Skip to main content

Commons Chamber

Volume 405: debated on Wednesday 14 May 2003

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

House Of Commons

Wednesday 14 May 2003

The House met at half-past Eleven o'clock

Prayers

[MR. SPEAKER in the Chair]

Private Business

Transas Group Bill (By Order)

Order for Second Reading read.

To be read a Second time on Wednesday 21 May.

Oral Answers To Questions

Office Of The Deputy Prime Minister

The Deputy Prime Minister was asked

Social Housing

1.

If he will make a statement on his policy for (a) improving the quality of and (b) increasing the quantity of social housing. [112970]

On 5 February I launched the sustainable community action plan. It marks a step change in our approach to housing in communities. We will invest £22 billion over the next three years, including £5 billion for affordable homes and £2.8 billion to bring local authority housing up to decent housing standards.

My district council has been attempting to sell a mobile homes park in Ringwood to its residents, who in turn have made an enormous effort to raise the mortgage money. The deal has been jeopardised by the abolition of local authority social housing grant. What can I say to the residents of Stillwater mobile homes park to reassure them that they will not be left behind, and that they will get a fair deal?

As the hon. Gentleman knows, the local authority housing condition grants were not being used in a proper manner. Some authorities were not using them to provide the social housing for which they were intended. I explained to the House why I had changed the arrangements in the community plan. Difficulties were caused for projects that were half finished, so we have applied different arrangements from those that are in the process of implementation. The project referred to by the hon. Gentleman does not fall into that class, and I assume that a certain amount of planning took place in the hope that the money would be available.

On balance, I think that our judgment was correct. I think that what the hon. Gentleman should tell his constituents is that the argument was very much against the implementation of the right-to-buy policy in this instance.

Will my right hon. Friend explain exactly how social housing will be improved by the warm homes initiative?

In the community programmes we allow for money not just to build houses but to enable them to meet the new energy standards that we are applying. That is not happening in most parts of the country, and I shall ensure that greater priority is given to it.

The Deputy Prime Minister has claimed in the past that abuses of the right-to-buy scheme reduce the availability of social housing for new tenants. On Monday, the Government introduced their plans for savage cuts in the discounts available to right-to-buy tenants. Are those cuts designed to stamp out abuses, or simply to deny the right to buy to thousands of poorer tenants?

I think the right hon. Gentleman would agree that where there is abuse we should deal with it, because this is the taxpayer's money, but the reduction in interest rates under our policies—which is considerably greater than any reduction that occurred when his party were in government—has allowed more than 1 million people to buy their houses. The subsidy of nearly £40 billion simply allowing people to buy houses, rather than allowing the public stock to be improved or increased, worked against a good housing policy.

May I drag the Deputy Prime Minister back to the question? Cutting discounts by more than half will not hit the abusers; it will hit the poorest tenants. Only on Monday the Under-Secretary of State, Office of the Deputy Prime Minister, the hon. Member for Harrow, East (Mr. McNulty), confessed that these savage cuts were designed to reduce the number of families exercising the right to buy by 9,000—and it will be 9,000 of the poorest families.

Most of those families cannot afford to move out of social housing, so few if any of the homes will be released to new tenants. According to the figures given by the Under-Secretary of State on Monday, only about 30 homes a year will be released for new tenants in London. Denying the right to buy to 9,000 families will deny the public purse £900 million—about enough for 5,000 new social homes.

Will the Deputy Prime Minister confirm that what he is doing is not only shattering the hopes and dreams of 9,000 poor council tenants who wanted to own their homes, but denying thousands of homeless people their chance of occupying social housing?

If the last Administration had been seriously interested in increasing the housing stock and the availability of social housing, they would not have reduced the moneys available to local authorities to provide social housing, year on year. Their sole housing policy was to provide the right to buy. We have restricted that by reducing the discounts in housing crisis areas. We think that that policy is right, and we intend to pursue it.

I repeat: I think that our policy of reducing interest rates is better than spending £40 billion on subsidising houses simply to implement the principle of the right to buy for 1 million people, and it increases the number of people owning their homes by the same amount. The right hon. Gentleman should have discussed that during his most recent bonding session with his leader.

Planning System

2.

What resources he will give to local authorities to speed up the planning system. [112941]

The Parliamentary Under-Secretary of State, Office of the Deputy Prime Minister
(Mr. Tony McNulty)

The Office of the Deputy Prime Minister has a comprehensive planning reform agenda. We are tackling the structure, processes and culture of the planning system. We accept that authorities need more resources to deliver service improvements, so we are making an additional £350 million available to them over the next three years for planning, of which £50 million is already being distributed this year.

I am grateful for that reply, but does my hon. Friend accept that the UK's renewables industry has often faced very significant delays in obtaining decisions through the planning system, whether favourable or unfavourable? Given the considerable potential of renewables to deliver the significant environmental benefits that the Energy White Paper refers to, the extra jobs that could be created in the manufacturing and offshore industries, and the new income streams for rural areas that renewables could deliver, is it not now time that the planning system had a presumption in favour of renewables, rather than the neutral position that it currently takes?

I commend my hon. Friend for his work on behalf of the all-party group on renewable and sustainable energy, and for his interest in this area. Planning policy guidance 22, which is 10 years out of date, does need updating. Among other things, the criteria must include greater clarity and less delay, but I am afraid that it would be totally wrong for the planning system to have a presumption in favour of any type of development.

For the benefit of those of us who could not serve on the Planning and Compulsory Purchase Bill Standing Committee, can the Minister tell us when the House will consider it on Report? He says that he wants to speed up the planning system, yet the Committee finished its proceedings four months ago. Is it not true that delays in the planning system are more down to central Government than to local authorities?

I would very much like to tell the hon. Gentleman that he was sorely missed in Committee, but he was not. It is certainly still our intention to get that Bill approved and on the statute book as soon as we possibly can.

In Redhill—[Horn. MEMBERS: "Hear, hear."] That is the only example of turkeys appearing to be in favour of Christmas—a Christmas that I am trying to arrange for them. In Redhill, a major development by Linden Homes, involving more than 500 homes and including a significant amount of social housing, has been mired in the planning process for more than a decade and a half. It is running into planning problems with Network Rail, as access to the site is required from underneath a railway line. I am meeting representatives of Network Rail and Linden Homes next week, and I should be very grateful if the Minister could get an official from his Department to observe that meeting and report back to him on how Network Rail is going to assist in getting us through the planning process.

Strangely, in recent weeks I have listened far more carefully to the hon. Gentleman than previously. However, I am afraid that I am unable to comment on specific planning applications, as they might end up on my desk or those of my colleagues.

Although I welcome the extra resources that local authorities will get during this period, is the Minister prepared to consider the financing of local authorities that have a lot of difficulty in, and spend a great deal of money on, removing illegal encampments of travellers? Will he please meet a delegation from my local authority, which has spent well in excess of £100,000 in legal fees just to ensure that the planning process runs smoothly?

I accept that this is a serious issue, and I have had numerous meetings on it. I am more than happy to meet a delegation from Nuneaton to discuss it further.

Retail Developments

3.

If he will make a statement on his policy on the construction of retail developments on the outskirts of urban areas. [112942]

I refer the hon. Gentleman to the parliamentary statement "Planning for Town Centres", which was issued on 10 April. It summarises and clarifies the Government's planning policy for town centres and retail development. We remain firmly committed to focusing retail development in town centres. This policy is working, and we now have more in-town than out-of-town development than at any time since the mid-1980s.

I thank the Deputy Prime Minister for his answer, but does he recall the application for a retail development in the mining town of Burntwood, in my constituency? Some 10,000 people signed a petition in favour of it, the inspector approved it, Lichfield district council approved it and Staffordshire county council, which is Labour controlled, also approved it. Why did the Deputy Prime Minister refuse it?

I think that the hon. Gentleman is well aware of the ruling that I cannot comment on a matter that is under legal challenge. Every Secretary of State would have to give the same reply to the House. It certainly applies in this case. The hon. Gentleman is usually on record as a supporter of out-of-town development. He has obviously changed his mind: we have not.

May I express my appreciation of the Deputy Prime Minister's work to regenerate urban town centres? Does he accept that the urban renewal programme that he has put in place could be another vehicle to help regenerate town centres? Could guidance be given to regional development agencies and regional assemblies to help them to revitalise urban town centres?

My hon. Friend knows that that is a key priority for the Government. We have concentrated on urban development, particularly retail development. In 1992, about 190 out-of-town shopping applications were granted, which rose to 1,200 in only five years. We are now concentrating more on the development of in-town urban areas—a decision that was greatly influenced by advice from the regional assemblies and regional development agencies. We greatly encourage them to adopt that policy.

Housing Renewal Pathfinders

5.

What impact housing renewal pathfinders are having on the areas they cover. [112944]

The Minister for Social Exclusion and Deputy Minister for Women
(Mrs. Barbara Roche)

We have invested £2.66 million in each scheme so that long-term, robust plans to revitalise communities can develop. The first tranche of £4 million funding is available for radical action to begin this year, and more for those moving ahead with completed plans.

Is the Minister aware that communities such as Thurnscoe, East and Mexborough in my constituency are already benefiting from the funding that she is providing? The number of empty and void properties in my constituency, which can attract antisocial behaviour and are often the cause of disorder and nuisance, is diminishing. Does the Minister agree that if we are to continue to be successful in the pathfinder areas, we must adopt a bottom-up approach that will give local communities a direct input into resolving the problems in the housing areas where they live?

I agree and I know that the Under-Secretary of State, Office of the Deputy Prime Minister, my hon. Friend the Member for Harrow, East (Mr. McNulty) visited the pathfinder in my hon. Friend's constituency—and was impressed by what he saw. It is essential to secure community involvement and the schemes are predicated on the fact that the community will be involved. It is also right to target measures to reduce antisocial behaviour.

Does the Minister accept that many pathfinder areas are precisely those with a predominance of houses at the bottom end of the council tax bandings? If the rebanding goes ahead and a half-A or minus-A band is introduced, what will be the impact on councils of a significant increase in council taxes marginally up the bands? Will the nearly poor be required to pay yet again for the very poor?

The right hon. Gentleman makes important representations. He will know that no decision has been taken on rebanding, but I shall view his representations as part of the process.

I welcome pathfinders in areas such as my own where the housing market has completely collapsed, but rather than more plans, strategies and assessments, people want to see a visible sign of change on the ground. Can the Minister assure me that the pathfinder area in Burnley and Pendle will be adequately resourced so that crumbling and rotten houses can be torn down?

I have to say that that is exactly what is happening. Action is being taken on the ground. I have seen the pathfinders in action and demolition is taking place. Some of the old crumbling houses are going; new mixed housing is taking its place; and communities are being revitalised. The involvement of local people and action plans are necessary to achieve that.

Regional Government (North-West)

6.

If he will make a statement on plans for regional government in the north-west of England. [112945]

We have asked for further responses by 16 May to our soundings exercise on the level of interest in each English region in holding a referendum on an elected regional assembly. We will announce shortly after that date which region or regions will proceed first towards referendums.

While I am grateful to the Minister for his reply, is he aware that polls suggest that 78 per cent. of people in the north-west know "not very much" or "nothing at all" about the Government's proposals for regional authorities, and that only three out of 10,000 have responded to the soundings? Does that make it clear to him that the north-west is not interested in regional government? We do not want more bureaucracy. People identify with their districts, boroughs or counties, and I repeat that we do not want regional government and all the expensive bureaucracy that goes with it.

I am always a little suspicious of polls and I prefer to look at the evidence of individuals who have responded. The hon. Gentleman will probably be interested to know that we have so far had 2,535 responses from the north-west region and 1,530 of those come from his county of Cheshire. [Interruption.] He may have had something to do with that. We will consider the responses carefully after the deadline, which is this Friday, and then my right hon. Friend the Deputy Prime Minister will make his decision.

Fond as we are of Macclesfield on Merseyside, does my right hon. Friend agree that a Greater Merseyside authority would make far more sense than a north-west authority?

We believe that the people of the region should take the decision, and that is why we are engaged in the soundings exercise. We will make an announcement on the basis of the soundings on whether referendums will take place and, if so, in which regions. It will then be for the people of each region to decide whether they want an elected regional assembly. That is democracy and choice, and we think that it is a good idea.

Does the Minister realise that the level of interest in the northwest is such that the only people who turned up to a recent meeting organised to discuss the issue were a chief executive of a council and his wife? That is not my idea of a good night out. Does he recognise that business, industry and voluntary organisations are pulling away from the existing regional assembly, and does he agree that this is a solution in search of a problem?

I am sure that the hon. Gentleman will be familiar with meetings with a derisory attendance from his experience of Conservative party meetings. We are seeking the views of people via various options, including letters, meetings—if people choose to hold them—and other responses to the soundings. We will take account of the total response. Clearly, if only two people attend a meeting, it would not be given much weight in the assessment of the level of interest.

Part of the confusion in the minds of the people in Cheshire, including the hon. Member for Macclesfield (Sir Nicholas Winterton), is caused by the misinformation that has been put out by Cheshire county council. Will my right hon. Friend tell the people of Cheshire that the proposals for regional government would not create a further tier of government, as the hon. Gentleman suggests, but an alternative and much better structure of government?

