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Orders Of The Day

Volume 408: debated on Tuesday 1 July 2003

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Finance Bill

As amended in the Committee and the Standing Committee, considered.

New Clause 6

Intangible Fixed Assets: Tax Avoidance Arrangements And Related Parties

(1) Schedule 29 to the Finance Act 2002 (c. 23) (gains and losses of a company from intangible fixed assets) is amended as follows.

(2) In paragraph 111 (tax avoidance arrangements to be disregarded)—

  • (a) in subparagraph (1) for the words following "in determining" substitute "whether a debit or credit is to be brought into account under this Schedule or the amount of any such debit or credit", and
  • (b) in subparagraph (2)—
  • (i) for "under paragraph 9" in paragraph (a), and
  • (ii) for "under Part 4" in paragraph (b),
    substitute "under this Schedule".
  • (3) In paragraph 95(1) (cases in which persons are "related parties") at the end add—

    • "Case Four
    • P is a company and C is another company in the same group."

    (4) The amendments in this section—

  • (a) have effect in relation to the debits or credits to be brought into account for accounting periods beginning on or after 20th June 2003, and
  • (b) in relation to the debits or credits to be brought into account for any such period shall be deemed always to have had effect.
  • (5) For this purpose an accounting period beginning before, and ending on or after, that date is treated as if so much of that period as falls before that date, and so much of that period as falls on or after that date, were separate accounting periods.'.— [Dawn Primarolo.]

    Brought up, and read the First time.

    1.24 pm

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

    Last year, after extensive consultation, the Government introduced new tax rules for companies' good will and intangible assets, such as patents, brand names and copyrights, which are vital for a modern, knowledge-based economy. The new rules, which are in schedule 29 of the Finance Act 2002, broadly allow companies to claim tax relief for those assets as they write them down in their accounts. Companies may alternatively elect to treat them as though they were written down at 4 per cent. per annum. The rules are meant to apply only to assets created by or acquired from an unrelated party after 31 March 2002.

    There is clear evidence of marketing tax avoidance schemes that are intended to bring assets that already existed on 31 March 2002 into the new regime to claim relief under the alternative 4 per cent. option. We estimate that there are approximately £400 billion to £600 billion of potentially eligible assets. If only a small fraction were brought into the new tax regime, the cost would be enormous, apart from the fact that that was not the intention. The cost would continue for the next 25 years.

    The avoidance schemes rely first on the fact that the anti-avoidance rule does not currently apply to the 4 per cent. relief. They then try to exploit a mismatch in the definitions of "related persons" in the intangibles rules and of a group for capital gains purposes. To put it simply, they try to transfer assets in a group for capital gains purposes so that no capital gains tax arises, while arranging matters so that the transfer is between unrelated persons for intangible assets purposes. Thus, the asset is treated as acquired from an unrelated person and can be brought within the new regime.

    The new clause would block such schemes by widening the scope of the anti-avoidance rules in schedule 29 of the 2002 Act and by tightening the definition of "related persons". It is a modest and proportionate response to an attempt to exploit a new relief. I underline our determination to act against tax avoidance speedily and firmly.

    I commend the new clause to hon. Members and I am happy to respond to any questions.

    The Paymaster General told us in a written statement on 20 June after the Committee had concluded its proceedings on 17 June that such a new clause would be tabled. It prompts us to ask why the Treasury and the Inland Revenue were unable to formulate it before the Finance Bill was considered or during the Committee's proceedings. That would have been more appropriate than taking up time now.

    It is clear that the changes will have an immediate effect and the new clause therefore smacks of panic by the Treasury and the Government. It is part of a transparent and notable theme that will become apparent in our proceedings today, in that it reflects a panic in the Treasury, which has splurged and wasted so much money that it now has to gather much, make every part of the tax system sweat and, above all, change the balance between the rights of the citizen taxpayer and those of the Government. I do not wish to explore that more general theme now because there will opportunities to do that later.

    The background note to the new clause is useful and I daresay that it would not have attracted controversy if it had been tabled when we considered the Bill in Committee. Paragraph 22 of the background notes states:
    "There is now clear evidence",
    to which the Paymaster General referred,
    "that companies are seeking to overcome the restrictions in Schedule 29, by exploiting a perceived mismatch between the definition of related persons in the intangibles rules and the definition of a group for capital gains purposes as well as the fact that the anti-avoidance rules in paragraph 111 of Schedule 29 do not extend to cover the optional 4 per cent. scheme."
    The new clause therefore tries to remove the mismatch. It has been decided that the provision will not be retrospective—a major issue with which we had frequently to contend in Committee. We may dispute the Government's ability to deploy money or doubt whether they deserve to receive so much taxpayers' money, given the way in which it is deployed—let alone wasted—on behalf of taxpayers.

    None the less, because the proposal is not retrospective and because the changes seem to be in line with the consultation—had it been considered in a timely manner in Committee, it might have attracted our broad non-objection—we may on this occasion have to accept that the Government are entitled to introduce it, notwithstanding those reservations.

    1.30 pm

    I have declared my interest in the register. I am rather perplexed by this proposal. I can quite understand why the Government need more and more money—as my hon. Friend the Member for Eddisbury (Mr. O'Brien) rightly said, they are wasting so much of it—but I am not sure that this is the final answer. The Government are legislating at the last minute in a panic, and my hon. Friend is right to ask why a whole year has elapsed since the previous legislation, why nothing was forthcoming if the matter was this urgent, and why nothing was forthcoming when the original Bill was considered in Committee. Why is this proposal being introduced from 20 June, as if huge gaps appeared in the revenue from that date onwards but no such problem had existed previously?

    If the Paymaster General is right in saying that she is going to lose revenue unless she makes this particular change, is she not running the risk—if the change is adopted—of losing revenue in other ways following the bolting of this particular stable door? For example, might not many more exchanges of brand assets and other intangibles take place between groups of companies? I believe that it is becoming quite fashionable for certain large companies owning lots of brands to concentrate on their top six or 12 and to sell their other brands. Those other brands may be very advantageous or interesting to competitors or other companies in related fields, which, by dint of acquisition from an external group, could then trigger the advantages of the Finance Act 2002.

    Is the Paymaster General worried that this change might simply shift the method of making sensible tax-planning arrangements from transfers of brands and intangibles between companies in the same group, to transactions between different groups of companies? Has she considered that if the closure of this loophole leads to the tax-planning advantages becoming much greater for one system than for the other, the legislation itself might trigger changes in corporate structure? Might it not be better for shareholder value for the boards of companies owning a substantial number of brands to de-merge different companies within the group, and then to transfer brands and assets of an intangible nature afterwards, so that they can get round this particular closing of the loophole?

    I fear that the Paymaster General has not come up with the final answer, and that what she is really seeking to do is to repeal schedule 29, but has yet to realise that the insatiable demand for revenue requires that the Government take such action. As a result, she has brought a half-baked half-measure to the House today, and I doubt whether it will be found sufficient. I ask her to address my worry that closing one door simply opens up others that industry and commerce will take advantage of, because of the obvious tax-planning advantages in so doing.

    I should point out to the right hon. Member for Wokingham (Mr. Redwood) that this regime was introduced last year with the support of his party, following extensive consultation with business. The facility that it provides within the tax system—a facility that did not exist under his Government or in the first years of this Government—has been widely welcomed.

    The right hon. Gentleman asked me the $64,000 question: will tax planners continue to try to tax plan? Well, I expect that they will. As a Minister, the issue for me is this. I have seen marketed specific suggestions and arrangements that would lead to a loss of revenue to the taxpayer, collected on the Government's behalf, in respect of what was introduced last year as essentially a relieving measure. I should point out to the right hon. Gentleman that the proposals are specific and targeted and will deal with those avoidance measures.

    I realise that the regime was introduced last year with our agreement; indeed, I welcomed it at the time and thought it an excellent idea. My understanding was that the whole idea was to charge less tax on companies and therefore, from the Treasury's point of view, to lose revenue. My worry this afternoon is that the Government seem to be trying to reverse that. They appear to regret the fact that they lost revenue through a measure that I thought was introduced as a tax relief. My suspicion is that what they are really seeking to do in due course is to scrap the whole thing, which I would regret deeply.

    I can assure the right hon. Gentleman that that is not the case. If he looks at the legislation he will discover the specific intended use of the 4 per cent. annual deduction, which, as I explained in my opening remarks, is being abused. We are therefore seeking to prevent that by introducing anti-avoidance measures.

    If I may, I shall first answer the questions from the hon. Member for Eddisbury (Mr. O'Brien). Perhaps I did not hear him correctly, but my understanding from what he said is that the Opposition will not be dividing the House on this issue.

    I thank the hon. Gentleman. His first question was why the proposal has been introduced now and not in the original Bill. Regrettably, I was not able to table the new clause in time: the Revenue has only recently received the relevant information, which requires us to act immediately. As he knows—we have discussed this issue before—it was the practice of the previous Government and of other Governments that anti-avoidance legislation becomes effective from the date of its announcement, and that is the practice of this Government.

    I know that the hon. Gentleman shares my view about the importance of the issue of retrospection. Whatever the view of schemes introduced before 20 June, there is no retrospection in this proposal. It deals immediately with what we understand to be the perceived problem with the arrangements, in terms of exploiting an aspect of this legislation. This House never intended that the arrangements be used in this way, and I am grateful to him for his support on this issue.

    I am very grateful to the Paymaster General for giving way. She is bringing a certain world-weary cynicism to today's exchanges, and I can tell that she is very taxed by, and disappointed by, the incidents of abuse that she believes she has identified. However, for the edification of the House and in order to satisfy the legitimate curiosity of my constituents in Market Hill, Buckingham, this weekend, would she care to identify three examples of especially grave abuse that the new clause is designed to tackle?

    Order. I should point out to the hon. Gentleman that there was probably a shorter way of putting that point.

    I can do better than that—I can explain to the hon. Gentleman, so that he can explain to his constituents, why the new provisions are needed and the otherwise potential loss to the Treasury, to which I referred in my opening remarks. He will surely agree with me that it is better to prevent loss of revenue through speedy action than to sustain such loss in the first place. The provisions are needed because of the way in which the aims of two parts of the legislation seek to be achieved. The provision on the related party is clear and effective where it applies. It gives certainty to the meaning of the law—a meaning that all of us understood, and therefore agreed with, in passing this legislation last year.

    However, there are a variety of possible schemes, as I said. I am sure that the hon. Member for Buckingham (Mr. Bercow) is not suggesting that I wait until they are in action. They are designed to refresh old assets, as they are politely called in the trade. The purpose of the legislation was to operate forwards from last year, not backwards from the date of the legislation. Some fresh old assets—if such a term could be used—will not need to use the related-party mismatch. To deal with those, and also to close the door on schemes that have yet to be designed—that is, to anticipate subsequent exploitation—we also need the general cover provided by the wider anti-avoidance rule.

    The House is rightly sensitive about the use of wider anti-avoidance rules, and it expects Ministers to be sensitive about that as well, but the rules are needed in this case. By virtue of its less mechanistic approach of testing the main object of the scheme, the provision can apply in a wider range of circumstances. In simple cases, it is easier to test for the group relationship than to examine the various possible objectives of transactions.

    From that, I am sure that it is immediately obvious to the hon. Member for Buckingham how much mischief could be made with regard to those two rules, and that he will be able to think up many examples for himself. I commend the new clause to the House.

    Question put and agreed to.

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

    New Clause 7

    Inheritance Tax: Gifts With Reservation

  • '(1) Section 102 of the Finance Act 1986 (c. 41) (gifts with reservation) is amended as follows.
  • (2) In subsection (5) (section not to apply where disposal is an exempt transfer by virtue of any of the provisions of the Inheritance Tax Act 1984 specified in the paragraphs of that subsection) at the end of paragraph (a) (section 18: transfers between spouses) insert", except as provided by subsections (5A) and (5B) below".
  • (3) After subsection (5) insert—
    "(5A) Subsection (5)(a) above does not prevent this section from applying if or, as the case may be, to the extent that—
  • (a) the property becomes settled property by virtue of the gift,
  • (b) by reason of the donor's spouse ("the relevant beneficiary") becoming beneficially entitled to an interest in possession in the settled property, the disposal is or, as the case may be, is to any extent an exempt transfer by virtue of section 18 of the 1984 Act in consequence of the operation of section 49 of that Act (treatment of interests in possession),
  • (c) at some time after the disposal, but before the death of the donor, the relevant beneficiary's interest in possession comes to an end, and
  • (d) on the occasion on which that interest comes to an end, the relevant beneficiary does not become beneficially entitled to the settled property or to another interest in possession in the settled property.
  • (5B) If or, as the case may be, to the extent that this section applies by virtue of subsection (5A) above, it has effect as if the disposal by way of gift had been made immediately after the relevant beneficiary's interest in possession came to an end.
  • (5C) For the purposes of subsections (5A) and (5B) above—
  • (a) section 51(1)(b) of the 1984 Act (disposal of interest in possession treated as coming to end of interest) applies as it applies for the purposes of Chapter 2 of Part 3 of that Act; and
  • (b) references to any property or to an interest in any property include references to part of any property or interest.".
  • (4) The amendments made by this section have effect in relation to disposals made on or after 20th June 2003.'.
  • [Dawn Primarolo.]

    Brought up, and read the First time.

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

    This new clause introduces the changes announced on 20 June to the inheritance tax rules on lifetime gifts. The changes come in response to a recent Court of Appeal decision in the Eversden case. Everyone who has commented on the case has noted the wide-ranging tax-avoidance opportunities that it opens up. Almost all have gone on to say that they were too good to last and were bound to be tackled by early countervailing legislation. I agree with that assessment, and the Government have introduced this clause to achieve it.

    I shall set out the relevant factors briefly. The Court of Appeal confirmed that married wealth owners could make what are called gifts with reservations. They are permanently free of the normal tax consequences, so long as the gifts are made to a trust and the trust initially provides an interest in possession to the donor's spouse. That means that married couples could remove assets from their inheritance estates, effectively without limit, by making lifetime gifts into the trust in the way that I have described, without losing any effective ownership. They could do so by using schemes where the interest for the donor's spouse is quite blatantly inserted purely to get the desired tax effect and is predestined to disappear after the shortest decent interval once it has served its purpose.

    The schemes were of wide appeal, at least among the minority of people wealthy enough to have prospects of paying inheritance tax. The only essential requirement was that the donor should be married and have the prospect of wealth at death of more than £250,000.

    I just want to introduce the new clause, after which the right hon. Gentleman will of course want to speak. I shall be happy to respond to his points.

    I remind the House that we are talking about the inheritance tax rules that were introduced in 1986, under the previous Conservative Government, and about the ways that people try to get around them.

    The schemes could be used for all sorts of assets at all levels of wealth. They could allow married couples to remove the family home from inheritance charge on death, yet to continue to live in it during their lifetimes. That aspect has received much attention in the press, and among some of those who market these schemes.

    1.45 pm

    However, the schemes could be used equally well to shelter all sorts of other assets, including—notably—financial assets wrapped up in the form of an insurance bond. As for the amounts involved, the sums become a little more complicated if the couple's total wealth is significantly more than £1 million or so. Although executing one of these schemes at that level would not necessarily remove a couple from inheritance tax forever, it would remain a very attractive proposition.

    The Government are not stopping, as some have suggested, an innocent piece of self-help for couples with modest homes who might be taken into inheritance tax by inflation in property prices. Even if that were true, tolerating tax avoidance would not be a sensible way to deal with the issue of house prices. In reality, however, the potential avoidance goes much wider, as I said. It goes all the way up the scale of wealth, undermining all the revenue from those who pay inheritance tax and account for the lion's share of the total yield. That is not fair to the wider body of taxpayers, nor to the balance of prospective inheritance tax payers, who cannot afford this sort of avoidance, or who do not engage in it.

    Following on from the Court of Appeal ruling, it is essential that we stop now any possible future loss to the Exchequer. That is what the clause seeks to achieve, operational from 20 June.

    As happened with new clause 6, the Government are introducing this significant piece of legislation on Report. No doubt they will give the excuse that they wanted to hear the ruling in the Eversden case, but I submit that, had they wished to make changes as radical as the ones that they propose, they could easily have addressed the matter in the body of the Bill.

    The use of defeasible life interest trusts in relation to homes has not been a matter of tax avoidance, as the Paymaster General suggested. It has failed her own test, which she set out in Committee, regarding the difference between accepted tax planning and tax avoidance. It has been widely known about, and the law has provided for inheritance tax gifts with reservations to be made.

    Therefore, the new clause introduces what is, essentially, a new tax. The Paymaster General may be concerned that what has been used purely to protect the family could be used in other areas, but so far the scheme has been used solely in respect of family homes. Indeed, her own comments highlighted the problems described to me by constituents.

    As we warned in the debate on last year's Finance Bill, the problem is based in particular in the rise in home values in the south of England. The Government have done and said nothing to deal with the knock-on problems that that creates for inheritance tax. I suggest that it is very much part of British culture for people to want to be able to hand on to their children the house that they own, or the value that they have built up in it. In the south of England in particular, there are a growing number of reasonably ordinary properties whose value is in excess of the inheritance tax threshold. The number has been estimated at between 1.5 million and 2 million properties. To date, the specific defeasible life interest trust has been used by people to gift their home to their children while retaining a right for the surviving spouse to live there until death. That is hardly a wicked thing to do; most families presented with the problem would want to do that.

    Given the need to make this debate on new clause 7 intelligible to the wider public, does my hon. Friend agree that the Paymaster General has a basic responsibility to tell us in broad terms the sort of revenue to the Exchequer that the new clause would deliver?

    Yes, but she advised the press that the measure was designed to protect a significant part of the £2.4 billion per annum inheritance tax revenue. I suspect that it will do no such thing. One of our concerns, of which the Paymaster General will be aware, is that a likely reaction to not being able to achieve what most people want—what more and more couples who manage to stay together and bring up their children want—is a boost to the equity release market, in which older people can sell all or part of their homes and retain the right to stay in them, thus releasing the cash value from their homes and then donating the cash released to their children.

    There are inherent dangers in such schemes, which the Government are unwilling to regulate. With so many people's pensions wrecked by the actions of the Government, many people are looking to those schemes for a source of income in old age.

    I detected a moral judgment in the Paymaster General's statement. How does my hon. Friend think the morality of such schemes compares with the morality of using offshore trusts in the creative and perfectly legal way that a number of former and present Government Ministers have done? As one who thinks that to be perfectly reasonable, I ask my hon. Friend how he feels the relative moral charge sheet rests from the Government's point of view.

    My right hon. Friend has made his point. The middle England vote that the Labour party has been keen to retain is largely made up of citizens who believe that it is natural to want to hand on their house or its value to their children. That is much more straightforward than some of the fancy antics that certain past Labour Ministers got up to.

    New clause 7 will turn out to have unintended consequences, and the Bill is full of many such examples. I referred earlier to the fact that it is extremely unlikely to achieve the bolstering of inheritance tax revenues that the Paymaster General is expecting.

    The Paymaster General's letter refers to the fact that the Government are pursuing an application for leave to appeal to the Lords on the question of how gifts already made should be taxed. In other words, the Government are hoping to introduce retrospection; there would be no point in pursuing such an appeal were that not so. Specifically, the Government are seeking to get a ruling that the gifts of family homes made by older people who have entered into defeasible trusts will be brought back within the inheritance tax net.

    Such an initiative will be seen by ordinary middle-class voters as a means of picking on them as they carry out a straightforward action in the interests of their children, which they feel entitled to do. I have to suggest to the Government that it is reasonably unlikely that they will win, but there seems to be an element of spite in seeking to introduce a retrospective element to this new tax.

    We are not going to burn up yet more time that we do not have on a vote that we know we cannot win, but we leave the Government to reap their own bitter harvest of the growing hostility of home owners in middle England, arising from a measure that will be seen as spiteful and which will not be effective in raising inheritance tax revenue. It is understood that there is a case for preventing the use of such trusts in wider financial affairs, but the Government's approach to the fundamental wish of people to hand on their family home goes against the family and against British instincts.

    My hon. Friend the Member for Torridge and West Devon (Mr. Burnett) anticipated this debate in Committee on 17 June when he asked the Paymaster General whether she would introduce proposals at any stage on inheritance tax, to which she replied:

    "I will certainly keep him informed of developments in due course."
    On 20 June, we had the announcement of this change. I commend my hon. Friend on his precipitation and wisdom in raising the issue, and for anticipating the thrust of the new clause when he said during the same exchange that inheritance tax
    "is a tax levied on those who do not have sufficient money or assets to avoid it legitimately."—[Official Report, Standing Committee B, 17 June 2003; c. 613.]
    That is a growing perception of people in and beyond the tax world: that, increasingly, people who have large estates and can afford good tax accountants can get round paying inheritance tax altogether, whereas a much wider group of people are being absorbed into the inheritance tax net, not least as a result of the increase in property prices in the past few years.

    We welcome the fact that the Government are addressing some of those loopholes in the new clause, as those steps ensure that inheritance tax does not simply become a tax that falls on those who are not wealthy enough to afford good tax advice, but ensure that the purpose of inheritance tax is maintained and that the tax that we anticipate collecting is collected as far as possible.

    The hon. Member for Arundel and South Downs (Mr. Flight) raised a number of legitimate issues in relation to inheritance tax, but did not state whether the Conservative party's former desire to abolish it altogether still holds. He raised a number of issues that flow from the avoidance of inheritance tax, and not least from the increase in property prices in the last few years.

    Before the 1997 election the debate—in my case, it was not conducted from within this House—was about a proposal by the then Prime Minister to abolish inheritance tax. At that time, the then Chancellor of the Exchequer was keen to emphasise that inheritance tax and capital gains tax were minority taxes paid by a small proportion of the population. I suspect that we were talking about tens of thousands of people in 1997. The criticism from the Labour party at the time was that the abolition of such taxes would simply benefit a small number of people.

    I suspect that the Paymaster General is aware that concern about inheritance tax is now rising among a much broader proportion of the population and it may be that, in future, she will wish to address that concern in an amendment, a new clause or in a future Finance Bill. Property prices over the past few years have increased to such an extent that people who could by no means be considered wealthy have been caught in the inheritance tax net.

    Does my hon. Friend agree that with the dive in the value of people's pensions, their principal private residence is often the only thing they have left—especially if they are self-employed—to keep them going in old age?

    My hon. Friend is right to identify the fact that many elderly people's primary assets are the properties in which they live. Other financial assets, including shares, may have depreciated in value as a consequence of recent changes.

    The new clause is welcome, but in future it would be sensible for the Paymaster General to consider the wider issues of inheritance tax, particularly the number of people who will be pulled over the threshold in the next few years. For the reasons provided by the hon. Member for Arundel and South Downs, she should also consider reviewing that tax policy, particularly in respect of the potential to shift tax avoidance from one vehicle—we hope that that loophole has been closed by the Government—into others such as equity release schemes in which people can, through perfectly legitimate and legal tax-planning devices, seek to undermine the intention behind Government tax policy and tax legislation.

    2 pm

    Other issues that should be considered as part of any review of inheritance tax include not only the implications of rising property prices and avoidance techniques such as equity release schemes, but the wider issue of whether it is sensible to levy inheritance tax on estates as currently operated. In future, the Government should consider levying inheritance tax differently on recipients of the assets rather than on the estate itself. That might encourage people to spread wealth and provide incentives for people who may not be paying the upper rate of 40 per cent. that is applied to inheritance tax. If the Paymaster General cannot respond categorically to all those points, I hope that she will at least remember the fact that it may be worth reviewing this form of tax in the future.

    I am glad that the hon. Member for Yeovil (Mr. Laws) reminded the House of the excellent Conservative policy of getting rid of inheritance tax, and I trust that when we reach manifesto time, it will be one of the strong runners.

    I accept that the right hon. Gentleman is not currently a member of the Conservative shadow Cabinet, but he will receive all the briefing papers on Conservative tax policy. Will he tell us whether it remains Conservative tax policy to abolish inheritance tax?

    The position is well known in the House—although I fear that we might be deviating a little from the new clause, Mr. Deputy Speaker. The Conservative party will come forward with tax proposals nearer the time of the election, when it is clearer how much money the Government are wasting and how much necessary expenditure a future Conservative Government will need to incur. Many demands will be made to the shadow Cabinet of the day to offer all sorts of tax relief and tax reductions after the present Government's tax binge, which we are debating this afternoon. The Government are finding more and more ways of taking money off people, so that they can waste it on schemes such as "Notwork Rail"—with a £15 billion loss so far, and much more to come as the dreadful nationalisation policies get under way.

