extraordinary that the Government now regard that as a popular Budget measure. On that note—I detect that others do not share my concerns—I beg to ask leave to withdraw the amendment.

Frank Cook (Labour, Stockton North)

We now come to amendment No. 59.

Justine Greening (Conservative, Putney)

I beg to move amendment No. 59, in clause 9, page 4, line 41, at end insert—

‘(7) The Treasury must, not later than Budget Day 2009, lay before the House its assessment of the impact of the amendments made by this section on consumption rates of alcoholic liquor (as defined in section 1 of ALDA 1979).’.

I should have said earlier that it is a pleasure to serve under your chairmanship, Mr. Cook. This is a probing amendment, and it follows some of the concerns that the hon. Member for Taunton expressed. It designed is to press the Government to outline whether they have a clear understanding of consumption, as well as the revenue impact of the above-inflation changes. The modelling that the HMRC does was first produced in 2003 by Chao-Dong Huang, and it includes a range of price elasticity assumptions for beers, both on- and off-trade, spirits, wines and cider. I want to ask the Exchequer Secretary whether there are any plans to upgrade and update that model. I understand that it uses out-of-date statistics, and the price elasticities that the industries believe are present for today’s consumers are greater than those used in the model. That is important, because it goes to the heart of where the tax revenue maximisation point is.

Siôn Simon (Labour, Birmingham, Erdington)

I used to work in the drinks industry, so I would be interested to know whether the hon. Lady thinks that the industry is likely to be the best source of impartial advice about price elasticity for the Treasury. Should we perhaps assume that the Treasury is more likely to do a better job of coming up with an impartial view of price elasticity, and does not the drinks industry have even more of a vested interest than the Treasury?

Justine Greening (Conservative, Putney)

If we had seen a better track record from the Treasury, certainly in the past few months, on getting things right first time, I might put a lot of store in the model. I simply make the point that the model was created five years ago, and as has been said, there has been a lot change in taste and preference over those five years. We know that the industry, which has to get these things right to understand profitability, has a different view of price elasticity. All that I am saying is that this is a probing amendment to find out the Government’s view, whether they look at updating that model—I presume that they do—at some point, and if so, what process they go through, how transparent and open that is, and whether they will work with the industry to try to understand why there is such a gap between the different estimates.

In fact, there really should not be conflicting objectives, because if we have gone past the tax revenue maximising point—I think that the level of alcohol duty that is being paid is flat, and perhaps brought in less than was expected by the Treasury last year—that is bad, not only for the Treasury, which does not get the revenues that were expected, but for the industry, which sees a greater drop-off in value than the Treasury expected. That is the purpose of the amendment, so I look forward to the Minister’s response.

Frank Cook (Labour, Stockton North)

I should have said earlier that with amendment No. 59 it will be convenient to discuss the following amendments: No. 60, in clause 9, page 4, line 41, at end add—

‘(7) The Treasury will, prior to the 2008 Pre-Budget statement—

(a) publish an assessment of the level of revenue yield anticipated from alcohol liquor duty based on it being levied on the rates of duty in this section, and

(b) publish an assessment of the level of alcohol liquor duty required to be levied on each type of drink on an equitable basis based on the alcohol content to generate the same level of revenue yield.’.

No. 67, in clause 9, page 4, line 41, at end insert—

‘(7) The Treasury must, not later than the date of the Budget 2009, lay before the House revenue-neutral proposals for—

(a) decreased rates of duty on beer of a strength not exceeding 2.5 per cent. and cider of strength not exceeding 3.0 per cent.;

(b) increased rates of duty on beer of a strength exceeding 5.9 per cent. and cider of a strength exceeding 5.5 per cent.; and

(c) a new category of duty on “ready-to-drinks”, at a rate higher than the duty on spirits.

(8) For the purposes of subsection (7), not later than the date of the Budget 2009, the Treasury must make regulations setting out the definition of “ready-to-drinks”.

(9) Regulations under this section are to be made by statutory instrument.

(10) A statutory instrument containing the first regulations under this section may not be made unless a draft of the regulations has been laid before, and approved by a resolution of, the House of Commons.’.

The hon. Lady may choose to amplify the comments that she has already made.

Justine Greening (Conservative, Putney)

I certainly will, Mr. Cook. I was slightly thrown when you mentioned only amendment No. 59, but I went along with your advice and am grateful for your clarification.

Frank Cook (Labour, Stockton North)

Please accept my apology. I apologise from my very bottom.

Justine Greening (Conservative, Putney)

That is absolutely no problem whatsoever. Perhaps it conjured up a particular image in my mind, so let us move rapidly on to amendment No. 67.

Before speaking to the amendment, I notice that the hon. Member for Ealing, North is in his place. I am pleased about that, because before you took the Chair, Mr. Cook, we had a brief discussion about the weather on Sunday. I was in London, and the weather that day was quite interesting, because it started off lovely and sunny, but by the end of the afternoon it was odd. There was a ray of sunshine on Fulham, but Chelsea looked slightly cloudy for some reason—I could not quite work out why.

Moving properly on to amendment No. 67, there is no doubt that the pub industry in particular is facing problems at the moment. We need to be careful about the implications, because the industry is estimated to contribute £14 billion to the Exchequer annually. The whole industry, including off-trade pubs, hotels, restaurants and related trades, provides employment for 1.6 million people, which is about 5 per cent. of the nation’s active population. However, pubs are closing, as we have quite rightly heard and discussed.

My concern about the Government’s approach is that even within their own ministerial ranks, there was little discussion between the Treasury and the Department for Culture, Media and Sport before the announcement of the policy. The Under-Secretary of State for Culture, Media and Sport, the hon. Member for Bradford, South (Mr. Sutcliffe), who has ministerial responsibility for licensing, has expressed concerns about duty rises on the industry, and urged it to make a strong case to the Treasury. If there was an discussion, it seems to have been pretty much one way: from the Treasury to the Department for Culture, Media and Sport. Certainly, the Opposition had hoped to see a slightly more measured approach to alcohol taxation and duty.

