Skip to main content

Orders Of The Day

Volume 172: debated on Tuesday 15 May 1990

The text on this page has been created from Hansard archive content, it may contain typographical errors.

Finance Bill

(Clauses 3, 9, 10, 20, 23, 25 and 68)

Considered In Committee

[MR. HAROLD WALKER in the Chair]

Ordered,

That the order in which proceedings in Committee of the whole House on the Finance Bill are to be taken shall be Clause 68, Clause 9, Clause 10, Clause 3, Clause 20, Clause 23 and Clause 25—[Mr. Lilley.]

Clause 68

Contributions To Training And Enterprise Councils

4.2 pm

; I beg to move amendment No. 34, in Clause 68, page 55, line 34, after 'council', insert

'or a local enterprise company'.

With this it will be convenient to take the following amendments; No. 35, in Clause 68, line 49, after 'council', insert 'or company'.

No. 36, in Clause 68, page 56, line 17, at end insert

'and
  • (b) "local enterprise company" means a company with which an agreement (not being one which has terminated) under which it is agreed that the company shall carry out the functions of a local enterprise company has been made by the Scottish Development Agency, the Highlands and Islands Development Board, Scottish Enterprise or Highlands and Islands Enterprise.'.
  • In line with the statement on Budget day, we announced last week that the new tax relief proposed in the clause for business contributions to training and enterprise councils in England and Wales will also be available for contributions to local enterprise companies in Scotland. The amendments simply achieve that result. They provide that the relief for contributions to LECs will be on the same basis and for the same period as that for TECs. I hope that they will be welcomed by all hon. Members. As TECs and LECs will have many similar functions, it is clearly right that the same tax relief should be available to both.

    I apologise for the intrusion into the Minister's brief opening remarks, but will he reassure me that tax relief granted in respect of investments in training and welfare will extend beyond what is considered to be the normal business sector, for example into professions and other such spheres, so that the broadest possible tax relief is given to training and investment in those sectors?

    I reassure the hon. Gentleman that there is no discrimination between different sectors of industry. As long as the contribution meets the conditions of the clause, whether it is in England, Wales or Scotland, it will attract relief.

    Amendment agreed to.

    I beg to move amendment No. 21, in page 55, line 45, leave out 'if' and insert 'to the extent that'.

    With this it will be convenient to take the following amendments: No. 19, in line 47, leave out 'of any kind whatsoever' and insert

    'in money or money's worth.'.

    No. 20, in line 49, at end insert

    'provided that neither this subsection nor subsection (4)(b) below shall apply where the benefit in question comprises the training of employees of the person making the contribution and that training is wholly or mainly for the purpose of enabling those employees to better perform the duties of their employment.'.

    As a first priority in the debates on the Finance Bill, we sought to examine the clause that confers tax relief on contributions to training and enterprise councils. The Opposition deliberately intended to make that the first issue we raised because we share the almost universal view that good training and retraining, for employed and unemployed alike is not only beneficial and desirable for the individual, but vital for a strong economy.

    We seek by means of the amendment to probe the Government's intentions in the clause and perhaps even to improve the Bill. We do not oppose the clause itself but we believe that the more one studies it the more it throws into sharp relief the defects and inadequacies of the Government's training programme—if one can dignify it with such a name.

    The background to the clause and to our amendment is also one of almost universal agreement about the terrifying inadequacies of the scale of training in this country and of the Government's approach to that training, not to mention the inadequacies—in the view of the Opposition —of such solutions as the Government propose.

    It is rather difficult to tell to what degree the Government share our concern about the state of training, that state being identified by the fact that between 65 and 69 per cent. of 16 to 19-year olds are in training in this country, whereas in Germany more than 90 per cent. are, in Belgium more than 80 per cent. are, and in the United States and Japan similar figures obtain. The same imbalance applies to specific industries which need crafts-people to bring them up to strength.

    We thought that the Government shared this view—all the more so because on 6 December the former Secretary of State for Employment, the right hon. Member for Sutton Coldfield (Sir N. Fowler), said that Britain's training position was "mind-boggling" and because in Employment News a few months ago the word was that
    "we have a mountain to climb."
    The former Secretary of State set targets for training: that by the end of 1992 no young person should be employed without training; that two thirds of them should get to National Council for Vocational Qualifications level and a quarter to level 3; and that by 1995 all of them should be at least at level 2, and half at level 3. He went on to say:
    "Unless we set outselves these kinds of stretching targets we shall not meet the need for upgrading and multi-skilling in a decade of continuing and rapid change."
    The new Secretary of State, however, said in March:
    "My predecessor offered a framework of objectives for training … Progress … depends … on action by organisations outside Government; they cannot be specific Government targets."—[Official Report, 8 March 1990; Vol. 168, c. 804.]
    Moreover, the consistent theme of the new Secretary of State has been not the great need for improved training but how well we are doing. That is a substantial shift of emphasis. As I said a few moments ago, that shift of emphasis is not universally shared. The CBI said a few months ago:
    "Britain's skill levels are lower than those in most of its competitor countries and the gap is widening."
    The head of the Training Agency, Roger Dawe, said:
    "At every level we are towards the bottom of the training league table, whether it is in education, youth training, higher level skills training or in management."
    A most interesting recent edition of "The Money Programme" had a number of comments to make on our training policies. On the programme, the chair of the Blackburn TEC said:
    "The situation is desperate. We are falling further down the ladder."
    Apart from the move away from targets, the new Secretary of State's second, equally alarming, shift of emphasis was to be found in the words that I have already quoted:
    "Progress on meeting the objectives"—
    for the development of training—
    "depends primarily on action by organisations outside Government; they cannot be specific Government targets."—[Official Report, 8 March 1990, Vol. 168, c. 804.]
    It seems to us that the Government are in terrible danger of repeating a mistake that they have made in other areas. The one that always springs to mind is community care. It is the mistake of picking up a perfectly reasonable policy which is in itself a good idea—in this case the idea of encouraging employers to make greater efforts to provide training—and using it as an excuse to shuffle off that part of the responsibility for the policy that properly belongs to Government and use that transfer as an excuse for cuts. Therein lies the danger, and it is one that the Government are running in community care, of discrediting the whole of a policy that might otherwise be acceptable.

    On the first occasion on which I met a senior business man who was involved in the early stages of setting up TECs, he talked about his enthusiasm for the idea. He spoke about the challenge of the needs of training and of the way in which he and his colleagues hoped to be able to begin to tackle it. However, he went on almost immediately to say anxiously that, although he thought it was a good idea and that he was looking forward to being involved, he hoped that the Government did not intend to transfer the entire responsibility for training to the shoulders of private industry.

    That concern is widely shared and was well expressed in the edition of "The Money Programme" to which I referred. One of the people interviewed said:
    "Somebody has to do it. I do not think we are necessarily the best but there is no one else."
    That was a sad commentary on that person's view of the Government initiative. However, there is still a good deal of enthusiasm in some quarters for the TEC initiative, just as there might still be some enthusiasm for the intention behind the clause if the Government had not pulled the rug from under TECs by taking away with one hand what they seemed initially to be giving with the other. I refer, of course, to the cuts made by the Government in the support from public funds that were previously allotted to training. In a sense that was the unkindest cut of all and it was made without consultation with those on whom the burden of greater responsibility would inevitably devolve.

    There is almost no doubt that, for most of those involved in TECs, the cut in funding was a devastating blow. They were also shattered when it took place without consultation and dismayed at the timing. Even as they warmed to their task, they were already expressing concern about the restrictions placed on the flexibility that they hoped to use to develop training and to meet the training needs in their areas. They expressed the view that reductions in scope followed directly from their duty to run the existing Government programmes of employment and youth training while their initial funding seemed to be too restrictive. It did not offer the flexibility to go further and bring in new initiatives in which they were particularly interested.

    The decision substantially to cut funding has undoubtedly created immense disillusionment. In its economic report in April, the Employment Institute said that the cuts in funding are visible every year, beginning in 1988–89 with a real terms cut of 9 per cent. It was 11 per cent. in the estimate for 1989–90 and there is to be a continuing series of percentage cuts in the years ahead. The institute draws attention to the fact that, between March 1989 and March 1990, £500 million was cut from the funding of TECs.

    Apart from that overall and substantial cut, individual industries are seeing the impact on the way in which they operate. I quote again from "The Money Programme" in which reference was made to the abolition of the electrical contracting industry board, its replacement by a voluntary body, and then Government money being cut in terms of the amount per head. An industrialist appearing on the programme said:
    "It baffles me sometimes, the inconsistency of policies. Government can have a policy of encouraging and then the next minute, a bolt from the blue, cuts in funding."
    Mr. Alan Bartlett of the Association of British Chambers of Commerce said:
    "I understand what the Government are trying to do but the general feeling is that it was not appropriate for it to turn its funding taps off long before most employers had been persuaded to turn their investment taps fully on."
    An editorial in the Financial Times said:
    "The Government are right to argue that industry should spend more on training, but it is sending the wrong signals by sharply cutting its own spending just as TECs are trying to mobilise support."
    The Government's usual excuse is that those cuts in training are justified because unemployment has been falling. Leaving aside, if one can, the fact that that fall is likely shortly to be reversed, not only have the Government cut those substantial sums, but they have cut funding per head. Even though the numbers are smaller, funding is less per head in every sector of training that the Government are in any way supporting—in employment training for the long-term unemployed, in youth training and even in training for the employed or for people such as the disabled.

    4.15 pm

    Nor will the clause, even amended, do much to redress the balance. The National Council for Voluntary Organisations estimated from its survey the impact of what is taking place. Again, it identifies the fact that in its view—after all, it is a training provider—employer contributions would have to treble to make good the fall in Government funding for employment training alone.

    It would be interesting to know—I hope that the Financial Secretary will be able to tell us—just what impact the Government expect the clause to have. I am sure that most hon. Members will be aware that, in the Red Book, the entry for this clause is marked with an asterisk, showing that it is of insignificant proportions, which I think usually means that it is expected to be less than £3 million. That is against cuts of at least £500 million which I have already identified.

    Let me give a final quote from "The Money Programme":
    "If the cuts prevent us from doing something worthwhile, most of us will think it is time to go. We will give up trying to persuade the others."
    That is a good employer who is concerned about training and who is prepared to give up time which, as we all know, is money, to try to promote training; to do the very thing that the Government want and which the Government are claiming to encourage. Such employers are now saying that they are prepared to give that time to try to encourage others to train, but they are not prepared to do so if the Government pull the rug from under them. Even as it stands, the clause is somewhat restrictive, whether intentionally or otherwise.

    The Financial Secretary will recognise, as I expect will hon. Members, that tax deductions are already available for training. The scope will be a little greater because of the impact of the clause, but there will not be a vast change. Under section 84 of the Income and Corporation Taxes Act 1988, a deduction is available to be used for the purposes of technical education at universities and similar institutions. In sections 588 and 589, there is already a deduction for the cost of retraining employees, although with limits, and elsewhere, in section 74 under the general rules for training deductions and section 75 under expenses management, there is provision for some tax deduction.

    We presume that most TEC contributions by an employer would be allocated to the local initiative fund, where the greatest flexibility exists in the operation of the TEC and where the activities are most likely to be tailored to the needs of local industry. Again, it is likely that existing law would have given a deduction for some part of the contribution and, although the relief is a little greater, it is not as generous a relief as some hon. Members might have assumed when the Chancellor announced it.

    We are particularly concerned about clause 68(3), which says that the provisions identified in subsection (1) do not apply in relation to a contribution if he—the person making a contribution or an associate—
    "receives or is entitled to receive a benefit of any kind whatsoever for or in connection with the making of that contribution".
    We interpret that as meaning that even the smallest benefit of any kind, from anyone, will result in the whole contribution being disqualified for the purpose of tax relief. We share the Government's wish to make effective anti-avoidance law, but that provision appears to go too wide. I shall explain why that is so.

    As clause 68 is worded, if a TEC agreed to train local youngsters in word processing, say, and offered free places on such a course to the employees of a particular company that had made an annual contribution of £100,000 to that TEC, because the company was receiving a benefit from those free places, it could, as a result of its past support, lose £35,000 of tax relief on its current year's contribution.

    If clause 68 really means what it says, if a TEC offers contributors free access to its video production facilities, those companies might lose their right to tax relief—even though they might seldom, if ever, use the facilities.

    Amendment No. 21 seeks to deal with some of those issues. Clause 68(4) says that, where relief has been given and a benefit has subsequently been received, the value of that benefit shall be chargeable for tax purposes. That implies that the Government intended in subsection (3) that only the amount of the contribution equal to the value of the benefit should be denied relief. Amendment No. 21 seeks to deny relief not if a benefit has been received but only "to the extent that" a benefit has been received. We hope and believe that that was the Government's intention.

    Amendment No. 20 raises the question of whether the provision of training for a contributor's employees should be regarded as a benefit. It seems to us that it should not be so regarded, and should not result in the employer losing tax relief. If the contributing company had incurred training costs, they would have been tax deductible. If the excess of the contribution over the training costs had been paid to the TEC as a no-strings contribution, it seems that, under clause 68, tax relief would have been given. We see no reason for a different rule applying if the whole sum is given to the TEC and then it provides employee training.

    Amendment No. 19 concerns a narrower issue. We understand that the Inland Revenue may be concerned in cases where a company enjoys a tax deduction by contributing a certain sum of money and is then refunded it in a tax-free form. If that is the intention of subsection (3), it can be narrowed by applying it only if the contributor receives the benefit in cash or in money's worth from the TEC, leaving intangible benefits such as the use of facilities, advertising support, and so on, untouched.

    I refer finally to a possible drafting error, on which we have not tabled an amendment. I do not expect the Minister necessarily to answer the point today, but perhaps he will consider writing to me. We are concerned about interaction between subsections (1) and (2). Subsection (1) specifies that
    "the contributions may be deducted as an expense in computing the profits or gains of the trade"
    and subsection (2) refers to any such contribution
    "made by an investment company"
    being deductible as a management expense. Again, it appears that expenditure will not be allowable as a tax deduction under subsection (1) because it is not made by a trader for the purposes of his trade. It appears to deny the relief that subsection (2) seeks to give. If contributions are allowable under subsection (1), why is subsection (2) needed in addition?

    It may be that the intention is to interpret subsection (2) as it is meant to be interpreted—but we are concerned whether the clause as drafted gives effect to the Government's intentions. Perhaps the Financial Secretary will give us an assurance that if, on re-examination, the clause is found to be defective in that respect, it will be remedied by the Government later in the Bill.

    The Opposition do not oppose the clause, but the issues that it highlights expose the Government's short-term and short-sighted approach and the weakness of their case as regards the provision of training.

    The Government seem to recognise no interest wider than that of the individual, which is perhaps a practical expression of the Prime Minister's view that there is no such thing as society. The Government seem to be seeing no interest wider than that of the individual employer or the group of employers and others from the locality who share representation on the training and enterprise councils. That may be the Government's view, but employers do not believe that—they have more sense. It is not the employers but the Government who are charged with the duty of defending the public interest in training, and employers recognise that.

    Opposition Members commend the amendments to the Committee because they represent a small improvement to a flawed policy, but they do not affect the fact that the Government's overall policy and intention is being defeated by their actions and mistakes, and that the Bill makes only a minor contribution to our substantial training needs.

    I shall take up some of the words which have flowed from the lips of the hon. Member for Derby, South (Mrs. Beckett) when she quoted my right hon. Friend the Prime Minister as having said that there is no such thing as society. I am not sure of the context in which the hon. Lady suggests that my right hon. Friend made those remarks.

    Yes, but I am not sure of the context in which, according to the hon. Lady, she made that assertion.

    I shall begin my remarks by quoting with approval, what a former Conservative Prime Minister said at a St. George's day dinner. Stanley Baldwin started his speech by saying:
    "The responsibility for progress rests not only with the Government but upon evey man and woman in the country."
    That theme seems to underline the approach of my right hon. and hon. Friends on the Treasury Bench to training responsibilities.

    The clause grants tax relief for the current year which did not exist for the past year in respect of contributions made to training. The hon. Member for Derby, South made it clear that the Labour party would not oppose clause 68. She said perfectly properly that her amendments are probing amendments. The hon. Lady, the Labour party and I think even the two representatives of the once-mighty Liberal Party will not oppose clause 68. Therefore, the issue before the Committee this afternoon is whether the clause is an improvement upon the law which existed hitherto or whether the Government should go further, as the hon. Lady believes. She believes that the Government—which means her fellow countrymen and mine—ought to make further direct contributions towards training. My right hon. and hon. Friends on the Treasury Bench believe that there should be a partnership between the Government and industry for responsibility for training.

    I welcome clause 68 because it will give additional tax relief and additional encouragement to those who have a responsibility for training—the employers. The responsibility for training rests upon employers and management. That responsibility cannot be foisted on the Government. As clause 68 provides further encouragement and additional fiscal incentives to managers and employers to carry out their responsibilities, it is a significant improvement upon the law up to 5 April 1990.

    The hon. Member for Derby, South made a compelling speech, but her philosophical proposition seemed to be that the responsibility for training rests exclusively with the Government.

    That was the impression that I formed when I listened to the hon. Lady's speech. Her proposition is, I believe, misconceived. If, therefore, she presses her amendment to Division, we shall resist it.

    If I gave that impression, let me correct it at once. The Opposition do not believe that the Government have the sole responsibility for training; we believe that it is the responsibility of many employers to train. Therefore, we regret the fact that so many employers in this country do not do so, but instead poach those who have been trained by others. We believe also that the partnership to which the hon. Gentleman referred is perfectly proper and that one side of that partnership—the Government side—is being dissolved.

    4.30 pm

    A partnership is crucial, and many believe that the Government are not keeping to their side of the deal. We have to consider the matter in the context of the approaches to the Treasury by the spending Departments. We have read in the press that the spending Departments have put in bids worth £12 billion and that the Chief Secretary to the Treasury has said that he will be hard-pressed to pay out the £3 billion that is needed to cushion the effects of the poll tax if reductions are not made in the budgets of other spending Departments.

    It is interesting to consider which Departments would bear the brunt of those reductions. It was suggested yesterday in the Financial Times that one of the budgets that would be reduced in an attempt to cushion the effects of the poll tax was the training budget. Therefore, it is fair to question the Government's real commitment to properly funded training.

    The Government have cut this year's training budget by £190 million. Spending on the Department of Employment's main training programmes will be £212 million less than in 1988–89. The Government are quick to tell us at Question Time that that is due to the fall in the number of young people, but that is not the reason for the reduction. Spending per head on youth training has been cut by £8 a week.

    It is widely believed that the training and enterprise councils have been set up by the Government in an attempt to get training done privately and to keep it in the background. They are not interested in ensuring that it is properly supported by a partnership between the state and industry. It is an attempt by the Government to shuffle off their responsibilities and hope that the private sector will pick up the tab, and at the same time leave the Government the leeway to carry through further reductions. That is the prevailing view, even within the TECs.

    The TECs were relatively unpopular and hard to get off the ground when they were first introduced. The tax reductions and concessions in clause 68 are an attempt to increase the incentives—a bigger carrot—in the hope that enterprises will continue to contribute to TECs on a scale that will make up for Government reductions. It is clear that the initial enthusiasm of some employers is waning, and the scheme needs a boost.

    That is the purpose of the clause. The promised levels of public funding for TECs have not been forthcoming, and participating employers are becoming reluctant to contribute to TECs when they see that the public budget—the Government's commitment to that partnership—has been cut back, squeezed and reduced.

    I hope that the Financial Secretary can assure the House that the Chief Secretary to the Treasury will not cut the Department of Employment's training budget, and that training will not pay the price for the cushioning of the poll tax. Already the Employment Institute is calling for
    "an increased public contribution to each TEC."
    Mr. Russ Mason of the Thames Valley TEC has said that TECs are a
    "picture of inadequate funding, particularly in the start-up year".
    That is precisely the year when they need guarantees of investment and income.

    Dorset TEC has had its funding for 1990–91 cut by 18 per cent. As a result, it has been forced to cut its programmes. While the Labour party would be keen and eager to back genuine training that is properly supported in a partnership between Government and business, the Government must ensure that they underpin their commitment to that partnership rather than undermining it. We know that Secretaries of State and other Ministers are in the background, bidding with the Treasury to ensure that their Departments' budgets are not reduced in these difficult times.

    The TECs have not been built on principles of partnership, or democratic principles; there are no employee representatives on their boards. There is no policy underwriting to ensure that the special needs of people with disabilities, women—whom the Government now claim that they are eager to bring into the work force—and ethnic minorities are provided for in the TECs. Positive action and programmes for such people would be welcome. They would turn the Government's training policies into genuine training policies. Such policies require a high level of commitment through public funding: that is part of the partnership.

    I hope that the Government will accept their responsibility. It would be nonsense for them to suggest that TECs are providing employment opportunities for all when they cannot do that as their budgets are being persistently cut and undermined.

    Other speakers, especially the hon. Member for Derby, South (Mrs. Beckett), have already pointed out that we are debating training at a time when our provision is at a low ebb compared with that of our competitors. That can be illustrated by reference to statistics. Only about 32 per cent. of young people in Britain stay on at school until they are 18, compared to some 76 per cent. in the United States and 95 per cent. in Japan. Figures show that about 39 per cent. of 16 and 17-year-olds are currently in full-time education; 9 per cent. are unemployed; 24 per cent. are on youth training schemes; and 30 per cent. are in employment. Those in employment often receive no training. A recent survey suggested that only 5 per cent. were on day release schemes. So we start at a competitive disadvantage compared with those with whom we shall shortly be competing on even more equal terms once the single market becomes further established.

    Against that background, the Government's response in recent White Papers has been to set up TECs in England and Wales and local enterprise companies in Scotland. Just as they are getting under way in England and Wales and are about to be inaugurated in Scotland, the Government introduce the new clause, which my hon. Friends and I will not oppose. But what the Government are giving by way of tax incentives they are taking away through the cuts that are about to take place in the training budget.

    Hon. Members who, like me, are not members of the Select Committee on Employment will have seen recent televised exchanges in that Committee with the chairman of the Training Agency who, when put under pressure, eventually admitted that, with training already in a poor state in Britain, the amount actually to be spent on training, once one removed all the frills, would be cut. I understand that the youth training budget will be cut by 25 per cent. over three years, which in real terms approximates to 45 per cent.

    The Financial Secretary will probably reply by referring to the demographic changes that are taking place and the fact that there are fewer youngsters in the age group to which youth training applies. But as we accept that more should be spent on training, we have a wonderful opportunity to take advantage of those demographic changes and increase in real terms the amount that we spend on training.

    My hon. Friend may recall that, when the Treasury and Civil Service Select Committee examined witnesses on that point, they claimed that expenditure could be reduced on training because there were now fewer people unemployed, which, apart from being a doubtful prophecy for the months ahead, suggests that the Government's view is that training is necessary only when people are out of work. That represents an extraordinary failure to grasp the training problems that we face.

    My hon. Friend, who is a distinguished member of that Select Committee, makes a valid point to which I shall return. The TECs and LECs are about to be given a remit for training, a substantial part of which is taken up with their being administrators of national training schemes—youth and employment training—which, in different parts of the country and in their own ways, no doubt have some merit, but which go nowhere near to addressing the real problems of training, in particular the need to train those who are already in employment.

    We must consider the effects of the cuts in training expenditure. Figures I was given last week by the Shetland Islands council show that, in the current year, there will be a 10 per cent. cut there in training. About £21,000 per annum will be withdrawn from training in Shetland. I understand that a similar cut will apply in the Orkney Islands council part of my constituency. That is the first of a number of instalments, and further cuts are to take place next year.

    Although cuts are taking place and new contracts are coming into operation at the end of this month, there has been precious little consultation up to now about how the transition is to be achieved. One wonders, with the Government putting greater emphasis on TECs and LECs in the provision of training, what role the Government see for local authority involvement in training.

    4.45 pm

    In my constituency, the role of the local authority in pump-priming and giving additional funds to assist with training has been important, not least in helping those with special needs. If the Government see no real role for local authorities and continue to put pressure on their expenditure in other directions, we are in danger of handing over responsibility to the private sector and losing what has been a valuable partnership with the involvement of local authorities. How does the Minister see the future role of local authorities in supporting training in their localities?

    Coming to the TECs and LECs, with which the clause is concerned, the Government are taking a risk. If training is vital to our country's interests and they represent the main mechanism by which training is to be delivered, it must be in the interests of all hon. Members to be sure that that mechanism works. There is no point in wishing the TECs and LECs ill, and to the extent that the clause tries to assist what they are doing, it is to be welcomed.

    As I say, it is a risk. After all, in its White Paper entitled "Scottish Enterprise", the Scottish Office was more blunt than its English and Welsh counterparts about the role of the private sector up to now. That White Paper said:
    "Efforts to date to persuade the private sector to take greater interest in and responsibility for training have had disappointing results. Far too many firms take little interest in assessing and training for their own future needs, assuming that supply will always be there to meet demand."
    Now, having admitted the failure of the private sector, the Government are putting so many eggs in that basket that one hopes that they have properly weighed up the risk involved.

    As I said in response to the intervention by my hon. Friend the Member for Berwick-upon-Tweed (Mr. Beith), we have training that will be particularly geared to employment training and the youth training scheme, with not enough attention being given to what can be done to provide training for those who are already in employment, for those with special needs and, as the hon. Member for Leeds, West (Mr. Battle) pointed out, for the training and encouragement of women.