    Order. May I remind the right hon. Gentleman not to broaden the debate too far?

    You are right, Mr. Deputy Speaker. I am naughty and sorry, so let me return to the point at issue—inheritance tax. Conservative Members approach the subject from the proposition that as a wealth tax it is not a very desirable tax. It does not seem pleasant to tax people even in death who have been taxed quite enough during their lifetime while they were earning and saving the money in the first place.

    Order. I must tell the hon. Gentleman that he should know the procedures of the House by now, and that if he wishes to intervene, he must do so with the permission of the right hon. Gentleman who has the Floor.

    I am grateful once again for your wise guidance, Mr. Deputy Speaker.

    I wish to take up with the Paymaster General her extraordinary statement that inheritance tax is moral and fair, so that anyone who tries to pass on their primary residence to their children is somehow guilty of an immoral act against the state that should be stopped by the imposition of the tax. People work extremely hard over many years in this country to buy their primary residence. They take great pride in their ownership of it and they want to be able to pass it on to their child or children in death. I see nothing wrong in that: it is an excellent expectation and an important part of the property-owning democracy from which we all benefit. I therefore take exception to the idea that it is somehow against the rules or unsporting. The Paymaster General has not understood how far house prices have risen and how even modest dwellings throughout the south and in parts of the north and midlands are now well above the tax threshold for inheritance tax.

    I am listening carefully in an attempt to understand the logic of the right hon. Gentleman's argument. To follow it a little further, if someone dies with a property in negative equity—in other words, the amount still owed on it is greater than its value—does the right hon. Gentleman believe that the child who inherits the property should be charged with making up the difference between what is owed and what the property is worth?

    No, I do not. I do not think that children should have the sins of their parents visited on them, and it would be a foolish bank or building society that allowed circumstances to develop in that way without having any other security or guarantee. I strongly urge banks and building societies to lend only a reasonable proportion of a property to protect themselves in the likely event of the Government creating a boom-and-bust in housing to go along with their boom-and-bust in telecommunications, manufacturing and pensions, which we have seen to our cost in recent years. My worry about the measures before us is just that—that the Government are now targeting the housing market with a view to getting prices down, but that they may be too successful and produce exactly the sort of problems to which the hon. Gentleman referred. That will not be to his political advantage. On the specific matter that he raised, children should not have to make good those payments unless they were party to the transaction and offered guarantees or pledges of their own free will when the agreement was originally designed.

    I urge the House to get the Paymaster General to think again about this matter. She is being mean-minded and I do not believe that the schemes that we are talking about are immoral or unreasonable. They meet a perfectly sensible need in the marketplace for people to plan their tax affairs and pass on some of the assets that they have worked hard to accumulate over the years. To answer my own intervention on my hon. Friend the Member for Arundel and South Downs (Mr. Flight), I should have thought that those schemes are less immoral, in the Government's own terms, than some elaborate offshore schemes. I take no exception to offshore schemes, which can be sensible and are usually perfectly legal, but it is odd that a Government who set such store by stopping any tax loopholes, as they call it, but who allow in their ranks Ministers who freely use offshore schemes, should then say that much poorer people struggling to buy a semi-detached house in an expensive part of the country are not allowed to use a perfectly reasonable scheme to pass that on.

    I hope that the Paymaster General has realised how high house prices have risen in Bristol recently, because many of her constituents will be affected. I can assure her that in Wokingham, where people are not rich but work hard and have to pay a lot of money to live because of the cost of housing and the cost of living, many of my constituents will be caught by inheritance tax, yet no one could say that they were rich in the way that some of the Paymaster General's right hon. and hon. Friends in the Government are rich. I hope that the right hon. Lady will withdraw this petty and mean-minded new clause.

    I support the views of my right hon. Friend. The Paymaster General gave an accurate but complicated explanation of a position that affects many thousands of people in this country and relates to the income and estates of many.

    I should like to describe the position in plain English. Grandma gifts her house to her son, who decides to live with granny and look after her. As a result, grandma has not made the gift for tax purposes, it stays in her estate, and everyone except the taxman is the worse for it. That seems utterly ridiculous. To avoid the tax, the family has to split into two homes, breaking up the family unit into two houses. Granny will probably be looked after by social services, the cost of which will be more than the tax paid out in the first place. If granny happens to live in the south of England, she is taxed for being a southerner. House prices are more expensive in the south, so the tax will be greater.

    Indeed, at a time when we need to share our houses more and should be keeping family units together by encouraging people to stay with their families even if only because—there are lots of other good reasons too—we are short of houses, particularly in the south, we are in fact encouraging the break-up of families for no good reason. This tax, particularly as it affects homes, is unfair and senseless and should be abolished instead of being patched up by this lousy new clause.

    My hon. Friend the Member for Huntingdon (Mr. Djanogly) movingly describes the plight of over-taxed granny under the Labour Government, and he is entirely correct. I do not myself have a granny, but I feel sure that if I did, she would strongly oppose new clause 7 and would have good reasons to justify her position.

    I was rather taken aback both by the fact of the introduction of the new clause and the manner in which the Paymaster General sought to commend it to the House. It seemed obvious that there was considerable irritation in the Inland Revenue and in Her Majesty's Treasury about the alleged sauce—I use that word advisedly—of taxpayers who had sought to avoid or minimise a burden by a contrivance that was perfectly legitimate under the law. In other words, Ministers are upset because they have not been able to plan, with Kantian perfect information, for every scenario. There are eventualities in which citizens are able either entirely to avoid a burden or to keep it to a much lower level than the Government would favour.

    I say three cheers to that, and I confess that one reason—probably the principal reason—why I oppose new clause 7 is that I oppose the whole monstrous apparatus of inheritance tax. I do not seek to argue my case according to the intricacies of the tax or the arguments about revenue raised or forgone. My view is that it is fundamentally immoral and unethical.

    My only criticism of my right hon. Friend the Member for Wokingham (Mr. Redwood)—I scarcely volunteer criticism of him on any occasion—is that he was guilty of a certain understatement of his case. If he had said what he said a little more forcefully—perhaps with a degree of crudity that was lacking from his presentation—his stance on this important matter would be all the clearer.

    I am glad that the hon. Member for Yeovil (Mr. Laws) urged something of a wider review and debate. He was justified in doing so. He challenged my party—without giving any particular idea of the stance of the Liberal Democrats—to say where we stood overall on inheritance tax. I am against it, and I want to scrap it.

    Order. I understand the temptation felt by the hon. Member for Buckingham (Mr. Bercow), but the hon. Member for Yeovil (Mr. Laws) began to lead us astray on this matter, and I must remind the House that we are dealing not with inheritance tax as a whole but with new clause 7.

    You know, Mr. Deputy Speaker, that I never knowingly behave badly. My poor conduct is always entirely inadvertent, and there is nothing better than to be brought to book by your kindly but authoritative ministrations. That is what has happened to me, and I make no protest about it.

    On behalf of my constituents, many of whom have already raised their anxieties about new clause 7—others can be confidently expected to do so on Saturday in Market Hill—I inveigh in the strongest possible terms against new clause 7. If people are using the device of gifts without reservation to circumvent the frankly sinister and oppressive designs of this tax-raising, pocket-plundering, petty-minded, socialistic-oriented Government, I say three cheers to them. Unite, and fight new clause 7.

    2.15 pm

    I wish to raise a couple of points with the Paymaster General. The ramifications of any new clause—indeed any legislation—need to be properly thought through. What thought has been given to the effect that new clause 7 will have on the equity release market? There is little doubt in my mind—my hon. Friend the Member for Arundel and South Downs (Mr. Flight) briefly touched on the point—that it will lead to a dramatic increase in equity release mortgages, schemes and loans.

    We all know that the industry got off to a bad start not so long ago, with many sharks operating in the market. Has any consideration been given to whether the market should be regulated to ensure, at the least, that fair play is done and seen to be done? The schemes will be considered by many vulnerable people in the autumn of their years who are thinking about how best to release equity from what, given that the equity markets have not done so well recently, is probably their main investment. What are the Government going to do to ensure that their nudging forward of the equity release market—the interest in the market will be quite significantly increased in some instances—will not mean that vulnerable people will be taken advantage of, particularly given that many of them may live on their own and need good advice? The industry needs to be properly run and regulated, and I ask the Paymaster General to tell us her thoughts about that. What action do the Government intend to take to ensure that there is fair play in the market?

    Secondly, I want to discuss the idea that it is somehow perfectly immoral to avoid this tax. None of us wants to see legitimate tax avoided, but I think that the Paymaster General has completely underestimated the extent to which house prices have increased. My hon. Friend the Member for Arundel and South Downs mentioned that between 1.5 million and 2 million houses fall into the inheritance tax bracket. Statistics and studies exist that suggest that the figure is greater than that. No one really knows. It is completely wrong, however, to suggest that when people who have paid tax throughout their lives and simply want to hand on their assets to their children, it would be somehow immoral not to tax them. The Government need to re-examine their thinking. The new clause would tighten matters even further. It is, in effect, a new tax, whatever the Paymaster General may say.

    My hon. Friend is aiding our deliberations. In referring, as the Paymaster General did, to people who are rich enough to pay inheritance tax, was she including in her categorisation every member of the Cabinet and most members of the Government?

    I completely agree with that. The Paymaster General would also include in that threshold a large swathe of teachers, nurses and all those who work in public service, particularly in the south of England. I should appreciate her deliberations on whether that is right.

    My hon. Friend the Member for Huntingdon (Mr. Djanogly) made the excellent point that not enough thought has been given to the effect that the new clause may have on the break-up of families and homes. The Government are in complete crisis with regard to the care home sector, in which something like 45,000 to 50,000 beds have been lost because of the bureaucracy and regulation that they have introduced. This measure will not help that situation. No one knows the exact figures or the extent, but it could lead to a premature break-up of a home simply because the arrangement will no longer be available whereby a parent—an elderly person, perhaps—could live within the home that had been gifted. That may make the premature selling of the house to realise assets a reality. I hope that the Government have given that some thought, and I look forward to hearing from the Paymaster General.

    The new clause applies to an avoidance scheme used by married couples. It has nothing to do with grannies, grandsons or children; it specifically deals with the exploitation of the inheritance tax rules, especially by married couples.

    If the hon. Gentleman will wait, I shall be happy to give way in a moment, but we need to set out a few facts clearly.

    We are not discussing whether the Conservative Opposition are in favour of inheritance tax, although I should be delighted to have such a debate. Despite the fact that inheritance tax was introduced by their Government—

    No. I will give way to the hon. Gentleman in a moment, but I want to make a few points so that we can be clear about what we are discussing, rather than what Opposition Members think—

    On a point of order, Mr. Deputy Speaker. It is right to point out that the provision may relate to grannies and that husbands and wives—

    Order. I must tell the hon. Gentleman reprovingly that he has been a Member of this place long enough to know the difference between a point of debate and a point of order. That was not a point of order.

    May I remind the Minister that I had already suggested that discussion of inheritance tax in principle is outwith the scope of the new clause?

    I agree, Mr. Deputy Speaker: whether individual hon. Members like or dislike inheritance tax is not the subject of the debate. The subject of the debate is whether tax rules that were introduced in 1986 and have been variously amended should fairly apply to all taxpayers. Some taxpayers comply with their tax obligations, so the Government have responsibilities when others find ways around their compliance obligations.

    The point is whether the Government of the day should be required to ensure fairness between taxpayers. I understand the issue in terms of fairness. Tax rules should apply fairly to taxpayers who are subject to them and it is the Government's duty to ensure that that happens.

    I shall give way to the hon. Gentleman, but then I shall deal with house prices, equity release schemes and some of the other points that have been made.

    Will the Minister confirm that, putting it in simple language, the provision is about, for example, a couple who, hoping that they will both live for another seven years, give their house worth £400,000 to their children, but set up a trust so that whoever outlives the other is still able to live in the house until they die? I think that describes the main circumstances, and no one would regard that as either cheating the system or avoidance.

    There are many sections in the inheritance tax rules; one is called "Gifts with Reservations". The Court of Appeal decision in the Eversden case paved the way for artificial schemes that enable married couples to put their assets beyond inheritance tax estates while retaining the enjoyment of them for their lifetime. We want to correct that. As I said, the new clause is specifically about that issue. Opposition Members are getting too worked up. Although I understand the views of Opposition Members about other aspects of inheritance tax, we are discussing only whether a set of rules should apply to all equally.

    I want make a point about property prices and the inheritance tax threshold. If that does not answer the hon. Gentleman's point, I shall be more than happy to give way to him—as always.

    The inheritance tax threshold is still about twice the average UK house price. Only about 5 per cent. of estates will pay inheritance tax this year. However, let us look at the question the other way round: how much has the inheritance tax threshold moved since its introduction in 1986, and what has happened to house prices in that period?

    The latest statistics, for quarter one, show that house prices have risen since 1986 at much the same rate as the threshold—about 250 per cent. The UK average house price is about £140,000. Even in London and the southeast, prices are still below the threshold. The figure for Greater London is £215,000 and for the south-east, excluding London, it is £190,000. The rules are consistent with the movement of the threshold since its introduction in 1986 and its reflection in house prices. The question of property prices is not directly relevant to the new clause; the point at stake is that the movement of the threshold is keeping pace with prices.

    The Paymaster General said that she estimates that about 5 per cent. of estates are above the threshold and will be caught by inheritance tax. Will she tell us how that has changed over the last 10 years? What is the size of the increase?

    I have seen the figure, but I apologise to the hon. Gentleman for being unable to give it to him immediately. I shall be happy to send him the figures. By estates, I mean the number liable to pay inheritance tax, which may not necessarily be on property. Significant numbers of people pay inheritance tax that is not on property. Currently, about 29,000 estates are in the category; movement is more or less static, although I cannot remember the exact figure.

    The Government tend to increase thresholds in line with inflation, whereas the overall rise in property prices over a period is appreciably greater than that. I hope that the Paymaster General will reflect on that point in further deliberations. However, if the right hon. Lady's main criticism of Opposition Members is that we have identified the wrong member of the family tree, and that it is not in fact granny, but mummy, daddy, hubby and wife who are being clobbered, that is cold comfort.

    May I tell the hon. Member for Yeovil (Mr. Laws) that, if my memory serves me right, the number in the threshold rose by about 3,000 last year—more than indexation or the rate of inflation would have required? It is not unreasonable to look back over a period and to take 1986 as the base year.

    May I answer the hon. Member for Buckingham (Mr. Bercow) before moving on? On the point that he makes about the application of the new clause, I was simply seeking to help Conservative Members. I understand that they wish to abolish inheritance tax, and I look forward to finding out where the £2.4 billion that the Government currently raise from inheritance tax would come from. The hon. Gentleman will want to question many aspects, but I was seeking to correct Conservative Members by saying that the new clause does not deal with those issues; it specifically and narrowly deals with issues that arose from a particular case involving married couples.

    2.30 pm

    The Paymaster General is being slightly selective in her figures. It is all very well to go back to 1986, but I am sure that she will accept that the period included one of the biggest house price falls in recent memory. House prices fell from their peak in about 1988 and bottomed in 1994–95, after which they picked up slowly, so such a comparison does not give the complete picture. I hope that such a price crash will not happen again. Recent history—the past eight or nine years—shows that inheritance tax thresholds lagged far behind the rise in house prices.

    The facts speak for themselves in respect of the average house price throughout the country and in specific regions where house prices are much higher. The hon. Gentleman should consider the role of the Conservative party when in office in establishing the inheritance tax threshold. As I have demonstrated, the increase in the threshold has kept pace with the increase in house prices, but it is not the role of inheritance tax to help to regulate house prices; its role is fairly to tax assets according to rules that operate for all the people who are caught by them.

    The Paymaster General talks about the rules being interpreted fairly, but the capital taxes office sometimes interprets the rules in a draconian manner. I ask her to give some thought to such matters because, sometimes, entirely innocent transactions are caught—for example, the outright gift of a dwelling by parents to their children, where the parents move out, but move back two years later to be nursed by the children. Surely the capital taxes office should not apply the reversion of benefit rules, which will be amended by the new clause today, in such cases?

    I will certainly reflect on the point, but I am trying to explain the new clause and its narrow application to married couples.

    I wish to make two final points, the first of which relates to what the hon. Member for Billericay (Mr. Baron) said about home reversion plans. He may not know this, but his hon. Friend the hon. Member for Eddisbury (Mr. O'Brien) is aware—we debated it in a statutory instrument Committee only a few days ago in relation to the transfer to the Financial Services Authority of the regulation of mortgages and other financial products—that the Chief Secretary to the Treasury announced that a consultation paper, in which the options for regulating the sale of home reversion schemes would be examined, would be published this autumn.

    Various aspects of the home reversion market will be considered, as mortgage-backed equity release schemes will fall within the scope of the FSA. So the answer to the hon. Gentleman's question is, yes, the Government are considering those wider points, and we enter the consultation with an open mind to hear what the industry has to say about the important role of such products and what their future may be. That issue was also raised the hon. Member for Arundel and South Downs (Mr. Flight) and the hon. Member for Eddisbury, who takes a particular interest in it and is knowledgeable about it.

    May I urge on the Paymaster General the importance of the issue and the urgency of the situation? If one believes the latest figures, there is no doubt that the whole industry is growing very rapidly, as is the practice of using equity release schemes. Often, as we all know, very vulnerable people are involved, so I ask her to ensure that the Government put their full weight behind the issue and that it is looked at very quickly indeed.

    If the hon. Gentleman scrutinises the record of debates in the Statutory Instrument Committee he will see that the new FSA regulatory regime was discussed. Hon. Members on both sides of the Committee agreed that the Government must ensure that future regulation of this important and complex area is correct. We recognise the importance of the issue, so to legislate in haste may not be the best way forward. The Chief Secretary to the Treasury issued more details in a press release on 5 June, and I am sure that the hon. Gentleman will be interested in reading it.

    The hon. Member for Arundel and South Downs referred to the fact that the new clause will come into force only from June 2003. The tax-effectiveness of earlier Eversden-type schemes is still dependent on the courts' final view of whether schemes work under the old law. The House of Lords will decide whether to agree to a further appeal, but my advice is that, although the Inland Revenue is confident about the interpretation of the old law it believes that enough tax is at stake to lead us to act now to prevent any subsequent arrangements from being made. However, pre-June 2003 issues are clearly matters for the courts.

    I wish to return to the potential for an increase in the break-up of homes. Has any assessment been made of whether the new clause will have any tangible effect on the tendency to break up or disperse family units, or certainly family homes, as the Government would have to pick up the cost of that?

    Again, I remind the hon. Gentleman that we are dealing with plans, which are at an early stage, to provide lifetime protection from any inheritance tax on those estates.

    I understand that such plans are made considerably in advance of any discussion or requirement regarding the vulnerabilities that might exist in the household in future. The proposals are long planned and for the lifetime, as I have suggested. They are an attempt to remove from inheritance tax rather than a response to specific circumstances. The measure on specific avoidance by married couples is narrow. It is sensible and it is fair to taxpayers who comply with their obligations. That is the aim of the new clause and I commend it to the House.

    Question put and agreed to.

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

    New Clause 1

    Tax Credits For Individual Savings Accounts And Personal Equity Plans

    '.—Section 76(1)(a) of the Finance Act 1998 (c. 36) shall cease to have effect.'.—[Mr. Stephen O'Brien.]

    Brought up, and read the First time.

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

    This year's Red Book stated:
    "Individual Savings Accounts … are the Government's primary vehicle for tax-advantaged saving outside pensions."
    However, the Finance Bill contains no provisions to prevent the 10 per cent. tax credit for individual savings account and personal equity plan dividends from being removed after April 2004. As we well know, the removal of the dividend tax credit for pensions—worth £5 billion a year in tax—has resulted in typical personal pension savers retiring on half what they would have received only five years ago.

    It was not surprising that the director general of the PEP and ISA Managers Association and the director general of the Investment Management Association wrote to the Chancellor of the Exchequer on 4 June. The letter said:
    "We were highly disappointed that there was no announcement in the Budget that the 10 per cent. dividend tax credit for stocks and shares ISAs would be extended beyond April 2004.
    Our research, which we have shared with the Financial Secretary, among consumers and ISA providers clearly demonstrates that abolishing the dividend tax credit will significantly discourage, rather than encourage, equity based savings through ISAs. In the present investment climate, this is precisely the wrong incentive to be giving people needing to build their long-term savings."
    The letter continues:
    "In excess of 12 million ISA and PEP account holders will be disadvantaged, not to mention those potential savers that have already been dissuaded by the looming abolition of the tax credit, as ISAs will, according to the FSA, lose their tax-free status in 2004."
    The letter urges the Government, at this late stage, to consider approving new clause 1 and says that it is important
    "to extend the life of the tax credit and thereby the sustainability of Stocks and Shares ISAs for other than high rate tax payers."
    I shall illustrate why we find ourselves in such an extraordinary situation. The Government are long on rhetoric by saying, "For the many, not for the few", but they are deliberately taking action to avoid prolonging an important tax credit with the intended effect—they cannot pretend that it is unintentional—of preferring the few higher rate taxpayers rather than the many, despite the fact that there is such a blight on all income groups' savings.

    A PIMA press release was published on the same date as the letter and said:
    "However, this figure of 12 million"—
    people—
    "is not taking into account the number of potential savers that have already been dissuaded … Recent evidence shows that stocks and shares ISA Subscriptions have slumped by 40 per cent. in April 2003 compared to the same period last year, in spite of a surge in investment in bonds.
    By removing the tax credit, PIMA research has shown that the Chancellor will significantly discourage rather than encourage, equity based savings through ISAs."
    Mr. Tony Vine-Lott, the director general of PIMA, said:
    "PIMA will continue to lobby for this recommendation throughout the passage of the Finance Bill. 12 million accounts is a significant amount and the Chancellor needs to recognise that the removal of the tax credit will do more harm than good for consumers and the savings industry alike".
    2.45 pm

    I have examined carefully the representations that we received, which happens with all representations received by the Opposition. It is important for those who observe our proceedings to have the opportunity to submit representations and for them to be reflected. I have given the comments careful thought. As hon. Members will note from the amendment paper, I, like several of my colleagues, have a registered interest, which I put on the record. It is no surprise that many of us hold PEPs and ISAs as part of our best efforts to save during our earning lifetime. We try to be responsible so that we will not be dependent on the state when we are no longer in a position to earn.

    A representation that we received said that because
    "the Government have promised to abolish the 10 per cent. tax credit that ISAs receive on dividend distributions … investment in Equity ISAs will only be attractive to higher rate taxpayers."
    Perhaps the easiest way to explain the situation is to go through an example. Like always, it would be easier to use a slide-show presentation while dealing with figures, but as I cannot do that, I shall have a go at outlining my point.

    Let us consider a basic rate taxpayer who receives a cash dividend from a company—outside an ISA—of £90. Under the current rules, which are familiar to most people, a notional tax credit of a ninth—£10—is added, which gives a notional gross dividend of £100. The situation is exactly the same for a higher rate taxpayer: £90 plus £10 equals £100. The basic rate taxpayer is taxed at 10 per cent., which means that there is a 10 per cent. deduction. The £10 tax credit is deducted from that, which effectively means that there is no tax liability. The cash dividend was £90, there was a notional tax credit of £10 and £10 of tax was deducted, so we return to a situation of no tax and £90 cash.

    The situation is different for a higher rate taxpayer. After receiving a notional gross dividend of £100 made up of a cash dividend of £90 and a notional tax credit of £10, a higher rate taxpayer pays tax at a rate of 32.5 per cent. Therefore, he or she is liable to £32.50 of tax on the £100. The £10 tax credit is taken off that—although it is notional, it is removed—so the tax liability on a higher rate taxpayer is £22.50, meaning that the cash receipt is not the £90 received by a basic rate taxpayer, but £67.50.

    Why is that important? In a basic rate taxpayer's equity or stocks and shares ISA, a cash dividend of £90 attracts a notional tax credit of £10, which adds up to £100. Of course, there would be a cash equivalent of £90. The situation is exactly the same as before: there is £90 real cash and lots of 10 per cents. flow all over the place for the purposes of the tax regime, meaning that basic rate taxpayers end up with £90 in their hands. A higher rate taxpayer also ends up with £90.