My hon. Friend makes a good point. We have always been clear that there must be no question that any additional tiers of government or bureaucracy will be created. That is why we have made it clear that, when there is a vote in favour of an elected regional assembly, local government in that region must be reorganised to a wholly unitary structure. Through an amendment in the other place to what is now the Regional Assemblies (Preparations) Act 2003, we have recently provided that people in those two-tier areas will have a say in a second vote on their preferred form of unitary local government. Once again, the Government are giving choice to people in respect of efficient and streamlined administration, and better local government.

The Minister said that he would look at the level of interest in a region. In his response to my hon. Friend the Member for Macclesfield (Sir Nicholas Winterton), he said that he had received 2,000-odd responses from the north-west. What proportion of the total population of the north-west is that?

The hon. Gentleman will know that other people often undertake similar exercises. For example, the Liberal Democrat party and its Focus leaflets will probably get a derisorily small number of responses, compared with what we are receiving. Getting 2,500 responses from people represents a very good level of response—[Interruption.] We look forward to seeing what they say. We will analyse the responses, and take decisions accordingly.

Houses In Multiple Occupation

7.

What steps he is taking to improve the condition of houses in multiple occupation. [112946]

The Parliamentary Under-Secretary of State, Office of the Deputy Prime Minister
(Mr. Christopher Leslie)

The Government published a draft housing Bill on 31 March, taking forward our commitment to introduce the mandatory licensing of larger houses in multiple occupation, and also a new housing health and safety rating system.

I thank my hon. Friend for that reply. I am sure that he is aware of the growth in the number of houses of multiple occupation in places such as Loughborough, which is trying to accommodate large increases in the number of students, and of the problems that that is causing in the centre of town. Will my hon. Friend ensure that any licensing system has real teeth so that we can try to tackle the problem and give local residents a real choice? Also, will he look again at the current exemption given to landlords? If their houses are occupied by students, they are exempt from paying council tax. Those landlords run the houses as businesses, and they are benefiting from that exemption.

I hear what my hon. Friend says about council tax. We do not want students to be liable for council tax. In connection with quality of housing, it is precisely because so many students live in substandard housing that we want to extend the definition of HMO to cover student housing, and to allow for the licensing of student landlords in certain circumstances. However, my hon. Friend will be aware that the Conservative party has devised a novel solution to the problem of poor student housing—it is going to cut the number of students.

Is the Minister aware that many small guest houses in Norfolk towns have closed, and have become bed and breakfast establishments and homes in multiple occupation? That has encouraged a lot of youngsters on the dole—the so-called Costa del Dole syndrome. What does he plan to do to discourage that from happening?

The hon. Gentleman mentioned specific issues that affect many seaside towns with areas where many tenants live in single large blocks, in bedsits and so forth. It is precisely because some of those larger houses of multiple occupation need licensing and better management that the Government are introducing the housing Bill that is now in draft.

Social Exclusion

8.

What assessment his Department has made of the links between transience and social exclusion in seaside and coastal towns. [112947]

The Minister for Social Exclusion and Deputy Minister for Women
(Mrs. Barbara Roche)

The Department has not made a formal assessment of the links between transience and social exclusion in coastal and seaside towns. I know that this issue is a particular problem in my hon. Friend's constituency, and that the local education authority is currently preparing a report on the subject.

I thank my hon. Friend for that reply, and for the interest that she and my right hon. Friend the Deputy Prime Minister have shown in regeneration issues, in Blackpool and other seaside towns. Is she aware of recent research from Sheffield Hallam university showing that there is a significant, continuing and long-term inflow into coastal towns of people with low skills, low employment prospects and, often, poor health? With that in mind, does she agree that we need a more targeted and focused approach? Would she look at the coalfields initiative, and consider whether a similar initiative could be adopted for seaside towns, along the lines of a seaside regeneration taskforce and trust?

I should be very interested to read the research produced by Sheffield Hallam university. I agree that the subject of transience and social exclusion is important. That is reflected in the neighbourhood renewal strategy, and my hon. Friend's constituency benefits from that funding. However, I shall certainly look to see what we can do.

My right hon. Friend the Deputy Prime Minister was born in the coastal town of Prestatyn, and he will be aware of the dramatic decline of seaside towns in the UK over the past 30 years, which has been as great as that in any steel, coal, rural or inner-city community. What additional help can be given to seaside towns to help them to recover?

I have already mentioned neighbourhood renewal funding, and many regional development agencies cover coastal towns and recognise that responsibility. I shall make certain that my hon. Friend's interest is communicated to them.

Prime Minister

The Prime Minister was asked

Engagements

Q1. [112955]

If he will list his official engagements for Wednesday 14 May.

This morning, I held meetings with ministerial colleagues and others. In addition to my duties in the House, I will have further such meetings later today.

Perhaps, Mr. Speaker, I could say a word about Monday's bomb attacks in Saudi Arabia. These attacks were a cowardly and disgraceful terrorist atrocity. They will, however, make the United Kingdom and our allies across the international community only more determined to track down terrorists and to stamp out terrorism.

I would like to offer our profound condolences, those of the Government and, I believe, the House to the victims of the attacks and their families and to the Saudi people. I have sent condolences personally to Crown Prince Abdullah and to President Bush. It has to be pointed out that, although of course, tragically, some of the victims may be American and indeed British, the victims will, as ever with these terrorist atrocities, primarily be Muslims.

I am sure that we all wholeheartedly share the Prime Minister's comments.

Given the whispers around Westminster earlier in the week that the relations hip between the Prime Minister and his Cabinet is not so much a meeting of minds but more one of meat and vegetables, can he tell us when there was last a full discussion, in full Cabinet, on the subject of the euro?

There are regular discussions of Europe and, indeed, of all the issues connected with Europe. I can assure the hon. Gentleman that there will be the fullest possible discussion before the decision on the single currency is announced. The hon. Gentleman knows the timetable for that, as it has been set out by myself and the Chancellor on many occasions.

My right hon. Friend will recall the case of Mr. Sandy Mitchell, my constituent, who is in jail in Saudi Arabia. Mr. Mitchell was accused of bombing in Saudi. Since then, he has continually pleaded his innocence, along with others. Will my right hon. Friend step up the diplomatic and political pressure on the Saudis? In view of the horrific bombing yesterday, it is clear that there must be serious doubts about the conviction of Mr. Mitchell and others.

As my hon. Friend knows, we remain deeply concerned about the case of British nationals detained in Saudi Arabia, who have been accused of involvement in a series of bombings. He will know that we are working vigorously to resolve that case. The best thing for me to say to him at the moment is that we are fully aware of the concerns, and the best thing for the individuals concerned and their families is that we carry on working in the way that we are to try to secure their release. I promise my hon. Friend that we shall continue to do so.

May I join the Prime Minister unreservedly in his comments with regard to the atrocious bombing in Saudi Arabia? I think that the whole House will share his view on that, without question.

The Prime Minister will be aware that referendums on the European constitution are proposed in up to 10 European member states. Why cannot the British people have one, too?

For the same reason that we did not hold a referendum on the Maastricht treaty or on the Single European Act. I see no case for having a referendum on this matter. Indeed, many of the allegations made about the impact of the European Convention are scaremongering. The Convention is important because we are modernising Europe as another 10 countries join the European Union. It is important that we make every effort to ensure that the accession of those 10 countries goes ahead, because a united Europe, with those eastern European countries inside the European Union, is in our interests and the interests of Europe.

The Prime Minister has to admit that, since he came to power, there have been 34 referendums on issues even as momentous as whether Hartlepool should have a mayor, and he has promised referendums on regional assemblies as well, as the Deputy Prime Minister agrees, but the European constitution will decide how every citizen of this country will be governed. Why will not the Prime Minister simply let the British people have their say?

The reasons against having a referendum are those that I have just set out, and they apply to the previous Conservative Government too. But in relation to those issues that are said to be the reason why we should have a referendum—for example, that we will suddenly yield up defence or foreign policy to the European Commission—are simply false. European defence and foreign policy will remain intergovernmental, and will therefore remain the property of the Governments inside the European Union. The plain fact of the matter is that the reason why the right hon. Gentleman wants a referendum is to vote no to enlargement in order to vote no to the European changes that are taking place, because I am afraid that, under his leadership, the Conservative party remains utterly and implacably opposed to Europe.

It may have escaped the Prime Minister's notice but the reason why I want a referendum is that the British people can say no. [Interruption.] Oh yes, and the reality is that everybody else thinks that the same idea of the British people having their say should exist. He knows that the president of the Convention says that that should be a necessity, as does everybody else. We know that the British people overwhelmingly want to have their say. The right hon. Gentleman shakes his head, but it is true. Has the Prime Minister become so out of touch, so arrogant, so reliant on a small group of people—oh yes—and so reliant on a small group of friends that he will not let the British people have their say?

What is very clear, as the right hon. Gentleman has just admitted, is that he wants people to say no to European enlargement. That will mean that those—[Interruption.] He has just said that he wants them to be able to say no to the question, and he would be leading the campaign against it. So what we now know from the Conservative party is that it is against the enlargement of the European Union and that it is against those new countries coming into Europe because, under his leadership, the Conservative party is against Europe. That is a disaster for jobs and industry in this country.

The reality for the Prime Minister is that he will not trust the British people. Let them be the judges of what they want. The Convention will include foreign policy, home affairs, transport, criminal law, asylum and many other issues. Why cannot they be allowed to decide? Is not the reality that a member of his Cabinet said that since the first days when he got to power the Prime Minister ruled by

"diktats in favour of increasingly badly thought through policy … that comes from on high."—[Official Report, 12 May 2003; Vol. 405, c. 38.]

The Prime Minister has the opportunity to prove that the right hon. Member for Birmingham, Ladywood (Clare Short) and her words are wrong. If he gives the British people their say, he will do that, so why does he not prove her wrong now by saying from the Dispatch Box that he will give the British people the chance to vote on the constitution?

I have just given the reason. I said why the previous Government did not give people referendums, for example, in relation to Maastricht and the Single European Act. However, when the right hon. Gentleman lists the topics in the European Convention, he is indeed simply listing the topics, but European defence and foreign policy will remain wholly intergovernmental. Therefore, the idea that it somehow changes the nature of this county's foreign or defence policy is simply wrong. The truth is that, after a time of very wise silence on the issue of Europe, the right hon. Gentleman has decided to put the Conservative party back in the position of being opposed to Europe, and it is now opposed not just to the single currency but to accession by the 10 new states. [Interruption.] There is no point in his saying that he is in favour of accession but opposed to the European Convention, which is necessary to make the accession work. If he wants to get up again, let him tell us whether in such a referendum he would say vote yes or no.

Yesterday, yet more mass graves of murdered Iraqis were seen. Does my right hon. Friend the Prime Minister agree that forensic evidence was key to building a case against Milosevic for his crimes against humanity? Will he respond to the demands of Human Rights Watch and ensure that forensic experts are sent into Iraq so that relatives can properly identify loved ones and that those responsible for human butchery can stand trial?

My hon. Friend's question is very sensible. Incidentally, I hope that for those people who had some doubt about the wisdom of removing Saddam Hussein, the reports of mass graves are an indication of how brutal, tyrannical and appalling that regime was, and what a blessing it is for the Iraqi people and for humankind that he has gone from power. On my hon. Friend's specific point, we are looking urgently at how we redouble our efforts to protect the sites and to make sure that we gather the evidence. No matter what the exact forum is in which people should be tried for these crimes, it is undoubtedly true that we need to protect the forensic evidence that will allow us to try them.

On the Iraq issue, on 25 April, the Foreign Secretary said that the United Nations would have a vital role to play in the search for Iraq's weapons of mass destruction. Now, the United States ambassador at the UN has said that the UN will have no role for the foreseeable future. Who is right?

I have always said that there should be independent verification at the end of whatever finds we make in respect of weapons of mass destruction. I have no doubt that the UN will be involved in that, and what the American ambassador to the UN was saying was simply that coalition forces, who are currently seeking to restore security on the ground, are not going to have the UN back in now, although we are in discussion with the UN and allies as to how we can have such independent verification later.

On 7 March, the Prime Minister said that the United States and our country would not touch Iraq's oil revenues, yet the draft UN resolution gives the United States and us total control over those oil revenues. Does the Prime Minister therefore understand why so many people now feel so let down?

That is absolute nonsense. Let me explain the situation to the right hon. Gentleman. First, in relation to the UN's vital role, its primary role must be not just in respect of humanitarian aid but in respect of reconstruction in Iraq and the development of a new Iraqi interim authority. Our resolution makes it clear that the UN special co-ordinator is to be involved in all those aspects. Indeed, the preamble to the UN resolution that we have tabled reaffirms specifically the "vital role" for the UN. In relation to the points that he was making in respect of the oil revenues, it is not true that we will be running the oil revenues of Iraq. What we have said is that they should go into an independent fund with an advisory international board, which will have the UN representative on it and representatives of the International Monetary Fund and the World Bank, and that that development fund money should be used exclusively for the people of Iraq. In those circumstances, the idea that the US and the British are getting their hands on Iraqi oil is completely fatuous.

Since the Prime Minister seems to be developing a fondness for taking action against those people who disagree with him, can he set out for the House the precise limits, as he sees them, of free speech?