We want taxation to be used as part of an overall package to tackle problem drinking. We do not want further revenue extracted from the public, who largely drink responsibly, and the industry when both have to deal with financial pressures. Amendment No. 67 was tabled to address that issue. It would give a lot of latitude to Ministers on how it is implemented. It says simply that by the time of the next Budget, Ministers must introduce tax-neutral proposals that increase tax on higher-strength beer, cider and “ready-to-drinks”, otherwise known as alcopops. Correspondingly, the proposals reduce duty on beers and ciders with a lower alcohol content. We want binge drinking to be tackled, but we do not think that that should be used as an excuse for more stealth taxes.

Patrick Hall (Labour, Bedford)

The hon. Lady’s remarks on amendment No. 67 focus on the effects of the measures on the on-trade or pub trade. Surely, the main factor affecting alcohol consumption is the differential between the on-trade price and the off-trade price, in particular at the supermarkets. She may respond if she wishes, but it seems to me that whatever one charges in excise duty or differentials within that, the supermarkets are able to absorb it. Therefore amendment No. 67 misses the point, because the great difference would still remain.

Justine Greening (Conservative, Putney)

I agree with the point that the hon. Gentleman is making, which is that whatever the policy on alcohol duty, it must be part of a broader package of policies. Interestingly, in February, Tesco, Asda and some other supermarkets withdrew super-strength beers from their shelves, which I welcomed. He is right that I am trying to set out one part of the package for a successful overall policy. I do not pretend to claim that this measure alone is the solution; of course it is not. We have heard that there are issues relating to the Home Office, to the Department of Health, and on education. A range of steps need to be taken, which complement each other.

In amendment No. 67, I am trying to set out an approach, at least within the duty piece of the jigsaw, that could help to tackle the issue in a more measured way. I will come on to why I think that is the right approach. When we look at what has happened in other countries, there is evidence to suggest that that is a sensible approach compared with the one that we are using, which raises duty for absolutely everybody. We have heard that 37 million drinkers in Britain drink responsibly, and the measure has had an impact on the trade.

I will come on to explain more about my approach, but I want to set out the issue of problem drinking and how it relates to the highest-strength ciders and beers, and alcopops, to which I refer in amendment No. 67. We have a problem-drink issue in Britain. Overall, the level of alcohol consumption is falling slightly, but I am talking about the cohort of people who do not drink responsibly, and we should look at what we can do to tackle that. In Britain, 3 million adults have some form of alcohol dependency, and 8 million people have an alcohol use disorder.

On under-age drinking and future health problems, one in 10 final-year primary school children—that is children aged 10 to 11—say that they drink alcohol regularly. That rises to 45 per cent. of 14 to 15-year-olds, who say that they drink on a weekly basis. A fifth of 10 to 15-year-olds say that they regularly get drunk. The number of young people treated for alcohol abuse has risen by 40 per cent. in a year. In 2005-06, over 1,400 children under 14 were admitted to hospital for conditions caused by alcohol abuse.

Alcohol abuse is a time-bomb epidemic, and we know that its impact is much broader than the effect on the health of people who are drinking too much. Half of all violent crime is drink related. Alcohol abuse is a key factor in the antisocial behaviour and intimidation that affects all our town centres and, indeed, my constituents, who live in London.

Jeremy Browne (Liberal Democrat, Taunton)

The statistics that the hon. Lady is reading out are interesting and are of concern to many millions of people. However, does she think that she is wasting her time, given that the Minister has said that none of those factors have received any consideration from her or her Treasury colleagues, because she regards them as irrelevant to taxation on beer, wine and other alcoholic drinks?

Justine Greening (Conservative, Putney)

I take on board the hon. Gentleman’s critique, but I have proposed an amendment that would reach an outcome on alcohol duty tax that offers something more and that I believe he would prefer. My proposal would create a balance between revenue raising and an element of the duty structure that would discourage problem drinking. My understanding of the Budget—and this is a matter of concern—is that this tax rise has nothing to do with tackling binge drinking. In fact, that surprised me, because I expected the policy to be structured around trying to address what is a growing problem.

As I have said, there is a lot of violent crime, half of which is known to be drink- related. Much antisocial behaviour and intimidation is caused by alcohol misuse. As a result of the Home Office review of the 24-hour licensing law change, we know that there has been a 25 per cent. increase in violent crimes committed between 3 am and 6 am since the start of the new laws. The Government should not be particularly surprised about that, because back in 2001 the Government—the Labour party—sent a now famous text to young people that said,

“If you don't give a XXXX for last orders, vote Labour on Thursday for Extra Time”.

Essentially, the message was that if people voted for Labour, they would be able to drink more. With hindsight, that probably was not the most responsible piece of electioneering we have ever had.

Mark Todd (Labour, South Derbyshire)

It certainly was not used in my constituency.

Justine Greening (Conservative, Putney)

No doubt the hon. Gentleman was pleased about that. Let us consider the super-strength ciders, beers and alcopops that I am talking about, so that we can perhaps understand a bit more about what these drinks represent. A single can of super-strength beer or cider contains more than the daily recommended alcohol limit for men, and double the recommended limit for women. Three litres of 7.5 per cent. white cider is available in shops for under £3. That 3 litres constitutes seven times the recommended daily alcohol consumption limit. According to a recent Alcohol Concern report, cans of strong lager, which is a young person’s drink, are now more affordable than they were in 1998. In fact, the report was entitled, “Cheap at Twice the Price: Young People, Purchasing Power and Alcohol”. An analysis from the Wine and Spirit Trade Association states that

“super-strength lagers were linked to binge-drinking precisely because of their high alcohol content and the type of consumption patterns they were seen to encourage.”