    Let us consider what will happen after 2004 when the notional tax credit is removed from equity ISAs. The basic rate taxpayer would receive £90 cash but not receive the tax credit, and thus end up with £90 rather than £100, which was the case with the notional tax credit. The tax position would be reduced to £90, yet the cash outside an ISA would also be £90. What is the incentive for the basic rate taxpayer if the measure is removed? A higher rate taxpayer would end up with £90, nevertheless, versus £67.50. So there is a huge incentive for a higher rate taxpayer to remain in the scheme given that instead of receiving £67.50 outside an equity ISA, they will receive £90, whereas the removal of the £10 notional tax credit gives the basic rate taxpayer no incentive whatsoever. Unsurprisingly, the higher rate taxpayer will benefit. Why should the basic rate taxpayer, for whom the scheme has been an important part of their thinking and activity in terms of saving and the incentive to save, be penalised?

    Surely the purpose of products such as ISAs is to get lower rate taxpayers into investments.

    I am grateful to my hon. Friend for making that point and I have data to illustrate it. Sadly, I have become used to Ministers not wanting to hear the facts from us, but they should want to hear them from those whose evidence is less partisan. Every citizen of this country, not just the members of so-called middle England, have a right to think that the Government are trying to help them to save and to be responsible for themselves. Instead of that, however, we have a demeaning and individual-defying attempt to thrust everyone into dependency on the state by means-testing. The Government want people to be thankful for what they are doing rather than realising that they are getting in the way of their lives and freedoms.

    When the Government unveiled ISAs in 1997, the then Paymaster General spoke of a tax system for savings that was
    "to benefit the many, and not just the few".
    The equity ISA tax credit does benefit the many, not the few, which is the point of the argument about seeking to retain the 10 per cent. The new clause is important because it would remove the scrapping of the tax credit, which gives a significant incentive for basic rate taxpayers to save and has proved extremely popular among that target group. ISAs are a well-known tax-free product which has become a familiar feature in the savings marketplace. Increasing the tax levels will increase confusion and may increase financial exclusion among the public.

    I have referred to the helpful note issued by the two organisations. It says:
    "The tax credit encourages investment in stock markets, which ultimately benefits the economy by providing additional capital to industry".
    We should not lose sight of that fact. The benefits to the Government are that the
    "tax credit encourages people to save money and build up a pool of savings to supplement their pensions."
    We could have a wide debate on that, but you would be correct to haul me up for straying down that path, Mr. Deputy Speaker. However, the claim resonates loud and clear not only with my right hon. and hon. Friends, but with Labour Members, too, if only some of them were decent enough to listen to our proceedings. Surely Labour Members recognise that their constituents are hammering on their doors about the attack on pensions. Our constituents are deeply anxious about the lack of security for their futures. How on earth will they cope when they can no longer make up for all the Government's mistakes and the shortfalls in the market when their earning lifetimes are over? I know that all parties are worried about that. It is very important.

    The note also says:
    "The ISA range is now well established in the public mind. ISAs have increased savings of people on lower incomes. The change proposed by the Chancellor will undermine investors' confidence in ISAs as a tax efficient form of savings and may reverse this savings trend … PEPs and ISAs have led the growth of retail funds over the past 10 years"—
    I stress, led the growth—
    "while investment in mutual funds outside PEPs and ISAs grew from £20.1 billion to £51.1 billion, PEP and ISA funds grew from £3.3 billion to £57.9 billion over the same period."
    The Government have urged people to save and to make adequate provision for their retirement. They have tried to make savings products simpler. ISAs are a successful and simple savings product and should be at the centre of their strategy to encourage long-term savings. This is not the time to undermine them.

    If the Government stick to their plans, equity ISAs will be disadvantaged compared with other ISAs. When we consider the importance of the composition of any portfolio and spread of risk, it is critical that the equity market is not disadvantaged in that way. We have already experienced the recent challenging and unnecessary pension tax grab by the Chancellor of £5 billion a year, which even on a notional basis amounts to £30 billion when one considers the compounding effect and the application of the stock market price earnings. The untold damage that the Chancellor has done to the stock market needs to be repaired by encouraging confidence in an equity ISA. That would bring people, not least those from the basic rate taxpayer target group, back into the market, which is critical if we are to take a responsible view of futures and pensions. If the proposal succeeds, people will be given an incentive to invest in cash and bonds, not shares, and that might not be the most appropriate investment for people's needs.

    We also have to consider whether the Government have been consistent. In their response to the Sandler report—much trumpeted by the Government, although we cannot be sure whether they will get their stakeholder plans off the ground—the Government emphasised the importance of helping ordinary people to save more in the long term. Yet their plans would remove that savings incentive for ordinary basic rate taxpayers, precisely the people they want to target. ISAs and PEPs have been successful in achieving greater penetration of savings in every income group when compared with the penetration of PEPs and TESSAs. From the great founding of the PEPs and TESSA movement under the previous Government, which has been well regarded and understood, ISAs have made an even greater penetration, not least because of the 10 per cent. tax credit, which is critical.

    The evidence for that comes from the Government's figures. We have only to refer to column 844W of the Official Report of 3 March 2003 for confirmation of the success of ISAs on building on TESSAs and PEPs in encouraging people in all income groups to save. For example, of those earning under £10,000 a year, one in five have chosen to save in an ISA. Recent research shows that if the tax-free status is withdrawn, the success in increasing the savings habit will be at risk of a dramatic reversal.

    Research has been commissioned by the two organisations I mentioned and others. It found the following:
    "If the tax-free benefit is reduced or abolished on stocks and shares ISAs, only a third of existing customers would continue to invest in these products. A knock-on effect for the rest of the equity markets could also be expected, as only two-fifths of customers would expect to invest in these commodities. Six in 10 consumers expect to seek alternative, tax-free investments in ISAs, with high interest accounts, pensions and cash ISAs being the likely beneficiaries. Seven people in 10 are of the view that the proposal would be seen as another Government stealth tax."
    That is the opinion of independent research on the proposal. The people involved in the research obviously have an interest in terms of the marketplace, but they are rightly worried because they have ensured that the market has been well served and popular. The Government want to strike away that achievement. Unless they reverse their decision, I shall divide the House on the new clause.

    I shall make only a short contribution, which perhaps befits my position as the only Labour Back Bencher in the Chamber.

    The hon. Member for Eddisbury (Mr. O'Brien) did not acknowledge all the Government's achievements. ISAs have been an extremely effective savings instrument, and we should protect them. Some of the information supplied by the hon. Gentleman illustrates that some ISAs are held inappropriately by non-taxpayers. That should give sections of the financial market cause to think about their selling methods. None the less, he did acknowledge that ISAs have been a huge success.

    The hon. Gentleman was not entirely fair to the Government when he said that they were deliberately taking action on that. The opposite is true. When ISAs were introduced, the Government reserved the position of the dividend tax credit in ISAs until April 2004.

    So far as I am aware, the Government have not struck a position on the future of the dividend tax credit or on any successor arrangement that might preserve the benefits of the DTC after April 2004. For the record, I do not possess any equity ISAs. I was one of the fortunate people who got out about six months before the stock exchange reached its height. However, we are talking about a feature of the ISA scheme that the Government should seek in some form, albeit not necessarily in its present form, to preserve. Those who hold equity ISAs have had a bad time on the markets. That being so, there is great reluctance to continue to invest in equity ISAs. It would be unfortunate if the DTC were withdrawn, and there was a market perception that that was a reason either not to invest or to sell up. That would be singularly unfortunate and might have the effect of producing market distortion at what I suspect, in April 2004, might be quite a sensitive moment.

    3 pm

    There is another feature that needs to be examined, and that is that the dividend tax credit, as its name suggests, is given to dividends. People who invest in stocks and shares ISAs and hold them in the form of bonds are unaffected. It would be unfortunate at this stage in the development of the bond market if there were to be an apparent tax quirk that favoured building up investments in the form of bonds rather than in the form of straightforward equities. That would be an unintended distortion of the market, and it cannot be the Government's objective to allow that.

    I hope that the Government will consider how the dividend tax credit within the equity ISA can be preserved in some form, albeit not necessarily in its existing form. I am not aware that the Government have yet struck a position on that. I hope that they will consider these issues extremely carefully and be able to come up with a scheme that will preserve the good common sense of the present arrangement.

    The hon. Member for Eddisbury (Mr. O'Brien) has raised an important point about one of the anomalies relating to the way in which the Government tax different forms of savings and financial assets. To some extent, my hon. Friend the Member for Newcastle upon Tyne, Central (Mr. Cousins)—

    The hon. Gentleman is a former colleague on the Treasury Select Committee, even if he is not an hon. Friend. He has acknowledged the points made by the hon. Member for Eddisbury (Mr. O'Brien).

    I shall raise one specific issue that perhaps the hon. Member for Eddisbury was not able to cover. Perhaps it is appropriate for the Paymaster General to respond on the substance of the matter because she may have access to information that the hon. Gentleman would not have had when he made his comments.

    First, what would be the cost of the new clause and the amendments that are essentially being proposed by the hon. Gentleman? We should know how much money we are talking about if we are to make the changes that the hon. Gentleman proposes. Secondly, what effect would his proposal have both on the total stock of savings and on the distribution of savings between different classes of assets? Perhaps we could not have expected the hon. Gentleman to be able to address that issue.

    On the second point, I think that the movement would be upwards. That is the idea and the purpose. The hon. Gentleman wonders whether the Paymaster General will deal with specific cost. I, too, will be interested to hear what she has to say on that. In former times, it was expected that that might have been about £180 million. Over recent times, that is estimated to have come down to about £130 million. I put that on the record as an answer, to compare and contrast with whatever we may get from the Paymaster General.

    I am grateful to the hon. Gentleman. That intervention was extremely helpful on two fronts, the second of which related to the effect on the total stock of savings, to which I shall return briefly. The first front related to the cost of the proposed measure. One beneficial effect of the hon. Gentleman's intervention may have been to give the Paymaster General time to gather her thoughts on the cost issue. I hope that she will be able to give us a detailed estimate of the cost.

    In raising the issues of cost and the effect on the stock of savings, I wish to concentrate on what the effects of the hon. Gentleman's proposal may be. Although he has indicated that he believes that the effect will be to increase the stock of savings—presumably in a significant way, otherwise he would not have bothered to table and introduce the new clause—he will probably know that many independent economic commentators who have assessed the effects of tax relief on savings over many years, both in respect of PEPs and TESSAs, and also in respect of ISAs—have often expressed scepticism in their economic research about the effects of these tax incentives in terms of the total stock of savings.

    In other words, evidence has often indicated that while tax reliefs can often benefit those who have savings, and while they may certainly effect the distribution of savings between particular financial assets, they do not always result in a significant increase in the total stock of savings. We may be talking about how tax relief is distributed across a particular group of taxpayers who are wealthy enough to be able to save, but the hon. Gentleman will be aware that the vast majority of taxpayers have incomes that are so low that they are not able to save. When we consider the new clause, we should have in mind not only what effect it will have and what its cost will be in terms of existing savers. We should surely be reflecting also on how the moneys might be used to restructure the entire system of savings and pensions—a very big issue at present—to help those at the bottom end of income distribution who, at the moment, do not benefit from the reliefs that we are discussing, and who, in a substantive sense, are too poor to save.

    In addition to the citation from Hansard about what the Government said about the increase in savings in ISAs in 2001 over every income group, including, most significantly, the lower income groups, there was the increase in savings in TESSAs and PEPs during 1998–99. That gives some credence to the overall take-up. It is interesting that there is evidence to show that from 1992 to 2000 there was an exponential increase in retail funds under management, and therefore savings. We can chart the acceleration of growth in relation to the introduction of tax savings and tax attractive schemes throughout all income levels. With the higher rate preference, as it were, the proposal is rough on those who pay the basic rate of tax.

    I am grateful to the hon. Gentleman for his intervention. Of course, I do not want to take us too far away from the new clause. I am sure that the hon. Gentleman would accept that it is one thing to demonstrate that particular forms of savings increased rapidly during a period when financial markets were buoyant, when people may have been switching savings between particular asset classes, and another thing to show that the total stock of savings has been increased by these types of relief. The evidence from many independent commentators, such as the Institute for Fiscal Studies, suggests some scepticism about the effect of these sorts of relief on the total stock of savings rather than on distribution between different forms of financial assets. I hope that the Paymaster General will say something on that. Her response may help us to understand whether these types of relief in themselves are useful and efficient.

    The tax relief has been welcome, and I disagree with the hon. Member for Yeovil (Mr. Laws), the Liberal Democrat spokesman, in that to me it is self-evident that if people are offered an incentive to do something financially, they are more likely to do it. All these schemes have been actively marketed by City firms on the basis of the tax relief that is available, and they have been very successful. I have saved through TESSAs, PEPs and ISAs, and I know many others who have done similarly. That is because we do well by forgoing taxation on some of our savings out of income that has already been heavily taxed. We see that as an advantage.

    I therefore welcome the decision of my hon. Friend the Member for Eddisbury (Mr. O'Brien) to highlight that as a major issue for debate, and to set out the Opposition's case for more savings and continuing with a family of tax reliefs to encourage that. One of the most worrying features of the Government's economic policy is the precipitate and continuous decline in the savings rate during their years in office. People have found it more difficult to save, as income has been taken away from them through stealth taxes of all kinds. They have recently suffered the double whammy of national insurance and council tax hikes, so they have less disposable income available to save. However, they have also faced a collapse in the returns on their savings. The Government have presided over a massive boom and bust in the equity market, which they did a lot to extend through their decision to take huge sums of money out of that market near its peak through their taxes on telecoms and pensions. We have moved into an era of low returns on bonds and deposits, which has been welcomed by borrowers but which, of course, has been upsetting for people who had saved for their old age, but who now discover that their deposit income is a modest fraction of what it was 10 years ago, through no fault of their own.

    One would have thought that at this juncture the Government would want, first, to increase savings overall, responding to the collapse that they have helped to generate and, secondly, to increase savings through equity-type vehicles, claims on real assets and investments in productive British companies. One would expect them to want to do so now because the equity market has fallen a great deal over the preceding three years, so better values are now available, and because British companies have been starved of cash for some time and, in many cases, need to be refinanced. A better flow of new moneys from the share market in Britain to those companies would be welcome, and would enable them to begin to see again the opportunity both to strengthen their balance sheets and for new investment.

    The new clause is not just about the question of the saver but the use that the money can be put to by companies through the UK marketplace. Another worrying feature of the Government's mismanagement of the economy is the fact that in recent years there has been a shortage of new money going into companies through the stock market. It would therefore be perverse in the extreme for the Government to remove one of the last remaining tax incentives for Mr. and Mrs. Everyman to save through company shares at exactly the point at which companies may again see the advantage of turning to stock markets and raising capital for their investment programmes. The House should therefore urge the Government strongly to pledge that they will not go ahead with their plan to remove that important last remaining tax relief.

    My hon. Friend the Member for Eddisbury made it clear that it would be perverse of the Government to persist with their intentions, not least because helpful tax relief would be taken away from people on average or about average earnings who pay standard-rate tax. However, some benefit would be left for people on higher earnings. The Minister, in discussions on the Bill has been keen to close every conceivable loophole for people on above average earnings or who own assets of above average value. It would be interesting to hear why, in this case, she thinks that it is good idea to help people who are doing a bit better than average and clobber those who are not. I urge her to do the decent thing and affirm in the House that the Government do not wish to hit hard people on about average earnings who pay standard-rate tax, and that the tax relief will remain.

    If the Minister cannot make that pledge or guarantee—I fear that she may not—she owes the House and the country an explanation of why the Government have such a downer on savings and savers and why they do not want to have any pro-savings policy at all. The Government have wrecked the telecoms industry with a £22 billion telecoms tax and the pensions industry with a £5 billion a year pensions tax—[Interruption.] Government Members are laughing, but they ought to talk to the people who lost their jobs, shareholdings and family livelihoods as a result of those punitive taxes. The Government are now offering to remove an important tax relief for non-pension savings.

    I am probably wrong to be tempted to intervene, but I am grateful none the less to the right hon. Gentleman for giving way. He ought to acknowledge two things. First, his last speech was about rising housing asset values, so he should acknowledge that asset values possessed by ordinary British people have never been greater than they are now in all their various forms. Secondly, the telecoms sale was, indeed, a sale—the £22 billion was a market response. It turned out to be thoroughly ill judged, but it was a market response none the less.

    3.15 pm

    It was a market response in a rigged market, where the Government decided to sell the air, for heaven's sake. Our air is always for sale with this Government, and I suspect that they will put a tax on breathing when they have run out of ways to raise money for their nefarious and often wasteful purposes. The hon. Gentleman made one sensible point—of course house prices have gone up, which has led to increases in paper wealth for many people and practically all home owners. However, unless people resort to massive borrowing against the perhaps insecure foundations of that inflated asset price, they are not better off. They still need to live in their own home, and do not have the real wealth generated by the ownership of a PEP, TESSA, ISA or any other asset that can be freely traded and spent when the need for money arises. The hon. Gentleman should therefore accept that many of us do not think that borrowing a lot against the security of our homes is a particularly good idea for consumption purposes, and particularly not as people get closer to retirement.

    People are being driven into such behaviour by the wreckage and carnage of their pension funds, which was caused by the £5 billion a year tax and the Government's insouciance about equity values. I therefore urge the Government to accept the advice of my hon. Friend the Member for Eddisbury and add to the Bill his new clause, or a Government variant drafted as they see fit. That would show for the first time during their term in office that they recognise the plight of the saver and want to rescue something at least from the disaster that they have created.

    The Government's proposal to abolish the 10 per cent. tax credit that equity ISAs receive on dividend distributions is one of the most ill considered measures in the Budget, and clearly shows that the Government have simply lost touch with what the people of country want and what business needs.

    My right hon. Friend the Member for Wokingham (Mr. Redwood) rightly mentioned the savings ratio, which has collapsed in recent years, reducing the large number of savers whom Labour inherited from the Conservative Government. Low interest rates may be good for floating rate mortgages which, of course, the Chancellor wants to abolish. However, for every borrower there are many savers, including millions of pensioners, and it is they who have been suffering under the Government. Indeed, under the leadership of this Government, our savings culture has been transformed into a debt culture, with credit card debt sky-rocketing to unprecedented levels, despite a stagnant economy.

    The Government have dealt with that serious problem by hitting savers once again and smashing one of the few remaining tax breaks. The savings culture and, dare I say, prudence have been chucked out of the window in the Chancellor's desperate attempt to raise more money to spend on the black hole of our unreformed public services.

    Is the hon. Gentleman suggesting that the Conservatives are the party of high interest rates, and will they advocate that at the next election?

    Interest rates reflect international markets. However, one of the last remaining tax breaks which gave the average low taxpayer a small window of opportunity is now being locked firmly shut by the hon. Gentleman's Government.

    Business remains concerned about the continuing slump in equity prices, and increased concern for the market is stopping investment in companies and reducing their ability to move forward. Businesses have been calling for measures such as the abolition of stamp duty on shares, but the Government are having none of that. Not only does stamp duty stay, but they are regressing by discouraging investment in shares. Let us not forget that business investment was 8 per cent. lower in 2002 than in the previous year—the largest fall since 1991. I repeat that the measure is bad for savers and will be bad for business. It is the measure of a Government who have lost their touch.

    I am concerned about the abolition of the 10 per cent. tax credit for a number of reasons. The first is the simple unfairness of it. The only people for whom equity ISAs will remain attractive, as we have heard, are higher rate taxpayers. They will be the only people to benefit from the tax break in future, because they will not have to pay the difference between the higher and lower rate tax. Is that fair? I believe it is not. When the Government unveiled ISAs in 1997, we heard the Paymaster General shout from the rooftops that it was a tax system for savings that was to benefit the many, not just the few. Why do the Government appear to be discriminating against basic rate taxpayers in this form of saving?

    Secondly, the measure goes against the Government's stated policy of encouraging long-term savings and encouraging people to make adequate provision for retirement. The current tax credit offers a significant incentive for basic rate taxpayers to save, and has proved to be extremely popular among that target group. The Government's own figures, for example, show how successful ISAs have been, building upon TESSAs and PEPs, in encouraging people in all income groups to save. I give one example. Of those earning under £10,000 per year, one in five has chosen to save in an ISA. That is an incredible figure.

    There is little doubt that the tax credit encourages people to save money and build up a pool of savings to supplement their pensions, as they increasingly have to do, bearing in mind the pension tax that has sucked £5 billion out of the system and had a disproportionate effect on the stock market. I mentioned that one in five of those earning less than £10,000 was saving through an ISA. Looking at the broader income scales, we see that of those earning between £20,000 and £25,00, one in four saves in an ISA, and in the next group, those earning between £25,000 and £30,000, one in three uses an ISA as part of their long-term savings. The Government should not ignore those figures if they are serious in their intent to encourage savings for the longer term.

    Does my hon. Friend agree that the Treasury is classically guilty in this case, as so often, of short-termism in its thinking? If it pursues a policy that deters people on low incomes from saving in order in the short term to maximise its revenue, the chickens will come home to roost and the Government will ultimately face a higher bill to public funds in the form of means-tested benefits, as sure as night follows day.

    That is an excellent point. There is a short-termism about the tax measure that worries me. It will contribute to a decline in savings over the longer term and add to the pension problems that the Government are manufacturing by way of the pensions tax. It is a problem that the Government will have to face over the longer term.

    There is little doubt that the tax change proposed by the Chancellor will undermine investors' confidence in ISAs as a tax-efficient form of savings, and may reverse the savings trend that we have seen. ISAs are a well-known "tax-free" product, but the tax levels will increase confusion among the public. That will serve no one's interest—neither the Government's, nor the public's, as I have suggested. It is interesting that in the United States, the Government seem to be moving in the opposite direction. The US is cutting tax payable on dividends and encouraging savings and wider share ownership, because it realises the benefits of so doing. The American economy has performed well, and we should look at that example as a means of encouraging savings and wider share ownership.

    The measure goes against the Government's longer-term aim of changing the proportion of public and private retirement savings from 60:40 to 40:60. The measure will not serve that purpose at all. I shall be interested to hear from the Minister how the Government believe the tax measure will help to achieve that stated objective. Recent research suggests that if the tax-free benefit is reduced or abolished on stocks and shares in ISAs, only one in three savers will continue to invest in that tax-free environment. That figure must worry the Government, if they are intent on improving the balance between public and private retirement savings.

    I shall put two other brief points to the Minister, and I look forward to the reply. There is another sense in which the measure will distort the market. A number of other hon. Members have touched on the point. By reducing the tax incentive for people to invest in equity ISAs, the Government will increase the incentive to invest in cash and bonds, not shares. That probably will not be appropriate for most people's investment requirements. There is a danger that the Government will inadvertently create a scenario where the tax tail is wagging the investment dog.

    People will increasingly see that there is no tax incentive to invest in equity ISAs, and may think that investing in cash or bond ISAs producing a higher short-term income is more appropriate, and certainly more attractive. Over the longer term, equities have proved to be the better investment. People of the younger generation especially should have a good element of their overall investments in equities, rather than bonds and cash. I ask the Minister to address the issue, because there is a danger that by removing the tax incentive for equity ISAs, the Government will inadvertently distort the market.

    One or two other hon. Members have touched on my final point, which is about the way in which equity investment in the longer term benefits the economy. The United States fully appreciates that, which is why it has very recently reduced the tax paid on equity dividends in that country. We all know that economies and the business environment are becoming increasingly competitive. Companies must be able to look to stock markets to raise additional capital, but if shareholders shun the equity markets, that process becomes more difficult. Ultimately that has real economic implications for our standard of living and for the profits that pay for the public services that we all want.

    To revert to the intervention by my hon. Friend the Member for Buckingham (Mr. Bercow), I emphasise that a short-term measure such as the Government propose will in the longer term produce a negative effect on the economy as a whole and the standard of living of us all. People will shun equity markets, which will ultimately have a detrimental effect on companies wanting to raise additional capital on the stock markets.

    3.30 pm

    We have heard a full and useful exploration of the issues behind and surrounding new clause 1. The hon. Member for Eddisbury (Mr. O'Brien) is right to say that the ISA is the Government's primary vehicle for savings. My hon. Friend the Member for Newcastle upon Tyne, Central (Mr. Cousins) pointed out that ISAs have been a great success. In fact, there are 14 million, not 12 million, investors in ISAs in this country—6 million more than the number of investors in TESSAs and PEPs at their peak—and ISAs are starting to reach those groups that were underrepresented in terms of saving through PEPs and TESSAs. About 7.5 million investors have accounts with stocks and shares and thus attract the current tax credit.