    An obvious example is the special allowances for employment training that are available to single parents but are not available to married women. A number of married women in my constituency have made representations to me that they would be only too willing to take up employment training if they had that additional resource. It is a short-term attitude—we frequently see such an attitude being taken by the Government—to encourage more women into the workplace without providing additional incentives. Will the TECs have flexibility to encourage training for women?

    The prospectus for the 1990s entitled "Training and Enterprise Councils", issued by the Department of Employment last year, stated:
    "At least two-thirds of the directors … must be local business leaders … who are 'chairmen, chief executives or top operational managers at local level of major companies.'''
    I welcome the effort that is being made to encourage local top people from business to take that interest, although I sometimes wonder whether they are sure of the level of commitment that they are making.

    There could be an inadequacy in going for chief executives and top business leaders. We accept that, over the years, British business has been woefully inadequate in providing training. The trouble is that many of those at the top know precious little about training. They do not have expertise and skill in training. I hope that that point will be taken on board by those running the TECs and LECs.

    We need to provide for trainers, not just for trainees. We need people with skill and experience in training. The editorial in the Financial Times of 9 May 1990, to which the hon. Member for Derby, South (Mrs. Beckett) referred, pointed out:
    "The UK's educational reforms are threatened by a lack of qualified teachers. The same constraint applies in youth and adult training; the difference is that it is almost certainly more severe. After decades of neglect and the near disappearance of traditional apprenticeships in many industries, the UK lacks the human resources required for a training revolution."
    It is important for the TECs to address that problem.

    Linked to that is the need to stimulate a culture of training. People must want to learn, and I agree with those who say that this matter cannot be left entirely to the state, the Government or local authorities. They cannot command people to learn and train. It is up to all concerned—industry, parents and the schools—to generate an atmosphere in which young people see it as worth their while to stay on and achieve educational attainment or to go on a training course, and at the end of whatever they do they must see some reward for their training efforts.

    We must examine the experience of other countries. For example, firms in France that provide less training than the average in their sector pay the extra costs of the firms that provide above-average amounts of training.

    As I said in my opening remarks, other countries seem to manage training so much better than we do. We should not be ashamed or hesitant about looking at their experience and adapting some of what they do. By setting so much store by TECs and LECs, the Government are taking a risk which, if it does not come off, will put us even further behind.

    First, I welcome the good will that has been shown by hon. Members on both sides of the House towards the substance of the clauses, although there is disagreement about what has been omitted from them and concern about some matters which the amendments address. Before I continue, let me make one general observation. Although we have had a great deal of talk about the amount of money dedicated to training, and the involvement of the public and private sectors, so far in the debate there has been no mention of specific skills or the training curriculum.

    Perhaps it is an indictment of us all, and the difference between our attitude and that on the continent, that when we talk about training we think about how much money we spend and not about the output of training, which is crucial. That is why the Government attach so much importance to TECs. We believe that the involvement of industry in the process of providing and managing training will ensure that it is orientated more to the generation of training suitable to the needs of people and businesses, and not simply to abstract management and spending a certain amount of money.

    The hon. Member for Derby, South (Mrs. Beckett) began with an accurate description of the training desert and the total lack of Government provision for school leavers that we inherited from the last Labour Government. At that time there was no youth training scheme or equivalent of employment training, there was no direct involvement of industry in the provision and management of training, there were no training credits, for which pilot schemes are now being announced, and there was little or no contact between schools and industry. There has been a huge change on all those fronts.

    The Minister is right in listing all those provisions which did not exist then, but there also was not mass unemployment on a scale that made a training scheme necessary to take people off the unemployment registers. There was also a substantial number of high-quality apprenticeships run by private companies. From memory, I believe that a training company initiative to promote further training in the private sector was one of the first things that the present Government cancelled when they took office, and there was a campaign of co-operation between industry and schools. Another thing that the Government cancelled when they took office was the programme that we had started to put computers into schools, but they later reversed that decision. Whatever the Minister may imagine, I assure him that the picture he paints does not represent what was happening under the last Labour Government.

    The hon. Lady is entitled to her view that everything was all right then, but I am inclined to think that there has been a long-term weakness. We have taken a decade to get it right, but we are now getting it right.

    We are now spending £900 million a year on youth training and £1·2 billion on employment training, and we have announced pilot programmes for training credits. The LECs will control some £2 billion out of a total budget of £2·5 billion of Government money to be spent on training. That is all good news, but the real improvement on a much larger scale has occurred in the private provision and expenditure on training. One estimate mentioned by my right hon. Friend the Chancellor of the Exchequer in his Budget speech is that no less than £20 billion a year is being spent by private industry on training. I am sure that we all welcome that.

    Last night, the hon. Member for Newcastle upon Tyne, East (Mr. Brown) reminded us of the hon. Lady's assurance that the Labour party has no spending demands beyond the two commitments to social security spending. Some scepticism was expressed in the House about whether the Labour party would be able to limit its demands for extra spending to those two commitments and, sure enough, the hon. Lady has broken her own self-denying ordinance today and called for more spending on training. The hon. Member for Leeds, West (Mr. Battle) joined in.

    The Minister will have read the account in the Financial Times—perhaps he will say that it is a speculative newspaper report—that the budget for training in the Department of Employment was to be reduced. What action did he take when he read that report?

    I certainly do not take action every time I read reports in the Financial Times; if I did, I should be hyperactive.

    The public expenditure round proceeds on its stately course every year and all sorts of reports are made in the newspapers in ignorance of what is really happening. However, it is clear that the number of young people requiring post-school training and, happily, the number of people who have been long-term unemployed is diminishing. That means that more people are in work where they should be receiving training from employers in private companies and in the state sector, and that is what is happening.

    The hon. Lady asked specifically what is the likely impact of the clause. Obviously, that is impossible to assess as it is an enabling clause which will remove the disincentive to companies from making contributions to local employment companies.

    The Minister said that young people who are in work should be receiving their training there and that is what is happening. What is his evidence for that? Does he contradict the recent survey that I quoted showing that only 5 per cent. of 16 and 17-year olds in employment were getting day release to undertake further training? What is his information?

    I recall hearing one of my colleagues in the Department of Employment referring to some European statistics showing that a high and rising proportion of people in Britain are receiving training, and that we are beginning to compare favourably with a number of our continental competitors. That is good news.

    It is impossible to assess the likely response to the removal of a disincentive, but a similar incentive exists for contributions to local enterprise agencies which have raised some £35 million in recent years. Therefore, a significant but by no means enormous sum of money may be raised. The contributions that companies are making are very good news and demonstrate their sense of responsibility to their neighbourhoods and their recognition of the benefits that ultimately flow back to them from a better training environment.

    The hon. Lady asked whether a company would lose relief if it received training after making a gift, and particularly if it were the condition of making a gift. I reassure the hon. Lady that it would not. There is already full relief for any expenditure by a company on the provision of training for its own staff, whether it provides it on its own premises or whether it buys in training from a LEC or elsewhere. The clause will simply ensure that there will be relief for purely altruistic contributions which might not otherwise exist as LECs are not charities. The hon. Lady suggested in her amendments—which are helpful and well-intentioned; we accept their underlying spirit—that relief should be removed only in so far as there is any benefit. I thought about that, but it does not seem necessary and it would certainly add an extra burden of complexity.

    The hon. Lady also asked about a possible drafting error in subsections (1) and (2). I shall examine the point and write to her, although I have been given a preliminary indication that there is no problem. It is a tribute to her assiduity that she should have discovered a potential error.

    5 pm

    The hon. Member for Leeds, West rightly referred to the importance of provision for the handicapped and other special needs groups. I assure him that training and enterprise councils must set out plans for the provision that they will make for the handicapped and others before they can sign a contract. Obviously that matter will be considered carefully before a contract is signed.

    The hon. Member for Orkney and Shetland (Mr. Wallace) said that other countries managed their training much better than us and that we should learn from them. Training and enterprise councils are being established partly because of the lessons we learned abroad. Germany has been successful: a major part in managing and providing training there is played by chambers of commerce. We do not have the same network of statutory chambers of commerce, but TECs will essentially involve business in the provision and management of training in a similar way, so we hope that we are learning from others.

    Technically we are discussing simply the amendments before us. I have responded specifically to those by saying that we accept their spirit but feel that they are unnecessary and might lead to unnecessary complications. I hope that the Committee will not take them to a vote.

    I found it surprising that the Minister said that the amendments would be too complicated. He said that, if a company gained benefit, it would lose the whole carrot and that it was not possible to find a way round that. We should encourage employers to come forward. Their record in the past has been bleak. That is why the Government have had to take the lead.

    The skills shortage is not a new phenomenon. In 1982, when I served as a councillor on Leeds city council, it was involved, with the local chambers of commerce, in examining the skills needs of the future. Those were the years of recession in the engineering industry and in clothing and textiles. With the dismantling of some training boards, a shortage of some skills emerged precisely in the industries with new technology. The skills shortage was being identified then, eight or nine years ago, so it is not a new phenomenon. Yet the record of companies in providing training has not been commendable. The Government have been forced to offer tax concessions to employers to encourage them to take training seriously.

    I welcome the Minister's response to the points about the disabled, women and ethnic minorities, but they need stronger emphasis. I am interested in the background to the clause and what will have to be agreed before a contract is signed. In the past companies have not been ready to provide schemes to train the disabled and women, and we may have to cajole them again. I hope the Minister agrees that it is not the case of the Government's saying, "We will have a partnership now."

    There are problems about the Government's sticking to their funding contribution. I was not happy with the Minister's response on budget speculation. There should be hard bids. If the Secretary of State for Employment believes that he should work in partnership with companies, he should defend the employment and training budget and ensure that the Treasury will not cut the provision in order to cushion the poll tax.

    My hon. Friend has referred to gaps in training. Did he see "The Money Programme" to which my hon. Friend the Member for Derby, South (Mrs. Beckett) has referred? In that programme we heard that invisibles had declined since 1986 and that, for the first time since the Napoleonic wars, we had a deficit in our invisible trade. One reason was that there was very little organised training for specialist functions in the financial sector. I do not think that the Minister can blame that on a Labour Government.

    My hon. Friend makes a telling point.

    The identification of skills shortages has not been a new phenomenon. As industry has changed, there has been a shift from manufacturing to service. In Leeds, we set up training institutes to train women, people from the ethnic minorities and the disabled to enable them to enter jobs requiring new technology skills.

    The Government are trying to cajole employers to fall in with their plans. Unless the Government are prepared to keep their side of the partnership bargain and give a real commitment that the training will not be subject to annual budget dealing which may put the partnership at risk, how can employers be persuaded to put in cash? We agree with the clause, but we think that our amendment should be acceptable. The Financial Secretary said that he accepted the spirit of our proposals. Why can he not accept the content?

    I shall respond specifically to the initial concern of the hon. Member for Leeds, West (Mr. Battle) about whether the amendments are necessary to avoid frightening people off. These subsections are essentially about avoidance. They are to prevent abuse of the scheme; there is nothing particularly novel about it. There is an identical provision in the legislation that provides tax relief for contributions to local enterprise agencies. Its purpose is to ensure that relief is not available for contributions with strings attached—for example, a contribution made on the understanding that the training and enterprise council would later provide training for a member of the contributor's family in something not connected with the contributor's business. We do not want abuse where a firm will make a gift, with a rider attached that a nephew will get training on something wholly unconnected with the business. The purpose of the subsections is to see off that potential abuse.

    We did not find difficulties in the case of an almost identical provision for local enterprise agencies. I do not imagine difficulties will arise in this case. Precisely because the provision is to see off improper strings being attached to gifts, there is no case for saying that, as the improper string cost only £4,000, tax relief should be lost on only £4,000. If there is abuse and an attempt at nepotism, it is better that it should be seen off outright by the loss of tax relief in its entirety. That is why the provision is set out as it is. I am sorry that I did not spell it out at greater lengths earlier. I am glad to have had the opportunity to do so in response to the hon. Gentleman's request for further clarification.

    We have had an interesting though short debate. The hon. Member for Eastbourne (Mr. Gow), whose courtesy I appreciate, made, as always, a telling and effective speech. The hon. Gentleman said that responsibility for progress in training—and I think that he said that he was quoting Balfour, or perhaps it was Baldwin—rests with every man and woman in the country and, of course, we do not dispute that. He also said that there was a need to maintain a partnership between Government and industry in the provision of training. I am happy to place on record once more the point that I made in an intervention in his speech. We recognise, of course, that it has always been the case—and we hope that it always will be—that there is a great need for industry to provide good training. Nevertheless, we believe, as industry does, that the provision of such training is a partnership between Government and industry. There is a growing belief and concern that the Government are failing to provide their side of the partnership.

    My hon. Friend the Member for Leeds, West (Mr. Battle) remarked in his first contribution on the way in which the cuts in training have been made not just in the overall budget, but in the provision of training and the cost of training being allowed per head. Again, the answer is giving in Cm 1006. In paragraph 26, table 6.5, which refers to youth training—frequently quoted in the House and outside—shows clearly the decline in the gross public cost per trainee week, not only in the estimated outturn for 1989–90, but in the coming year and the two succeeding years. It estimates a fall from about £50 per head in 1989–90 to about £33 a head by 1992–93. There is no doubt that that will be a substantial cut and will have a damaging effect.

    The Financial Times editorial, which I quoted earlier, made explicitly the point that the Opposition so often try to make to the Government and which they tend to contest—that it is not possible to provide high quality training on the cheap, which the Government are attempting to do.

    The hon. Member for Orkney and Shetland (Mr. Wallace) talked especially about the training needs and problems identified in Scotland, and about the training needs of women and the disabled which, of course, we very much endorse.

    The Financial Secretary has shown previously a trait—and I am not sure whether it is because he writes his speeches in advance and does not like to amend them—

    If I have insulted the Financial Secretary, I apologise. However, he has a tendency to make remarks that do not seem to some of us to be borne out by the debate. In this case, he said that the only worry expressed by the Opposition was about the provision of public funds and that nothing had been said about the detail of training.

    That is not wholly accurate. I referred to the various targets that were needed. It is certainly the case that the Opposition in a variety of ways, including through our members of the Select Committee on Employment, have studied and been alarmed by the detail of what is happening in training. My hon. Friend the Member for Sedgefield (Mr. Blair) gave some examples in the Budget debate which were taken from studies of sector training organisations obtained by our hon. Friend the Member for Newham, North-East (Mr. Leighton), who is Chairman of the Select Committee on Employment.

    It is worth reminding the House of one or two of the points that my hon. Friend the Member for Sedgefield identified. There is likely to be a shortfall by the middle of the 1990s of 50,000 trained people in information technology. The computer services industry council presently covers 44,000 people and that number is soon to increase substantially. At present, it has five full-time staff only, although it is an area of great need in which we have a substantial deficit. The national retailing training council covers 2·5 million people, but it has only five full-time staff. The United Kingdom Agricultural Supply Trade Association has 1·25 people covering the entire association. Only 0·6 of a person—and I do not know how the figure was arrived at—covers the National Association of Master Bakers, Confectioners and Caterers. The detailed studies of training confirm the alarm we expressed in the debate. I believe that only one in four companies train.

    The Financial Secretary then referred to the training desert. I thought that we were experiencing a wholly new phenomenon of commendable frankness, with Ministers admitting to sins of commission or omission, but I should have known better. He was talking about the previous Labour Government. I seem to recall that you, Mr. Walker, were a luminary adorning the Department of Employment. The Financial Secretary is fortunate that you are not in a position to set him straight by joining in our debate. Few who had any experience in the area would recognise the Financial Secretary's picture of the state of training then.

    5.15 pm

    The Financial Secretary referred to Opposition pressure on the Government to restore cuts in the provision of training to which we have referred in the debate. I am not sure whether it is deliberate on the part of the Ministers, or whether they simply have not grasped the distinction. In case it is the latter, let me make it plain. When we talk about the present public expenditure White Paper, about the present Budget or about Government policies, we set those remarks in the context of what we think that the Government should be doing now. We think that they should now be restoring the cuts they made in the training budget. It was in that context—

    Yes, spending more. The Government should spend enough to restore the cuts they made in the training budget in the public expenditure White Paper. The Minister should recall that I made a similar point earlier, although I am not sure that he was paying quite the close attention that I should have liked to every word I said. I drew his attention then to the fact that, in the debate on the public expenditure White Paper, when we called for the restoration of the cuts in spending, we made several proposals about areas in which we thought that the Government were making mistaken choices in spending money and in which we would not spend money, and several other proposals about areas in which the Government were making cuts and in which we would not make cuts.

    Does my hon. Friend agree that our concern for a full-hearted Government partnership for training is not just with the overall level of spending? We are concerned that training should be carried out not as a privatised entity, but within the framework of overall social objectives. In my constituency, the unemployment rate among young black males is one in two. Society will pay a terrible price for the Government's policy. The Government seek to back away from their responsibility for training. The training needs of young men in areas such as Hackney, inner London, Manchester and Birmingham are ignored. This country will pay a terrible price for the Government's lack of seriousness on training, not just in terms of overall finance, but in terms of the overall social objectives which a serious Government policy on training should have.

    Yes, I whole-heartedly endorse what my hon. Friend has said. Her observations about the way in which all of us draw on our experience of our constituencies and the problems there challenge the Government's view about the problems and the nature of the difficulties.

    I reiterate for the benefit of the Financial Secretary, and in the perhaps vain hope that we shall not need to have these conversations over and over again that we proposed the restoration of the cuts in the public expenditure White Paper and that we also proposed cuts in spending in areas where we thought that the Government were misdirecting. I assure the hon. Gentleman that, broadly speaking, the cuts that we proposed and the cuts that we opposed balanced out. I assure him that there was no net increase in public expenditure in our package, which fits into the context of my remarks about our plans.

    That brings me to my second point on the issue. The training cuts that we were discussing were in the context of what the Government are doing this year and what we think that they should be doing. When we referred to what a Labour Government would do, possibly in one year or two years—neither the Financial Secretary nor I can predict that—we were referring to a different framework. At the moment we have a couple of specific, clearly identified commitments which are our priorities. Beyond them, there are several desirable directions in which we should like public expenditure to move, but which we cannot quantify now. There is a clear distinction there and I assure the Financial Secretary that there was no contradiction in the points made by Opposition Members.

    As we have identified, the overall context of clause 68 is one of encouraging business, through tax reliefs, to contribute to training programmes in TECs. It has been suggested in the press, and I am not aware that the Government have contradicted it, that the Government are drawing on the American experience. I remind the Financial Secretary of an article that appeared in The Economist on 21 April 1990. The article included several not very encouraging remarks about the Government's plans. It said that business men had responded to the Government's arguments with glum faces and that they were complaining that the Government might have shifted expenditure rather than reduced total investment. The article continued:
    "A glance across the Atlantic"
    at the models for these proposals
    "deepens the gloom. Despite a strong American tradition of corporate largesse,"
    the equivalent proposal in the United States
    "has never received more than a tiny proportion of their money from private industry."
    The article explains that one of the most successful training schemes in the country, in Philadelphia, raises only about 5 per cent. of its budget from the private sector.

    The Economist, which is not exactly a left-wing magazine, stated that the Secretary of State
    "and his colleagues could hardly have chosen a more effective way"—
    that is, through the cuts—
    "of sending a negative signal to a movement which stands or falls on voluntary effort. Some businessemen are asking themselves why they should be generous with their time and energy when the public budget is being squeezed and their own discretion to spend it is being so tightly constrained."
    The Economist suggests that some more cynical souls are wondering whether the Government are trying to offload responsibility, even for the training schemes that they run at present.

    Is my hon. Friend aware that the chairman of the Blackburn TEC threatened to resign because of the cuts in funding?

    I was not aware that the chairman of the Blackburn TEC had threatened to resign. However, judging from the strength of his remarks and his depressed tone that he revealed in a television programme that I saw, I am sorry to say that I am not surprised to learn that he has threatened to resign.

    An article in The Guardian on 21 March 1990 referred to the leader of a midlands TEC. The article said that the Government were trying to place responsibility on the private sector for providing training. The article was lukewarm about the proposals in clause 68.

    I listened with care to the observations made by the Financial Secretary, and I am glad that the Government do not believe that people would lose as a result of the difficulties that we identified and which we sought to address in amendment No. 21. The Financial Secretary believes that our amendment is unnecessary. However, we are not entirely convinced. I do not mean to criticise the Financial Secretary when I say that the drafting of legislation is an issue on which the Government's record is, how can I put it—

    Shocking is probably the best way to put it. I was going to be more gentle than that. However, my hon. Friend the Member for Hackney, North and Stoke Newington (Ms. Abbott) has probably described it better.

    We have extensive experience of the Government assuring the House, in all good faith, that this or that provision in a clause meant this or that and was correctly drafted. However, we then discovered, sometimes before a Bill had completed all its stages and sometimes not until a subsequent year, that that was not so. I believe that there are some clauses in this Bill that correct something that the Government said did not need correcting from last year's Finance Act.

    With respect to the Minister, if amendment No. 21 would do no harm and is merely regarded as unnecessary, we are inclined to press it to a Division. We have reservations about whether payment, not "wholly and exclusively", as needed by section 74 of the Act will cover the case to which the Financial Secretary referred. Of course, we understand his point about drafting the clause to stop people, according to his example, providing training or education for a nephew. We would not want people to avoid tax. However, although we share the Financial Secretary's desire to rule out tax avoidance—we wish that the Government shared our view about that more often—we believe that the Bill as drafted goes over the top. I intend to advise my hon. Friends to vote for amendment No. 21.

    In conclusion, I want to quote from the ubiquitous and extremely useful "Money Programme". That programme placed the context of this debate in a clear light. One of the contributors to the programme said:
    "We are moving away from the practices of our most successful competitors who supplement the market in training and regulate it heavily. We are moving towards complete dependence on the market."
    Unfortunately, that is the answer for the hon. Member for Eastbourne. We are very concerned about that and that is why we raise the issue and why I advise my hon. Friends, despite the assurance from the Financial Secretary, to be on the safe side and support amendment No. 21.

    With regard to this so-called incentive that the Government are giving to businesses in the form of tax relief to encourage them to take on their responsibilities for training, I must tell the Financial Secretary that we were telling the Government years ago that they were destroying the training of this nation.

    No, they would not. In fact, we were saying that before the young Minister became a Member of this House. I am sure that you, Mr. Walker, will remember this. I remember you at the Dispatch Box telling the Government of the day where they were going wrong on training.

    The Financial Secretary should listen to these things, which have had to be said about training. The Government have missed the boat. They are trying to pour a little money into the pockets of the employers to have what the Government believe will be a sensible and successful training programme. I was a member of the Standing Committee that considered the Employment Bill, the Report stage of which we will debate on Thursday. In that Committee, Ministers tried to tell us what they were going to do about training. They are part of a Government who have almost destroyed training in this country.

    Ministers now squeal at the Dispatch Box that we do not have enough people with the skills to do the new jobs that are becoming available in the new technologies. They are bawling their eyes out. Even the Prime Minister at No. 10 is doing that. The Prime Minister and the Ministers on the Treasury Bench have some lessons to learn. I am sure that, like me, Mr. Walker, you remember the training programmes that we used to have. The responsibility then was where it should be. This Government have a responsibility, but they are trying to duck out of it by chucking a bit of corn down. It will not work, and it will not help the Government to stay in office at the next general election. The Government have failed the people who need training, especially youngsters coming out of school.

    In the Minister's constituency as well as in mine, young people are put on so-called "training programmes", when they push brushes around a factory floor for about two years, but there is no job at the end of it for them, and we are now finding out that there will be an increase in unemployment because of the Government's policies.

    The Government have wasted money, and that has been at the expense of the ordinary folk that the Financial Secretary is supposed to represent and I certainly represent, back in the beautiful country of Nottinghamshire, where the Government have destroyed industry. Our mining industry used to have a first-class training programme, but what did that lot on the Treasury Bench do? They closed the pits, with the result that the training programme has been lost as well.

    5.30 pm

    As I have said, the Government are chucking a bit of corn on to the floor of the Chamber in the hope that the employers will pick it up. The Ministers and the Government have another think coming because that will not happen. The Financial Secretary must have heard what my hon. Friend the Member for Derby, South (Mrs. Beckett) has just said about only one in four employers being interested in training. That is shocking. All of them should be involved. The Government should be encouraging employers to train.

    The Financial Secretary has a little grin on his face, but I am trying to be serious for a change. Let us face it, from time to time I have sat in the Chamber and been bored to tears. The Government have poured out statistics until I am sick of hearing them. Sometimes we hear a speech that livens up the debate and which hon. Members enjoy, including you, Mr. Walker. I have seen you with a smile on your face sometimes. Indeed, you are smiling right now.

    Nevertheless, training is a serious matter. It is all very well to dangle a carrot before the people who are supposed to be providing a proper training, but the Government have ducked their real responsibility for a number of years.

    I shall give an example of an industry in my constituency that encourages the training of disabled people without any encouragement from that lot on the Treasury Bench. It has done so ever since I have been a Member of the House. Provisions governing the employment of disabled people are supposed to be on the statute book. Although firms do not have to follow the provisions, it is recommended that about 3 per cent. of the work force should comprise disabled people. In the firm that I am talking about, disabled people make up 3·5 per cent. of the work force and they are trained, which is how it should work but, oh no, training has gone down, down, and downhill under the Government.