That report also cites evidence from alcohol reference experts about the increasing prevalence of strong lager consumption. As I said to the hon. Member for Bedford, in February, Tesco, Waitrose and Threshers stopped selling super-strength lager and cider in some city centre stores to try to tackle binge drinking. Clearly, the off-trade and all the industry participants have a role to play in working alongside whatever the Government are doing to try to tackle this.

If we consider the ready-to-drink market, we know from Alcohol Concern that a fall in real-terms duty on alcopops, as they are often known, means that an average young person’s pocket money enables them to buy alcopops, which constitute four times the daily adult recommended alcohol limits. The Government have unwittingly played a role in making ready-to-drinks more affordable, because tax on alcopops has fallen in real terms since 2002. We know that alcopops are the most popular drink for young girls and women aged 11 to 24—specifically, they were most popular among women drinking more than 15 units a week.

We hope to secure cross-party support for action towards the proposal in my amendment. In October 2006, the then Secretary of State for Health, the right hon. Member for Leicester, West (Ms Hewitt), called on the then Chancellor, now the Prime Minister, to increase taxes on alcopops and other drinks popular among young people:

“I am asking Gordon Brown, when he comes forward with the Budget next year, to really increase taxes on alcohol. And particularly things like alcopops and some of the stuff that quite a lot of teenage boys and girls are drinking, because we’ve got a real problem with binge drinking among young people.”

Ben Chapman (Labour, Wirral South)

To what extent does the hon. Lady think that the sale of alcopops and drink to young children is down to the level of taxation on those drinks? Or is it down to the marketing policies of the drinks manufacturers?

Justine Greening (Conservative, Putney)

The answer is clearly a combination of the two. I will come on to what happens in other countries when tax has been increased. For example, in Germany, where the level of consumption fell 50 per cent., teenagers who had previously consumed alcopops said specifically that tax increases were the primary reason for stopping. Price mattered to them. There is evidence that pricing affects younger people, perhaps because they simply do not have as much disposable income and cannot go to the cash point and get credit.

Siôn Simon (Labour, Birmingham, Erdington)

Was the evidence for the level of consumption going down by 50 per cent. for alcopops or alcohol?

Justine Greening (Conservative, Putney)

It was alcopops. I will come to that later, and answer the hon. Gentleman in more detail.

There is some evidence that what our amendment proposes could have some beneficial impact as part of an overall package of steps to tackle under-age and problem drinking. The amendment proposes an approach that mirrors successful approaches taken in other countries—for example, Australia, Germany and, more recently, France, which has introduced a tax on alcopops specifically.

Let us take a look at what happened in Australia, which put an extra tax on high-strength beer some years ago, adding an extra rate for mid-strength beer in 2000. Industry and Government data suggest that those changes in excise rates contributed to significant changes in consumption patterns. Recent data suggest that low and mid-strength beers now make up 20 per cent. of the total beer market in Australia, with mid-strength the fastest growing beer category in the country. By comparison, in our UK market, it is estimated that low-alcohol beer, which is under 2.5 per cent., comprises less than 5 per cent. of the market. Also, since 2000 in Australia, there has been a significant fall in the proportion of teenagers reported drinking beer and a fall in the proportion of young people consuming alcohol. According to a recent academic study—in a publication called Addiction—despite Australia’s reputation for heavy and highly culturalised consumption of alcohol, the international league tables indicate that Australia is generally doing well in how it deals with alcohol.

Germany introduced a tax on alcopops in July 2004, increasing it by around 80 cents per bottle. That resulted in the consumption of alcopops by young Germans falling by 50 per cent.

Steve Pound (Labour, Ealing North)

I was trying to catch the hon. Lady’s eye before she moved from the public bar of Australia to the saloon bar of Germany. She will be aware that the first alcopop ever sold in the world was manufactured by a Mr. MacGillivray, an Australian who found himself with four lorry-loads of lemons, to which he added alcohol, creating alcopops—condemnation be upon him. Does the hon. Lady accept that one of the problems in Australia is that all the fiscal mechanisms tried have totally and utterly failed to address problem drinking among certain groups within Australian society? Other mechanisms would have to be used, as with this Government and public health mechanisms. Fiscal mechanisms alone have simply not worked in Australia.

Justine Greening (Conservative, Putney)

What I was trying to get at earlier during my questions to the Financial Secretary is that there is clearly a need to segment the market of problem drinkers. I accept that, in dealing with long-term alcoholics, one may need measures that should include education, support and information on a whole range of health issues. We are trying to ensure, as part of that overall package, that the duty system plays its role in reaching a good conclusion. That could involve going down this particular route and looking at evidence in Australia, Germany, and I understand similarly in France, where it has had a positive effect. Such measures can help.

Siôn Simon (Labour, Birmingham, Erdington)

I do not know whether the hon. Lady was going to say more about Germany and alcopops. So far she has said that German kids stopped drinking alcopops, but she has not said whether they drank any less alcohol. Will she come on to that?

Justine Greening (Conservative, Putney)

I am pleased that the hon. Gentleman mentioned that, as just before the intervention of the hon. Member for Ealing, North I was coming on to the 2005 study by the German drug commission. It showed that those teenagers did not substitute other drinks, and that the proportion of 12 to 17-year-olds who drank alcopops once a month had dropped from 28 per cent. to 16 per cent. One third of those who drank ready-to-drinks no longer did so in the following year, and the teenagers cited the tax as the main reason for the changes. My amendment would force Ministers to come up with a more thoughtful alcohol duty policy that would have a good chance of starting to tackle problem drinking, while giving the rest of the British public, and the alcoholic drinks industry, relief from the Government’s proposals to increase tax by £400 million this year and £1.5 billion over the next three years. Of course, that must be seen in the wider context of a broader alcohol strategy designed to tackle binge drinking and under-age drinking. The Conservative party is committed to prohibiting retailers from selling alcohol below cost price—no more loss-leaders—and we have also set out policies to strip retailers of their licences if they are caught selling alcohol to under-age customers. I am sure that a range of other measures could be taken to complement those.