I think—[HoN. MEMBERS: "Answer."] Well, I think that is a very fine example of what we really want to encourage in this House. With the greatest of respect, in relation to Iraq, or any other issue for that matter, I have not noticed that people have been afraid to speak their minds. They have been speaking their minds in many different places and in many different guises, and long may that continue. Instead of arguing about whether we have free speech or not—which we do—let us argue about the actual details of the policy itself because that is, perhaps, a better argument and debate to have.

Q2. [112956]

The Deputy Prime Minister said that he wanted to make local government funding more easily understood. Can the Prime Minister explain why the average increase for Derbyshire districts this year was some £570,000, yet for Conservative-controlled Derbyshire Dales district council it was an increase of £33,000? When will the council tax payer of Derbyshire Dales get a fair deal from this Government?

Everyone in the hon. Gentleman's area and other areas in the country got a substantial increase in the investment going into education. That is true. We are working on school funding problems in the way that we have explained. However, it must surely be the case that the last thing that Derbyshire or any other part of the country needs is the possibility of 20 per cent. cuts across the board, which is the Conservative proposal. So yes, it may well be true that Derbyshire and elsewhere want more money, but they know that under the Conservatives they will get less.

Over the last four or five years, a university campus has been established in my constituency with close co-operation between the universities of Paisley and Glasgow, the Open University and Bell college. Student figures in that time have grown to more than 1,000. Can the Prime Minister explain what impact yesterday's announcement by Leader of the Opposition on student fees would have on rural areas such as mine?

I can assure my hon. Friend that we will not be following that policy decision for the simple reason that it would mean an immediate £500 million loss of income to universities in this country. Nothing could be more unfair or more disastrous for universities. It would mean literally—[Interruption.]

It would mean 150,000 fewer students each year able to go to university and, at the very time universities need more money, they would lose £500 million. That is not a fair deal. It is a disaster for students and universities.

Q3. [112957]

In answer to my question on 2 April, the Prime Minister assured the House that the future of Gibraltar played no role whatsoever in his negotiations with José Maria Aznar in securing the support of Spain for the war against Saddam Hussein. Will the Prime Minister now assure the House similarly that control over the straits of Gibraltar played no part in those negotiations?

Despite what the Prime Minister said about Iraq's oil, is it not the case that at the moment the United States, not the United Nations, has de facto control of the oil? Is it not the policy of the United States that the United Nations should be reduced to the international Mother Theresa in the world, with no real political control whatsoever? Is it not about time that this country stopped appeasing the world domination ideas of Bush and his cronies?

First, may I congratulate my hon. Friend on a good example of free speech? Secondly, he is wrong—the oil-for-food resolution governs the oil revenues, and is administered by the UN. The idea is to transfer the revenues from Iraqi oil into a special separate trust fund, which will be administered in the way that I have described, with the UN, the International Monetary Fund and the World Bank represented on it. It is to be used exclusively for the interests of the Iraqi people. With great respect to my hon. Friend, we are conducting a negotiation with other members of the UN Security Council, which I hope will be successful. It provides for a vital role for the UN, not in the sense of the UN governing the coalition or the coalition governing the UN, but the two working in partnership.

As the Prime Minister pointed out earlier, the atrocious events in Saudi Arabia have shown all of us that the war on terrorism is clearly far from won, reinforcing the need to show in Iraq that we can be a force for good in the region. There is growing frustration that while it took four weeks of a magnificent campaign to defeat the Iraqi regime, after five weeks of peace, there are still serious shortages of food, water and health care in places such as Baghdad. I believe unequivocally that prosecuting the war was right, but how can the allies now avoid the growing charge of being deficient in planning for the peace?

It is important that we take our responsibilities very seriously to make sure that, having won the conflict, we restore services and, indeed, improve them—in many cases, they were in an appalling state before the conflict. I can tell the right hon. Gentleman that in the south of the country we have gone a long way towards doing that. Improvements are still needed, but the situation is improving all the time. In Baghdad, it has been particularly difficult because the security situation has been difficult. However, there is now a renewed vigour in ORHA—the Office of Reconstruction and Humanitarian Assistance—and I am sure that in the coming weeks we will sort out the enormous logistical problems in dealing with this situation. Naturally, a lot of attention is focused on things that are going wrong, but there also are many things in Iraq today that are going right.

In doing that, it is obviously vital that the coalition act within the bounds of international law. This week, the former International Development Secretary, the right hon. Member for Birmingham, Ladywood (Clare Short), made a startling claim that the Government have been acting against the advice of the Attorney-General, yet the Foreign Secretary is on record as saying that they are not. Both have clearly seen the Attorney-General's advice and both cannot be right. To resolve this split, and to show that he or his Government have nothing to hide, surely the Prime Minister should now publish the Attorney-General's advice today?

It is not the practice of Governments to publish the Attorney-General's advice, and I am not going to depart from that. However, I can point the right hon. Gentleman to the Attorney-General's clear statement last night that the actions of the British Government have been in accordance with international law. Indeed, there is no possibility of our acting in a way inconsistent with international law. That would be wholly wrong—I would not countenance it and neither would anyone else.

Iraq

Q5. [112959]

What instructions coalition forces have received about seizing documents in the Iraqi Foreign Ministry and secret police headquarters that are likely to form the basis of legal action.

As my right hon. Friend the Secretary of State for Defence indicated on 6 May, UK commanders have been told that evidence believed to be linked to war crimes or crimes against humanity is to be secured so that it may be examined by investigating authorities. I understand that similar instructions have been issued to US forces in Baghdad. Now that the security environment in areas of Baghdad is more permissive, efforts are under way by the coalition to secure and assess the kind of documents to which my hon. Friend referred. However, at the time of entry into Baghdad, coalition forces were naturally engaged in other priority tasks, in particular seeking to stabilise the security situation and minimise loss of life.

Pertinent to the Prime Minister's opening statement on the dreadful events in Saudi Arabia yesterday is the question of why there was no proper custody of documents of such potential importance that they could have thrown light on the alleged existence of weapons of mass destruction or possible links with al-Qaeda. What does that say about the priority, or lack of it, accorded to intelligence?

The instructions issued to both UK and US coalition forces were to attempt to secure any documents that might be in the possession of the Iraqi authorities. However, when they were first going into Baghdad, their priority was obviously winning the conflict, and they had to pay close attention to the security of their own forces.

Now that the situation has cleared somewhat, we are trying to make sure that we gather up all the documentation in relation to weapons of mass destruction and in relation to appalling crimes, the like of which we are now seeing. We will obviously want to use those documents in order to show people exactly what happened.

The premise of my hon. Friend's question is not right. It is not that we did not bother about documents. As the coalition forces were going into Baghdad, the priority was winning the conflict. Now that the situation has cleared somewhat, we are, of course, doing everything we can to gather up the documentation. It is in our interest to do so.

The Prime Minister's explanation is inadequate. On Monday the Defence Secretary told the House, in answer to a similar question, that the reason why The Daily Telegraph got its hands on the documents before the coalition forces was that it had journalists on the spot. The true situation is that The Daily Telegraph journalist returned by land to Baghdad from Jordan on 11 April, two days after the fall of Baghdad. He did not go into the Foreign Ministry headquarters where he got the documents until the following Saturday. On the following Tuesday—that is, 13 days after the fall of Baghdad—he told the BBC that

"Iraqi government ministries are effectively open to anybody who wants to walk in and look for documents."

That was a straight failure by the coalition, and the Prime Minister should accept responsibility for the failure to get such important documents under our control.

I cannot comment on what the hon. Gentleman knows—[HoN. MEMBERS: "Why not?"] about The Daily Telegraph, as I suspect that his sources in The Daily Telegraph are better than mine. In relation to the documents, as the hon. Gentleman knows, the building in Baghdad was not in the British area of control, but the instructions given to coalition forces from the US and the UK were identical. As far as I am aware, every effort was made to secure the documentation and to secure those buildings. Even two days after the fall of Baghdad—[Interruption.]—even a few days after the fall of Baghdad, there was a desperately difficult security situation, and it is not surprising if the commanders on the ground were paying attention first to the security of their own forces. However, I have no doubt that any documentation that we have managed to secure will be extremely helpful, both in respect of the crimes against humanity and in respect of weapons of mass destruction.

Engagements

Q6. [112960]

Has there been any progress in the implementation of the road map for peace in the middle east between the Palestinians and the Israelis?

Yes. The road map has been published and the priority must be the implementation of phase 1. That means improved security from the Palestinians, a freeze on settlement activity, and continuing assistance by the international community for reform and humanitarian assistance. I hope that we now have a situation where, for the first time in many, many months—indeed, for the first time in a couple of years—there is the real prospect of progress on the Palestinian issue. I very much welcome the attempts of Secretary Colin Powell and the American Government, working in concert with other Governments, to push the matter forward. We wi11 continue to play our full part in that.

Q7. [112961]

Is it right that foundation hospitals should be based on a discredited star rating system that completely ignores whether or not sick patients get better?

It is nonsense that the star system does not take account of sick patients and whether they get better. It is based on 10 different elements to the star rating. No star rating system is perfect, but that star rating has enabled us for the first time to make a comparison of hospitals across the board. It is interesting that the Conservative party is not just opposed to the extra investment in the health service; it is now opposed to reform in the health service, as well.

In October last year, a 15year-old constituent of mine, Anthony Waklin, was killed by a speeding motorist while cycling through his home village, Wool. The 18-year-old driver concerned already owed £1,400 in driving fines and had no licence or insurance. Last week magistrates sentenced him to a paltry £200 fine and a two-year driving ban. Can my right hon. Friend please assure my upset and concerned constituents in Wool that amendments to the Criminal Justice Bill will prevent such injustices in sentencing from happening again?

I totally understand the concern of my hon. Friend and his constituents. I should say to them that we have tabled an amendment to the Criminal Justice Bill to increase the maximum penalty to 14 years' imprisonment for the three offences of causing death by dangerous driving, causing death by careless driving while under the influence of drink or drugs and aggravated vehicle taking where death results. The actions of dangerous and irresponsible drivers can be devastating not only for victims and their families, but for whole communities. That is why I think that it is entirely appropriate that we increase the penalties for such offences. I hope very much that the amendment will receive the support of the whole House.

Q8. [112962]

Can the Prime Minister explain why inward investment is falling in this country, but increasing in countries that are part of the eurozone?

Issues to do with trade and investment will of course form part of the assessment, but we still get a very substantial amount of inward investment in this country, I am delighted to say.

Point Of Order

12.31 pm

On a point of order, Mr. Speaker. Yesterday, the Paymaster General made much of the fact that the amendments selected for debate in respect of the Finance Bill had been tabled by Opposition parties, but the impact of the programming has been such that the sheer number of clauses to be debated and the amount of amendments tabled by the Conservatives mean that we will have no opportunity this evening to discuss the amendments tabled by the Scottish National party. We will not, therefore, have an opportunity to discuss issues that are fundamental to the Scottish economy, such as oil and whisky revenue. What should we in the minority Opposition parties do to ensure that our amendments are debated? What can you do to ensure that minority parties' amendments are debated?

Like other hon. Members, the hon. Gentleman is bound by the programme motion, which has been decided. Of course, the Finance Bill will also be dealt with in Committee, and it is up to him and his hon. Friends to seek opportunities to raise the matters about which he is so concerned.

Telecommunications Masts (Railways)

12.32 pm

:I beg to move,

That leave be given to bring in a Bill to restrict the permitted development rights of railway or light railway undertakings in respect of telecommunications masts.

The restriction would have the effect of requiring rail undertakings, including Network Rail, to seek full planning permission before erecting masts more than 15m high, in common with other companies erecting masts. That would enable proper democratic scrutiny and give time for local people to engage in the process.

The masts are required to relay data and voice communications. The work includes the installation of a new signalling system known as the train control system and will allow the introduction of automatic train protection—the highest level of rail safety available. Clearly, I do not argue with that, but I do argue that a failure to require full planning permission means that Network Rail can site masts of any height anywhere it likes on rail land, with consequent loss of public confidence and, indeed, public outrage when inappropriate siting leads to loss of visual amenity and loss in the value of homes.

Network Rail currently engages in a notification process for masts higher than 15m and, I understand, up to 33 m. The consultation that takes place is very limited; even precise locations are made available to the public only on application to the appropriate body—that is, if they can find out in the available time which body that is.

In Cheadle, the first mast, at Ravenoak road in Cheadle Hulme, was notified to residents on 16 December 2002—not a good time for most families. At least one of the most affected families was missed out. The notification was headed "West Coast Modernisation, Notice of Forthcoming Works—Carr Wood Park".

Carr Wood park is some half a mile away. It turns out that it had been the preferred location, as it is screened by trees. In fact, the mast has been put next to a railway bridge where the arrangement of housing is such that about 100 homes have a direct view of the 20 m height of the towering monstrosity. The worst-affected residents' home is 16 m from the base of the 20 m high mast, with no screening whatsoever. That is roughly 65 ft of mast—twice the height of an ordinary house. Network Rail could not have chosen a worse site.

In another case in my constituency, at Smithy Green, the notification letters were delivered to households only after work had begun. It was a mistake, but that is in no sense consultation. Under the law as it stands, however, Network Rail does not have to notify residents at all, so mistakes do not count. I now understand that Network Rail has plans for 33 m high masts in national parks and open countryside, and plans to bring in more than 5,000 in total.