    Give us the opportunity at the next general election—I am sure that it is coming—and my party will sit on the Government Benches and do something about training programmes. My hon. Friend the Member for Derby, South has spelt out what should be done, but I do not think that the Financial Secretary was listening to her. He was gas-bagging to whoever was sitting next to him—

    No, I shall not withdraw that, because it is true. With my own eyes I saw the Financial Secretary gas-bagging instead of listening to the serious points being made. I am pleased that he is listening to me when I am trying to be serious because we are discussing a serious subject.

    The Financial Secretary was lucky enough to have a bit of training in finance—at least, that is the impression I get when I listen to him speak from the Dispatch Box. Nevertheless, he has a lot to learn. I said the same thing last night, but from a sedentary position. The young Minister has a lot to learn—he has not lived yet. I was in industry for many years and I am now 64, so the Minister can understand the point of what I am saying. I have seen good industry and good training within industry. Indeed, I participated in that training.

    The Government ducked their responsibilities when they took over in 1979. Come the next election, we shall change all that. The sooner the Prime Minister calls the election, the better off will be those people who need proper training—without the incentives and the corn that the Government are chucking down to employers.

    The debate is now getting wide, and although I have allowed a wide debate, I shall obviously have to have regard to the extent to which we have debated the general matters relating to the clause when we come to debate clause stand part. I call Mr. Martlew.

    On a point of order, Mr. Walker. I promised earlier not to raise any points of order, but you have forced me to my feet. I hope that on Thursday when we debate the Employment Bill you will not say that I have gone wide of the scope of the debate.

    I shall try to stick to the scope of our amendments and the need for them. Eleven years of this Government have reduced us from a skilled to a semi-skilled nation. I am afraid that, if the Conservative party won another election, we would be reduced to being an unskilled nation.

    If one wants to consider the decline in training in this country, one most go back to the legislation that destroyed the training boards. A Labour Government in the 1960s put in place a system that did not give incentives to employers, but approached training from the other direction. A levy was imposed on employers who had to provide training of a certain standard to receive a rebate.

    That immediately created the position of training officer. I was one for quite a while. Originally, the function of a training officer was to recoup the amount of the levy, but they soon went beyond that and started to look at companies' training needs. We found that very little training had been done between 1951, when the Conservatives took over, and 1964. Therefore, there was a need for Government intervention and the training boards were set up.

    I was involved with the food, drink and tobacco training board, which began as a bureaucratic organisation, but which created a high standard of skills in many of the companies involved. Unfortunately, that training board was destroyed. I recently served on the Committee considering the Food Safety Bill, a major proposal of which was that training in the food industry should be dramatically increased because the lack of training has contributed to the food poisoning epidemic in this country. That lack of training in the industry was caused by the Government allowing the industry to stop training.

    At one time, we used to have the right number of skilled people to match the number of jobs, but in the many years since, the Government have decimated our apprenticeships. Industry thought in the short term; because it was expensive to train an apprentice—it could amount to about £20,000 per year—firms decided to recruit direct from the labour market. Those industries are paying for that now, because there is a skills shortage and people with skills are rightly selling them to the highest bidder.

    The Chancellor of the Exchequer stands at the Dispatch Box complaining about the high level of wage increases, but one reason is that the Government themselves have created a skills shortage, by destroying our training systems, which in turn means that those with the skills are demanding the highest price for them.

    Does my hon. Friend agree that it is ironic that the Government, who are attempting to privatise training with the formation of the TECs, have put in charge of the TECs the very people who failed to provide the training in the first place?

    I could not agree more with my hon. Friend. I was discussing this matter about a year ago with one of the senior managers of a Carlisle company, who asked me what I thought about TECs. I said that I was concerned that those in charge would be the very people who had neglected training in their own companies over many years. Fortunately, one or two of the individuals on the board of the Cumbrian TEC are of a high calibre, and hopefully they will be able to carry on the job. However, one of their worries, which I share, is that they will not be given the tools and money to carry out the job. In addition, they will not have the support of the work force for TECs, because there are no workers' representatives on the TECs boards, which is another mistake, and is based on dogma, not common sense.

    A common-sense Government who were concerned about improving training and getting the TECs off the ground would have gone for a consensus approach, but the word "consensus" has been struck out of the dictionaries of Conservative Members. I think that the Prime Minister struck out the word, but I think that the Government will rue the day.

    The Opposition have said many harsh words about youth training schemes over the years, some of which have been justified. I used to be what was called a managing agent for a youth training scheme, and I used to take great pride in helping youngsters who came to my company through that initial period from school to work.

    I was not a great believer in the idea that the YTS was an ideal way to train youths, but it was better than the dole. There was no doubt that it made youngsters aware of the work ethic—it got them up in the morning, coming to work and used to working with other people. Given a reasonable level of resources and a company that did not want to make a profit out of YTS kids, the scheme just about managed to give them a decent, reasonable level of training. The company that I worked for did so; many of the youngsters continued to work for that company, and some got apprenticeships afterwards.

    To start to reduce in real terms the amount of money put into YTS schemes is an insult to those youngsters who have been unable to find employment but do not want to opt out. Many youngsters decide that they do not want to be exploited by youth training schemes and do not become involved. The youngsters who will be penalised are those who have decided to get up in the morning and do something. The Government are saying to them that they will get second-rate training, in a scheme that was not ideal to start with. The reason for reducing the amount of money will be lost. I hope that the Minister will tell us why he proposes a reduction in the amount of money spent on YTS youngsters.

    We should have been building on the resources already there, and putting in more. Most of our youngsters not going on to higher education should be going into training schemes, highly geared to giving us the skilled work force required for the 1990s. This country does not have the natural resources of many of its competitors. North sea oil will run out before long. How will we adjust our balance of payments problems if we do not have a skilled work force?

    Are we to become screwdriver workers in screwdriver factories for the Japanese? Why are we not opening car factories in Japan? The reason is that the Government have got the training wrong. We have not got the skills, either managerial or further down. Unless the Government start to apply themselves seriously to where the country is going and what sort of work force it will need in future, we shall become an unskilled work force, depending on Japanese, Germans and Swedes, to provide not only the factories, but the quality training. That is what we have lost.

    5.45 pm

    I do not believe the TECs will work. We must be more interventionist than that. We must say to employers that they must make a contribution—not a voluntary one, but a levy that they will receive back when they reach the standard required. The free market will fail this country every time in training, because it takes the short view; training needs a long view, because it is a long-term investment. The Government give us no encouragement to believe that they have grasped that lesson. TECs are the best we have and that is why we have tabled an amendment to improve them and give them more money.

    When the Labour party returns to power, which we hope will not be too long, we shall hve to provide radical solutions to revive the skills. The Conservative Government left a mess over training for us to deal with the last time we came to power. We must support TECs, which are being short-changed. I am sure that the managers and directors who came forward to help the Government feel that they have been kicked in the teeth. They were the better managers from the more progressive companies.

    The ones who do not give a damn will never be caught sitting on the boards. They might be seen at the Rotary club, or somewhere like that, complaining about the standard of education that their children are getting, but they will not be among the school managers or on the TEC boards. Those people who have come forward have been kicked in the teeth and not been given the necessary money. They know that, and the Government know it. This provision provides a stop-gap solution to a long-term problem, and I hope that hon. Members will support the amendment.

    Perhaps with your compliance, Mr. Deputy Speaker, I may wind up this debate by treating it as a discussion on the amendments and the clause stand part combined, by summarising the background to TECs and responding to some of the arguments that have been raised since I previously detained the House with my thoughts.

    TECs are a major new initiative designed to promote local participation in training and enterprise activities. They are private companies with boards consisting mainly of local business, and will work under contract to the Department of Employment's Training Agency. The first TECs signed contracts in April 1990. Much of the TECs' activity will cover existing Government training programmes, such as youth training, but there will also be a discretionary local initiative fund that TECs can spend on projects of their own choice to promote training or local enterprise activities.

    The first 12 TECs signed contracts in April 1990, and a further 70 are at various stages of development. It is expected that over the next year, a national network of TECs will be established. TECs will work in conjunction with local enterprise agencies, where those already exist.

    Has my hon. Friend noted that one of the TECs that has been given permission under this scheme is one covering my constituency and the region of Kingston and Elmbridge? The measure before us has been welcomed by businesses in that area because it should enable them to give additional help to the TEC's training programmes that are being set up.

    I am happy to recognise that, and I am sure that it reflects the interests of the local Member. I am also happy that Hertfordshire is another area in which TECs have been established, and there are a number of others that have already made good progress.

    In the absence of the special relief that the clause introduces, some TECs might have sought charitable status so that businesses could obtain tax relief on donations under existing legislation. However, not all the TECs' activities would qualify as charitable. In general, training activities could be regarded as charitable, but certain enterprise activities would not, and TECs would need to divide their activities and functions to ensure that charitable status could be obtained for the relevant part of their work, which would involve increased administrative burdens on the TECs. Hence our decision to introduce the clause.

    Overall, the Government are spending £2·5 billion a year on training programmes, and the value of tax relief on companies spending must be at least as much again. The main responsibility for training must lie with employers, who need to invest in their work force. That is a message which we cannot emphasise too much. It is employers, not Government, who are best placed to judge the skills needed in their business, and to organise training accordingly. Happily, the evidence proves that that is precisely what they are increasingly doing.

    The 1989 labour force survey, published on 9 March, showed that the number of employees receiving training increased by more than 70 per cent. in the five years up to 1989. Employers in both private and public sectors have been investing £20 billion a year in training.

    How does the Minister get these statistics? Are they collected in forms that land on the desks of personnel managers, who then just fill them in? If so, his jubilation is misplaced.

    The figure that I gave—£20 billion—was based on a Department of Employment publication of last year, which in turn was based on a survey originally carried out in 1986–87. It estimated the total costs of training borne by public and private employers. It was a one-off survey and a fairly significant one, which is why it is not repeated every year. The estimate has been updated modestly to allow for a little inflation; the actual sum could now be more than £20 billion.

    It is important to recognise that companies are now spending more—a fact which should be welcomed. Such spending is a duty of companies; and it is in their interests—that is why they are spending more. They do not do it, by and large, out of altruism. However, they can spend the money because they are now profitable. There were a number of reasons that led to the inadequacies of private provision for training, one of which was that, for a long time, industries, profits were simply not sufficient. As profits have recovered, so has spending on training.

    The hon. Member for Derby, South mentioned our frequent and pleasurable exchanges on the subject of spending. I must disappoint her by saying that I enjoy them so much that I intend them to continue. The fact is that she has advocated spending more, and her hon. Friends have done so even more emphatically. She referred to the debate on public expenditure earlier this year when she claimed that her spending bids were offset by her proposals for cuts. I read the debate afterwards because I was not quite sure whether I had missed something.

    It seemed to me from the text of Hansard that most of the spending cuts that she was proposing were to do with the cost of achieving privatisations. I do not agree that those amount to cuts, because if the Government were not carrying out privatisations they would lose all the revenues—

    It looks as if I had better read the debate too, but I did talk about the way in which the Government have wasted money, particularly on marketing privatisations. From memory, the sort of areas that I had in mind were, for example, what the Government call the 2 per cent. incentive on personal pensions and what we call the 2 per cent. bribe; the granting of tax relief on health insurance; and so on.

    Not much would have been gained from the hon. Lady's latter point. If she is proposing more spending in the current year, which can be accommodated in the current public expenditure round, she will have to go through the same painful processes as my right hon. Friend the Chief Secretary to the Treasury and propose more cuts. We look forward with interest to what she has to offer. Otherwise, I suppose that we can only assume that she is following the old dictum that more means less.

    The hon. Member for Halifax (Mrs. Mahon) said that the chair, as she referred to him, of the Blackburn TEC had threatened to resign. I understand that there has been no threat of resignation. Blackburn TEC is still negotiating its first budget, and as it is its first budget it cannot yet have been cut.

    I listened to the hon. Member for Ashfield (Mr. Haynes)—he is very much the Labour party's answer to my hon. Friend the Member for Eastbourne (Mr. Gow), and I listened to him with almost as much pleasure as I do to my hon. Friend—and found everything that he said beyond criticism, except in one respect: he described me as young. I regret that that is no longer so.

    The hon. Member for Carlisle (Mr. Martlew) made an interesting speech in which he referred to the old apprenticeship scheme. There is a lot of regret about its disappearance over the years, but it is worth considering why it disappeared. One reason was the pressure on profitability, which was of two sorts—the overall lack of profitability of British industry, and the increasing insistence on adult wages for those undergoing training. That is in marked contrast to the experience in most continental countries in which there has been a far greater differential between the pay of those undergoing training and of those who are trained and on adult wages. So we were moving in the opposite direction, with the obvious consequences.

    I would not disagree with what the Minister has said. The old apprenticeship scheme needed changing from a time-served basis to a skill basis. The fact that the wages of apprentices became nearer those of skilled workers was the fault of weak management in British industry at the time.

    I am quite prepared to agree with the hon. Gentleman. I hope that industry is listening and will respond to our consensus of wisdom. None the less, we have to replace what has passed, and that is what the Government have been doing in the major programmes that they have announced.

    I commend the clause to the House. I believe that it provides a useful change to the legislation; it will allow a relief for altruistic contributions to TEC and LECs. We understand the reasons for the amendment. We have no disagreement in principle or substance, but we believe that the amendment would prove onerous if it were agreed to, so I shall be asking my hon. Friends to oppose it, albeit in a fairly friendly spirit.

    Question put, That the amendment be made:—

    The Committee divided: Ayes 152, Noes 244.

    Division No. 207]

    [5.56 pm

    AYES

    Abbott, Ms DianeCunningham, Dr John
    Allen, GrahamDalyell, Tam
    Anderson, DonaldDarling, Alistair
    Archer, Rt Hon PeterDavies, Ron (Caerphilly)
    Armstrong, HilaryDavis, Terry (B'ham Hodge H'l)
    Ashdown, Rt Hon PaddyDewar, Donald
    Ashley, Rt Hon JackDixon, Don
    Barnes, Harry (Derbyshire NE)Dobson, Frank
    Barnes, Mrs Rosie (Greenwich)Doran, Frank
    Barron, KevinDunwoody, Hon Mrs Gwyneth
    Battle, JohnEadie, Alexander
    Beckett, MargaretEastham, Ken
    Beith, A. J.Ewing, Harry (Falkirk E)
    Bidwell, SydneyFearn, Ronald
    Boateng, PaulField, Frank (Birkenhead)
    Boyes, RolandFisher, Mark
    Bradley, KeithFlannery, Martin
    Brown, Gordon (D'mline E)Foot, Rt Hon Michael
    Brown, Nicholas (Newcastle E)Foster, Derek
    Buchan, NormanFoulkes, George
    Buckley, George J.Fyfe, Maria
    Callaghan, JimGarrett, John (Norwich South)
    Campbell, Menzies (Fife NE)Garrett, Ted (Wallsend)
    Campbell, Ron (Blyth Valley)Golding, Mrs Llin
    Campbell-Savours, D. N.Griffiths, Nigel (Edinburgh S)
    Carlile, Alex (Mont'g)Griffiths, Win (Bridgend)
    Cartwright, JohnGrocott, Bruce
    Clark, Dr David (S Shields)Harman, Ms Harriet
    Clarke, Tom (Monklands W)Heal, Mrs Sylvia
    Clelland, DavidHenderson, Doug
    Cohen, HarryHoey, Ms Kate (Vauxhall)
    Cook, Frank (Stockton N)Hogg, N. (C'nauld & Kilsyth)
    Corbyn, JeremyHome Robertson, John
    Cox, TomHood, Jimmy
    Cryer, BobHowells, Geraint

    Hughes, John (Coventry NE)Powell, Ray (Ogmore)
    Hughes, Robert (Aberdeen N)Primarolo, Dawn
    Hughes, Roy (Newport E)Quin, Ms Joyce
    Ingram, AdamRadice, Giles
    Johnston, Sir RussellRedmond, Martin
    Jones, Barry (Alyn & Deeside)Rees, Rt Hon Merlyn
    Jones, Martyn (Clwyd S W)Richardson, Jo
    Kilfedder, JamesRobertson, George
    Leighton, RonRogers, Allan
    Lewis, TerryRooker, Jeff
    Litherland, RobertRoss, Ernie (Dundee W)
    Lloyd, Tony (Stretford)Ruddock, Joan
    McAvoy, ThomasSalmond, Alex
    McKay, Allen (Barnsley West)Sedgemore, Brian
    McLeish, HenrySheerman, Barry
    Maclennan, RobertSheldon, Rt Hon Robert
    McWilliam, JohnSmith, Andrew (Oxford E)
    Madden, MaxSmith, C. (Isl'ton & F'bury)
    Mahon, Mrs AliceSmith, J. P. (Vale of Glam)
    Marek, Dr JohnSnape, Peter
    Marshall, David (Shettleston)Soley, Clive
    Marshall, Jim (Leicester S)Spearing, Nigel
    Martin, Michael J. (Springburn)Steel, Rt Hon Sir David
    Martlew, EricSteinberg, Gerry
    Maxton, JohnStrang, Gavin
    Meacher, MichaelStraw, Jack
    Meale, AlanTaylor, Mrs Ann (Dewsbury)
    Michael, AlunThompson, Jack (Wansbeck)
    Michie, Bill (Sheffield Heeley)Wallace, James
    Mitchell, Austin (G't Grimsby)Walley, Joan
    Molyneaux, Rt Hon JamesWareing, Robert N.
    Moonie, Dr LewisWelsh, Andrew (Angus E)
    Morgan, RhodriWigley, Dafydd
    Morley, ElliotWilliams, Rt Hon Alan
    Morris, Rt Hon A. (W'shawe)Williams, Alan W. (Carm'then)
    Morris, Rt Hon J. (Aberavon)Wilson, Brian
    Mowlam, MarjorieWorthington, Tony
    Mullin, ChrisWray, Jimmy
    Murphy, PaulYoung, David (Bolton SE)
    Oakes, Rt Hon Gordon
    O'Brien, William

    Tellers for the Ayes:

    Orme, Rt Hon Stanley

    Mr. Frank Haynes and Mr. Jimmy Dunnachie.

    Patchett, Terry
    Pike, Peter L.

    NOES

    Adley, RobertBruce, Ian (Dorset South)
    Aitken, JonathanBuck, Sir Antony
    Alexander, RichardBurns, Simon
    Alison, Rt Hon MichaelBurt, Alistair
    Allason, RupertButcher, John
    Amess, DavidButler, Chris
    Amos, AlanCarlisle, John, (Luton N)
    Arbuthnot, JamesCarlisle, Kenneth (Lincoln)
    Arnold, Jacques (Gravesham)Carrington, Matthew
    Aspinwall, JackCarttiss, Michael
    Atkins, RobertChalker, Rt Hon Mrs Lynda
    Atkinson, DavidChope, Christopher
    Baker, Nicholas (Dorset N)Clark, Hon Alan (Plym'th S'n)
    Banks, Robert (Harrogate)Clark, Dr Michael (Rochford)
    Batiste, SpencerClark, Sir W. (Croydon S)
    Bellingham, HenryClarke, Rt Hon K. (Rushcliffe)
    Bendall, VivianColvin, Michael
    Bennett, Nicholas (Pembroke)Coombs, Anthony (Wyre F'rest)
    Benyon, W.Coombs, Simon (Swindon)
    Bevan, David GilroyCouchman, James
    Blaker, Rt Hon Sir PeterCurrie, Mrs Edwina
    Body, Sir RichardCurry, David
    Bonsor, Sir NicholasDavies, Q. (Stamf'd & Spald'g)
    Boscawen, Hon RobertDavis, David (Boothferry)
    Boswell, TimDay, Stephen
    Bottomley, Mrs VirginiaDicks, Terry
    Bowden, Gerald (Dulwich)Douglas-Hamilton, Lord James
    Bowis, JohnDover, Den
    Boyson, Rt Hon Dr Sir RhodesDunn, Bob
    Braine, Rt Hon Sir BernardDurant, Tony
    Brandon-Bravo, MartinDykes, Hugh
    Brazier, JulianEggar, Tim
    Bright, GrahamEmery, Sir Peter
    Brown, Michael (Brigg & Cl't's)Evans, David (Welwyn Hatf'd)

    Evennett, DavidMcNair-Wilson, Sir Patrick
    Fairbairn, Sir NicholasMalins, Humfrey
    Fallon, MichaelMans, Keith
    Favell, TonyMaples, John
    Field, Barry (Isle of Wight)Marland, Paul
    Fishburn, John DudleyMarshall, Michael (Arundel)
    Forman, NigelMartin, David (Portsmouth S)
    Forsyth, Michael (Stirling)Mates, Michael
    Forth, EricMaude, Hon Francis
    Fox, Sir MarcusMayhew, Rt Hon Sir Patrick
    Franks, CecilMellor, David
    Freeman, RogerMiller, Sir Hal
    French, DouglasMitchell, Andrew (Gedling)
    Fry, PeterMoate, Roger
    Gardiner, GeorgeMontgomery, Sir Fergus
    Garel-Jones, TristanMorris, M (N'hampton S)
    Gill, ChristopherMorrison, Sir Charles
    Glyn, Dr Sir AlanMoss, Malcolm
    Goodhart, Sir PhilipMudd, David
    Goodlad, AlastairNicholson, David (Taunton)
    Goodson-Wickes, Dr CharlesNorris, Steve
    Gorman, Mrs TeresaOnslow, Rt Hon Cranley
    Gow, IanOppenheim, Phillip
    Grant, Sir Anthony (CambsSW)Patnick, Irvine
    Greenway, Harry (Ealing N)Patten, Rt Hon John
    Gregory, ConalPawsey, James
    Griffiths, Peter (Portsmouth N)Peacock, Mrs Elizabeth
    Ground, PatrickPortillo, Michael
    Grylls, MichaelRaison, Rt Hon Timothy
    Hague, WilliamRiddick, Graham
    Hamilton, Neil (Tatton)Ridsdale, Sir Julian
    Hanley, JeremyRifkind, Rt Hon Malcolm
    Hannam, JohnRoberts, Wyn (Conwy)
    Hargreaves, Ken (Hyndburn)Rossi, Sir Hugh
    Harris, DavidRost, Peter
    Haselhurst, AlanRowe, Andrew
    Hawkins, ChristopherRyder, Richard
    Hayhoe, Rt Hon Sir BarneySackville, Hon Tom
    Hayward, RobertSainsbury, Hon Tim
    Heathcoat-Amory, DavidScott, Rt Hon Nicholas
    Heseltine, Rt Hon MichaelShaw, David (Dover)
    Hicks, Mrs Maureen (Wolv' NE)Shaw, Sir Giles (Pudsey)
    Hicks, Robert (Cornwall SE)Shaw, Sir Michael (Scarb')
    Higgins, Rt Hon Terence L.Shelton, Sir William
    Hill, JamesShepherd, Richard (Aldridge)
    Howarth, G. (Cannock & B'wd)Shersby, Michael
    Howe, Rt Hon Sir GeoffreySkeet, Sir Trevor
    Howell, Ralph (North Norfolk)Smith, Tim (Beaconsfield)
    Hughes, Robert G. (Harrow W)Soames, Hon Nicholas
    Hunt, Sir John (Ravensbourne)Speed, Keith
    Irvine, MichaelSpicer, Sir Jim (Dorset W)
    Irving, Sir CharlesSpicer, Michael (S Worcs)
    Jack, MichaelSquire, Robin
    Janman, TimStanbrook, Ivor
    Jessel, TobySteen, Anthony
    Jones, Robert B (Herts W)Stern, Michael
    Kellett-Bowman, Dame ElaineStevens, Lewis
    Key, RobertStewart, Allan (Eastwood)
    King, Roger (B'ham N'thfield)Stewart, Andy (Sherwood)
    Kirkhope, TimothyStewart, Rt Hon Ian (Herts N)
    Knapman, RogerStokes, Sir John
    Knight, Greg (Derby North)Stradling Thomas, Sir John
    Knight, Dame Jill (Edgbaston)Sumberg, David
    Knowles, MichaelTapsell, Sir Peter
    Knox, DavidTaylor, Ian (Esher)
    Latham, MichaelTaylor, Teddy (S'end E)
    Lee, John (Pendle)Tebbit, Rt Hon Norman
    Leigh, Edward (Gainsbor'gh)Temple-Morris, Peter
    Lennox-Boyd, Hon MarkThompson, D. (Calder Valley)
    Lightbown, DavidThompson, Patrick (Norwich N)
    Lilley, PeterThorne, Neil
    Lloyd, Sir Ian (Havant)Thornton, Malcolm
    Lloyd, Peter (Fareham)Thurnham, Peter
    Lord, MichaelTownsend, Cyril D. (B'heath)
    Lyell, Rt Hon Sir NicholasTracey, Richard
    McCrindle, RobertTrotter, Neville
    Macfarlane, Sir NeilTwinn, Dr Ian
    MacKay, Andrew (E Berkshire)Vaughan, Sir Gerard
    Maclean, DavidWaddington, Rt Hon David
    McLoughlin, PatrickWalker, Bill (T'side North)

    Waller, GaryWolfson, Mark
    Wardle, Charles (Bexhill)Wood, Timothy
    Watts, JohnWoodcock, Dr. Mike
    Wells, BowenYeo, Tim
    Whitney, RayYoung, Sir George (Acton)
    Widdecombe, AnnYounger, Rt Hon George
    Wiggin, Jerry
    Wilkinson, John

    Tellers for the Noes:

    Wilshire, David

    Mr. John M. Taylor and Mr. Sydney Chapman.