I hope that Ministers will be prepared to seriously consider supporting their other colleagues in Parliament, previous Health Secretaries, licensing Ministers and whoever else agrees that the duty should not have been raised across the board, and that a more sensitive and smarter approach would be that outlined in my amendment. I look forward to hearing the Financial Secretary’s response.

Stewart Hosie (Scottish National Party, Dundee East)

I should probably declare an interest. I am a member of the Taychreggan Scotch whisky society. I have another declaration to make in that last year I opened the Fisherman’s beer festival in Broughty Ferry, in the only pub ever to have been in every single edition of CAMRA’s “Good Beer Guide”. I say to the Minister that I did not have a woolly jersey on, but if she lives to accuse me of that, I will find it funny.

The Minister also said in the previous debate—and I think it relates to this debate—that she had had discussions with all parts of the drinks industry in the run up to the Budget. Those must have been extraordinary discussions—either the Minister spoke and they listened, or they spoke and she did not hear. Within hours of the Budget being announced, the Scotch Whisky Association began its press release by saying that across the sector there was,

“extreme dismay...following the Chancellor’s decision to raise the duty on Scotch Whisky by a punitive nine per cent. Distillers said that the Chancellor had effectively abandoned Government moves towards a fairer alcohol tax policy, worsening the duty discrimination against Scotch Whisky”,

and so it went on.

Mark Field (Conservative, Cities of London and Westminster)

To help elucidate the debate, will the hon. Gentleman say how much increase in duty on whisky there had been in each of the previous 10 Budgets?

Stewart Hosie (Scottish National Party, Dundee East)

The hon. Gentleman asked me the same question during other debates on the Budget, and I gave him the correct answer. I am coming to my amendment in some detail. I thought that explaining the background to what the sector was saying about the Budget would be useful. I tabled the amendment because the Finance Bill offers a discriminatory tax regime against Scotch whisky and because, fundamentally, I believe that there must be a better and fairer way of levying duty on alcoholic liquor.

Given the soundings that I have taken from the industry, the proposals in the Finance Bill risk damaging an industry that generates £2.5 billion towards the balance of trade—a balance of trade in total on goods that is £87 billion in deficit. If too much pressure is put on the sector, it might risk some of the 65,000 jobs that are dependent on Scotch whisky one way or another. It also risks reducing the £1 billion annual spend for other suppliers in the United Kingdom.

In addition, the common argument is that the pressure will place an additional burden on a sector that, like many others, is struggling with further increases. Whisky, in particular, has seen a 100 per cent. increase in cereal costs; 60 per cent. in fuel oil; between a 5 and 20 per cent. increase for glass; 5 to 10 per cent. for packaging; 5 to 15 per cent. for transport and 20 per cent. for copper to make distilleries. Will the Government explain why they took such action in the Finance Bill that will result in an effective 30 per cent. tax increase on Scotch by 2013? Will they confirm that their detailed econometric work demonstrated that the taxation of spirits was already close to, or perhaps beyond, the revenue-maximisation point? I remember the tipping point that the previous Treasury team discussed in respect of tobacco. It was honest and open, and said that there was a tipping point after which revenues would go down and, indeed, that smuggling would be encouraged.

As for the elasticities published in 2003, those at the Treasury suggested that the price elasticity of spirits continued to be considerably higher than that for wine and beer, that there was a clear risk that spirit duty rises might be counter-productive from a revenue perspective, and that spirit duty receipts would actually fall. Even if the estimates of an uplift in spirits revenue were accepted, the Treasury anticipates that raising just 4 to 6 per cent. more revenue next year from a 9 per cent. duty rise would show that it expects sales to fall. I should be grateful if the Minister would confirm that.

I have raised the international dimension on several occasions. When we raise duty, particularly disproportionately—I shall come to the discriminatory element of it in a moment—we send out an extraordinary and potentially damaging message elsewhere in the world saying that large duty increases on Scotch are acceptable. That is indeed damaging, given that the sector is trying hard—and successfully over the past little while—to increase its markets overseas. That signalling effect that everyone recognises as real is something that we want to avoid.

Mark Field (Conservative, Cities of London and Westminster)

While I very much accept the hon. Gentleman’s valid, economic argument, the specifics of the Scotch whisky industry are that the terrific demand, particularly from many of the emerging markets in the far east, is such that it cannot really deal with the level of demand of its premium end quality product in the global market. I do not disagree with the basic thrust of his economic argument, but the specifics of where the industry is today are in a strong position.

Stewart Hosie (Scottish National Party, Dundee East)

The specifics of where we are today are that Japan referred to the UK system in the recent World Trade Organisation hearings and observers in India have also pointed to UK budgets as letting India off the hook in maintaining local duty regimes to discriminate against Scotch in those emerging markets. We cannot be complacent. Yes, the industry has done well; yes, it has tapped into a rising, middle-class and additional disposable income in China and India, but the growing pressure on income in China and India is such that there are food price rises. I suspect that even someone who had been doing relatively well would probably choose to put food on the family table before buying another bottle of whisky, premium or otherwise. That is important.

My amendment does not seek to delay the rise, although that would be welcome, but to have the Government publish a detailed breakdown of the yield from all forms of alcoholic liquor, and to publish indicative rates for all types of drinks to show what the duty levels would be if alcohol was taxed fairly and equitably by alcohol content only. Let me explain why that is important and show the discriminatory nature of the current regime. Take three drinks with precisely the same alcohol content: a half pint of beer with 4.93 per cent. volume has 20.9p of duty; a 125 ml glass of wine at 11.2 per cent. volume has 24.3p of duty; and a 35 ml glass of whisky at 40 per cent. volume has 29.9p of duty. So for exactly the same alcohol content, there is a 30 per cent. uplift on the duty between beer and whisky and a 20 per cent. uplift on the duty between wine and whisky. That is fundamentally unfair.