I have been in communication with Network Rail, the local authority and the Department of Transport, and I have written to the Department for Environment, Food and Rural Affairs. A very unsatisfactory situation emerges. Network Rail claims that its permitted development rights when notifying the local planning authority come from part 11 of the Town and Country Planning (General Permitted Development) Order 1995. The Minister of State, Department of Transport, the right hon. Member for Warley (Mr. Spellar), indicated in a reply to me that part 17 of the order was the relevant part. A more recent letter from him said that either might be relevant. I quote:

"Part 17 is used for some works, but part 11 is the more important for those relating to track, bridges and stations."

My Bill would amend both parts 11 and 17 for the avoidance of doubt.

Guidelines about masts and their erection published by the Department for Environment, Food and Rural Affairs make it clear that visual amenity is to be the major factor in determining the position of masts. When the right hon. Member for Greenwich and Woolwich (Mr. Raynsford) was a planning Minister at that Department, he said:

"It is vital that the masts which enable the service to be delivered"—

he was talking about other telecommunications companies—

"are designed and sited sensitively so that their environmental impact is kept to a minimum and that local people have a better chance to have their say."

I understand from the Department for Transport that those guidelines, which apply to every other mast company, do not apply to Network Rail. That is extraordinary—all the more so, given that the design of masts that are being erected makes the structure appropriate for additional operators. In addition, prior to its demise, Railtrack entered into contracts with various telecommunications companies to provide them with sites. Should Network Rail wish to provide sites for other operators, full planning permission will be necessary. However, the whole world knows that it would be almost impossible to say no once the mast has been there for some time.

The Minister of State has been helpful in suggesting that local authorities can apply for

"the removal of a particular permitted development right and require an application for planning permission by submitting to the Secretary of State an order under Article 4 of the General Permitted Development Order."

However, my local authority in Stockport points out that Network Rail would contest that on a case-by-case basis and that the local authority would have to demonstrate why the location should be treated differently from elsewhere. The procedure would prove to be lengthy and expensive, and is expected to be used only in exceptional circumstances.

My argument is that we have a loophole in the law that requires closing. The public deserve better than this, and at the very least should be enabled to see that their local elected representatives and the local planning authority can protect their amenity in the same way as is expected with all other telecommunications companies.

Question put and agreed to.

Bill ordered to be brought in by Mrs. Patsy Calton, Vera. Baird, Norman Baker, Tom Brake, Mrs. Annette L. Brooke, Sue Doughty, Mr. Don Foster, Paul Holmes, Julie Morgan, Mr. Andrew Stunell, Ann Winterton and Mr. Crispin Blunt.

Telecommunications Masts (Railways)

Mrs. Calton accordingly presented a Bill to restrict the permitted development rights of railway or light railway undertakings in respect of telecommunications mast: And the same was read the First time; and ordered to be read a Second time on Friday 20 June, and to be printed [Bill 107].

Orders Of The Day

Finance Bill

(Clauses Nos. 1, 4, 5, 9, 14, 22, 42, 56, 57, 124, 130 to 135, 138, 139, 148 and 184 and Schedules Nos. 5, 6, 19 and 25, and any new Clauses and Schedules tabled by Friday 9th May 2003 relating to excise duty on spirits or R&D tax credits for oil exploration).

Considered in Committee [second day].

[SIR ALAN HASELHURST in the Chair]

Clause 130

Charge And Rates For 2003–04

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

12.41 pm

As hon. Members know, the clause simply sets the basic rates of income tax for this year at 10 per cent., 22 per cent. and 40 per cent. We have already pointed out that the Government appear to be confused by their tax system. They misquoted the basic rate at 20 per cent. in the explanatory notes, when automatic indexation increases in the tax bands of 2 per cent. accompany the rates. However, we wish to speak about the clause because of the failure to deal with personal allowances and inflation: yet another stealth tax especially hits lower and middle-income earners.

When compared with our competitor countries, Britain has the lowest levels at which people start to pay tax. They will be even lower in real terms as a result of the fall in the real value of personal allowances, which have decreased from 60 per cent. of average income in 1950 to 24 per cent. today. Someone who earns only £15,000 a year—25 per cent. below average earnings—will pay tax of 22.5 per cent. of income as a result of combined income and national insurance tax liabilities of £3,388. If such an individual has, for example, two children, depending on the income of the spouse, whether they can complete the form and whether the Government can handle the administration, they may get back all or more in child tax credit and qualify for working tax credit.

Why tax people on such modest incomes in the first place? Why do a Labour Government make the rate at which taxation starts even lower in real terms? It is difficult not to conclude that the Government's concealed objective is to make people feel dependent on them for their tax credits to offset the ridiculously low rates at which taxation starts.

Has my hon. Friend also noticed that in the Bill the rate for those earning a slightly higher income and above is 40 per cent.? However, we know that the Government want to levy tax at 41 per cent., which they are doing by a backdoor means of changing the rules on national insurance. Would not it be more honest to set the rate at 41 per cent. and thus accept that the Government have broken their promise to the British people not to raise income tax rates?

I thank my right hon. Friend for his comments. The Government have already learned from the local election results that the British electorate are not stupid and that they know perfectly well that they now pay income tax at a rate of 41 per cent. if they qualify for higher rate taxes.

12.45 pm

The immediate effect of the stealth tax of freezing personal allowances will yield about £500 million per annum directly, but the knock-on effect will push more people into the higher tax rate. Data received in response to questions put by my hon. Friend the Member for Eddisbury (Mr. O'Brien) show that, according to the Government's own figures, there will be a 23 per cent. increase between 2002–03 and 2004–05 in the number of people with incomes over £34,515, rising from 3.9 million to 4.8 million. Not all those people will pay higher rate tax, because some will be pensioners, but that is nevertheless a good rough and ready measure of the extent to which the Government's income tax policies are pushing policemen, teachers, soldiers and nurses into higher rate tax brackets, as well as starting to tax them at a lower real income.

We regard this stealth tax as particularly devious and wrong. The Conservatives wish to reform and simplify the tax system when we are elected at the next election, and to take large numbers of people out of paying tax on such ridiculously low incomes.

I entirely endorse the comments of the Conservative spokesman on the impact of freezing personal allowances. It is a stealth tax that will have a significant impact on low-paid people. We wish to debate this clause because it is clearly central to the Government's Budget strategy and to the choices that the Government make about taxation. I understand that, under the procedures of the House, we cannot table amendments to the rates, so I shall make our points by speaking on the clause.

I want to start by reasserting the Liberal Democrats' belief in the principle of progressive taxation. After six years of a Labour Government, it seems extraordinary that the poorest 20 per cent. pay a higher proportion—41.7 per cent.—of their income in taxes, compared with the richest 20 per cent., who pay just 34.2 per cent. That is a regressive tax system, and we would like to see it adjusted.

Will the hon. Gentleman help me to understand his remarks by telling me what the rates and bands of the Liberal Democrats' local income tax would be?

We simply want to propose an entirely revenue-neutral system that would replace council tax—which I shall come to later—with a local income tax. If the hon. Gentleman wishes to support the council tax, which is having a dramatic effect on low-paid people and pensioners on fixed incomes, I would like to see him do so.

One of the reasons that the rates in clause 130 remain the same as last year's rates is that the Government have orchestrated a £2 billion tax hike through the council tax. They have failed adequately to fund nationally agreed pay rises, pension increases, national insurance increases and new requirements on services imposed on local authorities. We support those requirements, but they have not been adequately funded. The result has been an average increase in council tax that is four times the rate of inflation. The impact of that on pensioners on fixed incomes is severe and cannot be supported. I would have thought that many Labour Members would see that such a regressive system needs to be reformed. The regressive nature of local taxation is even worse than that of national taxation. The poorest fifth of households pay 7.1 per cent. of their income in local taxes, compared with the richest fifth, who pay just 1.8 per cent.

Income tax is self-evidently based on the ability to pay. The Liberal Democrats' preference for a 50p rate for income over £100,000, which is in line with much of Europe and the state of New York—there is hardly evidence there that it leads to a brain drain—and which I suspect is supported privately by many Labour Members, could initially provide funding to cut council tax by £100 per household this year and get rid of the iniquities of tuition fees and top-up fees, which act as such a disincentive to students on poor incomes.

I thoroughly endorse the hon. Gentleman's comments on council tax. However, the US tax system has substantial allowances against income, including interest payments, so it is not entirely accurate to say that there is an effective 50 per cent. rate of income tax. The net effect on higher earners generally comes out at about 40 per cent.

I thank the hon. Gentleman for those comments; he may well be right. I am sure that he knows more about it than I do, so I am happy to accept his comments. None the less, the fact remains that the overall tax system in Britain is highly regressive and, with the impact of the increases in council tax, it is having a severe effect.

In years past, I have had opportunities to gauge the disparities or otherwise between the taxation levied by different states, so will my hon. Friend take it from me that the precedent in the United States, whether it be federal, state or city tax, is according to the ability to pay—an important principle that we should not forget?

Absolutely. That is in great distinction to the system that we have in Britain with a system of local taxes, which, self-evidently, is not based on ability to pay.

How does the hon. Gentleman work out that someone on a higher income paying 40 per cent. income tax on practically all his income and then paying lots of other taxes out of net inc ame, is on an effective tax rate of 31 per cent? That sounds like Liberal Democrat arithmetic.

As I understand it, the figures have all been properly assessed and are based on parliamentary answers,so they have been accepted as factual.

The hon. Gentleman's attempted response to my right hon.

Friend the Member for Wokingham (Mr. Redwood) will not suffice. Simply to say that the facts have been checked but that he cannot trouble us with them now is not good enough. What assessment has the hon. Gentleman made of the probable impact of the level of income tax at the higher rate and the increase in national insurance charges on the prospects of recruitment and retention in the police force, the teaching profession and the NHS?

I personally have not made any assessment. [HON. MEMBERS: "Ah!"] Hon. Members express great surprise. I would say only that these higher rates of tax apply in many other countries and do not cause massive problems in terms of a brain drain or recruitment to public services. At the end of the day, we all have to decide how best and most equitably to raise our taxes, and the Liberal Democrats believe that the current system is not adequately progressive and we would prefer to move to a more progressive system.

To return to the funding of students in further and higher education, about which the Conservative party has also raised concerns, although I am not sure about the funding of its proposals—

Order. The Chair has been extremely tolerant of the debate so far, but we are now moving far away from income tax.

I am grateful for that. I was simply making the point that with the rate that we are proposing of 50 per cent., the Government could get rid of the iniquitous proposed system of funding of top-up fees and tuition fees for students.

As I have said, many Labour Members would share our view that the tax system should be more progressive than it is. I suspect that the Minister, in her quieter, private moments may well agree. The Government are caught on the horns of a political commitment not to raise income tax, so tax is still raised but in ways that are more unfair than if it was raised by way of income tax, and which this year is hitting people on low pay and pensioners on fixed incomes very hard indeed by way of the council tax.

Can my hon. Friend explain the impact that the present unjust system has on areas such as Devon where we have a large number of people on fixed incomes and a large number of pensioners and low-paid people who have been penalised by the council tax? Is he aware that all parties on joint administrations in Devon have agreed that the council tax system is wrong and that they want to see a fair taxation system, and that includes the Conservative leader of Devon county council, Christine Channon?

Order. I remind hon. Members again that this is a debate about income tax levels, not council tax.

I am in some difficulty in responding to the intervention given your comment, Mr. Gale. I simply endorse what my hon. Friend says and say that in North Norfolk, with a low-wage economy, the position is much the same.

I declare my interests as they appear in the Register of Members' Interests.

The clause sets out income tax rates, but it does not tell us the whole story about how incomes will be taxed. As my hon. Friend the Member for Arundel and South Downs (Mr. Flight) pointed out, we must take clause 130 in conjunction with the meanness over the bands and the I per cent. surcharge on national insurance payable over the whole income range for the first time, which means an increase in the 40 per cent. tax rate in the Bill.

I rise to speak against the clause because I represent a constituency where an income of £35,000 a year is not huge but necessary to meet the ordinary living expenses in such an area, given high house prices, high costs of services, high council and other local taxes and the general cost of living.

The Government are making a great mistake in drawing so many hundreds of thousands of additional people into the tax net to pay the 41 per cent. tax—the combined income tax rate in the clause and the 1 per cent. national insurance surcharge. That will leave many people quite short of cash to meet their family bills over the year. People in Britain under the Conservative Government, and more recently under the Labour Government, have become used to experiencing rising take-home pay and rising spending power if they are in a reasonable job and keep that job. That is something that Members on both sides of the House usually welcome. The question that we have to ask today is whether the Government are now damaging that in a dangerous way. I believe that they are. They are reaching the point where higher taxes of a stealthy kind on people's incomes are now doing considerable damage.

What should the Government do about it? They should be more honest about the fact that they are effectively increasing income tax and review again their public expenditures to see whether they can do a better job in controlling and containing waste and unnecessary expenditure so that they do not need to put through such large increases in the tax burden. I am sure that that advice will fall on deaf ears with the Minister, but it is heartfelt and well meant, and the Labour party will discover to its dismay in the ballot box during the months ahead that this is an extremely unpopular imposition, and that the combination of the rates, bands and the national insurance surcharge is correctly perceived outside as a substantial increase in the income tax burden. When the Government use their majority to push this through today, they will do something that they will live to regret.

