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Orders Of The Day

Volume 228: debated on Monday 12 July 1993

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

Finance (No 2) Bill

Not amended ( in the Committee) and as amended (in the Standing Committee), considered.

New Clause 17

Scottish Trusts

'.—( 1) Where—

  • (a) any of the income of a trust having effect under the law of Scotland is income to which a beneficiary of the trust would have an equitable right in possession if that trust had effect under the law of England and Wales, and
  • (b) the trustees of that trust are resident in the United Kingdom, the rights of that beneficiary shall be deemed for the purposes of the Income Tax Acts to include such a right to that income notwithstanding that no such right is conferred according to the law of Scotland.
  • (2) This section shall have effect in relation to the income of any trust for the year 1993–94 or any subsequent year of assessment.'.— [Mr. Dorrell.]

    Brought up, and read the First time.

    4.39 pm

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

    The purpose of the new clause is to apply the same income tax treatment to beneficiaries with an interest in possession in the income of a trust governed by Scots law as applies to beneficiaries with an interest in possession in the income of a trust governed by English law. At present, beneficiaries of English and Scottish trusts are treated differently because of the differences in the underlying legal position.

    We discussed this point in Committee, and the new clause responds to the undertaking that I gave there to bring the two systems into line. Scottish lawyers who are present may recognise that we have done this by aligning Scottish legal practice with the practice in England. That may not be the best solution in the context of Scottish nationalism, but in the time available it seemed the most practical way of responding to the concerns expressed in Committee.

    We welcome the new clause, which we pressed for in Committee. I am glad that, in a comparatively short time, the Government have met our objections. There remain one or two matters that might be dealt with in the Finance Bill to be introduced at the end of this year. I understand that one or two parts of the new clause might be better phrased—according to some of my colleagues who regularly practise in Scotland.

    First, it is suggested that the phrase,
    "having effect under the law of Scotland"
    might be better expressed as
    "a trust, the proper law of which is the law of Scotland".
    Such matters of definition are important. Without the change, the measure would also affect an English trust that happened to have land in Scotland.

    As the House is anxious to make progress on other matters I will write to the Minister with my other suggestions. Meanwhile, we welcome the new clause, without which Scottish beneficiaries of a trust would have been treated less favourably than English ones.

    The Minister said that there are reasons why this form of new clause might not be so welcome as its purpose. When the issue was first raised in Committee, the effect of the Bill as it then stood being to treat dividends received through trusts in Scotland differently from those in England, the Minister was at first unpersuaded. He said that as the payment received in the Scottish case is not a dividend it would be wrong to treat it as though it were. He then listened to our arguments and was eventually persuaded that something had to be done.

    Meanwhile, my hon. Friend the Member for Orkney and Shetland (Mr. Wallace) wrote to the Lord Advocate pointing out that in his view a breach of article 4 of the treaty of union might be involved because that treaty provides that
    "all rights, privileges and advantages which do or may belong to a subject of either kingdom should be communicated to the subjects of the other".
    The combined considerations of the Lord Advocate and the Minister resulted in a Government willingness to table a new clause to sort out the matter.

    The Minister must not be surprised to learn that Members who have a concern for Scots law are unhappy that a form of words should have been chosen which treats the matter as an extension of English law instead of changing the Scottish legal basis. The new clause uses the words:
    "notwithstanding that no such right is conferred according to the law of Scotland".
    My hon. Friend the Member for Orkney and Shetland tabled an amendment—probably in order, but not chosen—which dealt with the matter via the law of Scotland. Although the Minister seemed to hint that considerations of time had driven him to this desperate expedient, I cannot believe that any technical failing in my hon. Friend's amendment could not have been improved by the efforts of the Lord Advocate's Department, assisted by the Treasury. That could have produced an amendment framed within Scots law.

    Treasury Ministers may not be aware of the strong feeling in Scotland that a sort of legal imperialism prevails under which the Scots legal framework, the Scots statute book and Scots common law are all gradually eroded by United Kingdom legislation being tacked on to Scottish law. Law Bills relating to England and Wales often have clauses relating to Scotland added to them, with the result that the law of Scotland is not contained in a distinctive statute book or in Scots common law.

    The Minister was thus right to anticipate that there would be some criticism on this score, and right to expect some lamentation over the fact that the practice of bolting bits of English law on to Scots law continues. It was not really necessary to go about the matter in this way.

    My original remarks were not intended to cast a slur on the Scottish National party—I can cast slights in its direction on other occasions, but I was not trying to do so this time. I merely recognised that the drafting of the new clause involves an infelicity from the point of view of Scots law. I do not accept that it could have been easily reconciled, as the right hon. Member for Berwick-upon-Tweed (Mr. Beith) suggested. He said that we should have spoken to the Lord Advocate. I can assure him that the Treasury has access to his advice. We did not, in the time available, find a better way of achieving the objective.

    4.45 pm

    Is the Minister perfectly relaxed about the compatibility of this measure with European Community law? The European Court of Justice is a court superior to both English and Scottish legal systems.

    I am satisfied that the measure does not cause a problem with the ECJ.

    We have sought to respond to the practical concern expressed in Committee—

    Will the Minister answer the point about a possible breach of the treaty of union being involved? Has he consulted the Lord Advocate on that aspect? Has the latter yet replied to the leader of the Liberal party in Scotland, the hon. Member for Orkney and Shetland (Mr. Wallace), on that point? The Minister seems to be treating the matter very lightly indeed.

    Not at all. I recognise that this is a matter of some concern in the Scottish legal fraternity and among those who follow Scottish legal affairs. In the limited time available between the Committee and Report stages, it seemed to the Government more important to respond to the practical concern expressed in Committee than to perfect the drafting in such a way as to meet all concerns. I commend the new clause to the House.

    Question put and agreed to.

    Clause read a Second time, and added to the Bill.

    New Clause 1

    Commencement Of Section 174

    'Section 174 of this Act shall not come into force until such time as the Board have by regulations provided that no payments shall be made from a special reserve fund except as provided for under Schedule 20 to this Act.'.— [Mr. Darling.]

    Brought up, and read the First time.

    With this it will be convenient to discuss the following: new clause 2—Payment under section 174

    'No payment shall be made from a special reserve fund established under section 174 of this Act except for the purposes expressly provided for in Schedule 20 to this Act.'.
    Amendment No. 29, in clause 183, page 142, line 26, leave out from the beginning to end of line 28 and insert—
    '(3) The provisions of this Chapter shall come into force on such date as a Minister of the Crown may by order made by statutory instrument appoint; and different days may be so appointed for different provisions or for different purposes.
    (4) No order shall be made under this section unless a draft thereof has been laid before and approved by the Commons House of Parliament.'.
    Amendment No. 6, in schedule 20, page 291 line 42, at end insert—
    '(3) The arrangements must be such as to secure that, except as required or permitted (whether expressly or by necessary implication) by this Part or Part II of this Schedule, no payments shall be made into or out of the member's special reserve fund.'.
    Amendment No. 21, in schedule 20, page 294, leave out lines 27 to 29.

    We come now to a debate on Lloyd's and the special reserve fund, the subject of an extensive discussion in Committee. We touched on some of the issues during points of order to Madam Speaker, mentioning the difficulties in which some Conservative Members might find themselves because they are Lloyd's names. Looking around, it is clear to me that many of them have absented themselves from the debate because of the difficulties, but I am sure that when the bell sounds they will come back to vote.

    This group of clauses and schedule 20 create a special reserve fund to enable Lloyd's names to put money aside to meet insurance losses. We are not against the principle of making provision by means of such reserves—they are a thoroughly good thing—but our objection throughout has been that we should not allow Lloyd's names to benefit from a device that will enable them to shelter large sums from tax.

    One of our principal objections was that under the Bill as drafted it would be possible for a Lloyd's name to put aside sums into the special reserve fund, to shelter them tax free, to see them accumulate and then to withdraw them at will to gain maximum tax advantage. In Committee, we pressed a series of amendments to prevent that happening. To our great surprise, the Government tabled an amendment last week in which they effectively climbed down from the position that they had adopted in Committee, and accepted that the Opposition amendments had a substantial point. The Government's amendment and our new clauses 1 and 2 seek to do the same thing: they would stop the special reserve funds from being used as a tax shelter by Lloyd's names.

    I welcome Government amendment No. 6, because it will prevent Lloyd's names from using the special reserve fund for anything other than meeting insurance losses. I am sure that that was the intention of the legislation and that will be its effect. I am grateful to the Financial Secretary for reconsidering the matter. He has certainly departed from the suggestion made in Committee by some of his hon. Friends that the Opposition were raising a matter that had no basis. The Government now admit that it has a substantial basis, and I am sure that they agree that it would be wrong to allow Lloyd's names to use the special reserve fund as a tax shelter. For that reason, we welcome the Government amendment.

    I am grateful to the hon. Gentleman for the welcome he has given to the amendment. I hope that he will accept that it is hardly a climbdown for the Government to table an amendment that has the effect of ensuring that the result sought by both sides of the Committee is delivered by the legislation. Our policy objective has been unchanged throughout consideration of the Bill.

    I understand that the Financial Secretary must preserve his position. If tackled by his hon. Friends, ministerial colleagues or the Prime Minister, he can point to this passage in Hansard and say that he has put on record the fact that the Government were not climbing down. If that is not the case, why did so many of his hon. Friends accuse us of scaremongering and raising falsely-based fears?

    I am sure that the Minister will accept that, had we not pressed the matter and drawn attention to the fact that a tax shelter would be created, no amendment would have been tabled and Lloyd's names would have been able to use the special reserve fund as a tax shelter. It is important to recognise that the Government have now accepted our position, and that the possibility of using the special reserve fund as a tax shelter has been virtually shut off.

    I do not accept that in the absence of this amendment it would have been possible to use the special reserve fund as a tax shelter. I made it clear in Committee that the safeguards against that eventuality were contained in the deed establishing the trust fund. I said to the Committee:

    "We are debating now into which piece of paper the principle should be written."—[Official Report, Standing Committee A, 17 June 1993; c. 495.]
    In response to the views expressed in Committee, we have written it into both pieces of paper.

    The Minister is being tenacious. I remember that he said that it did not matter in which piece of paper it was contained. Our preference is to have that tax loophole shut off by this particular piece of paper because this is the statute and the law. We do not want to leave it to the discretion of those who draft the trust fund documents. Nevertheless, we give the Government amendment a fulsome welcome.

    Amendment No. 21 deserves attention. We will seek a Division on it at an appropriate time, although that may be some hours, if not days, away. Amendment No. 21 would have the effect of rendering the special reserve fund liable for tax on an annual basis. At the moment, paragraph 9, schedule 20 provides:
    "Profits or losses arising from assets forming part of a special reserve fund shall be excluded for the purposes of income tax … and for the purposes of capital gains tax".
    This matter was discussed briefly in Committee because the main part of the debate was taken up by our principal objection. We were not entirely convinced by the Minister's argument.

    It is important that we should accept that, while Lloyd's names should not be discriminated against under the tax system, neither should they be unduly favoured in a way that most members of the public would find intolerable.

    I think it is important to put on record the importance of Lloyd's. That point is usually raised by Conservative Members, although not many are here today. Lloyd's is crucial to the United Kingdom, not only because of its reputation—which remains formidable, despite its recent well-publicised difficulties—but for its contributions to the country's earnings. Although Lloyd's has recorded record losses in recent years, the fact that it has significant potential for earnings in the future is important.

    Subject to its unique structure, Lloyd's should, in principle and in general, be treated in the same way as any other taxpayer. It should be encouraged but not favoured, and should stand on its own feet. There should be no question of the Government being allowed or encouraged to bail out names who are in financial difficulties. Reports of certain names—particularly those who are Members of the House—being in severe financial difficulties and in danger of eventual bankruptcy are somewhat exaggerated. I notice that the hon. Member for Lancaster (Dame E. Kellett-Bowman) agrees.

    No matter the difficulties faced by those hon. Members, even if in extremis, I am sure that the good and the great who bankroll the Tory party will step in and ensure that they are not disbarred from being Members of the House.

    As to names who are not Members of the House, when they went into Lloyd's they were, by any standard, sufficiently well off to take advice; they knew, or should have known, the risks that they were taking. They were well placed to take the advice which most people would take before joining and becoming names.

    As I have said, I do not believe that Lloyd's names should be given preferential treatment or more favourable treatment and opportunity than those who take risks in other industries. As I understand it, it is not possible for people in similar positions to make a general provision against future losses. Lloyd's names are being treated in a slightly different way from people in other industries. For example, it is not possible for someone running a small business to accumulate money, tax free, against future losses—I am sure that many wish that they could. We should look long and hard before we give a particular privilege to Lloyd's when there is no justification for doing so.

    Amendment No. 21 would subject the funds in the special reserve fund to taxation, which is entirely reasonable. No doubt the Minister will argue that the money can only be used, for the most part, to meet insurance losses. We agree with that. However, on cessation of business, when a Lloyd's name ceases to underwrite and winds up his or her special trust fund, there is a pay-out. I am concerned that, although there is a ceiling of 50 per cent. of profits on the fund, the money could accumulate, tax free—over the years the sum could be quite substantial—and the Lloyd's name could then choose when to cease underwriting to achieve the maximum tax advantage. That is why we raised the matter in Committee and, now, on Report.

    The Minister will no doubt talk about the importance of Lloyd's names being able to make provisions against future losses. He will also make the point, with some force, that many of the difficulties in which Lloyd's names currently find themselves would not have arisen had they made provisions against future losses. All of that is true up to a point. As I said in Committee, we are not against special reserve funds; indeed, as the Minister reminded me in Committee, it was a Labour Chancellor, Sir Stafford Cripps, as he then was, who made that provision.

    Currently, the maximum contribution limit is £7,000. We are proposing a much higher ceiling and it is therefore important to look again at the taxation provisions. That is why we attach so much importance to stopping the special reserve fund from being used as a tax shelter. I believe that to complete the process the assets in the fund should be subject to income tax or capital gains tax, as the case may be, to prevent accumulation.

    Lest anybody feels that we are being unfair to Lloyd's, or discriminating against it, the House should note that the management of Lloyd's has taken substantial steps to put the organisation on a proper footing.

    It is all but publicly admitted that self-regulation has failed and it can be strongly argued that the Lloyd's Act 1982 needs to be repealed and replaced. We know why that will not happen. Notwithstanding Madam Speaker's ruling a short time ago, the whole question of the conflict of interest of some hon. Members, as Lloyd's names, would arise were the 1982 Act revisited.

    5 pm

    It highlights the fact that many Tory Members cannot consider the City, in particular Lloyd's, objectively because the wealth of so many of them is tied up in it. That is intolerable and should not be allowed to happen. Lloyd's must be considered in the same way as other companies. Its future should not be influenced by the fact that so many Tory Members have a vested personal interest in it. The fact that the Government have a small majority in the House means that their judgment is impaired because so many Tory Members—not just Back Benchers but at least four members of the Cabinet—are Lloyd's names. We should all pause to consider the fact that the Government would be prevented from looking at the Lloyd's Act again because so many Tory Members cannot make an impartial judgment on the matter.

    Lloyd's management anticipates that profits will return by the 1995 year of account. Together with the measures that it is taking to deal with the pre-1985 losses, that shows that Lloyd's can be put back on a proper footing. Those steps and the taxation measures that we are asked to approve tonight lead us to suppose that, even with the taxation that we propose, Lloyd's names will be treated fairly and need have nothing to complain about.

    The importance of Lloyd's and the fact that its management is trying to put the business on a proper footing must be emphasised. We do not want to discriminate against Lloyd's but to ensure that it will be treated in the same way as other taxpayers, whether corporate or individual.

    The United Kingdom insurance industry must be able to make provision for losses. That is one of its problems in competing against other EC countries. The fiscal regime, particularly in France and Germany, allows companies to make provision against future claims. In this country, it is impossible to do that on the same scale. Although the Government are now consulting on the matter, they have yet to decide what to do. However, it is important that we accept the provision against future claims.

    We must remember that Lloyd's is not a corporation or normal insurance company. The difference is that individual taxation is at stake. I am in favour of allowing provision against future losses but we must be careful when dealing with individual taxation to ensure that, as far as possible, we treat individual names in the same way as other taxpayers engaged in investing their money. It is important not to discriminate against others who try to invest their money in industry, for example.

    I agree with the hon. Gentleman but seek further precise clarification. If we were to introduce reserving for catastrophe insurance for the corporate insurance industry, does he think that that would validate similar reserving arrangements in Lloyd's?

    As I was about to say, a distinction must be made. In general, we would support the principle of reserving for corporations but in Lloyd's there is a difficulty. By the time the Government introduce those measures there may be more corporate members of Lloyd's, in which case their taxation will be akin to that of other insurance companies. The difficulty with Lloyd's is that in future there will be two classes of names: first, incorporated capital, with which I have dealt, and, secondly, individual names who will be taxed broadly like individual taxpayers. Naturally, special provisions are made for Lloyd's. That is where the difficulty arises.

    As I said in Committee, I am prepared to allow individual names to make provisions against further losses provided, first, that they cannot use the device to shelter earnings against tax—that matter has already been dealt with—and, secondly, that they cannot accumulate money tax free within the special reserve fund and therefore secure an advantage that is not available to other individual taxpayers. That is what amendment No. 21 strikes at.

    In Committee we seemed to agree on the principle that any relief allowed to Lloyd's names should be on a basis comparable to that available in the rest of the insurance industry. The hon. Gentleman has argued that that comparability will not apply under the Bill and that, if it did, he would still not be in favour of names having tax relief on provisioning. I do not understand that.

    The right hon. Gentleman is unnecessarily confused. There is a distinction between the taxation of corporations, to use a general term, and the taxation of individual taxpayers. Both sides of the Committee broadly welcomed the principle of reserving and we hope that the Government will make proposals for the United Kingdom insurance industry. The difficulty in Lloyd's is that, at present, all its names are individual taxpayers. I suspect that in future an increasing number of its names will be corporate taxpayers. But, so long as they are individual taxpayers, we should accept the principle of reserving, which we do by allowing the creation of a special reserve fund. I am simply concerned that it should not confer an additional benefit over and above what is necessary to encourage reserving. That is why we wanted to close the tax loophole. The right hon. Member for Berwick-upon-Tweed (Mr. Beith) was against that.

    We also want to prevent the accumulation of large sums of capital tax free, which is a concession that is not available to others engaged in industrial enterprise. So long as individual taxpayers are Lloyd's names, there will always be a problem. I suspect that, given the sums at risk, incorporated capital will make up most of Lloyd's base in the future. We must wait and see what happens.

    We must not allow individual Lloyd's names to be given tax benefits that are not available to others engaged in a similar enterprise, other than insurance. I trust that that makes the matter clear.

    May I pursue the point a little further? The same difference would apply within the corporate sector. If concessions of the kind that the hon. Gentleman and I support are made to the corporate sector, it will make a difference to corporations that put capital into insurance and those that do not. The same will apply to individuals. What they have in common is the peculiar nature of insurance risk and markets. Surely that is an argument in favour of comparable treatment.

    The right hon. Gentleman carries his argument a little far. Clearly, depending on the business that a company carries out, certain tax provisions are available to one group of companies and not to another. Were we discussing petroleum revenue taxation, which we are not—

    I agree with the hon. Member for Banff and Buchan (Mr. Salmond). However, oil companies are taxed differently from companies that make rivets, for example. We must accept that insurance companies are taxed on a different basis from oil and other companies.

    A clear distinction can be drawn between the taxation of corporations and the taxation of individuals. I do not wish to labour the point, but I am sure that the right hon. Member for Berwick-upon-Tweed accepts the distinction. I assume that, being a Liberal Democrat, he favours the principle of fairness between individual taxpayers. The House must think long and hard before giving individual taxpayers who are Lloyd's names benefits that are not available to other individual taxpayers, while accepting that insurance differs from certain other enterprises.

    I am worried that, if the special trust funds are not taxed, Lloyd's names will be able to accumulate large sums. That will not be necessary to meet insurance losses because the sums would be paid out on cessation.

    Some substantial tax benefit may arise, but that device cannot be used by other taxpayers. I do not want to labour the point, but we should think long and hard before giving such concessions. That was precisely the thrust of my argument in Committee. I am sorry that the Liberal party did not accept the Labour party's argument because the Tories have accepted it. I am sure that the right hon. Member for Berwick-upon-Tweed will reflect that he might have got it wrong. If it is good enough for me, the Financial Secretary and the Labour party, it should be good enough for the Liberal party—perhaps the fact that it is not tells us something about the Liberal party.

    There was an exchange on the subject in Committee. I did not entirely follow what the Financial Secretary said on a similar amendment. He seemed to set some store on the fact that only 50 per cent. of the profits could be put into the special reserve fund—I accept that. However, I am concerned that if up to 50 per cent. of substantial profits were placed in the fund, which remained untouched for a period of years, after 20 years underwriting, a substantial sum might have accumulated. I fully accept that that is secondary to the main issue which I raised in Committee and which has now been addressed. But we cannot leave the matter there because it is important.

    The argument that I advanced in response to the debate in Committee was the same argument that I shall make in a few moments. I shall be interested to hear the hon. Gentleman's response. The key factor is not that there is limitation of 50 per cent. on profit earned on insurance in any one year. As I said in Committee, the key limitation is the separate limit of 50 per cent. of premium income—the amount up to which the reserve can be built to protect the interests, not primarily of the Lloyd's names but of the policyholders. That is a key test of the liquidity of an insurance business run by a Lloyd's name.

    I accept that there are two tests, but that does not seem to detract from the argument that the funds should be subject to tax—I said that the Minister set some store on precisely that. The debate between us is whether those funds should be taxed. I believe that they should. That does not lessen the importance of the argument that we advanced in Committee about plugging the loophole. I hope that the Government will be vigilant and alert to the possibility of a Lloyd's name or another party finding a way to circumvent new clauses 1 and 2, or Government amendment No. 6. I hope that the Government will plug any future loopholes that come to light as a result of the operation of the special reserve funds.

    As I said, the Opposition want to see Lloyd's thrive and prosper. We want it to put its problems behind it, but we want to ensure that Lloyd's names are taxed on a fair basis. We do not believe that is happening at present, and it is for that reason that I want to press amendment No. 21 to a vote.

    5.15 pm

    I do not wish to—and could not—reopen the ruling that Madam Speaker made earlier this afternoon, but I appeal to those hon. Members who are Lloyd's names not to vote on the new clause—a vote which will probably be taken tomorrow evening. I urge them to follow the precedent set on 24 March 1981 when we were discussing the Bill relating to Lloyd's when—I think—53 names abstained. Although the Government's majority was much greater then and hon. Members could afford to abstain in those numbers, I do not think that they can be excused for failing to do so tomorrow.

    Like my hon. Friend the Member for Edinburgh, Central (Mr. Darling), I accept that there is a strong case for tax reform of the Lloyd's insurance market. The establishment of a new reserve fund would put Lloyd's on a level playing field with some of our strongest competitors in France, Switzerland and, above all, Germany—Munich Re is Lloyd's biggest competitor. It would also encourage the prudent management of outstanding liabilities.

    The Bill is a recipe for tax avoidance. Any income arising from assets in the reserve fund is exempt from income tax while it remains there. Amendment No. 21 seeks to address that issue, but any capital gains arising from the disposal of assets held in the fund are exempt from capital gains tax. The amount paid into the fund will be treated as a fully deductible businesss expense although, admittedly, withdrawals will be taxed as profits.

    It is said that, as a sort of balance against those provisions, there is a new basis of tax assessment which treats capital appreciation on invested premiums as income rather than capital gains. That is said to be a disadvantage to Lloyd's names which just about balances the advantages that they receive from the tax privileges they gain from the new reserve fund. I asked the tax department at Lloyd's to justify the Chancellor's assurance that those two changes, running parallel with each other, were, as he said, broadly tax neutral. The department officials were able only to assert that that was the case and were unable to provide figures or costings to prove it. That makes me suspicious that the overall package is a nice little earner for Lloyd's names.

    It is also important to ask why the changes are being made now. It is partly because of the huge losses in the year of accounts over the past three years—1988, 1989 and 1990. But the crisis is not simply about the problems of hurricane Hugo but about City fraud. The crisis is not just about asbestosis problems, but the yuppyitis which produced a "money-for-nothing" era in the City—with my apologies to Dire Straits. It seems that the chickens from that era have come home to roost and the Government are seeking to clear up the mess.

    We have had a sad, sorry and sordid tale of working names indulging in insider dealing by dumping loss-making activity and underwriting on external names while maintaining a profitable business for themselves. As a result, many ordinary names became victims of malpractice and corruption. Some victims are numbered among the 44 Conservative Members of Parliament who are Lloyd's names. I am not sure whether the number includes the Attorney-General, the three Cabinet Ministers who are Lloyd's names or the Tory party chairman—all of whom are named in my early-day motion 2299. That is why there is pressure on the Government to bail out Lloyd's. It is tantamount to an abuse of Parliament that a certain restricted and privileged group of Members of Parliament are being bailed out in that manner.

    Will the hon. Gentleman clarify for the record whether he would regard as an abuse of Parliament the passing by the House of the new clause arid the amendment about which the hon. Member for Edinburgh, Central (Mr. Darling) spoke or the inclusion of any part of that new clause, amended or not, in the Bill?

    The amendment tabled by my hon. Friend the Member for Edinburgh, Central improves the Bill and I hope that it is accepted. But my basic argument about the abuse of Parliament is that hon. Members who are names should not be able to vote themselves tax privileges which they will receive from the changes. I am not denying that there is a case for modernising the tax regime.

    It seems that, although it is said that the tax changes are not fully retrospective, they go back to the 1992 year of account for reserving and also to the 1992–93 year of account for tax assessments. There is a sense in which the new regime will enable those hard-pressed names at least to reassure those who are making claims on their resources that they will have better years to come. I wish that the same fairness and equality was applied to the bankrupt individuals and small businesses who are going to the wall in the current recession—indeed, they have been doing so in accelerating numbers during the past few years. Why should they be treated differently and on a less privileged basis than Conservative Members of Parliament who are Lloyd's names?

    Would my hon. Friend like to comment on the double standards in this area? The House lays down rules by which local councillors have to declare their interests. A councillor with an interest of any kind, not merely a financial one, not only has to declare it but is prohibited from speaking or voting when the subject of his interest is being discussed at a council meeting. Should not the House follow its own rules?

    My hon. Friend makes his point well.

    My amendment No. 29 would require an annual vote to allow Parliament to keep a check on Lloyd's, which is otherwise a law unto itself as it is not subject to any statutory regulation. It is in a unique position and an annual vote on the application of the tax regime would allow us to monitor the progress of Lloyd's as it modernises its structure.

    Lloyd's should be subject to statutory regulation, and if it were, many Opposition Members would be more willing to grant the new tax regime proposed, even in a modified way, by the Government. Although the recent reforms by Peter Middleton and David Rowland to restructure and modernise Lloyd's, to separate the market from regulation and to introduce corporate capital were welcome, Lloyd's remains an anachronism and it needs to be modernised and updated.

    In the past two decades Lloyd's has been hit by one scandal after another and each has been followed by an internal inquiry. There was an inquiry by Cromer in 1970 and that was followed by inquiries by Fisher in 1980, by Neill in 1987 and by Sir David Walker last year. Although those inquiries led to reforms that were welcomed at the time, further scandals emerged. The latest reforms are welcome, but why should they provide any more of a guarantee than the others? Those reforms did not provide any guarantee whatever as there were further scandals in their wake.