    Winterton, Mrs Ann

    Question accordingly negatived.

    Amendments made: No. 35, in page 55, line 49, after 'council', insert 'or company'.

    No. 36, in page 56, line 17, at end insert

  • (b) "local enterprise company" means a company with which an agreement (not being one which has terminated) under which it is agreed that the company shall carry out the functions of a local enterprise company has been made by the Scottish Development Agency, the Highlands and Islands Development Board, Scottish Enterprise or Highlands and Islands Enterprise.'. —[Mr. Lilley.]
  • Clause 68, as amended, ordered to stand part of the Bill.

    Clause 9

    Registration

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

    Clause 9 simplifies the procedures by which businesses determine whether they must register for VAT.

    I must begin by taking slight issue with the notes on clauses issued by the Treasury, which are intended to simplify and to explain clauses. It was with some surprise and concern that I came across the following note on clause 9:
    "Sub-paragraph 1(1) provides reference to the new sub-paragraphs (3) to (5) and continues to cite the revised sub-paragraph 1(a). The revised sub-paragraph 1(1)(a) replaces the current sub-paragraphs 1(1)(a) (i) and (ii)".
    That is impenetrable and does not enlighten our consideration of the clause. I hope that in future the notes on clauses will be clearer than the clause, not less clear.

    Clause 9 has already been welcomed by many small traders, and we intend to support it. There has long been discontent that the tests to determine whether a small trader should register for VAT were too complex. Even before the new regime for VAT penalties and interest which has just been introduced, the cost of not registering when one should have done so could have been punitive, and that has become more so with the recent new system of penalties.

    Before the changes proposed in clause 9, a trader had to apply four different tests in order to see whether he should register. The first was a test of the past year's turnover exceeding a specified threshold; the second was a test of the past quarter's turnover exceeding another specified threshold; the third a test of the next month's anticipated turnover being likely to exceed a third threshold; and the fourth a test of the next year's turnover being likely to exceed a fourth threshold. Those four tests all had to be undertaken regularly by a small business in order to ascertain whether it should register. It was a complex bureaucratic procedure, which was resented by many small businesses.

    Clause 9 effectively removes two of those tests—the test of the past quarter's turnover and the test of the next year's turnover. The removal of those two tests is welcome, but I have two questions for the Economic Secretary. First, it appears from the clause that a trader must register at the end of a month if the previous year's turnover exceeded £25,400. In other words, the trader has to make an assessment on a rolling 12-month basis with a new assessment having to be made each month about whether the two remaining tests will be exceeded. That is somewhat onerous and I hope that, in a spirit of bipartisanship, the Government will consider some change, perhaps to a calendar quarter rather than the existing calendar month with the rolling provision.

    6.15 pm

    Secondly, the increase in the threshold that the Government are introducing in the clause is an increase from £23,600 to £25,400—an increase of 7·6 per cent. Under the European Community sixth directive, the increase must be limited to a rise in real terms—that is, allowing for inflation. However, I am sure that the Government will be aware that inflation is currently running at considerably more than 7·6 per cent. It would be useful to know from the Government whether it might be possible to allow a slightly greater increase in the VAT threshold in the light of the rising level of inflation that we faced at the time of the Budget and that we certainly face now.

    I raise those two small points, but in broad terms we support the general thrust of clause 9 and wish to see it included in the Bill.

    I welcome clause 9 because it considerably simplifies the arrangements for the registration of VAT traders. We have had VAT now for about 20 years, and ever since it was introduced the registration requirements have caused difficulties for small businesses. Small businesses are inevitably affected, because the threshold is so low.

    There was no great problem until 1985, when the new Keith-type default provisions were introduced. Since then, a number of cases have been decided which many felt were penal in their outcome. Therefore, clause 9 is good news and I congratulate Treasury Ministers on it. It is obviously always difficult to anticipate turnover, and it makes so much more sense to have a registration requirement based on turnover recorded in the books of a business.

    I have seen the representations made by the Institute of Taxation, to which I think the hon. Member for Islington, South and Finsbury (Mr. Smith) referred, which suggested that, despite a simplification, there was an increase in the compliance burden, because a business would have to look at its turnover at the end of each month rather than at the end of each quarter under the previous arrangement.

    I always think that small businesses are ambivalent about VAT. They complain about the compliance burden that VAT imposes, but I was interested to note that, when annual VAT accounting was introduced a couple of years ago to lessen the burden on small businesses, take-up was low. I believe that one reason is that small businesses find the obligation to complete a VAT return once every quarter a useful discipline. They are usually busy trying to make a success of themselves and do not keep their books much up-to-date. However, every quarter they are compelled to bring their books up to date by the end of the following month, for the purpose of completing their VAT return. That is probably why take-up of monthly VAT accounting has been less than anticipated.

    I have read the views of the Institute of Taxation, but I imagine that a small and growing business would want to know fairly soon after the end of any particular month what its turnover was in the preceding four weeks. That is not a difficult figure to calculate. Although I have some sympathy with the suggestion that, in subsection (2)(1)(a), the word "month" should be replaced by the word "quarter", the new obligation is not terribly onerous. Clause 9 offers a valuable simplification for small businesses that has already been widely welcomed.

    I welcome the improvement that clause 9 represents. We should not get too excited when we remember that these days the VAT registration limit is such that any small business employing two people and paying some rent is likely to be over the threshold anyway. Therefore, we are taking only about the smallest businesses, to which monthly VAT accounting would be of advantage in many cases. It will allow some to remain free even of the threat of the requirement to register and offer them more peace of mind. Nevertheless, the complex problems of VAT, as they relate to other aspects such as bad debts, to which we shall return later, remain for a large number of other businesses. For a few, the clause will be most helpful.

    I first declare an interest as parliamentary adviser to the Institute of Chartered Accountants in England and Wales. I hope that the submissions that the institute lodged with the Treasury will prove helpful, not only to the Committee of the whole House but when right hon. and hon. Members repair to the Standing Committee later this week.

    There are three technical questions that I want to put to my hon. Friend the Economic Secretary, but first I echo the remarks of my hon. Friend the Member for Beaconsfield (Mr. Smith), who congratulated Treasury Ministers on simplifying the registration procedure, which will be warmly welcomed by small businesses. My only gripe was that raised also by my hon. Friend the Member for Beaconsfield and by the hon. Member for Islington, South and Finsbury (Mr. Smith): that monthly accounting could prove onerous for some businesses and that a quarterly calculation might be fairer.

    My hon. Friend the Member for Beaconsfield put his finger on the button when he argued that, as a result of hardware that was not available even four or five years ago, small businesses can calculate their monthly turnover. If they do not do so, their bank would probably be extremely interested.

    The institute suggests that, as a counterweight to the requirement placed on small businesses to monitor turnover monthly, the time limit for notifying a liability to register might be extended to two or three months. That would seem a fair bargain.

    I turn now to my three technical points. I suggest that if the words
    "in the period then ending not exceeding one year"
    was substituted for the words
    "in the period of one year then ending"
    in subsection (1)(1)(a), that would make it clear that the period does not have to be a full year. The existing words suggest that a full year must be taken into account, and I am not sure that that is what is intended.

    Secondly, I know some chartered accountants who would like confirmation that the word "business" in subsection (1)(2) includes part of a business, to align with the wording that appears in article 12(1)(b) in the Value Added Tax (Special Provisions) Order 1981.

    Finally, it is not clear, having regard to section 33 (1)(a) of the Valued Added Tax Act 1983 whether the words "his taxable supplies" in subsection (2)(a) refer to the transferee or include the supplies of the transferor now transferred to the transferee.

    I acknowledge that these purely technical points may be extremely boring to the Committee, but they are important. I shall be happy if my hon. Friend the Economic Secretary will write to me about them.

    In common with right hon. and hon. Members in all parts of the House, I believe that clause 9 is to be welcomed. I hope that it sets a precedent in establishing cross-party agreement on such matters, and that when my right hon. and hon. Friends present new clauses that are equally reasonable, they will similarly receive a fair hearing from Government Members. I understand from right hon. and hon. Members who served on previous Committees that that has not always been the case, but I am sure that open-minded Members of the Government Front Bench will want to prove their good will at an early point in the Committee proceedings, by accepting reasoned and reasonable amendments.

    In the past, businesses had to check their turnover on a quarterly and full-year basis, and guess at their possible future turnover, to establish whether they needed to register for VAT. The new system will provide for registration only if the turnover threshold was achieved in the previous 12 months, which is a helpful and useful improvement.

    The old system was extremely complicated, so any change that simplifies it must be welcomed. I hope that the Government will consider extending the principle to other areas—such as to people trying to complete housing benefit forms, which are also very complicated. Disposing of red tape in respect of small businesses will always have the support of my right hon. and hon. Friends. Equally, I hope that there will be support for simplifying the forms that must be completed for the purpose of poll tax rebates. I am sure that right hon. and hon. Members in all parts of the House have received letters from their constituents complaining about the complicated procedure that must be observed to obtain a rebate. I hope that clause 9 sets a precedent in simplifying procedures in that respect.

    Small businesses constitute a vociferous local lobby, and rightly so. However, if one asks them for a list of the provisions in the Finance Bill that should be reconsidered, the imposition and complexities of VAT would probably come fairly low down on it. Other matters need to be examined in some detail, particularly interest rates. Certainly the chamber of commerce and small business organisations in my constituency have made endless representations to me—and I have no doubt to the Government and the Treasury—regarding the effect on their businesses of high interest rates and the uncertainty about whether the rates will go higher.

    The one-club policy that the Government are adopting over interest rates is not merely a club but a sledge-hammer, and an ineffective one at that. The Government should show more diversity and flexibility in their policies for dealing with the present state of the economy. High interest rates alone are not the answer—they need to be part of a more comprehensive attack on inflation and the other problems that beset us, and which particularly beset small business people. They would benefit from an attack on high interest rates and the continued development of some of the things that hon. Members mentioned earlier, such as training to ensure that the skill levels in our communities guarantee higher levels of employment and income so that small businesses can continue to grow and flourish.

    6.30 pm

    If asked to list their priorities, while small business people would welcome clarification and simplification of VAT registration, they would probably put it fairly low on the list compared with other issues that we need to consider. In Committee those other issues will be important. Small business people will make representations in Committee and, among other things, they will concentrate on the economic indicators, which show the stagnant output that undoubtedly afflicts our economy, and the need to drive the economy back towards growth with sensible rather than obsessive and dogmatic policies on interest rates.

    Small businesses have also been particularly affected by the uniform business rate. It would be remiss of us to discuss the clause without putting on record what UBR has meant to many small businesses. The Inland Revenue estimates that 252,000 businesses will face increases in bills. They are small businesses. While clarifying VAT for small businesses, surely we should consider all the other things that afflict them and VAT may not—

    Order. The hon. Gentleman is going rather wide of the subject. We may discuss some of these issues at a later date, but at present we should be discussing whether clause 9 should stand part of the Bill.

    The last thing that I wish to do is to get on the wrong side of you at this early juncture, Mr. Lofthouse. Unfortunately that may happen later—who knows? In view of your comments, I shall conclude my remarks.

    I am sure that all hon. Members present will be disappointed to learn that I shall not be serving on the Standing Committee this year as I have already sat for 270 hours in Committee on the King's Cross Bill—in which the hon. Member for Islington, South and Finsbury (Mr. Smith) has some interest. I have enjoyed Committees enough this year and should allow others, such as the hon. Member for Nottingham, North (Mr. Allen), the privilege of enjoying the Finance Bill Committee.

    Who is to assist me in scourging the Government over retrospective legislation, on which the hon. Gentleman had such a distinguished record on previous Committees?

    I recall the fight that the hon. Member for Berwick-upon-Tweed (Mr. Beith) and I had last year on the Standing Committee to support what I believed to be the true Conservative principles in respect of retrospective legislation. I regret to say that even all the eloquence at his command, in addition to the few small words that fell from my lips, was not sufficient to persuade the Government of the merits of our cause. Virtually every week we had cause to join forces on the Select Committee on the Treasury and Civil Service and I hope that that will suffice in the hon. Gentleman's mind to sustain the alliance which we have held together across the Floor, which was perhaps in rather better shape than the alliance he had with his own colleagues.

    I welcome clause 9, because it increases the certainty of rules for the trader in an ingenious way and increases the effective level of registration threshold within the constraints of European Community legislation.

    One of the complaints of small businesses, as the hon. Member for Nottingham, North said, has been the onerous burden of VAT compliance over the years. Until 1984 or 1985, I recall that the annual report of Customs and Excise used to contain a useful table which revealed the yield of VAT from traders within different bands of turnover threshold. I cannot recall the figures exactly, but the overwhelming bulk of VAT receipts come not from small businesses but from relatively large businesses, although the majority of registered traders are small businesses. Therefore, it is an expensive way to collect revenue, and the expense falls not on the public departments, but on small businesses who are responsible by and large, for administration of the tax. It is a great shame that that table is no longer published. I do not know whether it caused too much embarrassment and therefore had to be removed, but I should like to see it published once again.

    Although I know that the arguments against raising the threshold too much are that it introduces inequities in competition between businesses, in particular when the VAT rate is 15 per cent., as it is in this country, we should have regard to the compliance costs of such a tax on small businesses. I am pleased that the Government have borne that in mind over the years and have made a number of useful reforms—perhaps this is one of them.

    The clause demonstrates once again that the maximum registration threshold permitted by the European Community under the sixth directive is unrealistically low. It is a great shame that we are constrained in such a way. I am certain that if we had complete freedom of action on the matter we would not choose to have such a low VAT threshold. It amazes me that we have been unable to persuade our partners in the European Community of the rightness of our arguments in favour of raising the threshold significantly. One mystifying aspect of the European Community is that so many sensible ideas put forward by the Government are not accepted by our colleagues across the water.

    The large increase in the compliance burden alluded to by my hon. Friend the Member for Beaconsfield (Mr. Smith), following the Keith report recommendations—now enshrined in legislation—and the risk that small businesses will incur penalties, make it all the more urgent for the Government to reopen in Brussels the question of a substantially increased threshold. It is not fair to expect the smallest businesses to have the same sort of resources available to understand and administer complex legislation as larger firms, which can afford to maintain their own in-house accounts and tax administrators. Consequently, it would be a great misfortune if the issue of the VAT threshold were to decline in importance over the years.

    I hope that the Economic Secretary will redouble his efforts to raise the VAT threshold or to persuade our EC partners to support our campaign to raise it. That will lift a significant burden in administration and costs from businesses that are ill-equipped to carry the costs, particularly when other costs have been rising recently, as the hon. Member for Nottingham, North pointed out in his somewhat wide-ranging and discursive remarks on the community charge. I welcome the clause, and I shall support it if there is a Division.

    I remember the last exchanges with the Economic Secretary to the Treasury. We were talking about the good old British banger. They tried to take that away from us at the other end of the building. However, we got in first.

    The hon. Member for Beaconsfield (Mr. Smith) referred to the need for small businesses to show discipline. You and I, Mr. Lofthouse, knows what discipline means. We worked in the bowels of the earth. Discipline was all about saving life and limb. The hon. Member for Beaconsfield knows that there are many small businesses in my constituency. My constituents come to see me about their financial problems, some of which are the direct result of measures introduced by this Government.

    One of my constituents with a fairly small business employed an accountant. I employ an accountant; I am no financial wizard. My constituent was in serious difficulty over VAT. He was told by the Inland Revenue that he was in deep trouble, so he came to my surgery and asked for help. I told him that I was no financial wizard and that I could not work it out for him but that I would write to Sir Lawrence Airey, who was the chairman of the Board of Inland Revenue at that time. We found out that the accountant had not done his job and that therefore his business owed the Inland Revenue £6,000 in VAT.

    Shortly afterwards, Sir Lawrence Airey was summoned before the Select Committee on the Parliamentary Commissioner for Administration to give evidence. I am a member of the Select Committee, so I had a word with him after the meeting. It turned out that although the accountant had not done his job properly, my constituent had been overcharged for VAT, so he got some of his money back. My constituent told me that he had always voted Conservative but that because he had got some of his money back he had decided to vote for me at the next election.

    Local people who have left the pits have set themselves up in small businesses with their redundancy money. They are screaming like hell back home about the way this Government are taxing small businesses. They are hitting small firms hard and VAT involves them in more and more work. I agree with the hon. Member for Beaconsfield that self-discipline is needed—that small business men ought to do their books regularly and not wait until the end of the year to sort it all out. The Government must not, however, clobber the small business man. The Prime Minister told us a long time ago that small businesses create jobs and that small businesses ought to be encouraged. However, the Government must be fairer when it comes to taxing them. I appeal to the Government to help them. Small businesses make a valuable contribution to the economy.

    6.45 pm

    The hon. Gentleman says that the VAT burden is far greater now than it was 10 years ago. Will he, however, remind the Committee of the number of boxes that the registered trader had to fill in on his VAT return 10 years ago and how many he has to fill in today?

    The hon. Gentleman referred earlier to discipline; now he talks about burdens. I remember the time when the Chancellor of the Exchequer came to the House and said that he intended to double VAT. The hon. Gentleman has forgotten that; he was not here at the time. The hon. Gentleman talks about burdens, but it is the Government who have imposed burdens on small businesses. That is why my constituents come squealing to my surgery. When the Chancellor of the Exchequer doubled VAT it caused more and more work for small business people. They are sick of it.

    In the case of some small businesses, the men still work in the pits. There are only three pits left in my constituency. The wife looks after the small business. They have to get their heads together to work out the VAT and to fill in all the flipping forms that this Government have imposed on them so that they can get in all their money. These poor souls have been down the pit all day. You know what it is like, Mr. Lofthouse, to be down the pit for eight hours a day.

    Order. I am fully aware of the conditions in the pits. I am also fully aware of the contents of clause 9. I hope that the hon. Gentleman will stick to it.

    I am talking about small businesses. I hope that you are listening, Mr. Lofthouse.

    I am enjoying the hon. Gentleman's speech so much that I almost hate to do this, but does he have any views on the commendable relaxation and simplification of the VAT rules that the clause introduces?

    I welcome that change. However, the Government have imposed a great burden on small businesses. The hon. Member for Beaconsfield then dragged me into debating the burden on small businesses. The VAT burden on small businesses is being increased by the Government.

    Does the hon. Gentleman know how many miners in his constituency who work eight hours a day down the pit then come out of the pit and do a part-time job with a turnover in excess of £25,000?

    I had to ask because I did not know whether you would step in and rule me out of order if I tried to answer it.

    I am in the House five days a week so how can I keep track of everyone? What a stupid question. The matter is not funny. However, I think that I have said enough.

    The hon. Member for Ashfield (Mr. Haynes) and I have been a powerful force in defence of the British banger. I am happy to say that, although there may be a mad cow disease, as yet there is no mad pig disease—not even among the Gadarene swine. If one did develop, perhaps the hon. Member for Ashfield and I should get together again to save the British banger. Millions of people are grateful to the hon. Gentleman and me for ensuring that it is still on our plates.

    Is the Minister aware that the hon. Member for Crawley (Mr. Soames) has just walked into the Chamber and that he, like us, thinks that the British banger is the best in the world?

    The British banger is certainly enjoyable, but it has nothing to do with clause 9.

    I thank the hon. Member for Ashfield for reminding me that my hon. Friend the Member for Crawley (Mr. Soames) enjoys the British banger. However, as my hon. Friend has just walked into the Chamber, I did not need the reminder.

    Let me reassure the hon. Member for Nottingham, North (Mr. Allen)—who is a member of the Standing Committee on the Finance Bill—that he will find me an open-minded, cordial, friendly, helpful and co-operative Minister who is prepared to examine every conceivable point of view that is put to me. If the hon. Gentleman would like to draw to my attention any VAT forms that he thinks require further simplification, I shall be happy to examine them.

    I thank the Minister for showing his usual generosity. I guarantee him that I will correspond with him within a fortnight with my suggestions, should I find that any amendments to VAT forms are necessary.

    I thank the hon. Gentleman.

    All the speakers in this short debate have welcomed the general point made in clause 9. The measures for small and medium-sized businesses were central to my right hon. Friend the Chancellor's Budget, and lie at the heart of the Bill. The revenue cost of the clause, which has been welcomed by the small business community, is about £75 million.

    Clauses 9 and 10 may not grab the headlines, but together they provide for nearly a quarter of a billion in legislative assistance for the small business community. They are deliberately targeted at smaller, growing businesses, which—although perhaps less glamorous—are none the less important. Such companies produce a large proportion of our industrial output, and have grown apace during the past few years.

    The hon. Member for Islington, South and Finsbury (Mr. Smith) made some observations about the notes on clauses. I will do my best to ensure that they are made clearer than the notes for clause 9. I am only too grateful to the hon. Gentleman for not asking me to explain the notes on clauses, as I would not have been able to do so. Clause 9 was welcomed by the hon. Member for Berwick-upon-Tweed (Mr. Beith), my hon. Friend the Member for Beaconsfield (Mr. Smith) and my hon. Friend the Member for Tatton (Mr. Hamilton)—I am sorry that he is not a member of the Standing Committee this year.

    The hon. Member for Islington, South and Finsbury asked about the liability arising at the end of a calendar quarter, for example, rather than at the end of a month. The month-end determination of liability reduces unfair competition from traders who remain unregistered. It also minimises the revenue loss, and maintains an even flow of registration work for Customs. Most businesses keep monthly records of sales and expenses in any event.

    The hon. Gentleman was also concerned about the possibility of raising the threshold still further—an argument also pursued by my hon. Friend the Member for Tatton. The original threshold of £5,000 has been increased over the years—in line with inflation—to the present level of £25,400, which is already among the highest in the EEC. A further increase would constitute a breach of our legal obligation under article 24 of the sixth VAT directive, to which my hon. Friend referred.

    However, I agree with my hon. Friend's general observations about the threshold, and it is inconceivable that his views will not be put strongly by Ministers whenever suitable opportunities arise in Brussels. As he knows, we want to ensure that the threshold is raised still further, although some industries—such as the building industry—would like it to be lowered. It is not a uniform pattern across small businesses.

    The Economic Secretary rightly says that the European Commission insists that the rise in the threshold should be no greater than inflation. However, which inflation figure does he mean? Does he mean the inflation figure at the date of the Chancellor's Budget, or an average inflation figure taken over a period of 12 months? If so, which 12 months? The figure used in the calculation relating to clause 9 is 7·6 per cent., but inflation is currently at 9·4 per cent. and rising. Which figure will be used?

    When the threshold has been raised over the years, it has not always been raised directly in relation to inflation. The hon. Member for Islington, South and Finsbury would be pursuing the wrong hare if he believed that it had been. If the threshold were raised, that would require another significant loss of revenue, and would further increase the distortion of the balance between registered and unregistered traders.

    As an accountant, my hon. Friend the Member for Richmond and Barnes raised three technical points. As he requests, I shall write to him about them as soon as possible, as I, too, would like to clarify the matter.

    This has been a valuable debate. It has shown that the House fully supports clause 9 and the important measures that my right hon. Friend the Chancellor has taken to help small businesses. I hope that the House will continue to support the Bill.

    Question put and agreed to.

    Clause ordered to stand part of the Bill.

    Clause 10

    Bad Debts

    I beg to move amendment No. 2, in page 6, line 43, leave out 'his accounts' and insert

    'the accounting records from which the accounts of the business for the period in which the write off occurs have been or will be prepared'.

    With this we may take the following amendments: No. 37, in page 6, line 43, leave out 'accounts' and insert 'books and records'.

    No. 3, in page 6, line 44, leave out 'two years' and insert 'one year'.

    No. 1, page 6, line 45, after 'elapsed', insert

    ', or the company or individual liable to pay any outstanding amount of the consideration has become insolvent and (except where Paragraph 10 (1A)(b) below applies) the person has submitted a claim in the insolvency for the outstanding amount of the consideration.
  • (1A) a company becomes insolvent for the purposes of this section if:
  • (a) it goes into liquidation in the United Kingdom or the Isle of Man at a time when its assets are insufficient for the payment of its debts and other liabilities and the expenses of the winding up;
  • (b) a person who has been appointed in Great Britain to act as the Administrator or Administrative Receiver issues a certificate of his opinion that, if it went into liquidation, the assets of the company would be insufficient to cover the payment of any dividend in respect of debts which are neither secured nor preferential; or
  • (c) a composition or scheme proposed by the Directors is approved under Part I of the Insolvency Act 1986.
  • (1B) An individual becomes insolvent for the purposes of this section if:
  • (a) in England and Wales he is adjudged bankrupt, a deed of arrangement is made for the benefit of his creditors, a composition or scheme proposed by him is approved under Part VIII of the Insolvency Act 1986 or, after his death, his estate falls to be administered in accordance with an order under Part XV of that Act;
  • (b) in Scotland, sequestration of his estate is awarded, he signs a trust deed for his creditors or, after his death, a judicial factor is appointed under Section 11A of the Judicial Factors (Scotland) Act 1889 to administer his estate;
  • (c) in Northern Ireland he is adjudged bankrupt, a deed of arrangement is made for the benefit of his creditors, a resolution of his creditors is approved by the court under Section 5 of the Bankruptcy Amendment Act (Northern Ireland) 1929 or, after his death, the court makes an order for the administration in bankruptcy of his estate; or
  • (d) in the Isle of Man, he is adjudged bankrupt, a deed of arrangement is made for the benefit of his creditors or, after his death, the court makes an order for the administration in bankruptcy of his estate.'.
  • No. 24, in page 7, line 4, at end insert

    'but no claim may be made before 1st December 1990.'.