I welcome you to the Chair, Mr. Gale.

I congratulate my hon. Friend the Member for Arundel and South Downs (Mr. Flight) on ensuring that the clause is debated in the Chamber because this is a classic stealth tax that should be brought to the attention of the public. My hon. Friend has done that exceptionally well, as has my right hon. Friend the Member for Wokingham (Mr. Redwood). The charge that it is a stealth tax is not just a Conservative charge. If one reads the commentary after the Budget from the various accountancy firms, one is struck by the fact that almost every firm pointed to this stealth tax. Tax partners at accountancy firms, including Mr. Warburton, a senior tax partner at Grant Thornton, have said:
"Because the increase on tax bands has been very modest, there has been a stealth rise…The rate bands are only going up by about 1.7 per cent, while earnings have gone up by about 3 or 4 per cent."
Of course, that will have a serious effect on people and their incomes. Because:he tax-free allowance for people under 65, which is normally increased in line with inflation, is staying at £4,615, KPMG, another accountancy firm, has estimated that it will cost the average taxpayer £95. 'Those are serious increases at a time when people are already facing increases in council tax, national insurance and so on.

1 pm Grant Thornton has also said:

"This is a classic case of fiscal drag. More people are drawn into the higher tax bracket and pay the top rate on a rising proportion of their income."

We need to ask ourselves: what is the point of a higher tax rate if more and more people are drawn into it? The higher tax rate was originally designed for the people with the highest incomes in society but now, as my hon. Friend the Member for Arundel and South Downs pointed out, people in the education system, the health service and police service are paid far beyond that.

I discovered from the "Today" programme this morning not only that my constituency has the highest income of any in the country—the highest in terms of purchasing power, that is—but that the average income in my constituency is around £30,000. A huge number of people will be paying the higher tax rate in that constituency—and there were many others on the list. Each year, the number increases. This year, as a result of the clause, it will increase by 150,000 people.

It is incumbent on the Committee to ask the Minister to be honest about this matter. If the Government want to increase income tax. why do they not put it in their manifesto, come to the House with a Budget and do it? Instead, each year, we get this salami-slicing stealth tax, which is eroding people's disposable income.

Having heard my right hon. and hon. Friends speak in the debate, it seems to me that income tax rates are becoming increasingly irrelevant to the concept of take-home pay. The Government have thrown the majority of people into the dependency culture. The use of tax credits has in effect rubbished the concept of tax rates in relation to take-home pay.

I had an example of that only a few weeks ago. One of my constituents, a local employer, explained to me how he had two members of staff both earning roughly the same amount of money. However, one of them was getting a lot more through the use of tax credits. He said that that destabilised the wage environment in his company because people compared take-home pay. He resented the fact that he was being used to monitor income tax and in effect to act as a benefits agency on behalf of the Government. That is why I say that overall rates are becoming increasingly irrelevant.

The same argument applies to national insurance, which now has little to do with the old stamp concept. It has simply become another way to raise income tax, with the added benefit of squeezing a bit more out of companies. Some have called it a stealth tax but I see nothing stealthy in the way most people's pay packets were hit last month. There will not be much stealth there. However, the stealthy part is the way in which comparative take-home pay is being hit in a secret way. People cannot tell what is going on.

This Government said that they would not increase income tax and I believe that they are still saying it. In practice, they are deceiving the British people as to what is going on.

My hon. Friend makes an extremely important point. Does he not think that, if we have a society where people do not know what their tax rates are, and where what they receive in their pay packet bears no relationship to the job that they are doing, it is a huge demotivation to increase their skills and productivity and to take the whole economy forward?

I thank my hon. Friend for making that important point. This area needs a lot more study, because there are many implications from mixing the dependency culture with income tax and with corporation tax. Companies are viewing the three together. There is a new mind-set coming into play that, whichever way I look at it, works to the negative. I agree with my hon. Friend's point.

My anxiety is that the Government are plundering the pockets of the people but, to put it mildly, it is not at all clear to t1 e people that they are getting a fair return for that which is levied upon them. I say in all candour to the Paymaster General that she has a responsibility to abandon the insider mentality that is increasingly characterising both the decision making and defensive pronouncements of Ministers.

It is natural that Ministers will think, "Let us just increase tax a bit. It will not cause appreciable harm. People may not notice. We seem to have been able effectively to con them thus far and it may boost our finances somewhat." My warning to the hon. Lady is that the legendary patience and stoicism of the British people when confronted with additional imposts could soon be wearing thin, if it has not already done so. I invite her to reflect on a number of considerations.

My ho a. Friend talks of the legendary patience of the British people. However, I have noticed that they are growing very impatient with the council tax increases. Of course, with the fuel tax increases, their patience broke and there was a tax strike.

One of my hon. Friend's great qualities is his prescience and it has not failed him on this occasion, for he has precisely anticipated my thought process. The reaction to the incidence of exorbitant council taxes could soon be mirrored in a public reaction to the incidence of exorbitant direct taxation flowing from the Treasury and the Inland Revenue.

The hon. Lady has a responsibility to reflect on a number of considerations. First, at what point does the incidence of higher taxation both on individuals and on the corporate sector threaten to undermine individual incentive and competitive industrial performance? If we have not reached that point, we must be very near to it. In the light of the Chancellor's downgraded forecasts for the performance of the economy in the years to come, it would be sensible for her and her colleagues to take stock of the consequences of that burdensome taxation. That is the more powerful a consideration in the light of the fact—which no amount of Treasury casuistry can gainsay—that over the past six years we have sacrificed two thirds of the competitive tax advantage that we have enjoyed relative to other member states of the European Union.

The second consideration on which the hon. Lady should reflect seriously and which she should discuss with her colleagues is the likely incidence, to which I referred in my intervention on the hon. Member for North Norfolk (Norman Lamb), of higher tax rates, fiscal drag and national insurance contributions on people working in key posts in the public sector. One cannot continually clobber those upon whom we critically depend for the effective discharge of public services without there being an impact on recruitment and retention. In the words of the late Enoch Powell, that point is so blindingly obvious that only an extraordinarily clever person could fail to see it.

Take-home pay has fallen for the first time in over a decade this year and that is not to be forgotten, but in relation to the public sector my hon. Friend will be aware that this is the first time in the history of this country that benefits-included average take-home pay in the public sector is higher than in the private sector. That says little for our productivity.

That is indeed a bad sign, and a worrying portent of the likely development of the two economies of the private and public sectors in the months and years to come.

I will give way once more, but as you will readily discern, Mr. Gale, I am itching to make my third point. Whether the Committee is itching to hear it is of course another matter.

Has my hon. Friend made any calculation of the amount of churning that will result from the clause? The state will be paying those who work in the public sector, who will then pay it back with tax. My hon. Friend may not be able to answer my question, but perhaps the Paymaster General will.

I am grateful to my hon. Friend for the deft shoe-shuffle with which he ended his intervention. He is absolutely right. If I were a Minister, I would feel it incumbent on me to provide the answer. I am not, so it is not; but it is the Paymaster General's responsibility to give a satisfactory reply. What merit is there in an arrangement whereby the middle man takes the money and gives it back again, with all the bureaucracy that such a process entails? It would have been sensible to take account of those considerations in policy formulation at the outset.

My third point is very simple. It is easy for Governments to think—as my party did when in office—in terms of sums raised and inputs made, while focusing far too little on outputs. I have noticed, not just in the Paymaster General's words but in those of her right hon. and hon. Friends, an increasing tendency to stick to the brief and to assume that the House and, more important, the country can be fobbed off with a continuing regurgitation of statistics relating to what is being raised and spent.

That is understandable, but misguided. Let me say in all sincerity that, ultimately, the public are not much interested in hearing from any of us about inputs. They are interested in outputs, and if the words that they hear from Ministers about the level of inputs do not resonate with them because they are not reflected in local service delivery, they will come to regard Ministers' pronouncements first with cynicism and then with contempt.

The fact that the Government are spending £50 million an hour makes it incumbent on Ministers to demonstrate that improved services on a substantial scale are resulting from that level of expenditure of the public's money. The effect of the higher taxes is very real and painful for those—often on modest incomes—who must pay them, while the effect of the Government's increased expenditure, often poorly distributed and untargeted, is much less beneficial. The pain is clear, but the gain is frequently either insubstantial or nonexistent.

Does my hon. Friend think that the ministerial reluctance to speak from the heart rather than sticking to the brief is connected with the fact that Ministers are benefiting greatly from the increased taxes? We see that in the ministerial travel bill, the ministerial drinks bill, the ministerial entertainments bill, the ministerial aides bill and the ministerial press support bill. I think that that is where a lot of the money is going, which may explain why Ministers are not prepared to say much here. They know that they are robbing the British people for no good reason.

My right hon. Friend is usually right, and he is right on this occasion. I believe that money raised from the taxpayer should be used for the taxpayer's benefit. I bear the Paymaster General—who trounced me in Bristol, South in 1992, but with whom I have enjoyed cordial relations ever since—no personal ill will, as she knows; but I do not want her, or her colleagues, to benefit at the centre from increased imposts on the public. I want the British people to benefit, and above all I want my Buckingham constituents to benefit. They are not currently doing so. They are getting restless; they are increasingly angry; they are about to vent their spleen on the Government, and their reaction will be mirrored nationwide.

1.15 pm

I am grateful to the right hon. Member for Wokingham (Mr. Redwood) and the hon. Member for Buckingham (Mr. Bercow) for giving me the benefit of their views and advice. Both made it clear that it was for political parties and individual Members of Parliament to decide on the policies that they advance, and to take responsibility for them.

I was greatly encouraged by the reference of the hon. Member for Buckingham to the 1992 general election campaign in Bristol, South, when he was my very able Conservative opponent. On that occasion he put to the people of Bristol, South the views that he and the right hon. Member for Wokingham have advanced today. He is right: the voice of the people of Bristol, South was pretty substantial. There was an 8.5 per cent. swing to Labour. While I greatly enjoyed the campaign, I am sure that the hon. Gentleman is more safely tucked up in Buckingham now than he would ever have been in Bristol, South.

I am happy to, but I am sure that you would like me to speak about clause 130, Mr. Gale. I was being polite to Members.

Will the Paymaster General reflect on the fact that the difference between the 1992 election and subsequent general elections is that in 1992 the Labour party told the public ir, advance that it would increase taxes and they rejected it, whereas in 1997 and 2001 it did not tell them and then proceeded to increase taxes?

The huge difference between the election in 1992 in Bristol, South, as in the country—

Order. This is an interesting exchange, hut it is totally irrelevant to the clause.

I was enjoying myself, Mr. Gale, as no doubt were Opposition Members, but you are right to return me to clause 130.

The clause imposes income tax for 2003–04. The starting rate of 10p that we introduced in 1999 means that around 3 million lower earners continue to pay about half the marginal tax rates that they would otherwise pay. We have kept our promise not to increase the basic or top rates of tax, which remain at 22p and 40p.

Will the hon. Gentleman allow me to make a little more progress? I want to reply to a couple of points that he made. The right hon. Member for Wokingham was right—the figures do not add up—and I should like, in a spirit of friendship and generosity, to explain why that is. I shall be happy to give way to the hon. Gentleman later.

At 22p, the basic rate is at its lowest for 70 years. As Opposition Members said, the tax rates are complemented by measures designed to make work pay and to eliminate poverty. With effect from April, the Government have introduced child tax credit and working tax credit. Those new credits represent the biggest-ever investment in families, with some £13 billion to be spent on child tax credit alone. Child tax credit is paid not through the wage packet, but directly to the main carer, normally the mother.

As the hon. Member for Buckingham said, the income tax rates are also part of our commitment not just to macro-economic stability but to sound public finances. That applies particularly to policies enabling us to make a sustained investment in public services. Prudent management of the economy has allowed us to increase public services without raising income tax rates.

We have already outlined our ambitious plans to increase investment in the national health service, matched by reform, by 7.2 per cent. a year after inflation for the next five years. That will be financed by the increased national insurance contributions to which the hon. Gentleman referred, which is entirely in line with the Beveridge tradition.

Before the hon. Gentleman asks me to give an example, I shall give it now and then give way to him. Compared with 1997, by 2008 there will be 66,500 more nurses, 20,000 more doctors, 44,000 new therapists and about 100 new hospitals. To return to the example of Bristol, South, the difference between 1992 and now is that unemployment is down from some 15 to 17 per cent. to under 3 per cent.; people can also see real improvements in a health service that was so badly starved of money for such a long time.

I am extraordinarily grateful to the Paymaster General. I shall be candid: I had hoped to tip her into the proverbial pit, but for her to do that herself before I had the chance to do so is generosity on a truly grand scale. Does she not realise that what she has done is to commit precisely the sin—regurgitating statistics about inputs—of which I was., accusing her a few moments ago? Why does she not answer the very straightforward and practical question that the Chief Secretary has twice refused to answer in the past four weeks: why does the increase in clinical activity in the national health service represent only a tiny fraction of the increase in expenditure on it?