I am not seeking to delay this, although that would be good. I am not seeking to say anything at this point about the escalator, although that will have to be addressed because it could be very damaging in the medium term. This is something that could be accepted. Certainly the soundings from other bits of Government and agencies concerned with things like health and crime suggest that they would be not too unhappy if we found a duty regime that taxed fairly on the basis of alcohol and recognised that cheap cider, which is massively undertaxed, would have to go up and that very strong beer and lager—the super lagers that are cheaper than bottled water—would go up.

I am not sure about wines. Perhaps they would stay much the same. We will have to see what the analysis said. But the type of rises we have seen with whisky and the type of rises that are forecast and the continuing discrimination against it cannot be tolerated. I hope that the Minister, while probably not wanting to accept this amendment in its present form, might give us some comfort that she will be prepared to pull together the assessment the amendment seeks so that we can see what the impact of fair and equitable duty would be.

Steve Pound (Labour, Ealing North)

One learns a lot in these Committees. I am grateful to the hon. Gentleman. It is interesting that the two most popular whiskies in India are 100 Pipers, which is distilled in the distillery built by Scottish soldiers when they were over there, and Johnnie Walker Black Label. If we follow through the logic of the hon. Gentleman’s argument, would it not have precisely the same effect on gin, vodka and all other spirits, or is he making an exceptional case for something being uniquely wonderful about Scotch whisky? I say that as someone who finds it difficult to drink any whisky that has not got an “e” in it.

Stewart Hosie (Scottish National Party, Dundee East)

It would absolutely have the impact on every other spirit. I make the point in relation to Scotch for rather obvious reasons. It is an incredibly important industry in Scotland. It generates the revenues I spoke about and contributes to the balance of trade. But my proposal would impact on every spirit, which is why I say we should have the assessment of the total yield and the duty levels required by alcoholic liquor type across the board to see what that would look like were we to tax all alcoholic drinks on the basis of alcohol content and not in any other discriminatory way. With that I will sit down and hopefully the Minister can give me some joy when she gets up to speak.

Jeremy Browne (Liberal Democrat, Taunton)

I am grateful for the opportunity to speak briefly. I have tabled no amendments to this clause but I thought that the comments made by the hon. Member for Dundee, East were interesting and worth exploring further. Some of the wider points, although not necessarily the specific amendment, from the hon. Member for Putney also contributed to the debate. It only left me thinking how valid my previous amendments were. There seems to be insufficient information on the purpose of Government policy with regard to taxation of alcohol. We are no clearer now.

It was interesting to hear the hon. Member for Putney run through a lot of the concerns that people have about the social and health impacts of excessive alcohol consumption. Of course, we know from the comments of the former Financial Secretary that those factors are not considered worthy of the considerations made by the Chancellor in the Budget. We are told that they are considered to be important in the Home Office and in the Department of Health, but they are not motivational factors when considering duty on alcohol. That is regrettable because it is impossible for the Government to form a rounded policy on duty in this area without taking those factors into account.

I have some concerns about amendment No. 67. It attempts to single out certain categories of alcohol. I am not unsympathetic to the motivation behind that, but the problem with ready-to-drink brands is that there is no easy definition of what constitutes an alcopop. As I understand it, the provisions would penalise spirit-based alcopops, but not fermentation-based alcopops. If so, there may be a movement in the market from one type of alcopop to another even though the alcohol content of both may be identical while the method of making them is different.

Justine Greening (Conservative, Putney)

I think that the hon. Gentleman has touched on an anomaly of the current tax system. In amendment No. 67, we want to set out a definition that would work. He is right to say that half of alcopops sold are wine-based rather than spirit-based.

Jeremy Browne (Liberal Democrat, Taunton)

I am grateful for that intervention. I see that amendment No. 67 asks the Government to explore the matter further. This illustrates the difficulty of trying to come up with not only definitions, but legislation that tackles current fashions in the market, particularly among young consumers who are prone to change their drinking habits more rapidly than older consumers.

My understanding is that the market for ready-to-drink products is showing signs of long-term decline and has been superseded by drinking cider, particularly with ice in it. Many people regard that as an unwise way to consume cider, but it is fashionable in many quarters. I am told that even that type of preferential drink is also now in decline. Whoever can work out what the next market will be in popular drinks, particularly aimed at young people, will no doubt make a lot of money out of it.

It is very difficult to legislate to address consumption patterns when we do not know what they are likely to be. There is evidence that the issue of aiming taxes at people who ought not to be buying alcohol because they are under the legal age is quite price-sensitive because such people tend to have smaller amounts of money to spend. At the same time, it is particularly hard to target. For those in the 18-to-25 age category, the issue is rather less price-sensitive. All these issues must be taken into account by the Treasury.

Although I think that amendment No. 67 makes some valid points and is an interesting probing amendment, there are some practical considerations which mean that it would fail to do what it says on the bottle. On the wider point of alcohol liquor duty, I look forward to the Exchequer Secretary’s contribution. From a sedentary position, she has expressed unhappiness at previous comments that I have made. All I have sought to do in our deliberations is to put it to her that a lot of people in the trade of selling and producing alcohol are unhappy with the above inflation increases. At the least, they want a clear explanation from the Treasury for the motivation behind them.

Patrick Hall (Labour, Bedford)

I have one or two points to make in the light of this debate, which I have found very helpful, and in the light of meetings that I have had with senior representatives of Charles Wells, one of the few wholly British-owned brewers. Some 85 per cent. of brewing is now foreign-owned, but Charles Wells is located in my constituency. I have also met members of Bedford PubSafe, which represents licensees, and the police licensing officer. I should like to develop the theme on a separate occasion, perhaps in an Adjournment debate, but I have one or two points and questions to put to my hon. Friend that arise from what has been said today and from my recent meetings in my constituency.