    The hon. Member for Eddisbury hugely overstates the likely impact of the proposed measure, which his new clause is designed to prevent. Referring to a point he made based on the PIMA analysis, it is true that there has been a switch into corporate bonds in recent times. However, that principally reflects the state of the markets. Bonds may be seen to be a safer investment. However, as the hon. Member for Billericay (Mr. Baron) pointed out, bonds do not have the same potential for long-term growth that equities have. Investors will return to equities when they feel more confident about doing so, and the hon. Gentleman emphasised that he wanted that to happen.

    My hon. Friend the Member for Newcastle upon Tyne, Central explained his concern about recent investors in equity ISAs. I shall examine the considered points that he made in his short contribution, and I am sure that my hon. Friend the Financial Secretary will do so as well when she returns to take up the reins of this portfolio.

    Does the Minister not agree that as a matter of principle, it is undesirable to have tax signals that could drive investment decisions? There are all sorts of reasons why people might buy bonds or equities, but the Government should recognise that a better deal on taxation of income being available on bond interest than on equity dividends will have an impact on the way in which moneys flow. In principle, that is not a good thing.

    I think that the hon. Gentleman is referring to the fact that corporate bonds attract a relief at 20 per cent. and the tax credits are currently set at 10 per cent. However, I hope he understood my earlier point that that has not been a major driver of the recent switch to bonds.

    The hon. Member for Eddisbury accuses the Government of imposing a stealth tax. A measure that was the subject of a high-profile announcement and was confirmed in the 1998 Budget, and one for which there is a long lead time and a five-year transition provision, can hardly be described as a stealth tax.

    The hon. Member for Yeovil (Mr. Laws) asked the direct question about cost. The Treasury estimate of the cost of the new clause is approximately £200 million. The hon. Gentleman took me to task, claiming that the tax relief creates no new saving and that ISAs simply affect the distribution of existing savings. That is simply not the case. ISAs have been an undoubted success. More than £115 billion has been subscribed into ISAs since they began in April 1999; about 14 million investors—almost one in four adults in this country—hold ISAs—

    Let me finish my point. I might preempt the hon. Gentleman's intervention. He is especially concerned about those on low incomes. In fact, the holding of ISAs has increased at all income levels.

    I am grateful to the Economic Secretary for addressing my specific concerns. Given the amount that the Treasury is spending on ISAs through tax relief, will he tell us whether it has made any estimate of the effect in terms of increasing the overall stock of saving, rather than shifting between different forms?

    I have no estimate with me as to the narrow point that the hon. Gentleman raises.

    I am afraid that I do not think that it is a narrow point. Unless those on the Treasury Bench know about the impact not only on one savings instrument, but across the range of savings, how on earth can they analyse and direct policy? If the Treasury does not know about that issue now, perhaps it should study it and investigate the effect on not only one aspect of savings, but on the overall savings ratio.

    The hon. Member for Yeovil asked me whether I could give him an estimate of the precise calculation and I responded that I could not do so. I hope that that is clear.

    At the risk of suggesting that the right hon. Member for Wokingham (Mr. Redwood) overstated his case, I say to him that the scale of incentive, especially for the majority of investors—perhaps this does not apply to him—is modest. I shall explain the detail a little later. He asked what pro-savings policies the Government were putting in place—an issue that is relevant to the comments and concerns of the hon. Member for Billericay about balance between public and private pension provision. I could reel off a long list of such policies, but I shall not bore the House. A short list would include the Inland Revenue's simplification of tax treatment for pensions, the development following Sandler of a suite of simplified financial products to encourage saving, the child trust fund introduced by the Chancellor, the saving gateway—a savings account targeted at low-income or younger individuals, with Government match funding for all the money saved—and the Financial Services Authority's decision to proceed with the abolition of the polarisation regime.

    I appreciate that the Economic Secretary is addressing each point in turn, but may I suggest to him that this is a question of proportion and effect? The point is that the number of ISAs has grown exponentially in recent years. While he lists a series of other initiatives that would encourage saving, the bottom line is that they are dwarfed by the total moneys that are currently contained in ISAs. The Treasury should bear that in mind.

    I am glad that the hon. Gentleman pays tribute to the success and growth of ISAs. Of course, the point that he makes is being borne in mind as we consider future policies.

    I should like to deal now with some of the points that the hon. Member for Eddisbury made in the more measured parts of his contribution. He outlined his reasons for tabling his new clause and spoke about extension of the 10 per cent. tax credits payable on UK dividends in ISAs and PEPs beyond 5 April next year, when they are due to finish. He described the effect that he considers that ending the payable tax credit will have on savers who are basic and lower rate taxpayers, as well as on equity ISAs as a whole.

    I say to the hon. Gentleman that the ISA and PEP payable tax credit cannot be considered in isolation. It has to be considered in the context of the major and carefully balanced 1997 package of corporation tax reforms designed to rebalance the effect of corporation tax on the economy. Before that, the payable tax credits on dividends acted to make distributing profits more attractive than reinvesting for growth. We removed that distortion while reducing the rate of corporation tax. As part of the changes, pension funds' payable tax credits ceased in 1997 and individual non-taxpayers have not been paid the credit since April 1999. Charities' payable tax credits also ceased in 1999, although we gave charities transitional relief on a sliding scale until April 2004 to help them to adjust. We also wanted to allow ISA and PEP investors sufficient time to adjust their investment portfolios to take account of the change. Exceptionally, the 10 per cent. ISA and PEP payable credit has therefore been available for a period of five years, from April 1999 until April 2004.

    Does the Minister accept that when these changes, whatever their merits, were made, the taxation of dividends received by individuals was adjusted to end up much as it had been? It is therefore inconsistent not to leave at least a modest tax advantage on equity investment within ISAs. There is no consistency between the two aspects.

    I hope in a moment to explain the impact of the move that we have made.

    The withdrawal of payable tax credits for ISAs and PEPs does not represent a new or additional tax: it simply means that an additional payment is no longer to be made. Of course, tax credits remain and continue to cancel out any tax liability for individuals liable to tax at lower and basic rates.

    Will the Economic Secretary please address the point that I and other hon. Members have made, namely that many people feel that the removal of the tax credit discriminates against basic rate taxpayers because they gain no advantage whatsoever from investing in equity ISAs, whereas an advantage remains for higher rate taxpayers? The Government seem to be discriminating, however inadvertently or unintentionally, against basic rate taxpayers. Would the Economic Secretary address the unfairness of that situation?

    I shall explain why the threat posed by the removal of this payable tax credit has been hugely overstated and why the claims about severe discrimination against those on lower incomes and lower and basic rate taxpayers are similarly overstated.

    Although the hon. Gentleman's Front Benchers are reluctant for me to give way, I shall of course do so.

    I am extremely grateful to the Economic Secretary. While he is dealing with the salient point raised by my hon. Friend the Member for Billericay (Mr. Baron), will he also reveal to the House what assessment he has made of the likely increase in take-up of means-tested benefits as a result of the extremely short-sighted stance that the Government have adopted?

    I have to be honest with the hon. Gentleman: I did not make that specific assessment as part of my preparations for dealing with the new clause.

    Retaining the ISA and PEP 10 per cent. payable tax credit beyond April 2004 would unbalance the general package of reforms that we have rut in place, which the hon. Member for Eddisbury described as the looming abolition of tax credits. Although he suggests that the ending of this payable tax credit will put off savers, especially those who are basic and lower rate taxpayers, from investing in equity ISAs, the average tax credit per person per year is only £25. For the majority, it translates into a reduction in tax benefit of less than that, and for more than 40 per cent. the reduction amounts to less than £10 a year. Two thirds will experience a reduction of payable tax credits amounting to less than £20 a year. Only 3 per cent. of basic rate taxpayers will experience a reduction in tax benefits amounting to more than £100. In recent times, a major factor in connection with confidence in equity investments has been the general state of the markets, not the threat of the ending of this payable tax credit.

    After April 2004, ISA and PEP investors will still pay no income tax on the investment returns from their PEPs and ISAs. Other tax benefits, such as exemption from capital gains tax on long-term capital appreciation, and the fact that they do not have to return details of their PEPs and ISAs to the Inland Revenue, will remain attractive for many investors, including those who are lower and basic rate taxpayers.

    For all those reasons, I am unable to accept the new clause. I hope that in the light of this useful debate, the hon. Gentleman will not press it to a vote; if he does, I shall have to ask my hon. Friends to vote it down.

    3.45 pm

    The debate has been useful and notable because hon. Members from several parties have contributed. That includes the curiously supportive as well as curiously critical contribution of the hon. Member for Yeovil (Mr. Laws). It was slightly "On the one hand, on the other". The hon. Member for Newcastle upon Tyne, Central (Mr. Cousins) made a helpful contribution, and that description applies especially to the speeches of my hon. Friends. The figure of 14 million people has been mentioned, and lower income groups are targeted by another potential Government stealth tax. It has been said—not by me—that the Government's success over all income levels is now threatened. The ultimate issue was whether there would be a question mark over overall savings or shifts between different sorts of savings products. The Economic Secretary did not know. The last thing that Parliament should do is to risk diminishing savings; we should always try to enhance them. Removing section 76(1)(a) of the Finance Act 1998 and thereby retaining the 10 per cent. tax credit on the products that we are considering, especially for basic rate taxpayers, would be beneficial. The hon. Member for Banff and Buchan (Mr. Salmond) expressed that well. We give that priority and I urge hon. Members to support the new clause.

    Question put, That the clause be read a Second time:—

    The House divided: Ayes 189, Noes 301.

    Division No. 263]

    [3:46 pm

    AYES

    Ainsworth, Peter (E Surrey)Cable, Dr. Vincent
    Allan, RichardCalton, Mrs Patsy
    Amess, DavidCameron, David
    Atkinson, David (Bour'mth E)Campbell, Gregory (E Lond'y)
    Atkinson, Peter (Hexham)Campbell, rh Menzies (NE Fife)
    Baker, NormanCarmichael, Alistair
    Baldry, TonyCash, William
    Barker, GregoryChapman, Sir Sydney (Chipping
    Baron, John (Billericay)

    Barnet)

    Barrett, JohnChidgey, David
    Beith, rh A. J.Chope, Christopher
    Bellingham, HenryClappison, James
    Bercow, JohnClarke, rh Kenneth (Rushcliffe)
    Beresford, Sir PaulClifton-Brown, Geoffrey
    Boswell, TimCollins, Tim
    Bottomley, rh Virginia (SWConway, Derek

    Surrey)

    Cormack, Sir Patrick
    Brake, Tom (Carshalton)Cotter, Brian
    Brazier, JulianCurry, rh David
    Breed, ColinDavey, Edward (Kingston)
    Brooke, Mrs Annette L.Davis, rh David (Haltemprice &
    Browning, Mrs Angela

    Howden)

    Bruce, MalcolmDjanogly, Jonathan
    Burnett, JohnDodds, Nigel
    Burns, SimonDoughty, Sue
    Burnside, DavidDuncan, Peter (Galloway)
    Burt, AlistairDuncan Smith, rh lain
    Butterfill, JohnEvans. Nigel

    Ewing, AnnabelleMurrison, Dr. Andrew
    Fabricant, MichaelNorman, Archie
    Fallon, MichaelOaten, Mark (Winchester)
    Field, Mark (Cities of London &O'Brien, Stephen (Eddisbury)

    Westminster)

    Osborne, George (Tatton)
    Flight, HowardOttaway, Richard
    Flook, AdrianPage, Richard
    Forth, rh EricPaice, James
    Foster, Don (Bath)Portillo, rh Michael
    Fox, Dr. LiamPrice, Adam (E Carmarthen &
    Francois, Mark

    Dinefwr)

    Garnier, EdwardPrisk, Mark (Hertford)
    George, Andrew (St. Ives)Pugh, Dr. John
    Gidley, SandraRandall, John
    Gillan, Mrs CherylRedwood, rh John
    Goodman, PaulReid, Alan (Argyll & Bute)
    Grayling, ChrisRobathan, Andrew
    Green, Damian (Ashford)Robertson, Angus (Moray)
    Green, Matthew (Ludlow)Robertson, Hugh (Faversham &
    Greenway, John

    M-Kent)

    Grieve, DominicRobertson, Laurence (Tewk'b'ry)
    Gummer, rh JohnRobinson, Peter (Belfast E)
    Hague, rh WilliamRoe, Mrs Marion
    Hancock, MikeRosindell, Andrew
    Harris, Dr. Evan (Oxford W &Ruffley, David

    Abingdon)

    Russell, Bob (Colchester)
    Harvey, NickSalmond, Alex
    Hawkins, NickSanders, Adrian
    Heath, DavidSayeed, Jonathan
    Heathcoat-Amory, rh DavidSelous, Andrew
    Hendry, CharlesShepherd, Richard
    Hermon, LadySimmonds, Mark
    Holmes, PaulSimpson, Keith (M-Norfolk)
    Horam, John (Orpington)Smith, Sir Robert (W Ab'd'ns &
    Howard, rh Michael

    Kincardine)

    Howarth, Gerald (Aldershot)Soames, Nicholas
    Hunter, AndrewSpelman, Mrs Caroline
    Jack, rh MichaelSpicer, Sir Michael
    Jenkin, BernardSpink, Bob (Castle Point)
    Johnson, Boris (Henley)Spring, Richard
    Keetch, PaulStanley, rh Sir John
    Kennedy, rh Charles (Ross Skye &Streeter, Gary

    Inverness)

    Stunell, Andrew
    Key, Robert (Salisbury)Syms, Robert
    Kirkbride, Miss JulieTapsell, Sir Peter
    Kirkwood, Sir ArchyTaylor, Ian (Esher)
    Knight, rh Greg (E Yorkshire)Taylor, John (Solihull)
    Lamb, NormanTaylor, Matthew (Truro)
    Lansley, AndrewTaylor, Dr. Richard (Wyre F)
    Laws, David (Yeovil)Thomas, Simon (Ceredigion)
    Leigh, EdwardThurso, John
    Letwin, rh OliverTonge, Dr. Jenny
    Lewis, Dr. Julian (New Forest E)Tredinnick, David
    Liddell-Grainger, IanTrend, Michael
    Lidington, DavidTrimble, rh David
    Lilley, rh PeterTurner, Andrew (Isle of Wight)
    Llwyd, ElfynTyrie, Andrew
    Loughton, TimViggers, Peter
    Luff, Peter (M-Worcs)Waterson, Nigel
    McIntosh, Miss AnneWatkinson, Angela
    Mackay, rh AndrewWebb, Steve (Northavon)
    Maclean, rh DavidWeir, Michael
    McLoughlin, PatrickWhittingdale, John
    Malins, HumfreyWiggin, Bill
    Maples, JohnWilletts, David
    Marsden, Paul (Shrewsbury &Williams, Hywel (Caernarfon)

    Atcham)

    Winterton, Ann (Congleton)
    Maude, rh FrancisWishart, Pete
    Mawhinney, rh Sir BrianYoung, rh Sir George
    May, Mrs TheresaYounger-Ross, Richard
    Mitchell, Andrew (Sutton

    Coldfield)

    Tellers for the Ayes:

    Moore, Michael

    Mr. David Wilshire and

    Moss, Malcolm

    Mr. Mark Hoban

    NOES

    Adams, Irene (Paisley N)Dalyell, Tam
    Ainger, NickDavey, Valerie (Bristol W)
    Ainsworth, Bob (Cov'try NE)David, Wayne
    Alexander, DouglasDavidson, Ian
    Allen, GrahamDavies, rh Denzil (Llanelli)
    Anderson, Janet (Rossendale &Davies, Geraint (Croydon C)

    Darwen)

    Davis, rh Terry (B'ham Hodge H)
    Armstrong, rh Ms HilaryDawson, Hilton
    Atherton, Ms CandyDean, Mrs Janet
    Atkins, CharlotteDenham, rh John
    Austin, JohnDhanda, Parmjit
    Bailey, AdrianDismore, Andrew
    Baird, VeraDobbin, Jim (Heywood)
    Banks, TonyDonohoe, Brian H.
    Barnes, HarryDoran, Frank
    Battle, JohnDrew, David (Stroud)
    Bayley, HughDunwoody, Mrs Gwyneth
    Beard, NigelEfford, Clive
    Beckett, rh MargaretEllman, Mrs Louise
    Begg, Miss AnneEtherington, Bill
    Bell, StuartField, rh Frank (Birkenhead)
    Bennett, AndrewFisher, Mark
    Benton, Joe (Bootle)Fitzsimons, Mrs Lorna
    Berry, RogerFollett, Barbara
    Best, HaroldFoster, rh Derek
    Betts, CliveFoster, Michael Jabez (Hastings
    Blackman, Liz

    & Rye)

    Blears, Ms HazelFoulkes, rh George
    Blizzard, BobGeorge, rh Bruce (Walsall S)
    Borrow, DavidGerrard, Neil
    Bradley, rh Keith (Withington)Gilroy, Linda
    Bradley, Peter (The Wrekin)Godsiff, Roger
    Bradshaw, BenGoggins, Paul
    Brennan, KevinGriffiths, Jane (Reading E)
    Brown, Russell (Dumfries)Griffiths, Nigel (Edinburgh S)
    Buck, Ms KarenGriffiths, Win (Bridgend)
    Burden, RichardGrogan, John
    Burgon, ColinHain, rh Peter
    Burnham, AndyHall, Mike (Weaver Vale)
    Byers, rh StephenHall, Patrick (Bedford)
    Campbell, Alan (Tynemouth)Hamilton, David (Midlothian)
    Campbell, Mrs Anne (C'bridge)Hamilton, Fabian (Leeds NE)
    Campbell, Ronnie (Blyth V)Hanson, David
    Caplin, IvorHarman, rh Ms Harriet
    Casale, RogerHarris, Tom (Glasgow Cathcart)
    Challen, ColinHavard, Dai (Merthyr Tydfil &
    Clapham, Michael

    Rhymney)

    Clark, Mrs Helen (Peterborough)Healey, John
    Clark, Dr. Lynda (EdinburghHenderson, Doug (Newcastle N)

    Pentlands)

    Henderson, Ivan (Harwich)
    Clarke, rh Tom (Coatbridge &Hendrick, Mark

    Chryston)

    Hepburn, Stephen
    Clarke, Tony (Northampton S)Heppell, John
    Clelland, DavidHesford, Stephen
    Clwyd, Ann (Cynon V)Hewitt, rh Ms Patricia
    Coffey, Ms AnnHeyes, David
    Cohen, HarryHinchliffe, David
    Coleman, IainHodge, Margaret
    Connarty, MichaelHoey, Kate (Vauxhall)
    Cook, Frank (Stockton N)Hood, Jimmy (Clydesdale)
    Cook, rh Robin (Livingston)Hoon, rh Geoffrey
    Cooper, YvetteHopkins, Kelvin
    Corbyn, JeremyHowarth, George (Knowsley N &
    Corston, Jean

    Sefton E)

    Cousins, JimHowells, Dr. Kim
    Cox, Tom (Tooting)Hughes, Kevin (Doncaster N)
    Cranston, RossHumble, Mrs Joan
    Cruddas, JonHurst, Alan (Braintree)
    Cryer, Ann (Keighley)Hutton, rh John
    Cryer, John (Hornchurch)Iddon, Dr. Brian
    Cummings, JohnIllsley, Eric
    Cunningham, rh Dr. JackIngram, rh Adam

    (Copeland)

    Irranca-Davies, Huw
    Cunningham, Jim (Coventry S)Jackson, Glenda (Hamstead &
    Cunningham, Tony (Workington)

    Highgate)

    Jackson, Helen (Hillsborough)Olner, Bill
    Jenkins, BrianO'Neill, Martin
    Johnson, Miss Melanie (WelwynPalmer, Dr. Nick

    Hatfield)

    Picking, Anne
    Jones, Helen (Warrington N)Pickthall, Colin
    Jones, Jon Owen (Cardiff C)Pike, Peter (Burnley)
    Jones, Lynne (Selly Oak)Pollard, Kerry
    Keeble, Ms SallyPope, Greg (Hyndburn)
    Keen, Alan (Feltham)Pound, Stephen
    Kemp, FraserPrentice Ms Bridget (Lewisham
    Khabra, Piara S.

    E)

    Kidney, DavidPrentice Gordon (Pendle)
    Kilfoyle, PeterPrimarolo, rh Dawn
    King, Andy (Rugby)Prosser, Gwyn
    King, Ms Oona (Bethnal Green &Purchase, Ken

    Bow)

    Quinn, Lawrie
    Knight, Jim (S Dorset)Reed, Andy (Loughborough)
    Kumar, Dr. AshokReid, rh Dr. John (Hamilton N &
    Ladyman, Dr. Stephen

    Bellshill)

    Lammy, DavidRobertson, John (Glasgow
    Lawrence, Mrs Jackie

    Anniesland)

    Laxton, Bob (Derby N)Robinson, Geoffrey (Coventry
    Lepper, David

    NW)

    Leslie, ChristopherRoche, Mrs Barbara
    Levitt, Tom (High Peak)Rooney, Terry
    Lewis, Ivan (Bury S)Ross, Ernie (Dundee W)
    Lewis, Terry (Worsley)Roy, Frank (Motherwell)
    Linton, MartinRuane, Chris
    Lloyd, Tony (Manchester C)Ruddock, Joan
    Love, AndrewRussell, Ms Christine (City of
    Lucas, Ian (Wrexham)

    Chester)

    Luke, Iain (Dundee E)Ryan, Joan (Enfield N)
    Lyons, John (Strathkelvin)Salter, Martin
    McAvoy, ThomasSarwar, Mohammad
    McCabe, StephenSavidge Malcolm
    McCafferty, ChrisSawford, Phil
    McDonagh, SiobhainSedgemore, Brian
    McDonnell, JohnShaw, Jonathan
    MacDougall, JohnSheridan, Jim
    McFall, JohnShort, rh Clare
    McGuire, Mrs AnneSingh, Marsha
    McIsaac, ShonaSkinner, Dennis
    McKechin, AnnSmith, rh Andrew (Oxford E)
    McKenna, RosemarySmith, rh Chris (Islington S &
    Mackinlay, Andrew

    Finsbury)

    McNulty, TonySmith, Geraldine (Morecambe &
    Mactaggart, Fiona

    Lunesdale)

    McWalter, TonySmith, Jacqui (Redditch)
    Mahmood, KhalidSmith, John (Glamorgan)
    Mahon, Mrs AliceSmith, Llew (Blaenau Gwent)
    Mallaber, JudySouthworth, Helen
    Mandelson, rh PeterStarkey, Dr. Phyllis
    Mann, John (Bassetlaw)Steinberg, Gerry
    Marris, Rob (Wolverh'ton SW)Stevenson, George
    Marsden, Gordon (Blackpool S)Stewart, Ian (Eccles)
    Marshall, David (GlasgowStinchcombe, Paul

    Shettleston)

    Stoate, Dr. Howard
    Martlew, EricStringer, Graham
    Meacher, rh MichaelStuart, Ms Gisela
    Merron, GillianSutcliffe, Gerry
    Michael, rh AlunTami, Mark (Alyn)
    Milburn, rh AlanTaylor, Dari (Stockton S)
    Miller, AndrewThomas, Gareth (Clwyd W)
    Mitchell, Austin (Gt Grimsby)Tipping, Paddy
    Moffatt, LauraTouhig, Don (Islwyn)
    Moran, MargaretTrickett, Jon
    Morgan, JulieTruswell, Paul
    Mountford, KaliTurner, Dennis (Wolverh'ton SE)
    Mudie, GeorgeTurner, Dr. Desmond (Brighton
    Mullin, Chris

    Kemptown)

    Murphy, Denis (Wansbeck)Turner, Neil (Wigan)
    Murphy, Jim (Eastwood)Twigg, Derek (Halton)
    Naysmith, Dr. DougTynan, Bill (Hamilton S)
    Norris, Dan (Wansdyke)Vaz, Keith (Leicester E)
    O'Brien, Bill (Normanton)Vis, Dr. Rudi
    O'Hara, EdwardWalley, Ms Joan

    Ward, ClaireWoodward, Shaun
    Wareing, Robert N.Worthington, Tony
    Watson, Tom (W Bromwich E)Wray, James (Glasgow
    Watts, David

    Baillieston)

    White, BrianWright Anthony D. (Gt
    Whitehead, Dr. Alan

    Yarmouth)

    Williams, rh Alan (Swansea W)Wright, David (Telford)
    Williams, Betty (Conwy)Wright, Tony (Cannock)
    Winnick, DavidWyatt, Derek
    Winterton, Ms Rosie (Doncaster

    Tellers for the Noes:

    C)

    Jim Fitzpatrick and

    Wood, Mike (Batley)

    Paul Clark

    Question accordingly negatived.