    No. 38, in page 7, line 18, leave out from '(b)' to the end of line 20.

    Clause 10 relates to bad debt relief for VAT. It will cost the Exchequer £150 million in a full year, so we are talking about a substantial measure and it is important to ensure that the Government have got it right. We broadly welcome the Government's aim in the clause but do not think they have it right, and we have tabled amendments to improve it. I hope that when he returns to his place, the Economic Secretary will address the issues involved in the clause in the open-minded manner that he promised he would adopt in our discussions on the Bill.

    The Government have made much of the claim that the clause will ease the position of VAT recovery for small businesses. Our fear is that there are some limited circumstances in which the clause will make matters worse, and we have tabled amendments to correct that problem. I shall return to that issue later as I deal in detail with our amendments. It is important at the outset to recognise the context in which the debate is taking place, and to that end it is necessary to examine the overall context in which small businesses find themselves.

    Small, if useful, measures on VAT registration and bad debt relief are as nothing beside the two overwhelming and dominating facts of life for small businesses in Britain today. Those are high interest rates and the introduction of the uniform business rate.

    7 pm

    High interest rates have been adopted by the Government as the only policy that is supposed to operate as a deterrent to demand and credit in the British economy. As we know, high interest rates are not particularly good instruments as a deterrent to demand. As we pointed out on Second Reading, since the former Chancellor began to tighten credit by raising the cost of money, £150 billion-worth of additional credit has gone into the domestic economy. The profit figures announced this morning by Sainsbury show that the impact on the demand side of the economy has been imperfect at best.

    But the problem with high interest rates is that they harm the supply side of the equation, too. It becomes crucial for small businesses because of the results of the harm on the supply side. Large-scale business tends to invest out of its own profits. Small business must borrow to invest, to grow and to take the decisions about future expansion that must be taken.

    The reality is clear. For example, the chairman of the Midland bank, Sir Kit McMahon, was reported on 24 April last to have said:
    "High interest rates were hitting businesses as well as individuals and leading to a worsening of the bank's bad debts."
    That was a clear indication from the Midland bank, echoed a couple of days later by the deputy chairman of Barclays bank, that small businesses throughout the country were facing enormous difficulty as a result of the Government's high interest rate policy.

    The accountants Peat, Marwick, McLintock reported a 27 per cent. rise in the number of companies going into voluntary liquidation in the first quarter of this year. That is the background for small businesses against which we come to this debate about VAT changes for small businesses.

    At the same time as high interest rates are operating on small businesses, the uniform business rate is having a great impact, especially in the south of the country, on the small-scale retailing sector. Even the transitional protection that the Government have supposedly introduced will not make life much better for small businesses faced with the certainty of major increases in the rates that they will pay in each of the next five years.

    We must consider clause 10 against that background. Likewise, we must consider the changes that our amendments would make to the clause. There are two forms of trader who are not affected by clause 10. A limited number of traders use either the cash accounting scheme or the retailers' standard method scheme. Under either of those, output VAT is accounted for only when cash is received. So bad debt relief is automatic for firms in those categories.

    All other traders will find the clause important. For them, VAT must at present be accounted for to Customs on the basis of VAT invoices issued, regardless of whether the money has been received. As a result, if a trader charges a customer £100 of VAT, he must at the time of his next VAT return account for that £100 to Customs and Excise, whether or not he has received the money.

    If the £100 is not received, because the customer defaults, how can the trader get his £100 back or have it recredited? Until the date of the Budget, he could get it back only if the debtor became formally insolvent, and the formal definition of insolvency—generally either bankruptcy or liquidation—was set out in section 22 of the Value Added Tax Act 1983.

    If a debtor simply did not pay or became untraceable —if he disappeared or, in the case of large companies, the debt was small—it was not worthwhile tracking the debtor down, making him bankrupt and petitioning for a company's liquidation. As a result, even where a debt had been written off and was clearly not recoverable, VAT bad debt relief was often not available. As larger debtors were chased and as larger creditors tended to pursue debts as a matter of principle, the problem tended to affect mainly relatively small debts owed to small and medium-sized traders.

    Overall, taken in total, a substantial amount of money is involved and it has been a source of great irritation to many businesses. For example, in the credit card operation of one major high street retailer, in 1988–89 £12 million of small debts, of under £500 each, was written off. By doing that, the company would have lost some £1·8 million in VAT bad debt relief. So in some instances we are talking about substantial sums of money and a substantial impact upon the cash flow of companies.

    The new relief which clause 10 introduces allows the £100 of VAT to be reclaimed or recredited after three things have happened. First, the VAT has to have been paid over by the trader to Her Majesty's Customs and Excise before it can subsequently be reclaimed under the provisions of the clause. Secondly, the debt has to be written off in the company's accounts, and thirdly—the point to which our principal amendment relates—at least two years must elapse from the date of the supply.

    Representative bodies of small businesses have been pressing for such bad debt relief for many years, so it is a welcome change. However, the pressure was for such a change to be made as an alternative to the existing system, not as a complete and total replacement for it. Our other main amendment seeks to enshrine that principle so that after Royal Assent the new clause 10 provisions are not a total replacement for the existing provisions, and to allow them to run side by side.

    I do not fully understand one aspect of the hon. Gentleman's argument. I do not understand why it is thought that clause 10 is so important for small businesses. Any small business with a turnover of less than £250,000, which is not that much, can opt for cash accounting. If a company opts for cash accounting it has to account for output only when it receives the cash. Small businesses do not have to worry about all that, so why is the clause so important for small businesses if they can opt for cash accounting?

    I am surprised by the hon. Gentleman, who is normally somewhat more perceptive. Of course the clause is important to small businesses, as it is to larger businesses, but larger businesses can frequently tolerate greater ups and downs in their cash flow than can small businesses which have not opted for cash accounting. I made it clear at the beginning of my remarks that the cash accounting principle was excluded from the provisions for bad debt relief because VAT is not claimed at the point of supply. The hon. Gentleman must realise that large numbers of small businesses are affected by the provisions of clause 10 for whom the deficiencies of clause 10 are likely to be important.

    The new relief will be introduced in place of the old relief and schedule 16 of the Bill, which no doubt we shall be discussing in some weeks' time, repeals section 22 of the Value Added Tax Act 1983.

    7.15 pm

    The problem is that, where prompt relief might have been possible under the old system, it is likely to be delayed under the new system. Let me illustrate that. If a major trader, which we shall call Ryder and Co., is rendering quarterly VAT returns and in July 1990 Ryder and Co. sells goods to another company—let us call it Lilley and Co.—for £1 million plus VAT of £150,000. Payment is due in 60 days. At the end of September 1990, Ryder and Co. pays the £150,000 to Her Majesty's Customs and Excise. Lilley and Co. has not yet paid Ryder and Co.

    In October, Ryder presses Lilley for payment and hears that Lilley may be insolvent. In November Ryder petitions for Lilley's liquidation and in December Ryder submits proof to the liquidator who responds that the company is likely to receive £230,000 in due course. Ryder therefore writes off £920,000 in its year-end accounts and with December 1990 VAT return claims repayment of £120,000. Effectively, under the existing system of claim back the repayment would have taken only one VAT quarter. In practice that would be unusually quick, but not totally uncommon.

    Under the new system, Ryder and Co. would have to wait until at least July 1992—two years after the supply and seven VAT quarters after paying over the VAT—before being able to recover the £120,000 from Customs and Excise. Potentially that could be a crippling blow, because a further £800,000 would already have been lost as a result of the non-payment. At an estimated 15 per cent. cash flow cost, the cash flow cost to the company would be at least £18,000. It is therefore perfectly conceivable that under the changes that the Government have introduced, in some circumstances bad debt relief will be worse than under the existing system. In those circumstances the reforms in clause 10 could cost traders money. They would get additional relief for smaller bad debts, but would suffer delays in receiving relief for larger debts.

    The amendments seek to relieve or eliminate the problem. Amendment No. 3 is our principal amendment and unless the Government can satisfy us on it, we might divide the Committee. The amendment seeks to reduce the two-year time limit in clause 10(1)(c) to one year. If it takes an average of nine months from the date of supply to obtain bad debt relief under the old system—the period that would normally apply if the debtor went into liquidation—and if a one-year rather than a two-year period were to operate, the new system would simply add three months' delay rather than the 15 months' delay that would apply under current proposals. The period of one year would be more appropriate and sensible. It would allow for 80 days of credit, five months of arguing—if discussions were appropriate—and six months to write off the debt.

    Amendment No. 3 would provide that instead of having to wait two years before it can get bad debt relief, a company should have to wait only one year. That seems to provide a better framework for business without causing insuperable administrative problems for Customs and Excise.

    Amendment No. 1 would reinstate the old section 22 test as an alternative to the time lapse test. As I said earlier, the amendment would set the old system for relief where liquidation took place alongside the new system, rather than allowing the new system totally to eradicate the old. If liquidation took place within a short period after the supply of goods or services, the old system operated fairly effectively. Under the Government's proposals the two-year time limit has to expire before relief can be obtained. Amendment No. 1 seeks to reinstate the old system to run in parallel with the new, and offers the two as alternatives to the business community.

    Amendment No. 2 is slightly more technical; the Liberal Democrats have tabled a similar amendment, No. 37. Amendment No. 2 has two aims. First, under new Inland Revenue regulations, small traders can present simplified accounts to support a tax return and there is no statutory requirement to produce full accounts. Some small traders may not have accounts which would satisfy clause 10(1)(b). Their three-line accounts will not identify bad debts as part of the specific acccounts prepared by the company. The amendment requires only that the account be written off in the accounting records from which the accounts, however simple, have been or will be prepared. Even smaller traders will have such records, which are a VAT requirement.

    The second reason for amendment No. 2 is that the wording of clause 10(1)(b) could in some circumstances cause problems. Let us assume that the Government were to decide that although our proposal for a 12-month period is not acceptable, none the less two years is too long, and in due course proposed shortening the period to 15 months. If a company had a debt of £1 million, with VAT of £150,000 already paid to Her Majesty's Customs, dating from March 1991, the debt would not be written off in the December 1991 accounts but would be written off in the May 1992 ledger. To satisfy the provisions of clause 10(1)(b), the company could not reclaim the VAT until the audited 1992 accounts were available, say, in April 1993.

    In the amendment, we suggest that the proof that the debt was written off should not have to wait until the published accounts but should be demonstrable by entries in the company's ledgers, which would be used in the compilation of the accounts. That would mean that the company would not have to wait, possibly for several years, for the bad debt relief.

    I wish to make three other brief points in respect of the clause. First, the power in clause 10(5)(g) to let the commissioners make regulations which
    "make different provision for different circumstances"
    appear to be drawn rather widely. Obviously, we wish to ensure that the commissioners have the powers they need, but the provisions of that part of the clause seem wide. Although regulations will be promulgated under the provision, we ask the Government to ensure that any such regulations are issued in draft for comment before promulgation takes place.

    Secondly, clause 10(4)(a) is clearly aimed at the position where someone deliberately overcharges another person for a supply, crediting the VAT on the VAT return of the person receiving the supply, with the supplier then recovering it under the new rules. We wish to catch precisely such abuse as well. The wording of clause 10(4)(a)—
    "equal to or less than its open market value"—
    seems to be drawn extremely tightly. It is reminiscent of Shylock's pound of flesh when even £1 worth above the stated value would immediately disqualify the entire bad debt relief. That seems tough. We hope that the Government will consider a phrase such as, "the value of the supply not being substantially greater than the open market value".

    Thirdly, I note that the Liberal Democrats have tabled amendment No. 38 in respect of clause 10(4)(b). There might be a problem with the provision where goods are sold under hire purchase or under a Romalpa clause, whereby in strict law title remains with the vendor until the goods are fully paid for, but where the goods are not recovered by the vendor when the purchaser defaults. Unless clause 10(4)(b) is withdrawn or amended, a strict interpretation would mean that bad debt relief would not be due in such cases. It would be useful to have an assurance that the regulations will allow relief to be claimed.

    I have tried to outline on these complicated and technical matters the purpose of our amendments. We agree entirely with the aim upon which the Government have embarked in clause 10 to make life better and easier for businesses claiming bad debt relief. We do not think that the Government have got it entirely right. We have tabled the amendments in a spirit of helpfulness to the Government and in the hope that improvements will be made.

    The hon. Member for Islington, South and Finsbury (Mr. Smith) was less than generous in his welcome to a worthwhile and overdue reform. It is no secret that sometimes Ministers, as a result of collective responsibility, have to support and take action on matters with which they are not in 100 per cent. agreement. That was certainly true for me in the mid-1980s when I was a Treasury Minister with responsibility for indirect taxation.

    Having had a hand in the reform of bad debt provision in regard to insolvency, I always recognised that very hard cases still remained in which groups of traders were suffering, because at that time we were unable, with the expertise available to the Customs and Excise, to come up with a scheme as wide in operation as that now proposed.

    I warmly congratulate my right hon. Friend the Chancellor and my hon. Friend the Economic Secretary —who has, I imagine, dealt with the detail of the provisions—on bringing forward this reform. I can remember a number of times on which I had to write letters to traders who could not believe that the system was fair. I had to say to them that VAT operated on the supply of goods and services and not on the payment for them. It was bad enough when people defaulted on paying the fees or the charges for the goods or services supplied, but when the traders who were suffering from that bad debt had only limited redress through the insolvency provisions and often had no redress in reclaiming the VAT, one realised that the problem required Government action.

    The Government have now moved substantially in that direction at a significant cost of between £150 million and £200 million in a full year. That is a substantial contribution by the Government towards putting right something that has been wrong for too long. This is an excellent provision in what I regard as a good, fair and responsible Budget. It is with great pleasure that I commend clause 10, although I have a little trace of regret that when I had Treasury responsibility, I was unable to take the helpful action that my right hon. Friend the Chancellor and my hon. Friend the Economic Secretary have now taken.

    7.30 pm

    Clause 10 is a welcome feature of the Bill and addresses part of a major problem for smaller businesses. Bad debt is the tip of the iceberg of the problem of debt and late payment, which besets small business to such an extent that it has given rise to pleas for legislation and to private Members' Bills which have addressed the wider issue of late payment. Government Departments themselves are sometimes open to substantial criticism because many small businesses find it most difficult of all to deal with Government agencies.

    There is also a case for the Government, perhaps through training programmes, through the training and enterprise councils and through help for small businesses to direct attention towards ways of stopping bad debt problems mounting up and to encourage new businesses to put invoice and collection systems properly in place from the beginning. In my experience, many good craftsmen and tradesmen are often slow to send in their bills, so they are slow to realise that bad debts will arise.

    I am sometimes amazed by how long people who have done decent jobs wait to get paid and how often they fail to issue an initial invoice, let alone chase up the debt involved. That is often because such tradesmen are good at doing the job rather than good at the technicalities of chasing payment. However, there are so many relatively simple computer systems now that small business can be given every help and encouragement to stop the problem building up.

    Clause 10 addresses the extreme end of the problem —genuine bad debt. In a wide-ranging speech, the hon. Member for Islington, South and Finsbury (Mr. Smith) talked about the banks and their involvement. It struck me at the time that it is all very well for the banks to talk about bad debt when they have found that the worst bad debts are caused not by the expansion of demand in the retail trade, but in Third-world countries and in agriculture.

    Does the hon. Gentleman agree that there would not have been so many bad debts if the banks had not been such bad lenders?

    The banks' readiness to lend in circumstances in which individuals should be much more cautious about the pressure put on people to borrow money has been part of the recent economic problems, although the record of recovery at the personal debt level is very much better than it is in some other areas. I singled out agriculture and debts in Third-world countries as areas where the banks have seriously overcommitted themselves far more, to their own detriment. In personal debt, they have caused considerable damage to individuals by encouraging them to take out debts that they cannot repay.

    Does the hon. Gentleman agree that by giving enormous advances to Third-world countries, which will never be repaid, the banks have made it almost impossible or far more difficult to lend to smaller businesses?

    No, because the banks still have the capacity to provide loans to small businesses. I am critical of the way in which they carried out lending operations to Third-world countries, but we shall have plenty of opportunity to talk about that when we debate other provisions in the Bill.

    I and my right hon. and hon. Friends have tabled amendments designed to improve clause 10. Amendment No. 37, which overlaps with amendment No. 2, seeks to delete the word "accounts" and to insert "books and records". It is worrying that, if full statutory accounts are required, it will be a long time before a business can make a claim for relief from VAT. It could be a process of two years to have audited accounts available and unless the word "accounts" is used in a looser and more general way, the clause could present a real obstacle and could leave small businesses wondering whether it will be worth the effort and time involved in following the matter through over so long a period. I hope that the Economic Secretary will tell us that the word "accounts" in this case does not mean final audited or statutory accounts.

    Amendment No. 38 seeks to remove clause 10(4)(b) which denies relief where the goods have been supplied under a reservation of title, or what is known as a Romalpa title in the trade, in which the title remains with the vendor until payment is received. The logic is that the vendor can simply repossess the goods to meet his VAT payments and the debt to him, but that is not always easy. A hire purchase item may mysteriously disappear from the premises of the person who has incurred the debt. A piece of equipment may be supplied to another company which, strangely, has disappeared. Access to the premises may not be easily obtained. There are many reasons why repossession may not be feasible in the circumstances.

    If the debt is treated as a bad debt, but the item is subsequently reclaimed or returns to the possession of the business, the value would come back via clause 10(5)(e) and would be repaid. There are provisions there to ensure that a bad debt that ceases to be a bad debt is not the subject of a double benefit. I hope that the Minister will either accept amendment No. 38 or find some other way to ensure that people trading in that manner can obtain VAT relief. We are dealing with a sector that is important not only in the retail hire purchase trade, but in small business generally.

    Small businesses that face difficulties in obtaining capital are frequently involved in arrangements under which they have equipment whose title remains with the vendor until payment is received or completed. It is a common method and is an alternative to full-scale leasing which many small businesses use for the equipment they need. I look to the Minister to find a way of meeting those difficulties. If he does so, he will improve what is already a useful clause.

    This is the first debate on a Finance Bill in which I have taken part which has been initiated by the hon. Member for Islington, South and Finsbury (Mr. Smith), for whom I have some admiration. However, I am sorry that he spoke at some length and somewhat controversially in the early part of his speech. He spent so long in setting the scene that I hope, Mr. Lofthouse, that you will permit me to respond to his remarks on interest rates, for example. All hon. Members recognise that interest rates are a major problem for all kinds of businesses at present. However, let the House not forget that, under the previous Labour Government, the rate of interest was normally below the rate of inflation, so savers were losing all the time. It is appropriate to make that point in the debate on a Budget that aims to help saving.

    The hon. Member for Islington, South and Finsbury also referred to the uniform business rate as a source of burdens on small businesses. He will recall that we have previously debated the Labour party's attitude to the revaluation of business rating, which is by far the greatest cause of the burdens facing many businesses at the moment. The Labour party supports that revaluation.

    We welcome the measure in clause 10 which, as has been stated, will cost between £150 million and £200 million. That is a substantial amount at a time when budgetary pressure is significant. I listened with interest to the hon. Member for Islington, South and Finsbury. Certain business organisations share some of the reservations that have been expressed. I understand that the Confederation of British Industry has expressed reservations, although I have not been in direct contact with it. I believe that it has made representations to one or two of my hon. Friends.

    I must declare an interest because I am an adviser to the Building Employers Confederation which, in collusion with the CBI, has expressed concern about the way in which the bad debt relief might work. The BEC does not want traders to have to wait two years for the relief to take effect. It also sees certain advantages in running the new system in parallel with the old so that there will be an alternative. I hope that my hon. Friend the Economic Secretary to the Treasury will address those concerns expressed by business organisations and consider further possible representations that they might make in writing after this debate.

    It is worth noting that it was a Conservative Administration who raised VAT from 8 per cent. to 15 per cent. in their first year of office. We must view some of the problems that are related to clause 10 against that background and against a wider background of small businesses suffering the highest interest rates of any G7 country and the highest rate of inflation in industrialised Europe. I must make those points as we discuss what some people outside this place might consider a rather technical clause.

    You were right, Mr. Lofthouse, to call me to order earlier when I referred to the uniform business rate. That also forms part of the background to this debate, in which we are considering small businesses that might be forced out of business. The registration requirement might be the final straw for them. Because of the wider factors to which I have referred, many small businesses will find that any additional impositions might be enough to force them over the brink. Dun and Bradstreet estimate that in 1989 bankruptcies were running at 26·3 per cent. in London and the south-east, while the figure was 9·3 per cent. for England as a whole. Those figures appeared in March 1990.

    Of 100 per cent.

    We must also put the problem of late payments into perspective. My hon. Friend the Member for Ashfield (Mr. Haynes) paid tribute to his predecessor and I wanted to pay tribute to my predecessor, who was also a Conservative, Mr. Richard Ottaway. He often raised the issue of small claims and late payments. I am glad to see Conservative Back Benchers picking up on that campaign once again. I hope that they will find a ready response from the Government Front Bench.

    Will the hon. Gentleman consider the number of liquidations against the number of new companies being formed? If he did that, he would see that in all parts of the country the net number of new companies is higher than ever in our history.

    We must be very careful about the number of companies and businesses that are being created. We must consider how long they last. The companies that become bankrupt or go out of business may be different companies from those that are being created. My hon. Friend the Member for Wrexham (Dr. Marek) has just arrived in the Chamber hot foot from his constituency. I understand that he has lost 1,000 jobs in his constituency over the past couple of days. Frankly, even a dozen new hamburger stalls would not compensate to that loss of jobs.

    I hope that we have not yet lost those jobs. Brymbo was one of the most profitable steelworks in the country. It takes genius on the part of the Government to lose those jobs.

    All new business is welcome. However, we must ensure that the balance in our economy, which has been distorted over the past 10 years, reaches some equilibrium. We need full-time jobs that pay a reasonable rate for the job. People should not be forced into low-income employment to supplement otherwise inadequate earnings. Wives should not have to go out to work when they would rather look after young families at home when their husbands are at work.

    I understand that the measure in clause 10 will cost about £150 million. I do not want the measure to be withdrawn and I do not say that £150 million should not be spent. However, I hope that we will refer to the measure constantly in our proceedings on this Bill as an illustration of where the Government's spending priorities lie. In an earlier debate, the Department of Employment's training programmes were cut by £212 million. Today the Prime Minister refuted the need for more resources to be devoted to tracking down sex offenders—something that is close to the hearts of some Opposition Members.

    Order. The hon. Gentleman is straying. He should return to the amendment.

    7.45 pm

    I accept that reprimand, but I was trying to draw a perspective on the spending involved in clause 10. That spending amounts to £150 million. While I do not believe that that money will not be spent properly, there are other spending priorities, which should be examined thoroughly in our debates on this Bill.

    The hon. Gentleman is complaining about the cost of the measure. However, his hon. Friend the Member for Islington, South and Finsbury (Mr. Smith) has already welcomed it. He is proposing an amendment to reduce the period to one year, and no doubt that would increase the costs a great deal. What does the hon. Gentleman say about that?

    I am sorry that my arguments went over the hon. Gentleman's head. I will try to explain them more simply, so that he can understand them. We are used to his interventions in the Public Accounts Committee, where he is usually a little more perceptive.

    We are entitled to examine the Government's spending priorities as a whole in the Finance Bill. I welcome the spending on this measure of VAT relief. I also welcome the speech of my hon. Friend the hon. Member for Islington, South and Finsbury. My point is that there are many other spending priorities, but you, Mr. Lofthouse, would draw me to order if I were to refer to them in detail. However, those other priorities should also be taken into account. They illustrate the philosophy of a Government who, in many aspects in the Budget, have decided to do very little. They are holding the ship as steady as possible while it is surrounded by icebergs. Nevertheless, other areas are involved and need to be examined.

    The first of the three amendments explained by my hon. Friend the Member for Islington, South and Finsbury seeks to ensure that the baby is not thrown out with the bath water. Although we welcome clause 10, we should ensure that companies that are insolvent retain their current abilities and are not ruled out of the provisions.

    The second of our group of amendments seeks to help with small traders' claims for relief. That point has been well covered. The final amendment in this group, on which I have no doubt that my hon. Friend the Member for Workington (Mr. Campbell-Savours) wishes to comment, relates to the delay in claiming VAT relief on all written-off debts. Again, I hope that the Government will feel that it is possible to reduce the two years to one and that they will accept the amendment as proposed. If that is not possible, I hope that the Economic Secretary will at least agree to consider the matter in some detail and that he will make some verbal commitment when he replies.

    When VAT was first introduced, the position on bad debt relief was clear—there was no bad debt relief. It is important that the Committee understands how unfair that was. Value added tax was organised in such a way that a business had to pay over the VAT whether or not the registered trader had received the cash. If the trader never received the customer's cash, he never received the cash back from Customs and Excise. My right hon. Friend the Member for Brentford and Isleworth (Sir B. Hayhoe) was the Minister responsible for Customs and Excise at the time. He introduced what he has just conceded was a step in the right direction on the issue of bad debt relief, but it provided only for businesses that were already insolvent. There was therefore still a problem, because many businesses still had to pay VAT to Customs and Excise, but were unable to recover it.