Without wishing to try your patience, Mr. Gale, by entering into a discussion on the national health service, I should point out that the hon. Gentleman well knows that giver., the resources put into the NHS to date, there has been a significant increase in activity. I will not try your patience by listing them all now—

No, I shall stay in order despite the hon. Gentleman's invitation. Through the increase in national insurance over the next five years, there will be substantial continuing investment in the NHS.

I am happy to give way to the hon. Gentleman, but I should point out that clause 130 is only about the actual rates of tax. I shall let him make his point, and then I shall return to being in order.

I thank the Paymaster General for giving way—I shall be brief. How can she square her comments about the NHS with Government statistics that clearly show that during the past three years, expenditure on it has risen by £9 billion—an increase of approximately 24 per cent.—yet hospital treatments have risen by only 1.5 per cent. and hospital admissions have actually fallen by 0.5 per cent.?

Order. I will allow the right hon. Lady to respond, but I should be grateful if the Committee would return fairly swiftly to tax rates.

I will do exactly as you ask, Mr. Gale. Of course, as the hon. Gentleman knows, when the national health service has been starved of resources and does not have enough beds, doctors, nurses, therapists and other support workers, it takes time to put those people in place to provide treatment. We are now reaching a critical point, whereby such staff are in place and the NHS is going from strength to strength.

I turn to the specific issues raised by hon. Members. The hon. Member for Arundel and South Downs (Mr. Flight) referred to the indexation of personal allowances. The freezing of them came into effect in April 2003, and cost the basic rate taxpayer 36p a week. As I said, that will help to fund annual real growth in national health service spending—something that the electorate desperately wanted and supported when this Government announced it; and of course, most pensioners over 65 are protected. Those aged 65 to 74 benefit from above-inflation increases in personal allowances, as do the over-75s. The Conservatives repeatedly froze income tax allowances when in power, but they did not use the money to invest in public services; they used it to pay for their economic failure.

None the less, the freezing of personal allowances is a tax increase on low-paid workers. Will the Paymaster General give a commitment that it will not be repeated during this Parliament?

If the hon. Gentleman will allow me, I shall first respond to a few more of the points that I need to deal with. I will deal later with his completely incorrect assertion about the position of the lowest 20 per cent. of earners vis-à-vis tax, as he is indeed very wrong.

The hon. Member for Arundel and South Downs and other Conservative Members referred to the increased number of higher rate taxpayers. To use again the example of Bristol, South, one excellent thing for the constituents whom I represent is that they now have jobs and can contribute to public services through national insurance and the tax system—something that the very high level of unemployment under the previous Administration denied them. We have increased the basic rate limit by inflation to maintain its value. As I said, that is in contrast with the previous Government, who froze the basic rate limit.

I would have expected Conservative Members to applaud the increase in the number of taxpayers, because it is a sign of a healthy economy—of more people getting into work and getting paid more. For the period 1997–98 to 2002–03, mean male average earnings increased by 25 per cent., and average full-time earnings for men and women increased by 26 per cent. Full-time earnings for the top 10 per cent. of men and women increased by 27 per cent., but prices went up by 13 per cent. Employment has increased by nearly 1.5 million since the spring of 1997. The number of people in work is at record levels—something that the previous Administration never achieved.

The right hon. Member for Wokingham and some of his colleagues referred to the use of national insurance. The reason why they keep on referring to the increase as a stealth tax escapes me. We announced that we would increase national insurance by 1 per cent., and we said that all the money would be spent on the national health service, which it is. If Conservative Members are saying that they would cancel that rise as well making, according to the hon. Member for Arundel and South Downs, a 20 per cent. cut across the whole public expenditure sector, they need to concentrate not on what this Government are doing but on how to explain to the electorate that there would be fewer teachers, fewer nurses and fewer doctors.

As I have just referred to the hon. Member for Arundel and South Downs, I should give way to him; that would be the polite thing to do.

I thank the Paymaster General for giving way. She said that all of the 1 per cent. national insurance charge is being devoted to health service expenditure, but I distinctly recollect that approximately half is for the health service, with half going towards tax credits. Would she care to comment on that? Secondly, I repeat that she should not indulge in what she knows to be Labour party misrepresentations. She should instead be concerned by, and take note of, factors such as the 50 per cent. increase in the cost of the central civil service, whose numbers are rising from 450,000 to 529,000. She should also consider ways in which Government expenditure on unnecessary bureaucratic costs might be reduced. That is what I was talking about, rather than Government spending overall.

All of the 1 per cent. national insurance rise is devoted to the national health service. If the hon. Gentleman refers to last year's national insurance legislation, which provided for that, he will discover that I said that repeatedly and that it is on the record. Indeed, the figures demonstrate that fact; the rise is not being used for anything else.

If I may, I shall deal with the second point made by the hon. Member for Arundel and South Downs. I can only go on the newspaper reports about, and the direct quotes from, the hon. Gentleman himself and the right hon. Gentleman the Leader of the Opposition. If I were to engage in propaganda devised by the Labour party, I would opt for something more spectacular—but I do not need to, as I can merely report the words that have come from the hon. Gentleman's mouth.

1.30 pm

I shall now deal with the points raised by the hon. Member for North Norfolk (Norman Lamb). He asserted—[Interruption.] I shall answer the hon. Member for North Norfolk, who has waited patiently; I may give way to the hon. Member for Buckingham later.

The hon. Member for North Norfolk asserted that the poorest 20 per cent. of households pay 40 per cent. of their annual income in tax. He bases that assertion on a publication from the Office for National Statistics, "Effects of Tax and Benefits on Household Income". However, the hon. Gentleman wants to forget—conveniently—some crucial and substantial facts that did not appear in that publication. The first is that the latest figures for 2001–02—the figures used by the hon.

Gentleman—do not include any measures that the Government have introduced to help low-income households, which came into effect from April 2002.

Some of the excluded measures are the working tax credit, the child tax credit and the baby tax credit, the above-inflation increases in the basic state pension in April 2002 and 2003, and the increase in the minimum income guarantee for pensioners to match the increase in earnings. The article does not take into account the working families tax credit, which, following OECD guidelines, would reduce income tax payments for those in receipt of the benefit. Taking all the measures announced between 1997–98 and 2001–02, independent research by the Institute for Fiscal Studies shows that households in the bottom two quintiles have experienced the greatest proportion of real income gains over the five-year period.

What of the assertions of the hon. Member for North Norfolk about council tax and the proposal that a 50 per cent. rate for those earning £100,000 or more will somehow pay for a £100 reduction of council tax—and just about everything else that the Liberal Democrats want to fund? It is interesting to recall that the Liberal Democrats wanted to increase public spending last year, but this year they want to cut council taxes. It seems that they want to fund whatever is fashionable. However, the hon. Gentleman's figures are wrong. The 50 per cent. rate on £100,000 would raise—the Treasury confirmed, when asked—an income of about £4.5 billion. That is the net take when the whole United Kingdom—England, Wales, Scotland and Northern Ireland—is costed. However, when the £100 deduction on council tax is calculated, the Liberal Democrat figure applies only to England.

As the hon. Member for Buckingham said, it is difficult to take people seriously when their figures do not add up. It is also difficult to take them seriously when it is clear that they read the papers every day to find out what might be in vogue and then shape their policies around it. As confirmed by the hon. Member for Truro and St. Austell (Matthew Taylor), who speaks as the Liberal Democrat shadow Chancellor, the Liberal Democrats now believe that the Government are making the correct and necessary investment in public services. The direct tax burden on a single-earner family on average earnings and with two children will be 20.1 per cent., which is lower than in 1998 or any previous year since 1997, so it is irritating to hear the hon. Member for North Norfolk and party asserting that such people are paying more tax. That does not sit well with the facts.

Does the Paymaster General have any concerns about the impact of this year's council tax increases—four times the rate of inflation—on low paid and pensioner households this year?

Of course I have concerns about impacts on lower income households. I shall not try your patience by listing the figures, Mr. Gale, but the Government were generous with the local government settlement on council tax this year. However, many Liberal Democrat authorities chose to increase local taxes on a large scale, so for the hon. Gentleman to stand in his place and claim that his party is concerned—when his councillors are not—is simply not a coherent position. I know that the Liberal Democrats like to be all things to all men and women—even depending on which ward, let alone which city, people live in—but when they are in the House, they should be more consistent in their suggestions. For the party that massively raised council taxes to suggest that it is now someone else's fault is not fair, correct, or accurate. I hope that the hon. Gentleman will not persist.

Clause 130 is a modest clause and I have explained the effect on tax rates in detail. I have answered the many and varied questions put to me at the Dispatch Box. Before I sit down, may I say that for the rest of the proceedings I shall confine myself to the clauses—and not with questions unconnected with them—if that is how you would like me to proceed, Mr. Gale? I commend the clause to the House.

Question put and agreed to.

Clause 130 ordered to stand part of the Bill.

Clause 131

Indexed Rate Bands For 2003–04: Paye Deductions Etc

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

The clause extends by one month the date on which statutory inflation-linked changes to income tax bands must be made to PAYE deductions. It changes from May to the first pay day after 14 June. Essentially, it short-changes taxpayers by £10 as a result of the Chancellor introducing the Budget later than usual. People have received no apology. They will get the money back: in a sense, it is a £20 million interest-free loan from taxpayers to the Government.

Such disregard of ordinary people is objectionable. Why cannot the Government get their act together? They were able to charge increased national insurance contributions with effect from May, but here they are messing about with ordinary people, who were expecting to see income tax band adjustments in their May salary. It may be a small matter, but it represents the arrogance of the Government, who could not care less about short-changing people a pound or two here or there.

I support my hon. Friend, who has summed up the main point extremely well. The Government's action is arrogant, thoughtless and unhelpful to employers, who are under pressure to explain it to their employees. There is no need for an interest-free loan from taxpayers to the Government, given that they are proposing to raise vast amounts of taxation through the Bill and from existing legislation. I hope that the Paymaster General will apologise to the British people for the incompetence of her boss, the Chancellor of the Exchequer. He may well have been preoccupied with his rows with the Prime Minister about the euro, but he has not even offered a statement to the House on that matter. As a result, we have had a delayed and bodged Budget, and we now have a forced loan from the British people to the Treasury. We deserve an apology.

I endorse the views of the Conservative spokesman on the matter. Is it not possible, as the Treasury Select Committee recommended in its report on the pre-Budget report last autumn, for much more notice to be given of the date of the Budget? It should take place in time to ensure that proper arrangements can be made for the new tax year. The problem that we are seeing here should never be allowed to happen.

The first day after 17 May has been the day on which employers and pension providers are asked to implement any codes and tax changes resulting from changes in the Budget. As last year, this clause changes the date, for this year only, from the first pay day after 17 May to the first pay day after 14 June. That allows time for the Inland Revenue to send out the necessary employer packs, and for employers to implement them, given that the Budget was in April this year.

As PAYE works on a cumulative basis, no one will lose out as a result of the delay. The system automatically gives people the benefit of any tax reduction that they are due on the first pay day after 14 June. The clause makes no difference to the way in which the Inland Revenue and employers administer PAYE. It is essentially a technical amendment, to bring matters into line. As the hon. Member for Arundel and South Downs well knows, the same clause was brought forward last year in a straightforward and reasonable way and he saw no problems with it.

Question put and agreed to.

Clause 131 ordered to stand part of the Bill.

Clauses 132 to 134 ordered to stand part of the Bill.

Clause 135

Provision Of Services Through Intermediary

I beg to move amendment No. 8.

I welcome you to the Chair, Mr. Gale, on what is the first occasion on which I have served under your chairmanship on the Floor of the House.

Clause 135 extends the scope of the much reviled and criticised IR35 legislation, which continues to cause distress. It applies to people who provide personal services through an intermediary to those who are engaged in a domestic capacity. The proposals are to take effect retrospectively, from 10 April this year.

The clause means that affected people will have to submit two self-assessment tax returns. The amendment is very simple and offers an easy solution. I am surprised that the Government did not adopt a similar approach in the first place. I hope that, for once, they will accept the amendment with the result that we get a better Bill. The amendment would simply delay the effective date for the income tax change, so that changes to national insurance and income tax happen on the same date.

The Government's anti-avoidance legislation is drafted in such a way that the people concerned, to reflect their tax affairs properly, must make two self-assessment tax returns this year. Those individuals were encouraged to incorporate by the Government, but they will be left with the increased burden of corporate regulation, no tax incentives, and considerable complexity when it comes to self-assessing their tax affairs.

It would be sensible to remind the House that the IR35 rules were originally written specifically to exclude domestic staff, presumably because the amounts at stake in tax and national insurance charges were not high. Has that changed dramatically over the past year? Is that why the Government are so monumentally concerned about the matter that they have to capture the domestic staff involved? Given that the clause is expected to raise only £15 million a year, that would be very surprising.

Furthermore, although a huge—for them—additional regulatory burden is being placed on the people concerned, no regulatory impact assessment is available. Has one been undertaken? The Government claimed always to be able to put in place such an assessment. When the matter has been raised in various Committee discussions, the Government have responded by saying that they would sort out such an assessment—they never volunteer to provide one. Frankly, it is not good enough for the Government not to provide such an assessment, given that some people are patently being given an additional regulatory burden. The people involved are those least in a position to be able to bear such a burden. I call on the Government to issue a regulatory impact assessment in relation to this provision. I think that they would find it pretty poor reading, and that it would be sensible for them to accept the amendment.