    New Clause 2

    Debits And Credits Treated As Relating To Capital Expenditure

  • '.—(1) Paragraph 14 of Schedule 9 to the Finance Act 1996 (debits and credits treated as relating to capital expenditure) is amended as follows:
  • (2) After subparagraph (1) insert—
  • "(1A) This paragraph also applies where any debit or credit given by an authorised accounting method for any accounting period in respect of a loan relationship of a company is allowed by generally accepted accounting practice to be treated, in the accounts of the company, as an amount brought into account in determining the value of a financial asset.".
  • (3) After subparagraph (3) insert—
  • "(4) For the purpose of subparagraph (1A) above a `financial asset' is as defined by Financial Reporting Standard 5 issued in April 1994 by the Accounting Standards Board, as from time to time amended.".'.— [Mr. Flight.]
  • Brought up, and read the First time.

    4 pm

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

    This is a technical proposal to sort out a continuing anomaly from the Finance Act 1996, and is designed particularly to sort out some problems for PFI companies. PFI companies can account for the cost of construction assets for the public sector as either fixed assets or financial assets depending on the interpretation and application of financial reporting standard 5, application note F. The corporate tax treatment does not always follow the accounting treatment and, with either accounting treatment, the cost of construction can be taxed on a capital basis.

    The current loan relationship legislation under the 1996 Act provides that where interest is capitalised into a fixed asset for accounting purposes, a corporate tax deduction can be taken in the accounting period in which the interest is incurred. Where interest is capitalised into a financial asset, the Revenue's view is that the corporate tax deduction should be spread over the life of the asset, with the profile of the deductions following the write-down of the asset in the balance sheet. The tax deduction will not be taken at a time when there is an equivalent debit to the profit and loss account and does not follow the accounting treatment.

    The pricing of PFI contracts takes into account the time value of money. An interest deduction is worth more and will reduce the price to the public sector if it is available sooner rather than later. Many PFI companies have priced on that basis. The current rules prejudice companies that account for the construction costs as a financial asset. New clause 2 is designed to correct this anomaly, providing that the timing of the deduction for capitalised interest is not dependent upon the interpretation of accounting guidelines. The new clause amends the loan relationship legislation as enacted by the Finance Act 1996.

    I am a little surprised that the hon. Gentleman is still pushing this new clause, particularly as I understand that it was prompted by a practitioner group seeking clarification of the operation of the existing legislation. That clarification has been provided and accepted by that group. The new clause is unnecessary. I shall ask the House to reject it, but I should briefly explain the position regarding existing legislation. The practitioner groups to which the hon. Gentleman has referred have accepted the guidance from the Revenue.

    The new clause provides for an interest deduction to be allowed to a company when that interest is accrued, even though the interest may not be debited to the company's profit and loss account. That can occur quite properly in accordance with the UK generally accepted accounting practice as part of the capitalisation of the construction costs of a major capital project.

    The new clause is intended to ensure that where interest and associated construction costs are accounted for as financial assets, the interest costs can be deducted for tax purposes as they accrue. The new clause is unnecessary. The loan relationships legislation in the Finance Act 1996 already provides for capitalised interest to be deducted as it accrues despite not having been taken into the profit and loss account.

    As I said, I understood that the new clause, tabled some weeks ago, was related to clarification for particular practitioner groups. Following the tabling of the new clause, constructive dialogue took place between the Revenue and the external representatives of the head office, PFI contracts group. I am sorry that the hon. Gentleman has not been informed that that reassured the group that existing legislation already provides the certainty that it requires—specifically, that the Revenue accepts that, where a PFI property is a fixed asset for tax purposes, it will fall within the definition of a fixed capital project in paragraph 14 of schedule 9 of the Finance Act 1996. That ensures that relief for interest is properly given as it accrues. The Revenue has confirmed the provision and will confirm it again in new guidance in the very near future. I ask my hon. Friends to vote against the new clause, should it be put to the vote. It is unnecessary because the current legislation is quite clear.

    I am grateful for the Paymaster General's comments, which had not been relayed to me. The briefing behind the new clause was not the group to which she referred. As it appears that the Government picked up the point from the new clause that we tabled, it would have been helpful if the Government could have advised us. However, on the basis that the problem has been dealt with, I beg to ask leave to withdraw the motion.

    Motion and clause, by leave, withdrawn.

    New Clause 3

    Continuation Of Children's Tax Credit For Persons Subject To Immigration Control

    '(1) Where this section applies—

  • (a) the repeal of section 257AA of, and Schedule 13B to, the Taxes Act 1988 (children's tax credit) by sections 1(3)(a) and 60 of, and Schedule 6 to, the Tax Credits Act 2002 (the 2002 Act); and
  • (b) the repeal of the references to "section 257AA" in section 257C of the Taxes Act 1988 by section 60 of, and Schedule 6 to, the 2002 Act
    shall not apply.
  • (2) This section applies where the claimant is wholly or partly excluded from entitlement to child tax credit or working tax credit (or both) by reason of being a person subject to immigration control within the meaning of section 42 of the 2002 Act and regulations made thereunder.'.— [Mr. Flight.]

    Brought up, and read the First time.

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

    This is a probing new clause, which provides for children's tax credit to continue under the new child tax credit arrangements for persons subject to immigration control. We are essentially seeking Government comment, and perhaps an undertaking to review the tax credits regime as it applies to immigrant workers and impacts on their children. Practical issues are lurking, and nothing in the new child tax credit guide says that migrant workers who were previously entitled to children's tax credit will not be entitled to the new child tax credit. That is likely to result in applications being made in ignorance of the changes to payments and then to potential problems in recouping the moneys paid from parents who may not be able to afford it. In those circumstances, do the Government intend to pursue reclaims? There is also an issue of whether it is right to prejudice the children of genuine migrants, especially when the Chancellor's Budget speech specifically mentioned improvements to skilled migrants' programmes and to the skills needed.

    We support the new clause and commend the hon. Gentleman for bringing it forward. The low income tax reform group has also helped to highlight the issue. The most important aspect of the new clause is that it aims to restore the position of certain skilled migrants to what pertained before the abolition of the children's tax credit and the introduction of the child tax credit in April this year. It seems that there have inadvertently been some losers as a consequence of the changes introduced in the Budget. Among those losers are skilled migrants from non-EU countries who lose entitlement under the new regime to a tax credit that they previously enjoyed. In some cases, individuals could be as much as £10 or even £20 worse off per week, which is unfortunate given that we are talking about a group of people who may already be on low incomes.

    The situation gives rise to three issues of fairness, the first of which is the fairness of where we are now under Government regulations by comparison with where we were before the changes were introduced. It appears that a particular group of workers has been put in a worse position with no apparent justification. The second potential unfairness is the comparative treatment of EU and non-EU individuals working in this country, with only the EU individuals receiving child tax credit, even though they may be in exactly the same jobs as the non-EU individuals. The third issue is the need to flush out Government thinking about why particular individuals should be denied a tax credit when they are paying tax on the earnings from the employment that they are entering into in this country. That calls into question the thrust of the Government's approach on tax credits and whether they are supposed to represent the reimbursement of tax already paid or constitute some kind of benefit that the Government can withhold on the basis that tax credits are regarded under existing rules as being public funds to which individuals subject to immigration controls are not entitled to have recourse. That seems to be the basis on which the Government are withholding child tax credits from the individuals in question. This is an important matter, and we have too little time to explore it. I hope we have given the Paymaster General enough time to address some of the issues.

    The issue is quite straightforward, and the new tax credits follow the practice adopted with the working families tax credit and the disabled person's tax credit. The child tax credit replaces elements of both those tax credits as well as children's tax credit relief. From 2004, the child elements of out-of-work benefits from income support and jobseeker's allowance will build on the benefits of child benefit itself.

    It is a long-standing requirement of immigration rules that those who come to the United Kingdom should be able to support themselves without recourse to public funds. For that reason, persons subject to immigration controls are not able to claim the new child tax credit, as they were previously not able to claim the working families tax credit and the disabled person's tax credit. The new child tax credit incorporates elements from a range of systems of support—tax, tax credits and social security. It is inevitable, therefore, that there will be changes in comparison with the existing system.

    The issues for income tax relief, such as the children's tax credit, are different in this area from those for the payable tax credits, because the value of the relief can never exceed the income liability. On that point, the working families tax credit—the main method of support in the last Parliament for working families on lower incomes—provides a precedent for how to proceed in these circumstances. The rules for the new tax credits need to fit within the same wider policy framework as those for working families tax credit.

    The child tax credit is the means by which we now support children. In terms of immigration laws, we are simply following the long-established policy that some people are allowed to remain here subject to certain conditions, which means that they must be able to support themselves. Conditions attached to leave to remain are a matter for the Home Office, not for our regulations. Within the wider policy framework, we have worked to ensure that the rules are fair and work fairly between couples.

    The Paymaster General says that there are long-established conventions, but will she acknowledge that a category of individual skilled migrants will be worse off as a consequence of the changes being implemented?

    Reliefs can change, as can the tax system. Behind the new tax credits, and the requirements that are not subject to change by me as a Treasury Minister, are the policies that the Government, and previous Governments, have pursued with regard to conditions that are placed on people who have leave—

    It being three and a half hours after the commencement of proceedings on the first Ways and Means motion relating to the Bill, MR. DEPUTY SPEAKER, pursuant to Order [this day], put forthwith the Question already proposed from the Chair.

    Question negatived.

    4.15 pm

    On a point of order, Mr. Deputy Speaker. On two occasions, first in the Committee of the whole House and now on Report, we have lost a vital amendment that affects my constituents and many others who are concerned about North sea oil exploration and the thousands of jobs that depend on it. As you know, Mr. Deputy Speaker, I am not a paranoid sort of guy, but I am beginning to wonder whether there might be something so powerful in the amendment that the Government are resorting to these underhand and shabby techniques to avoid debating it. If not, is not the whole timetabling of the Finance Bill deficient if important amendments, duly selected, are not being considered?

    Your knowledge of Standing Orders is much greater than mine, Mr. Deputy Speaker, so my point of order is this. Is there anything in our Standing Orders to state that if an amendment is selected for the third time it must be debated? Do we have a "three strikes and you're in" policy in the House and, if we do not, should we have such a policy to stop vital amendments being lost in that fashion?

    I understand the hon. Gentleman's concern, and I am sorry that new clause 9 was not reached this afternoon. However, he will understand that the Chair can do nothing about that; I am purely the servant of the House in such matters and we are only doing what the House has already decided it will do today. I am sure, however, that the hon. Gentleman has put his point firmly on the record.

    Clause 9

    Bingo Duty

    I beg to move amendment No. 3, page 6, line 22, leave out "15" and insert "5".

    With this it will be convenient to discuss the following: amendment No. 1, in page 7, line 8, at end insert

    "less the amount of value added tax paid or payable by the person on those payments".
    Government amendment No. 4.

    If proof were needed that there was no need for the knife to have fallen, the point of order made by the hon. Member for Banff and Buchan (Mr. Salmond) provided it. It is well known that I was deeply opposed to the timetable. Given the progress that we are making, it would have been possible to cover all the new clauses.

    The amendments relate to bingo duty. Hon. Members will recall the extended debate on the issue in the Committee of the whole House. We highlighted a number of serious shortcomings and a complete mismatch between the Chancellor's rhetoric in his Budget speech and the Government's actions in the Finance Bill.

    Our amendments have a common aim: to put in law the Chancellor's promises to all bingo players in this country. In his Budget speech, the Chancellor said:
    "I turn now to bingo. I will abolish the bingo tax … just as I have abolished direct taxes on the pools and on betting on horse racing."
    The phrase "just as I have" was clearly intended to give bingo players and clubs a promise from the Government. The Government successfully created the expectation among all those interested in bingo—the providers or the millions who play the game—that there was to be direct equivalence. The Chancellor continued:
    "The tax on bingo players' stakes and the tax on bingo prizes will be replaced in the same way as the tax on betting and the pools."—[Official Report, 9 April 2003; Vol. 403, c. 278.]
    When the Chancellor used language such as "just as I have" and "will be replaced in the same way", were not bingo players and clubs right to think that he intended to create an expectation that there would be direct equivalence? Indeed, that expectation was built up well before the Budget speech, when the bingo industry and players were led to believe, from discussions with Customs and Excise, that the tax system would make participation fees VAT exempt and that the new gross profits tax would be levied at 15 per cent., "just as", or in the same way as for betting and the pools.

    It is with the deepest regret—although, unfortunately, it is no surprise with this Chancellor—that we find that the Chancellor has not lived up to the words in his Budget speech. The Finance Bill made it clear not only that VAT would remain but that it would not be treated as expenditure in the GPT calculation, which will result in double taxation. Faced with that reality, the bingo industry will not be able to meet players' expectations of increased prizes. That deliberate and intended consequence shows that the Chancellor's actions are the opposite of his words.

    Amendment No. 1 would remove the double taxation. It would not be necessary if the Government lived up to their promises and introduced an amendment to make participation fees VAT exempt. The House will appreciate that I am not permitted to table such an amendment, but the Government could easily address the matter. I note that the Government have tabled a similar amendment—amendment No. 4—clearly prompted by my call on the Floor of the House on 13 May.

    When the Government tabled the amendments and issued the Treasury press release, they claimed all sorts of wonderful things for bingo, but we can show that their words do not match their deeds. Frankly, that would be too much to expect. Indeed, it never happens. No credit whatsoever is given to parliamentary procedure, to accountability or, of course, to Her Majesty's official Opposition, who have pressed the point to the extent that, with deep embarrassment, the Government have had to admit to the fact that they have failed to live up to their promises.

    I welcome Government amendment No. 4, and I am delighted that the Economic Secretary has been persuaded by my arguments. If the Government assure me that they will move their amendment, I will be able to seek the leave of the House to withdraw amendment No. 1, but, yet again, I will have to wait to hear whether Ministers can live up to their words. I will have to wait to see whether the Economic Secretary moves that amendment.

    I also tabled a second amendment, amendment No. 3, which is tied to the fact that I am not permitted to table an amendment to make participation fees VAT exempt. The reason I am not allowed to do so is plain for all to see: such matters have, in effect, been delegated to the European Union, and we cannot hold the Government to account about them on the Floor of the House.

    The Chancellor created an expectation that the bingo industry would be put on a level playing field with the rest of the gaming industry and suffer an effective GPT rate of 15 per cent., with VAT-exempt participation fees. I understand that, as participation fees remain liable to VAT, the net VAT cost to the bingo industry is approximately 10 per cent. Under amendment No. 3, we would reduce the GPT rate to 5 per cent., so the effective rate of tax would be kept at 15 per cent.

    Amendment No. 3 is less elegant than simply making participation fees VAT exempt, and I trust that, as with double taxation, the Economic Secretary will be similarly persuaded by my arguments and will agree to make participation fees VAT exempt. That is entirely within his gift; I cannot do it, but I can certainly introduce my amendment, which would have the same effect. Why deal with the issue in a more difficult way when it is in the Government's gift to ensure that things happen in the most appropriate, straightforward and elegant way that would be easily understood by all bingo players throughout the country, as well as the clubs themselves?

    I am grateful to my hon. Friend for the interest that he has shown in this matter. Until yesterday, I was the shadow Minister with responsibility for gambling—I had been for some time—and I can tell him that the bingo industry is deeply annoyed and angry at the way in which the Government have treated it over this issue. However, may I clarify what he is saying? He says that he cannot commit the Conservative party to a VAT exemption, but is he saying that it is our policy to ensure that there would be tax equalisation between bingo and other forms of gambling, because that would certainly be a worthy aim that this country's 7 million bingo players would deeply appreciate?

    I am grateful to my hon. Friend for that intervention, and I know that he takes a tremendous interest in and supports not only the bingo industry, but all the gaming industries, which are so important to constituents throughout the country.

    I am sure that my hon. Friend followed the technical position in relation to the Finance Bill: as members of Her Majesty's Opposition, it is not in our terms of reference, or in the Standing Orders, to table amendments that adjust VAT rates, so we have had to look for an alternative. By doing so, we are seeking to ensure that the Chancellor lives up to his promise, which was the bingo industry's incentive to move from GPT to bingo tax, as that may happen with the consent of pools and betting on horse racing, but against the express wishes of the bingo industry. To get those in the bingo industry to agree, they were promised a level playing field.

    We have to hold the Chancellor to account for his words. I am waiting for the Government to deliver. It is up to them to find the resources to match their promises with the deeds on taxation that they should have implemented in the first place. If they do the honourable thing and step up to their promises rather than having to be dragged inch by inch in such an appalling way, we will inherit that position after the next general election. We have absolutely no intention of changing that position if the Government live up to their promises.

    The Economic Secretary might well argue that the Government's measures deliver benefits to the bingo industry worth £35 million. He might also argue that the bingo industry will always want more, but every industry would. He might argue that the Government must make difficult decisions on the scope and size of tax cuts and draw the line, but that misses the point. The Chancellor's Budget speech raised the expectation of a level playing field with the rest of the gaming industry. Indeed, the expectations of the industry and bingo players were raised before the speech was made. The line was drawn before and during the Budget speech but, as has happened so often during consideration of the Bill, the Government moved the line.

    When I moved an amendment to implement my call for the removal of double taxation at a benefit of £10 million per annum, the Treasury issued a press release saying that
    "the tax reforms will now mean around £125 million a year more in prizes or other player benefits".
    That raised false expectations. It is fair to note the fourth note to editors in the press release, which said that the reform will mean
    "half a million more visits to bingo clubs, and a £30 million increase in the industry's profits in 2007."
    It was interesting to read the bingo industry's reaction, because it had rightly been involved in negotiations with the Government. That is no surprise because the Government's technique is to try to get anyone who is about to criticise them into new Labour's big tent by saying, "Come and have a chat with us. Don't get offside because if you start to get too difficult we will not be able to deliver anything because we cannot stand up to that."

    The Government claimed that a £10 million boost would deliver £125 million of benefits, but an article written by Susie Mesure, which was published in The Independent on 20 June, said:
    "Sir Peter Fry, the chairman of the Bingo Association, said: `You don't have to be a mathematical genius to work out that a net saving of £35m won't give £125m in extra prizes yet that is the impression that is being given. There is no way the £125m in extra prizes can be claimed in anything like the near future."
    The article continued:
    "While Sir Peter acknowledged that an additional £10m was helpful, he said the Treasury's suggestion that this would create £125m in extra prizes was false. 'This will cause aggravation among bingo members', he said. Not to make it clear that the extra £125m would not happen today but was years off happening was rather naughty.'"—
    I think that he was exceptionally measured and that he pulled his punches by saying that. It is clear that the Treasury's intention was to try to see off the industry but not to give it the level playing field promised by the Chancellor.

    It is an absolute outrage that we have had to table an amendment and drag the Government along kicking and screaming—I fear that they will scream rather than kick their proposal into touch and adopt ours, although I would be jolly glad if they did. I do not anticipate that they will do that because they cannot bring themselves to accept that there is some democracy in this country and that there is a purpose of having an official Opposition who can spot when the Government are playing fast and loose. It is time for them to step up to meet their promises.

    It is critical that the Government accept the amendments. The mention of bingo in the Budget speech gave the Chancellor his only opportunity to make a joke—it fell completely flat—and he raised expectations. I call on him to live up to his promises and create a level playing field for the bingo industry, rather than playing with numbers and bingo players' expectations, so that this country's bingo players get the fair deal that they deserve, and they can be assured that they would get that from the Conservatives. I urge hon. Members to accept the amendments because it is a matter of honour to meet the expectations created by the Chancellor. Depending on whether we receive a satisfactory response from the Economic Secretary, I hope that hon. Members will join me in the Lobby.

    4.30 pm

    I shall be brief because I do not want the House to experience the problem highlighted by the hon. Member for Banff and Buchan (Mr. Salmond) of not having time to debate the most important amendment—in this case, arguably, on insurance companies—which is in the last group.

    The Minister addressed the Bingo Association conference the other day and I had the pleasure of speaking soon after. In their cack-handed way, the Government have done two things. First, they have united a bingo industry that, in most other respects, is divided. The two big bingo club organisations, which have about half the bingo clubs between them, support the Government's proposal for bingo in casinos. That also means that a casino could be in a bingo hall if their deregulation plans are successful. It will be interesting to see how that develops. However, the rest of the industry—all the smaller clubs—do not want that to happen. They would rather protect bingo as it is, but to do that the game has to compete with other forms of gambling. That is why the industry is united in its opposition to the Government's proposal. When I intervened on my hon. Friend the Member for Eddisbury (Mr. O'Brien), I said that it is annoyed and angry, but that is putting it mildly. As he argued, the Chancellor made a promise that he has not kept.

    The second consequence of the Government's actions is, in social terms, deeply disturbing. I do not suggest that only men go into betting shops and only women go into bingo halls, but the majority of punters who go into betting shops are men and the large number of people who go into bingo clubs are women. I hope the House accepts that generalisation. As a result of the change to gross profits tax for bets in betting shops, when the husband has a bet on the 3 o'clock at Doncaster he will pay less tax on the outcome of that race than his wife will pay when she spends an evening in a bingo club, because she will be taxed twice—on the VAT on the participation fee and as a result of the 15 per cent. profits tax that bingo proprietors will have to pay. That has been explained to the Government and I cannot understand why, having heard that message, they continue to set their face against the change.

    The Minister said something interesting at the Bingo Association conference. It came as a surprise to most bingo proprietors present when he said that the Government did not intend to equalise the tax across different forms of gambling. That is not the impression given to the bingo industry in the suggestion that there should be a gross profits tax.

    I am left with two thoughts. The first is that whatever the House decides to do, we have not heard the last of this. It would not surprise me to find that next time we debate the subject, the Labour Benches are not deserted. Right hon. and hon. Members from all over the country will be in the Chamber because their bingo club members, whose votes they will wish to garner at the next general election, will have urged them to be here.

    My second thought is to question how the Chancellor could introduce this measure. What is he up to? What is the point of this proposal? Apart from the tidiness of moving to a gross profits tax for bingo, as for other forms of gambling—I can understand that and think, in general, it should be welcomed—what were his motives? The truth is—this is a general point in relation to the overall debate on the Finance Bill—he is saying, "I realise that I am for ever raising taxes. I want to announce a cut in tax." The proposal was sold on the day of the Budget as a cut in tax. The reality, however, is that there is no cut in tax. There is a cut in tax for people who go to the betting shop—that has been delivered—but there is no cut in tax for the 7 million people who play bingo. Gradually, as they discover that they have been cheated by the Government, they will be deeply angry.

    I believe that the House will want to reconsider the measure. I hope that the Minister thinks long and hard before he rejects amendment No. 3. He should consider what the Government need to do about the problem now. If they do nothing, they will lose face in future.

    In the face of a strong showing from the bingo industry and after much hard graft by my hon. Friend the Member for Eddisbury (Mr. O'Brien) the Government have announced an extra £10 million tax cut for bingo. The Government have not been shy in suggesting that that should create an extra £125 million in prize money, or as the Daily Express, obligingly for Labour, put it on 19 June:

    "Bingo—it's a £125 million bonus".
    However, as with so much else that we see from the Government, when the initial media stunts and spin calm down, the catches and inaccuracies begin to creep out of their dark holes.

    It seems that, to achieve their £125 million, the Government are maintaining that by cutting the tax 500,000 extra people will rush out and play bingo. Perhaps the Government have based that conclusion on the thousands of people who will now be looking for a return on their money following the Government's demolition job on ISAs. Whatever the Government's pie-in-the-sky reasoning may be, I can only note, as did my hon. Friend the Member for Eddisbury, the disbelief of the chairman of the Bingo Association in the Government's figures. He said that the £125 million would not happen today but was years off, and would be ruined in any event if the Government increased the tax on machines in bingo clubs.

    This might be a good opportunity to ask the Minister whether the Government have any such intention. One wonders whether the Daily Express will now print "Bingo—it's a £125 million fraud." Somehow I doubt it.

    I welcome Opposition Members' contributions, especially that of the hon. Member for Ryedale (Mr. Greenway). I welcome his declared interest, he having stepped down from the Opposition Front Bench to take an interest in and devote more time to the gambling industry. I am glad that he participated in the debate.