    It is important to understand that registered traders are effectively unpaid collectors of taxes. They are not dealing with their own liability; they are collecting a tax and paying it to Customs and Excise. It was a most unfair system, because they were required to pay a tax when somebody else was unable to pay it. The clause is welcome, as it introduces a comprehensive system of bad debt relief for the first time.

    The hon. Member for Nottingham, North (Mr. Allen) does not seem to understand a great deal about VAT and would do well to listen at the moment—[Interruption.] I am glad that the Opposition Front Bench spokesmen are listening. The hon. Gentleman complained about the cost of the relief and suggested that it was an indication of the Government's public spending priorities. However, we are not talking about public spending priorities; we are talking about taxation yields.

    If the cost of the relief is £150 million, we must remember that that £150 million is the bottom line for businesses that are not responsible for the fact that the tax has not been paid in the first place. It was not those businesses' fault that their customers had become insolvent or did not pay, but they had to pay the tax over to the Customs and Excise. It is because that system was so unfair that this change is so welcome.

    The only point that I did not understand in the speech of the hon. Member for Islington, South and Finsbury (Mr. Smith) was his explanation of the importance of the clause for small businesses. I remind him that, in the past few years, another important change has been made—since the introduction of VAT—

    Is the hon. Gentleman saying that providing the relief does not involve real money or real spending or certain priorities in relation to Government spending?

    Of course it involves real money, but it has nothing to do with the Government spending. The provision involves a reduction in the yield of VAT, and for the reasons that I have explained, I believe that that reduction in the yield is wholly justified.

    I was about to say that another important change that has been made to the VAT regime in recent years is the change to cash accounting. Any business with a turnover of £250,000 or less, which must accommodate a large number if not the majority of registered traders, can switch to a system of cash accounting if it so chooses, and at any time that it so chooses. It can then not only accommodate bad debts—there will be no problems about customers who have not paid—but it has a solution to the problem of customers who pay late. Cash accounting means that the trader pays the VAT to Customs and Excise only when it has been collected from the customers.

    Can my hon. Friend the Economic Secretary tell us what proportion of VAT traders have opted for cash accounting? Surely more small businesses should be encouraged to make the change, because they would not have to worry about complying with all the requirements of the provisions on bad debt relief, and they would not have to worry if some of their debtors took a long time to pay their debts, because all those factors are taken into account in cash accounting.

    I believe that only a relatively small proportion of VAT traders have changed to cash accounting, and I wonder why. Is it because the system has not been publicised sufficiently? If more traders switched to that system, they would find substantial cash flow benefits and would no longer have to worry about the problems of bad debt relief. Clause 10 would then be relevant to large businesses with a turnover of more than £250,000. Although I hope that my hon. Friend the Economic Secretary will comment on that, I conclude by welcoming the new provisions.

    I welcome the speech of my hon. Friend the Member for Beaconsfield (Mr. Smith), which was in stark contrast to that of the hon. Member for Nottingham, North (Mr. Allen) in that it contained great good sense and was both accurate and to the point.

    I, too, welcome clause 10. As my hon. Friend the Member for Beaconsfield said when he traced the history of bad debt relief—or the absence of bad debt relief—businesses of all kinds have been hard done by in the past, which is why the relief is so welcome.

    However, although the previous relief needed amending to some extent, it should not be thrown out altogether. The Institute of Chartered Accountants in England and Wales believes that the clause is a welcome extension to the existing bad debt reliefs, at least where there is no formal insolvency. However, either the present relief should be allowed to continue in addition to the new relief that has been proposed—perhaps the former should be amended to provide for the repayment of VAT for amounts that are subsequently recovered, with proof of the insolvency for the VAT-inclusive amount of the debt—or the requirement for a two-year period should be substantially reduced. It has been suggested that the two-year period should be reduced to one year. That would be possible, but I accept that if the period were reduced there would be many more cases of doubt in which a bad debt was initially claimed but where the amount was subsequently paid.

    We are all aware of the need for Customs and Excise to ensure that companies do not claim double relief. However, if the two systems of bad debt relief—the old system and the new system—were allowed to run in tandem, and if a VAT payer could opt for the system that he found preferable, he might be able to avoid claiming double relief simply by the inclusion of an additional box on VAT form 100, in which only the amount of the relief that has actually been claimed would need to be given. In that way, no one could enjoy double relief.

    The Institute of Chartered Accountants in England and Wales also believes that the new relief is unduly restrictive because there is an unwarranted delay where the debt has become irrecoverable within a short period after the date of supply because of the insolvency of the debtor. That point has been raised by several hon. Members, including the hon. Member for Islington, South and Finsbury (Mr. Smith).

    There is support for the fact that this is welcome relief, unless the debtor goes bankrupt, and then the delay seems far too long.

    In his brief sketch of the legislation, the hon. Member for Islington, South and Finsbury—

    8 pm

    As my hon. Friend says, it was an outline or perhaps even briefer than that. I am sure that we shall hear longer speeches from the hon. Gentleman in Committee. He also mentioned Romalpa-type goods, where goods are sold subject to reservation of title. The hon. Member for Brent, South (Mr. Boateng) would understand the legal title. Where the property and goods have not passed, the owner of those goods is placed in a difficult position. If the goods have disappeared, there is a bad debt, but, because the title has not passed, he is still deemed to own those goods, so there is a serious problem with clause 10(4)(b). It would operate unfairly if the title proved to be unenforceable. I am sure that the effect of that clause was not intended and was a straightforward slip which needs to be addressed. Hire purchase contracts or goods sold under reservation of title should not cause unfair disadvantage to those who have lost both the goods and, subsequently, the VAT.

    Clause 10(5) mentions "regulations". It would be most helpful for all hon. Members on both sides of the Committee if those regulations were issued in draft form for comment before being laid before the House. There have been many cases during the past few years where the Revenue and the Department of Trade and Industry have been helpful over company legislation, and draft regulations issued for comment have helped to reduce final inaccuracies and argument.

    That is particularly important in this clause, because accountants would like to feel that the definition of writing off a debt is at least consistent with their way of doing it. Will a debt being written off mean that the debt has to be written out of the books, or will it suffice if the full provision is made against it? The law is not clear and it would be much better if published accounts were consistent with what my hon. Friend the Economic Secretary is trying to bring into the legislation.

    Presumably, the regulations will also specify the additional records that the taxpayer will have to keep to make a claim, and in what form. It is only right that practising accountants should be able to comment on that before the regulations are presented to the Committee. The Institute of Chartered Accountants in England and Wales has written to the Treasury saying it would be happy to discuss the draft with Her Majesty's Customs and Excise if it so wishes.

    The bad debt relief should be available where a provision is made in respect of a debt, rather than its being written off. Should the amount prove recoverable, the debt would be repayable. It would be disappointing if best accounting practice was distorted as a result of the need to comply with the write-off requirements under the regulations. Therefore, I welcome the clause, but believe that the two or three issues raised by hon. Members from both sides of the Committee are worthy of comment. In that spirit, I support the clause.

    When one misses a Finance Bill or two, one becomes quite rusty on such matters, and I must confess that I feel a little rusty on this issue.

    I should like to raise a couple of points because, if I recall correctly, early in the 1980s I spoke on an amendment to the Finance Bill in some detail having done a considerable amount of homework. I am trying to empty my mind of what I said then. Now that a scheme is in place —at that time I was arguing for the introduction of a scheme—I am concerned about what would happen if someone claimed relief, having written off a debt, and subsequently reclaimed the goods.

    The hon. Member for Richmond and Barnes (Mr. Hanley) alluded to what would happen if relief was claimed and the goods were subsequently re-acquired—

    I can understand that if settlement of the account finally took place, the VAT would have to be adjusted to take that into account. However, I am not sure that it is the function of the Customs and Excise authorities to police where goods have been re-acquired by manufacturers or distributors from customers who have not paid, but have been willing to relinquish control of the goods.

    I do not believe that the hon. Gentleman was in the House when the hon. Member for Islington, South and Finsbury made exactly the same points as I did. If the hon. Member for Workington (Mr. Campbell-Savours) disagrees with what I said, he is disagreeing with his own Front-Bench spokesman.

    It is not unknown for me to depart from the views of my Front-Bench spokesmen. This is the House of Commons, a debating Chamber, and we are free to speak. This is hardly a matter of huge political dimension, requiring us to take an entrenched ideological position. We are discussing to and fro the merits of a scheme. I was not here earlier because I was in the Select Committee on Members' Interests, dealing with matters that I find important and interesting.

    I support the amendment to reduce the period to one year. It seems that it will be hard for Customs and Excise to police where goods have been reclaimed from customers who have had their VAT liability to the seller, distributor or supplier of the goods written off. It would be hard to monitor that.

    It might be that firm A supplies to firm B £5,000-worth of merchandise. Firm B dillies and dallies and at the end of two years, firm A claims relief. Six months later, firm A may send round a couple of wagons to firm B and say, "We know that you have the goods in there and we want them back. You never paid us. We have received the money back from Customs and Excise, but you never actually paid us and we want our goods back." Firm A may go in and secure those goods. That is a reasonable case. What would happen in that instance? Will the VAT monitoring apply equally in that case, or will it partially apply? How will it be policed? I do not know.

    I believe that the provision is a major concession. I remember the old days when purchase tax was 25 per cent. There was a time when it was even more. There was a purchase tax surcharge in the late 1960s when I was in business when it was as much as 35 or 37.5 per cent.—extremely high. At that time one could not reclaim it and when someone did not pay, it was a big wallop out of one's cash flow. We have seen purchase tax reduced to 8 per cent. as VAT and rise to 15 per cent. and I am sure that today, while it will not be on such a high scale, it will certainly have a major effect on cash flow when companies do not pay their bills or VAT liabilities.

    I remember a particular incident in which I was involved. In 1976, in my former incarnation as a business man, I was supplying clocks to a large retailing organisation. It advertised my clock in full-page advertisements in one of the Sunday colour supplements. The company performed some clever manoeuvres when placing its orders. I was not too intelligent at the time; I was just banging out the gear, getting it into the shops to our clients, and perhaps forgetting that certain customers were building up a lot of credit. One particular customer built up credit of about £10,000—worth about £30,000 today—and then took our company for a ride. Of course, we were left to pay the bill for VAT. The rogue company never went into liquidation and we never found out what happened to it. By that time I had retired from the business to come into this blessed place. No claim was ever made, and what had previously been partly my company ended up subsidising Customs and Excise. That was wrong, and it has perhaps gone on to this day when liquidations have not taken place.

    Based on my experience, I welcome a reform of this nature. But we should also consider the implications for many businesses suffering from high interest rates. Many companies in times of comparatively declining consumption and difficult market conditions—we are now entering such a period—find it hard to use all their capacity, and often find their profits falling as a result. At a time when such companies are borrowing more and more from the banks to invest in technology, as the Government told them they should, and when they are having to pay high interest rates, concessions of this sort are important because they save companies money and have a significant and positive effect on their cash flow.

    I mean no disrespect to my hon. Friends or even, unusually, to Opposition Members when I say that the most fascinating speech in the debate so far has been that of my right hon. Friend the Member for Brentford and Isleworth (Sir B. Hayhoe), who I well remember defending with passionate intensity in previous such debates positions that he now declares he believed all along to be indefensible. I know that the Economic Secretary will not be unfamiliar with that aspect of a Minister's life; but I have often spoken on previous Finance Bills to advocate broadly the sort of relief that the Government propose this evening. I greatly welcome it.

    I was most interested by the speech of the hon. Member for Islington, South and Finsbury (Mr. Smith). I am delighted that he accepts the recommendations of the Institute of Directors on this matter. This is a most welcome new alliance with the Labour party, and I hope that it is contagious and will extend in due course to many of the other policies of the institute. Then we will know that perestroika has come to the Labour party in a big way.

    Only one of my two amendments has been selected. They propose a slight modification of the Government's legislative proposals. In particular, they would reduce the two-year period before relief can be claimed to 13 months. It may be wondered why I selected 13 months, as opposed to 12. My first reason was that I discovered that the Labour party had selected 12—my original suggestion. However, I have been able to think up a rational justification for my change of mind. It is that 13 months can be justified as one year from the usual due date for payment after presentation of an invoice—usually 30 days or one month.

    My second amendment seeks to bring forward the earliest date at which a claim under these rules can be made to 1 April 1991. That has been necessitated because my amendment to reduce to 13 months the period before relief can be claimed has the consequential effect, given the way the clause is drafted, of bringing forward the earliest claim date to 1 April 1990. Clearly it would be impossible to have a claim date earlier than that on which the regulations under the clause come into force, so I chose 1 April 1991 as a date which accommodates the reasonable suggestions of the Customs and Excise as to what is practically possible, but which seeks to bring forward the date on which the relief will become available in the interests of those who will be able to claim.

    8.15 pm

    I greatly welcome the Government's proposals, because proper relief of VAT on bad debts has been a notable omission from United Kingdom tax legislation, as my hon. Friend the Member for Beaconsfield (Mr. Smith) pointed out, since the inception of VAT. This inequity has been staring Governments in the face for a great many years and hon. Members on both sides of the House have campaigned strongly for many years against it, in the interests, particularly but not exclusively, of small businesses.

    It is perhaps interesting to look back over the various reforms of the past 15 years or so and to see the slow steps by which we have reached this point. Section 22 of the VAT Act 1983 re-enacted provisions in the Finance Act 1978 and gave relief in cases in which there had been a formal insolvency. Then, in 1985, as my right hon. Friend the Member for Brentford and Isleworth recalled, relief was extended to include administrative receiverships. And then, in the Finance (No. 2) Act 1987, we introduced that most valuable provision, the cash accounting scheme, for traders with a turnover of up to £250,000.

    If I may supply my hon. Friend the Member for Beaconsfield with the answer with which the hon. Member for Nottingham, North (Mr. Allen) was unable to supply him as to why we need this new relief, inasmuch as most small businesses can avail themselves of the cash accounting system which would remove the necessity for it, it is that, for whatever reason, there will be traders who do not appreciate where their true commercial tax advantage lies, and it would therefore be right to provide a catch-all relief. This provision certainly does that.

    I share the view of my hon. Friend the Member for Beaconsfield that it would be in the interests of many more firms to take up the opportunities that the Government have provided for them. They perhaps do not sufficiently realise the advantages to their cash flow that the cash accounting scheme would provide. I should be very surprised to hear from my hon. Friend the Economic Secretary figures to show that more than a very small proportion of those who qualify for the cash accounting scheme have actually taken up the opportunity with which the Government have provided them, and I hope that they will he encouraged to do so.

    In July 1988, Customs and Excise announced a review, following a commitment in the enterprise and deregulation unit's progress report earlier in the year, to look into the matter. We have been waiting a long time for this most welcome change, which the Government have introduced after a period of consideration.

    My amendments seek to bring forward the point at which the benefits of this relief become available. One of the reasons why that is necessary is the very length of the period of gestation that I have described. Business deserves prompt and full relief without further ado, and I do not believe that the arguments for a two-year period are very compelling.

    Attention has rightly been concentrated on the cost to the Treasury of the reduced yield of VAT that these proposals would cause. If their proper relief is expensive, that is merely a measure of the unfair burden that those businesses have had to endure for many years.

    We should not be apologetic in any way about the cost to the Treasury of these proposals. That burden falls especially on small businesses which do not have the muscle that larger businesses use to make their customers pay promptly. For many small businesses, a bad debt can prove fatal. It can be the straw that breaks the camel's back, and being able to recover VAT promptly on a large bad debt can be the difference that enables a firm to survive and can stop the domino effect of default, bankruptcies and insolvencies.

    This is a valuable means of preserving businesses that might otherwise be threatened. It has job-saving potential, and also the revenue-raising potential that comes from profitable businesses paying taxes rather than becoming a charge on the taxpayer as a result of failure.

    The reason that I have sought to reduce the two-year period to 13 months, and why the Opposition have sought to reduce it to 12 months, is that, for most businesses, once a debt is over a year old, the likelihood of recovery is small. We should recognise that one year is a sensible period to choose, because at the end of that time, the debt is in practice unlikely to be recoverable. I hope that my hon. Friend the Economic Secretary to the Treasury can offer some comforting words when he replies to the points that I have made.

    My hon. Friend the Member for Richmond and Barnes (Mr. Hanley) and the hon. Member for Islington, South and Finsbury spoke of running in tandem the old section 22 relief and the proposals in the Bill. I support that contention, because I see nothing wrong with running the two in tandem. It may be more advantageous to businesses to seek the section 22 relief, and businesses that are used to doing that should be allowed to continue in that way.

    I do not wish to sound churlish because I greatly welcome the birth of this advantageous tax relief. It coincides with the appointment to his distinguished office of my hon. Friend the Economic Secretary to the Treasury. I congratulate him on building on the work of our right hon. Friend the Member for Brentford and Isleworth (Sir B. Hayhoe) who covertly and strongly fought the mandarins of the Treasury all those years ago. I congratulate the Government on their proposals.

    I reiterate my gratitude to my right hon. Friend the Member for Brentford and Isleworth (Sir B. Hayhoe). I am sure that my right hon. Friend the Chancellor, being a generous man, would be happy to share the credit for the implementation of this clause with my right hon. Friend the Member for Brentford and Isleworth, for whose kind remarks I am grateful.

    I start by responding to some specific and technical points that were made by some of my hon. Friends and by Opposition Members, including the hon. Members for Islington, South and Finsbury (Mr. Smith) and for Workington (Mr. Campbell-Savours). My hon. Friend for Richmond and Barnes (Mr. Hanley) spoke about extra boxes. I understand that the return has just been revised to make it shorter, simpler and easier for traders, and that that has been done very much along the lines that my hon. Friend suggested. That is part of the Government's deregulation drive.

    My hon. Friend the Member for Beaconsfield (Mr. Smith) asked about numbers. I think that about 83,000 have taken up cash accounting out of a total of 600,000. That represents about 15 per cent. so far. The hon. Member for Workington conceded that he was a little rusty after all these years. This is the first time that I have had to speak about VAT from the Front Bench and I can tell him that he is not the only one who feels a little rusty.

    In the debate on last year's Finance Bill, which I have read, the hon. Member for Workington spoke about corporation tax. This time he has raised the matter of policing. VAT officers will be instructed to pay special attention to bad debt relief claims during normal control visits, and they will carry out cross checking of supplies, verification and transaction testing, especially in relation to associated companies and connected persons. We have approved 20 extra staff for that very purpose and with the full implementation of the Keith committee proposals, Customs and Excise now has a fuller armoury of criminal and civil evasion powers to deal with any dishonesty that is discovered.

    Is not there a danger that the defaulting company could claim that it has paid its account and the value added tax that was due, when in fact it has been written off by the supplying company?

    I do not think that that is a danger. During discussions that I have had about the clause it has never been drawn to my attention that it could be a danger. If the hon. Gentleman feels that the matter is worthy of further investigation, I shall certainly carry out an examination on his behalf.

    The hon. Member for Islington, South and Finsbury raised three specific points about clause 10(5)(g) and the powers of VAT commissioners. We are looking at the feasibility of a consultation exercise on the draft regulations. If the hon. Gentleman has any specific matter that he would like to draw to our attention in connection with that exercise, we would be grateful to receive it. Clause 10(4)(a) is a straight copy of section 32(4)(a) of the Finance Act 1985. There is no case for giving more relief than the supply is worth. I think that traders might be tempted fraudulently to inflate the value. The other technical point raised by the hon. Gentleman was in the context of section 22 of the 1983 legislation, which has been superseded by section 32 of the Finance Act 1985.

    The hon. Member for Islington, South and Finsbury made a great deal of the problem that some small businesses are suffering because of high interest rates. At the moment, lower interest rates are not a viable option if inflation is to come down. I draw his attention to an article last week in the Bank of England Quarterly Bulletin which stated that interest rates are an extremely effective policy instrument and that, if anything, their effectiveness has increased rather than decreased in recent years. I cannot share what I would describe as the hon. Gentleman's gloom merchant's analysis of small businesses. As one of my hon. Friends said in an intervention, there are now about 1,500 net new businesses starting every week.

    The figure that I have given is net. The net figure during the last full year of a Labour Government was a loss of 100 rather than a gain of 1,500. It was minus 100 and not plus 1,500.

    Is not the crucial point how long those businesses last? Businesses may start up, but if they do not survive the year, the figures are meaningless.

    If they do not survive the year, they go into the next year's figures. This is a net figure, a rolling figure. It is the figure of the new VAT regulations, which is in the public domain and constantly used by the Government.

    I do not think the Minister understands the importance of the intervention made by my hon. Friend the Member for Leeds, West (Mr. Battle). We are discussing bad debt. If, while pressing his case, the Minister is forced to accept that a large number of companies are dropping out of business or becoming insolvent, he is accepting that there is a disproportionately higher level of debt today than previously. If people are dropping out of business, the chances are that it is because of insolvency and they will leave debts behind. Surely it cannot be the Government's policy to promote a climate of business expansion which is reliant on the odd few getting through and a majority dropping out, creating immeasurable damage in terms of bad debt liability with the consequences of that on those who survive. We cannot run a modern economy on that basis. Who is protecting whom in those circumstances?

    8.30 pm

    I do not deny that many small businesses are experiencing serious problems. With interest rates at their present level, it would be unusual if they were not. But I gave the net figure of new businesses starting up. There is no denying that many small businesses are closing and that many that are not closing are suffering from some of the problems to which the hon. Gentleman referred.

    Clause 10 is another step towards improved conditions for small businesses, and most hon. Members who have spoken have expressed their support for it. It follows a catalogue of tax cuts undertaken by the Government since 1979. I am grateful for that support for the general thrust of the measures that have been incorporated in the clause.

    Clause 10(6) provides for the making of regulations to cover the accounting requirements of the new scheme. They will provide that any trader wishing to claim bad debt relief will be required to maintain a separate bad debt relief account. When a debt is deemed to be bad, the trader will enter the debt in the bad debt relief account. That will be regarded as write-off for the purpose of the clause, as the debt will have been tranferred from whatever form of current account the trader maintains.

    Concern has been expressed by hon. Members and by interested organisations outside the House that the requirement for write-off might not be met until a trader's accounts are audited or approved at a general meeting. I hope that the hon. Member for Berwick-upon-Tweed (Mr. Beith) will accept that amendment No. 37 addresses an unfounded fear. However, should the accounts subsequently be rejected by the auditors or the general meeting in matters affecting bad debts, the clawback procedures would be appropriate.

    Amendment No. 38 has been tabled by the hon. Member for Berwick-upon-Tweed because he believes that traders supplying goods under certain contracts—for example, Romalpa—will be at a disadvantage. I do not think that that will be the case, because under such contracts the seller reserves title until the customer has paid for the goods. If the customer does not pay, the seller can either reclaim the goods, in which case there is no debt, or he can relinquish title to the goods and become eligible for bad debt relief. The amendment would allow the seller to do both. In other words, there would be double relief, and that would not be wholly justified.

    Does that mean that a trader can self-certify that the debt cannot be recovered and so transfer title and, in some cases, if a person cannot be traced so that transfer cannot be formally effected, he can simply report to Customs and Excise that he has surrendered title and claim VAT relief?

    That is a possibility.

    Amendment No. 1 was echoed by an amendment in the name of my hon. Friend the Member for Basingstoke (Mr. Hunter) which was not called. It proposes that our new scheme should co-exist with the previous bad debt relief provisions which relied on formal insolvency. The argument here is that when a company goes into formal insolvency, within a period of two years the creditor is worse off under the new arrangements than he was under the old arrangements. Much has been made of that by some commentators outside the House, but I wonder how often that would arise in practice.

    I am told that it takes on average 18 months for a creditor to pursue a debt from the initial supply of goods or services to unsuccessful enforcement through county court procedures. Only then might a creditor contemplate insolvency as a means of recovering at least part of the debt owed to him. I would certainly expect companies to think twice about supplying goods or services on credit to a company which has already experienced problems in paying others.

    If we were to go down that route of dual running, there would be considerable administrative complexities for business men and for Customs and Excise, who would have to guard against the possibility of claims being made under both systems. One of the virtues of the system that we are proposing is that relief is automatic. Therefore, in principle, it should be simple to operate.

    Amendment No. 3 is the core of the debate, as was acknowledged by the hon. Member for Islington, South and Finsbury. It seeks to reduce the waiting period before bad debt relief can be claimed from two years to 12 months. A cut in the time limit also found favour with, among others, my hon. Friends the Members for Taunton (Mr. Nicholson) and for Tatton (Mr. Hamilton). My hon. Friend the Member for Tatton tabled an amendment for 13 months rather than 12 months. Amendment No. 24 in his name is a consequential amendment which would follow if amendment No. 3 were to be accepted.

    I would expect a company, before it wrote off a debt, to make every attempt to recover not only the VAT, which would be a fairly small proportion of the sum, but the debt itself. In our judgment, two years is the appropriate period which should elapse before a company decides that a debt is irrecoverable.

    I always leave the good news to the end, as the hon. Gentleman, our favourite Jacobin, knows.

    Our judgment was that two years is an appropriate period of time to elapse before a company decides that a debt cannot be recovered. We are also conscious that too short a period might be open to deliberate abuse by fraudsters.