1.45 pm

To make matters worse, the Government last year encouraged sole traders to incorporate, with the introduction of lower corporation taxes for smaller companies. A number of people acted on that, and incorporated—well done them—but now, only a year later, this Bill proposes to tax certain of those individuals as though they had not incorporated at all.

The provision is not targeted at wealthy tax planners. It will affect workers on relatively low incomes, who pay tax at the basic rate. They relied on last year's legislation in good faith. The Chancellor's proposed IR35 changes will be a major headache for tens of thousands of people who provide domestic services, such as gardeners, cleaners and cooks. They will be dragged into the Government's bureaucratic tax trap. The people affected will lose money, and be forced to submit extra tax returns.

The Chancellor is taking almost £50 million over the next three years out of the pockets of nannies, gardeners and cooks, and transferring it to the Government's coffers. The Federation of Small Businesses has noted that the provision will affect some of the lowest earners in Britain.

Only last year, many of the people involved were encouraged by the Government to incorporate. Twelve months on, they are to be hit by this regulation. None of the expected tax incentives can continue to apply and, for the people involved, assessing their tax position will be a considerably complex task. The problem has arisen solely because of the Government's incompetence, and their inability to draft effective legislation. Many people who thought that they were doing the right thing by following the Government's advice last year will now be seriously inconvenienced and financially penalised for their diligence.

No doubt, the Government will try to justify this clause only 12 months after they incorporated the very encouragement that has led to what they regard as the mischief of anti-avoidance. The Government say that they must stop anti-avoidance, and the Opposition have said repeatedly—as we must, to prevent the Government from falling into the temptation of mounting a false argument—that we support that. I have demonstrated the scale of the matter, but the theme of this Finance Bill, as was shown yesterday, is that the Government are determined to wrestle as many of the measures as possible through the House under the cloak of anti-avoidance. That is a blatant attempt to stifle scrutiny and criticism.

The Government and the Treasury have adopted an arrogant approach. They are not aiming to target anti-avoidance so much as making a futile attempt to be anti-accountability. Britain's honest and hard-working citizens will not be fooled.

I have read the official record of last year's Finance Bill Committee debates. The Government were fully aware that the interaction of lower corporation tax rates and dividend planning would provide tax advantages for an incorporated business. Even so, they implemented the measures without amendment.

It is proper and right to remind the Committee and the Paymaster General—I also hope that the Chancellor may deign occasionally to listen to arguments that do not accord entirely with his own—about a Federation of Small Businesses report published on 3 February this year. The report said that, at the time that the Government proposed the measures last year, a self-employed person with profits of £15,000 could pay up to 32 times more in tax than an incorporated counterpart.

The report, entitled "The Self Employed versus Incorporated Businesses", is well worth a read. It quotes figures from the Institute of Fiscal Studies, so it is not merely self-serving special pleading on the part of small businesses, although there is no more worthy cause in the business arena. The report states that, on profits of £15,000, the self-employed person would pay a combined income tax and national insurance bill of £2,884, which is 32 times more than the £91 paid in corporation tax by a limited company. On profits of £30,000, a self-employed person pays a combined income tax and N1C bill of £7,234, compared to £3,654 in corporation tax for a limited company. Is that not an obvious disparity between self-employment and incorporation?

As a background to the amendment and to the Government's purpose in extending the measure to low-income earners, such disparity in tax treatment shows that, even after all the strong encouragement and the legislative power devoted to persuading those on low incomes to incorporate, the minute that, in good faith, they do so, they are slapped with a further regulatory burden. Their affairs become complex and they may suffer financial penalties.

The remarks of Neil Hamper, the head of the Federation of Small Businesses taxation unit, are striking. He said:

"Clause 135 is evidence of the hole which the Chancellor has dug for himself. It comes as little surprise that many self-employed people, some of the lowest-paid people in the UK, will choose to incorporate when the tax system so obviously discriminates against them."

It is right that our scrutiny of the measure should be carried out by a Committee of the whole House. Our amendment would at least ensure synchronisation so that the regulatory burden was eliminated. The Treasury could easily accept our proposals, but one fears that, due to the Government's characteristic arrogance and their resistance to admit that they might have got something even slightly wrong, they are so stubborn that they will even resist something as sensible as our amendment, although I hope that the opposite will be the case.

Through the Government's mistakes, the original legislation was not drafted properly, so they have a responsibility to those who relied on it. The least that they can do is to implement the measure in such a way that individuals can unwind their affairs or carry out self-assessment with the least complication.

If the Government are characteristically blind to our arguments, I and my party, on behalf of the relatively low-earning nannies, gardeners, cooks and all the others who are affected by the measure will wish to press the amendment to a vote.

Order. The hon. Member for Eddisbury (Mr. O'Brien) took a fairly wide-ranging approach in introducing his amendment. It may be helpful if I indicate now that I shall be unlikely to accept a stand part debate as well.

We very much support the amendment. We, too, share concern about the absence of a regulatory impact assessment. Often, such assessments do not comply with the Government's guidelines as to what they should include, but the fact that there is to be no assessment at all is of serious concern. The measure will add to the regulatory burden of people who are trying to operate small businesses, so there should be an assessment and I should be grateful if the Paymaster General would respond to that concern.

I also share the concerns expressed by the Conservative spokesman, the hon. Member for Eddisbury (Mr. O'Brien), about the disparity in the tax treatment of sole traders and of limited companies. I shall not go into that in detail, in acknowledgement of your comments, Mr. Gale, but serious concerns have been raised with me and many others by the Federation of Small Businesses. People have been encouraged to incorporate and now this change has happened.

Last year, when IR35 came in, the Liberal Democrats opposed the measure. We fully accepted the importance of tackling abuse and tax avoidance, but we thought that the Government were taking a sledgehammer to crack a nut and that the implications of the measure could be extremely serious. We are now discussing an extension of IR35, and I have some questions for the Paymaster General.

What evidence can the Government show that the scale of abuse makes the measure necessary, given the relatively small amount of extra revenue that it will bring in? Why was it thought necessary to extend IR35? Why was the matter not dealt with last year when the first measure was introduced? I was going to ask what assessment had been made of the amount of extra income that would result, but a figure was mentioned by the Conservative spokesman. What is the overall purpose of the reform?

The clause is disappointing. I welcomed the Government's proposals last year to favour incorporated businesses and to introduce a better tax regime for the smallest companies. It was a sensible measure in favour of enterprise, so it is particularly disappointing that, after only a year, when, as one could have forecast, the policy has enjoyed modest success, the Government want to clobber those who took advantage of it and to reverse the position. I urge the Paymaster General to think again. Her thoughts last year were rather better than her thoughts this year.

In support of my case, the Paymaster General has evidence that IR35 is not only a widely hated tax but also that it is extremely damaging to the United Kingdom. It pushed people out of self-employment. It sent some of them abroad, where they had successful, high-earning businesses; but others simply left that employment altogether, because the tax was an imposition too far. It did considerable damage at a time when the high-tech industries, which were especially targeted by the measure, were extremely fragile.

My hon. Friend the Member for Eddisbury (Mr. O'Brien), in moving his amendment, pointed out the big imbalance between the taxation on earnings for a self-employed person and the taxation on profits for a small, incorporated business. He is right about that. However, a fair comparison for the Paymaster General to make, when she assesses the potential damage, as she sees it, to the Revenue, would be not between profits held within an incorporated business and the earnings of a self-employed person but between distributed profits in a small business and earnings. In such a case, the comparison is not as stark as my hon. Friend said, because there would be taxation on the money being drawn out as wages by the person concerned, or even as share dividend. If the person was the shareholder and decided to take money out, there would be a tax payment, which would narrow the gap, so the threat to the Revenue would not be as great as the Paymaster General will undoubtedly want us to believe when she replies to the debate. In normal circumstances, the gap for low-earning, self-employed people would not be nearly as great in terms of tax, as they would want to take all or most of the money out of the incorporated business in one form or another because they would want it to live on. As my hon. Friend pointed out. those people often do not earn much.

Having listened carefully to my hon. Friend, I think that he was very gentle towards the Government, given the magnitude of their U-turn, in their decision to bash the very people whom they encouraged a year ago. His suggested remedy is mild. If he wishes to push the amendment to a vote, I shall have no worries about supporting it because it is better than the current provision.

However, it would be better still if the Government dropped the clause altogether. The clause is nasty and brutish; it is part of rip-off, insensitive government. It will not bring in much revenue—the Treasury figures probably exaggerate the amount—but it will do damage and put many small entrepreneurs, people who are trying to provide a service, under a lot of pressure that they do not deserve. Such people are not experts on the tax system; they do not want to go through these enormously expensive and difficult changes. The measure will worry them, when they want only to provide a livelihood for their families and a service for someone else. I hope that the Paymaster General will realise that, in the main, they are decent people, trying to make a modest living while paying sensible amounts of tax. Her decision to target them will not be welcome in any constituency.

May I welcome you to the Chair, Mr. Gale?

I support the amendment. There is little doubt that clause 135 creates a gross injustice, a point that has been raised by several of my constituents. Last year, the Government encouraged sole traders and the self-employed to incorporate by introducing lower corporation tax rates for small companies. Subsequently, a large number of people did just that. Only a year later, on the grounds of reducing tax avoidance, the Government propose legislation that will tax individuals as though they had not been incorporated at all. Those measures are not targeted at wealthy tax planners; they affect many low-paid workers, who were fooled by the Government into incorporating and, having done so, they are now being ambushed by the Government under the Bill. The victims are normal taxpayers who rely on the Government's legislation in good faith, and they have been badly let down.

2 pm

In addition, the anti-avoidance legislation has been drafted so that the individuals concerned will now have to submit two self-assessment returns for this tax year properly to reflect their tax affairs. So those individuals whom the Government encouraged to incorporate now face not only an increased burden of corporate regulation, but no tax incentive whatsoever and considerable complexity in self-assessing their tax affairs.

I can only add to the request made in support of my hon. Friend the Member for Eddisbury (Mr. O'Brien) by asking the Government to undertake a regulatory impact assessment to ensure that the measure has been properly thought through. As has been mentioned previously, IR35 rules were originally written specifically to exclude domestic staff, presumably because the amount of tax and national insurance contributions at stake was not very high—the figure of £15 million has been suggested. I should like to understand better whether that has changed dramatically, which would be surprising given the figures suggested.

The Government are obsessed by tax avoidance, and that is obviously not necessarily a bad obsession, but their approach in this case has hit legitimate businesses that have set up companies to help the organisations that they serve. They are not avoiding tax and, moreover, they provide the very flexibility in the labour market that the Government say that they are trying to encourage and that is an asset to this country.

The Government criticise other EU countries for their lack of labour market flexibility, but they appear to be piling on more and more regulation domestically and introducing more taxes and tax measures that undermine the asset about which they boast. That cannot continue.

I support amendment No. 8, as the Government's proposed changes to the law will put an unnecessary burden on individuals who do not deserve to be persecuted in this way. I ask the Government to recognise that they should have listened to the warnings from my Front-Bench colleagues during consideration of last year's Finance Bill. They should seriously consider accepting the amendment, which will at least attempt to salvage something from this shameful sequence of events.

May I too welcome you, Mr. Gale, to the chairmanship of our proceedings this afternoon?

Opposition Members are absolutely right to say that the Government have actively encouraged people to incorporate. However, in this case, the commissioning contractor—for want of a better expression—often insists on dealing with an incorporated person and they do so for reasons of saving tax themselves. We debated that at length when IR35 was introduced, and I consider the changes made then and these changes to be outrageously unfair. Obviously, when the changes are made, additional national insurance contributions will be payable by the subcontractor; nevertheless, no additional employee benefits will accrue or be available to those subcontractors. In other words, they will pay and they will get nothing, and they will also be subjected to an additional burden of bureaucracy.

Finally, I should like to ask the Paymaster General whether she could let the Committee know whether the Government yet have any proposal to make the fiscal penalties for disincorporation more fair and less punitive.

My hon. Friend the Member for Eddisbury (Mr. O'Brien) described in detail and extremely well how the provision could affect some of the poorest workers in our country. While totally concurring with him, I should like to examine the other side of the coin and explain how the clause will attack middle-class, middle-earning, aspirational and hardworking parents, particularly women. I shall do so in relation to the implications of applying IR35 and how it will affect nannies. That will cost parents who take advantage of the existing regime hundreds of pounds a year. We are talking about extra charges of at least £6 a week and probably £10 or more in London.

Outside London, the average nanny's wage is about £235 a week net of tax, and it is likely that parents will lose about £312 a year. I note that that is some £60 more than the new child trust fund that is being introduced. One tax partner at Grant Thornton said:

"If you employ a nanny or housekeeper, the chances are you will pay around 25 per cent. more for the service now this tax break has been removed."

Parents will therefore have to start paying a triple whammy—their own national insurance, presuming that they work; the employer's national insurance contribution for their nanny and. of course, any other domestic staff; and their nanny's own national insurance bill, because parents traditionally take care of their nanny's tax and insurance liabilities.

For example, a working mother would have to earn a gross salary of £30,345 simply to pay her nanny a gross salary of £20,400, netting some £300 a week. That shows how middle-class parents are being hammered at the moment. The mother's own annual net pay after tax and national insurance deductions would be about 22,350, while the cost of employing her nanny—including employers' national insurance contributions, which are additional to the nanny's gross wage—would be £22,360. Of course as nanny's wage grows, the triple-whammy effect gets worse.