    I say to the hon. Member for Eddisbury (Mr. O'Brien) that whatever the wishes and whatever the expectations, especially within the industry, there is no mismatch between what my right hon. Friend the Chancellor of the Exchequer said in the Budget and what is delivered in the Bill. There was no promise to deliver direct equivalence between the gambling regimes, and no promise to abolish VAT on participation fees. The words "level playing fields" were not those of the Chancellor, and they were not mine. They were the hon. Gentleman's, and they might also have been those of some of his contacts in the industry.

    Of course the bingo industry wanted more from the tax reforms. Indeed, it argued for more during consultation. It argued, unsurprisingly, as does the hon. Member for Eddisbury, for the full removal of VAT from players' participation fees. That would have cost at least another £50 million more than the proposals set out in the Budget and in the Bill.

    I shall respond to some of the detailed points that have been raised and explain the purpose behind Government amendment No. 4.

    Before the Minister does that, perhaps he will help the House by telling us whether it is the Government's long-term aim to move to equality between bingo and betting and the pools. If it is their aim, when does he seek to achieve it?

    The short answer is no. The hon. Member for Yeovil (Mr. Laws) presses the same argument in relation to the excise regime for alcohol. It is certainly an objective to have a fairer balance between the different gambling and alcohol regimes, but it is not the Government's objective or policy to seek direct equivalence. I hope that that makes the matter clear and categoric for the hon. Gentleman.

    I understand why the hon. Member for Eddisbury wants to claim credit for Government amendment No. 4 and for my decision that lies behind it. I made it clear during the debate on bingo duty reform in the Committee of the whole House that I was already in discussion with the bingo industry. I undertook that, following those discussions, I would consider how the calculation of the gross profits tax interacts with the treatment of VAT on bingo participation fees.

    To recap briefly, our reform of bingo taxation was driven by our desire to boost the bingo industry and give players a better deal. The current tax structure discouraged innovation and penalised bingo companies that lowered their margins. My right hon. Friend the Chancellor announced in the Budget that we would therefore abolish duties on bingo players' stakes and added prize money and replace them with a 15 per cent. tax on bingo companies' gross profits—the difference between the amount spent on the playing of bingo and the amount paid out in prizes. The reform would have delivered a £25 million tax cut to the bingo industry.

    During discussions with officials after Budget day, the bingo industry argued that the new tax structure would produce an unfortunate consequence in the interaction between the gross profits tax and VAT on the participation fees that bingo companies charge players for running games of bingo, and asked us to consider amending clause 9 to remedy that flaw. It also asked us to extend the period for the introduction of reforms, which were scheduled for 4 August, saying that it would take three months to put the arrangements in place. It said that it would prefer a new start date, and 27 October has been specified in the Bill. After discussions with the industry, and at its request, we have altered the definition of the accounting period for the purposes of the new tax so that it better fits the industry's accounting arrangements and record keeping. That demonstrates my commitment to consider carefully the arguments that the industry makes to the Government.

    The Minister accepts that the placing of a bet in a betting shop carries no VAT, but the stake on a game of bingo, because it involves a participation fee—the entrance fee for the evening's games—attracts VAT. I understand the niceties of that. However, if the bingo industry told the Minister that it would reexamine its charging structure for playing bingo to achieve equivalence with the stake in a betting shop or a gaming machine, would he consider that carefully? It appears from what he is saying that he has set his face against a reduced VAT rate for bingo, which will remain standard rated as long as the route of participation fees is taken.

    The hon. Gentleman has made a serious point. It is correct that the gross profits tax on the betting industry is set at 15 per cent, but he will know better than any other Member that that is not the full picture, because bookmakers are required to add a levy from the gross profits that they make on horse racing as a contribution to supporting the industry, thus increasing in many respects the effective tax rate. Curiously but historically, VAT has been levied on bingo playing, but not betting, since the introduction of the VAT regime.

    The hon. Gentleman referred to a speech that I made to the Bingo Association at its annual general meeting in May. I made it clear then that the reforms that we are putting in place are not necessarily a full stop for bingo tax reform. Just as happened with our reforms to gambling, betting and the lottery, we have monitored the present reforms carefully and are ready to consider good evidence and a well-argued case for further reform. Indeed, the Bill makes further reform to duty and tax, particularly on betting exchanges. We had a long discussion of that in Committee.

    As a result of the discussions that the industry had with me and with officials following the Chancellor's Budget statement, amendment No. 4 has been tabled for consideration by the House. It builds on our original reform and will increase the tax cut for the industry from £25 million to £35 million, and reduce the effective tax rate—that is, tax as a percentage of profits—on the playing of bingo from 31 to 24 per cent., similar to the effective tax rates for the national lottery, casinos and gaming machines. The hon. Member for Ryedale cannot deny that that is a cut in the tax for the industry, as he seemed to do in his remarks.

    4.45 pm

    I have spoken to the bingo industry about the amendment, which I know it welcomes. In the Bingo Association's press release of 19 June, Sir Peter Fry, its chairman, said:
    "The revision will make a significant difference, especially for smaller operators."
    John Kelly, the chief executive of Gala, the biggest bingo operator, said that the change would benefit players. The industry, through its work with the Henley centre, has predicted that it can build on this initial £35 million tax cut, and estimates that by 2007 there could be an extra 500,000 visits per year and an extra £125 million in prizes and other benefits to players, compared with its predictions for the same date if we had continued under the old tax system. I can tell the hon. Member for Eddisbury that the industry also projects that this should improve its profitability.

    I welcome the fact that the Opposition have indicated that they can support amendment No. 4 and the change. I believe that it achieves what their amendment No. 1 tries to do, so it may help if I explain why I would be reluctant to accept their version. [Interruption.] The hon. Member for Eddisbury encourages me to move on, so I shall simply say that Opposition amendment No. 1 would have produced a perverse outcome. It would have delivered only about three quarters of the revenue benefit delivered to bingo companies by our approach in amendment No. 4, and companies that have smaller margins or invest more would receive proportionally less benefit than companies that do not.

    As I explained when rejecting a similar amendment in the Committee of the whole House, although we appreciate that the bingo industry wanted a bigger tax cut, we have delivered what we believe will boost bingo, give players a better deal and is affordable in the current situation of fiscal neutrality. To accept amendment No. 3 would require us to increase taxes elsewhere or to reduce spending elsewhere. We are not prepared to do either.

    It is a curious reflection—I put it no stronger than that—that a party that is not prepared to match the investment that we are making in health, education and other vital areas of public services, should choose to make this a priority for a future regime.

    The Minister is quoting again from the Labour lie machine handbook.

    In that case, I quote the hon. Gentleman's boss, the shadow Chancellor, who said:

    "We are not bound by any of the pledges of the last election"—
    pledges to match the Labour party's commitment to increase investment in health and education. The hon. Gentleman's leader said:
    "I explicitly on three separate occasions when asked said we will not match Government spending plans. And I stand by that because our spending on the health service, on education, will be both different from a central Government standpoint and in terms of private and voluntary participation."

    I am grateful for your reminder and admonishment, Mr. Deputy Speaker.

    To accept amendment No. 3 would require us either to increase taxes or to make spending cuts elsewhere. We are prepared to do neither. Our bingo reform is designed to deliver a boost to bingo and a better deal for players. Government amendment No. 4 builds on the original £25 million tax cut by further reducing the tax on bingo by £10 million. That is a good deal for the bingo industry and its players. I commend the Government amendment to the House and look forward to the hon. Member for Eddisbury withdrawing amendment No. 1. I hope that, in the light of my comments, he will not press his other amendment; if he does. I will ask my hon. Friends to resist it.

    I listened carefully to the Economic Secretary. I am grateful to my hon. Friends the Members for Ryedale (Mr. Greenway) and for Huntingdon (Mr. Djanogly) for their contributions. I understand that any acknowledgement that the Government's decision to table amendment No. 4 was prompted by our actions will not be forthcoming. Of course, if amendment No. 1 was not grouped with other amendments, I would be happy to withdraw it, but as it is not a lead amendment I cannot do what the Minister invites me to do.

    The Minister said that the Government amendment is more generous than ours. That comes as no surprise. As I explained, it is uniquely in the Government's gift to change the rate of VAT. The Opposition had to work extraordinarily hard to find a way that did not contravene the Standing Orders of the House as they apply to the Finance Bill to raise the issue and at the same time make our point about the deep anger and anxiety felt by bingo players and the bingo and gaming industry.

    The Economic Secretary frankly admitted that the playing field was not intended to be level and that no promise of direct equivalence was made, and said that the Chancellor had not used those phrases. However, in his Budget speech, the Chancellor used the phrase "just as" and said that bingo tax would be
    "replaced in the same way as the tax on"—[Official Report, 9 April 2003; Vol. 403, c. 278.]
    other forms of gaming. I understand that Members of Parliament are in the business of words when we trade arguments and make our case, but I am conscious that the words we use have direct intended meanings for those outside this place who listen carefully to what we have to say. I know that if I used the phrases "just as" and "in the same way as" in this context, all those who were listening would perceive my intention to be to produce a level playing field and direct equivalence. That is what the Chancellor hoped would be perceived by the bingo players and bingo clubs of this country.

    As my hon. Friend the Member for Ryedale said, there was tension in the bingo industry between small clubs and the large ones, all of whose interests need to be protected. To the very large number of bingo players in this country the clubs are an important source of entertainment, profit and revenue and community facilities—we should not lose sight of the importance to our local communities of such clubs, not least the Top Ten bingo club in Winsford in my constituency. It is a spurious use of spin to suggest that the Government may use words without being too worried about the precise effect that those words have. Above all, Governments are judged on their actions, and in this respect the Government have been found wanting in not having brought bingo into line with other forms of gaming, namely, pools and betting on horse racing.

    It is a further spurious use of spin to suggest that a £10 million tax reduction will lead almost immediately—no time line was cited—to a £125 million benefit to the bingo industry. Notwithstanding its welcome for the £10 million cut, the industry has been criticised and castigated by commentators. When holding the Government to account, we should emphasise the importance of matching the words in the Chancellor's Budget statement with the deeds that the Government propose through the Finance Bill. That view must be reflected, given the deep anger and anxiety I mentioned earlier and—to answer the point and by the hon. Member for Torridge, and West Devon (Mr. Burnett)—given that there was no commitment and no expectation in respect of time.

    I think that we have flushed out the Government's true belief and intent. Unfortunately, they are not matched by what I believe were the intended consequences of the words that the Chancellor used. It is incumbent on us to hold the Government to account on that basis, so I ask my hon. Friends and all those in the House who believe that the future of bingo depends on an equal competitive position in respect of other forms of gaming, as was intended and as was the price for moving to gross profits tax, to join me in the Lobby to support the amendment.

    Question put, That the amendment be made:—

    The House divided: Ayes 185, Noes 304.

    Division No. 264]

    [4:55 pm

    AYES

    Ainsworth, Peter (E Surrey)Field, Mark (Cities of London &
    Allan, Richard

    Westminster)

    Amess, DavidFlight, Howard
    Atkinson, David (Bour'mth E)Flook, Adrian
    Atkinson, Peter (Hexham)Forth, rh Eric
    Bacon, RichardFoster, Don (Bath)
    Baker, NormanFox, Dr. Liam
    Baldry, TonyFrancois, Mark
    Barker, GregoryGarnier, Edward
    Baron, John (Billericay)George, Andrew (St. Ives)
    Barrett, JohnGibb, Nick (Bognor Regis)
    Beith, rh A. J.Gidley, Sandra
    Bellingham, HenryGillan, Mrs Cheryl
    Bercow, JohnGoodman, Paul
    Beresford, Sir PaulGrayling, Chris
    Boswell, TimGreen, Damian (Ashford)
    Bottomley, rh Virginia (SWGreen, Matthew (Ludlow)

    Surrey)

    Greenway, John
    Brake, Tom (Carshalton)Grieve, Dominic
    Brazier, JulianGummer, rh John
    Breed, ColinHague, rh William
    Brooke, Mrs Annette L.Harris, Dr. Evan (Oxford W &
    Browning, Mrs Angela

    Abingdon)

    Burnett, JohnHarvey, Nick
    Burns, SimonHawkins, Nick
    Burnside, DavidHeath, David
    Burt, AlistairHeathcoat-Amory, rh David
    Butterfill, JohnHendry, Charles
    Cable, Dr. VincentHermon, Lady
    Calton, Mrs PastyHoban, Mark (Fareham)
    Cameron, DavidHolmes, Paul
    Campbell, rh Menzies (NE Fife)Horam, John (Orpington)
    Carmichael, AlistairHoward, rh Michael
    Cash, WilliamHowarth, Gerald (Aldershot)
    Chapman, Sir Sydney (ChippingHunter, Andrew

    Barnet)

    Jack, rh Michael
    Chidgey, DavidJenkin, Bernard
    Chope, ChristopherKeetch, Paul
    Clappison, JamesKennedy, rh Charles (Ross Skye &
    Clarke, rh Kenneth (Rushcliffe)

    Inverness

    Clifton-Brown, GeoffreyKey, Robert (Salisbury)
    Collins, TimKirkbride, Miss Julie
    Conway, DerekKirkwood, Sir Archy
    Cormack, Sir PatrickKnight, rh Greg (E Yorkshire)
    Cotter, BrianLaing, Mrs Eleanor
    Cran, James (Beverley)Lait, Mrs Jacqui
    Curry, rh DavidLansley, Andrew
    Davey, Edward (Kingston)Laws, David (Yeovil)
    Davies, Quentin (Grantham &Leigh, Edward

    Stamford)

    Letwin, rh Oliver
    Davis, rh David (Haltemprice &Lewis, Dr. Julian (New Forest E)

    Howden)

    Liddell-Grainger, Ian
    Djanogly, JonathanLidington, David
    Dodds, NigelLilley, rh Peter
    Duncan, Peter (Galloway)Llwyd, Elfyn
    Duncan Smith, rh lainLoughton, Tim
    Evans, NigelLuff, Peter (M-Worcs)
    Ewing, AnnabelleMcIntosh, Miss Anne
    Fabricant, MichaelMackay, rh Andrew
    Fallon, MichaelMaclean, rh David

    McLoughlin, PatrickShepherd, Richard
    Malins, HumfreySimmonds, Mark
    Maples, JohnSmith, Sir Robert (W Ab'd'ns &
    Marsden, Paul (Shrewsbury &

    Kincardine)

    Atcham)

    Soames, Nicholas
    Maude, rh FrancisSpelman, Mrs Caroline
    Mawhinney, rh Sir BrianSpicer, Sir Michael
    May, Mrs TheresaSpink, Bob (Castle Point)
    Mitchell, Andrew (SuttonSpring, Richard

    Coldfield)

    Stanley, rh Sir John
    Moss, MalcolmStreeter, Gary
    Murrison, Dr. AndrewTapsell, Sir Peter
    Norman, ArchieTaylor, Ian (Esher)
    Oaten, Mark (Winchester)Taylor, John (Solihull)
    O'Brien, Stephen (Eddisbury)Taylor, Matthew (Truro)
    Öpik, LembitTaylor, Dr. Richard (Wyre F)
    Osborne, George (Tatton)Thomas, Simon (Ceredigion)
    Ottaway, RichardTonge, Dr. Jenny
    Page, RichardTrend, Michael
    Paice, JamesTrimble, rh David
    Portillo, rh MichaelTurner, Andrew (Isle of Wight)
    Price, Adam (E Carmarthen &Tyrie, Andrew

    Dinefwr)

    Viggers, Peter
    Prisk, Mark (Hertford)Waterson, Nigel
    Pugh, Dr. JohnWatkinson, Angela
    Redwood, rh JohnWebb, Steve (Northavon)
    Reid, Alan (Argyll & Bute)Whittingdale, John
    Robathan, AndrewWiddecombe, rh Miss Ann
    Robertson, Angus (Moray)Wiggin, Bill
    Robertson, Laurence (Tewk'b'ry)Willetts, David
    Robinson, Peter (Belfast E)Williams, Hywel (Caernarfon)
    Roe, Mrs MarionWilshire, David
    Rosindell, AndrewWinterton, Ann (Congleton)
    Ruffley, DavidWishart, Pete
    Russell, Bob (Colchester)Young, rh Sir George
    Salmond, AlexYounger-Ross, Richard
    Sanders, Adrian
    Sayeed, Jonathan

    Tellers for the Ayes:

    Selous, Andrew

    Hugh Robertson and

    Shephard, rh Mrs Gillian

    Mr. Robert Syms

    NOES

    Abbott, Ms DianeBradshaw, Ben
    Adams, Irene (Paisley N)Brennan, Kevin
    Ainger, NickBrown, Russell (Dumfries)
    Ainsworth, Bob (Cov'try NE)Buck, Ms Karen
    Alexander, DouglasBurden, Richard
    Allen, GrahamBurgon, Colin
    Anderson, rh Donald (Swansea E)Burnham, Andy
    Anderson, Janet (Rossendale &Byers, rh Stephen

    Darwen)

    Campbell, Alan (Tynemouth)
    Armstrong, rh Ms HilaryCampbell, Mrs Anne (C'bridge)
    Atherton, Ms CandyCampbell, Ronnie (Blyth V)
    Atkins, CharlotteCaplin, Ivor
    Austin, JohnCasale, Roger
    Bailey, AdrianCawsey, Ian (Brigg)
    Banks, TonyChallen, Colin
    Barnes, HarryClapham, Michael
    Battle, JohnClark, Mrs Helen (Peterborough)
    Bayley, HughClark, Dr. Lynda (Edinburgh
    Beard, Nigel

    Pentlands)

    Beckett, rh MargaretClark, Paul (Gillingham)
    Begg, Miss AnneClarke, rh Tom (Coatbridge &
    Bell, Stuart

    Chryston)

    Bennett, AndrewClarke, Tony (Northampton S)
    Benton, Joe (Bootle)Clelland, David
    Berry, RogerCoffey, Ms Ann
    Best, HaroldCohen, Harry
    Betts, CliveConnarty, Michael
    Blackman, LizCook, Frank (Stockton N)
    Blears, Ms HazelCook, rh Robin (Livingston)
    Blizzard, BobCooper, Yvette
    Boateng, rh PaulCorbyn, Jeremy
    Borrow, DavidCorston, Jean
    Bradley, rh Keith (Withington)Cousins, Jim
    Bradley, Peter (The Wrekin)Cox, Tom (Tooting)

    Cranston, RossHurst, Alan (Braintree)
    Cruddas, JonHutton, rh John
    Cryer, Ann (Keighley)Iddon, Dr. Brian
    Cryer, John (Hornchurch)Illsley, Eric
    Cummings, JohnIngram, rh Adam
    Cunningham, rh Dr. JackIrranca-Davies, Huw

    (Copeland)

    Jackson, Glenda (Hampstead &
    Cunningham, Jim (Coventry S)

    Highgate)

    Cunningham, Tony (Workington)Jackson, Helen (Hillsborough)
    Dalyell, TamJenkins, Brian
    Davey, Valerie (Bristol W)Johnson, Miss Melanie (Welwyn
    David, Wayne

    Hatfield)

    Davidson, IanJones, Helen (Warrington N)
    Davies, rh Denzil (Llanelli)Jones, Jon Owen (Cardiff C)
    Davies, Geraint (Croydon C)Jones, Lynne (Selly Oak)
    Davis, rh Terry (B'ham Hodge H)Keeble, Ms Sally
    Dawson, HiltonKeen, Alan (Feltham)
    Dean, Mrs JanetKeen, Ann (Brentford)
    Denham, rh JohnKhabra, Piara S.
    Dhanda, ParmjitKidney, David
    Dismore, AndrewKilfoyle, Peter
    Dobbin, Jim (Heywood)King, Andy (Rugby)
    Donohoe, Brian H.King, Ms Oona (Bethnal Green &
    Doran, Frank

    Bow)

    Dowd, Jim (Lewisham W)Knight, Jim (S Dorset)
    Drew, David (Stroud)Kumar, Dr. Ashok
    Dunwoody, Mrs GwynethLadyman, Dr. Stephen
    Eagle, Angela (Wallasey)Lammy, David
    Efford, CliveLawrence, Mrs Jackie
    Ellman, Mrs LouiseLaxton, Bob (Derby N)
    Etherington, BillLepper, David
    Field, rh Frank (Birkenhead)Leslie, Christopher
    Fitzpatrick, JimLevitt, Tom (High Peak)
    Fitzsimons, Mrs LornaLewis, Terry (Worsley)
    Follett, BarbaraLinton, Martin
    Foster, rh DerekLloyd, Tony (Manchester C)
    Foster, Michael Jabez (HastingsLove, Andrew

    & Rye)

    Lucas, Ian (Wrexham)
    Foulkes, rh GeorgeLuke, Iain (Dundee E)
    Gapes, Mike (Ilford S)Lyons, John (Strathkelvin)
    George, rh Bruce (Walsall S)McAvoy, Thomas
    Gerrard, NeilMcCabe, Stephen
    Gilroy, LindaMcCafferty, Chris
    Godsiff, RogerMcDonagh, Siobhain
    Goggins, PaulMacDonald, Calum
    Griffiths, Jane (Reading E)McDonnell, John
    Griffiths, Nigel (Edinburgh S)McFall, John
    Griffiths, Win (Bridgend)McIsaac, Shona
    Grogan, JohnMcKechin, Ann
    Hain, rh PeterMcKenna, Rosemary
    Hall, Mike (Weaver Vale)Mackinlay, Andrew
    Hall, Patrick (Bedford)McNulty, Tony
    Hamilton, David (Midlothian)Mactaggart, Fiona
    Hamilton, Fabian (Leeds NE)McWalter, Tony
    Hanson, DavidMahon, Mrs Alice
    Harman, rh Ms HarrietMallaber, Judy
    Harris, Tom (Glasgow Cathcart)Mandelson, rh Peter
    Havard, Dai (Merthyr Tydfil &Mann, John (Bassetlaw)

    Rhymney)

    Marris, Rob (Wolverh'ton SW)
    Healey, JohnMarsden, Gordon (Blackpool S)
    Henderson, Doug (Newcastle N)Marshall, David (Glasgow
    Henderson, Ivan (Harwich)

    Shettleston)

    Hendrick, MarkMartlew, Eric
    Hepburn, StephenMeacher, rh Michael
    Heppell, JohnMerron, Gillian
    Heyes, DavidMichael, rh Alun
    Hill, Keith (Streatham)Miliband, David
    Hinchliffe, DavidMiller, Andrew
    Hood, Jimmy (Clydesdale)Mitchell, Austin (Gt Grimsby)
    Hoon, rh GeoffreyMoffatt, Laura
    Hopkins, KelvinMole, Chris
    Howarth, George (Knowsley N &Morgan, Julie

    Sefton E)

    Mountford, Kali
    Howells, Dr. KimMudie, George
    Hughes, Kevin (Doncaster N)Mullin, Chris
    Humble, Mrs JoanMurphy, Denis (Wansbeck)

    Murphy, Jim (Eastwood)Southworth, Helen
    Naysmith, Dr. DougStarkey, Dr. Phyllis
    Norris, Dan (Wansdyke)Steinberg, Gerry
    O'Brien, Bill (Normanton)Stevenson, George
    O'Brien, Mike (N Warks)Stewart, David (Inverness E &
    O'Hara, Edward

    Lochaber)

    Olner, BillStewart, Ian (Eccles)
    O'Neill, MartinStinchcombe, Paul
    Osborne, Sandra (Ayr)Stoate, Dr. Howard
    Palmer, Dr. NickStringer, Graham
    Picking, AnneStuart, Ms Gisela
    Pickthall, ColinSutcliffe, Gerry
    Pollard, KerryTami, Mark (Alyn)
    Pope, Greg (Hyndburn)Taylor, Dari (Stockton S)
    Pound, StephenThomas, Gareth (Clwyd W)
    Prentice, Ms Bridget (LewishamThomas, Gareth (Harrow W)

    E)

    Tipping, Paddy
    Prentice, Gordon (Pendle)Touhig, Don (Islwyn)
    Primarolo, rh DawnTrickett, Jon
    Prosser, GwynTruswell, Paul
    Purchase, KenTurner, Dennis (Wolverh'ton SE)
    Quinn, LawrieTurner, Neil (Wigan)
    Rammell BillTwigg, Derek (Halton)
    Reed, Andy (Loughborough)Tynan, Bill (Hamilton S)
    Reid, rh Dr. John (Hamilton N &

    Vaz, Keith (Leicester E)

    Bellshill)

    Vis, Dr. Rudi
    Robertson, John (GlasgowWalley, Ms Joan

    Anniesland)

    Ward Claire
    Robinson, Geoffrey (CoventryWareing, Robert N.