    In view of recent events, the Government's proposals, and the question mark over how the company has been managed in the past two or three years, does my hon. Friend agree that there should be a public inquiry? After all, the Government are to give to Lloyd's benefits that they will not give to other insurance companies.

    The case for a public inquiry was strong over a year ago when news of the crisis broke. My hon. Friend makes his point well.

    It is fundamentally wrong to give tax privileges to Lloyd's names without the quid pro quo of statutory regulation. If we modernise Lloyd's tax regime and encourage the company to move into the 21st century—I almost said the 20th century—we should require from all the markets a willingness to accept the regulation that only statute can bring. If there were such regulation many people outside and probably many Lloyd's names would have much more confidence in the company's future.

    When the hon. Member for Neath (Mr. Hain) speaks about this matter I often think of the hon. Member for Brent, East (Mr. Livingstone) and his assertion in Committee two years ago when we first debated the matter at length, that the attitude that Lloyd's was a place in which the seriously rich dabble was not at all to be found in the Labour party. He may have had cause to modify that opinion.

    The case for making any kind of special provision for Lloyd's names is certainly not that some people who were very rich are no longer rich, or at least will not be when their accounts are finally cleared. It is certainly not that the Government should respond with tax concessions to the appalling happenings in some of Lloyd's syndicates. Such arguments provide no basis whatever for tax concessions. They do not weigh in this case and they have not persuaded Opposition Members that there is a case for some measures. I intervened in the speech by the hon. Member for Edinburgh, Central (Mr. Darling), but it is still not clear whether he is in favour of any measures.

    The case for some provision is so that this country may have a continuing involvement in the insurance market to the extent to which Lloyd's has been involved, and so that we may continue to have the earnings that that produces. No other argument would weigh with me because Lloyd's names were aware of the risks. Their money was used not only as a guarantee to Lloyd's but to earn money in other ways in the meantime. They ought to have foreseen what has happened to them, although the catastrophes were not really foreseen by anybody. However, when taking on an insurance risk one must assume the worst case.

    Those names might have been justified in supposing that their affairs would be handled properly and honestly and without insider dealing. However, the fact that that did not happen is not the Government's fault because things went wrong within Lloyd's. The case for making a provision on which there seems to be some consensus within the parties is to ensure future earnings from insurance of the kind that Lloyd's can provide. The principle that seemed to weigh with a number of us was that any provision should be appropriate in the context of the insurance industry and should be available to other participants in that industry. There cannot be strict comparability between all forms of risk because there is not a quite comparable form of risk. Capital may not be put up for insurance if we cannot set out a sensible basis.

    The Government are legislating to deal with the Lloyd's problem but are still consulting and forming their opinion about what should be done for the rest of the insurance industry. That is less than satisfactory. The hon. Member for Edinburgh, Central expressed the surprising view that a strictly comparable treatment of Lloyd's names and of people who were corporately involved in insurance, whether at Lloyd's or anywhere else, would not meet with his approval. He rested his case on the difference between individual and corporate tax affairs. There are indeed differences, but the hon. Gentleman did not suggest that any of them should be systematically offset to an appropriate figure in some arrangement that combined the two. He seemed to rest a great deal of weight on a structure that would not bear it. I suspect that the hon. Gentleman's real reason is to have something to vote on so that the Lloyd's names can be flushed out.

    I had some sympathy with the hon. Member for Neath who said that it was unsatisfactory, certainly in the view of the outside world and certainly by comparison with local government, for people with a direct personal interest to be able to vote on their own affairs in a way that can make a large difference to them. I agree with the hon. Gentleman that those people should abstain and throw themselves upon the mercy of the House, in which case they would depend on Labour votes. Up to a point that might be thought resonable because Labour's Front-Bench spokesmen have said that they are in favour of the broad, main elements of the package in the Bill, especially as all doubt has now been removed by the Government's amendment, which ties up the loose ends from Committee, on the first of the two points about which the Opposition were concerned.

    Labour Front-Bench spokesmen are taking a perfectly reasonable attitude in seeking to get matters right. What worries some of the Lloyd's names is the belief that the hon. Member for Neath and a few other hon. Members are not in favour of having any such measures in the Bill. The reason for a vote on the amendment at some time is not because one can logically defend it but because there has to be some sort of vote to show up those Lloyd's names who will vote in their own interests. I shall watch the vote with the same interest as Labour Members, but I am still not satisfied that the position is right.

    One reason for voting against the amendment is that the process has not been completed. We are doing something for Lloyd's names that we have not yet done for the rest of the insurance industry. That is a reasonable ground and I should like the Minister to address it. Throughout I have sought to argue the principle that we are recognising the special character of insurance risk and the need to ensure that it will still be possible for risks to be taken so that we can continue to obtain the substantial invisible earnings that an experienced insurance industry stands to earn for us. Over the years, Lloyd's has played a particular part in that risk operation—a part quite different from the rest of the commmercial insurance industry.

    5.30 pm

    The events of recent years have placed a large question mark over Lloyd's future. We must all hope that the current reforms within Lloyd's will change not only the way that it is run but the way that it is perceived, because a very great deal of damage has been done. My judgment, for what it is worth, is that further damage will be done if there is not some reasonable tax framework, but I want to be sure that that framework is comparable throughout the insurance industry. If the Government cannot say that they are moving towards that, they will cast doubt on their case against Labour's amendment. However, if they can say that they are seeking to achieve comparability, I cannot understand why the Labour Front Bench should not welcome that with open arms.

    I want to pick up the point made by the right hon. Member for Berwick-upon-Tweed (Mr. Beith) about public perception and how the debate will be viewed outside the confines of the Chamber. The rush to provide assistance for Lloyd's names and the fact that so many of them are Conservative Members of Parliament will be widely understood outside the House.

    I well recall that when we have debates on Members' salaries and secretarial allowances, Conservative Members—almost unanimously, although there are some exceptions—tell us to be very careful when voting on matters that affect our own finances. Today, they are silent about the care that should be taken in this debate and in the vote on the amendment.

    People outside the House will be appalled by the proposed assistance for Lloyd's names because the Budget will impose severe hardship on whole categories of people. The hardship that those people experience daily is far greater than the hardship that any of the Lloyd's names have yet experienced. Those who will be greatly disadvantaged by the Budget will not welcome the rush to assist a fairly privileged group of people.

    I can think of another comparison—those employed in the North sea drilling industry. Parliament is not providing the time and opportunity to discuss whether their jobs will be lost, but is providing the time and opportunity to discuss the rush to assist Lloyd's names. That brings the House of Commons into disrepute. I am not complaining about that because part of my role in politics is to ensure that the House is brought into disrepute. The activities and the self-interest that are so clearly displayed in the debate will considerably extend that process. Whether or not the Conservative Members who are Lloyd's names decide to abstain in the vote tomorrow, they may come to rue the day politically when the whole process was embarked upon with such unseemly haste.

    To hear the hon. Members for Banff and Buchan (Mr. Salmond) and for Neath (Mr. Hain) talk, no one would believe that the proposal is a revenue-neutral package that will deliver neither benefit nor cost to Lloyd's names in the aggregate.

    The hon. Member for Neath asked me how the proposed figure was arrived at. Of course, it is an estimate. The change arising from the introduction of a special reserve fund will, when it is up and running, have a revenue cost of about £50 million a year, while the extra tax gathered as a result of treating profits on the premium trust fund assets as income will produce a revenue yield of about £50 million a year. Therefore, to talk about the package as a great tax break for Lloyd's names simply does not accord with the facts.

    I want to deal with the points raised by the hon. Member for Edinburgh, Central (Mr. Darling). In the first part of his speech at least, he tried to be constructive and to respond to the issues of tax principle that we discussed in Committee. I welcome the fact that he has accepted that amendment No. 6 covers the concern that he expressed then. Grudging though that acceptance was, I hope that we can take it that that represents the Opposition's endorsement of our proposals to deal with that aspect.

    In Committee, we agreed that two issues of tax principle underlie the treatment of the Lloyd's insurance market. First—and there is no disagreement on this in any part of the Houseߞwe cannot approach a policy for the taxation of Lloyd's names on any basis other than the principles of fiscal neutrality, which the hon. Member for Edinburgh, Central clearly espoused in Committee and repeated this afternoon. As has been recognised by several hon. Members who have spoken this afternoon, we are not introducing the proposals in response to short-term considerations at Lloyd's and we are certainly not introducing them out of a desire to create a tax shelter. As I have said, it would be strange if we were to do so as there is no revenue cost associated with the proposals. I agree with the hon. Gentleman about the importance of fiscal neutrality.

    I also agree with the hon. Gentleman that the issue that underlies the Government's proposals for the Lloyd's insurance market is the general acceptability of reserving in the context of all insurance business. The right hon. Member for Berwick-upon-Tweed (Mr. Beith) said that he found the argument for reserving persuasive, especially in the context of the comparison between this country's tax system and that which prevails in other countries, notably France and Germany. That is one of the issues that the House will want to take into account when it considers the general issue of reserving for insurance business.

    However, I suggest that the House take particular account not of that argument, important though it may be, but of the argument based on tax policy and tax equity as between one taxpayer and another. The Government have undertaken to publish a consultative document during the summer on the general question of reserving for insurance business. In that document we shall make it clear that the issue of tax equity is whether it is sensible to continue to tax insurance business on the basis of an annually declared profit, when some insurance businesses specialise in covering catastrophe risks where it is in the nature of that business that catastrophe claims will not necessarily crystallise in the year in which the premiums are gathered to pay for them. Indeed, it is part of a catastrophe-based insurance business that several years' premiums may be necessary to cover the risk of a catastrophe. Annuality, in the context of such a business, may not be a sensible way of taxing that business. That is the principal argument for introducing reserving for insurance businesses.

    I agree with the right hon. Member for Berwick-upon-Tweed that the argument applies equally whether the insurer is a company or an individual. I cannot understand the point made by the hon. Member for Edinburgh, Central about the distinction between an individual and a corporation as the insurer. If reserving is right to cover catastrophe when the insurer is a corporation, it is self-evident that the same must apply when the insurer is an individual. It is because the Government are receptive to that idea, and are proposing to consult on the detail and principle in the corporate context, that we propose the introduction of a catastrophe reserve in the Lloyd's market, where the limiting factor on the right of a name to commit resources to that reserve will be 50 per cent. of the pre-reserving profit and 50 per cent. of the premium limit of the name, the latter clearly being the restraining influence on the total size of reserve that can be built.

    Regardless of whether the Minister is right about the essence of the argument, if he were a Lloyd's name—which he is not—would he consider it appropriate, and in accordance with his conscience, to vote on the issue?

    l: In such circumstances, I would accept the advice of the Chair on what was and was not in order.

    The right to reserve is limited by both the provisions that I mentioned, as the hon. Member for Edinburgh, Central recognised. Furthermore, the right to withdraw from the reserve is limited, as the hon. Gentleman has now recognised. The quid pro quo is the commitment to build up a reserve limited by the size of the insurance business that is being done—that is the effect of the 50 per cent. of premium income limit—along with tax-free build-up of the assets within the reserve.

    The hon. Member for Edinburgh, Central asked why the reserve should be allowed that tax-free build-up. There are two answers. The first arises from the reason for the creation of the reserve. It is being created to give extra security to the policy holder, assuring him that the claim he may need to make at some future date will be backed by adequate resources. It ensures that the insurer need not be driven to, and perhaps over, the limit of bankruptcy. That is the key consideration. It arises from the need for a test of liquidity within the insurance business, and the Government's desire not to require insurance businesses to declare profits that later prove nugatory, because when the claims bills come in the profit is found not to have existed.

    We are limiting the right of a name to build up a reserve and limiting the size of the total reserve. We are introducing the reserve because we expect it to provide the policy holder with extra security. I therefore consider it sensible to reach the limit determined by premium income as quickly as possible in order to provide the insured party of the insurance business with better security. That is the first tax-principle reason for allowing the reserve to build up without charging tax on the investment return.

    There is a second argument, based on practicality. What would be the practical consequence of taxing the investment return on the build-up of assets in the reserve? Hon. Members on both sides of the House have agreed that payments into the reserve will be made before tax and that there will be a tax deduction for them—they will be tax free. Surely all hon. Members would want payments out of the reserve to be taxable income.

    It is difficult to see how, in practice, tax-free payments into the reserve could be subject to tax as the reserve built up and then subject to tax again as payments out of the reserve were made to the names. That would mean taxing twice the investment return secured on the assets in the reserve. Surely it is much more simple and straightforward to recognise that the assets going into the fund should be tax free—that it is in the public interest to allow the fund to build up reasonably quickly to provide better liquidity for the insurance business and better protection for the policy holder, and then to tax withdrawals from the fund in their entirety at the time of withdrawal, recognising that the terms on which assets can be withdrawn are strictly controlled. The hon. Member for Edinburgh, Central has now recognised that.

    I cannot commend the new clause to the House. It strikes me as being wrong in principle, because it counters the purpose of providing the reserve in the first place, and wrong in practice, because it would lead to an administrative nightmare in trying to distinguish between payments out of the reserve that had already borne tax, the investment return, and those that had not, the original capital payments into the fund. There are arguments of both principle and practice against the new clause, and I suggest that the House reject it.

    5.45 pm

    I am sure the House will accept that there is a substantial difference between the taxation of individuals and company taxation. If we had the choice, we would all love to be taxed as companies: if we all had the option of setting expenditure against pre-tax income, no doubt we should take the opportunity to do so. Anyone who has ever been a schedule D taxpayer—as I have in my time—will know that it is far more advantageous than being a schedule E taxpayer, because of the various allowances. I am sure that both the Minister and the right hon. Member for Berwick-upon-Tweed (Mr. Beith) will accept that we already treat individual and corporate taxpayers differently. That is why I believe that we must be careful to put Lloyd's names on an equal footing with other taxpayers.

    I have some sympathy for the right hon. Member for Berwick-upon-Tweed: having backed the Government in Committee, he must feel badly let down on discovering that they are now backing Labour on Report. I was pleased to note that Government amendment No. 6 is phrased in almost identical terms as new clauses 1 and 2, which I drafted in about 40 seconds. I wonder whether the parliamentary draftsman is being paid at the same rate as I am to draft Opposition new clauses. I was surprised that the Government met the aims of our new clause as they did, but I am pleased nevertheless.

    My hon. Friend the Member for Neath (Mr. Hain) and the hon. Member for Banff and Buchan (Mr. Salmond) were right to stress the position of Lloyd's names who are also Tory Members of Parliament. The rules of the House allow them to vote, but if they speak they must declare an interest. The fact is that most will not speak and will declare no interest; but, when the Division Bell sounds, they will walk into the Lobby along with other Conservative Members to vote themselves a tax concession. It is all very well to say, within the rules of the House, "It is not just them; it is others outside." I am sure, however, that many taxpayers would like their representatives to secure for them the same benefits that Lloyd's names in the House are able to secure for others outside.

    The situation is unsatisfactory, and I consider that Opposition Members are right to draw attention to it. The Government's judgment is tainted by the fact that so many Conservative Members—double the party's majority—are Lloyd's names. Four members of the Cabinet are Lloyd's names: of course their judgment is called into question. When members of the public consider the funding of the Tory party, they are bound to ask whether the Government are fit to run the country when they cannot exercise unfettered, untainted judgment in this regard.

    Where is the tax break in a series of proposals that are revenue neutral?

    I was coming to that.

    The Minister was plainly uncomfortable when I drew attention to the general issue—the difficulty in which he and his right hon. and hon. Friends now find themselves. It is no wonder that, over the past few weeks, the country has been preoccupied with the question of who funds the Tory party, and that so many Tory Members of Parliament have substantial interests outside the House. It is astonishing that some of them find time to be Members of Parliament, given the interests that they have to declare. I think that legitimate and important points have been raised in this short debate—not just about the reserve provisions available to Lloyd's, although it was right to draw attention to that, but about the fact that the Government have and represent so many vested interests that they cannot exercise the objectivity that most people expect of a Government.

    As I have said, we broadly welcome this part of the Bill. It is important to establish matters on a proper footing. That is why we were very selective about the amendments that we tabled. If the Minister had been right, it would have been very tempting for some people to vote against the entire provision, but we did not do that—we wanted to focus criticism where it deserved to be focused. Before the acceptance of our proposal today, a tax shelter was being created. The Government have accepted that that has happened. They have therefore tabled an amendment that closes that tax shelter loophole.

    One remaining matter must now be dealt with, and—

    No, I am just about to finish. The hon. Gentleman has not been here for the entire debate. He cannot expect to walk into the Chamber when it suits him in order to raise a matter. If he wants to speak on Report, he can do so when we debate the many other matters that are before us.

    Amendment No. 21 deals specifically with unfinished business. We are not persuaded by what the Government have said; therefore, we shall seek to press the amendment to a Division. I understand that, for technical reasons, the amendment will not come before the House until tomorrow afternoon, so we shall vote on it when we reach it. In the meantime, as the aims of our new clauses 1 and 2 have been fully met by Government amendment No. 6, I beg to ask leave to withdraw the motion.

    Motion and clause, by leave, withdrawn.

    New Clause 3

    Home Income Plans (Investment Bond Schemes)

    '.—(1) Where a person has sold since 6th April 1986, more than ten investment bond related home income plans to individuals, the provisions of this section shall apply to them.

    (2) A person falling within the provisions of this section shall be entitled to a reduction in their tax liability for 1993–94 of the amount specified in subsection (3) below if the condition of subsection (4) below is met.

    (3) The reduction in tax liability referred to in subsection (2) above shall be £1.

    (4) The condition referred to in subsection (2) above is that no more than 10 per cent. of the investment bond related home income plans they have sold since 6th April 1986 have subsequently been terminated.

    (5) The Board is empowered by this subsection to issue regulations defining the term "investment bond related home income plans".'.— [Mr. Darling.]

    Brought up, and read the First time.

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

    This is a different matter which, as the House will recall, was debated almost exactly a year ago. Indeed, the terms of new clause 3 are almost identical to those of the new clause that was tabled by my hon. Friend the Member for Brent, South (Mr. Boateng) on 8 July 1992. We make no apology for raising the matter again. The position has not changed substantially since the House last debated it.

    We want to draw attention to the plight of between 10,000 and 15.000 people, some of whom lost substantial sums of money by purchasing home income plans in the 1980s. The plight of those people is yet another nail in the coffin of the faltering system of self-regulation that was set up by the Government in the 1980s. Those people, most of them elderly, did not want to be such a nail, but their plight highlights the failure of the self-regulatory system and its inability to prevent the sale of manifestly unsuitable products and to provide an effective and efficient compensation scheme.

    This matter concerns Members on both sides of the House. Sales of home income plans were eventually stopped in 1991. The question that must be asked is, why not before? I believe that a proper system of regulation would have done so long before then.

    Let us examine first the poor advice that was offered to these people. No regulatory system can ever make it impossible to sell unsuitable products; what it can do is to make it less likely to happen. Of course, the buyer must beware. He or she should take advice. If, however, the Government set up a regulatory system, members of the public are entitled to rely on it and to assume that it works. The problem is that the present self-regulatory system does not work. In the case of home income plans, most people took advice but were given deliberately false advice by some very unscrupulous salesmen.

    It is likely that in future more and more people will have reason to buy financial products, as a means either of saving or of providing a pension for themselves. If we intend to ask people to make such provision for themselves, it is essential that Parliament puts in place a regulatory system that is worthy of respect by the public and the industry. An efficient and effective regulatory system is good for the industry and for the public, but that is not what happens at present.

    The problem is that the self-regulatory system is falling into disrepute, not just in the eyes of the public but in the eyes of the industry and the City. Hon. Members will no doubt have seen the remarks of the chief executive of the Prudential Assurance company, Mr. Mick Newmarch, and others. More and more people are calling for an end to the fiction of self-regulation and for the setting up of an effective, statute-based regulatory system in an area that is playing an increasingly important part in people's lives. That is why we have called repeatedly for a complete overhaul of the regulatory system.

    I believe that we could draw on the experience of the Securities and Exchange Commission in the United States. I do not advocate its importation, but we need a single, powerful, regulatory body—perhaps building on the Securities and Investments Board that we have at the moment—that commands respect and strikes an acceptable degree of apprehension in the minds of all those whom it regulates. It should be free to set up regulatory bodies, as it sees fit. It should ensure, among other things, that there is a compensation scheme that works quickly and effectively. We do not have such a scheme at present. A review of the City's regulatory system, together with the enforcement of the criminal law for market-related offences, is long overdue. The Government should accept that, rather than sit back and wait for something to happen.

    Investment-linked home income schemes were sold in the late 1980s to mostly elderly investors. Many of them have lost everything that they had. The idea was to unlock the capital in their homes, in the hope of earning a large enough return to make the repayments, as well as to provide extra income. Some of the people who bought those plans have told me that they were encouraged to do so by the remarks of Lady Thatcher when she was Prime Minister. She urged people to unlock their savings in that way. They feel especially bitter and let down because the Government's self-regulatory system has left them high and dry, following the failure of those plans.

    Many investors were never told of the difficulties attendant on such schemes. Furthermore, it was not brought to their attention that those schemes were fundamentally flawed because, before any money was invested, the salesmen's fees and commissions were deducted. To illustrate the point, in one case a couple were to invest about £20,000, but subsequently found that over £2,000 had been deducted for the salesman's commission and fees, leaving insufficient capital to generate the required income.

    Some of the schemes were sold by sharks—that is the proper word for them—who should never have been allowed to conduct business under the Financial Services Act 1986. To its credit, the Financial Intermediaries, Managers and Brokers Regulatory Organisation has made valiant efforts to remove those people who should not have been allowed to trade, but it is a long haul. When the system was set up, more or less anybody who was trading previously was allowed to carry on business, although those people should never have been allowed to do so.

    At stake is not just the character of individuals but the suitability of these people. The role of the regulator in ensuring that mainfestly unsuitable products are not sold must also be considered. A function of proper regulation is, I believe, to ensure, first, that the sales force is properly equipped and regulated and, secondly, that where manifestly unsuitable products are put on the market they are not allowed to be sold or, if they are sold, the circumstances in which they are sold are strictly regulated.

    In this case, following the sale of home income plans in the late 1980s, the SIB received more than 1,500 complaints. I understand that more than £23 million has been paid to just under 2,000 investors. Others, however, are still waiting for compensation.

    It is important to deal briefly with compensation. That is where some of the problems inherent in the present system are now becoming apparent. It should be remembered that, even where compensation has been paid, many people have lost heavily. One pensioner told me that it cost him £7,000 to get out of the scheme.

    One of the difficulties is that the plight of these people depends to a large extent on who sold them their plan. If they were able to go to the insurance ombudsman, until fairly recently they received an extremely efficient service. The ombudsman took a broad view. If we look at his most recent report, we see that he took the view that

    the elements of such Plans can only sensibly be regarded as parts of the same transaction. I therefore ask insurers to deal with the loss on the mortgage as well as that on the bond."
    The ombudsman was prepared
    "to compensate policy holders in respect of any sums withheld from the mortgage funds, or withdrawn from the bond."
    The ombudsman was also willing to make payments in respect of distress. He also, quite rightly, took the view that those who had sought advice were entitled to seek advice and that the cost of their advice ought to be recoverable from the insurer.

    Unfortunately, because of a recent ruling, the scope of the insurance ombudsman's remit has been curtailed. I am not sure that he wanted it to be curtailed, but in a recent finding it was said that, due to technical reasons which I do not want to go into, it is not possible now for the insurance ombudsman to take as wide a view as he previously took about the scope of his powers. The fact remains, however, that we might want to examine the role of the insurance ombudsman. The victims of these schemes who until now were able to go to the insurance ombudsman found that most of, if not all, their claim was met.

    That is not the case with other bodies. If individuals who lost out were able to go to the Life Assurance and Unit Trust Regulatory Organisation, the chances are that they would have received full compensation because there is no ceiling. Indeed, I have received few complaints from such people. If, however, people attempted to attach a building society, many would have encountered substantial difficulties.

    Some building societies eventually proved to be co-operative–1 emphasise the word "eventually" because even some household names have proved reluctant to become involved. They were happy to take the profits that would have accrued had the policy worked out, but they seemed reluctant to become involved in compensation. Others refused to co-operate—for example, the Alliance and Leicester, the Bristol and West, the Chelsea, the Leeds, the National Counties, the Newcastle, Northern Rock, the Staffordshire and the West Bromwich building societies. They trade on their reputation, but the public should be aware that, where those building societies have been found wanting or where people have lost out, they have been reluctant to become involved, or have refused to become involved, in the ombudsman's scheme.

    Unfortunately, the building society scheme is such that it needs the building societies to volunteer to co-operate. When the Government eventually embark on a review of the regulatory system, they should look long and hard at the compensation scheme which depends on the voluntary effort of building societies to co-operate. That seems absolutely intolerable.

    I shall deal with this issue later, but I must point out to the hon. Gentleman that the Leeds proceeds on a case-by-case basis. I know that it was listed as one of the societies that had refused to become involved, but it has, in fact, been helpful. I am sure that the hon. Gentleman would welcome the opportunity to set the record straight for that particular society.

    I am all in favour of forestalling correspondence that may ensue. The information that I received, which was given in good faith, was that the Leeds had not agreed to co-operate. The Minister tells me that it has agreed, and I am very pleased; perhaps the other building societies will take a leaf out of its book.

    In any event, building societies should not be reluctant in the first place. Everyone agrees that the people whom we are discussing, who are mainly the elderly, have lost substantial sums of money though no fault of their own. I fully accept that a building society might take the view that it is not the prime mover—the real villain of the piece may be the independent financial adviser. However, the building societies became involved. I should have thought that, as a matter of good will, if nothing else, some would be willing to be a little more co-operative than they apparently have been prepared to be until now.

    I repeat that it should not be a question of volunteering to co-operate. A proper compensation scheme should ensure that when people are in difficulties, having relied on advice and been completely innocent victims, they should not have to spend weeks, if not months or years, worrying and becoming involved in considerable expense to get reluctant volunteers to come to their rescue. The Minister will find that that is not the view of the Labour party alone.

    If an investor found that he had to go to the Financial Intermediaries, Managers and Brokers Regulatory Association, which regulates independent financial advisers, and then on to the investor compensation scheme, I am afraid that the chances are that he would have experienced substantial difficulty because the maximum payout under the investor compensation scheme is £48,000. It will not pay compensation for any sums withdrawn, unlike the insurance ombudsman. It does not compensate for stress or illness, and those who operate it do not believe that the people involved should have taken legal advice; if they had not done so, the chances are that many would not have received a penny. Of course, the scheme will not pay compensation for those who bought plans before 28 August 1988; nor will it pay if the independent financial adviser did not receive full authorisation. The difficulty in some cases is that the independent financial advisers held themselves up as being full FIMBRA members when they were not. A decent compensation scheme worthy of the name would not have left the victims high and dry.

    I know that the ICS has had its difficulties. It is mindful of the fact that its payouts are an increasing drain on the industry as a whole. Indeed, it is the cost of compensation, among other things, that is holding up the formation of the new personal investment authority because, understandably, those who are to be members are worried about compensation. It is in the interests of the industry to ensure that we have an effective and efficient compensation scheme which does not cause further trouble to people who are in difficulties through no fault of their own but which accepts that, where mistakes have been made, investors should be compensated without making them jump through hoops to satisfy criteria that, in many cases, are unjustifiably stringent.