From what little work I have done on the matter, it is interesting that there does not seem to be a consensus on easy solutions, because there are no easy solutions. For example, I was impressed that the licensees I met in Bedford did not believe that simply raising duty across the board would in itself tackle antisocial behaviour, but the pub trade argues that, generally speaking, it is pubs themselves that provide a safe, sociable, supportive drinking environment, and that if we just leave it to the market—although there are also small businesses that believe in the market—they will not be able to compete on price, given the price differential with supermarkets. A lot of people, especially young people, seem to drink at home before going to the pub, with the danger that they arrive at the pub already drunk. Those are serious matters, but there are no simple answers.

I have one or two questions to put to my hon. Friend the Minister. With regard to the promised accelerator, although it is not in the Bill, Treasury Ministers have pledged to raise excise duty on alcohol by 2 per cent. for each of the next four years. Just to test that, can she explain why 2 per cent. and why four years? With regard to special pleading, there is an issue regarding beer sales in the pub trade. The relative or absolute decline of beer sales goes back some decades. The Government indicated an ability to assist the industry when they froze the duty on cider for four years to help that part of the industry. Is there now a case for considering doing the same with beer?

The hon. Member for Putney addressed the point about differential rates in a measured, intelligent and helpful way. I thought that my hon. Friend the Minister said earlier, in relation to another set of amendments on the clause, that differential rates were not allowed under EU law, yet the hon. Member for Putney—whose information I have no reason to doubt, as she approached the matter with reason and clarity—said that other EU member states used differential rates. If that is not the case, we will hear from my hon. Friend.

We may have to have a level playing field in terms of duties and taxes, but we certainly do not have one in terms of price. Supermarkets’ ability to use loss leaders, buy one, get one free offers and similar things is surely part of the problem for some people who abuse alcohol. It would be helpful if my hon. Friend, if she has time when she responds, could address those points.

Angela Eagle (Labour, Wallasey)

I hope that I will be able to address Members’ concerns in the time left tonight. This has been an important debate, and a wide-ranging one by definition, and I hope that I can reply to some of the questions asked and genuine points made.

No one should doubt the motivation of anyone on either side of this Committee to see whether excise duties can have any influence, not on binge drinking, but on drinking habits. It is clear from reading amendments Nos. 59 and 67 that that is what the main Opposition parties advance.

The hon. Member for Putney spoke to the amendment in some detail. I shall take the Committee through some of the reasons why her approach will not work. There are practical reasons, but there are also legal obstacles. I shall also answer some of the questions asked by my hon. Friend the Member for Bedford. Amendment No. 67 would require the Treasury to lay before the House revenue-neutral proposals for changing the way in which beer, cider and spirit-based ready-to-drink drinks are taxed. In normal parlance, spirit-based RTD drinks are alcopops—I say that in case anyone is confused about the subject. The amendments, however, do not take that into account. European legislation imposes restrictions on the ability of member states to determine the structure of their alcohol duty regime and the rates of that duty.

There are several legal barriers to introducing the package of changes proposed in the amendments. I shall start with the proposed changes to beer duty. Under the current system, beer is taxed in direct proportion to the amount of alcohol that it contains. For example, duty on a pint of 3 per cent. strength beer is 26p; the equivalent duty on a pint of 6 per cent. strength beer is 51p. An additional duty applied exclusively to beer above 5.9 per cent. would be illegal. Council directives prevent us from charging duty except as a percentage of alcohol in the drink. As a result, the hon. Lady’s package will not work. Nor, if it was legal, could revenue be recycled to reduce the duty on lower strength beer, because under EU rules any increase in beer duty would have to be imposed on beers of all strengths with an alcohol content of above 2.8 per cent. or those with no alcohol at all. There are some rigidities in EU rules, which mean that the hon. Lady’s approach will not work.

Justine Greening (Conservative, Putney)

Has the Minister considered how countries like Germany managed to get over those legal hurdles, and introduced taxes on RTDs?

Angela Eagle (Labour, Wallasey)

Yes, but slightly different rules apply here. I refer the hon. Lady to article 3 of Council directive 92/83 EEC, which states that beer must be taxed in direct proportion to the degree of alcoholic strength. That is the issue that I was talking about.

Another slightly more obscure provision of Council directive 92/12 EEC allows an additional excess tax to be imposed provided that it is hypothecated for a specific purpose. I suspect that the German example is based on that provision. I shall explain in a moment why that will not work for alcopops.

Peter Viggers (Conservative, Gosport)

Before the Minister goes into further detail, will she address the general philosophical question of the Government’s attitude towards the taxation of alcohol? How do the Government feel about using taxation as a weapon to help solve the social problems that have been pointed out so well by the Opposition, and about having differential rates for different types of alcohol? Will she set out her strategic framework for taxing alcohol?

Angela Eagle (Labour, Wallasey)

I am happy to do so. We have 10 minutes left today. I shall try to give the hon. Gentleman a quick view of our philosophical approach, but given the remarks that I have just made, I hope that he realises that we are not completely free of EU regulations on applying different excise duty rates to different strengths of alcohol. We do not have a completely free rein. I think that we would all admit that excise duties can have an effect on the consumption of particular kinds of alcohol, but not necessarily on binge drinking or over-indulgence. There is a great deal of evidence that if one prejudices the use of a particular alcoholic beverage over another for those reasons, substitution occurs. One may achieve an initial decline in the kind of drinks that one wishes to see decline, but in fact, there is a substitution effect. The market is very dynamic and drinks are often reorganised: the trade has the chance to reduce or increase strengths to fit in with any excise duties that are created. It is a dynamic situation and we are subject to certain constraints and EU rules. That is why the hon. Lady’s suggestions do not hold together, especially for beer—they are simply illegal and cannot be done.

Moving on to ready-to-drinks or alcopops, under the current system, such products are taxed either as spirits, as came out in the debate, or as made-wine, depending on the ingredients used in their production. Since spirit-based alcopops are taxed in the same way as all spirits, they are already subject to a higher duty compared with other products of similar alcoholic strength. Under EU rules, we cannot introduce a new tax for one alcohol product to fund a tax cut for another product. Revenue from a separate tax on ready-to-drink products—the German example—would have to be hypothecated to a specific spend under the EU regulation. I am afraid that for the hon. Lady’s purposes, that specific spending does not include meeting other budgetary objectives. Her idea of recycling revenue from alcopops into reductions of excise duty in other bits of the forest, so to speak, on other lower strength beers, does not work and is illegal.