    NW)

    Watson, Tom (W Bromwich E)
    Roche, Mrs BarbaraWatts, David
    Rooney, TerryWhite, Brian
    Ross, Ernie (Dundee W)Whitehead, Dr. Alan
    Ruane, ChrisWilliams, rh Alan (Swansea W)
    Ruddock, JoanWilliams, Betty (Conwy)
    Russell, Ms Christine (City ofWills, Michael

    Chester)

    Wilson, Brian
    Ryan, Joan (Enfield N)Winnick, David
    Winterton, Ms Rosie (Doncaster
    Salter, Martin

    C)

    Savidge, MalcolmWood, Mike (Batley)
    Sawford, PhilWoodward, Shaun
    Sedgemore, BrianWoolas, Phil
    Sheridan, JimWorthington, Tony
    Short, rh ClareWray, James (Glasgow
    Skinner, Dennis

    Baillieston)

    Smith, rh Andrew (Oxford E)Wright, Anthony D. (Gt
    Smith, rh Chris (Islington S &

    Yarmouth)

    Finsbury)

    Wright, David (Telford)
    Smith, Geraldine (Morecambe &Wright, Tony (Cannock)

    Lunesdale)

    Wyatt, Derek
    Smith, Jacqui (Redditch)
    Smith, John (Glamorgan)

    Tellers for the Noes:

    Smith, Llew (Blaenau Gwent)

    Mr. Fraser Kemp and

    Soley, Clive

    Margaret Moran

    Question accordingly negatived.

    Amendment made: No. 4, in page 7, line 12, at end insert—

    '() where a payment relates to a supply of services on which value added tax is chargeable, the amount of value added tax chargeable shall be disregarded (irrespective of whether or not that amount is paid by way of value added tax),'.—[Jim Fitzpatrick.]

    Clause 17

    Requirement Of Evidence Or Security

    Clause 18

    Joint And Several Liability For Unpaid Vat Of Another Trader

    I beg to move amendment No. 52, in page 15, line 15, leave out Clauses 17 and 18.

    The amendment relates to clauses 17 and 18. We recognise that we have had considerable discussion and debate in Committee, but further developments have arisen on those important clauses and it is therefore important to hold a debate. The Committee considered them in some detail, and in the light of that additional information the only way to ensure that a debate takes place on Report is by having, in effect, a clause stand part debate through the technique of tabling amendments to delete the clauses.

    In expressing the situation in those terms, I may have hinted that I am not keen for the clauses themselves to be deleted here and now. It should be well understood that I realise that missing trader fraud is by far the biggest single fraud confronting tax authorities. It is pan-European in scope and practised by highly sophisticated individuals. The explanatory notes put the total cost of such fraud to the United Kingdom at between £1.7 billion to £2.75 billion in 2001–02. I fully support, therefore, the objectives of clauses 17 and 18, which seek to secure the VAT that would otherwise be lost through missing trader fraud.

    Because of the way in which our procedures work on Report, my amendment, which would delete clauses 17 and 18, has been structured to allow a clause stand part debate. I do not want to get into a false dialogue, however, so I should point out that it is not our intention to strike down the clauses' objectives.

    Many arguments are circulating to the effect that the Government are to some extent responsible for much of the VAT fraud to which my hon. Friend refers. Investigations are ongoing in that regard, and it seems unfortunate indeed that it is the taxpayer who will have to bear the cost.

    I am grateful to my hon. Friend for that intervention. We are dealing with a very difficult issue. It is right that any Government be entitled to collect duly levied revenue, and it is not part of our agenda to seek to wreck that. However, we do have to examine the balance between the rights and responsibilities of citizens and taxpayers, and those of the Government—that is part of the democratic accountability that we are elected to provide. I ask my hon. Friend to bear with me, because although I certainly welcome interventions, it is important that I go through this issue with some care—I shall try not to detain the House for too long, but I cannot pretend that this will be the briefest of our episodes on Report—not least because the House of Lords had something to say about it in Committee. It is important to ensure that we give due consideration, given that the other place will not be able to scrutinise this provision in any other way. My hon. Friend will therefore find that the context in which his remarks are placed is a little more proportionate, given the seriousness of the issues with which we are dealing.

    Since our deliberations in Committee, we have continued to receive representations that, as drafted, the proposed legislation may catch legitimate traders. I understand that Her Majesty's Customs and Excise believes that the draconian powers in clauses 17 and 18 are necessary to target the abuse. As I recall, the Economic Secretary said in Committee that in practice, the powers will be applied in such a way as to protect legitimate traders. However, the concern remains that the legislation is widely drafted and is not subject to external review before being applied. I am therefore concerned that the necessary separation of powers to protect the innocent appears not to exist.

    The third report of the House of Lords Select Committee on Economic Affairs echoes those comments. Paragraph 5.10 states, in respect of clause 17:
    "With reference to the self-denying undertaking by HMCE"—
    Her Majesty's Customs and Excise—
    "we note that the necessary degree of satisfaction on the part of the Department that all reasonable checks have been applied by a legitimate trader is not subject to any external review. Indeed, under the normal powers of delegation of the Commissioners of Customs and Excise, that discretion could rest with the investigating officer. We have therefore concluded that in the Clause, as drafted, the protection for legitimate traders can be said to be deficient in that their access on appeal to the VAT and Duties Tribunal arises only after HMCE have applied their new power to require security, albeit following a warning. By this stage, the negative economic consequences for their business could already be significant. We considered that a part of the solution could lie in a suggestion made by the ICAEW"—
    the Institute of Chartered Accountants of England and Wales—
    "that, before taking steps to require security under Clause 17, HMCE should be obliged to seek leave from a Tribunal Chairman."
    5.15 pm

    The report continues, in paragraph 5.11:
    "We recommend that consideration be given to creating an enhanced statutory safeguard for legitimate traders, which would ensure that the conclusions related to Clause 17 arrived at by the investigating officer are reviewed at Board level within the Department and by an external judicial authority before the power to require security is exercised. This two-stage review would precede the issue of the preliminary warning letter contemplated as an essential element of Departmental practice in operating the new power. Under the procedure which we envisage, the application, which should be approved by the Commissioners of Customs and Excise themselves, without power of delegation, should be on an ex parte basis. Before giving leave, the Chairman of the VAT and Duties Tribunal would have to be convinced by the HMCE case against the trader that the business was involved or complicit in the alleged fraud."
    To make sure that the scene for the debate is properly set, I shall quote paragraphs 5.20 and 5.21 from the report. They deal with clause 18, which would also be deleted by the amendment. Paragraph 5.20 states:
    "We recognise the considerable educational effort that is being undertaken by HMCE to provide help and guidance for legitimate traders, in order not to find themselves through inadvertence, becoming involved in an "artificial" supply chain. However, we still have some misgivings that, as in the case of Clause 17…the protection afforded to the legitimate trader by challenging the step of being made jointly and severally liable for the unpaid net tax in a supply chain only after the event would be insufficient. We acknowledge that the procedure begins with a "Notification Letter". The trader then has 21 days in which to demonstrate to HMCE a legitimate reason. If he or she fails to do so, at the end of that period a Demand Notice will be issued for the unpaid net tax. But we still see the need to enhance the protection for a legitimate trader from the burden of being faced with a "Notification Letter" in the first place. The detailed arguments that we advanced at paragraph 5.10 in respect of enhanced statutory protection for the legitimate trader apply with equal force in the case of Clause 18."
    Paragraph 5.21 states:
    "We recommend that consideration be given to providing that, before taking steps to hold a trader liable under the joint and several liability provisions of Clause 18, HMCE should be obliged to seek leave from a Chairman of the VAT and Duties Tribunal. The application, which should be approved by the Commissioners of Customs and Excise themselves, without power of delegation, should be on an ex parte basis. Before giving leave, the Tribunal Chairman would have to be convinced by the HMCE case against the trader that the business was involved or complicit in the alleged fraud."
    The House will note that paragraphs 5.11 and 5.21 end with very similar wording.

    I am sure that that the Economic Secretary will take those comments from the House of Lords seriously. I hope that he will address the concerns of many legitimate traders, learned professionals and Opposition Members. Indeed, similar concerns were raised, in Standing Committee by hon. Members from other parties, and they have also been voiced by those in another place. I look forward to his response.

    I come now to another important matter in connection with clauses 17 and 18. I want to be slightly cautious and make sure that the point is well understood, but I understand that a firm of solicitors has served a letter before claim on the Chancellor of the Exchequer, the Attorney-General, the Treasury and the Chairman of the Board of the Commissioners of Customs and Excise. I understand that they have the opinion of counsel that Parliament does not have the power to legislate in the way clauses 17 and 18 seem to intend, as the clauses are in contravention of Community law. In addition, I understand that those concerned contend that the provisions are not in accordance with the Human Rights Act 1998. Further, those served with the letter before claim have now been put on notice that should they seek to apply the clauses, any loss or damage caused to any business, director or shareholder that is attributable to that application will be sought in accordance with the decision of the European Court of Justice in Frankovich, reference C-6 and C-9/90.

    Given the value of the industry sectors concerned and the fact that the explanatory notes puts the total cost of missing trader fraud to the UK at between £1.7 billion and £2.75 billion in 2001–02, the level of damages from legitimate traders could very well be significant. I understand that the annual turnover for mobile and computer chip traders in the UK is now £50 billion. There are 400 traders, approximately, paying annual corporation tax of £600 million; there are 10,000 jobs, involving national insurance contributions and PAYE. These figures do not take account of major retailers such as Carphone Warehouse.

    I have raised the issue of Community law on the Floor of the House before. When we debated clause 22 on 13 May, I raised many arguments that that clause was incompatible with Community law. It should be noted that these arguments in relation to the Seeling case have not been answered. On clauses 17 and 18, we have significant concerns about the compatibility with Community law. I am not a barrister, nor have I had access to the Government's legal opinion on the compatibility of clauses 17 and 18; nor, for that matter, on clause 22, despite repeatedly asking for it. Nor have I seen counsel's opinion supporting the solicitor's letter concerning the people who have sent the letter before claim, which I understand has been served.

    I do know that we now have uncertainty for the industry and for taxpayers. We have seen case after case where the European Court of Justice has upheld the taxpayers' case against the UK, so we must take these matters seriously. A further concern regarding clauses 17 and 18 is the threat of Frankovich damages. I do not know the merits of the case but, if successful, legitimate traders—a number of whom have already suspended trading as a result of these clauses—can seek to recover any loss or damage caused to any business, director or shareholder. Without overstating the case, this could be in the order of tens of billions of pounds. Who would bear the cost? The taxpayer.

    In Committee, the Paymaster General stated that, as far as Ministers were concerned, parliamentary counsel was "all four aces" when it came to being the final arbiter on the drafting of Bills, adding that Ministers challenged the interpretation at their peril. She went on to say that she sincerely hoped that aspiring Ministers in the decades to come—let us hope it is not anywhere near that long—would also consider such challenges unwise.

    In Committee on 15 May, the Economic Secretary gave assurances that clauses 17 and 18 were in accordance with Community law, but gave scant legal support to those assurances. To that end, I recognise that we have a letter before claim, but we are not sub judice; we are certainly on notice. I have been provided with the documentation, and I know the Government are aware of that. I know that they will be prepared for my arguments.

    As I now understand that another legal counsel has a different opinion and considers clauses 17 and 18 not to be in accordance with Community law, one could say that the Government's aces have been called. The Government have been put on notice. If they are wrong, they are putting UK taxpayers at risk of having to meet significant damages. I do not believe that it is right for UK taxpayers to be put at such risk.

    Let us take the simple example of a planning application. If those considering a planning application are advised that their course of action may be successfully challenged—this could happen to any councillor in any authority in the country—and they proceed, those considering the planning application are held personally accountable. That is often one of the biggest issues in terms of getting an open discussion. In this case, I recognise that it is not thought that Ministers will be held personally accountable in such a case, but this is a direct equivalent. Importantly, neither should the UK taxpayer be held accountable when the Government have been put on notice, just as officials in a local authority would put councillors on notice that they are taking a huge risk for themselves and for local council tax payers. It is therefore incumbent on the Economic Secretary to give a full answer.

    The Paymaster General warned that Ministers challenge parliamentary counsel at their peril. However, ignoring my personal views on that assertion, surely the position changes when another legal counsel—naturally, legal counsel will have different opinions—formally puts forward a clearly different opinion. The Chancellor and others have been served with the letter before claim. Given the importance of those issues, particularly for UK taxpayers, I call on the Economic Secretary to make the Government counsel's opinion available to the House, so that we can make an informed judgment about whether the clauses are compatible with Community law. The Economic Secretary knows that precedent exists, not least when the Attorney-General's legal advice was made available in advance of the Government decision to take us to war with Iraq.

    The House should think exceptionally carefully before allowing these clauses to pass without considering the potential burden on the taxpayer. As Sir Humphrey Appleby might have said: "It would, Minister, be very courageous to proceed on this basis." Such advice should be enough to stop any responsible Minister in his tracks. We need a full exposition. Above all, if Ministers decide to proceed, one way of avoiding the very serious peril that I have identified—as I say, I shall not make a judgment on the merits of the legal case—would be to postpone the implementation date until such time as the legal matters have been fully resolved.

    There are real concerns about the draconian nature of clauses 17 and 18. We also endorse the view that something should be done to combat missing trader fraud, which is international and, according to the Treasury, costs a huge sum of money—between £1.7 billion to £2.75 billion. The abuse has to be tackled, but I should like to quote the House of Lords Economic Affairs Committee, which is drawn from all three major parties and includes eminent members from all parties. In its introduction to the report, that Committee made it clear in paragraph 1.9 that

    "a proper balance has to be struck between those efforts and the need to safeguard the rights of legitimate traders."
    The efforts to which it refers are, of course, attempts to crack down on fraud, which the Government are rightly doing.

    Several organisations have highlighted their misgivings about the clauses, and members of the Committee that considers the Finance Bill are fortunate to be sent details of representations from major organisations such as the Law Society, the Institute of Chartered Accountants, the Chartered Institute of Taxation and so forth. I do not want to go into great detail or repeat the further matters raised by the hon. Member for Eddisbury (Mr. O'Brien) in respect of quotations from the House of Lords Economic Affairs Committee report. However, I should like to return to some of the points that were properly raised in the representations of the tax law committee of the Law Society. Ministers receive them and I hope that the Economic Secretary will have had an opportunity to study them carefully.

    The Law Society flagged up several points and I should like to go over three of them. New sub-paragraph (1A) in paragraph 4 to schedule 11 of the Value Added Tax Act 1994, which is inserted by clause 17(3), should make it clear that the amount of security that needs to be provided is proportionate to the amount of tax at risk. It does not do so, but the explanatory notes make it clear that it should. That is how the explanatory notes state that the clause should operate: it does not do so and should be amended in order to do so. The new sub-paragraph (1A) in paragraph 4 to schedule 11 should authorise only the requirement for security as regards future input tax claims. As drafted, that means that a business could seek to recover VAT and be informed at that stage that security was required in respect of a prior transaction.

    5.30 pm

    The "relevant goods or services" in the new sub-paragraph (3) of schedule 11 are not defined. I understand that Customs and Excise is to put out a statement of practice that will indicate that the supplies to which it wishes to apply the enhanced security provisions include oil, fashion goods, computers, phones and accessories thereto. Nevertheless, as it would be possible to extend the types of goods affected by the enhanced provisions by an amending statutory instrument, legislation should surely set out the goods and services in question.

    Those are just three of the points made by the tax law committee of the Law Society, and I have raised them not at random but because they are important. I must stress the central points made in the House of Lords Select Committee report. I hope that the Economic Secretary will make it clear that he has understood the importance of a separation of powers and of the report's recommendation, in paragraph 5.11, on the interposition of an external judicial authority. That is, of course, the least of safeguards. I hope that the response to this short debate will give us some comfort and that the Treasury has understood the legitimate criticisms of those of us who, though we understand the necessity for the provisions, believe that the rights of the individual must not be trampled in order to combat a serious fraud on the Exchequer. The human rights considerations cannot and should not be overlooked, and, in the hope that the Economic Secretary has had a chance since Committee to consider the point carefully, I look forward to hearing his considered view.

    I welcome the detailed, serious and measured way in which the hon. Members for Eddisbury (Mr. O'Brien) and for Torridge and West Devon (Mr. Burnett) have approached the amendment. I accept their recognition of how serious missing trader fraud is, and I welcome their support for the objectives of clauses 17 and 18, which the hon. Member for Eddisbury also offered in Committee. I intend to deal with the points made as probing points, although it will be up to the hon. Gentleman to decide whether they are. I hope to set out clearly the legal basis on which we propose these measures and the safeguards that we are putting in place, particularly for legitimate businesses that may be concerned about the impact.

    The measures before us are both proportionate and necessary. They are necessary because we must deal with what both hon. Gentlemen have recognised is a systematic and widespread attack on the VAT system, which is costing the British taxpayer billions of pounds a year. We are dealing with a form of VAT fraud, and any misconception that it is some sort of tax evasion that is pushing at the margins of legitimate tax legislation should be clearly nailed. The affected trade sectors—there are two principal sectors—are clearly riddled with this fraud. In many cases, the goods involved have gone backward and forward between member states so often that their boxes are falling apart.

    The level of such transactions is often staggering; for example, sales to Ireland of a certain type of computer chip in the first six months of 2002 exceeded the total market for those chips in the continents of Asia, Africa and Europe. In another case, in a three-month period, a 21-year-old supposedly supplied 10 per cent. of the entire world production of a type of computer chip. As hon. Members will realise, what was happening, in effect, was that the same chips were going around in circles, and huge amounts of VAT were stolen each time.

    The Customs have also intercepted single shipments of mobile phones, in one case weighing 14 tonnes—enough phones to fill a football stadium—which were useless for the legitimate UK market because they were of the two-pin plug variety. That did not matter to the fraudsters, of course, because the phones were not destined for UK customers but only to perpetrate a large-scale fraud.

    Amendment No. 52 would remove both clause 17 and clause 18 and I shall turn to the arguments used to justify the concerns reflected in the proposal. In response to a point made by the hon. Member for Eddisbury, I shall demonstrate that we have the legal vires for the clauses and explain why we reject entirely the case put to us by the firm of solicitors to which he referred.

    I shall try to put to rest the questions about legality in relation to EU VAT directives and to the European convention on human rights by explaining the legal position in some detail. First, on EU legislation, article 22, subsection (8) of the sixth VAT directive provides the vires for clause 17. It states:
    "Without prejudice to the provisions to be adopted pursuant to Article 17 (4), Member States may impose other obligations which they deem necessary for the correct levying and collection of the tax and for the prevention of fraud, subject to the requirement of equal treatment for domestic transactions and transactions carried out between Member States by taxable persons and provided that such obligations do not, in trade between Member States, give rise to formalities connected with the crossing of frontiers."
    The imposition of security via clause 17 is for the prevention of fraud. Built into the clause is a safeguard requirement for Customs to satisfy the tribunal that there has been evasion of VAT or an attempt to evade VAT.

    Secondly, on the ECHR, clause 17 is compatible with article 1 of protocol 1—on the protection of property—contained in schedule 1 to the Human Rights Act 1998: because, first, it is prescribed by law; secondly, when used, it will strike a fair balance between the demands of society and the interests of an individual; and, thirdly, it is taken for a legitimate purpose. The proviso to article 1 is that it should not
    "in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties".
    Those powers are not arbitrary and the provisions are proportionate to the pernicious attacks on the VAT system, such as VAT missing trader fraud.

    Finally, clause 17 has inbuilt safeguards. It will be applied only in appropriate circumstances: where Customs can satisfy the tribunal that there has been an evasion of VAT or an attempt to evade it and where it is accompanied by a statement of practice—as the hon. Member for Torridge and West Devon mentioned— which lays down stringent guidelines as to how security is to be applied and introduces even further safeguards. Although the statement of practice itself does not have the force of law, once it is published, Customs will be expected and, if necessary, required by the courts, to follow it.

    On this important matter, is the Economic Secretary assuring the House that, before action is taken, the VAT tribunal will have to be satisfied in all the circumstances that he has outlined?

    No, we are not dealing with an application to a tribunal before action is taken. Such action must be based on Customs evidence sufficient to satisfy a tribunal, so those involved in taking the action will be conscious of that test, which a tribunal will apply if the case is brought to tribunal by a trader who wishes to contest the action taken by Customs and Excise.

    Will the Economic Secretary at least consider the issue, referred to by the hon. Member for Eddisbury and myself and raised by the House of Lords, that an application should be made before action is taken? We understand that that should be ex parte, but to an independent judicial authority.

    We have received a range of views on these provisions from all sorts of parties, as hon. Members might expect. We have considered the hon. Gentleman's suggestion that Customs should have to seek the tribunal's go-ahead before taking action, but my concern about that is twofold. First, it could delay the ability of Customs to take action. Secondly, he may wish to consider further that any pre-implementation hearing with a tribunal chairman on any ex parte basis could be perceived to compromise the tribunal's very integrity and independence, which is, of course, a mainstay of the system. Of course, when these clauses are in place with the safeguards that I am outlining, we will keep them very closely under review to ensure that they have the intended effect on fraud, not an unintended effect on legitimate businesses. I shall return to the inbuilt safeguards in clause 17 in a moment.

    I come now to clause 18. Article 21(1) and (2) of the sixth VAT directive defines the persons liable for payment of the tax. Article 21(3) of the EC sixth Council directive provides the legal vires for joint and several liability. It states:
    "In the situations referred to in paragraph 1 and 2, Member States may provide that someone other than the person liable for payment of the tax shall be held liable for payment of the tax."
    Or, to put it another way, member states may legislate for someone other than the person liable for the payment of the tax—the missing trader in this case—to be held jointly and severally liable for the payment of VAT.

    On human rights law, clause 18 is compatible with article 1 of protocol 1, which deals with the protection of property, contained in schedule 1 to the Human Rights Act 1998 because, first, it is prescribed by law; secondly, when used, it will strike a fair balance between the demands of society and the interests of individuals; and, thirdly, it serves a legitimate purpose. The proviso to article 1 states that such a provision should in no way impair the right of a state to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes, other contributions or penalties. Again, these are not arbitrary powers and the provisions are clearly in proportion to the scale of the systematic attack on the VAT system.

    Again, the measure has inbuilt safeguards. It can be applied only in appropriate circumstances—in other words, where Customs can show that a business knew or had reasonable grounds suspect that VAT would be unpaid in its supply chain. Customs has to establish some sort of knowledge—either guilty knowledge, or reasonable grounds to suspect a business. There is a full right of appeal and the right of judicial review.

    Clause 18 is accompanied by a statement of practice, which lays down stringent guidelines on how the measure should be applied, so there are further safeguards. Although the statement of practice does not have the force of law, once published, Customs will be expected and, if necessary, required by the courts to follow it in appropriate cases. I hope that I have cleared up any questions that hon. Members might have about the legal vires of clauses 17 and 18.

    5.45 pm

    I want to deal with the more substantive questions of not only why the measures are justified but, especially, how we will ensure that innocent parties are protected during the operation of the tough new powers that we deem necessary, which was the concern raised by the hon. Member for Eddisbury.

    I shall emphasise that last point first. I made it clear in Committee that I do not underestimate the gravity of the measures that we propose to use under clauses 17 and 18. We fully understand that although they will help to crack down hard on fraud, if appropriate safeguards are not put in place and the measures are not properly targeted and restricted, the impact on legitimate businesses will be unacceptable. Let me spell out clearly, as I did with the clauses' legal basis, how legitimate businesses will be protected under the proposals and why I do not accept that we need additional measures that have been suggested by a range of bodies from all walks of life.

    I start by considering the measures under clause 17. The revised public notice 700/52 is Customs' statement of practice. It outlines the procedures and circumstances in which Customs will require security. Customs will be expected to follow it and, if necessary, required to do that by the courts. The measure is aimed at businesses that are repeatedly involved in supply chains in which there are substantial tax loses. Businesses that are known to have dealt with high-risk businesses or individuals in the past will be given advice by Customs on the steps that they should take to avoid dealing with such businesses. Security will be required only if they continue to do that.