    I should welcome an effective one-stop shop. Efforts to set it up have been fraught with difficulties. Initially, the Securities and Investments Board, albeit under slightly different management, was reluctant to set up a system. It did when pressurised to do so, but the SIB should reflect on the interests of the industry, let alone those of the public, and ensure that any scheme works and that it does not put investors to undue trouble in the exercise of remedies to which they are entitled.

    Under Andrew Large, the new chairman, the SIB is attempting to clear up the matter, but the House should not be under any illusion: we are by no means anywhere near the end of the road. The fact is that people bought products that should not have been sold to them. Institutions such as some building societies want nothing to do with people who have lost out. Unlike Lloyd's names, who have also been the victims of difficulties, elderly people do not have a Lady Archer to stand behind them. They understandably feel very bitter at the fact that the Government are apparently indifferent to their suffering. That is a further illustration, if one were required, of the need for the Government to establish an effective regulatory system.

    The House will know that there is a plan to set up a personal investment authority, if it ever gets off the ground. There have, however, been two years of horse trading between the vested interests. If trade unions had been left to put their affairs in order, the Government would have passed dozens of pieces of legislation in the intervening period; but, because of vested interests, one suspects, the Government have done absolutely nothing to ensure that an effective regulatory body is put in place to deal with this end of the market.

    I suspect that we shall be told by the Minister that the SIB and others are making valiant attempts to deal with a difficult situation; that the Government intend to do nothing to amend the present law but hope that the industry will set its house in order; and that the industry has another last chance. The Government are very keen on giving people last chances when it suits them. Members of the public, and especially the victims of the home income plan disaster, want action from the Government; they do not want platitudes or to be told that it may not happen in the future. They want a firm sign of government.

    The Government have abdicated their role. They are paralysed and transfixed in the glare of growing criticism of the system and of calls for action. We have been calling for change, and the chairman of the London stock exchange has called for a new body to examine the criminal law and the prosecution of market-related offences. As I said, the chief executive of Prudential Assurance has called for an end to self-regulation, and others are doing the same. In today's Financial Times, the Lex column calls for an end to the present system. The 10,000 to 15,000 people who suffered because of the failure also demand action. In the face of those calls, surely we deserve better than another tepid, uncertain response from the Government.

    In an interview with the Financial Times last November, the Financial Secretary threw in the towel and said that there was to be no new legislation. He told the SIB that the Government would not legislate, and I suspect that Lloyd's has been told the same thing. The Government have a role to play in putting the present system to rights. We need a proper system of regulation to deal with such a crucial part of the economy and to protect members of the public. I hope that tonight the Government will at least say that, for a change, they are prepared to change from their present tack of doing absolutely nothing.

    I warmly welcome many of the remarks made by the hon. Member for Edinburgh, Central (Mr. Darling), but when he went into rhetorical flights of fancy about the Government I parted company from him. Nevertheless, his general analysis of the problems faced by those who purchased home income plans was accurate. He is right to say that the unfortunate scandal—and it has been a scandal—has revealed gaps in our regulatory system. I congratulate him on giving valuable time to raising the matter this year, as he did last year.

    I also pay tribute to many of my colleagues on both sides of the House who have devoted a great deal of time over the past year to fighting on behalf of their constituents who have suffered grievously as a result of this scandal. I pay tribute to my hon. Friend the Member for Romsey and Waterside (Mr. Colvin), who has raised the matter in Adjournment debates on more than one occasion. I also pay tribute to my hon. Friend the Member for Ryedale (Mr. Greenway), who has acted as chairman of the all-party committee on home income plans which set up so many important meetings with the various bodies concerned.

    I pay tribute to all my colleagues on both sides of the House who, in relation to the West Bromwich building society, have contacted me as a result of the way in which their constituents have been afflicted and affected by the extraordinary way in which that building society has behaved in connection with this matter.

    I shall devote my short remarks to the way in which the West Bromwich building society has tried to wiggle and wriggle to avoid its responsibilities in a very serious matter. Many of my comments will come as a shock to those in the west midlands who have trusted in the good name of the West Bromwich building society. I will refer to individuals and to conduct which is criminal in its nature.

    About 800 people took out home income plans which were ultimately backed by cash from the West Bromwich building society. There was always an intermediary and that intermediary was usually an organisation known as Frew Fisher Smith. In effect, it introduced clients to the West Bromwich building society which advanced money. Those of us in this House who have tried to seek some small measure of justice for our constituents have met a brick wall. It would appear that everything was down to the intermediary and had nothing to do with the building society.

    The way in which the West Bromwich building society has behaved and has tried to avoid its responsibilities has been utterly scandalous, deeply shocking and would certainly merit much closer investigation, particularly by the police. I choose my words carefully. I believe that a great deal of criminal activity has been taking place involving forgery and fraud.

    In respect of forgery, I have seen and am quite aware of documents, which have been signed by constituents of mine and of other hon. Members, which have undoubtedly been changed after they were signed by the person who was seeking to borrow money. Incomes have been falsified. There have been greatly enlarged falsifications to justify the pushing out of much larger sums of money than our constituents wished to borrow in the first place. Documents were altered after the event without the knowledge of our constituents. That forgery led to fraud and no doubt very high commissions for those involved in that activity. The result has been misery across the country.

    So far as I am aware, every one of my constituents who took out a home income plan took one out which was backed ultimately by the West Bromwich building society. As I have said, about 800 people are affected across the country. Literally hundreds of hon. Members have drawn to my attention the fact that constituents of theirs have been involved through the West Bromwich building society. Everyone who has lost money and has faced considerable difficulty owes a debt to hon. Members who have pursued the matter, often in circumstances of great difficulty and in the face of the utmost indifference on the part of that particular building society.

    I want to take this opportunity to pay tribute to those who took out home income plans and have grouped together to campaign on behalf of those who have been losers. A dedicated group of people across the country has devoted many hours to fight for those losers.

    The matter has been so serious that, in one case, an elderly constituent of mine committed suicide. There is absolutely no question but that the behaviour of the West Bromwich building society triggered that. As one would expect, that has led to enormous problems for the family.

    As this matter has been going on for so long, we find that elderly people are becoming more and more worried. They see their debts growing and they are extremely worried about how they can meet those debts. They are terrified that the building society will move against their estates and that the modest inheritance, which they hoped to pass on to their children and members of the family, is likely to go to the building society and all those involved.

    Whenever I tried to approach the West Bromwich building society, I met with indifference and a total refusal, on the building society's part, to face up to the gravity of the situation. That refusal was exhibited by the chairman, Mr. Baker, and by the chief executive, Mr. Elliott. From my experience of those two gentlemen, I believe that they should not be holding the kind of posts that they hold. Neither of them has shown the slightest interest in coming to grips with what has happened. It is a serious scandal that people who hold positions of trust, as they do, should seek to brush aside what has happened and pretend that it has absolutely nothing to do with them.

    6.15 pm

    I concentrate my remarks on the West Bromwich building society. I have had almost no dealings with any other body. I am aware that, where people have borrowed from other societies, some have had satisfactory outcomes and conclusions, and others less so. However, I know about the West Bromwich building society.

    When my constituents and the constituents of other right hon. and hon. Members asked for a holiday on the interest payments while the matter was sorted out, the West Bromwich building society absolutely refused even to contemplate the idea of freezing the interest at the point of the problem and trying to resolve the matter thereafter. As a result, compound interest is being added to the debt and that debt is growing larger and larger. As nearly all the people—if not all—who borrowed through the home income plans had modest levels of savings, they increasingly find that their debts are at least as big as, if not in excess of, the asset that they currently hold. That is obviously desperately worrying for those people.

    That is not the only point which is so scandalous and which makes it necessary for changes in the regulations and the regulatory framework to ensure that that kind of thing can never happen in future. We must also consider the fact that our constituents were told that if they simply signed the document put before them everything would be taken care of. No adequate explanation was ever given about what those people were signing up to in the first place.

    It is worth bearing in mind that many of the people who signed up were exactly the kind of people who needed an explanation of what was contained therein. Responsible lenders, responsible banks and responsible solicitors would have ensured that a copy of the documents which our constituents signed would have been available to them and that the contents were carefully explained, clause by clause, so that the borrowers were aware of what they were signing up to.

    In the case of nearly every one of the West Bromwich building society borrowers, through the intermediary, that did not happen. That is a very serious state of affairs. By lending money on the basis of home income plans and not ensuring that that happened, that is a flagrant breach of the duty of trust which the West Bromwich building society owed to its own depositors. It lent depositors' money in risky circumstances without taking the most elementary steps to ensure that the borrower was aware of the obligation being entered into. I indict the West Bromwich building society for that as well.

    One has to say that there is precious little evidence that the financial status of those people who were buying home income plans was carefully and properly investigated. Indeed, I have already asserted, and believe it to be true and am aware of documents where this has happened, that the financial status was subsequently altered, by forgery, after the income had been declared in order to justify the kind of advance which the intermediary wished to obtain with, of course, the commission that went with the much larger loan than might otherwise have been the case.

    It is an absolutely scandalous state of affairs. If anything required police action, it is that each and every one of the mortgage applications to the West Bromwich building society now needs to be examined by the police. There are cases in which there was subsequent forgery of the financial declaration. Those matters need to be investigated and persons need to be brought to trial. If they are found in the intermediary or found in the building society, there should be no hiding place for those who have done this.

    I am listening carefully to the hon. Gentleman. He has pursued these matters vociferously and vigorously on behalf of his constituents. Has he reported any of them to any authority, whether the police, a supervisory body or the Government? The hon. Gentleman's allegations are extremely serious and should normally be reported.

    The hon. Gentleman is absolutely right. All those matters are available; they have been reported, and they need to be further reported. I have not reported them to my hon. Friend the Economic Secretary to the Treasury, but I have made others aware. They are matters for the police. There are West Bromwich borrowers—if I may refer to them as that, although the West Bromwich would always hide behind the intermediary, as the hon. Gentleman identified in his own speech—who have been in touch with the police about these matters.

    I hope that, as a result of what is said tonight, there will be a much more determined investigation than has currently been the case. That is precisely why I am taking advantage of the opportunity to ensure that matters which have been clear just below the surface for some time are now brought out in the open. Those who have responsibility for them have to face their responsibilities.

    Although the new clause may not be exactly the right way of proceeding—I am open to argument about that—it paves the way for an important discussion about this matter which has concerned many of our constituent s. We have always been faced with the fact that the West Bromwich building society relies upon the existing methods of regulation. Those methods have been shown to be wrong. It would be absolutely unacceptable to hon. Members if we discovered that people are selling home income plans. I am not aware of it, although there is the suggestion that some intermediaries might be trying to market such plans now, but, in view of experience from the mid to late 1980s, if any financial agent was seeking to market such plans, it would be a matter of the greatest scandal.

    We cannot shut the stable door after the horse has bolted in relation to those who have already purchased, but for new purchases to be taking place, with people not being advised of all the difficulties that there are in law and so on, would be truly scandalous.

    Will the hon. Gentleman join me and other hon. Members in calling for the Securities and Investments Board to deregister the West Bromwich building society from being able to practise investment business, as that organisation has clearly proved itself to be incapable of looking after the interests of people who lend to it or borrow from it?

    The hon. Lady raises a very important point. She has been most assiduous on behalf of her constituents who have been affected by the West Bromwich building society. Therefore, she makes her request to me from a position of personal and close knowledge of the way in which that building society has been operating. I very much agree with the sentiments behind what the hon. Lady has said.

    I hope that the building societies' authorities will look extremely closely at this matter. If I had any deposits in the West Bromwich building society, I would be extremely anxious and concerned about the competence of the people who are presently entrusted with looking after those deposits. I hope that the authorities that have overall responsibility for building societies will take close note of what the hon. Member for Birmingham, Selly Oak (Dr. Jones) has said.

    I do not want to go on very much longer; I think that I have said enough to show how deeply unhappy I am at the way in which my constituents have been treated. I know that constituents of my right hon. and hon. Friends and others have been affected. Unfortunately, that disgraceful pattern of events has already taken place. It is obvious that the existing pattern of regulatory law has proved to be too insubstantial to deal with it.

    My experiences of the West Bromwich building society have been so serious that I have felt it necessary to take advantage of this opportunity to try to bring out into the open what I regard as some of the most disgraceful behaviour by people who are entrusted with looking after other people's money that it has been my misfortune to learn about.

    It is a pleasure to follow the hon. Member for Corby (Mr. Powell), who has amply demonstrated the fiasco behind home income plans. He has made several serious allegations, and I am pleased that he has brought them to the attention of the House. I hope that the Economic Secretary to the Treasury not only listened to what the hon. Gentleman said but will say what action he intends to take as a result of those allegations.

    My hon. Friend the Member for Edinburgh, Central (Mr. Darling) dealt comprehensively with the failures of the self-regulatory system and the need to change that system and learn the lessons of the disaster of home income plans. As he said, up to 15,000 people were caught as a result of the sale of those plans in the mid to late 1980s. The trap that they are now in is certainly not of their making. Some of them have lost their homes, many of them have lost their life's savings, and many of them presumed that the home income plans that they purchased would not only pay off their mortgages but guarantee them a substantial slice of additional income for many years to come. When they were sold those plans, they were told that they were as safe as houses. Home income plans have not only turned out to be unsafe in respect of their mortgages but have cost them a pretty penny.

    As the hon. Member for Corby said, when they were sold, none of the home income plans was issued with a health warning. Many people who bought home income plans are among the most vulnerable members of society. Many were elderly people, looking to pay off their outstanding mortgages and for some additional income. The Financial Services Act 1986 has obviously failed to stop the sale of those plans, and it did not ensure that they carried a health warning.

    The chief executive of the Financial Intermediaries, Managers and Brokers Regulatory Association, Godfrey Jillings, has called home income plans inherently flawed. He made that statement after the event, because it was not until 1990 that FIMBRA and its counterpart, the Life Assurance and Unit Trust Regulatory Organisation, wrote to their members reminding them of their duty to recommend only policies geared to an individual's specific needs. The lack of public health warnings meant that many unauthorised firms, as my hon. Friend the Member for Edinburgh, Central said, were able to continue selling to unwitting victims even when it started to become clear that a home income plan scandal was brewing. It was not until a year later that the regulatory organisations effectively banned home income plans.

    The mess was the making of the regulatory organisations and their failure to make clear to the public the inherent dangers of investing in those plans. Clearing up the mess has been as inadequate as the system that created it in the first place. My hon. Friend alluded to the rather different treatment available to the victims of home income plans, depending on whether they bought through an independent financial adviser or from elsewhere. He went into that in some detail.

    The miserly conduct of the investors compensation scheme was thrown into sharp relief recently in a court case when it became clear that the ICS was refusing to pay any compensation on behalf of a victim who had died before the rogue firm was declared in default. That meant that a widow or widower might get only half the compensation that she or he had hoped for, which would not be enough to keep them in their home. According to the solicitor who was dealing with many of the victims, in the two and a half months since the ICS took that decision, it had halved the compensation paid to a surviving spouse in at least 12 cases. He warned that many more people would be affected unless that practice was reversed.

    6.30 pm

    There are a number of lessons to be learnt from the mess. The hon. Member for Corby has called for police investigations. My hon. Friend the Member for Edinburgh, Central alluded to the need to change the regulatory system and to introduce reform as quickly as possible. As a result of the home income plan debacle it has become clear that lax regulation costs people their homes; it costs people their lifetime's savings; it leads to a great deal of stress and worry. It even led eventually to one person's suicide.

    Too many independent financial advisers are simply incapable of doing the job and of looking after their customers responsibly. Unless change is made, many of us will be left with the impression that the industry is run by cowboys. I am sure that the Minister does not wish that impression to be conveyed, and that he will have something positive to say.

    We need tighter regulation because many of the people who are sold home income plans are not in a position properly to assess them unless public information is made available. The regulatory organisations are running a telephone helpline and making information available through citizens advice bureaux, but it is too little, too late. Information should have been available to people contemplating investing in home income plans before they got into trouble.

    Lax regulation does not work. I hope that some lessons have been learnt from the debacle and that when the Minister replies he will tell us the Government's thinking on compensating the victims and ensuring that they get a decent deal, and on ensuring that this kind of fiasco does not happen again.

    It is not surprising that the debate has evoked strong emotions on both sides of the House. I welcome the opportunity to make a few remarks in response to the new clause because I acknowledge that the issue has caused great personal distress to those who have been affected. It has come to the attention of many Members of Parliament who have taken up cases on behalf of their constituents, and it is right that the House should have an opportunity to be brought up to date with how those cases are being dealt with, as well as to examine some of the more fundamental issues of supervision, regulation and compensation.

    The hon. Member for Edinburgh, Central (Mr. Darling) used the debate—as he has some others—as an opportunity to call for a fundamental overhaul of our supervisory system, and he reiterated his call for a full-blown statutory system. I have expressed my views on the issue and shall not repeat them, save to say that whatever system one has—statutory, self-regulatory or semi-self-regulatory—it does not, of itself, ensure that no losses will arise, that no fraudulent activities will take place and that no bad advice will be offered. One must not confuse the structures with the need to provide adequate supervision and regulation under whatever structure there is.

    Will the Minister tell the House whether he and the Government are still wedded to the existing system of self-regulation, and whether there is any hope for any change originating from the Government?

    The Government have made it clear on a number of occasions that we believe that the structure provided by the Financial Services Act 1986 has been a considerable improvement, and that further measures can be taken to improve the system of supervision provided under that legislation. That was the purpose of Andrew Large's review, and it is the purpose of some of the changes being prepared by self-regulatory authorities.

    I anticipate problems and great damage if any Government were to visit upon the financial services industry the blight of major reorganisation without a consensus as to what should replace the current system, and without confidence that such a reorganisation would result in a better system of supervision. When there is scope under the existing legislation significantly to improve the effectiveness of investor protection, it seems to me that the responsible first recourse of government is to take that approach. That is precisely what we are doing.

    I do not rule out, for the long term, changes in response to events and I am always prepared to have a running review of those issues. However, when I am trying to support moves, for example, for the personal investment authority to get off the ground, it would not be responsible or helpful to suggest that we intend to throw the deck of cards into the air and start dealing again, as far as our system of supervision and regulation is concerned. I prefer to address the issues of inadequacies in supervision and regulation where they occur, and not just the structure. It is the human decisions, as much as the institutional structures, which result in good or bad investor protection.

    Many hon. Members have spoken about home income plans. Some home income plans are fairly benign; others have caused very serious problems. Home reversion schemes, whereby the owner of a property sells all or part to the scheme provider for an immediate cash sum and carries on living there until he dies, are sometimes a source of distress to next of kin and inheritors, but they are popular and there is nothing necessarily wrong with them, provided that people are well informed and know what they are entering into.

    Purchase life annuity schemes can be a sensible source of additional marginal income for people. As the House will know, under such schemes the home owner takes out a mortgage loan on the property and uses the cash to buy an annuity, which services the loan interest and leaves an income. As tax relief up to £30,000 is available on the loan used to buy the annuity, the scheme can provide a positive—if modest—income after meeting the interest due on the loan.

    The schemes that have caused most concern are those in which the owner takes out a mortgage on part of the value of his home and invests the proceeds in an investment bond. I understand and fully sympathise with hon. Members' concerns about the plight of home owners—usually elderly—who have been sold unsuitable home income plans. As the House may be aware, action is continuing to deal with the problem and I shall describe a little of the progress that has been made.

    The financial services regulators, the Financial Intermediaries, Managers and Brokers Regulatory Organisation and the Life Assurance and Unit Trust Regulatory Organisation., have amended their rules to prevent further marketing of inappropriate schemes and have taken disciplinary action against the firms concerned. To answer the point mentioned by my hon. Friend the Member for Corby (Mr. Powell), therefore, such schemes should not be sold in the future.

    In addition, action is being taken to help those who find themselves in difficulty. Many life offices have made good the damage that investors have suffered. Some investors may alternatively be eligible for compensation, either from the investment company or from the investors compensation scheme set up under the Financial Services Act 1986. Last week I went to see for myself, at first hand, how carefully the ICS staff investigate those cases, and I should like to take this opportunity to pay a tribute to them. I watched and spoke to the staff, and in my judgment they are extremely thorough and as expeditious as they can be in dealing with the many claims that have been brought to their attention.

    Firms regulated by LAUTRO have now paid out £8 million.

    I am glad that the Minister mentioned the ICS. No one is criticising the staff; the system is at fault. Is it not an anomaly that an investor who goes to the insurance ombudsman will get more or less full compensation, including compensation for legal costs, stress and any payments made, while for those who go to the ICS the upper compensation limit is £48,000 and no other payments are made? In other words, for the latter there is only partial compensation. Does the Minister agree that it is anomalous for the end result to depend entirely on a stroke of luck or bad luck as to which regulator or authority the investor approaches?

    I acknowledge that there are differences in the overall amount of compensation that might be available—although in the vast majority of cases the amount will be less than the £48,000 for which the scheme provides. I acknowledge also differences in approach. That aspect was subject to judicial review, which ruled in favour of the fair basis of compensation provided by the ICS. It is an inherent problem of mixed-product schemes—and one which legitimately gives rise to concern—that where a number of institutions or intermediaries are involved in packaging a product sold to an investor one may find different acknowledgments of the liability which may be met. LAUTRO has generally been rather fast and, some would say, more generous. Compensation has certainly been paid more quickly than in cases that are the subject of resolution by ombudsmen or the one-stop procedure.

    Each case is different, and many cases are complicated. That explains why a number remain outstanding. Considerable progress had been made in clearing up and resolving cases since the issue was last raised by the hon. Member for Brent, South (Mr. Boateng) in a similar amendment last year.

    Firms regulated by LAUTRO have paid £8 million in compensation to more than 920 investors, and investors have been restored to the final positioin in which they were before they became involved in the scheme. Between 400 and 500 cases are still being considered by the insurance ombudsman. Many cases are complex and may involve the responsibility of a number of different parties—for example, the financial adviser, the solicitor and the lender.

    The liaison group established by the Securities and Investments Board announced in March 1992 a one-stop procedure for handling complaints under which investors in such a scheme on the recommendation of a FIM BRA member who are in difficulty as a result and who have received no satisfaction can pursue all their complaints through FIMBRA—even if their complaints involve others besides the FIMBRA member. The majority of complaints against FIMBRA members received so far are being handled by the ICS, which deals with cases in which firms are in default. The making of an award under the FIM BRA arbitration scheme can drive a firm into default.

    So far, 15 of the independent investment intermediaries that were members of FIMBRA—that is, most of them—involved in marketing the schemes have been declared in default under the investors compensation scheme. Payment or offers of payment amounting to more than £16 million have been made to more than 1,000 investors with those firms, and a further 600 claims are being considered.

    In many of those latter cases, investors have been told that they are eligible to receive compensation but that their claims cannot be finalised until financial details are received from the various third parties or because the investors have not yet encashed their investments. That might include the insurance company whose insurance bond was used or the solicitor who dealt with the mortgage documents. Some building societies have agreed to co-operate with the building societies ombudsman in using the one-stop procedure. Discussions continue with others with a view to encouraging them to do likewise. No doubt those societies and other organisations will note the strictures and comments of hon. Members who contributed to this debate. The Government hope that they will feel able to co-operate in that way.

    More than 120 cases have been processed through the one-stop procedure, 29 cases remain in the FIMBRA arbitration process and 19 are being investigated. The remainder have been settled, rejected or referred to the ICS. Meanwhile, the building societies concerned have made it clear that they want elderly borrowers to remain in their homes, resolve their worries and avoid hardship.

    The regulators are concerned to ensure that no one who took out such a plan is overlooked. On 7 June, the SIB published a fact sheet, "Home Income Plans: Grounds for Complaint", which sets out the characteristics of investment bond based schemes and encourages anyone who has taken out such a scheme and thought that they were given bad advice, or were not adequately informed of the risks, to contact the SIB. It has also established a helpline for two months to advise those who have not complained before on the action that they should take. Since it was established, a further 24 cases have been identified and referred to the appropriate complaints handling body under the one-stop procedure.

    I was amazed that when that fact sheet was sent out and investors were invited to say whether they thought that they had grounds for complaint, and a number completed a questionnaire—when 24 cases were identified as being serious enough to merit investigation—13 respondents wrote to express their interest in home income plans and asked how they could take one out. If anything, that emphasises the point made by my hon. Friend the Member for Corby that the public need good advice—whether it is independent, professional or simply sound common sense. Even now, the public are not necessarily aware of the dangers involved.

    6.45 pm

    I have said previously that, although those involved in selling or wrongly selling such schemes must bear the principal responsibility, and although a statutory compensation scheme is available for those who cannot be assisted in other ways, ultimately the public must exercise a degree of buyer beware. They should observe five rules. They must beware, spread their investments or risks, seek good advice, read the small print and not confuse authorisation with compensation. We cannot provide a fail-safe system of statutory regulation or even self-regulation in this or other areas. We can do our best, and we can take action against those who are in default. That is being done, substantial progress has been made, and the remaining cases should be dealt with over a period of time. I hope that all parties concerned, and particularly the institutions, will play their full part in co-operating to bring this sad episode to an end and to ensure the rightful restitution of funds to those who have undoubtedly suffered greatly.

    At the start of this debate, I indicated that I had borrowed heavily from last year's amendment in the name of my hon. Friend the Member for Brent, South (Mr. Boateng) and, with respect, I believe that the Minister has borrowed very heavily from his speech last year. As he spoke, I recognised several passages that appeared in the columns of Hansard in July 1992.

    I emphasise that no one is suggesting that we should throw the existing regulatory system into the air like a deck of cards and wait to see what lands. There is a growing consensus about what needs to be done. I suggest that we build on the present system but remove the self-regulatory element to end the present situation whereby people can pick and choose between regulators. People can decide to do nothing because there is no pressure on them to do anything. Above all, we must get away from the state of affairs that the Minister signalled again today, in which the Government will do nothing because that is to give the green light to those outside who wish to do nothing to put their house in order.

    I remind the Minister that the financial services industry is of crucial importance to the economy, the people whom it employs, and those who buy the industry's products. We are calling for an overhaul of the present system and the establishment of statute-based regulation to protect not only the public but the industry itself.

    I am sorry that the Government will not accept that proposal. I am sure that the 10,000 to 15,000 people who bought fundamentally flawed schemes will be bitterly disappointed. Our proposals are made not in any partisan sense. There is support for change outside the House as well as in it.

    I am astonished that the Minister made no reference to the comments of the hon. Member for Corby (Mr. Powell) about the West Bromwich building society. I thought that the Minister would say something—even if he only expressed concern. I hope that the Minister realises that concern is felt by hon. Members on both sides of the House. Earlier this year, I tabled two early-day motions which attracted more than 100 signatures. I was astonished at that level of interest. Conservative Members tabled early-day motions that were slightly different, but they also attracted supporters.

    The Minister must accept that there is concern and that it is not a question of criticising the industry, but a recognition that the industry is of crucial importance. People will want to buy more and more products and it is therefore important that we have a system of regulation and compensation that works. We do not have that at the present time.

    In his tour round the compensation scheme, the Minister might have commented a little more on the anomalies between the various schemes. He said that the ICS scheme was fair and that he was glad that the judicial reviews found in its favour. The judicial reviews are to do not altogether with fairness and objective assessment of the pros and cons of such schemes, but with a narrow interpretation of administrative law, which is not quite the same thing. I hope that the Minister will realise that many people will find it curious that one scheme gives help for legal costs while another does not. There must be something wrong with that system when they are dealing with the same product.