Mark Field (Conservative, Cities of London and Westminster)

I accept what the Exchequer Secretary has to say, but surely it is not beyond the wit of man—or Treasury Ministers and officials—to ensure that hypothecation could, for example, go on health promotion? There must be a way of organising matters in that particular way. I, for one, fully appreciate that health promotion is not, and should not, be the only issue at stake, but surely that is one obvious way in which there could be a level of hypothecation, specifically for alcopops and directed at a very small part of the large alcohol market?

Angela Eagle (Labour, Wallasey)

That may well be the case—and I will come on to the German example in a minute—but it renders unworkable the process set out in the amendments tabled by the hon. Member for Putney, which propose a higher tax on a particular form of alcohol and recycle the revenue into lower duty rates in other areas of the alcoholic beverage jungle.

Mark Field (Conservative, Cities of London and Westminster)

I fear that I am taking the words out of the mouth of my hon. Friend the Member for Putney. We wanted to ensure that this was a revenue-neutral situation, not simply a matter of more and more stealth taxes on alcohol alone.

Angela Eagle (Labour, Wallasey)

It is a pretty unworkable stealth tax if everybody has noticed that alcohol duties have gone up by 6 per cent. I have never been able to understand the accusation that increases in excise duties are somehow a stealth tax. The letters that I have to sign, and the response from members of the industry that I have received since the Budget, have not exactly indicated that it was a sneaky thing. When I phoned them up on the day of the Budget to tell them what was in the Budget, I do not think that I did it by stealth and their reaction did not have anything very stealthy about it either.

Some hon. Members have argued that tax changes could be targeted at particular alcoholic drinks, but it has been our experience that increases in the price of a specific drink in isolation are not effective in reducing overall harmful alcohol consumption. Problem drinkers simply move on to other products. The German experience was cited by the hon. Member for Putney as a highly successful example of that of approach. Given that one would need a hypothecated fund that could not be spent on other budgetary measures, one would have to take the money from a tax on alcopops and put it into a specific place. In the German example, it was put it in a hypothecated fund for alcohol education for young people.

Justine Greening rose—

Angela Eagle (Labour, Wallasey)

If the hon. Lady wants to intervene, I am happy to give way.

Justine Greening (Conservative, Putney)

Does the Minster plan to put the tax increase into an auditable hypothecated fund for child poverty?

Angela Eagle (Labour, Wallasey)

No, but we have made clear where some of the revenue raised from the increases in alcohol excise duties have gone. I am anxious to make the point about the German example, of which the hon. Lady made a great deal in her speech. In that case, the specific tax on alcopops did not stop young people drinking; they simply drank something else instead. One year after the introduction of the German tax, alcopop sales reduced—the hon. Lady was right to point that out—but sales of other drinks, such as wine-mixed beverages and beer-mixed beverages, went up by 250 per cent. and 19 per cent. respectively.

The proposed changes to alcopop taxation require the Treasury to make regulations that define ready-to-drinks, and, as the alcohol industry is dynamic and competitive under any definition, it is likely that it will simply respond by reformulating products to ensure favourable tax treatment. The regulations would need to be constantly reviewed.

I do not know whether the hon. Lady has looked at alcopop sales recently, but they have halved since 2002, when they were at 105,194 hectolitres of pure alcohol, to 51,797 hectolitres of pure alcohol in 2007. The decline started in 2002, when the Government removed a concession introduced in 1998 by the Conservative Government, which basically began the growth in alcopop beverages. Removing that concession in 2002 put up the price of alcopops and the market for them, in hectolitres of pure alcohol, halved. Since 2007, it has halved again. Alcopops are possibly in terminal decline as a beverage, and people have moved on to other issues. That demonstrates that targeting particular drinks in a dynamic industry, which can be very innovative when it wishes, simply does not work. The hon. Member for Taunton made that point, and I agree with him. It causes substitution in one area and causes those issues. We cannot have an excise duty on that basis, and I hope that the hon. Lady recognises that.

Justine Greening (Conservative, Putney)

The Minster seems to be slightly ignoring the rest if the proposal, which would increase the duty on high-strength and super-strength cider and beers.

Angela Eagle (Labour, Wallasey)

I am moving on to that.

Justine Greening (Conservative, Putney)

In that case, I wait to hear what she has to say with interest.

Angela Eagle (Labour, Wallasey)

Following the Budget increases in alcohol duty, still cider between 1.2 per cent. and 7.5 per cent. is taxed at £28.90 per hectolitre, and still cider between 7.5 per cent. and 8.5 per cent. is taxed at £43.37 per hectolitre, so strong cider is already subject to a higher rate of duty. There has been a lot of interest expressed in strong white ciders. They were certainly discussed a great deal when representatives of Alcohol Concern came to see me before the Budget. The product represents only a small proportion of the overall cider market, which itself accounts for only 4 per cent. of total alcohol sales.

Stewart Hosie (Scottish National Party, Dundee East)

I know that the Minister was accurate when she spoke about strong cider being taxed at a higher level, but the basic rate per hectolitre on still cider still goes up to 7.5 per cent. AVP. That is extraordinarily strong to be paying only £28.90 of duty.

Angela Eagle (Labour, Wallasey)

The hon. Gentleman admirably cantered around the issues with Scotch whisky. His approach is that alcohol should always and everywhere be taxed in proportion to its alcoholic strength—its alcohol by volume. We do not yet have a structure that is so certain. I am looking at you, Mr. Cook. I am nowhere near the end of my remarks, and I do not know whether we are okay for time.

Frank Cook (Labour, Stockton North)

There is no time for termination. The next stoppage will be when the Secretary of State for Children, Schools and Families pulls the plug on new clause 14 of the Education and Skills Bill, so please continue.