    I am aware of the strength of feeling expressed in the debate and by the many organisations that have made representations to the Treasury. For those reasons, I have concluded that there may be scope for further improvement to the scheme. We shall be examining that possibility between now and Report stage.

    I began today's proceedings by saying, in response to the hon. Member for Nottingham, North (Mr. Allen), that I was cordial, friendly, co-operative and helpful. It is in that spirit that I have put forward the views that I have. On that basis, I hope that the hon. Member for Islington, South and Finsbury will withdraw his amendment.

    I begin by thanking the Economic Secretary for his remarks about possibly issuing the draft regulations relating to clause 10 for comment before they are submitted to the House. We hope that that will be done. Certainly my right hon. and hon. Friends and I will want to take a vigorous part in such a consultation exercise.

    I thank the Minister for his comments about the provisions of the clause as they effect hire purchase or Romalpa arrangements. As far as I could tell, the Economic Secretary was saying that, if title to the goods is relinquished by a decision of their supplier, bad debt relief can be claimed. I hope that I have correctly understood the Minister's remarks.

    I was not entirely convinced by the hon. Gentleman's answers to questions asked by ourselves and the Liberal Democrats concerning the precise definition of accounts and the effect that an entry in the books of a company before accounts have been audited or published might have on the provisions of the clause. Perhaps we can continue to examine that over the next month or two.

    As to the two major issues before the Committee, we have made substantial progress on amendment No. 3, and it would be churlish of me not to acknowledge that the Economic Secretary's response was extremely positive. We hope that, as our discussions progress, the Government will bring forward a new clause or amendment on Report to cover the points encompassed by amendment No. 3, and that their response is a harbinger of other changes of mind. It is good to see that happening so early in our discussions. We have struck gold. We find that the Government are accepting the wisdom and sense of amendments that we have tabled.

    Accordingly, I shall happily seek permission to withdraw amendment No. 3, and await our return to the issue to which it relates.

    The Economic Secretary was somewhat less forthcoming in respect of amendment No. 1. We believe that a reduction in the time period from two years to one year would be useful; and that it would be sensible and right to run the existing system of relief in the case of insolvency together with the new one of automatic relief after a certain period has elapsed. Even with the shortened time period, in some cases—such as where insolvency occurs after three months—a supplier will have to wait another 12 months before being eligible for bad debt relief under the new system. We still want to press amendment No. 1, which seeks to allow the two systems to run alongside one another—but we give a warm welcome to the Economic Secretary's comments on amendment No. 3.

    The debate that has just taken place related to amendment No. 2. Am I to understand that the hon. Member for Islington, South and Finsbury (Mr. Smith) wishes to withdraw amendment No. 2?

    Amendment, by leave, withdrawn.

    Amendment proposed: No. 1, in clause 10, page 6, line 45, after 'elapsed', insert

    ', or the company or individual liable to pay any outstanding amount of the consideration has become insolvent and (except where Paragraph 10 (1A)(b) below applies) the person has submitted a claim in the insolvency for the outstanding amount of the consideration.
  • (1A) a company becomes insolvent for the purposes of this section if:
  • (a) it goes into liquidation in the United Kingdom or the Isle of Man at a time when its assets are insufficient for the payment of its debts and other liabilities and the expenses of the winding up;
  • (b) a person who has been appointed in Great Britain to act as the Administrator or Administrative Receiver issues a certificate of his opinion that, if it went into liquidation, the assets of the company would be insufficient to cover the payment of any dividend in respect of debts which are neither secured nor preferential; or
  • (c) a composition or scheme proposed by the Directors is approved under Part I of the Insolvency Act 1986.
  • (1B) An individual becomes insolvent for the purposes of this section if:
  • (a) in England and Wales he is adjudged bankrupt, a deed of arrangement is made for the benefit of his creditors, a composition or scheme proposed by him is approved under Part VIII of the Insolvency Act 1986 or, after his death, his estate falls to be administered in accordance with an order under Part XV of that Act;
  • (b) in Scotland, sequestration of his estate is awarded, he signs a trust deed for his creditors or, after his death, a judicial factor is appointed under Section 11A of the Judicial Factors (Scotland) Act 1889 to administer his estate;
  • (c) in Northern Ireland he is adjudged bankrupt, a deed of arrangement is made for the benefit of his creditors, a resolution of his creditors is approved by the court under Section 5 of the Bankruptcy Amendment Act (Northern Ireland) 1929 or, after his death, the court makes an order for the administration in bankruptcy of his estate; or
  • (d) in the Isle of Man, he is adjudged bankrupt, a deed of arrangement is made for the benefit of his creditors or, after his death, the court makes an order for the administration in bankruptcy of his estate.'.—[Mr. Chris Smith.]
  • Question put, That the amendment be made:—

    The Committee divided: Ayes 165, Noes 224.

    Division No. 208]

    [8.45 pm

    AYES

    Abbott, Ms DianeHughes, John (Coventry NE)
    Allen, GrahamHughes, Robert (Aberdeen N)
    Anderson, DonaldHughes, Roy (Newport E)
    Archer, Rt Hon PeterIngram, Adam
    Armstrong, HilaryJanner, Greville
    Ashdown, Rt Hon PaddyJones, Barry (Alyn & Deeside)
    Banks, Tony (Newham NW)Jones, Ieuan (Ynys Môn)
    Barnes, Harry (Derbyshire NE)Jones, Martyn (Clwyd S W)
    Barnes, Mrs Rosie (Greenwich)Kaufman, Rt Hon Gerald
    Barron, KevinKilfedder, James
    Battle, JohnLeighton, Ron
    Beckett, MargaretLestor, Joan (Eccles)
    Beith, A. J.Lewis, Terry
    Benn, Rt Hon TonyLitherland, Robert
    Bermingham, GeraldLivsey, Richard
    Bidwell, SydneyLloyd, Tony (Stretford)
    Boateng, PaulLoyden, Eddie
    Boyes, RolandMcAllion, John
    Bradley, KeithMcAvoy, Thomas
    Brown, Gordon (D'mline E)McKay, Allen (Barnsley West)
    Brown, Nicholas (Newcastle E)McKelvey, William
    Brown, Ron (Edinburgh Leith)McLeish, Henry
    Buchan, NormanMaclennan, Robert
    Buckley, George J.McWilliam, John
    Callaghan, JimMadden, Max
    Campbell, Menzies (Fife NE)Mahon, Mrs Alice
    Campbell, Ron (Blyth Valley)Marek, Dr John
    Campbell-Savours, D. N.Marshall, David (Shettleston)
    Carlile, Alex (Mont'g)Marshall, Jim (Leicester S)
    Clark, Dr David (S Shields)Martin, Michael J. (Springburn)
    Clarke, Tom (Monklands W)Martlew, Eric
    Clay, BobMaxton, John
    Clelland, DavidMeacher, Michael
    Cohen, HarryMeale, Alan
    Cryer, BobMichael, Alun
    Cummings, JohnMichie, Bill (Sheffield Heeley)
    Darling, AlistairMitchell, Austin (G't Grimsby)
    Davies, Ron (Caerphilly)Molyneaux, Rt Hon James
    Davis, Terry (B'ham Hodge H'l)Morgan, Rhodri
    Dewar, DonaldMorley, Elliot
    Dixon, DonMorris, Rt Hon A. (W'shawe)
    Doran, FrankMowlam, Marjorie
    Dunnachie, JimmyMullin, Chris
    Dunwoody, Hon Mrs GwynethOakes, Rt Hon Gordon
    Eadie, AlexanderO'Brien, William
    Eastham, KenO'Neill, Martin
    Evans, John (St Helens N)Orme, Rt Hon Stanley
    Ewing, Harry (Falkirk E)Parry, Robert
    Fearn, RonaldPatchett, Terry
    Field, Frank (Birkenhead)Pike, Peter L.
    Fisher, MarkPowell, Ray (Ogmore)
    Flannery, MartinPrimarolo, Dawn
    Foot, Rt Hon MichaelQuin, Ms Joyce
    Forsythe, Clifford (Antrim S)Radice, Giles
    Foster, DerekRedmond, Martin
    Fraser, JohnRees, Rt Hon Merlyn
    Fyfe, MariaReid, Dr John
    Garrett, John (Norwich South)Richardson, Jo
    George, BruceRobertson, George
    Graham, ThomasRogers, Allan
    Griffiths, Nigel (Edinburgh S)Rooker, Jeff
    Griffiths, Win (Bridgend)Ross, Ernie (Dundee W)
    Harman, Ms HarrietRuddock, Joan
    Haynes, FrankSalmond, Alex
    Heal, Mrs SylviaSedgemore, Brian
    Henderson, DougSheerman, Barry
    Hogg, N. (C'nauld & Kilsyth)Sheldon, Rt Hon Robert
    Home Robertson, JohnShort, Clare
    Hood, JimmySkinner, Dennis
    Howells, GeraintSmith, Andrew (Oxford E)
    Howells, Dr. Kim (Pontypridd)Smith, C. (Isl'ton & F'bury)

    Smith, Rt Hon J. (Monk'ds E)Wareing, Robert N.
    Smith, J. P. (Vale of Glam)Welsh, Andrew (Angus E)
    Soley, CliveWigley, Dafydd
    Spearing, NigelWilliams, Rt Hon Alan
    Steinberg, GerryWilson, Brian
    Strang, GavinWinnick, David
    Straw, JackWorthington, Tony
    Taylor, Mrs Ann (Dewsbury)Wray, Jimmy
    Taylor, Matthew (Truro)Young, David (Bolton SE)
    Thompson, Jack (Wansbeck)
    Turner, Dennis

    Tellers for the Ayes

    Wallace, James

    Mrs. Min Golding and Mr. Frank Cook.

    Walley, Joan
    Wardell, Gareth (Gower)

    NOES

    Alexander, RichardFairbairn, Sir Nicholas
    Alison, Rt Hon MichaelFallon, Michael
    Amess, DavidFavell, Tony
    Amos, AlanField, Barry (Isle of Wight)
    Arbuthnot, JamesFishburn, John Dudley
    Arnold, Jacques (Gravesham)Forman, Nigel
    Arnold, Tom (Hazel Grove)Forsyth, Michael (Stirling)
    Aspinwall, JackForth, Eric
    Atkins, RobertFowler, Rt Hon Sir Norman
    Atkinson, DavidFox, Sir Marcus
    Baker, Nicholas (Dorset N)Franks, Cecil
    Baldry, TonyFreeman, Roger
    Banks, Robert (Harrogate)Galloway, George
    Batiste, SpencerGarel-Jones, Tristan
    Bellingham, HenryGill, Christopher
    Bennett, Nicholas (Pembroke)Glyn, Dr Sir Alan
    Benyon, W.Goodlad, Alastair
    Bevan, David GilroyGoodson-Wickes, Dr Charles
    Blaker, Rt Hon Sir PeterGorman, Mrs Teresa
    Body, Sir RichardGow, Ian
    Bonsor, Sir NicholasGrant, Sir Anthony (CambsSW)
    Boscawen, Hon RobertGreenway, Harry (Ealing N)
    Boswell, TimGregory, Conal
    Bottomley, Mrs VirginiaGriffiths, Peter (Portsmouth N)
    Bowden, Gerald (Dulwich)Ground, Patrick
    Bowis, JohnGrylls, Michael
    Boyson, Rt Hon Dr Sir RhodesGummer, Rt Hon John Selwyn
    Braine, Rt Hon Sir BernardHague, William
    Brandon-Bravo, MartinHamilton, Neil (Tatton)
    Brazier, JulianHanley, Jeremy
    Bright, GrahamHargreaves, Ken (Hyndburn)
    Brown, Michael (Brigg & Cl't's)Harris, David
    Bruce, Ian (Dorset South)Haselhurst, Alan
    Buchanan-Smith, Rt Hon AlickHawkins, Christopher
    Buck, Sir AntonyHayhoe, Rt Hon Sir Barney
    Budgen, NicholasHayward, Robert
    Burns, SimonHeathcoat-Amory, David
    Burt, AlistairHeseltine, Rt Hon Michael
    Butler, ChrisHicks, Mrs Maureen (Wolv' NE)
    Carlisle, John, (Luton N)Hicks, Robert (Cornwall SE)
    Carttiss MichaelHill, James
    Chalker, Rt Hon Mrs LyndaHowe, Rt Hon Sir Geoffrey
    Chapman, SydneyHowell, Ralph (North Norfolk)
    Chope, ChristopherHughes, Robert G. (Harrow W)
    Clark, Dr Michael (Rochford)Hunt, Sir John (Ravensbourne)
    Clark, Sir W. (Croydon S)Hunter, Andrew
    Clarke, Rt Hon K. (Rushcliffe)Irvine, Michael
    Colvin, MichaelIrving, Sir Charles
    Coombs, Anthony (Wyre F'rest)Jack, Michael
    Coombs, Simon (Swindon)Janman, Tim
    Couchman, JamesJessel, Toby
    Currie, Mrs EdwinaJones, Gwilym (Cardiff N)
    Davies, Q. (Stamfd & Spald'g)Jones, Robert B (Herts W)
    Davis, David (Boothferry)Kellett-Bowman, Dame Elaine
    Day, StephenKey, Robert
    Dicks, TerryKing, Roger (B'ham N'thfield)
    Douglas-Hamilton, Lord JamesKirkhope, Timothy
    Dover, DenKnapman, Roger
    Dunn, BobKnight, Greg (Derby North)
    Durant, TonyKnight, Dame Jill (Edgbaston)
    Dykes, HughKnowles, Michael
    Eggar, TimKnox, David
    Evans, David (Welwyn Hatf'd)Lamont, Rt Hon Norman
    Evennett, DavidLang, Ian

    Latham, MichaelSoames, Hon Nicholas
    Lee, John (Pendle)Speed, Keith
    Lennox-Boyd, Hon MarkSpeller, Tony
    Lightbown, DavidSpicer, Sir Jim (Dorset W)
    Lilley, PeterSpicer, Michael (S Worcs)
    Lloyd, Sir Ian (Havant)Squire, Robin
    Lloyd, Peter (Fareham)Stanbrook, Ivor
    Lord, MichaelStanley, Rt Hon Sir John
    Luce, Rt Hon RichardStern, Michael
    Lyell, Rt Hon Sir NicholasStevens, Lewis
    Macfarlane, Sir NeilStewart, Allan (Eastwood)
    MacGregor, Rt Hon JohnStewart, Andy (Sherwood)
    Maclean, DavidStewart, Rt Hon Ian (Herts N)
    McLoughlin, PatrickStokes, Sir John
    McNair-Wilson, Sir PatrickStradling Thomas, Sir John
    Malins, HumfreySumberg, David
    Mans, KeithTaylor, Ian (Esher)
    Maples, JohnTaylor, John M (Solihull)
    Marland, PaulTaylor, Teddy (S'end E)
    Marlow, TonyTebbit, Rt Hon Norman
    Marshall, Michael (Arundel)Temple-Morris, Peter
    Martin, David (Portsmouth S)Thompson, D. (Calder Valley)
    Mates, MichaelThompson, Patrick (Norwich N)
    Maude, Hon FrancisThornton, Malcolm
    Mayhew, Rt Hon Sir PatrickThurnham, Peter
    Meyer, Sir AnthonyTracey, Richard
    Miscampbell, NormanTrotter, Neville
    Morris, M (N'hampton S)Twinn, Dr Ian
    Nicholson, David (Taunton)Vaughan, Sir Gerard
    Norris, SteveWaddington, Rt Hon David
    Onslow, Rt Hon CranleyWalker, Bill (T'side North)
    Patnick, IrvineWaller, Gary
    Pawsey, JamesWardle, Charles (Bexhill)
    Peacock, Mrs ElizabethWatts, John
    Riddick, GrahamWells, Bowen
    Ridsdale, Sir JulianWhitney, Ray
    Roberts, Wyn (Conwy)Widdecombe, Ann
    Rost, PeterWilkinson, John
    Rowe, AndrewWilshire, David
    Ryder, RichardWolfson, Mark
    Sainsbury, Hon TimWood, Timothy
    Scott, Rt Hon NicholasWoodcock, Dr. Mike
    Shaw, David (Dover)Yeo, Tim
    Shaw, Sir Giles (Pudsey)Young, Sir George (Acton)
    Shaw, Sir Michael (Scarb')Younger, Rt Hon George
    Shelton, Sir William
    Shepherd, Richard (Aldridge)

    Tellers for the Noes:

    Skeet, Sir Trevor

    Mr. Tom Sackville and Mr. Kenneth Carlisle.

    Smith, Tim (Beaconsfield)

    Question accordingly negatived.

    Clause 10 ordered to stand part of the Bill.

    Clause 3

    Hydrocarbon Oil 1979 C 5

    I beg to move amendment No. 33, in page 2, line 16, leave out '£0·1902 and insert £0·18'.

    With this it will be convenient to discuss the following amendments: No. 22, in page 2, line 23, leave out '£0·0299' and insert '£0·035'.

    No. 39, in page 2, line 23, leave out '£0·0299' and insert '£0·0383'.

    Amendments Nos. 22 and 39 are similar, but amendment 22 was tabled by the Opposition and amendment No. 39 by the Liberal party. They are important amendments as they affect our environment and what will happen to the country, and because last year, after a debate, the Government made certain welcome concessions and took steps to ensure that there was a good differential between leaded and unleaded petrol.

    The amendment would reduce the price of unleaded petrol by a modest amount. We hope that the Government will see the sense of that and, if they cannot accept the amendment, perhaps the Economic Secretary, who is to reply to the debate, will be able to offer some concessions in future years or in future budgets.

    The Economic Secretary is, however, in great trouble. It was not a green Budget. Perhaps it could be said that the additional 2p differential on leaded petrol was a green measure. However, that was due to the 10 per cent. uprating of petrol of all types. Such a differential naturally leads to an increase in the differential between the price of leaded and unleaded petrol. The Treasury could do nothing about green measures in the Budget; it was waiting for the Secretary of State for the Environment to publish his Green Paper on the Government's intentions regarding the environment.

    We have been led to expect a carbon tax and other radical proposals in the White Paper that is to be published in the autumn. However, according to the Sunday newspapers, the green tax on petrol proposal has been ruled out and will not be included in the White Paper that is being prepared by the Secretary of State for the Environment. In March he said that a green tax was an essential part of the Government's economic policies. Now, however, it has been ruled out. According to an unattributable briefing by a working party spokesman:
    "Nobody in their right mind would expect a substantial increase in energy prices in the run-up to an election."
    The Government have their eye on the next election. Therefore, the environment does not matter. What matters to them is that they should hold on to power. They do not mind what happens to the country. They are concerned only about the election. They are not concerned about green policies and the effect of existing policies on the environment, or about protecting the environment, or creating a better one.

    9 pm

    According to the unattributable briefing, the White Paper will discuss fuel taxation but it will not commit the Government to any moves, even if they are inflation-neutral, and it will be up to the Treasury to decide what petrol duties should be. If it is for the Treasury to decide what those duties should be, the Treasury should have insisted upon being told earlier this year so that the Budget could include measures that represented Treasury thinking on petrol taxation and how it saw its role in improving the environment.

    It is important to encourage people to use unleaded petrol. In March 1989, 15 per cent. of all cars used unleaded petrol. In the previous year, the figure was only 2 to 3 per cent. That was a good increase, although not as large as some of us had wanted. By October 1989, the differential between leaded and unleaded petrol was 28 per cent. Unfortunately, the differential has remained at almost the same figure; it is now about 30 per cent. A number of organisations argue that the differential must be greater. An additional tax on leaded petrol is not required, but the Government could forgo a little tax on unleaded petrol. Last year the Treasury paid back £7 billion of the national debt, so it could offer a slightly greater differential on unleaded petrol. [Interruption.] The hon. Member for Lancaster (Dame E. Kellett-Bowman) always intervenes from a sedentary position and I can never hear her.

    I was simply making the self-evident observation that the Opposition incur debts and we pay them back.

    We have the highest balance of payments deficit in our entire history. Even invisible earnings during the last few months of 1989 went into deficit for the first time ever. It comes ill from the hon. Member for Lancaster to say that the Government pay back the debts that we incur.

    I shall give way again to the hon. Lady, if necessary, but she must make more substantial points if she wishes to gain the Committee's attention. Many hon. Members want to contribute to this important debate.

    Ever since the French revolution, we have borrowed a good deal. Each Labour Government have borrowed more, and Conservative Governments have paid it back.

    The hon. Lady must examine the curves for the national debt in the past 150 years. It is true that it increased during the first and second world wars, but it has decreased under Labour as well as Conservative Governments. [Interruption.] Conservative Members need only examine the graph, and it will become clear. They will see that during the last war—under a coalition led by a Conservative Prime Minister—the levels were high.

    Let us talk about unleaded petrol instead.

    The problem is that the number of cars using unleaded petrol has remained stuck at about 28 or 30 per cent. for the past six months. We need an incentive for people to change to unleaded petrol. They will not do so now, because the argument has gone off the boil.

    Surely the 28 per cent. figure reflects the number of cars that cannot be changed to unleaded petrol. However, the figure is liable to go up regardless of any changes in duty that may occur in the next few months as more and more new cars run on unleaded petrol from the word go.

    More cars could change to unleaded petrol than are doing so now.

    We must remember that lead in petrol damages the heart, the kidneys and the central nervous system—[Interruption.] The hon. Member for Lancaster is moaning again, but it is true. Lead in petrol causes anaemia and high blood pressure, and can be responsible for abortion and stillbirths. It is an evil that we can do without.

    I am sorry that the hon. Member for Tatton (Mr. Hamilton) is not in his place—perhaps he is pursuing a constituency interest—because not so many years ago he argued for the retention of leaded petrol. I hope that no Conservative Member will do that tonight.

    Opposition Members are not happy that the Chancellor has increased the price of petrol by 10 per cent. across the board. We had hoped for a differential between leaded and unleaded petrol, but there was none in the Budget.

    There are also the problems of the 10 per cent. of disabled people who use the Motability scheme. Those people have their vehicles on a lease basis over a three-year period. Therefore, when the price of petrol increases, they can do less mileage. I do not expect an answer now from the Economic Secretary, but perhaps he can write to me later, as the problem is serious. I remind him that there are several well-known patrons of Motability, who I hope will agree that there is a case for examining the amount of finance available to Motability. Those who participate in the scheme suffer when the price of petrol rises above the rate of inflation.

    Included among those patrons are the right hon. Member for Wallasey (Mrs. Chalker), the right hon. Member for Sutton Coldfield (Sir N. Fowler), the right hon. Member for Croydon, Central (Mr. Moore), the right hon. Member for Braintree (Mr. Newton), the right hon. Member for Chelsea (Mr. Scott), and finally, at the bottom of the list, the right hon. Member for Finchley (Mrs. Thatcher). With patrons like those, there should be no need for me to plead the case for fair treatment for Motability; However, I am doing so because the matter must be mentioned. I hope that what I have said will be considered by the Treasury—I see the Economic Secretary nodding. The EC Commission is pressing for a 30p differential between leaded petrol and DERV. At present the differential is only 20p and our amendment would widen it a little.

    Our usage of diesel accounts for about 5 per cent. of the market, which is much less than most other European countries. I have a graph, although not the actual figures, which shows that if our usage is about 5 per cent., it must be about 10 per cent. in Germany, perhaps 28 per cent. in France and about 12 per cent. in Italy. So we are behind other European countries in the use of diesel. We could do more by increasing the differential because diesel can be a better fuel. It does not contain lead and it is 30 per cent. more economical, thus reducing the level of carbon dioxide emissions. When fitted with a three-way converter, it could be cleaner than anything that a petrol engine could offer. I do not have time to elaborate on those points, but I know that some of my hon. Friends hope to speak about them.

    In summary, it is clear that more needs to be done. We had expected some green tinges to the Budget, but in the event it turned out to be grey on those issues. Perhaps the Treasury was caught out by the Secretary of State for the Environment, who was to have done great things but will not now do them. We shall be interested to hear the Economic Secretary's remarks. He will need to make some encouraging noises to prevent us from pushing the amemdment to a Division.

    The hon. Member for Wrexham (Dr. Marek) raised the important issue of unleaded petrol. The Government will wish seriously to bear his arguments in mind, but I hope that they will bear equally in mind the plight of unfortunate people such as I who bought a British car and found that it was not capable of being converted to take unleaded petrol.

    One is often anxious to do the right thing—for example, to buy a good British car or use unleaded petrol—and bearing in mind the balance of payments problem to which the hon. Member for Wrexham referred, I regard it as my duty to buy British whenever possible.

    The increase in the price of petrol as a result of the Budget was substantial. It went up by 10 per cent. for leaded and unleaded, adding 11p to a gallon of leaded and 9p to a gallon of unleaded petrol. The tax differential is now 15·6p per gallon and unleaded petrol now has about 30 per cent. of the market.

    As I say, it was a substantial price rise. Most people have not noticed the extent of the increase because, at the same time as we had the increase, all petrol stations seemed to make the dramatic change from gallons to litres, and it is now difficult to work out the difference. I am reminded of what happened when we switched to decimal currency; with the change of system came a substantial rise in prices.

    Whether or not the public are aware of what has happened, they would like to know whether the increases are part of a general move by the Government to implement the terms of the Single European Act and to aim to harmonise our taxation system in so far as that is necessary for the completion of the internal market.