    The hon. Member for Corby and my hon. Friend the Member for Birmingham, Selly Oak (Dr. Jones) have said that one of the problems is that we have mixed-product schemes which allow the various organisations concerned to duck behind one another, saying that it is nothing to do with them. The hon. Member for Corby also made the point, which the Minister must accept, that even if the Minister does nothing else and even if everything in the regulatory system needs no alteration, there is something wrong in this area. I am sorry that he did not do anything more.

    By tabling the new clause, I hoped at least to provoke the Minister to say something different. Since the interview in the Financial Times last year, he has a new boss, a new Chancellor—a man of the people, who comes from the industrial midlands, no less. I had thought that with that new broom we might have seen some changes in financial regulation, but we have not.

    My new clause is highly technical and was engineered to produce this debate. I am sorry that the outcome has not been more positive. I can only hope that those who are trying to resolve the situation will redouble their efforts. I am sure that many people long for the day when we have a Government who are prepared to govern in this area. They are keen on interfering in all sorts of trivia, yet when it comes down to such an important, fundamental point, the Government have absolutely nothing to say. I wonder why that can be.

    Question put and negatived.

    New Clause 8

    Powers Of The Board Of Inland Revenue

    '. The Taxes Management Act 1970 shall be amended as follows—

  • (a) section 20, subsections (2) and (7A) shall be deleted;
  • (b) section 20B, subsections (6)(a) and (6)(b) shall be deleted and replaced with "the Commissioner giving the consent has also given approval to the exclusion.".'.—[Mr. Beith.]
  • Brought up, and read the First time.

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

    The new clause seems rather technical and raises a wider issue. It seeks to ensure that the agents of Government charged with collecting taxes are doing so in a fair, even-handed and responsible way. It specifically seeks to guarantee that, when a tax inspector tries to obtain documents or information from a taxpayer or third party, he does so only with the appropriate judicial approval and that the board of the Inland Revenue does not give the impression of acting as judge, jury and executioner.

    Section 20 of the Taxes Management Act 1970 deals with the powers of inspectors to demand the production of documents from a taxpayer and third parties. Under that section, an inspector who believes that he needs access to a document in the possession of the taxpayer or some third party, for example a bank, can get an authorisation to serve a notice for material in two ways: by seeking the approval of the board of Inland Revenue itself to serve the notice, or by asking for the approval of a special or general commissioner. That appeal, whether to the board or the commissioner, is heard in private. The taxpayer need never be told of anything said about his tax affairs and has no chance to put his case against the inspector. The commissioner is under no obligation to keep minutes of the hearing, so often it is impossible to verify what has been said.

    There are circumstances in which a degree of secrecy may be necessary. A crooked taxpayer could take advantage of the advance warning of notice. That is all the more reason why the process should be seen to be completely above board and should carry the most stringent checks on the correctness of its application.

    There is a further reason why the process is of importance to certain innocent taxpayers. There is increasing evidence that section 20 actions are being used by banks as a reason to limit and even to withdraw credit or access to banking facilities. We all share the anxiety that, if some inquiry were made about us for no reason by a credit reference agency, it might panic our bank into not treating our account in the normal way. That inquiry becomes a real fear when it comes to light that there are cases where banks have ceased to operate an account in the normal way or have not allowed the taxpayer to do so when the section 20 notice comes to them. The bank might not even tell the taxpayer, the small business man or whoever why it is doing that, because it does not wish to alert him to the Inland Revenue's action and it would not be proper for it to do so. Suddenly the business man, who has already been adversely affected by his protracted arguments with the Revenue, finds that his bank is not operating in the normal way for no apparent reason. It is hard to imagine anything more likely to give someone a persecution complex.

    In that context, it is not acceptable that the Inland Revenue should be able to act alone and without regard to outside control. The new clause removes the powers of the board to issue its own notices so that, in future, the only way in which an inspector could get a notice under section 20 would be to seek the approval of a commissioner acting in a judicial role or independently of the board.

    It is not that tax inspectors are crooked or that they engage in anything other than proper tasks on our behalf, but occasionally there is an excess of zeal, as Ministers know from the cases in their constituencies, where power seems to have been used in circumstances that are not merited and which represent an unfair imposition on what turns out to be an innocent taxpayer.

    It is equally important that the work of the Inland Revenue be seen to be carried out in a fashion that is transparently honest and fair to the taxpayer. That is part of the process of maintaining confidence in our system.

    There is another aspect that has been brought to light, as so many things have been, by the Asil Nadir case. What a lifting of the stone that case was and how many things were found beneath it. One thing that curiously came to light was that tax officials had given details of Mr. Nadir's tax affairs to the stock exchange. Although few Opposition Members have any sympathy for Mr. Nadir, it raises the possibility for other taxpayers that there may be unauthorised disclosure by the Revenue of documents to somebody or some agency through which they might pass to a business competitor, to a potential creditor or to someone who in some way might, with no proper legal authority, use that information to the detriment of the taxpayer. The discovery that the Revenue is not above disclosing information in a way in which it is legally precluded from doing must add to the arguments for proper protection when the procedure is used to obtain documents.

    There are reasonable ways in which that protection can be achieved by following certain procedures. First, hearings for the approval of an inspector's request for notice should have to be properly recorded and the taxpayer should be given a right to see what was said about him and his affairs at any later appeal.

    Secondly, looking back to the House of Lords decision in 1991 in the case of T. C. Coombs and Co., to authorise a notice, the commissioner should be satisfied that, in all the circumstances, the inspector is justified. There is an implied duty on the inspector to divulge all relevant information, even if it does not support his case.

    With that case in mind, we should ensure that both aspects are guaranteed. The first is guaranteed in section 20, but the second is not. There is no guarantee that the implied duty to divulge all relevant information will be exercised. If that were to be made a statutory requirement, and if the taxpayer were given the right to discover what had been said, it would be a reasonable safeguard.

    Thirdly, we should ensure that when a commissioner hears a case for a notice under section 20, he should not be able to hear a future appeal relating to that taxpayer. It is not clear how often, if ever, that actually happens. The Minister may know how often the commissioner who hears an application for notice under the existing procedure turns out to be the commissioner who deals with that taxpayer's affairs at a later date. If a commissioner has already heard in private and without challenge many arguments of detail about that taxpayer's affairs, it may not be proper for him to be the person judging independently at a later stage that taxpayer's affairs. We believe that we should have such a safeguard. To what extent it is a safeguard observed in practice at the moment we do not know. The Financial Secretary may know the answer.

    Those are the grounds on which we tabled the new clause. We believe that an important principle for the protection of taxpayers is involved even in the limited area in which, we all recognise, there may need to be the use of powers for the disclosure of documents so that fraud and evasion of taxes are not allowed to continue.

    7 pm

    I of course agree with the right hon. Member for Berwick-upon-Tweed (Mr. Beith) that the question of the powers vested in the Inland Revenue to secure the proper collection of taxes is a proper concern of civil liberties and that we have to ensure that the balance between the powers of the Inland Revenue and the rights of the taxpayer is maintained. However, it is important to be clear about the circumstances in which an information notice can be served on a taxpayer.

    The right hon. Gentleman is right to say that there are two routes by which an information notice can be served on a taxpayer. Either—this is the normal case—an inspector applies to the commissioners for an information notice and the commissioners grant it in the normal conduct of their duties—that is, on the commissioners' authority on the initiative of the inspector—or there is a power for the board to issue an information notice on its own authority without needing to go to the commissioners.

    The right hon. Gentleman did not draw the attention of the House to the provisions in the Finance Act 1990 that limit the circumstances in which the board may legitimately use that discretion to circumstances in which the board can be satisfied that completion of the normal process—that is, applying to the commissioners—would lead to the danger that the right of the Revenue to collect tax that is due would be prejudiced. I am sure that the right hon. Gentleman recognises that that is a legitimate concern and that the due process can on occasions lead to delay. Where there is a danger that the delay caused by due process would lead to a taxpayer avoiding tax that is legally due, it is reasonable for us to have a special process to avoid that happening.

    The Inland Revenue has in place a code of practice which ensures that the power that is vested in the board of the Inland Revenue to issue information notices in such circumstances is delegated only to a very few senior officials. The inspector who seeks an information power has a choice between applying to the commissioners as an independent body or applying through the internal processes of the Revenue to one of the senior officials who has the power to issue the information notice only if he is satisfied that the conditions of the 1990 Act are satisfied, which is the key point.

    That process achieves the objective that I set out at the beginning, which is that we need to maintain a proper balance between the right of the Inland Revenue to secure the information that it needs to collect tax that is properly due and the proper right of the taxpayer to insist that his interests are safeguarded. I shall consider the point that the right hon. Gentleman made about the ability to go back to examine records of decisions made by the commissioners and by senior officials at the Revenue in these circumstances. But I would not be in favour of the further legislative constraints which the right hon. Gentleman envisages because I am satisfied that the existing arrangements provide proper safeguards and maintain the balance that all in the House want to see.

    I am grateful to the Financial Secretary for agreeing to look at some of my specific suggestions, some of which could be implemented without following a statutory route. His reply on the main point had the blandness that one associates with Revenue defences of its existing powers. I cannot imagine a situation in which an official of the Revenue conscientiously going about his duties would not believe implicitly that he should not fail to use the most expeditious power—in this case, the power to go to the board of the Inland Revenue rather than to a commissioner. He would believe implicitly that that power was being exercised to avoid loss to the Revenue of tax that it should properly collect—collection that might be prejudiced by any further delay. Inland Revenue officials go through life suffused with confidence that they are acting on that principle. It was some external check on the exercise of that power which I sought and which I still think desirable.

    The right hon. Gentleman should take note of the fact that the senior officials of the Inland Revenue have been satisfied that the test is passed only in roughly 15 to 20 cases a year.

    I am grateful to the Financial Secretary for that clarification, which is some reassurance. I hope that when he considers my detailed suggestions, he will bear in mind not only the point about unauthorised disclosure, which I hope causes people in the Inland Revenue to think again, but even more my point about the effect on banks and financial institutions of such notices. If the procedure is exercised at all, it could prejudice the conduct of the taxpayer's affairs and it might do so in circumstances in which the taxpayer is wholly innocent. I hope that the Financial Secretary will bear that point in mind. I beg to ask leave to withdraw the motion.

    Motion and clause, by leave, withdrawn.

    New Clause 11

    English Wine Sales (Relief Of Duty) (No 1)

    '. In section 56(1) of the Alcoholic Liquor Act 1979 (Power to regulate making of wine and made-wine provide for charging duty thereon) after paragraph (e) there shall be inserted—

    "(f) relieving duty on sales of wine bought directly from vineyards by way of farmgate sales ".'.— [Sir Anthony Grant.]

    Brought up. and read the First time.

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

    With this it will be convenient to take new clause 12—English wine sales (relief of duty) (No. 2)

    '. In section 56(1) of the Alcoholic Liquor Act 1979 (Power to regulate making of wine and made-wine provide for charging duty thereon) after paragraph (e) there shall be inserted—

    "(g) relieving duty from wine sold in vineyards of under 10 hectares of production.".

    I did not expect to move the new clause, although I wholly support it. I know that some of my hon. Friends will wish to speak at rather greater length than I do, so I shall not detain the House. The new clause is designed to rectify the grossly unfair position in which English vineyards find themselves. I have in my constituency a vineyard called Gamlingay. It produces on a fairly small scale a very nice dry white wine which I commend to hon. Members and to anyone else who likes to participate.

    One reason why the vineyard has difficulties is the imposition of duty. The producers sell the wine for £4·50 a bottle, of which approximately £1·20 is duty. If it were sold in France, in Germany, in Luxembourg, in Portugal, in Italy, in Greece or in Spain, the £1·20 would not arise. If our producers were on a level playing field, they could sell the wine for £3·30.

    This problem applies not only to that vineyard, but throughout the British wine trade. If an Englishman, a Welshman or a Scotsman buys 10 cases of wine by direct sale from a vineyard in any of those European countries, he would pay no excise duty. If he bought the wine in France, the duty would be about 2p a bottle, which is negligible. He could bring that wine back home to the United Kingdom without having paid any duty. That same person buying at an English or Welsh vineyard, whether Gamlingay or anywhere else, will pay £1·16 or £1·20 a bottle in duty, or as much as £1·92 if the wine is sparkling. That is patently unfair to English vineyards. We talk about a level playing field in Europe. That should apply to everything, and certainly to wine.

    It is with absolute confidence that I move the new clause. I believe that Treasury Ministers wish to support British wine as well as to consume it. I believe that they wish to encourage the trade and that they want to put us on the basis that applies in Europe. There is no excuse for discrimination, and the sooner that it is got rid of the better. One way to do that is to accept the new clause with pleasure and with alacrity.

    We have heard an enchanting case for the merits of English wine and the prospect of the garden of England being bedecked with new vineyards. I can see the case which is being made, but the new clause amounts either to a plan to subvert EC fiscal legislation—I can well understand why some hon. Members want to do that—or to an invitation to open a Pandora's box of delights concerning the consequential effects on other alcohol taxation.

    Unless the Paymaster General tells us to the contrary—I fear that he will not—we will be told that, first of all the new clause runs foul of the agreements on harmonisation, which the Government signed with other European countries, and that if the hon. Member for Cambridgeshire South-West (Sir A. Grant) and his right hon. and hon. Friends wish to have the new lower duty on English-produced wine they will have to have that duty on all wine sold in this country.

    Although we suggested in Committee that there was a need for some adjustment in the relative fiscal scales on alcohol taxation, I do not think that anyone suggested reducing the duty on wine in this country to the same level as that of some of our European neighbours.

    One of the new clauses would make farm gate sales free of duty; the other would exempt from duty smallholdings smaller than 10 hectares. If the change is applied to wine, why not apply it to beer or spirits? That would invite small-scale duty free sales of home-distilled brews across the country, which may have many attractions but would subvert the basis of charging duty on alcohol and would give rise to a curious distortion in the structure of the industry, as our breweries and distilleries had to get themselves down to the farm gate sales threshold, or the 10 hectares, to take advantage of selling cheap booze.

    Although the hon. Gentleman's move to give a special boost to English wine is attractive, I fear that the Paymaster General will have no alternative but to knock it firmly on the head.

    I have a constituency point that causes me to support the new clause. I also support in general the need to make English vineyards as competitive as possible. Although they make fine wines, they do not compete on price. Much of that is a result of the burden of over-regulation and excise duty.

    My point relates entirely to our new clause on farm gate prices. The custom of the vineyards in my part of Sussex had dropped dramatically as a result of the single market. I am not criticising the single market—thank goodness for it—but it is having a definite effect on the vineyards in east Sussex because they are not able to sell wines—as they have done—from the vineyards. We must encourage them to be as competitive as possible vis-a-vis the French vineyards. One has only to spend a brief period on holiday in France and see how much of its product any vineyard will sell to people who turn up at the farm gate to notice what a substantial part of sales it is for many vineyards and how much it contributes to their annual output and hence their profit.

    I hope that the Paymaster General will, in a general review of English vineyards and the Customs regime to which they are subject, have a good look at helping to make English vineyards considerably more competitive, particularly at the farm gate.

    7.15 pm

    I am glad to have caught your eye, Mr. Deputy Speaker, over a topic about which I have spoken in the House for the past 15 years. On one occasion—I want to assure the Whips that this will not be such an occasion—I had the Adjournment debate at 10 o'clock. As the business of the House had collapsed, the debate started at 4.30 pm. I had a wonderful three hours—4.30 pm to 7 pm and then from 10 pm to 10.30 pm. My right hon. Friend the Member for Mid-Sussex (Mr. Renton) was engaged in that operation with me and I am pleased to see him here tonight.

    I should declare an interest at the outset. I was interested in English wine long before the English Vineyard Association was even thought about, and before we had an English vineyard industry. I now advise the association, which has 400 commercial vineyards in membership. I do not think that many hon. Members realise that there are 400 commercial vineyards in this country. They now produce just short of 25,000 hectolitres of wine a year, some of which is very good.

    The trouble is that English wine is out of the reach of the majority of the population, not because it is too difficult to get down in a glass, but because it sells for too much. For most people, the average price of a bottle of wine is £2·99 or less. As the duty on a bottle of English wine is £1·16, one can see that that leaves only £1·83 for a bottle of wine to be produced, marketed and retailed.

    I have to declare a second interest, as I have five vineyards in my constituency, and they are very good indeed. I make it a point to visit them to ensure that they are doing what they should be doing and in the way in which we would like it to be done. Devon has 10 vineyards. Somerset has 10 vineyards. Norfolk has only four, but Kent has 170 acres of vines. In the constituency of my right hon. Friend the Member for Mole Valley (Mr. Baker) there is one vineyard of more than 200 acres. The industry is quite big now.

    The vineyards in Britain are so far north that they do not yield as much wine as the French or Spanish vineyards. They need help from the Government—

    Sunshine, yes, but they can be helped with the duty as well, which is what this issue is about. As my hon. Friend the Member for Cambridgeshire, South-West (Sir A. Grant) quite rightly said, people go to France, not only in charabancs but in large transit vehicles, and they can buy any amount of still and sparkling wine at the French level of duty, which is 2p on the bottle. Much more significantly, if they go to any vineyard in Germany, Italy, Spain or Greece and buy over the gate, which is what the new clause is about, there is no duty at all.

    Only one country apart from Britain imposes duty on farm gate sales—France. France imposes a duty of 2p a bottle, which includes VAT. In Britain, the duty is £1·16 a bottle, including VAT. There is thus no incentive for British vineyard owners to show tourists around their vineyards because those who would like to take away a little souvenir bottle of wine discover that there is a large amount of duty to be paid on each bottle. In any other European country apart from France such bottles are excise duty free because they are counted as farm sales for personal use. In France people can take six cases of wine, sparkling or otherwise, from a vineyard and pay only 2p a bottle duty on it. In Italy, Spain, Portugal, Greece or Germany cases of wine can be bought without paying duty on them—or VAT.

    The new clause tries to establish a level vineyard across Europe. I look forward to hearing what the Paymaster General has to say about this. He will probably say that he has not appreciated that there was a problem. We are, after all, talking about a drop in the ocean—the amount of duty involved, to mix a metaphor, is no skin off the Treasury's nose. We are talking about a few pence at most.

    The present injustice hurts vineyards in constituencies such as that of my hon. Friend the Member for Hastings and Rye (Mrs. Lait). Many people cross the channel and then drive along the coast. The French, who are understandably rather careless of English wine, drive into vineyards on the Sussex coast and get the shock of their lives when they find that they have to pay £6 for a bottle of wine when they can buy as good wine for a third of the price in France or elsewhere—

    Quite so.

    The new clause is only about farm gate sales and is designed to deal with our Government's discrimination against our own vineyards. The Government have shown clearly that they realise that we must back British goods, and it would help vineyards' commercial viability—they are experiencing difficult times—if they were not charged for farm gate sales to people who buy wine for their own use. Accepting the measure would do such vineyards a great service.

    New clause 12 has to do with relief of duty on wines sold from vineyards of under 10 hectares. Most of our 400 commercial vineyards are very small, and it would be marvellous if the Government gave them some relief. There is a precedent for this: the arrangement giving those who produce wine a growers' allowance. I do not know how much they are allowed to consume without paying excise duty, but the point remains the same.

    I should have thought that the Government could easily accept this new clause, which would merely give statutory form to the growers' allowance, which is already well established here. Cider producers also enjoy some arrangement allowing them to produce some cider for their own consumption without paying duty on it.

    I hope that the Minister appreciates the great interest in the House in English wine. Certainly Conservative Members have a great many vineyards in their constituencies. I look forward to hearing from my hon. Friend the Member for Lincoln (Mr. Carlisle), who runs his own vineyard and who can speak with experience. We also look forward to hearing other hon. Members speak—

    Order. Which other Members are called is entirely the choice of the Chair. It is not up to the hon. Member who is speaking.

    I apologise without reservation, Mr. Deputy Speaker. You, of course, choose the speakers. I was just hinting that you might choose a speaker who happened to own a vineyard.

    I am very interested to hear about the hon. Gentleman's knowledge of the wine industry, and I have great sympathy with what he is saying. I only hope that the farm gate price of whisky can come down too, so that Scotland can enjoy some of the stuff that we produce more cheaply—but I take the hon. Gentleman's point.

    What the hon. Gentleman says is precisely what I feared—the Minister will say that he cannot give way on wine because other people will start saying that the same should be done for whisky. There may indeed be a case for that. We are anxious to be fair to those who produce our wine. At the moment wine producers operate with both hands tied behind their backs—we seem to be shooting them not only in the foot but in the brain. We are not allowing them to encourage tourists to visit their vineyards and leave with bottles of wine, because we are tripling the amount that they have to pay for it.

    Many other Members wish to catch your eye, Mr. Deputy Speaker, so I will conclude. If the Minister gets this one right, he will perform a great service to the nation—and solve a lot of problems.

    I begin by declaring an interest. On my farm in Suffolk we have a vineyard, which we planted five years ago. We planted seven acres with 12,000 vines, and we are proud to be part of a new and, we hope, growing industry in the United Kingdom.

    I was appalled to hear the hon. Member for Oxford, East (Mr. Smith) talking about cheap booze. That just shows how little he knows about the quality of wines that can be produced in England. The closer a producer is to the geographical extremity of where a fruit can grow, the better that fruit can be. Even though the process is more risky, the longer maturing period enables production of a better quality fruit.

    We in the countryside have all been encouraged to diversify, and this is a diversification—not to mention a large investment, which I and many others who have tried to make a living in the countryside have made. The industry needs encouragement: not help, but fair competition.

    The industry also creates employment. By the time we have looked after our vines and made and marketed the wine, our little venture employs six people, part or full time. It thus makes a contribution to local prosperity—another point for the Minister to bear in mind.

    What we produce is drunk and enjoyed in this country. It substitutes for imports, another laudable achievement. We do not want help; we just want fair competition. My hon. Friend the Member for Hastings and Rye (Mrs. Lait) made a good point about that. At present, vineyards near France suffer greatly from unfair competition owing to the new regulations.

    Am I right in thinking that my hon. Friend's very small vineyard has been extremely successful of late?

    That remains to be seen. We have entered a competition and I look forward to hearing the result. I am hopeful that we have produced good quality wine.

    I hope that the Minister will listen to the arguments. The wine industry is not a big one, but it is developing. It is a serious industry, which is becoming more professional and capable of producing good wine. Given a level playing field, we are confident that we will not only create employment in rural areas but help to cut imports.

    I did not intend to speak in this debate, but I have a lot of sympathy with what hon. Members have said, for example, about employment, which is very important.

    I understand the rules that apply in other parts of Europe, and I agree that we should have a level playing field. I would like to extend it to the social chapter and other areas, but that is not the point.

    7.30 pm

    For years one tremendous growth industry in Scotland has been the tourist trail to distillers. As many hon. Members are aware, people from all over the world visit the distilleries to take a wee dram and encourage them to buy whisky when they get back home. I understand the point about possible visitors to the new wineries in England, or whatever they are called, and how that could be a new growth industry in tourism.

    Last night I was reading a book about the history of Great Britain, starting with the Roman times. There was a paragraph about the wine that was produced in those days. Some of the finest wine in the Roman world was produced in Britain. Apparently, the climate then was slightly better than it is today. I came here from Scotland today, and I know how different the weather is in Scotland. I think that, given the heat down here, not only grapes but bananas can be grown.

    On a less frivolous note, I think that what hon. Members have said tonight is very serious. I believe in a level playing field and if wine can be bought duty free at the farm gate in France, Germany, and other countries, that should be possible here.

    I genuinely believe, based on historical facts, that we can produce wine as good as that produced by any other country. I would encourage the folk in England, who are lucky enough to have the right weather, to produce the wine. The Government could take a wee lesson and give strong support to the new flourishing art—or rather ancient flourishing art—of wine making in Great Britain.

    Like every other hon. Member, I like a wee glass of wine. I do not know a good wine from a bad one. I would follow the advice of the hon. Member for South Hams (Mr. Steen), who seems to have visited all the vineyards. Next time perhaps he would like to take me and my family with him.

    I am grateful for the support of the hon. Member for Renfrew, West and Inverclyde (Mr. Graham) for the new clauses to which I have put my name. Perhaps we could have a useful twinning association and organise exchange visits to the vineyards in Sussex, Kent or Suffolk and the distilleries that are near the hon. Gentleman's constituency.

    I congratulate my hon. Friend the Member for Lincoln (Mr. Carlisle)—and this is an unsolicited comment: I have drunk his wine and it is excellent. I hope that soon the Chairman of the Catering Select Committee will ensure that it is available in the Members' and Strangers' Dining Rooms.

    I am happy to support the new clause tabled by my hon. Friend the Member for South Hams (Mr. Steen). I spoke in support of him a number of years ago in the debate to which he referred. In my part of the world, in the county of Sussex, as my hon. Friend the Member for Hastings and Rye (Mrs. Lait) has already said, vineyards are a growing business. That is a bad pun, but the fact is that tourism has always been immensely important to Sussex.

    In recent years, coastal towns such as Hastings, Eastbourne and Brighton have not found it easy to develop their tourist industry. One of the good recent developments is the vineyards, which are increasingly flourishing. Those on the downs in my constituency, inland from the coast, provide a pleasant stopping place during the day for tourists who have been to Brighton, Eastbourne or Hastings. In the afternoon, tourists and their families can go to somewhere like Drusilla's vineyard, where there is a wine shop that sells farm produce as well as English wine.

    As my hon. Friend the Member for South Hams has rightly pointed out, there is an anomaly. We want to sell more English farm produce and English wine from our local shops, but the duty on English wine sold at the farm gate is £1·16 a bottle as compared with 2p a bottle in a comparable establishment in France, or nothing at all in other comparable continental establishments. I am sure that my right hon. and good Friend the Paymaster General will say something encouraging about that when he winds up the debate.

    Many people in Sussex now take their cars on the ferry over to France from Newhaven, which is next door to Hastings and my constituency. They fill their car boots with dozens and dozens of bottles of wine at the hyper in Dieppe or Pas de Calais. I am a great supporter of the single market, but it is wrong that there should be such a tax differential against our English wine.

    Is the right hon. Member for Mid-Sussex (Mr. Renton) aware that coach loads of people come down from Scotland every week, or every day, and go over to France to buy wine? They could possibly stop in his area, load up there with wine and save the cost of the petrol necessary to go to France. That would increase the amount of money that would go to the Exchequer.

    I am delighted that Scotland is so prosperous under a Conservative Government that so many of the hon. Gentleman's constituents are able to take a bus down to fill up with wine in France. I hope that they will also stop at our wine shops in Sussex on the way back.

    The tax differential poses a serious problem in Sussex. It is not a frivolous matter. Wine growing is an important young industry and we wish to be able to compete against our continental neighbours on a level vineyard, to use the memorable phrase of my hon. Friend the Member for South Hams.

    Sussex has often prided itself on the slogan "Come to Sussex, Sussex by the sea". We would like to add a word in the middle of that. We would like people, when they come, to drink Sussex "Sauvignon" by the sea.

    I should like to endorse everything that my right hon. Friend the Member for Mid-Sussex (Mr. Renton) has said, which applies equally to the vineyards of Kent.