The Government provide help with child care through the working tax credit, but although that payment is worth up to £200 a week for people with approved child minders, it is important to note that, despite ongoing lobbying on that point, the Government refuse to apply registration to nannies. Child minders are mostly registered through Ofsted and regulated by national standards for day care and child minding, but nannies are not approved in that way. In addition, parents with a joint income of 58,000 or more will not be eligible for child tax credits.

We have increasingly seen a move towards nannies and parents going underground in relation to employment, and that will increase under the clause. One of the worst-kept secrets in the capital is that probably as many nannies work outside the tax system as inside it. People do not want to do things that way; they are being forced to do so by a system that does not take notice of the needs of middle-class parents in this country.

Of course this tax affects women in particular because their salary normally pays for the nanny. Most women will have a very difficult decision to take when they have children: should they stay at home, or should they go back to work? They will want to go back to work to keep their minds ticking over and to keep their trade experience up to date, but in effect they will do so to pay for the nanny, as the figures that I have given show, rather than to provide themselves with any additional salary, so we are talking about an additional tax on women. I thought that the Government were in favour of getting women back to work, but they are clearly in favour of getting people whom they see as being lazy and sitting at home back to work but not doing so for aspirational, hard-working middle-class women who want to get out and do something for this country, and we desperately need to get more women back into the labour force.

Although I see my hon. Friend's point that some might be tempted down the path of illegality into the black economy, does he not agree that many of the professional women about whom he is talking, who wish to return to work and have every right to do so, would never dream of going down that path, as it would be against their principles and would prejudice their important employments, in which they are expected to be decent, honest and upright? Will not this therefore be a tax that stops women having the freedom of choice that they should have? It will be very bad news for them and will put them off returning to the labour market, which may result in their losing their confidence in future years.

I agree absolutely. This Government are not considering aspirational women who want to get out there and improve themselves. My constituency currently has virtually no unemployment, and is one of the fastest-growing areas of the country—a fact of which I am very proud. When I visit local businesses, I am told consistently that there are serious problems with recruitment: they cannot find the people to fill the jobs, and they cannot find people with the necessary skills. Thousands of women in this country are highly skilled and want to work, but they cannot do so because of the current tax system. I hope that that provides some spur, while going in the opposite direction, for the Government to rethink this issue.

It may help if I explain to the Committee how the mechanism works in relation to service companies, why domestic employees were exempt last year, and why the Government acted this year. That will lead me directly on to some of the hon. Gentleman's points.

Although I appreciate and understand the important points that Opposition Members have been making about a company being incorporated or unincorporated, they are sorely mistaken on the focus of this specific measure. I want to explain to them why that is. In relation to the decision last year to exempt domestic employees, what has happened subsequently confirms the point that the Government repeatedly make: if a loophole is left, unfortunately, somebody will try to exploit it.

The existing service company legislation ensures that workers who would have been taxed as an employee if they had been working under a contract with the client cannot avoid paying tax and national insurance on the same basis as any other employees by using a limited company or other intermediaries to sell their services. As I have said, the current legislation does not, however, apply to engagement in a domestic capacity. Regrettably—again, this point has been made repeatedly since 1997—the Government have to have mind to how taxpayers will behave towards the tax system. Our duty is to ensure that the right amount of tax is collected and that it is collected fairly: by that, we mean that those who should be paying tax do not find artificial ways of not paying it, as that is patently not fair to all other taxpayers. In advocating a higher rate of tax, the hon. Member for North Norfolk (Norman Lamb) fails consistently to understand that it is important to ensure that people pay the tax that they are supposed to be paying.

2.15 pm

Generally, schemes operate by setting up the domestic worker as a director and shareholder of a personal service company. The individual employee therefore starts off as an employee of the client. Subsequently—not because it improves the employer-employee relationship or because the employer is interested in helping self-employment grow—the positioning of an intermediary is used simply to reduce tax. I shall explain how that works.

The domestic company is set up for the domestic worker so that the domestic worker is a director and shareholder of the personal service company. The service company offers the services of the director to the former employer. The domestic worker takes a salary from the company at around the personal threshold of £4,615, and the remainder in dividends. Therefore, if the company net profits are below the threshold for the starting rate of £10,000, the domestic worker can extract up to £14,615 free of tax and national insurance contributions.

Let me remind the Committee: somebody who was an employee is then encouraged to use an intermediary to reduce the cost to their previous employer or to increase the payment to them by setting up the service company.

The hon. Gentlemen should let me finish, as they need to know what was being marketed. I will then challenge them to say what they would have done were they in government. We did not act out of some fickle desire: there was proof of what was going on, and I shall give that proof to the Committee.

I will not. If the hon. Gentleman will let me explain this complex point, there will no doubt be plenty of time for interventions.

The scheme providers usually charge a monthly fee for operating the scheme. Effectively, the domestic worker still receives a weekly or monthly payment, albeit that it might be a larger amount because of the savings that the scheme produces through avoidance—the savings might be split between the former employer and the domestic worker, or the former employer might take all the benefit.

It was right to ask the question—we did not think that leaving domestic workers outside the system would not raise issues, and as with all points of the tax system, we give careful consideration and follow developments. We had been approached by several parties, however, of which I will give one example, about the number of schemes that were about to be marketed to exploit the loophole. The schemes were able to offer significant savings in tax and national insurance contributions to any domestic employee with net weekly earnings above £111 a week. In terms of the attitude to the Government action, let met quote Leonie Kerswill of PricewaterhouseCoopers:
"IR35 previously exempted domestic staff, but the cost savings of the arrangement for parents employing nannies has led to an explosion in the use of service companies".

No. I will finish making this point and then I will give way to the hon. Gentleman. I am trying to explain this complex point, giving the proof for why the Government acted in this way. I will give way at the relevant point.

Bearing in mind the tax and national insurance savings, the Government were faced with a significant problem. For example, a letter was circulated to every client of a particular agency that runs the arrangements for nannies. The letter states:

"As you will see, we do not believe that the use of a personal service company represents best practice in nanny employment because they involve the use of a tax-saving vehicle which obscures the real employer/employee nature of the relationship between parents and their nannies, with some attendant loss of employment rights for the nannies",
most of whom are women. The hon. Member for Huntingdon (Mr. Djanogly) was concerned about women's rights.

When the measure was announced and comments were made about the Budget, on Saturday 12 April The Daily Telegraph reported the managing director of Nannytax as saying:

"We cover all types of domestic workers—housekeepers, gardeners, butlers, as well as nannies. The decision to close the tax-break loophole was appropriate. We think the relationship between, for example a family and a nanny, should be one of employer and employee. Nannies who were employed as a private company were losing employment benefits such as maternity leave and some pension rights."
The fact that the exemption was about to be exploited on a massive scale was flagged up to the Government in the run-up to the Budget, along with the attendant loss of income to the Government and the difficulties that would be created for employees.

Nursery World is concerned with issues that relate to child care and nannies. In a poll, it asked:

"Is it a good idea for nannies to become limited companies?"
Some 36 per cent. said yes and 62 per cent. said no. The clause is not about self-employment. It relates to employees and the problems created by a mechanism that is driving them into a relationship that leads to a diminution of their rights and a loss of tax revenue. The Government have acted now to avoid extensive use of the mechanism before it creates the many problems that the hon. Member for Huntingdon flagged up about families making those arrangements only to find the loophole closed.

Does the Paymaster General accept that there is a gross injustice? Those problems should have been thought through before the mechanism was introduced last year. The Government have in effect encouraged many self-employed unincorporated people to incorporate, and in the following year have ambushed them with the tax measures in the Bill. That appears to many outside the Chamber as grossly unfair. Will the Paymaster General address that central issue?

The hon. Gentleman is entirely wrong. The Government have done no such thing. We made our position on IR35 clear when we debated last year's legislation. The clause is not about the rights of people to be self-employed or employed; nor is it about the right of people to have their own companies; it is about the use of a mechanism that is designed only to reduce the amount of tax paid.

No, I shall not give way.

I am describing a tax distortion that has been driven by a particular arrangement in the tax system by which people choose to be employees and are in danger of being required not to be.

When we debated the new zero rate of corporation tax for small companies in the last Finance Bill, we welcomed the general principle but stressed that to introduce it without a parallel or averaged rate for sole traders made it an obvious tax incentive for people to incorporate and exploit. Indeed, I made the same point when I wrote to the Paymaster General some eight months ago. I said that it was wrong in principle to have rules in our tax system that act as a massive incentive to incorporation and to the exploitation of the advantages that it brings. The Federation of Small Businesses made the same point. The issue is specific, but it is part of the wider territory. If there is such a big distortion in our fiscal arrangements, it is inevitable that people will try to exploit it at all levels.

The clause is not about individuals who choose to be self-employed or to incorporate. It deals with a specific aspect of the tax system. The exploitation of a loophole was driving people into a particular tax position simply to save tax for their previous employer or themselves, or to share it equally. The hon. Gentleman will know that from our discussions on IR35.

The wider debate, which the hon. Gentleman verges on, relates to changes to incorporated and unincorporated companies, and whether that balance is correctly struck. I believe that it is, but that should not be debated in the context of this clause. I accept that many hon. Members, and people and companies outside the House, want the issue to be explored further. We must always find a basis on which to strike a balance, but that is not what we are dealing with now.

Hon. Members asked why we are making the change now, and I have set out our reasons. They asked how the mechanism was being exploited and why, and I have made that clear. The debate is not about incorporation or unincorporation; it is about whether we should leave a mechanism in the tax system that leads not only to a loss of tax revenue but to a diminution of employment rights, and all because of a loophole.

The Paymaster General is invariably fair, and I think she would agree that it is right to put it on the record that there are tax consequences in making distributions out of companies to individuals. However, I sincerely hope that she will deal with the point that I raised. If incorporated sub-contractors pay full employee national insurance contributions, surely they should qualify for full employee benefits.

The hon. Gentleman teases me back to the debate that is at the heart of the changes known as IR35: does the individual operate as a shareholder or an employee of his or her own company? If they operate as an employee of their own service company, they get all the rights that all employees get.

As for opinions within the relevant employment sector, it is interesting to note what is said in an article in Professional Nanny. The article asks whether nannies are being urged to become directors of their own companies and says that

"if all nannies saw themselves as young Richard Bransons, eager to make their first million, then maybe running their own service company might be an irresistible prospect. But in reality, many nannies are in their first or second job, dedicated to the children they are responsible for, and looking to the parents to protect their interests both as an employee and as a new member of the family."
It is incumbent on the Government to protect nannies' best interests. The temptation provided by the loophole has been removed precisely to protect those nannies.

2.30 pm

The right hon. Lady would accept that the driving force behind the provision is the high cost of child care. I received a copy of the letter that she read out, but resisted the temptation to take up the offer, because a friend of mine who is a tax barrister told me that the Treasury would close that particular avenue. However, does she accept that dealing with what she calls tax avoidance is likely to cause an increase in tax evasion? Has the Treasury analysed whether there will be an increase in the already large number of working nannies who will be outwith the tax system altogether?

I am glad, but not surprised, that the hon. Gentleman decided to resist that temptation on the sound advice of his friend—that clearly supports the case that I have put to the Committee this afternoon. The position of nannies as people who are employed by a family or supplied by agencies remains unchanged, but we have removed any driver that might change that relationship. He will remember that, in the letter to which he referred, the company made it clear that it expected the Government to close the loophole because it was neither reasonable nor fair. For those reasons, it is inappropriate, to put it mildly, to accept an amendment that leaves in place, even for a specific period, the arrangements that gave rise to that loophole. I urge the Committee to reject it and support the clause.

Much of the Paymaster General's riposte concerned nannies, but let us not lose sight of the fact that the provision will affect cooks, gardeners and many others in domestic service, not all of whom are subject to the arrangements that she sought to pray in aid. As we predicted, she sought to defend the provision as an anti-avoidance measure. The Treasury, having found out from its scouts in the City that somebody, somewhere had come up with a clever wheeze and was beginning to market a new product, decided to put a stop to it.

The Paymaster General has missed the point. We oppose the provision not because it is an anti-avoidance measure but because it lets down people on relatively low incomes who, encouraged by last year's Budget, acted in good faith. They are now being slapped down and face a regulatory burden of two self-assessed tax returns in the current tax year. The amendment would reduce that regulatory burden. Furthermore, the Paymaster General never bothered to answer my serious question about why there is no requirement for a regulatory impact assessment because, I dare say, she would not like the answer that she would have to give.

I apologise to the hon. Gentleman. I did not mean to avoid his question, I just forgot to answer it. A regulatory impact assessment is not included because, as he knows, the Government are not required to carry out such assessments of anti-avoidance measures, although he is challenging that. The costs are in the Red Book, but it is impossible to say how much the problem would continue to grow. The experience of the last Conservative Government of profit-related pay shows that initially payments are small but they end up being very large.

The Paymaster General is quite right—there is no obligation to produce a regulatory impact assessment. We have had many discussions about that when debating secondary legislation. Even though it is not required, in some cases it is offered, and we receive letters about that. The provision under consideration would have been a worthy candidate for such an assessment.