Angela Eagle (Labour, Wallasey)

I am happy to do so.

In summary, the European Union restrictions make revenue-neutral changes, as proposed in the amendment, unworkable. Furthermore, increases in duty on specific products will not reduce overall problem drinking because consumers will shift their consumption to other products, so the Government cannot agree to the structure of the amendment.

Amendment No. 59 would require the Government to provide an assessment of the impact of alcohol duty increases on consumption. As with all tax policy decisions, we monitor the impact of alcohol duty on a range of factors. When the hon. Member for Putney started this debate, she asked some questions about the HMRC model. We always examine input and assess whether our models need to be updated. The model to which she referred uses the latest market information on prices and consumption of alcohol, and is based on the elasticity set out in the published Government economic service working paper No. 140, about which the industry has no doubt been writing to her.

The model is also based on HMRC’s clearance data consumption forecast and the latest industry prices and strength of alcoholic beverages, which can change rapidly, as I am sure that the hon. Lady appreciates. Behavioural effects and elasticities are applied to arrive at an additional tax revenue generated from duty changes. We assume 100 per cent. pass through of duty, and inflation is accounted for. That model comes to the Revenue forecasts that she sees in the Red Book. We keep it under review, and I hope that she finds my explanation reasonable.

The Government do not agree with amendment No. 59. I am sure that all hon. Members acknowledge that a number of factors have an impact on alcohol consumption, and it would be difficult to identify the specific impact of alcohol duty rises against other factors, including changing consumer patterns, changing and reformulated drinks, and fashions, as the hon. Member for Taunton rightly said.

We have been clear about the purpose of the decision to raise alcohol rates in the Budget. The principal aim is not the reduction of problem drinking, but primarily to provide revenue so that we can continue to assist pensioners and tackle child poverty.

Patrick Hall (Labour, Bedford)

Could my hon. Friend come to the point before we conclude—you said that we could go on for a little while, Mr. Cook—about the accelerator and why it is 2 per cent. above inflation and why it is for four years?

Angela Eagle (Labour, Wallasey)

We had discussions earlier about how much more affordable alcohol had become over the years, and the 2 per cent. increase is an attempt to change that balance over the next four years coherently and with advance advertising.

European union rules on the structure of alcohol duty rates make a duty regime under which all the products of a given alcohol strength are subject to the same duty rate unworkable. Under those rules, wine and cider are taxed in bands, but we are required to tax spirits and beer directly in proportion to their alcoholic strength. That makes it impossible to provide exactly the same treatment for all products of equivalent alcoholic strength. I hope that that has, to some extent, dealt with the comments of the hon. Member for Dundee, East. His plan cannot be brought into being because of EU rules. He is dancing around and I am happy to let him in.

Stewart Hosie (Scottish National Party, Dundee East)

I am not sure that I was dancing around. I understand why the changes that might follow from the assessment that I mentioned might not be able to be made now, or quickly. However, that would not prevent the assessment from being made and the information published so that all of us—the industry, and those concerned about health, crime and politics—could see what the rates should be were it possible to do it on an equitable basis. If we then thought, “My goodness, that’s a jolly good idea. It might help”, we could perhaps take the necessary steps thereafter to find a way of implementing it.

Angela Eagle (Labour, Wallasey)

Changing how excise duty rules operate at European level is not quite as simple as the hon. Gentleman perhaps assumes. I understand his point and why he makes it, because it is about the Scotch whisky industry. That industry—as was pointed out when he got to his feet—has benefited from nine years of zero increases in duty. It is not happy about the across-the-board increase in this year’s Budget. One cannot expect it to be happy, but most of the rest of the alcohol industry would be very happy to have had nine years of no excise duty increases. I merely ask him to take that into account as he surveys the scene.

The increase is across the board; it does not target specific alcohol products. The Budget maintains a differential in duty rates between Scotch whisky and other alcohol products, although it does not narrow it as Scotch whisky would have wished. I understand its feelings about that, but I also note that 90 per cent. of Scotch whisky is exported, and it is doing extremely well in exports. I hope that Opposition members will not press the amendments. They are ineffective and certainly illegal, and for that reason unworkable. If they do press the amendments, I will ask my hon. Friends to vote against them.

Justine Greening (Conservative, Putney)

Apart from being illegal and ineffective, is there anything that she does not like about them? As the hon. Lady can imagine, we got legal advice which was that, provided that the duties were calculated by reference to a product’s weight, quantity or alcohol content, what we proposed was fine. The argument that she made about hypothecation did not stack up. I am absolutely sure that it would be possible to structure the duty system so that, through using hypothecation and tax reductions or otherwise, one could achieve the sort of structure that we propose. Therefore I want to press amendment No. 67 to a vote, because we believe that it is wrong that the pub industry and ordinary, responsible drinkers are being hit, when we could have had a much more thoughtful policy that would have given not only the industry, but ordinary drinkers a break, and would also have taken at least some steps towards tackling the big issues that we have with problem drinkers. I will press amendment No. 67 to a vote.

Stewart Hosie (Scottish National Party, Dundee East)

I heard what the Exchequer Secretary said in relation to the European directives, particularly 92/83 which requires member states to tax all spirits equally. I understand that articles 19 to 23 of another relevant directive may allow exceptions. I will not press amendment No. 60 today, but I may bring back a version at a later stage.

Justine Greening (Conservative, Putney)

I beg to ask leave to withdraw the amendment.

Justine Greening (Conservative, Putney)

Briefly, we will oppose the clause stand part for the same reason as I have already mentioned: it is the wrong time to hit the industry and responsible drinkers.

Bob Blizzard (Labour, Waveney)

I can hear the sound of the jazz from below, so I beg to move that further consideration of the Bill be now adjourned.

Frank Cook (Labour, Stockton North)

I could have sworn that it was a measure of fatigue that had moved throughout the Committee.

Further consideration adjourned:—[Mr. Blizzard.]