    I do not think that it is up to the Chairman of the Catering Select Committee to decide which wines are supplied in our Dining Rooms. All I know is that the excellent Syndale valley wine from my constituency—it is produced close to my home—got on to the wine list. I was privileged to be a member of the Select Committee when it tasted the wines. It was done without any knowledge of the origin of the wines, but that local wine still got on to the wine list. That is a tribute to my local vineyard and explains why I wish to add my voice to the powerful voices that have been heard today in support of the new clause.

    I am a member of the Catering Select Committee, and I can inform the House that there are moves afoot to remove English wine from the list. Does my hon. Friend agree that we should resist that with all the enthusiasm that we can muster?

    It would certainly be sad if that happened. The important thing is that consumers should be allowed to make their choice.

    There is tremendous international competition to supply the wine drinkers of this country. The English vineyards do not produce volumes of wine and cannot compete easily with the flood of high quality wines that now come into this country. What is of tremendous importance is that they can compete by offering tourists and others the opportunity to visit vineyards that are found in some of the loveliest parts of the countryside.

    I urge my right hon. Friend the Paymaster General and his colleagues, when considering the new clause or other proposals, to remember that the fact that people can go into the countryside, visit the vineyards and buy wines there is a tremendous and fast developing asset. That is the key point. It is even more important because of the international competition.

    If it is true, as we are informed, that virtually no excise duty is charged at the farm gate in France, and that in most other European countries no tax is imposed, what is the justification for imposing it here? It cannot be because of the revenue raised because the amount collected must be very small. But if we can encourage tourism, diversification, conservation and the improvement of the countryside, I should have thought that my right hon. Friend would accept our overwhelming argument.

    I, too, like English wines. Indeed, I have a constituency interest in the form of a small vineyard at Thornbury castle. I understand what my hon. Friends are trying to achieve in tabling the new clauses, which are designed, as their title suggests, to assist English wines. However, they do not do that. They demonstrate my difficulty in distinguishing between English and other wines under the tax system.

    The basic principle of international trade was laid down many years ago, after the war, in article III of the general agreement on tariffs and trade, which says:
    "the products of the territory of any Contracting Party should not be subject, directly or indirectly, to internal taxes or other internal charges of any kind in excess of those applied, directly or indirectly, to like domestic products."
    Since 1947, there has been a lot of case law on that and it covers the matters that we are discussing. Under GATT we are not permitted to distinguish in favour of English as opposed to imported wines. The principle behind it is that no country's tax system should discriminate against imports. My right hon. Friend the Prime Minister was doing his best the other day to achieve improvements in GATT and to lower all sorts of trade barriers.

    It is also against article 95 of the treaty of Rome and European law to distinguish between products in that way.

    Is the Paymaster General confident that his decision to reject the new clauses is compatible with European Community law and hence not challengeable in the European Court of Justice?

    Yes. I have just quoted the GATT article and mentioned the treaty of Rome and subsequent bits of European law.

    In trying to get around the problem of not contravening GATT or the treaty of Rome, my hon. Friends have hit on two ideas, which are incorporated in the new clauses: first, so-called "farm gate sales"; and, secondly, the 10 hectare suggestion.

    The Paymaster General has given the answer that I expected about European and international law, but how would he reply to the argument that in other European countries, with the exception of France, those farm gate sales are not charged duty?

    I should not have given way to the hon. Gentleman and I apologise to the House for having done so because I was just coming to that point.

    New clause 11 deals with farm gate sales, or rather vineyard gate sales. There is no difference in any European country between duty at the gate of a vineyard, or within a vineyard, and duty at a supermarket or anywhere else, nor can we introduce a difference under European law. The overall duties on wine imposed by France are less than that imposed by this country, and other European countries impose no duty at all. But that is true across the board; it is no advantage to sell wine at a vineyard, nor can we introduce such an advantage.

    It is a question of the difference in excise duties between this country and the other countries named by my hon. Friend the Member for South Hams (Mr. Steen). Our neighbours in other directions, such as Ireland, impose a duty similar to or higher than that imposed by this country. We have often discussed the difference bei ween our excise duties and that of other countries. My hon. Friend discussed a direct function of a much wider argument about excise duties, particularly in the light of the single market.

    I should first like to discuss new clause 12, which deals with the 10 hectare limit.

    Before my right hon. Friend leaves that point, may I say that the English Vineyards Association informed most hon. Members that all those other European countries pay no excise duty at the vineyard? Is my right hon. Friend saying that that is simply because they pay no excise duty at all on all wine sales, or is our information wrong?

    7.45 pm

    I am saying exactly what my hon. Friend suggests. No excise duty—in some cases, VAT is charged—is payable on wine in the countries named, apart from France which imposes a small amount of excise duty. The rate of excise duty and VAT is exactly the same for sales at vineyards and in supermarkets or anywhere else in France and other European countries.

    New clause 12 suggests that we should discriminate on the basis of size, but 10 hectares is far too large for discrimination to be of value. The vast majority of vineyards throughout the continent are under 10 hectares. I am told that most premier cru Burgundy comes from vineyards of under 3 hectares. Those small vineyards have a small production because they believe in being exclusive to maintain their markets. There are approximately 1.9 million vineyards on the continent, of which only 90,000 measure more than 10 hectares. Therefore, the difference of 10 hectares would be of little use and the same would be true if we changed that figure to 5 hectares or fewer.

    Because of the international agreements that 1 mentioned earlier, we would be unable to distinguish between European and English wines in that way. If we said that the produce of small vineyards under 10 hectares or some other size should carry a lower rate of duty, we would have to apply that rule to continental vineyards of the same size, which is the vast majority of them. It is another way of saying that we would reduce the rate of excise duty on wine from almost anywhere in the world. Under GATT, an Australian vineyard of over 100 hectares or a large Californian vineyard would have to be treated in the same way as we treat our most favoured vineyards. We would have to offer the 10 hectare rate even to the most enormous vineyards imaginable, provided that they were overseas. It would discriminate only against large United Kingdom vineyards, not against large vineyards elseshere.

    For all those reasons, I do not think that either of the solutions offered by my hon. Friends provides a way forward for us. I believe in free international trade; I also believe in the single market. I recognise the problems caused by the difference in duty rates, which is not confined to wine, but is a wider issue. In the circumstances, it is not possible to use a duty device to benefit English wine. I hope that the trade flourishes. The best way to ensure that is by improving marketing techniques and by extending the ways in which grapes are grown and wine is produced and marketed. We cannot ensure that the trade flourishes by trying to seek duty advantages, which would cause immense difficulties.

    Is my right hon. Friend aware that the English Vineyards Association is planning to set up stalls in French ports to sell English wine to English travellers returning from France so that they can buy English wine at £1·16 a bottle less than in England? It is crazy for English people to go to France to buy English wine to bring back to this country because it is cheaper in France. If the new clauses are incorrectly drafted, can my right hon. Friend help us to table some helpful new clauses?

    I do not believe that there is a method of distinguishing, through the duty, in favour of English wine. Perhaps somebody else can find a way, but I have not found a method consistent with GATT or European Community agreements that benefits English wine through the use of duty.

    My hon. Friend the Member for South Hams has mentioned a marketing method. I was commending innovative marketing methods, and my hon. Friend has drawn attention to just such a scheme. I recognise the difficulties of which he has spoken, but it is true that English wine or any other wine bought in France for personal consumption and either brought back to this country or drunk in France bears French duty. The important factor is the country in which the wine is bought; it is not the specific farm gate or place where the wine is bought or where it is produced. I cannot accept the new clauses.

    Question put and negatived.

    New Clause 23

    Taxation Of Fishing Vessel Decommissioning Grant

    '(1) Any grant received under the Fishing Vessels (Decommissioning) Scheme 1993, shall be taxed in accordance with subsections (2) to (4) below.

    (2) For the purposes of capital gains tax, a sum payable to an individual by virtue of the scheme referred to in subsection (I) above shall not be treated as part of the consideration obtained by him for, or otherwise as accruing to him on, the disposal of any asset.

    (3) Where a vessel is scrapped in compliance with grant conditions under a scheme referred to in subsection (1) above, then for all the purposes of capital allowances legislation, and in particular Part II, Chapter II of the Capital Allowances Act 1990, the disposal proceeds to be brought into calculation of the balances adjustment for the purposes of section 24 of the said Act and the value attributable under section 26 of the said Act or otherwise shall be deemed to be nil.

    (4) No part of a sum payable by virtue of a scheme referred to in subsection (1) above shall be treated as a trading receipt in the Schedule D Case/computation of profits of the applicant.'.— [Mr. Wallace.]

    Brought up, and read the First time.

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

    I hope that the hon. Member for Hastings and Rye (Mrs. Lait) will remain in the Chamber as she said in last Wednesday's debate on decommissioning that she was very much on the side of the fishermen, and I think that today's debate will give her the opportunity to reaffirm that. Last Wednesday the House approved the decommissioning scheme for 1993–94, which is expected to be the first of three annual decommissioning schemes amounting to £8·4 million per annum.

    I am not sure that the order says £8·4 million per annum, but it says £25;million over three years.

    I think that the hon. Gentleman is right. I do not think that the order specifies the amount, but the Ministry of Agriculture, Fisheries and Food stated what the amount was likely to be over three years. In the present year the figure is expected to be £8·4 million, and the same in each of the two succeeding years.

    An official explanatory leaflet sent to people in the industry stated that, in order to qualify for a decommissioning grant—for which hon. Members on both sides of the House have called for many years—three specific conditions must be met. First, the vessel must be scrapped—permanently broken up or disabled so that it is incapable of going to sea. Secondly, registration in the register of fishing vessels must be cancelled. Thirdly, all valid fishing licences must be surrendered.

    The leaflet comments on the tax treatment and states:
    "Decommissioning grants are taxable in the same way as other grants to the agriculture and fishing industries".
    That is an unilluminating statement which begs the question of what prompted the new clause. I hope that the Treasury team will be prepared to accept what I believe to be the most favourable taxation treatment of decommissioning grants. If that is not acceptable, it would be helpful to those in the industry if the Treasury team could state how decommissioning grants are to be taxed.

    The hon. Members for Aberdeen, North (Mr. Hughes), for St. Ives (Mr. Harris) and for Greenock and Port Glasgow (Dr. Godman) have all taken part, over many years, in debates on decommissioning. I think that they, like me, will recall that when we have tried to do the sums, the Fontainebleau agreement has often been introduced into the debate so that it becomes unclear how much the scheme will cost the Treasury. We have always asked what sum will be taken back from the fishermen in tax. I do not recall fisheries Ministers ever giving a clear answer to that question. There is an opportunity this evening for Ministers to clarify the position.

    We are asking businessmen to submit tenders and make serious business decisions to scrap their vessels when a key element in the calculation is unclear. I very much hope that tonight we can do something to clarify the position, not least because it was announced last Wednesday that fishermen have until the end of this month to make their submissions for decommissioning grants. Any further information that can be given this evening will be most welcome.

    Is the hon. Gentleman confident that the scheme will not be hogged by Humberside trawlers in the same way that the previous scheme was so manipulated?

    The previous scheme was much criticised, not least by the Public Accounts Committee, and we shall want to watch how the new scheme operates. We do not want money to go only to one port. I shall be ruled out of order if I become too embroiled in a debate on the merits or otherwise of the decommissioning scheme. Many of us would argue that money is not enough, but this evening we are concerned with the tax consequences.

    It appears that there are four ways in which the sums can be taxed. First, the receipts could be taxable as trading income. Although nothing in the scheme requires the applicant to cease trading, it would, for the most part, seem reasonably self-evident that if a person scraps his boat, he is unlikely to carry on trading. Such a method will probably not commend itself to the Treasury, particularly, as has been said, if the licences have been returned. Secondly, the receipt could be considered to relate solely to the scrapping of the vessel and accordingly to be taken into account when calculating capital allowances. I suspect that the Treasury may wish to pursue that policy.

    Thirdly, the receipt or part of it could be treated as a capital gain. In addition to receiving compensation for the vessel, it could be argued that the value received also includes an element for the surrender of a precious stock licence and the forfeiture of the right to fish with that vessel. I believe that there is case law to support the argument that payments for those items—which amount to goodwill attached to the vessel—could be regarded as capital receipts.

    When a grant is allocated, no indication is given as to the amount awarded in respect of the vessel and the amount awarded in respect of the licence. The Ministry of Agriculture, Fisheries and Food and the Scottish Office Agriculture and Fisheries Department may consider that no value is attributable the licence on the basis that nothing was paid for it. I understand that in the north-east of Scotland the Inland Revenue routinely pursue a policy of attributing value to a licence as a capital asset when a vessel is sold. It is possible that a grant in excess of the vessel's current market value could be treated by the Revenue as capital.

    Fourthly, it could be accepted that no tax is to be paid on the grant—a proposal that I commend to the House. I believe that that may have been the case in some previous decommissioning grant schemes, although the status of some of those grants has not been made clear from the commissioners' decisions. Perhaps the Ministers will tell us about the operation of decommissioning grants under previous schemes.

    8 pm

    The new clause has no implications for capital gains or income tax and it has some precedent. I refer the House to the tax treatment of grants under section 27 of the Agriculture Act 1967. That Government grant was to encourage people to reinquish the occupation of uncommercial agricultural units. The parallel between relinquishing such units and the decommissioning of fishing vessels is immediately obvious. Section 249 of the Taxation of Chargeable Gains Act 1992 states:
    "For the purposes of capital gains tax, a sum payable to an individual by virtue of a scheme under section 27 of the Agriculture Act 1967 (grants for relinquishing occupation of uncommercial agricultural units) shall not be treated as part of the consideration obtained by him for, or otherwise as accruing to him on, the disposal of any asset."
    The leaflet from which I quoted said that the method of taxation would be similar to that which applies to other agriculture and fishing grants.

    I have given an example of an agricultural grant that is not included for the purposes of capital gains tax. I am sure that the Financial Secretary is aware of other agricultural grants such as those payable under sections 9 and 12 of the Agriculture (Miscellaneous Provisions) Act 1968. Section 9 deals with grants for reorganisation compensation. When dealing with it the then Minister of Agriculture, Fred Peart, said:
    "This is a difficult matter, and right hon. and hon. Gentlemen opposite are right to ask whether the new payments will be liable to Capital Gains Tax, Income Tax or betterment levy.
    Tenants will not be liable for Capital Gains Tax, Income Tax or betterment levy on sums received under Clauses 9 and 12. These sums do not constitute a capital gain or, in the Land Commission's view a realisation of development value, nor do they constitute part of the tenant's taxable income."—[Official Report, 21 February 1968; Vol. 759, c. 473.]
    That is another example of agricultural grants not being taken into account for tax purposes.

    The new clause seeks to have the grant accepted as non-taxable and to permit the balancing allowance to be granted on the vessel. I do not purport to be an expert in understanding how balancing allowances and balancing charges work. However, they may be of little practical use to taxpayers who have applied for a grant and who have accumulated trading losses in recent years. It would preserve a measure of equity between those who have claimed allowances to augment losses and produce relief against other income and taxpayers who have sought to preserve the tax value of their vessel to set against future taxable balancing charges on a sale.

    The share fishermen system operates in Scotland and there are differences throughout Scotland. Unlike parts of the north-east of Scotland, the practice in my constituency for a new person joining a partnership is for continuation elections to be signed when there are partnership changes. The effect of that is that the new partner takes on a share of the tax written down value of the vessel which reflects previously granted allowances. Subsequent allowances do not reflect the price that he pays for his share. There is always the possibility of that person having to pay tax on a balancing charge in excess of the allowances to which he may have been entitled. That means that there may well be a disincentive to Shetland fishermen applying for grants or at least to gross bids up more than would otherwise be the case.

    That brings us to the purpose of the grants. The primary obligation is to reduce capacity to meet multi-annual guidance programme targets. Value for money can be measured in how much capacity can be taken out of the fleet. Many of us would have liked to see more money for decommissioning, but surely the effect of the small amount that has been made available should be maximised. An applicant must include the tax impact of accepting a grant in his calculation. If the effectiveness of the scheme is to be judged on catching capacity taken out, the clear efficiency argument says that if no tax is levied on the receipt there will be lower tenders and, therefore, more bids accepted and more capacity removed from the fleet. There will be greater value for money. I accept that that may not mean so much revenue for the Treasury, but it would be pleasant for once to see the Treasury trying to support the policy of another Department rather than trying to frustrate it.

    Does the hon. Gentleman agree that one of the developments that we wish to see with a sensible decommissioning scheme in some of our ports is the pulling out of the older vessels so that the fleet can remain fairly modern? Does the new clause encourage that development?

    I suspect that it would certainly help. If I recall correctly, it was said in the debate on Wednesday that vessels had to be at least 10 years old.

    If a person applying for a tender has to gross up to take account of the tax that he must subsequently pay, fewer vessels will be taken out of the fleet and the relatively small amount of money will not go so far in reducing capacity. Making the grant tax free would be the best contribution towards achieving the object of the exercise. Those who are engaged in the exercise should know where they stand on taxation before making important business decisions.

    I should like to be associated with the arguments advanced by the hon. Member for Orkney and Shetland (Mr. Wallace). He has presented the detail of the technical argument and I shall concentrate on why the industry needs some additional tax incentive as part of the decommissioning package. It is highly appropriate that this matter should be debated during consideration of the Finance (No. 2) Bill because many of the decisions, not just for the fishing industry but for all resource-based industries, have been Treasury and Revenue led. That is true for oil, gas and whisky and it is certainly true for fishing.

    The Ministry of Agriculture, Fisheries and Food has argued for some time that its original two-year decommissioning scheme was extended to three years with no more money because of pressure from the Treasury, perhaps from the Financial Secretary himself. In a debate on fishing on Wednesday, I quoted an example given to me by Mr. Hugh Allen, the secretary designate to the Mallaig and North West Fishermens Association, on the precise detail of the proposal by the hon. Member for Orkney and Shetland.

    I do not propose to quote the example again because it is available in Hansard. Mr. Allen reasonably set out a case study whereby a fisherman putting in a decommissioning bid of £150,000 on a 15-year-old capital asset that might be worth that amount would be left, after the operation of taxation and other obligations on the decommissioning grant, with a grand total of £4,000. That money would have to be disbursed among four members of his crew.

    If that is the current taxation system, it will severely inhibit a successful decommissioning scheme and will lead to one that is designed merely for the convenience of the Treasury. In the past few years, virtually every other fishing fleet in Europe has had access to substantial structural funds of hundreds of millions of ecu. Only the United Kingdom fishing fleet—the fishing fleets of Scotland, Northern Ireland, England and Wales—has not had access to that sort of structural funding. I hope, and it would be a triumph of hope over experience, that when the Financial Secretary replies he will go beyond the narrow Treasury accounting view of what is absolutely convenient and look to the possible success of the decommissioning scheme.

    It has not escaped those of us from fishing constituencies that when Ministers argue about the costs of a decommissioning scheme, they always take the costs net of the deduction resulting from the Fontainebleu agreement—for example, even a scheme that is financed 75 per cent. from the European Community would have an impact greater than that on Treasury revenues because of the deduction from the United Kingdom rebate under the Fontainebleu agreement. Yet those same Ministers have always refused to look at the scheme net of taxation and net of the effect on the Treasury of taxation. That argument has been used to produce a very modest decommissioning package for the fishing industry.

    Surely, tonight, the Financial Secretary should show that he appreciates that, without some tax concession, the decommissioning scheme could flounder and not have the effect that we all want, which is to bring capacity in the fishing industry into line with catching potential.

    For some years, the Labour party and the fishing industry have urged the Government to introduce a decommissioning scheme. Despite the existence of European Community funds towards the cost of national decommissioning schemes, the Government have repeatedly declared their opposition to such schemes. In February 1992, they announced that £25 million would be made available for a two-year scheme. That scheme is now to last for three years, but the money being made available—which includes EC grant—is unchanged.

    That money is quite inadequate for an effective decommissioning programme. Indeed, the House of Lords Select Committee on European Affairs concluded that the £25 million
    "is not even enough to prevent the fleet from expanding; four or five times that amount is now needed to make up for the lack of a decommissioning scheme in the United Kingdom during the last decade."
    Given the wide agreement that the Government are putting forward too little money for decommissioning, the House should not reject the opportunity to lighten the tax burden on decommissioning grants.

    The hon. Member for Orkney and Shetland (Mr. Wallace) accurately said that this evening we are here to discuss the tax treatment of decommissioning grants, not their level or nature or the rules surrounding the scheme. The issue of the tax treatment of payments under the scheme is relatively simple. Tax law provides that those payments should be treated in exactly the same way as any payment that a boat operator would have received had his boat been sold. That is the principle that needs to be applied.

    On the sorts of specific tax charges that might arise, the main case is that of fishing boats being sold at less than the full new value paid by the operator. In that case, as with any other capital asset sold by a trading entity, if it is sold for less than the tax written down value, no tax is payable; if it is sold for more than the tax written down value, a balancing charge is made. That is the usual provision in income tax for an individual or in corporation tax for a corporation when a capital asset is sold.

    If a boat were sold for less than the new price paid for it by the business, that is the only circumstance in which tax would not be payable. If, however—I suspect that it would be relatively unlikely—a boat were sold for more than its original cost, there would be a balancing item because it would have been sold for more that the written down value. Potentially, a capital gains tax charge would be payable and the normal capital gains tax would apply. In calculating the charge to capital gain, the first consideration would be the new price paid for the boat, and then that would be indexed in accordance with the usual indexation provisions. If the boat were sold for an amount greater than the index-based value, once again—in exactly the same way as is with all other businesses operating in the economy—a capital gains tax charge would be payable.

    8.15 pm

    Given the seriousness of the issue and the good sense of the new clause, will the Financial Secretary tell us whether his officials have costed the proposal? It is an important matter. If the hon. Gentleman rejects the new clause, many fishermen may reject the decommissioning scheme.

    Every time a proposal is made to us, we estimate its cost. The cost of the proposal in the new clause is not just the cost that would arise from the benefit to the fishing industry; it is the cost of establishing the precedent of treating Government grants as tax-exempt payments and the distorted incentives that would be built into the system. It would not be rational to build into the system a set of rules to provide that a payment under the decommissioning scheme was tax free, whereas if a boat operator had sold his boat on the open market he would incur a tax liability. That would build in all sorts of distortions, almost all of them undesirable.

    In the circumstances surrounding the decommissioning scheme, the main case is not the capital gains tax charge that I described, although that is the law, but the fact that a boat operator is likely to be selling the boat for less than he paid for it, in which case all we are talking about is a balancing charge. That is familiar to any practising accountant dealing with business accounts.

    Having considered the provisions of the decommissioning scheme and the likely price of the vessel if sold, has the Financial Secretary calculated what that would mean for the Treasury? Although he says that most accountants can understand the matter, those who have to make the decision do not necessarily understand it. Will the Treasury issue guidelines in clear language that everyone can understand?

    I understand that the calculation of the balancing charge can sometimes be complex, but it is a well-established concept of tax law. We are not dealing with circumstances that differ from the circumstances of a farmer or any operator of a manufacturing or other trading business.

    Has the Minister done that calculation? Given the great importance that everyone in the fishing industry attaches to the decommissioning scheme and the paramount need for the scheme to succeed, will the Treasury issue letters of guidance so that the matter is clearly understood and no one is under any illusions about the exact position?

    I have tried to set out the position in very clear language. It would not be clarified further by issuing what would be represented as a special guidance letter. I have said that, in determining whether a tax charge is payable on the disposal of a boat under the decommissioning scheme, the tax rules that would apply are the general rules that apply to all trading businesses when they sell a capital asset that has been employed in their trade.

    I shall give way, but I sense that the House wants to get on to the next business.

    I appreciate the pressure on my hon. Friend, but we are discussing important matters. I want to ask him two questions. First, will he deal with the point fairly raised by the hon. Member for Orkney and Shetland (Mr. Wallace) that an operator selling a boat is not just selling a capital asset; in most cases, he is going out of business? Secondly, will any allowance be made for the considerable cost of scrapping the boat? According to last week's debate, as much as £10,000 might be involved in the disposal of the asset. It is not just a question of a sale to someone else; the seller must then physically carry out the scrapping—or, in most cases, get someone else to do it.

    Obviously, I shall need to take specific advice. As I have conceded to the hon. Member for Aberdeen, North (Mr. Hughes), these issues are not 100 per cent. simple; however, I assume that, if the business received a payment for the disposal of the boat under the decommissioning scheme and then incurred a cost, scrapping would be an allowable expense. It appears that the hon. Gentleman agrees with me. I emphasise, however, that those rules would be applied in the general case of traders disposing of a capital asset, whether in the course of their trade or on the day on which they closed down—which, sadly, is not unknown in the fishing industry.

    I will give way once more to the hon. Gentleman; then I will end my speech.

    I think that we would all feel reassured if the Minister would state specifically that the Treasury was not banking on obtaining revenue from the scheme.

    I have clearly stated that the amounts involved are extremely small from a tax-revenue point of view. However, if we are talking about establishing a precedent and about a sense of grievance among other traders in precisely similar circumstances, I do not believe that a tax-principle case has been established for departing from the general rules that any fishing boat operator would be able to secure from any practising accountant.

    The Minister's reply was very disappointing. He does not dispute any of our arguments; he does not deny that the new clause would be the best way in which to maximise the effect, and the objective, of the decommissioning scheme. He has virtually conceded that the cost to the Revenue would be minimal, possibly nothing. He seems to have based his argument on unwillingness to set a precedent; yet in his speech—in which he refused to give way to me—he singularly failed to address the precedents that I cited in my speech.

    Fishermen should know that the tax treatment to which I referred applies to any other trader. As I said, the official leaflet sent to fishermen referred to taxation that applied in the same way to other agricultural and fishing grants; however, I referred to two—if not three—agricultural grants involving no tax treatment. Section 27 of the Agriculture Act 1967 contains a concession that was re-enacted as recently as last year. The precedents are already there; those in the fishing industry, hard pressed as they are, will wonder why on earth they cannot be given a little additional help, at virtually no cost to the Treasury.

    No doubt the hon. Gentleman will agree that some hon. Members are better briefed than the Minister in this regard. It is clear that the Minister still does not wish to contradict the interventions that have been made.

    The Minister said that small amounts were involved, and that he was not very worried about that aspect. We have been given to understand that Treasury pressure turned the decommissioning scheme into a three-year scheme rather than the two-year scheme that was originally proposed. How do the two propositions sit together?

    It is not for me to try to understand that; I do not entirely understand it either. The opportunity to explain exists; the Minister has clarified the law as he sees it. However, we are here to legislate. The House had an opportunity tonight to change the position at no cost to the Treasury, but the Government have not sought to take that opportunity. I believe that the hard-pressed fishing communities on our coasts will notice that.

    I, too, find the Minister's response disappointing. The hon. Member for Orkney and Shetland (Mr. Wallace) claimed—with considerable confidence— that such tax-free concessions were not unknown in agriculture; if that is true, his claim that we must not distort the tax system does not hold water. I feel that a general principle is involved. Let us suppose that several fishermen own a vessel, that they are involved in a share arrangement. They may well feel reluctant to give up that vessel for scrapping if they are not to receive such a concession.

    The object of such a scheme is to reduce the capacity of the fleet. Without such small concessions, fishermen who—in many instances—have no alternative occupations to turn to in the community may be deeply unwilling to agree to a decommissioning scheme. We shall then be forced to continue with a fleet that is far too big for the stocks on which it relies.