    In the debate on the motor vehicle market on 26 April, the Government made it clear that they continued to believe that centrally imposed tax approximation was unnecessary and inappropriate. Are the Government aiming at the harmonisation of indirect taxes and excise duties by 1992 in so far as that is necessary to complete the internal market?

    The Minister will be aware that that would involve dramatic changes for Britain. It would mean, for example, a reduction of about £3 billion in the taxes on alcohol and cigarettes. That would bring joy to some, but not to those who would have to pay the £3 billion, which would have to be imposed on necessities.

    If the Minister cannot avoid those measures, the people of Britain are entitled to know. I am not saying that the Government are right or wrong, but, quite honestly, I have not the slightest idea what the Government's policy is. It is terribly important that people should know. If we are about to move towards approximation with the EEC countries, that will mean rather dramatic changes in the tax we pay. It will mean, for example, much cheaper beer, much cheaper whisky, and significantly cheaper cigarettes, but essentials will go up and petrol will have to go up quite substantially.

    Order. I remind the hon. Gentleman that the clause and the amendments deal only with hydrocarbon oils.

    9.15 pm

    That is why I stress that hydrocarbon oils are only part of the budget. We want to know whether the provisions are part of a move towards approximation.

    Finally, if the Government do not consider that approximation is necessary on motor vehicles as well as on petrol, have they taken a legal view on whether the terms of the Single European Act could require them to do so if the Commission takes the view that member states have not approximated the taxes on petrol in so far as is necessary to complete the internal market? The Minister will be well aware of the problem as it has been drawn to the Government's attention many times. Many of us who sat through the late nights considering the Single European Act were worried that, although it stated that we had a veto, the clause states that we are committed to approximating in so far as it is necessary to complete the internal market. If the Commission does not think that we have a veto, what will happen?

    I hope that the Minister will say, purely in relation to the clause and amendments dealing with hydrocarbon oils, whether the Government intend to move towards harmonisation in so far as it is necessary to complete the internal market, and whether they have taken a legal opinion as to whether they might be obliged to do so? Whether the answer is yes or no, it will mean a great deal to the British public. I know that there are different views, as there may well be different views in the Committee, but we are entitled to know exactly what the Government's policy is on one of the most dramatic aspects of taxation in our time.

    The hon. Member for Southend, East (Mr. Taylor) has raised two points of relevance to the debate. The way in which petrol prices are displayed has a considerable effect on whether the differential appears significant to the motorist. He might have been suggesting that the fact that garages started displaying their prices in litres just when the prices were going up had something to do with Europe. But it was nothing of the kind; it was a direct result of a decision by the Government which led to an adverse report from the Select Committee on Trade and Industry and a prayer tabled against the regulations which had the signature of more than 200 right hon. and hon. Members.

    That prayer was never debated because the Government were too embarrassed to allow it to be debated, but it was entirely at the insistence of the Government and nothing to do with Europe that the rule was changed so that garage proprietors are not obliged to show prices in gallons as well as in litres. I consider that the Government made a grave mistake and that they should have responded to the pressures from hon. Members on all sides of the House not to do that. The result was to make it more difficult for motorists to compare prices, particularly when increases are taking place.

    It is still more difficult to make a realistic comparison. Perhaps I am getting old, but I still measure petrol prices in gallons because that is the term that makes sense to me. If people want measure in litres, that is fine for them, but why should not both prices be displayed? If the Government want to persuade motorists that there is a significant differential, why do they reduce the apparent differential by having the prices displayed only in litres?

    A garage can voluntarily display the prices in gallons, but the Government have removed the obligation to do so. I suggest that hon. Members should support those garages which inform their customers properly and continue to show their prices in gallons as well as litres. That is certainly my practice and I hope that others will do the same.

    There is no need whatsoever to achieve harmonisation of the duty on hydrocarbon oils across the Community to complete the single market. The only threat to the single market would be if different prices were charged in one country for commodities which came from other countries, thereby obtaining some price advantage.

    There is reasonable pressure to harmonise in adjoining countries, where travel between the two is easy. Obviously, large differences in the price of petrol would lead to much cross-border driving to fill up with petrol in the neighbouring country—as, for example, between Northern Ireland and the Republic of Ireland. There is not the slightest reason why we should be constrained in rates of duty on petrol or on diesel by the fact that there remain differences with other countries in the European Community. It will not be worth anyone's while to pay a considerable fare to come on a ferry to get petrol cheaper here. Anyway, restrictions should be observed for safety reasons on the carriage of petrol in ferries. Harmonisation is not necessary, and I hope that the Government will remain vigorous in protesting that view in European discussions.

    There is much at stake in this little bit of the Bill, because this is the entire Treasury commitment to greenery. When Treasury Ministers appear before the electorate, or go before their maker and are asked, "What have you done as a Treasury Minister to protect the environment?", all they can say is that the Economic Secretary wore a green tie for the debates on the Bill and that they had a differential on unleaded petrol.

    I welcome the differential on unleaded petrol, for which I argued before its introduction. It is proving its value, but we expected more from the Budget. Where are the other measures which the Government could have taken—the grading of vehicle excise duty by engine size, a more rigorous approach to company car tax provisions, incentives to fit catalytic converters, measures designed to deal with noxious emissions—

    Order. The hon. Gentleman will realise that he is straying from the amendments.

    I have made my case, Sir Paul. There were so many other areas into which Treasury Ministers could have gone to demonstrate that they were serious about the environment, that they place a great obligation on the leaded and unleaded petrol differential when it is their sole contribution.

    It is not unreasonable, therefore, that some of us have tabled amendments to make the differential greater. Let us at least try to get this right. Clearly, there is a need for further substantial conversion, and a wider differential would help to achieve it. The amendments are designed to make sure that there is a difference of 15p per gallon at the pumps, not in the taxation rate. A complicated calculation has to take place with the figures in the Bill to find out what the figure should be at the pumps.

    There is a case for an even larger differential. As the hon. Member for Wrexham (Dr. Marek) pointed out, the differential for diesel in other countries is much greater than it is here. In some Scandinavian countries, the price of diesel at the pumps is only half that of petrol. There are problems about diesel. Work needs to be done to make sure that, in its use, we are environmentally friendly, but it is possible to be so, as the hon. Member for Wrexham pointed out.

    I urge the Government to have a wider differential in favour of unleaded petrol and to reject the pleadings of their hon. Friends who in previous years were opposed to any differential. The hon. Member for Tatton (Mr. Hamilton), who took part in the debate last year, said that there should be no differential. I am glad that the Government have gone at least some way along the road. I believe that they should go further.

    I am encouraged by the comments of the hon. Member for Wrexham (Dr. Marek) on unleaded petrol. Despite what other members of the Labour party have said, he at least is encouraging the use of cars rather than public transport. Apart from that, I have sympathy with his view on unleaded petrol, having introduced a short Bill on the subject some 18 months ago.

    The hon. Gentleman should make his case better. An increase in the differential would mean a larger take-up of unleaded petrol by the car-owning public. We should keep a clear idea of the objectives—to increase the number of motor cars that can use unleaded petrol and to increase the number of cars that are converted. Simply to increase the differential would be an expensive way of achieving those objectives.

    Before the previous Budget, when the differential was increased, there was already plenty of evidence, although there was only 3p or 4p difference between the two prices, that people were already converting to unleaded petrol as a result of the promotional activities by the petrol companies and the manufacturers. Unleaded petrol week, which took place at the end of 1988, achieved much. I needed to be convinced then and I need even more to be convinced now that to decrease the amount of duty, which would involve a considerable sum, is the best way of using the money to encourage people to use unleaded petrol. I should much prefer the Government once again to encourage by promotional activities through the car companies and the petrol companies the use of unleaded petrol.

    I wholly agree with some of the points made by the hon. Member for Berwick-upon-Tweed (Mr. Beith). There is not enough physical evidence at petrol stations of the price differential. In the case of some companies, such as British Petroleum, it is difficult to tell which pump has the unleaded petrol, because the new logo is green and yellow. That needs to be changed.

    I have taken up that point with BP and it has promised to look again at the somewhat indiscriminate use of green because of the misleading impression that it gives.

    I am grateful to my hon. Friend. As I said, far more could be done at considerably less cost to the Exchequer to achieve an increase in the amount of unleaded petrol used by methods other than increasing the differential between the two fuels.

    The hon. Member for Wrexham (Dr. Marek) talked about three-way catalytic converters, but in relation to diesel fuels, he should have referred to the catalytic trap. Amendment No. 33 does not seem to relate to diesel vehicles with a catalytic trap, but to all vehicles that use diesel. Before we go down that route, there must be far more evidence that there are no risks to health from diesel fumes. I am thinking especially of diesel vehicle emissions that can be carcinogenic. Last year in Germany, for example, where there had been an increase year by year in the number of diesel cars sold, the figure went down for the first time in five or six years as a result of that worry about health. There is equal worry about photochemical smog, especially in cities, as a result of diesel emissions. It is probably a mistake at this stage to use diesel more extensively when there is still much evidence to suggest that there are health effects about which we do not know fully.

    Clause 3 is probably the most disappointing in the Bill. Above all, it exemplifies a missed opportunity. It deals with the changes in duty on leaded and unleaded petrol and on diesel, but sadly it is, as has been said previously, the green fig leaf to a Budget which could have been very green. We all accept that the Chancellor was constrained by his predecessor, the right hon. Member for Blaby (Mr. Lawson), and by his mistakes. No doubt he was also constrained by "her next door", by the high interest rates, by the rate of inflation which is the record for the G7 countries, by the monumental trade deficit which has built up under the current Administration and by the other economic circumstances. Having said all that, with a little more ambition and imagination, the Budget could have been creative through clause 3, and other green issues could have been raised. It is a missed opportunity.

    There is nothing in the Budget on reducing VAT to encourage recycled material. There are no tax incentives to ensure the use of items that otherwise would not be used. Sadly, there is nothing in the Bill to encourage insulation.

    Order. I remind the hon. Gentleman that this clause and the amendment are concerned solely with hydrocarbon oils.

    Indeed, but the clause contains no reference to the sizes of engines that use those oils, petrols and diesel fuels. Other countries have introduced a rigorous regime of pricing according to engine size, but unfortunately such a regime has not been introduced here.

    9.30 pm

    The Government have tried to get green credit by simply increasing the duty on all fuels by 10 per cent. Almost by accident there has been a very slight increase in the price differential. That has occurred not by design, but simply because all the fuels increased in price by exactly the same proportion. That is not enough.

    It has almost been taken as read in this debate, but I must repeat it again, that lead in petrol can kill. The case is overwhelming that lead in petrol causes accumulations that affect foetal development, birth weights and the size of the circumferences of children's heads. It produces all those difficulties. A high level of lead in blood is now, beyond a shadow of a doubt, a serious problem which must be tackled.

    I commend what the Government have already done to tackle that problem. However, we must continue that battle to ensure that more motorists use unleadeded or diesel. The percentage of drivers using unleaded has stagnated at around 30 per cent. Unleaded needs a further boost and the amendment would encourage that.

    The hon. Member for Southend, East (Mr. Taylor) referred to European harmonisation. Harmonisation is a million miles away and I hope that the hon. Gentleman is not too happy about harmonisation on this issue. The price of leaded fuel in some European countries is far higher than it is here. If it was a little higher here and if unleaded was a little cheaper, far more people would use unleaded. Leaded petrol in Denmark is £2·77 a gallon. In Ireland it is £2·68 and in Italy it is £2·97. Only three countries out of 12 in Europe have cheaper leaded petrol than the United Kingdom.

    We have seen what other countries have done with regard to the differential. We have seen the continuing effect of that. I hope that we have a Division on this amendment because it is important that people outside this place understand that the Labour party—we hope that we shall be joined by the smaller Opposition parties—is still determined to carry on the good work that has started. I hope that they understand that that work has not ended and that it should continue until the vast majority of motorists use unleaded fuel.

    Like my colleagues, I do not apologise for drawing attention to the fact that lead is very dangerous. Some 80 per cent. of lead in the atmosphere comes from petrol. We should remind ourselves regularly just what lead does to us. As my hon. Friend the Member for Wrexham (Dr. Marek) said, it damages the central nervous system. It causes anaemia and it is particularly damaging to children who are vulnerable to its effects because their brains and nervous systems are still developing. Children absorb lead far more quickly than adults.

    Does my hon. Friend agree that the very close proximity of inner-city schools and playgrounds to the busiest roads is at the heart of the problem of lead affecting small children?

    Yes, there is well-documented, tragic evidence to that effect. At the moment there is an argument about at what level the intake of lead begins to harm people, and especially children. Evidence is growing that a threshold level at which harm starts to be caused does not exist and that the effect is a continuum. Low levels of lead can cause harm. We believe that any level is harmful. That is why one of our amendments would reduce the tax on diesel, which is lead-free and, as far as we know, much less harmful—

    No, I shall not give way to the hon. Gentleman because he has made his points and I should like my hon. Friend the Member for Carlisle (Mr. Martlew) to have his chance.

    Diesel is more economical and reduces the level of carbon dioxide emissions. Therefore, we contend that the differential between leaded petrol and diesel should be increased as should that between leaded and unleaded petrol.

    The pricing differential between leaded and unleaded petrol has been fairly successful. I do not think that any hon. Member would argue with the fact that it is has encouraged motorists to change to unleaded petrol. Nevertheless, as my hon. Friend the Member for Nottingham, North (Mr. Allen) said, we seem to have reached stagnation point. In March 1989, unleaded petrol sales accounted for about 15 per cent. of the market; by October 1989, they accounted for 28 per cent., but since then there is no doubt that the campaign has stalled. It is estimated that by March this year the percentage of petrol sales accounted for by unleaded fuel had climbed to about 30 per cent. However, it is also estimated that another 20 per cent. of motorists could switch to unleaded petrol without engine conversion. It is true that 6 million cars use unleaded petrol, but that leaves 9 million cars that do not. Despite all the hype there is still an awfully long way to go.

    I agree that the Budget was grey rather than green. The Chancellor should at least have acknowledged the urgency of the environmental issues that are facing everybody in this country, if not in the world. I know that you, Sir Paul would rule me out of order if I were to discuss some of the issues to improve the environment for which we are calling, so I shall not do so.

    If accepted, our amendments would take us some way along the road to reducing the amount of lead in the air. As I am sure that that would be welcomed by everybody outside the House—and certainly by all Opposition Members, if not by all Conservative Members—I urge the Minister to accept our amendments.

    The Chancellor's decision on unleaded petrol was symbolic of the whole Budget. It was a missed opportunity. His decision did not extract inflation from the economy and did not extract poison from the atmosphere. The Budget left us with an economy that will be ruined for future generations, just as many of our children's minds will be ruined because the Chancellor did not take the opportunity of increasing the differential between leaded and unleaded petrol.

    The right hon. Member for Blaby (Mr. Lawson) has been blamed for many things, but at least we could say that he had a green tinge about him. He certainly has a green tinge these days but perhaps those of us who are not getting his salary should be the ones with a green tinge.

    I am sorry that the Economic Secretary will have to reply to this debate, and not the Chancellor. When he served at the Ministry of Agriculture, Fisheries and Food, the hon. Gentleman had a very good environmental reputation. Indeed, if he had still been a Minister in that Department, I doubt whether we would have this problem with mad cow disease. I notice that the hon. Gentleman is wearing a green tie. Perhaps that is a coded message to us that he does not believe what he is going to say, but that he has to say it anyway.

    Lead is dangerous—there is no argument from either side about that. I do not accept the argument of the hon. Member for Wyre (Mr. Mans) that price differential does makes no difference to the public's buying power. That was the implication of his remarks. At one time he praised petrol companies for their efforts and then he criticised them for trying to disguise which petrol was leaded and which unleaded. That sounded a peculiar argument to me.

    The Government increased taxation on unleaded petrol by 10 per cent. That was anti-environmental and anti-green because they actually increased the cost of unleaded petrol by 10 per cent. If they had wanted to get the same amount of revenue, they could have increased the differentials. That would not have made a major difference in the total cost, but would have encouraged people to go for unleaded petrol. We should be aiming for a system in which those who do not use unleaded petrol, use diesel and all of us have catalytic converters on our cars to help the environment. But the provision has done nothing towards that.

    If the Government had not wanted to put up the price of unleaded petrol, they could have put up the road tax —that was an option. Many Opposition Members are suspicious of the Government's reasons for refusing to put up road tax. We believe that they are getting ready to do away with it, and will put its cost on the price of petrol, both leaded and unleaded, in the not too distant future. They are not honest about that because they are deeply concerned about what rural voters will think about the abolition of the road tax. That is why the Government decided to increase the tax on unleaded petrol by 10 per cent.

    Some of my hon. Friends have been too kind to the Government. They said that it is a grey Budget. They were right; it is the colour of the Chancellor's hair. Through their action, the Government are being anti-environment and anti those of us who are consumers and decide that we want to buy environmentally friendly products.

    The only way the Budget has helped the environment is by closing some factories and reducing pollution in that way. I noticed that the job losses in the constituency of my hon. Friend the Member for Wrexham (Dr. Marek) were blamed on the downturn in the car industry. If there was a greater differential between the price of leaded and unleaded petrol, it might encourage some of us who have cars that cannot be converted to change to new cars. That would give the economy an impetus. But, of course, that is exactly what the Chancellor does not want us to do. We cannot have any growth, whether green or otherwise.

    The Government have let down the people of this country. They have let the cat out of the bag. They pay only lip service to the environment, and when it comes down to the pounds, shillings and pence, they do not give a damn.

    I thank the hon. Member for Carlisle (Mr. Martlew) for his kind remarks. I do not know what causes mad cow disease but I hope—indeed I am sure—that it is not leaded petrol.

    Amendment No. 33 calls for the rate of excise duty on heavy oil to be reduced. It would also increase the tax differential between DERV and leaded petrol. DERV already has a duty advantage over petrol, but increasing the differential will have only a limited effect because most DERV is used for road freight lorries. It might encourage more people to switch to using diesel rather than petrol cars, but unfortunately United Kingdom manufacturers lag behind their competitors in the number and range of diesel cars they offer. I think that the hon. Member for Wrexham (Dr. Marek) would acknowledge that. For example, Ford, Peugeot Talbot and Rover have a limited production of diesel cars in the United Kingdom, but we have no long-term tradition of such production here, by contrast with some continental manufacturers, such as Mercedes-Benz, Volkswagen and Citroen.

    Increases in the cost of DERV affect virtually every United Kingdom business by raising costs. Last year we did not increase DERV duty at all. This year my right hon. Friend the Chancellor felt it necessary to make some increases, although they are a little higher than required to keep the duty in line with inflation. This is offset in some measure by freezing vehicle excise duty on buses, coaches, taxis and many lorries for this year. Although the duty on United Kingdom DERV is higher than that in some EEC countries—I readily concede that it is—many of our Community partners such as Belgium, Denmark, France, Ireland, Italy and the Netherlands apply a higher—some of them a much higher—rate of VAT to DERV than we do. And some countries such as Spain, Portugal and France do not allow their businesses to deduct all of that VAT.

    I assure my hon. Friend the Member for Southend, East (Mr. Taylor) that we have made it clear on several occasions that we do not consider a tax approximation necessary for the completion of the single market. As he knows, the proposals require unanimity in the Council of Ministers, so our position is safeguarded.

    9.45 pm

    The hon. Member for Berwick-upon-Tweed (Mr. Beith) said that the price of DERV was too high and contrasted it with the price in some Scandinavian countries, but, as I have said, several countries with low DERV duties apply higher VAT rates than we do and do not allow businesses to deduct all the VAT that they then incur on their purchases of DERV.

    Amendments Nos. 22 and 39 call for the Government to do more of what we are doing already for unleaded petrol, by increasing the differential between leaded and unleaded petrol to 4·03p per litre, including VAT, or—I share the view of the hon. Member for Berwick-upon-Tweed about gallons—to 18·30p per gallon. I welcome that as a sign of support for our strategy over the past three Finance Acts, in which we have steadily increased the differential. As the Committee knows, we introduced the duty differential between leaded and unleaded petrol way back in 1987 to encourage the wider use of unleaded petrol. We did so because of the widespread concern about levels of lead in the atmosphere and in the blood, particularly in that of children. I know that the hon. Member for Halifax (Mrs. Mahon), and many other hon. Members are anxious about that.

    The hon. Member for Wrexham said that the consumption of unleaded petrol had not yet risen to 30 per cent., but it has risen to more than 30 per cent. now. I was not a member of the Finance Bill Committee last year, but I think I am right to say that the hon. Member threw down a challenge to the Government in that Committee that the take-up of unleaded should rise to more than 30 per cent. by this time in 1990. We have met that target and we hope and expect that the take-up of this form of petrol will increase to 40 per cent. by the end of the year. That has been helped by the fact that the proportion of filling stations that now sell unleaded petrol has increased from 50 to well over 90 per cent. in the year since the matter was debated in the Committee. There are still some filling stations, I think in rural areas, that do not sell unleaded petrol, but they are almost the only ones remaining.

    The hon. Members for Nottingham, North (Mr. Allen) and for Halifax will be pleased to know that the quantity of lead emitted into the atmosphere has been reduced by over 70 tonnes a month. That reduction has been widely welcomed by environmental groups. For example, Miss Jane Dunmore, who may be known to the hon. Member for Halifax and who is the campaign director of CLEAR, the Campaign for Lead-Free Air has said:
    "since the reduction in the amount of lead in petrol sold in Britain, the proportion of lead in the atmosphere has dropped by 50 per cent. Levels of lead in people's blood and in the air have dropped in the last two years."

    Does the Minister agree that the figures that he gave are averages? In cities such as my city of Leeds there is a great contrast between inner-city areas where there are schools situated along the main roads and on the arterial accesses to the city. In those inner-city areas the lead levels are four to five times the levels in the areas beyond the ring roads. That is the real danger. If we base our arguments on average figures we could become very complacent about the problem.

    I agree with the hon. Gentleman The Government are not complacent or we would not be coming forward with the clause and nor would we have made such progress in the past few years. The hon. Gentleman is worried about lead in the air in his constituency. That is understandable and he is justified in being anxious. It is for that reason that we have set targets each year. Last year we were set a target of 30 per cent. by the hon. Member for Wrexham. We reached that target and, as I have said, we expect to reach 40 per cent. by the end of 1990.

    The Minister says that he has set himself a target of 40 per cent. unleaded petrol usage for next year and has prayed in aid Miss Jane Dunmore of the Campaign for Lead-Free Air. I suggest that he reads the rest of what she said. She said:

    "Some small savings in fuel and hence in pollution may result but the new waiver in favour of unleaded petrol is probably too slight to speed up greatly the pace of change."

    I do not think that anyone could quarrel about the pace of change, because the Government have reached a 30 per cent. target in three years. We are fourth in the European league table and, as I have said, we expect to improve from 30 to 40 per cent. by the end of this year. Nobody who looks at the figures for the last three years could say that the Government have not taken the matter extremely seriously. We shall continue to do so. We compare well with many other countries in the European Community. Only the West Germans, the Danes and the Dutch have a large market share of unleaded petrol, but those countries started well ahead of us in setting tax differentials between leaded and unleaded petrol.

    Since last year's Budget, it has paid motorists to use unleaded petrol and many motorists who were able to switch to it have done so. But adjusting the price is not all that we have done to increase the take-up of unleaded petrol. Our measures last year made it more available and we also gave it a boost with a £1 million advertising campaign. My hon. Friend the Member for Wyre (Mr. Mans) mentioned that and also stressed the fact that many oil companies, notably Esso, BP and Shell, have helped by running massive advertising campaigns and promotions to encourage people to make the switch to unleaded. Car manufacturers have also played a role and I congratulate them and the oil companies for their part in the success that I have outlined to the Committee.

    I can tell my hon. Friend the Member for Southend, East that, from October this year, all new cars must be able to run on unleaded petrol. We do not believe that further increases in the duty differential would increase significantly the use of unleaded petrol. That would reduce the cost of unleaded petrol for those who have already made the switch and erode the real value of leaded petrol duty. There is a limit to the effect that a differential can have. As my hon. Friend said, about one quarter of all cars cannot run on unleaded petrol. In addition, many consumers are price-insensitive and there is nothing that the Government can do about that. Some drivers wrongly believe that leaded petrol gives better performance than unleaded petrol. However, tests by manufacturers and consumers associations show that this is not so.

    Our having made the fiscal benefit available, it is now up to those who have not yet made the switch to do so. [Interruption.] I am pleased to welcome to the debate my hon. Friend the Minister for Roads and Traffic, who knows a great deal about this subject.

    The differential that we are proposing is the right one to encourage more motorists to switch to unleaded petrol. The incentive is there and the Government would suffer a dead weight loss of tax if the differential were too great.

    Therefore, I recommend that the Committee resists the Opposition's amendments. However, I give the assurance that in next year's Budget we shall look again at the differential, just as we have done during the past three years, and it is inconceivable that we would not take into account some of the arguments that have been put forward today and the desire of many people, irrespective of party, to see that we maintain the differential between leaded and unleaded petrol and increase the number of cars running on unleaded petrol.

    We have had a useful debate and I thank my hon. Friends the Members for Carlisle (Mr. Martlew), for Halifax (Mrs. Mahon), and for Nottingham, North (Mr. Allen) for their contributions. The Minister has made a reasonable response. He has honestly and forthrightly said that the Government hope to achieve a 40 per cen