    I am extremely disappointed by the Minister's rejection of this sensible and fair-minded proposal.

    Question put and negatived.

    Clause 42

    Fuel And Power For Domestic Or Charity Use

    I beg to move amendment No. 7, in page 24, leave out lines 3 to 26.

    No. 22, in page 24, line 6, leave out 'supply:.

    No. 23, in page 24, line 6, leave out ', acquisition or importation' and insert 'or acquisition'.

    No. 24, in page 24, line 6, leave out ', acquisition'.

    No. 2, in page 24, line 7, after 'place', insert—

    '(a) in the case of a qualifying use within the meaning of Note (1)(a) of that Schedule (domestic use)'.

    No. 1, in page 24, line 7, at end insert

    'where the supply, acquisition or importation is for a qualifying use within the meaning of Note (1)(a) of that Schedule (domestic use)'.

    No. 3, in page 24, line 7, at end insert

    'and
    (b) in the case of a qualifying use within the meaning of Note (1)(b) of that Schedule (use by a charity), on or after 1st April 2004'.

    No. 25, in page 24, line 7, at end insert

    'and
    (b) in the case of a qualifying use within the meaning of Note (1)(b) of that Schedule (use by a charity), on or after 1st April 1988.'.

    No. 5, in page 24, line 9, at end insert

    'as respects supplies of the descriptions specified in Group 7 of Schedule 5 to that Act which are made for a qualifying use within the meaning of Note (1)(a) of that Schedule (domestic use)'.

    One of the fascinations of Finance Bill Committee and Report stages is the huge variety of subjects that we manage to discuss in a comparatively short time. This afternoon, we have discussed home income plans, English wine, decommissioning of fishing vessels and other matters. Amendment No. 7, however, takes us to the heart of political controversy—a matter raised in the Budget speech of the then Chancellor of the Exchequer, my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont). We discussed the matter fully in Committee, when I was lucky enough to catch the eye of the Chair: some of my speech caused some controversy.

    Let me repeat the central assertions that I made then. My right hon. Friend the Member for Kingston upon Thames made a serious error of judgment in advancing this proposal in his Budget speech; moreover—as I said in May—I personally feel ashamed that my party could have introduced such a proposal.

    A good many things have happened since May. Perhaps the smallest development is this: I have received hundreds of letters from all over the country about the justice of this proposal. I had received such letters before, of course, but I believe that the debate in May promoted much more discussion in the country. I have engaged in much debate with my right hon. and hon. Friends on the subject, and I am confident in asserting now that Ministers realise that the Budget proposal resulted from a serious error of judgment. I regret that, so far, we have seen no sign that they are prepared to accept that in public.

    The truth is that all of us, from time to time, make errors—often serious ones. However, when we realise that we have made such errors—perhaps not at first, but on subsequent examination—the best course is not to persist, but to own up and withdraw what we said initially. I oppose clause 42, which my amendment would strike out lock, stock and barrel. If my amendment is carried, the proposal for VAT to be extended to heating and cooking, fuel and power would go. My right hon. Friend the Paymaster General is, I know, under no illusions whatsoever, but if any hon. Member imagines that at the end of the debate I shall ask for permission to withdraw the amendment. I must point out that I have no such intention.

    I hope that my right hon. Friend intends to accept amendment No. 7. I shall have no hesitation in voting for it, just as I voted against clause 42. Although the Finance Bill contains many excellent provisions, I feel so strongly about this issue that it will not be possible for me to support my right hon. Friend in the Division Lobby in favour of giving the Bill a Third Reading if this provision remains in it.

    8.30 pm

    The reason for my strong opposition to clause 42 concerns social justice. The then Chancellor of the Exchequer was entirely within his rights to come forward in his Budget speech with proposals to raise taxes, if he felt that the public sector borrowing requirement made it necessary for him to include proposals to narrow the PSBR gap over a period of time. I understand that it was his hope to raise more than £2 billion a year when this tax is running at the full rate.

    My right hon. Friend the Paymaster General may recall that when he said why the extra £2 billion had to be raised by extending VAT to heating and cooking, my right hon. Friend's answer included no justification whatsoever for it. Every hon. Member can identify other ways of raising £2 billion or more a year. Some of us might even be prepared, in certain circumstances, to allow the VAT base to be extended.

    One of the proposals which I very much welcomed in the Budget was that changes should be made to the VAT rules to enable our bloodstock industry to overcome the terrifying fiscal disadvantages with which it was faced. A benefit was therefore given to racehorse owners in the Budget. I am a keen follower of the turf, as many of my right hon. and hon. Friends know. I welcome that provision. When it comes to social justice, however, the imposition of a £2 billion a year tax increase on heating and cooking while allowing a fiscal advantage to the owners of racehorses, not all of whom are British. is an extraordinary statement of social priorities.

    If VAT has to be extended, I should find it much easier to justify extending it to newspapers and magazines. I enjoy reading Country Life, and I enjoy reading the articles by my hon. Friend the Member for Wolverhampton, South-West (M r. Budgen) in Horse and Hound, but it does not seem to me that there is a compelling reason for not imposing VAT on magazines. That would be preferable to imposing VAT on heating and cooking.

    Does my hon. Friend agree that there is an overwhelming necessity to reduce public borrowing? Somebody has to pay for the enormous losses that were incurred on white Wednesday. My hon. Friend will recollect that Sir Samuel Brittan, as he has now to our great pleasure become, is a great supporter—though perhaps not so great a supporter as Mrs. Hogg—of the exchange rate mechanism. Sir Samuel estimates that the cost to the public finances of white Wednesday is £2·5 billion. We can therefore assume that it is at least that sum and that somebody has got to pay for it. It is not a matter of social justice. It is a matter of a near bankrupt Government trying to find somebody to pay for this appalling mistake of being in the exchange rate mechanism.

    My hon. Friend makes his point in his own distinctive and interesting way, but he has not taken on board the central point that I am making: that he and the then Chancellor of the Exchequer were entitled to say that taxes should be increased by £2 billion, or whatever the sum is, but that to select heating and cooking as the essential and necessary way of imposing that tax increase was a most bizarre social judgment. I have already pointed out that if it has to be done through VAT, why not do it by means of Horse and Hound or by means of newspapers? If The Sun is so confident today about its market position that it can reduce its price to 20p on a daily basis, it may be able to absorb a 17.5 per cent. VAT imposition and still be able to reduce its price.

    Is my hon. Friend not forgetting his European obligations? Does he not recall that under the Single European Act, repeated at Maastricht, we have accepted an obligation to harmonise indirect taxation? Is he not aware that at the ECOFIN meeting that took place as recently as July 1992, we accepted the legal obligation to remove all zero rates by the end of 1996? Although I understand and fully appreciate the important point that my hon. Friend makes, does he not appreciate the Euro-obligation that he has taken on?

    I was confident that my hon. Friend would raise that point before very long. I had hoped, however, that I might be able to deal with it in such a way as to make it unnecessary for him to intervene. His impatience was such, however—I do not blame him for this, for I have been on my feet for longer than I intended—that he felt that he had to raise the point in the way that he did. The European aspect is one of the most unfortunate and regrettable aspects of the issue. If the Bill contains this appalling clause 42 when it receives Royal Assent. I am afraid that it will be impossible for us to correct the error that was made by the then Chancellor of the Exchequer when he introduced the proposal in his Budget. This therefore, is our last opportunity to say no to it.

    Perhaps my hon. Friend will contain himself for just a moment. I want to make progress, for other right hon. and hon. Members may wish to speak in the debate. There will be a terrifying finality about this proposal, if we allow clause 42 to reach the statute book. That is why we must take this opportunity to say no to it.

    I am strongly opposed to the inclusion of clause 42 in the Bill on the ground of social justice. My right hon. Friend the Chancellor of the Exchequer has sought in the past to reassure the House that those who are most vulnerable will be compensated through the social security system for the increase in their tax, which is estimated to be £1 a week in the first full year of its operation and £2 a week in the second year, when the tax will be running at 17·5 per cent.

    One of the most striking features of our community, however—every hon. Member has constituents who are in this position—is that many people with modest incomes are not in the social security system. They have modest savings. They may own their own homes. It is not enough to say that the housing benefit system will compensate them, or that they will receive council tax rebates, an argument upon which my right hon. Friend has sought to rely in the past.

    Millions and millions of people of modest means have seen their incomes fall substantially in the past few years. Until fairly recently, people derived income from savings at the rate of 15 per cent., greatly to the regret of my hon. Friend the Member for Wolverhampton, South-West. Interest rates then fell to 6 per cent. and, like me, my hon. Friend wants them to come down further. However, people found that their income from their savings also fell. It is not a question of the increase in their incomes failing to meet inflation; it is a question of an absolute decline in income, and yet people have to pay their fuel and water bills and all the other essential bills for living.

    To do justice to his argument, which he is making with such force and eloquence, would my hon. Friend like to expand on what he said about the European element being one of the most unfortunate? All of us who have admired him and his tremendous support over the years for the President of the Board of Trade know of his tremendously progressive European idealism. It has generally been thought that the European ideal demanded a common system of taxation in all subordinate countries. I should have thought that my hon. Friend would have been grateful for the surveillance of the European superstate in ordering us to impose value added tax on some of the items that have hitherto passed unnoticed by our European masters. I hope that he is not saying someting inconsistent with the role that he has adopted so forcefully in the past.

    The hon. Gentleman should be making not a speech but an intervention.

    My hon. Friend has allowed himself to get into a little rut about this matter in recent months. He has had many opportunities to make that intervention and I shall not hold against him the fact that he has chosen me as his sacrificial victim. I enjoyed what he had to say about hunting in Horse and Hound much more than his repeating the point about VAT for the 200th time.

    I was on the theme of social justice.

    Up to now, I have thoroughly enjoyed the hon. Gentleman's speech and have agreed wholeheartedly with it. The people that I know who are on low pay have no savings and have never had any savings. Some of my constituents live from day to day. They receive their pay on Thursday or Friday, but use it to repay what they spent in the previous couple of weeks. The Government's proposal to increase VAT will drive these folk into an early grave.

    The hon. Gentleman has a point, but I do not wish to take it up in great detail because my right hon. Friend will remind the House yet again how the social security system will help the hon. Gentleman's constituents to the most generous extent possible. We can all make up our minds as to how generous "generous" will be in those circumstances.

    In dealing with social justice, one must also have regard to those who will undoubtedly be affected by the proposal but who will receive no assistance through the social security system. They will face the increase next year and the following year without the possibility of any reimbursement, compensation or whatever one likes to call it. Many such people have modest incomes; many are elderly, or widows. They feel strongly that the Government for whom many of them voted have let them down badly.

    I represent very few people who are affluent and still fewer who are wealthy, but I represent many tens of thousands of people who will be severely affected by the proposal. Some are puzzled and some are deeply angry. Some, of course, have political motives for rejoicing at the large, deep hole that the Conservative party has dug for itself by making this proposal. Others who are and have always been Conservative voters remain puzzled as to how a Conservative Government could possibly make such a proposal which is not only unjust but, even more important, is perceived to be unjust.

    You will be relieved to know, Madam Deputy Speaker, that I am drawing my remarks to a close, but I wish to make two further points. When we debated the issue before, there was no question but that the House was influenced by the result of the Newbury by-election and the county council elections. The Government's business managers confidently told us that the worst was behind us. Of course, I and many of my hon. Friends told them that they could not have been more wrong.

    8.45 pm

    One has only to consider how public opinion has changed in the past two months to realise that the Conservative mavericks—a word that many on the Treasury Bench are keen to use from time to time—are those who persist in pushing this proposal rather than recognising that they were wrong. Unwelcome though it will be to hundreds of my right hon. and hon. Friends, I make this confident assertion: because the Government will not withdraw this proposal, the Conservative party will lose the Christchurch by-election. One could not imagine a constituency—

    My hon. Friend has a considerable imagination. One could not imagine a constituency with more voters who were likely to be adversely affected by the proposal than Christchurch. It is a misfortune that such a by-election has to be faced, but one of my hon. Friends was heard to use a phrase, which has been adopted—and I apologise for the fact that I am not its author—to the effect that the Government appear to have a death wish. This proposal comes closer to asserting the truth of that than anything else. It is a disgraceful proposal, but I add one gloss.

    From time to time, I have mentioned the impact of VAT in the charitable sector as it will affect village halls. It is a subject close to my heart. Village halls will find raising money for voluntary associations—

    Well, they are and I can give my hon. Friend many examples, most of which are run by Conservative supporters who are simply aghast at the extra fund raising that they will have to do because of the proposal.

    I have said enough. The proposal should never have been put before the House. Having been made, it should be withdrawn. I hope that my right hon. Friend can yet find the courage to withdraw it. The proposal has done, is doing and, if it remains, will continue to do enormous damage to the Conservative party. It should be, rejected.

    The House will recognise the truth behind the words of the hon. Member for Corby (Mr. Powell) when he said that the Tories' fortunes in Christchurch will hang on whether the Government press on with the vote on VAT on gas and electricity tonight. He addressed himself to Treasury Ministers. However, he should also address his comments to his fellow Back Benchers because they have an opportunity tonight to do what Government Front Bench Ministers do not have the honesty or courage to do and withdraw the proposal on VAT for gas and electricity.

    When it was first announced in the Budget statement on 16 March that the Government planned to put tax of 8 per cent. and then 17·5 per cent. on gas and electricity bills, there was a sense of shock that the Prime Minister had felt able to break his promise not to put VAT on gas and electricity which was so clearly made in the general election campaign.

    There was also dismay at how it would hit hardest those who could least afford it. There was incredulity that the Government should seek to justify it as a measure merely to help the environment. All that was nearly four months ago. Since then, it has become clear that the shock and dismay expressed in the House when that announcement was made is felt around the country.

    The opposition to VAT on gas and electricity has grown. It was expressed in the Newbury by-election and it was one of the reasons why more than 400 Tory councillors lost their seats in the May county council elections. The Prime Minister said then that he would listen and learn and he brought in a new Chancellor of the Exchequer. However, VAT on gas and electricity is still in this Finance Bill.

    The Labour party and the other Opposition parties have been clear and unequivocal in their opposition to this provision. It is now time for Tory Back Benchers to think again and to use their votes tonight to make their Government think again. I say to Conservative Members, "Remember the elderly in your constituencies. Remember those who are just above income support levels, but who will have to pay this tax in full. Remember what you said in your election address about cutting people's taxes. Listen to what people in this country are saying. Even Conservative councillors are voting against this measure at local level. They will not support it. Heed the warning today of the Social Security Advisory Committee, which has stated that to compensate the poorest, the Government will have to put an extra £400 million into benefits."

    Tory Back Benchers must know that if they vote tonight to impose VAT on gas and electricity, they will be whistling in the wind for a compensation scheme. Can we not just hear the Chancellor saying, "Of course I planned a compensation scheme, but I didn't realise that growth would be so low. I didn't realise that the PSBR would carry on getting so big. My hands are tied." Do Tory Back Benchers really think that the Government, already looking for ways to slash the social security budget, will add another £400 million to it—the figure that the SSAC states is necessary just to protect the poorest?

    Does my hon. Friend agree that the winter months are already a nightmare for so many pensioners on income support level and just above it? The cold weather payments are made only if the weather has been freezing for seven consecutive days. Is it not therefore obvious that for so many of our elderly constituents the situation is already a nightmare and tonight's proposal will simply make the situation worse?

    My hon. Friend is absolutely right and that point was reinforced in today's report by the SSAC.

    Government Back Benchers may not always feel that they have much power. Indeed, they complain about that. However, public opinion will be firmly on their side if they vote tonight to tell their Government that they have got it wrong and that they must think again.

    As the hon. Lady is speaking so eloquently about manifestos, how would she finance closing I he £50 billion deficit gap and then pay for all the promises made in the Labour party manifesto?

    We tabled 14 new clauses and amendments to the Finance Bill which would have closed tax loopholes and dealt with tax abuse. They would have raised more money than the VAT on gas and electricity. But the Government were not prepared to end tax relief for private health care—they would rather put VAT on gas and electricity. The Government were not prepared to make the privatised water, electricity and gas companies pay corporation tax—they would rather make the elderly and the poor pay tax on their electricity bills.

    The simple fact is that the Government are not prepared to close the tax loopholes, which would bring in more income than the proposal would raise, because they would much rather protect the vested interests of their friends who donate to the Tory party and make the pensioners, poor, elderly and disabled pay the bill for the Government's economic incompetence.

    The issue of VAT on gas and electricity is a question of the integrity of the Government. The Prime Minister promised in the clearest and most direct terms, using his familiar "honest John" style, that he would not put VAT on gas and electricity. During the election campaign, Labour's then shadow Chief Secretary to the Treasury, my right hon. Friend the Member for Derby, South (Mrs. Beckett), constantly warned that a Tory victory would mean the imposition of VAT on gas and electricity. That was brought to the public's attention through the "VATman" campaign.

    Those suggestions were met with denials and injured outrage from Conservatives and with accusations of scaremongering. The Prime Minister was forced to respond and say, in his "honest John" style:
    "I've made the pledge in the past, I've made it clear. We have no need and no plans to extend the scope of VAT."
    That in itself should be enough for Tory Members to vote against VAT on gas and electricity because it breaks such a clear promise.

    Even if Conservative Members are not moved to vote against the measure because it breaks an election pledge, they should certainly vote against it because of its effect on the elderly, the poor and the disabled. Pensioners up and down the country have signed our petition against VAT because, as my hon. Friend the Member for Walsall, North (Mr. Winnick) said, they already struggle to pay their gas and electricity bills—[Interruption.]

    Order. There are too many seated interventions and a few private conversations.

    For those who need extra heat, such as the housebound and the disabled, fuel bills are a major item of expenditure. Their health is at risk if they have to cut back on the heat that they need. The reason why people have queued to sign our petition against this tax on domestic fuel is that they know that it is unfair. The SSAC report published today bears out their concerns.

    The facts are these: the poorest 20 per cent. of households spend more than three times the proportion of their income on fuel as the richest 20 per cent. spend. This tax will hit everyone, but it will hit the poorest hardest. Tory Members must not lull themselves into a false sense of security about compensation for those who will be hit by the tax. The Government have yet to make known what their compensation scheme will be. They have not revealed how much the compensation will be. The only thing that the Government have made clear is that even for the poorest, those on means-tested benefits, there will not be full compensation. Even the poorest will have to pay some of this tax from their benefits.

    It is equally clear that those who are not on means-tested benefits will receive no help to pay the tax. I can tell Conservative Members that those with small occupational pensions, who are just above income support level, will be writing to them. They will attend Conservative Members' surgeries and ask how on earth they can manage to pay this tax. There will be 17·5 per cent. on heating and cooking bills for elderly people just above the income support level. Before voting tonight, Tory Members should think about what they will say to those people. They will not be able to sympathise with them because they will have done it to them. It is already clear that the compensation scheme will not reach some of the poorest—those who are entitled to income-related benefits but who' do not claim them.

    Of course, it is not a green measure, either. Birmingham city council, when passing a resolution to write to the Chancellor asking him to think again, commented that it is not so much the Government turning green as the poor turning blue. It is important, of course, to reduce energy consumption and carbon dioxide emissions. The way to do that, however, is not to put up fuel prices so that more elderly people die of hypothermia but to have a comprehensive home insulation programme, as Labour has suggested.

    VAT on gas and electricity will raise for the Treasury £950 million next year and £2·3 billion the year after, but all the VAT on gas and electricity will pay the unemployment bill for just six months for the south-east alone. The Government cannot turn to pensioners and expect them to rescue public finances from a problem created by the failure of the Government's economic policy. That is not fair and it will not work. VAT on heating is nothing more than an unfair way of trying to finance the growing dole queue. However much pensioners dip into their pockets to pay tax on basic essentials, public finances will simply get worse until the Government sort out the economy.

    9 pm

    The county council elections saw 472 Tory councillors lose their seats. They know that VAT on gas and electricity was one of the reasons why people simply would not vote for them. It is no wonder that the Tory councillors who are left will not support it. A survey that I did of some local councils shows that Tory councillors are voting against VAT on gas and electricity. Some examples are Sandwell borough council, Bedfordshire county council, Dover district council, Bath city council, Darlington borough council, Solihull borough council, Devon county council and Berkshire county council. In all those councils, and in numerous others, Tory councillors have voted against VAT on gas and electricity. In the city of Glasgow, Tory councillor Baillie Young described it as an iniquitous tax, and in North Kesteven a resolution to write to the Chancellor opposing VAT on gas and electricity was seconded by a Tory councillor.

    Tomorrow, my hon. Friends and I will present to the Chancellor at No. 11 Downing street a petition containing tens of thousands of signatures. The Government have failed to make a case for VAT on gas and electricity, even among the Tory party's own members. It is not enough, of course, for the Prime Minister to say that he has listened and that he has learnt. It is not enough for him to change the Chancellor, either. The Government must do more than listen to people's concerns. They need to act on them, and they have failed to do that. Tory Back-Bench Members have a choice tonight: they can either stand up for their constituents or follow a discredited Government through the Division Lobby.

    I accept absolutely that it would be very unpopular indeed to vote for VAT on gas and electricity. Some people would not vote for us and would condemn us—there is no question of that. However, hon. Members must appreciate when the Government are in an appalling financial situation for all kinds of reasons. The money has to come from somewhere. We would be running away from what I believe is a responsible attitude to say that it should not come from somewhere. The obvious alternative would be income tax, but, when we have more than 3 million people effectively unemployed, an increase in income tax would almost certainly prevent the recovery for which we hope.

    I wish to make four brief points. I advise members of the Labour and Conservative parties that nothing makes me more sick than hearing them talk about the problems of poor people when most of them have supported a policy which is forcing the average working-class family—the average family on low incomes—to spend an extra £20 a week on their food and which has forced the taxpayer to pay hundreds of millions for the dumping and destruction of foodstuffs. It would make me a lot happier if the people who were concerned about the poor and the underprivileged showed some concern for something over which we have some control.

    Nothing sickens me more than hearing hon. Members complain bitterly of the consequences of policies that they have voted for. Why the blazes do we have VAT? It is not because it is a good idea. We know that VAT, compared with purchase tax, is cruel to poor people—inevitably it is. It is an across-the-board tax, but it was one of the necessary consequences of membership of the EC which some hon. Members have consistently voted against. Those who voted for the EC have no right to complain about VAT.

    I remind hon. Members that it is pure hypocrisy to complain about VAT on gas and electricity when they voted for the Single European Act and for the Maastricht treaty which commits this country absolutely and completely to the harmonising of VAT in so far as is necessary to complete the internal market. That is clearly and precisely laid down.

    Will the Government state the consequences of the ECOFIN meeting in July 1992? According to information provided by the Library that backs my own belief, we accepted an obligation—subject only to one definition—to remove our zero rate by the end of 1996. Either that is true or it is not.

    My hon. Friend has misunderstood the July 1992 agreement. It did not oblige us to abolish our zero rate, as he suggests—on the contrary. We are of course committed to negotiations on moving on to the so-called origin system, hopefully by 31 December 1996. However, our zero rate is entirely preserved in the 1992 agreement, as it was in all previous agreements. Part of the July 1992 agreement was that our standard rate should not fall below 15 per cent. for four years from the time that it was made, but that is a different matter. In any case, that has nothing to do with the position after that.

    I am grateful to my right hon. Friend for making that clear, but I assure him—having received clarification of the position in writing from the Library, but I will check this again—that under the July 1992 agreement, although it was accepted that the definition of origin had to be resolved, there was a clear obligation, subject to definition of the origin system, to remove the zero rate by the end of 1996, if not necessarily operate a rate of 17½ per cent.

    Now that the hon. Gentleman has received the Minister's clarification, and given that he is totally opposed to the House of Commons giving any power away to Europe, how does he intend to vote tonight? There can be no doubt that, if zero rating is removed tonight, it can never be reintroduced.

    The same as I voted before. If one's country is bust and it has a £50 billion deficit, that is partly because of exchange rate mechanism policies for which right hon. and hon. Members voted. I assure the hon. Gentleman that I have voted against every European treaty against three-line Whips. We are effectively handing over a power of this place. There is nothing more hypocritical than for Labour Members to go on platforms and to say, "We'll stop this dreadful tax" when it is clear that, once the decision has been made, they can do nothing.

    There is no doubt that we have secured some reasonable concessions. We have received an assurance that every person on benefit will get something on l April next year, before the first bill arrives, and that pensioners will get something because the tax will be taken into account in the cost-of-living index.

    As to the remarks of the hon. Member for Peckham (Ms Harman). mine was one of the few constituencies in England that held every one of its Conservative council seats with a good majority. I assure the hon. Lady that Conservative councillors did not lose everywhere.

    It is nonsense to pretend that we can stop the march forward of VAT. Under the Single European Act and the Maastricht treaty, we have a clear and precise obligation to achieve harmonisation in so far as that is necessary to compete in the internal market—and that is impossible without total and complete harmonisation. The House is kidding itself. It is sad to hear people complain like mad when we come up against the consequences of our own decisions, in voting for measures wrongly and against the public interest.

    Sadly, we have to accept that VAT is here to stay. There is no doubt at all that, effectively, VAT is to be part of our style of life. Unless we do something, and do something quickly, all such debates will be pointless, a waste of time and at best will buy us just a little more time before we are taken over by an unjust and unfair system that will hit the poor of this country. I hope that those who complain about the impact of VAT on the poor will ask themselves how they can justify the accursed, filthy system that puts £20 a week on the average family's food bill and spends hundreds of millions of pounds dumping and destroying food that should go to help the poor and to help those on low incomes.

    The hon. Member for Southend, East (Sir. T. Taylor) is simply playing rotten in seeking to argue that the Government have been obliged to levy first 8 per cent. and then 17·5 per cent. VAT on fuel as a result of our membership of the European Community or our signature on the Maastricht treaty. If that was so, I am sure that the Government would be rushing to say that it was so. That would at least give them some sort of alibi to use in by-elections, county council elections and everywhere else.

    However, as the Minster has already pointed out, that is simply not so. To start with, the Government are under no obligation t o levy 17·5 per cent. VAT at all. That figure arose from the Government's difficulties over the poll tax. It seems especially absurd that pensioners will now face 17·5 per cent. VAT on the standard charge on a gas bill when we had 17·5 per cent. VAT in the first place only as a consequence of the Government's poll tax chaos. There is no move whatever to advise the Government to levy more than 15 per cent. VAT, for example, or not to have a lower rate—for the first year there will be an 8 per cent. rate. Why not have a lower rate still? There is nothing to prevent the Government from abandoning the whole venture and retaining zero exemption.

    Several hon. Members from different standpoints have been right to warn the Government that, if they give up the zero rate tonight, it will be gone for good. If the hon. Member for Southend, East had chosen to make that point, he would have been right. We should place ourselves under a European legal obligation not to reintroduce that rate.

    That is what I find so surprising about the Government's supposedly sturdy defence of our standard rate. As the Minister pointed out, at every ministerial meeting the Government have stood up for zero rates and the right to retain those existing rates. Why has the Minister gone to such trouble if he is prepared to throw away the most important rate in terms of its impact on poor families and pensioners? The defence of that rate will seem a vain exercise—a battle fought for little purpose, when the Government have thrown away the use of that zero rate in an area in which it is most important and have done so permanently with no chance of ever reintroducing it.

    The zero rate affects not just gas and electricity, but anything bought for use as a domestic fuel: gas, electricity, oil, wood, coal and even peat. Some consumers have relatively little choice over what fuel they use. For example, some consumers do not have access to gas for their domestic heating or cooking and often have to use more expensive means of providing heat for their homes. In parts of my constituency, some do not even have access to electricity.

    Many of the families who are most likely to be adversely affected by the measure have no choice in the matter and no help with the energy efficiency of their homes. Any Government who sought to increase energy taxation on environmental grounds ought to ensure that those who have modest incomes and face an increase in fuel bills have access to help with making their home more energy efficient. So many of the people affected are either unable to command the resources to make their home more energy efficient or have no choice about the kind of home in which they live, whether it is a badly insulated council house or a privately rented house, because they have no means of moving into a better and more energy-efficient house. They may have bought their houses in the turbulent housing market of recent years. They now cannot sell those houses, so they cannot exchange them for more energy-efficient houses. They find it impossible to sell their houses at anything like the prices they paid for them. A lot of people are trapped, for one reason or another, in their houses. They do not command the resources to make those houses more energy efficient. They will be hit very hard by the measure, and they will be hit in two stages.

    9.15 pm

    The Government have already felt the wrath and anger of the people at Newbury and in the county council elections. That has happened before the bills have come in. The 8 per cent. and 17·5 per cent. stages are yet to come. The story will run and run, and it will not end with the Christchurch by-election, unless the policy ends at the time of that by-election, just as it did not end with the Newbury by-election. The policy will have to be changed if perceptions of the Government are to be changed.

    The hon. Member for Corby (Mr. Powell), who moved the amendment so eloquently and in such a determined way, was right to stress that Governments should recognise when they have got it wrong, when they have made a mistake and when their policy is not only impossible to sell, but cannot be justified in its own terms.

    If the Government try to justify the measure as an environmental tax, we must ask what changes in behaviour it will lead to. It will not lead to people at the poorest levels saving on energy consumption unless they do so at the risk of their own safety and health. We are talking about people who simply do not have the means with which to provide alternative forms of heat or with which to heat their homes more efficiently. We know that the disabled, the poorest and the unemployed spend a larger proportion of their time at home and that they are more dependent on the heating of their homes for their basic health. We know that families with young children are also in that position.

    I agree very much with the right hon. Gentleman's point. However, it is a matter not just of heating, but of lighting. Elderly people whose eyesight is failing need a bright light to enable them to read, even in broad daylight. People whose memories are failing often leave the lights on because they have forgotten to turn them off. People may leave the lights on when they leave home to prevent the house from being robbed because they cannot afford burglar alarms and safety locks. Their energy consumption is much higher than that of people with greater means and with better health.

    That is an important point which enables me to say how much better it would be if the Government said that they would make a scheme available under which elderly people could have access to low energy-consumption light bulbs at a cost far lower than the present high capital cost. If the Government wish to have an environmental policy based on tax, if would be better to have such a measure so that elderly people could reduce their energy consumption in a way that they are not able to do when they face the cost of £15 for a low energy-consumption bulb as opposed to the cost of ·1 or so for an ordinary bulb. Such an option is not open to them out of their weekly pension.

    I was referring to the groups of families who would be adversely affected. I asked what change in behaviour would be made. One thing that will not happen as a result of this form of taxation is that there will not be a switch from polluting and environmentally damaging sources of energy to less polluting or less environmentally damaging sources of energy because it makes no distinction between them. It does not separate wind power or tidal power from coal, from oil or from orimulsion. All fuels along the spectrum of pollution and resource depletion are treated identically under the measure. It is not an environmental tax measure in that sense. It is not an effective environmental tax measure in its focus because it will not lead to behavioural change.

    A stronger argument is that behavioural change could be brought about by changes in petrol taxation. Such changes would have to be accompanied by compensating measures. We can see the prospect for behavioural change by people on reasonably adequate incomes in that area. I cannot see much prospect of change for some of those on modest incomes who will be so adversely affected by this tax.

    The Government have not only made a mistake, but have put a lot of fear into the minds of many elderly people and of many families. Of all the issues about which we have received correspondence recently, this is the one about which people are, according to their letters, most filled with fear and anxiety. As the hon. Member for Corby pointed out, that is especially true of those who know that they are just above benefit levels. They do not see how they will meet the costs or how they will cut their energy consumption. They know that they will get no benefit. They already have to put up with the fact that alongside them are people who, for one reason or another, have no savings at all and who therefore get housing benefit and council tax benefit. They see themselves getting none of those benefits and facing extra costs while their income, if based on a little savings capital, is declining.

    There is real fear in people's minds over the issue. This is the Government's last chance to put an end to that fear. They show no signs of doing so, so the House must take its last chance of putting an end to that fear and force the Government to drop the proposal.

    I had not intended to take part in the debate, but such is the extent of public feeling—certainly in my constituency as I know from having spent the morning speaking to a large number of pensioners—that I think that we must express much more vividly the great disillusionment that there is about the proposal.

    When I listened to the Budget speech by the previous Chancellor, I was appalled by the suggestion that we should apply VAT to domestic fuel. It is a great pity that the present Chancellor and the Government are now, in effect, laden with the decision of my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont).

    The debate is useful in other respects. We must address ourselves to the reason why the large increase in tax, which is what it is, was decided. The answer is simple—the enormous borrowing requirement that the Government face.

    Those of us who are honest must accept that there has to be a considerable increase in taxation of one form or another if the Government are to be credible in the eyes of those for whom the strength of sterling and our international financial situation depends. That is why the Chancellor effectively gave a future hostage. He did not increase taxation in the present Budget. He offered a considerable increase in the next year and the year after. In that sense, he was quite clever, because he put off paying the price for trying to keep international confidence in this country.

    Unfortunately, clever though it was, as I have made abundantly clear, it was not a clever political choice, hence the speeches by my hon. Friend the Member for Corby (Mr. Powell) and one or two other of my hon. Friends and many Opposition Members.

    I find myself in a tremendous dilemma. I do not like VAT on domestic fuel. I have said so publicly and refused to vote on the issue when it was last before the House. On the other hand, I hope that I am a realist and know that the Government have to do something about the enormous borrowing requirement.

    What would happen if we voted against the increase and it did not go through? There would be a great hole in the Government's strategy to keep international confidence, because the increase in taxation, which the Bill contains, would be swept away. Therefore, we would put my right hon. Friend the Paymaster General in a situation where he would have to try desperately to fill that gap. That gap could not be filled at a moment's notice.

    I do not like the proposals. On the other hand, I do not want the Government's credibility to be totally undermined.

    If the amendment is carried, surely it is open to the Chancellor to announce tonight that he intends to ensure that the tax hole is filled and that he will announce in the November Budget the precise means by which that is to be done, but to leave no doubt about it. Because the tax does not come into force until next year, he has the opportunity to do that.

    I take the right hon. Gentleman's point. However, to ask my right hon. and hon. Friends to come forward with an alternative strategy at a moment's notice is asking too much.

    Let no one be under any illusion. This VAT application is a tax increase. It is an indirect tax increase but it is a tax increase. Therefore, we should move it a step away from the people who will be hurt most, or at least apply ourselves to the effect of that tax increase on various sectors of the community. I say bluntly that those of us who are on better incomes must accept that tax increase as part of the price of trying to get the Government's borrowing requirement down. Unlike some hon. Members, I also accept that those who are on related benefits will obtain substantial assistance. I am worried about a group that has already been mentioned—those who are just above the level of any income-related benefit, who will suffer tremendously. Already, they have seen their water rates soar out of comprehension. They are the ones who are most anxious.

    I hope that I am not one of those people who just mentions a problem and does not offer any solutions. As with any taxation system, it is necessary to soften the effect on those who will be hit hardest and there is a solution that will enable the Government to get out of their dilemma. I do not honestly expect my right hon. Friend the Paymaster General to get up.at the end of the debate and say that he will not proceed with the implementation of VAT on fuel. Indeed, I would rather that he said that he would apply it to newspapers—I do not see why the Government are so terrified of doing that.

    However, the Government could say that they will increase benefits to those who are worst off and, above that, they recognise the problem of many people—perhaps 3 million or 4 million—who have small occupational pensions or a few thousand pounds, usually in a building society, and who have seen their net incomes drop dramatically over recent months with the decrease in interest rates.

    The Government should look closely in the autumn Budget at increasing the basic retirement pension by rather more than the retail prices index. I do not want that increase to be paid for out of the borrowing requirement. I want us to accept squarely that the only way to pay for it is through a higher contribution from the rest of the working population. I return to a point that I have made already. We are talking about a tax increase. In all justice, it should be borne by those who are still in a position to earn and are better able to afford such a tax increase.

    If my right hon. Friend the Paymaster General will give me the assurance that the Government will look closely at the uprating of the basic retirement pension this autumn, above the RPI, he will get me into the Government's Lobby tonight. Without such a statement, the credibility of the Government and belief in what they say, certainly in my constituency, will be greatly undermined. I am not asking for specific promises about amounts of money. I am asking for consideration of that group of people who proudly say that they are not dependent on state handouts, who have saved a few thousand pounds and who, frankly, feel that they have been kicked in the teeth. We have expected them to support us as a political party, and they have been the bedrock of our society. To say to them and to future generations that the only way that they will avoid such an increase in the future is to fritter away their money so that they are totally dependent on state handouts gives the wrong message.

    I understand the Government's dilemma. I have much sympathy over the need to provide funds to cover the borrowing requirement but a message needs to go from the House that we understand the problems and fears of a vulnerable section of our community.

    The hon. Member for Wellingborough (Mr. Fry) referred to the public sector borrowing requirement. The Government should be under no illusion—our constituents see an incompetent Tory Government who have managed to run tip a PSBR of £50 billion and who now expect people on low incomes to pay for that deficit.

    Like many other right hon. and hon. Members. I have been inundated with letters from constituents on this issue. I should like to quote from some of those letters which say it all much better than I can. I have questions like, "Why is it that the unskilled, low-waged manual work force bears the brunt of the tax burden to prop up the country?"

    Another pensioner said, "I know that we have to set the country back on its feet, but do OAPs have to be hit so hard?" An old person aged 81 years wrote to me saying, "I shall have to cut off my central heating. I will not be able to pay for it. My gas bill last April was £133 and 1 cannot afford any more."

    9.30 pm

    An Age Concern report has found that 81 per cent. of the elderly people surveyed had a living room temperature below the World Health Organisation recommended level of 20 deg C. More than a third—34 per cent.—do not heat their bedrooms at all. Britain loses more old pensioners in winter than any other European country. That is not because our winters are colder, but because we pay the worst state pension in Europe. The Government are now telling those people who are struggling desperately that they must pay VAT on domestic fuel and power.

    The hon. Lady provided statistics alleging that the United Kingdom pays the worst state pension in Europe. Does she agree that those statistics do not add up when contributions are considered or, in other words, when one compares like with like? Does she agree that when contributions are taken into account, the British pension is not the worst by any means? Does she further agree that, while the German state pension is larger, the German contributions are proportionately greater?

    I know that my constituents who are existing on the ordinary state pension are badly off. Nowhere in Germany, France or any other European country do pensioners live in poverty as they do here.

    I was visited recently by a constituent who was, until recently, a loyal Tory voter. He has now retired and manages a small charity trust for the company for which he used to work. He made the point—as did the hon. Member for Wellingborough—that those people who are just above the income support level will be hardest hit by the proposal. My constituent cited cases of pensioners who have written to him in utter desperation. Those included one who was already reduced to heating one room only. He said, "To meet current fuel bills and repairs to our boiler, my wife and I are now going short of food."

    My constituent also said, "I have already had two old folk on the phone, both saying that they hope that they will die before the 17·5 per cent. increase comes in, as they fear the cold so much." It is a terrible indictment of the sort of society in which we are living when we cannot afford, as a society, to tell pensioners that they need not pay any more money.

    Last week I visited three residential homes run by Mencap for the mentally and physically handicapped. Many of the residents of those homes have severely restricted mobility, and need consistently high levels to be maintained. The added burden of VAT on that vital provision cannot be accommodated by current care budgets that are already suffering at the hands of the Government.

    I do not intend to detain the House for long. Much of what I wanted to say has been said by hon. Members on both sides. I would like briefly to draw attention to the position of Lupus sufferers. Lupus is a chronic, non-infectious, auto-immune disease, mainly affecting young women of child-bearing age—between 13 and 45. The symptoms of Lupus are many and varied, but one symptom is called Raynaud's Disease. Sufferers are, in general, extremely sensitive to changes in temperature. Those can affect the blood flow to fingers and toes and can cause constant pain in severe cases. There is great concern about the imposition of VAT on domestic fuel costs in view of the fact that, for those sufferers, heat is not a luxury but an essential commodity.

    When these sufferers experience an attack due to the change of temperature, cumulative tissue damage may occur, and that in turn may lead to more severe forms of the condition—ulceration, gangrene and, at the very worst, an amputation may be required. It is important to minimise the number of attacks and to minimise the tissue damage and the resulting intense pain.

    The problem is that many of these sufferers are not eligible for state benefits and will not benefit from any increase in them introduced as a result of the imposition of VAT. So the promised increase in benefits to counter balance the VAT increase will have no positive effect.

    In the course of proceedings on this Bill we have been able to present Ministers with many ways in which they can close tax loopholes and raise the £2 billion which they say this measure will generate. They can raise the money in a much more humane way. I join Conservative Members who have promised the Government that if they carry this measure through they will almost certainly lose Christchurch and any other by-elections that take place in the next few months and years.

    I sincerely hope that the Government will rethink their proposal, and that enough Conservative Members vote against it to defeat it.

    I rise to support my hon. Friend the Member for Corby (Mr. Powell), who moved the amendment in his eloquent style. I endorse most of what he said, even though he and I find ourselves in different camps when it comes to Europe and the Maastricht treaty—fortunately, we are not debating that tonight, and I hope that you will ensure that we do not, Madam Deputy Speaker.

    I commend the right hon. Member for Berwick-upon-Tweed (Mr. Beith). His speech was made in a non-partisan way; he merely presented the issues, and I am delighted to support what he said—not only because his family used to live in my constituency for many years but because he went to the famous King's school in Macclesfield.

    I deeply regret the fact that the Government have gone back on many election pledges by widening the scope of VAT. I never thought to see a Conservative Government and Chancellor doing that. Over two years we are to introduce a tax at 17·5 per cent. on two essentials of life: heat and light. They are, of course, particularly essential to the vulnerable groups mentioned by other hon. Members this evening.

    What is so grossly unfair is that this charge will be levied not only on the consumption of gas and electricity but on the standing charges for them. Many of us believe that those charges are already grotesque and appear to have been mainly used to increase the salaries of the directors, chairmen and senior executives of the public utilities that have been privatised.

    I endorse the speech made by my hon. Friend the Member for Corby. This tax is perceived to be socially unjust, and it is quite wrong that the most vulnerable people should have to pay so much for mistakes made by the Government.

    I believe that it would be far better, far more honest and far more honourable—we are all honourable men and women here—if Ministers were prepared to increase the standard rate of income tax to raise the necessary money: £950 million in the first year, and £2·3 billion in a full year when the rate is 17·5 per cent. I do not believe that we should seek to mislead people by saying that we are not increasing taxation. As has been said by my hon. Friend the Member for Wellingborough (Mr. Fry), we are increasing taxation, so why mess about as to whether it is indirect or direct?

    The people of this country believe that the fairest and most appropriate way in which to help the Government balance their books and reduce the Budget deficit is to increase direct taxation. In November, I would, at a stroke, increase the 25 per cent. standard rate of tax to 28 per cent. for two years only. I would also increase the top rate of tax from 40 per cent. to 45 per cent. The people would then see that those who are in the best position and most able to pay would be making the major contribution to reducing the Budget deficit, which is causing the Government so much difficulty.

    As my hon. Friends have rightly said, the present proposals are perceived to be grossly unfair and impinge mainly and most heavily on the most vulnerable groups—the elderly, those on low incomes and, as has been said by my hon. Friend the Member for Wellingborough, those who are just outside any form of state income-related benefit. My hon. Friend the Member for Wellingborough should note, however, that I do not think that giving an assurance that the old age pension will be increased by an amount above the retail prices index adequately reflects the concern that is felt in this country, nor will it provide the money that those in the vulnerable groups need for a reasonable quality of life.

    My own women's association gave me 100 per cent. support in a motion that it submitted to the Conservative women's conference recently. It was not selected, of course—I do not think that the association expected that—but the grave and serious opposition to what the Government seek to do was reflected at national level on the agenda of the women's conference of the Conservative party. The one mistake that my women's association made was to ask the Government—if they were insistent on implementing the measure—whether, after the Budget deficit had been reduced, they were prepared to remove it. As has been said by my hon. Friends, however, once the zero-rated exemption has gone, we can never restore it.

    It is wrong to extend a tax to the essentials of life such as heat and light. My hon. Friend the Member for Bury, North (Mr. Burt), the Parliamentary Under-Secretary of State for Social Security, is extremely assiduous and hard working and has had considerable responsibility for social security matters. He knows that the Government: have given no guarantee that the position of those on benefit, pensioners and those just above any form of income-related benefit will be fully protected by any steps that the Government may announce before the implementation of the VAT extension to heat and light.

    The right hon. Member for Berwick-upon-Tweed is absolutely right; to make the excuse that this is being done as our contribution to improve the environment and reduce carbon dioxide emissions is an absolute nonsense. It will have absolutely no effect. It is extraordinary that no proposal has been made to introduce an ambitious and helpful home insulation scheme to go with the Government's announcement.

    I will not make as many unhelpful remarks as my hon. Friend the Member for Corby about the political implications of what the Government are doing. All I can say to my right hon. and hon. Friends on the Front Bench is that I have not had a single letter from any person in favour of extending VAT to heat and light. I have received hundreds of letters from my constituents—my area is relatively well off compared to those of some of my hon. Friends and Opposition Members—who perceive the measure to be unacceptable.

    9.45 pm

    The Government would lose nothing by saying tonight, as the Prime Minister has said, "We have listened to the people of this country." He should go on to say, "Clearly, they are hostile and overwhelmingly opposed to what we seek to do. We will come back to the House in November"—as is absolutely possible—"with a proposal to plug the gap in the Budget to ensure that the Government's overall economic strategy is not undermined."

    Like those of my hon. Friends who belong to the No Turning Back group, I want us to bring our budget into balance, but I do not want to do it on the hacks of the vulnerable, the elderly, the low-paid, the handicapped, the mentally ill and all those groups of people who will suffer as a result of that misguided measure. We have heard little about the impact that the measure will have on private residential establishments that cater for some of those people. They will have to increase their fees to meet that additional charge.

    If my right hon. Friends want a further Conservative Government after the next election, they must listen not only to the people of this country but to Conservative Back Benchers because the measure is fundamentally flawed and extremely damaging and will hurt the most vulnerable groups in our society. My right hon. Friend the Paymaster General would receive immense support from the House—perhaps more than he thinks from Conservative Back Benchers—if he were prepared to think again about that measure.

    Why are we so against increasing direct taxation? Why must we dishonestly say that we are not increasing taxation, when we are widening the scope of VAT and increasing contributions under national insurance, which is also something that we said we would never do? What is so sacrosanct about direct taxation? If we raised it for only two years, we would have to seek a renewal if the budget was not in balance. What is wrong with that?

    The Under-Secretary of State for Social Security—my hon. Friend the Member for Bury, North—and I were with a group of members of the Confederation of British Industry on Friday. Surprisingly, many of those at that meeting would have been perfectly happy to see the Government increase the standard and 40 per cent. taxation rates to get the country's economy right.

    I am honoured to have represented my constituency for 22 years in this place—rather longer than the overwhelming majority of the Cabinet—[Interruption.] When Disraeli was heckled during his maiden speech in the House, he said:
    "There will come a time when you will listen to me."
    There will come a time when my right hon. Friends will listen to me.

    I have never heard such a tremendous fighting speech from the hon. Member for Macclesfield (Mr. Winterton) and I am delighted to speak after him.

    Time and again I have asked the Minister to tell us the price of a bottle of paraffin or a hundredweight of coal and how much it costs to heat a house, and he has never attempted to answer. How can the Government understand the suffering that they are inflicting on the good people of Britain—the people whom they expect to vote for them? Yet they put VAT on fuel. The people of this country know that the weather in Scotland is different from that in England. In recent months, the south has been sweltering in the heat, but in Scotland there have been various weather conditions. When I left home this morning, my wife had the fire on. I wonder how many elderly and disabled people in Scotland can afford to put on a fire in the morning—not very many.

    One of the reasons for the fighting fury in Scotland—and, I am sure, in the rest of the country—is the Government's disgraceful commitment to putting 17·5 per cent. value added tax on fuel. One hon. Gentleman said that he would support the Government as they would otherwise lack credibility. That is nonsense—we have been elected to fight and campaign for our constituents, and to ensure that the Government run the country for the good of our constituents. We should not support bad government.

    I shall give way in a minute.

    Hon. Members are here to represent our people on a burning issue. Many of our constituents will not be able to light fires or light their homes in winter when they are dark. Back Benchers on both sides of the House have a golden opportunity to join together to ensure that VAT of 17·5 per cent. is not imposed.

    I have deliberately spoken to many of my pensioners about the issue. The Government have got away with plenty of things, but one thing that they will not get away with is the imposition of VAT on fuel. I have spoken to people on low pay and I remember the days when I was on low pay. I remember the difficulties that I faced in heating my house to ensure that my two sons went to school warm in the morning and came home at night to warm food and a warm house.

    I had difficulties paying my fuel bills in Scotland. Some weeks, 25 per cent. of my income went straight into heating the house. Many hon. Members present tonight do not know the cost involved. I had to heat the house with paraffin as I could not afford the high cost of electricity. Ultimately, I had to use calor gas because paraffin was not good for my two children, who suffered from asthma.

    Does the House realise that there are thousands and thousands of people who do not heat their houses as they would wish? They do not heat them to maintain their health because of the Government's mismanagement of the economy. When I look at the Government Front Bench team I do not see an ounce of compassion. I heard the hon. Member for Corby (Mr. Powell) make an impassioned plea, which I totally supported. I also heard the hon. Member for Macclesfield make a speech which was absolutely bang on the button.

    Tonight, the Government have a chance to show some heart, but I am afraid that they will be hard-headed, and show a hard, cold face. The caring face of Government will be shown tonight as Government Members march through the Lobby and inflict damage and suffering on the elderly, unemployed, disabled and those on low pay. The Government do not have the guts to say that the previous Chancellor was wrong. They bumped him out into the cold, but at least he will be able to heat his house. Our folk, our constituents in Scotland and other regions will not be able to heat their houses.

    Will the Minister find out the price of paraffin, calor gas and a bag of coal? Will he find out what it costs to heat a house in Glasgow, and what that costs a family in which one person is on low pay and the rest are unemployed? There is no benefit good enough for the dignity of mankind in Britain. We are all entitled to the dignity of having a warm house and hot food, and seeing in the dark. Let us give our folk their dignity, not impose VAT on fuel. I hope that many Conservative Back Benchers will support us tonight.

    I am one of the Conservative Members who has a reputation for being loyal to the Conservative party. That means that when I speak out against my Government it carries extra currency. When I first came to the House, I voted for tougher immigration controls and tougher trade union reforms, and in their little grimy books, which they are writing in at the moment, the Whips wrote one word about me—unpromotable. They were right, but by the time I have finished my speech perhaps they will wish that they had promoted me.

    I support my hon. Friend the Member for Corby (Mr. Powell). Never in my experience have I seen such a politically naive, unfair and unjust measure. It is common knowledge that we have to find some money. The world recession has gone on for longer than all the industrialised nations had thought it would, but there is no disgrace in telling people the truth about that. If that causes us to break an election promise, it is not the end of the world, as long as we explain carefully to people why we are breaking that promise.

    I guess that the Government thought that it was clever footwork to put VAT on fuel because they were not raising VAT but introducing another category. It was not a rise in direct tax and therefore did not place the Government in conflict with the electorate, as the Government did not have to say that they had broken a promise. If it is necesary to break a promise to straighten out the nation, the Government must do so, but people must be told why that is being done and it must be done fairly. To do it unfairly is inexcusable.

    How will this affect young families? A young man who is a rising executive in his company may not have much money but may earn too much to qualify for income support. If he has a young wife and children, the washing machine will be on the go all day. Heating will also be on all day because the house must be kept warm for young children. The family is too rich to get benefit but too poor to pay ever-increasing costs, some of which we are inflicting on it.

    Hon. Members have mentioned the elderly and people in other categories who are too rich to get benefit but too poor to pay ever-increasing costs. Many pensioners have had to take early retirement because of unemployment in their companies and have not even reached the state pension age. Out of the small amount of interest on their savings, which has been decreasing, they will have to pay extra fuel costs. That is inexcusable.

    As hon. Members have said, there are other ways to raise money, and if hon. Members want me to list them, I shall do so. My hon. Friend the Member for Wellingborough (Mr. Fry) listed about four or five different ways and my hon. Friend the Member for Macclesfield (Mr. Winterton) suggested a basic tax rate of 28 per cent. and a higher rate of 45 per cent. That would be fairer than what the Government propose. VAT could be increased to 20 per cent. rather than nibbling at fuel costs. Many options are available to the Treasury, but I shall not detain the House by listing them further.

    It is strange that in Tokyo we were able to offer President Yeltsin millions of pounds to help his country, but when we need money for our own country we cannot find it. We were able to find it to send an armada to the Falklands and we can send military aid to Bosnia and take part in the Gulf war, so there must be a contingency fund somewhere. We cannot be absolutely broke, because we seem to be able to find money from some source. Where is the money and how deep is the contingency fund purse?

    I want the Government to withdraw the stupidity of VAT on fuel. It is unfair and unjust and we shall rue the day that we impose it. I did not go to university and I know that it sometimes shows. I did not rush out to advise Ministers with two firsts from university. I attended the university of life. The university of life does one thing above all else—it makes one streetwise. If only Ministers and civil servants had consulted a few streetwise Back Benchers, they would never have pursued such stupidity.

    10 pm

    I support the amendment moved by the hon. Member for Corby (Mr. Powell). I am sure that he is aware that, as shown in the Order Paper last Thursday, I tabled an amendment along similar lines to his. I know that we share a deep concern about the issues at stake.

    I am aware that there is no requirement for the House to vote at 10 o'clock. When hon. Memberrs want to register their views on an important issue, they should be prepared to stay in the building to enable all hon. Members to do so. In that way, our constituents can judge how we feel about the issue.

    It is almost with a sense of despair that yet again i speak about fuel poverty. I have been in the House since 1974, albeit with an interim absence. In the 1970s, I raised the question of fuel poverty and the problems faced by many of the elderly, the disabled and those on fixed incomes. I watched the actions of the Labour party when it was in government and the actions of the Conservative party when it was in opposition. I do not say that with any sense of immodesty.

    My concern is that the House has never objectively addressed the issue of fuel poverty, especially against the background of the wealth from North sea oil, Scottish oil and gas and all the natural resources throughout the United Kingdom. The House has never drawn up a strategy or a policy—[Interrruption]—to ensure that no one has to face the realities that were so eloquently described—[Interruption)—by the hon. Member for Renfrew, West and Inverclyde (Mr. Graham)—

    Order. I am sorry to interrupt the hon. Lady, but there is now a general buzz of conversation such that it is not easy to hear her. That is extremely discourteous and I ask the House to be very much quieter.

    I suspect, Madam Deputy Speaker, that hon. Members from the two main parties assumed that there would be a vote at 10'clock. They have come here specifically for the vote, rather than to listen to the arguments.

    There has been a great deal of argument about the political implications of imposing VAT on domestic fuels. I have registered my view on that during previous debates on the Bill. It may be that fear has been struck in the hearts of many people, from Basildon to Brechin, from Newbury to New Pitsligo, from Christchurch to Cullen. The vote tonight should not be about votes for political parties: we are voting on something that will affect the lives of individuals, people who are citizens of our constituencies and of the United Kingdom. I urge all hon. Members to search their consciences before casting their votes.

    The hon. Member for Renfrew, West and Inverclyde spoke about the need to define the cost of fuel for each and every individual. We have already done a great deal of research on that. I do not believe that it is an issue only of wealth; it is also an issue of climate. We must recognise the differentials in that regard between the north and the south of the United Kingdom; indeed, I have introduced several Bills to that effect.

    Let me remind Ministers that it costs 36 per cent. more to heat a house in Dundee, Edinburgh or Glasgow than it costs to heat a house in Bristol. It costs 38 per cent. more to heat a house in Inverness and Stornoway, 48 per cent. more in Aberdeen, 60 per cent. more in Lerwick and 74 per cent. more in Braemar. Those statistics were produced by the Department of Energy, and they underpin the need to review our attitude to ensuring that those on low or fixed incomes—for instance, the disabled—can fulfil their requirement for a decent, warm house.

    A dry, warm house is not a luxury; it is the right of every individual. Far too many of our people wake up to find condensation running down their windows—or, in winter, ice on the insides of their windows—and fungus creeping up their walls. This is not a commitment to Rio; it is a penalisation of the most vulnerable members of society. If the Government really want to meet the environmental requirements made at Rio, they should consider releasing the capital receipts of local authorities to ensure that they can implement the energy efficiency needs of our housing stock. They should ensure that all new build meets the requirements necessary to ensure decent insulation and heat conservation.

    I believe that, if the Government proceed with their proposals, they will not only lose votes—possibly—in by-elections here and there; they will have on their conscience the lives and, ultimately, the deaths of many people in our society.

    My purpose in tabling amendments Nos. 1, 2, 3 and 5—which are grouped with amendment No. 7—is much more limited than that of my hon. Friends the Members for Corby (Mr. Powell) and for Macclesfield (Mr. Winterton). Indeed, I differ from them. I accept, reluctantly—how could I do so other than reluctantly—the Government's main argument for the extension of VAT to domestic fuel and power; I recognise the need to reduce the public sector borrowing requirement and, indeed, the need to reduce global warming. My aim is to exclude charities from the requirement to pay VAT on fuel and power, and I have tabled a number of amendments that seek to approach that objective from different angles. I do not mind which my hon. Friend the Minister chooses, as long as he chooses one of them.

    The Government have promised to protect the needy from the burden of the additional charge on heating and cooking. My right hon. Friend the former Chancellor of the Exchequer announced that in his Budget statement, and the Government were right to make the commitment. I simply ask the Government to be consistent. They intend to help the needy directly; correspondingly, they should help the charities whose purpose is to help the needy.

    I am talking of charities whose role is supportive of the state, or complementary to the state; charities, for example, that care for the elderly and the disabled. These are among the areas of growth in social expenditure where the Government are particularly worried about how they are to finance meeting the need that they foresee. Charities operate in these fields sensitively, in two senses. They target need more accurately than state agencies commonly do; and they approach their human dealings in a sensitive manner. They are also cost effective, tending to have lower overheads than public agencies, and they mobilise voluntary energies.

    In his excellent Mais lecture, my right hon. Friend the Secretary of State for Social Security set out some of the principles that he thought should govern the reform of social security. One was the principle that policy must harness popular energies. Charitable activity certainly does that, on an enormous scale.

    Order. I remind those hon. Members who have just come into the Chamber that it is grossly discourteous to chatter away while somebody else is seeking to make points that are important to him.

    Those who give money to charities may ask why, if the Chancellor is to take away money from charities by extending the burden of VAT on them, they should give money. Those who work for charities may ask why they should work for charities if the Government make their task harder by increasing their costs.

    I shall give one or two examples of what the costs to individual charities will be as a result of extending VAT to fuel and power. Methodist Homes for the Aged will have to pay an extra £143,000. Barnardos will have to pay an extra £122,500. The National Society for the Prevention of Cruelty to Children will have to pay another £31,000. The Royal National Institute for the Blind will have to pay another £126,500. Mencap will pay an extra £170,800. The National Children's Home will pay another £100,000. Those are significant additional burdens on charities that are acting in partnership with the state to provide very basic social support.

    The Cancer Relief Macmillan Fund gives a third of its grants to sick people who face additional fuel costs. Applications to that fund and to other grant-giving charities will undoubtedly increase as people find it more difficult to cope with the increase in the cost of domestic fuel and power.

    The Government have said that they want the needy to be helped. Why, then, do they intend to make it harder for charities to help those in need?

    The Government increasingly want charities to do things. The problem with VAT is that it penalises charities that do indeed do things. The inequalities of the VAT system hit charities discriminatorily. It is a mistake to extend its scope. It would be much better to remove the existing £300 million burden of irrecoverable VAT that charities already carry. If the Government feel unable to exempt charities from having to pay VAT on their non-business activities, they should provide a VAT refund scheme.

    It is important for the Government to think carefully about how to achieve a better balance in their fiscal policy relating to charities between relief on giving and relief on expenditure. I received a letter today from Mr. Peter Berresford of Mencap, who said:
    "Assuming we receive tax relief on all our voluntary income, we actually receive tax relief on 7 per cent. of our activities!"
    I can quote figures that have been supplied by other charities that face heavy VAT burdens on the activities which they undertake—activities which, surely, we all want them to undertake. The Royal National Institute for the Blind incurs £1·2 million of irrecoverable VAT. In its last financial year, the National Society for the Prevention of Cruelty to Children had to pay £615,000 of irrecoverable VAT. Methodist Homes for the Aged currently pays £405,000 worth of irrecoverable VAT.

    The Government have not put forward strong arguments to support their case for extending the imposition of VAT on charities. They argue that charities should make their contribution to reducing global warming, but the charities most affected by this change would not be able to do so. They are already energy efficient. Those for whom they care—the old, the ill and the disabled—need more heating.

    Charities have a duty of care to look after those who depend upon them. The Government require charities to do so—for example, under the Registered Homes Act 1984. The Act requires charities running residential homes to maintain temperatures at a certain level. It is inappropriate to tax charities for complying with the Government's legal requirements. It is also discriminatory to do so, because of their inability to recover VAT.

    The Government argue that the extension of gift aid and payroll giving will provide compensation, but it will not compensate the same charities, nor will it do so to a sufficient extent. The National Children's Home tells me that at best it would gain £10,000 from the extension of gift aid and payroll giving that is provided for in the Finance Bill. At the same time it will have to pay an additional £100,000 in VAT on fuel and power.

    The Government also argue that charities already pay VAT on their business use, but it is not a good idea to establish further precedents. If we remove this zero rate, for which the Government fought, we may well create a precedent and encourage the attitude that, if charities pay VAT on fuel and power, why should they not pay it on their new buildings or building alterations for disabled people?

    It is estimated that the Exchequer will gain £27 million from this extension of VAT to charities, but the net benefit to public funds will be very much less because, on a reasonable estimate, about three quarters of that will come back as a charge on public funds through increased fees charged by charities. It is disproportionate to abolish the zero rate for such a token gain to the Exchequer. I therefore ask my right hon. Friend to exclude charities from this extension of VAT. If he feels unable to do so, I ask him to make a positive commitment to consider constructively the possibility of introducing a VAT refund scheme in the autumn Budget.

    10.15 pm

    We have today covered much of the ground that we covered in our debates on the Budget, on Second Reading and in Committee of the whole House when we debated the clause stand part motion to which the amendment relates. Very little that is new has been said today, and I do not suppose that my response will change much.

    My hon. Friend the Member for Stratford-on-Avon (Mr. Howarth) mentioned charities in which I know he takes a great interest. Other hon. Members, too, expressed concern about their charities under this legislation, especially those involved in residential care. I acknowledge at once that charities provide a valuable service and I pay tribute to them. Charities in general provide many useful services in the community, which is why we already grant them large tax reliefs—especially, as my hon. Friend said, on charitable giving. Tax reliefs have been increased elsewhere in the Bill. I regret, however, that we cannot exempt charities from the national need to conserve energy; nor can they be immune from the problems of national financing.

    Besides, charities are not alone in providing residential care. The amendments would disadvantage commercial residential care., which also provides a valuable service. They would also disadvantage the elderly at home, thus cutting across the care in the community policy. I would not want to introduce a measure that would encourage people to put the elderly into homes. In addition, because of the way in which the amendments are drafted, they would make some difficult and probably unintended distinctions between individual charities that provide residential care. Of course, we keep all such matters under careful review and will be reviewing taxation of charities again, as we always do, before the next Budget.

    I must make some progress in dealing with the general points which the hon. Lady and others have raised.

    The House knows very well, because we have said it over and over again in the debates to which I have referred and elsewhere, that the clause was included for two reasons: first, to help to deal with the public sector financial deficit; and, secondly, to contribute towards meeting our Rio commitment. Both reasons remain valid and important.

    Contrary to what has been said this evening, the clause is not the only way in which we are dealing with either of the problems, but it will make a contribution in both cases. From the Budget speech onwards, we have made it clear that we would make additional help available, through the benefits system, for those hardest hit. My right hon. Friend the Secretary of State will announce more details in the usual uprating statement in the autumn. That will allow increases to be put into effect when the VAT increases also come into effect.

    There have been arguments, which I have observed today and on previous occasions, about whether we should tackle the public sector deficit by restraint on public spending or through tax increases. The fact is that we are tackling it by both methods and both are necessary given the scale of the deficit.

    My hon. Friend the Member for Macclesfield (Mr. Winterton) seemed to think that we were somehow denying that this was a tax increase. We are not: it is a tax increase and we accept that. We have been asked to choose between direct taxes and indirect taxes. We are increasing both in the Bill. My hon. Friend the Member for Macclesfield quoted Disraeli's maiden speech. My hon. Friend should note that Disraeli said those words in his maiden speech and not after he had been a Member for a very long time—longer than I have been here, and I have been a Member for only 19 years.

    My hon. Friend the Member for Corby (Mr. Powell), who moved the amendment, said that it was a matter of judgment and responsibility. I accept that. My right hon. Friends and I have not claimed that this is the only option. Of course it is riot. My hon. Friend the Member for Corby seemed to think that it is, but, as I have made clear, we had to choose and this is the way in which we have decided to make a contribution in both cases about which I have spoken. During this debate, we have been urged constantly by my hon. Friends, and even those who have spoken against the amendment, to tackle the deficit and that is what we are doing. That involves difficult decisions. We realise that those decisions are difficult; nevertheless, they are necessary.

    We have been reminded again this evening that it has become a sackable offence on the Labour party Front Bench to say anything in favour of a tax on fuel. Lord Desai discovered that the other day. Perhaps his real offence was embarrassing the Leader of the Opposition during Question Time. That is, after all, quite a recent position for the Opposition. The Opposition's policy document of May 1990 entitled "Looking to the Future" contains the heading "Value Added Tax". They promised to keep many of the zero rates, but they did not promise to keep this one. That document states:
    "We will also use the tax system… to help protect the environment."
    Exactly so, and that is what we are doing. The present leader of the Labour party made environmental taxes part of his leadership platform.

    The Liberal Democrats have, in their time, also spoken in favour of taxes of this kind. In one of their policy documents in August 1991, they said:
    "The UK is unusual amongst EC members in not applying even standard rates of VAT on domestic fuels."
    Of course the Liberal Democrats say different things now—that is politics. We must take the difficult decisions and that is what we have done. That is why I commend clause 42 to the House.

    This has been, to say the least, a lively debate. None of us who listened to it will forget the way in which my hon. Friend the Member for Macclesfield (Mr. Winterton) stimulated the hon. Member for Renfrew, West and Inverclyde (Mr. Graham) in his contribution.

    I want to make two very brief points. First, there is absolutely no doubt that the Conservative party and our leader gave an unequivocal promise to the electorate during the election campaign that we would not extend VAT in this way. I also gave that promise to my constituents. I meant it and I propose to keep it.

    Secondly, this debate is not about whether there should be a tax rise. It is quite obvious that, in the proposals which were made, the Government accepted that there would be a tax rise. The question is, what is the priority in imposing that tax rise? I opened the debate by saying that the chief criticism which could be made was that it was socially extremely harmful. I have to say that, after all the hours of discussion on different occasions, I remain absolutely perplexed as to how anybody could select this as the socially most just way of raising tax. It is the most bizarre decision that could be made. I know that, although many of my right hon. and hon. Friends will join the Government in the Division Lobby, they, too, are thoroughly perplexed as to how this selection came to be made.

    I note also that, although my right hon. Friend the Paymaster General justified the rise in tax—I do not criticise him for that, and I praise the way in which he faced that matter absolutely directly—he made no attempt whatsoever to justify to the House why this method had been selected, in terms of where the increase should fall, and not some other option. Quite obviously, every hon. Member could put forward two dozen options that would raise the same amount of tax and would be perceived by our constituents to be socially far more justifiable than the option that is presently before the House.

    As my right hon. Friend said, we have not made much progress. The House has debated this matter fully. I simply ask right hon. and hon. Members to join me in the Division Lobby in supporting the amendment.

    Question put, That the amendment be made:—

    The House divided: Ayes 299, Noes 307.

    Division No. 327]

    [10.25 pm

    AYES

    Abbott, Ms DianeCousins, Jim
    Adams, Mrs IreneCox, Tom
    Ainger, NickCryer, Bob
    Ainsworth, Robert (Cov'try NE)Cummings, John
    Allen, GrahamCunliffe, Lawrence
    Alton, DavidCunningham, Jim (Covy SE)
    Anderson, Donald (Swansea E)Cunningham, Rt Hon Dr John
    Anderson, Ms Janet (Ros'dale)Dafis, Cynog
    Armstrong, HilaryDalyell, Tam
    Ashdown, Rt Hon PaddyDarling, Alistair
    Ashton, JoeDavidson, Ian
    Austin-Walker, JohnDavies, Bryan (Oldham C'tral)
    Banks, Tony (Newham NW)Davies, Rt Hon Denzil (Llanelli)
    Barnes, HarryDavies, Ron (Caerphilly)
    Barron, KevinDavis, Terry (B'ham, H'dge H'I)
    Battle, JohnDenham, John
    Bayley, HughDewar, Donald
    Beckett, Rt Hon MargaretDickens, Geoffrey
    Beggs, RoyDixon, Don
    Beith, Rt Hon A. J.Dobson, Frank
    Bell, StuartDonohoe, Brian H.
    Benn, Rt Hon TonyDowd, Jim
    Bennett, Andrew F.Dunnachie, Jimmy
    Benton, JoeDun woody, Mrs Gwyneth
    Bermingham, GeraldEagle, Ms Angela
    Berry, Dr. RogerEastham, Ken
    Betts, CliveEnright, Derek
    Blair, TonyEtherington, Bill
    Boateng, PaulEvans, John (St Helens N)
    Boyce, JimmyEwing, Mrs Margaret
    Boyes, RolandFatchett, Derek
    Bradley, KeithField, Frank (Birkenhead)
    Bray, Dr JeremyFisher, Mark
    Brown, Gordon (Dunfermline E)Flynn, Paul
    Brown, N. (N'c'tle upon Tyne E)Forsythe, Clifford (Antrim S)
    Bruce, Malcolm (Gordon)Foster, Rt Hon Derek
    Burden, RichardFoster, Don (Bath)
    Byers, StephenFoulkes, George
    Caborn, RichardFraser, John
    Callaghan, JimFyfe, Maria
    Campbell, Mrs Anne (C'bridge)Galbraith, Sam
    Campbell, Menzies (Fife NE)Galloway, George
    Campbell, Ronnie (Blyth V)Gapes, Mike
    Campbell-Savours, D. N.Garrett, John
    Canavan, DennisGeorge, Bruce
    Cann, JamieGerrard, Neil
    Chisholm, MalcolmGilbert, Rt Hon Dr John
    Clapham, MichaelGodman, Dr Norman A.
    Clark, Dr David (South Shields)Godsiff, Roger
    Clarke, Eric (Midlothian)Golding, Mrs Llin
    Clarke, Tom (Monklands W)Gordon, Mildred
    Clelland, DavidGould, Bryan
    Clwyd, Mrs AnnGraham, Thomas
    Coffey, AnnGrant, Bernie (Tottenham)
    Cohen, HarryGriffiths, Nigel (Edinburgh S)
    Connarty, MichaelGriffiths, Win (Bridgend)
    Cook, Frank (Stockton N)Grocott, Bruce
    Cook, Robin (Livingston)Gunnell, John
    Corbett, RobinHain, Peter
    Corbyn, JeremyHall, Mike
    Corston, Ms JeanHanson, David

    Hardy, PeterMorris, Rt Hon A. (Wy'nshawe)
    Harman, Ms HarrietMorris, Estelle (B'ham Yardley)
    Harvey, NickMorris, Rt Hon J. (Aberavon)
    Hattersley, Rt Hon RoyMowlam, Marjorie
    Henderson, DougMudie, George
    Heppell, JohnMullin, Chris
    Hill, Keith (Streatham)Murphy, Paul
    Hinchliffe, DavidOakes, Rt Hon Gordon
    Hoey, KateO'Brien, Michael (N W'kshire)
    Hogg, Norman (Cumbernauld)O'Brien, William (Normanton)
    Home Robertson, JohnO'Hara, Edward
    Hood, JimmyOlner, William
    Hoon, GeoffreyO'Neill, Martin
    Howarth, George (Knowsley N)Orme, Rt Hon Stanley
    Howells, Dr. Kim (Pontypridd)Paisley, Rev Ian
    Hoyle, DougPatchett, Terry
    Hughes, Kevin (Doncaster N)Pendry, Tom
    Hughes, Robert (Aberdeen N)Pickthall, Colin
    Hughes, Roy (Newport E)Pike, Peter L.
    Hughes, Simon (Southwark)Pope, Greg
    Hutton, JohnPowell, Ray (Ogmore)
    Illsley, EricPowell, William (Corby)
    Ingram, AdamPrentice, Ms Bridget (Lew'm E)
    Jackson, Glenda (H'stead)Prentice, Gordon (Pendle)
    Jackson, Helen (Shef'ld, H)Prescott, John
    Jamieson, DavidPrimarolo, Dawn
    Janner, GrevillePurchase, Ken
    Johnston, Sir RussellQuin, Ms Joyce
    Jones, Barry (Alyn and D'side)Radice, Giles
    Jones, Jon Owen (Cardiff C)Randall, Stuart
    Jones, Lynne (B'ham S O)Raynsford, Nick
    Jones, Martyn (Clwyd, SW)Redmond, Martin
    Jones, Nigel (Cheltenham)Reid, Dr John
    Jowell, TessaRendel, David
    Kaufman, Rt Hon GeraldRichardson, Jo
    Keen, AlanRobertson, George (Hamilton)
    Kennedy, Charles (Ross,C&S)Robinson, Geoffrey (Co'try NW)
    Kennedy, Jane (Lpool Brdgn)Robinson, Peter (Belfast E)
    Khabra, Piara S.Roche, Mrs. Barbara
    Kilfedder, Sir JamesRogers, Allan
    Kilfoyle, PeterRooker, Jeff
    Kinnock, Rt Hon Neil (Islwyn)Rooney, Terry
    Kirkwood, ArchyRoss, Ernie (Dundee W)
    Leighton, RonRoss, William (E Londonderry)
    Lestor, Joan (Eccles)Rowlands, Ted
    Lewis, TerryRuddock, Joan
    Litherland, RobertSalmond, Alex
    Livingstone, KenSedgemore, Brian
    Lloyd, Tony (Stretford)Sheerman, Barry
    Llwyd, ElfynSheldon, Rt Hon Robert
    Loyden, EddieShore, Rt Hon Peter
    Lynne, Ms LizShort, Clare
    McAllion, JohnSimpson, Alan
    McAvoy, ThomasSkinner, Dennis
    McCartney, IanSmith, Andrew (Oxford E)
    Macdonald, CalumSmith, C. (Isl'ton S & F'sbury)
    McKelvey, WilliamSmith, Rt Hon John (M'kl'ds E)
    McLeish, HenrySmith, Llew (Blaenau Gwent)
    McMaster, GordonSmyth, Rev Martin (Belfast S)
    McNamara, KevinSnape, Peter
    Madden, MaxSoley, Clive
    Mahon, AliceSpearing, Nigel
    Mandelson, PeterSteel, Rt Hon Sir David
    Marek, Dr JohnSteinberg, Gerry
    Marshall, David (Shettleston)Stevenson, George
    Marshall, Jim (Leicester, S)Stott, Roger
    Martlew, EricStrang, Dr. Gavin
    Maxton, JohnStraw, Jack
    Meacher, MichaelTaylor, Mrs Ann (Dewsbury)
    Meale, AlanTaylor, Rt Hon John D. (Strgfd)
    Michael, AlunTaylor, Matthew (Truro)
    Michie, Bill (Sheffield Heeley)Thompson, Jack (Wansbeck)
    Michie, Mrs Ray (Argyll Bute)Tipping, Paddy
    Milburn, AlanTrimble, David
    Miller, AndrewTurner, Dennis
    Mitchell, Austin (Gt Grimsby)Tyler, Paul
    Molyneaux, Rt Hon JamesVaz, Keith
    Moonie, Dr LewisWalker, A. Cecil (Belfast N)
    Morgan, RhodriWalker, Rt Hon Sir Harold
    Morley, ElliotWallace, James

    Walley, JoanWinterton, Nicholas (Macc'f'ld)
    Wardell, Gareth (Gower)Wise, Audrey
    Wareing, Robert NWorthington, Tony
    Watson, MikeWray, Jimmy
    Welsh, AndrewWright, Dr Tony
    Wicks, MalcolmYoung, David (Bolton SE)
    Wigley, Dafydd
    Williams, Rt Hon Alan (Sw'n W)

    Tellers for the Ayes:

    Williams, Alan W (Carmarthen)

    Mr. John Spellar and Mr. Andrew Mackinlay.

    Wilson, Brian
    Winnick, David

    NOES

    Ainsworth, Peter (East Surrey)Currie, Mrs Edwina (S D'by'ire)
    Aitken, JonathanCurry, David (Skipton & Ripon)
    Alexander, RichardDavies, Quentin (Stamford)
    Alison, Rt Hon Michael (Selby)Davis, David (Boothferry)
    Allason, Rupert (Torbay)Day, Stephen
    Amess, DavidDeva, Nirj Joseph
    Ancram, MichaelDevlin, Tim
    Arbuthnot, JamesDicks, Terry
    Arnold, Jacques (Gravesham)Dorrell, Stephen
    Arnold, Sir Thomas (Hazel Grv)Douglas-Hamilton, Lord James
    Ashby, DavidDover, Den
    Aspinwall, JackDuncan, Alan
    Atkinson, David (Bour'mouth E)Duncan-Smith, Iain
    Atkinson, Peter (Hexham)Dunn, Bob
    Baker, Rt Hon K. (Mole Valley)Durant, Sir Anthony
    Baker, Nicholas (Dorset North)Dykes, Hugh
    Baldry, TonyEggar, Tim
    Banks, Matthew (Southport)Elletson, Harold
    Banks, Robert (Harrogate)Evans, David (Welwyn Hatfield)
    Bates, MichaelEvans, Jonathan (Brecon)
    Batiste, SpencerEvans, Nigel (Ribble Valley)
    Bellingham, HenryEvans, Roger (Monmouth)
    Bendall, VivianEvennett, David
    Beresford, Sir PaulFaber, David
    Blackburn, Dr John G.Fabricant, Michael
    Body, Sir RichardFenner, Dame Peggy
    Bonsor, Sir NicholasField, Barry (Isle of Wight)
    Booth, HartleyFishburn, Dudley
    Boswell, TimForman, Nigel
    Bottomley, Peter (Eltham)Forsyth, Michael (Stirling)
    Bottomley, Rt Hon VirginiaForth, Eric
    Bowden, AndrewFowler, Rt Hon Sir Norman
    Bowis, JohnFox, Dr Liam (Woodspring)
    Boyson, Rt Hon Sir RhodesFox, Sir Marcus (Shipley)
    Brandreth, GylesFreeman, Rt Hon Roger
    Brazier, JulianFrench, Douglas
    Bright, GrahamGale, Roger
    Brooke, Rt Hon PeterGallie, Phil
    Brown, M. (Brigg & Cl'thorpes)Gardiner, Sir George
    Browning, Mrs. AngelaGarnier, Edward
    Bruce, Ian (S Dorset)Gill, Christopher
    Budgen, NicholasGillan, Cheryl
    Burns, SimonGoodlad, Rt Hon Alastair
    Burt, AlistairGoodson-Wickes, Dr Charles
    Butcher, JohnGorman, Mrs Teresa
    Butler, PeterGorst, John
    Butterfill, JohnGrant, Sir Anthony (Cambs SW)
    Carlisle, John (Luton North)Greenway, Harry (Ealing N)
    Carlisle, Kenneth (Lincoln)Greenway, John (Ryedale)
    Carrington, MatthewGriffiths, Peter (Portsmouth, N)
    Carttiss, MichaelGrylls, Sir Michael
    Cash, WilliamHague, William
    Channon, Rt Hon PaulHamilton, Rt Hon Archie (Epsom)
    Churchill, MrHamilton, Neil (Tatton)
    Clappison, JamesHampson, Dr Keith
    Clark, Dr Michael (Rochford)Hanley, Jeremy
    Clarke, Rt Hon Kenneth (Ruclif)Hannam, Sir John
    Clifton-Brown, GeoffreyHargreaves, Andrew
    Coe, SebastianHarris, David
    Colvin, MichaelHaselhurst, Alan
    Congdon, DavidHawkins, Nick
    Conway, DerekHawksley, Warren
    Coombs, Anthony (Wyre For'st)Hayes, Jerry
    Coombs, Simon (Swindon)Heald, Oliver
    Cope, Rt Hon Sir JohnHeath, Rt Hon Sir Edward
    Couchman, JamesHeathcoat-Amory, David
    Cran, JamesHendry, Charles

    Hicks, RobertOttaway, Richard
    Higgins, Rt Hon Sir Terence L.Page, Richard
    Hill, James (Southampton Test)Paice, James
    Hogg, Rt Hon Douglas (G'tham)Patnick, Irvine
    Horam, JohnPattie, Rt Hon Sir Geoffrey
    Hordern, Rt Hon Sir PeterPawsey, James
    Howard, Rt Hon MichaelPeacock, Mrs Elizabeth
    Howarth, Alan (Strat'rd-on-A)Pickles, Eric
    Howell, Rt Hon David (G'dford)Porter, Barry (Wirral S)
    Howell, Sir Ralph (N Norfolk)Porter, David (Waveney)
    Hughes Robert G. (Harrow W)Portillo, Rt Hon Michael
    Hunt, Rt Hon David (Wirral W)Rathbone, Tim
    Hunt, Sir John <