    The measure will not be applied without a formal written warning, which will give businesses the opportunity to mend their ways. A new right of appeal will be introduced—an appellate rather than a supervisory right—that will allow the tribunal to reduce or vacate any security requirement. An appeal will be allowed unless Customs satisfies the tribunal that there has been, or is likely to be, evasion in the supply chain. I would fully expect a tribunal to uphold any appeal in which Customs failed to follow its procedures, for example, if no warning were given before applying the measure.

    The measure in clause 18 is limited in law to two trade sectors. It will theoretically affect 50,000 of the 1.7 million businesses that are registered for VAT but, in practice, it is likely to affect no more than 5,000 or 6,000. The law means that Customs will not apply the measure unless it can establish that a business knew, or had reasonable grounds to suspect, that VAT would go unpaid. A business may rebut any presumption if the low price paid for goods is unconnected with unpaid VAT.

    Businesses will be notified if they are caught by the measure before it is applied, which will give them the opportunity to provide an explanation. I make it clear that the measure will not be applied to businesses that demonstrate that they have not become involved in a supply chain in which VAT has gone, or will go, unpaid. Businesses will have the right of appeal to an independent VAT and duties tribunal if they receive a joint and several liability notice.

    I hope that my remarks have helped to reassure hon. Members about their greatest concerns, and demonstrated that there is robust legal basis behind clauses 17 and 18 and that the measures proposed are properly restrained and balanced by comprehensive and effective safeguards to protect the innocent. We do not take the powers lightly. As I explained in Committee, we have examined other options, but none would be as effective as measures set out in clauses 17 and 18. The scale and nature of the fraud, often involving complacency or collusion, require us to take the measures to complement Customs existing actions to clamp down on the VAT fraud.

    In light of the explanation and assurances that I have set out for the hon. Member for Eddisbury and other hon. Members, I hope that he withdraws the amendment. If he wishes to press it to a vote, I must ask my hon. Friends to reject it.

    In the interests of time, as other business is pressing, I shall just say that I am grateful to the Minister for the spirit in which he treated the issues raised. As he rightly observed, the gravity of the subject merits that and he did, indeed, treat it seriously. We needed to take a technical approach to have what is, in effect, a stand part debate. Our exchange has been important. It has provided us with the chance to raise concerns.

    On the House of Lords report, no doubt the other place will look to the Government for a response. The debate on whether there is prior, rather than post, protection, and where the balance of rights and responsibilities lies, will develop. Furthermore, on a letter before a claim, that may, or may not, end up being a matter for the courts. It would be irresponsible of me to speculate further on that other than to say that it has been a useful exchange and we have ensured that the issues are well understood.

    The Minister rightly observed, as part of the article 1 and protocol 1 attached to schedule 1 of the Human Rights Act 1998, that we have discussed the fair balance of a judgment to be applied between society and the individual. On that basis, a useful exchange has taken place, and I beg to ask leave to withdraw the amendment.

    Amendment, by leave, withdrawn.

    Schedule 1

    Vat: Face-Value Vouchers

    Amendment made: No. 12, in page 143, line 35, at end insert—

    "and other supplies that are not taxable supplies".—[John Healey.]

    Clause 207

    Payments For Service Of National Debt

    I beg to move amendment No. 5, in page 138, line 41, leave out subsection (3) and insert—

    "(3) For subsection (3) substitute—
    '(3) For the purposes of making their determination under subsection (1)(b) the Treasury shall be required to apply generally accepted accounting practices in determining whether all or part of any payments represent such interest as is referred to in that subsection.'.".

    With this it will be convenient to discuss the following amendments: No. 6, in clause 208, page 139, line 10, at end insert—

    ", such determination to be made in accordance with generally accepted accounting practice.'.".
    No. 7, in clause 209, page 139, line 17, leave out 'the Treasury consider appropriate' and insert
    "conforms with generally accepted accounting practice.".

    There was not time in Committee to address the amendments, which contain important points of principle. Clause 207 allows the Treasury to determine which payments should be classified as payments of interest on the national debt to allow the existing out-of-date definition to be updated, but there is no indication of the way in which the Treasury will decide what should be treated as interest. There is no obligation to determine whether the true nature of a payment is in whole, or in part, disguised interest. Indeed, is it envisaged that part of the payments to Departments should be recategorised as interest when they are effectively borrowing, for example, through the private finance initiative? It can be argued that that should be the case.

    Amendment No. 5 would set an obligation on the Treasury to make any determination on the basis of generally accepted accounting practice. The national debt should be accounted for to the same standard as any other liability. In the wake of the Government's tricks to keep Network Rail off balance sheet, so causing the appalling management problems that have ensued, I regret to say that the good faith of the Government cannot be taken for granted. It is necessary to ensure that they are not tempted to disguise the extent of the cost of servicing the national debt.

    Clauses 208 and 209 allow the Treasury to determine the assets of the national loans fund and the form and content of the accounts of the Consolidated Fund and the national loans fund. Again, that needs to be subject to appropriate constraint. Those are national accounts and the basis of their preparation should not be left to the determination of the Treasury without any requirement to adept generally accepted accounting practices. It should not be possible to move assets and liabilities off balance sheet. Accounts should be accurate and prepared in accordance with accepted principles. I hope that the Minister will at least address those issues by putting on the record an undertaking on both counts.

    I welcome the generally sober way in which the hon. Member for Arundel and South Downs (Mr. Flight) has approached these matters. The amendments are directed to clauses that are of central importance to Parliament and the ability of Parliament to hold the Executive to account, and they deserve that recognition.

    I shall explain why the amendments will compromise the objectives that we have for the clauses and why, if the hon. Gentleman wishes to press them to a vote, I would ask my right hon. and hon. Friends to resist. The amendments would require the Treasury to conform to generally accepted accounting practice—GAAP—when counting for the operations of both the Consolidated Fund and the national loans fund. There are three reasons for asking the House to resist the amendments that would put that requirement in the Bill.

    First—I hope that the hon. Gentleman will welcome and accept this—the Government are committed to preparing their accounts in accordance with GAAP, subject to such adaptations that are necessary in the context of the public sector. That is as true for the national loans fund accruals-based account as it is for departmental resource accounts. However, as GAAP is not designed with either the particular needs of Government accounts or the complex legislative framework governing the NLF in mind, the Treasury needs the flexibility to depart from it where strict adherence to GAAP would not be sensible. This is in line with the position already accepted for the debt management account, with which the NLF is closely linked.

    I can assure hon. Members that the Treasury will use its discretion responsibly and will use it in the public interest. Also, Parliament's position is properly protected because the NLF account will still be audited by the Comptroller and Auditor General, who can bring any matters of concern to the attention of Parliament.

    The hon. Gentleman has only just come into the Chamber but I will of course, give way to him.

    That is kind of the Economic Secretary. Will the Treasury publish reasons for departing from general accounting practice where it needs to do so?

    If the hon. Gentleman holds his fire and has a little patience, he will find that I shall go further than that.

    First, the Treasury is currently discussing the format of accounts in detail with the National Audit Office, which is content with the structure of the amending clauses in the Bill. Secondly, the Government see no need at present to draw up the accounts for the Consolidated Fund on an accruals basis. As the hon. Member for Arundel and South Downs knows as well as anyone, the Consolidated Fund is essentially a bank account that receives the proceeds of taxation and funds the spending of Government Departments. The Treasury will therefore continue to account for those flows on a simple receipts and payments basis. Again, the NAO is content with this proposition, which reflects the nature of the account.

    I shall give the House a further reassurance. The Treasury will set out its detailed proposals for the Public Accounts Committee and the Treasury Select Committee before making an order to abolish the requirement to produce the supplementary statements.

    Thirdly, in the context of amendment No. 5, the law currently allows the Treasury to define income items as if they were interest receipts for the purposes of determining the transfer from the Consolidated Fund to the national loans fund in respect of net debt costs. However, there is no flexibility at present within the law whereby expenditure items are similarly treated. Hence we cannot at present treat discounts on gilt issues as expenditure items for the purpose of the standing service payment from the Consolidated Fund to the NLF. The proposed change rectifies that. We have discussed the proposed legislative changes and the income expenditure treatment of individual types of transaction with the NAO, which, once again, is content. In this context, GAAP has no bearing on whether a particular payment should be treated as interest for the purpose of calculating the deficit on the NLF's net debt servicing flows, as that is met by the consolidated fund. The amendment would therefore not achieve the desired effect, so I encourage the hon. Member for Arundel and South Downs not to seek to press it to a vote.

    6 pm

    I thank the Minister for his comments. In view of our wish to discuss schedule 21, I shall not respond further, and beg to ask leave to withdraw the amendment.

    Amendment, by leave, withdrawn.

    Schedule 21

    Approved Share Plans And Schemes

    I beg to move amendment No. 13. in schedule 21, page 251, line 9, at end insert

    "and insert 'or 4 (in respect of shares acquired under approved CSOP schemes pursuant to rights granted before 9th April 2003)'.".

    With this it will be convenient to take the following amendments: No. 14, in page 251, line 14, after "schemes)", insert

    "pursuant to rights granted on or after 9th April 2003".
    No. 19, in page 251, line 22, at end insert
    "pursuant to a right acquired on or after that date.".

    Amendments Nos. 13, 14 and 19 offer alternative ways of addressing an issue raised in Committee. Since then, a number of US multinationals and their legal representatives have expressed strong objections to the Paymaster General's response to matters that we raised with her. The issue, as we all know, is the imposition of employer NICs on approved options granted in the three years until 9 April in this Budget year. The multinationals and, indeed, the Conservatives regard the Government's measures as retrospective, and we object to the Paymaster General's reference to people breaking the rules by exercising options before the three-year period and not paying NIC charges on them. The rules and the law are clear and well known. Indeed, the Government could have applied three recent pieces of legislation, which were designed to apply NICs to unapproved schemes, to the early exercise of approved schemes, had that been their wish and intent. The problem of NICs and options, as well as the Government's failure to address all the issues related to unapproved schemes have taken up a lot of parliamentary time. Because the rules were clear, the Inland Revenue positively objected to the inclusion of tax withholding and NIC transfers from employers to employees in approved option schemes. For a long time, certain benefits have been subject to income tax, but not NICs. Although the Government have narrowed the territory, some still remain.

    It has not been suggested by anyone, let alone the Revenue, that before paragraph 25 of schedule 21 was drafted not paying NICs on benefits not subject to such contributions was equivalent to breaking the rule. In particular, US multinationals frequently included the possibility of early vesting before the three year period in their UK-approved schemes, reflecting standard parent arrangements in the USA. For example, they would allow 25 per cent. of options to be exercised each year after the granting of rights. UK-approved schemes required Revenue approval, and many multinationals discussed early vesting with the Revenue. The tax rules were clear—early vesting resulted in an income tax charge in place of a capital gains tax change on gains that were realised. The view was that the main protection here was the fact that approved schemes were limited to a value of only £30,000 per participant.

    In those circumstances, clever avoidance was not the issue. The law was the law, and the Revenue was well aware that many multinationals had such early vesting provisions. The Paymaster General told me in a recent letter that multinationals were advised in the past by the Revenue that shorter shareholding periods were not in the spirit of the rules for approved schemes. However, that was not generally the case. Some multinationals may recently have received such advice, but certainly that was not general practice going back three years. The fundamental issue is, what was the law at the time? The Government, as I said, had ample opportunity in the past four years to add an NIC employer and employee charge to the early exercise of approved share options.

    Schedule 21 would clearly introduce a stealth tax, as it imposes a retrospective NIC on employers for the early exercise of options granted within the three years up to 9 April. I was greatly surprised that the Paymaster General's letter to me concluded:
    "When employees choose to exercise their approved options within three years and employers have given them that choice, they do so with the full knowledge that income tax and NI is payable".
    That is simply not the case. Schedule 21 makes provision for that, but until it was drafted there was no suggestion from the Government that that would be so. When multinationals included early vesting in their approved schemes in the past three years, that was cleared with the Inland Revenue. The law was the law, and the tax result was quite simple—early exercise resulted in income tax rather than a capital gains tax on employees, and did not result in NIC for employers.

    I am afraid that the provision will introduce retrospective taxation as part of the Government's desperate drive for tax revenues. They have made enemies of many US multinationals, which feel that the Government have acted in bad faith. More generally, deliberate anti-avoidance usage of approved schemes has been limited, as the schemes themselves have tight limits, and circumstances do not usually allow for approved schemes to be used for such purposes—they have to be blessed by the Revenue. Penalising employees retrospectively is wrong and, moreover, there is no evidence that making the proposals prospective would result in any substantial tax cost. I urge the Government to accept one of the routes proposed in our amendments and also to recognise the truth of the situation.

    I urge my colleagues to vote against amendments Nos. 13, 14 and 19 which, in various ways, seek to stop the application of PAYE and national insurance to company share option plans granted before 9 April 2003. Let me make it clear that the Government believe that it is right that employees should pay their fair share of tax and national insurance on all forms of employment-related remuneration. Bringing options granted after 9 April 2003 within PAYE and NICs rules would mean that companies and employees who have sought to avoid paying their fair share of tax and national insurance will continue to do so.

    I will not give way to the hon. Gentleman, as I want to put this on the record.

    Such a change would effectively reward employers and employees who have been using company share option plans instead of unapproved options, allowing them to be exercised early to avoid paying NICs. Companies should not be able to gain an advantage over their competitors by failing to operate their company share option plans within the spirit of the legislation. It is right that companies that have used CSOP options as a means of providing short-term, share-based remuneration should be expected to pay PAYE and national insurance. As I said in Committee, I do not accept that the change is retrospective. The hon. Gentleman is wrong to assert such a thing on the Floor of the House. The change is not retrospective. If employees hold their options for three years after grant, they will not pay tax and national insurance. That has always been so and is not changed. Where employees choose to exercise their options within three years and employers have given them that choice, they do so in the full knowledge that tax and national insurance is payable.

    The proposed change in the schedule and clause means that businesses will no longer be able to gain an unfair advantage over their competitors by failing to operate within the spirit of the company share option plan legislation. It is right that companies that proceeded to use company share option plan options as a means of providing short-term share-based remuneration should be expected to pay their PAYE and national insurance. Company share option plan options have been used to undermine the principle that tax and national insurance should be paid on such employment remuneration. By tackling that and ensuring that company share option plan options exercised early are subject to PAYE and NICs for both existing and future options, we are correcting the unfair position that has a risen when employers have used company share option plan options as a substitute for unapproved options.

    It is clear that in the name of fairness to taxpayers and the operation of the rules as they are expected to be operated—on the basis of fairness to all taxpayers—the hon. Gentleman seeks, through the amendments, to give a huge advantage to the few, while the rest of us pay for it. That is not acceptable. I ask the House to reject the amendments.

    The Paymaster General is quite incorrect to assert that the situations that I described were about tax avoidance. They were cleared with the Revenue, the tax position was understood, and if the Government wanted a regime where employer NICs were payable on early exercise, they should have put that into the law when they changes the general rules on NICs and unapproved schemes.

    What is retrospective is the NIC charge on employers. I can tell the Paymaster General that the overwhelming majority of lawyers in the City of London specialising in these matters agree strongly with that. She has made an enemy of the very type of US multinational companies that we need to go on investing in this country. She is mistaken in her views and there will no great tax gains to the Revenue as a result. We therefore intend to press the amendment to a Division.

    Question put, That the amendment be made:—

    The House divided: Ayes 189, Noes 309.

    Division No. 265]

    [6:12 pm

    AYES

    Ainsworth, Peter (E Surrey)Beith, rh A. J.
    Allan, RichardBellingham, Henry
    Amess, DavidBercow, John
    Atkinson, David (Bour'mth E)Beresford, Sir Paul
    Atkinson, Peter (Hexham)Blunt, Crispin
    Bacon, RichardBoswell, Tim
    Baker, NormanBottomley, rh Virginia (SW
    Baldry, Tony

    Surrey)

    Barker, GregoryBrake, Tom (Carshalton)
    Baron, John (Billericay)Brazier, Julian
    Barrett, JohnBreed, Colin
    Beggs, Roy (E Antrim)Brooke, Mrs Annette L.

    Browning, Mrs AngelaKirkbride, Miss Julie
    Burnett, JohnKirkwood, Sir Archy
    Burns, SimonKnight, rh Greg (E Yorkshire)
    Burnside, DavidLaing, Mrs Eleanor
    Burt, AlistairLait, Mrs Jacqui
    Butterfill, JohnLamb, Norman
    Cable, Dr. VincentLansley, Andrew
    Calton, Mrs PatsyLaws, David (Yeovil)
    Cameron, DavidLeigh, Edward
    Campbell, Gregory (E Lond'y)Letwin, rh Oliver
    Campbell, rh Menzies (NE Fife)Lewis, Dr. Julian (New Forest E)
    Cash, WilliamLiddell-Grainger, Ian
    Chapman, Sir Sydney (ChippingLidington, David

    Barnet)

    Lilley, rh Peter
    Chidgey, DavidLlwyd, Elfyn
    Chope, ChristopherLoughton, Tim
    Clappison, JamesLuff, Peter (M-Worcs)
    Clarke, rh Kenneth (Rushcliffe)McIntosh, Miss Anne
    Clifton-Brown, GeoffreyMackay, rh Andrew
    Collins, TimMaclean, rh David
    Conway, DerekMcLoughlin, Patrick
    Cotter, BrianMalins, Humfrey
    Cran, James (Beverley)Maples, John
    Curry, rh DavidMaude, rh Francis
    Davies, Quentin (Grantham &Mawhinney, rh Sir Brian

    Stamford)

    May, Mrs Theresa
    Davis, rh David (Haltemprice &Mitchell, Andrew (Sutton

    Howden)

    Coldfield)

    Djanogly, JonathanMoore, Michael
    Dodds, NigelMoss, Malcolm
    Duncan, Peter (Galloway)Murrison, Dr. Andrew
    Duncan Smith, rh lainNorman, Archie
    Evans, NigelO'Brien, Stephen (Eddisbury)
    Ewing, AnnabelleÖpik, Lembit
    Fabricant, MichaelOsborne George (Tatton)
    Fallon, MichaelOttaway, Richard
    Field, Mark (Cities of London &Page, Richard

    Westminster)

    Paice, James
    Flight, HowardPortillo, rh Michael
    Flook, AdrianPrice, Adam (E Carmarthen &
    Forth, rh Eric

    Dinefwr)

    Foster, Don (Bath)Prisk, Mark (Hertford)
    Fox, Dr. LiamPugh, Dr. John
    Francois, MarkRandall, John
    Garnier, EdwardRedwood, rh John
    George, Andrew (St. Ives)Reid, Alan (Argyll & Bute)
    Gibb, Nick (Bognor Regis)Rendel, David
    Gidley, SandraRobertson, Angus (Moray)
    Gillan, Mrs CherylRobertson, Laurence (Tewk'b'ry)
    Goodman, PaulRobinson, Peter (Belfast E)
    Gray, James (N Wilts)Roe, Mrs Marion
    Grayling, ChrisRosindell, Andrew
    Green, Damian (Ashford)Ruffley, David
    Green, Matthew (Ludlow)Russell, Bob (Colchester)
    Greenway, JohnSalmond, Alex
    Grieve, DominicSanders, Adrian
    Gummer, rh JohnSayeed, Jonathan
    Hague, rh WilliamShephard, rh Mrs Gillian
    Harris, Dr. Evan (Oxford W &Shepherd, Richard

    Abingdon)

    Simmonds, Mark
    Hawkins, NickSmith, Sir Robert (W Ab'd'ns &
    Heath, David

    Kincardine)

    Heathcoat-Amory, rh DavidSoames, Nicholas
    Hendry, CharlesSpelman, Mrs Caroline
    Hermon, LadySpicer, Sir Michael
    Hoban, Mark (Fareham)Spink, Bob (Castle Point)
    Holmes, PaulSpring, Richard
    Horam, John (Orpington)Stanley, rh Sir John
    Howard, rh MichaelStreeter, Gary
    Howarth, Gerald (Aldershot)Stunell, Andrew
    Hunter, AndrewSwire, Hugo (E Devon)
    Jack, rh MichaelTaylor, Ian (Esher)
    Jackson, Robert (Wantage)Taylor, John (Solihull)
    Jenkin, BernardTaylor, Dr. Richard (Wyre F)
    Keetch, PaulThomas, Simon (Ceredigion)
    Key, Robert (Salisbury)Thurso, John

    Tonge, Dr. JennyWiggin, Bill
    Tredinnick, DavidWilletts, David
    Trend, MichaelWilliams, Hywel (Caernarfon)
    Trimble, rh DavidWilshire, David
    Turner, Andrew (Isle of Wight)Winterton, Ann (Congleton)
    Tyrie, AndrewWishart, Pete
    Viggers, PeterYeo, Tim (S Suffolk)
    Waterson, NigelYoung, rh Sir George
    Watkinson, AngelaYounger-Ross, Richard
    Webb, Steve (Northavon)
    Weir, Michael

    Tellers for the Ayes:

    Whittingdale, John

    Hugh Robertson and

    Widdecombe, rh Miss Ann

    Mr. Robert Syms

    NOES

    Abbott, Ms DianeCook, rh Robin (Livingston)
    Adams, Irene (Paisley N)Cooper, Yvette
    Ainger, NickCorbyn, Jeremy
    Ainsworth, Bob (Cov'try NE)Corston, Jean
    Alexander, DouglasCousins, Jim
    Allen, GrahamCox, Tom (Tooting)
    Anderson, rh Donald (Swansea E)Cranston, Ross
    Anderson, Janet (Rossendale &Cruddas, Jon

    Darwen)

    Cryer, Ann (Keighley)
    Armstrong, rh Ms HilaryCryer, John (Hornchurch)
    Atherton, Ms CandyCummings, John
    Atkins, CharlotteCunningham, rh Dr. Jack
    Austin, John

    (Copeland)

    Bailey, AdrianCunningham, Jim (Coventry S)
    Baird, VeraCunningham, Tony (Workington)
    Banks, TonyCurtis-Thomas, Mrs Claire
    Barnes, HarryDalyell, Tam
    Battle, JohnDavey, Valerie (Bristol W)
    Bayley, HughDavid, Wayne
    Beard, NigelDavidson, Ian
    Begg, Miss AnneDavies, rh Denzil (Llanelli)
    Bell, StuartDavies, Geraint (Croydon C)
    Bennett, AndrewDavis, rh Terry (B'ham Hodge H)
    Benton, Joe (Bootle)Dawson, Hilton
    Berry, RogerDean, Mrs Janet
    Best, HaroldDenham, rh John
    Blackman, LizDhanda, Parmjit
    Blizzard, BobDismore, Andrew
    Boateng, rh PaulDobbin, Jim (Heywood)
    Borrow, DavidDonohoe, Brian H.
    Bradley, rh Keith (Withington)Doran, Frank
    Bradley, Peter (The Wrekin)Dowd, Jim (Lewisham W)
    Bradshaw, BenDrew, David (Stroud)
    Brown, Russell (Dumfries)Dunwoody, Mrs Gwyneth
    Buck, Ms KarenEagle, Angela (Wallasey)
    Burden, RichardEfford, Clive
    Burgon, ColinEllman, Mrs Louise
    Byers, rh StephenEtherington, Bill
    Caborn, rh RichardField, rh Frank (Birkenhead)
    Campbell, Alan (Tynemouth)Fisher, Mark
    Campbell, Mrs Anne (C'bridge)Fitzpatrick, Jim
    Campbell, Ronnie (Blyth V)Fitzsimons, Mrs Lorna
    Caplin, IvorFollett, Barbara
    Casale, RogerFoster, rh Derek
    Cawsey, Ian (Brigg)Foster, Michael Jabez (Hastings
    Challen, Colin

    & Rye)

    Clapham, MichaelGeorge, rh Bruce (Walsall S)
    Clark, Mrs Helen (Peterborough)Gerrard, Neil
    Clark, Dr. Lynda (EdinburghGilroy, Linda

    Pentlands)

    Godsiff, Roger
    Clark, Paul (Gillingham)Goggins, Paul
    Clarke, rh Tom (Coatbridge &Griffiths, Jane (Reading E)

    Chryston)

    Griffiths, Win (Bridgend)
    Clarke, Tony (Northampton S)Grogan, John
    Clelland, DavidHain, rh Peter
    Clwyd, Ann (Cynon V)Hall, Mike (Weaver Vale)
    Coffey, Ms AnnHall, Patrick (Bedford)
    Cohen, HarryHamilton, David (Midlothian)
    Coleman, IainHamilton, Fabian (Leeds NE)
    Connarty, MichaelHanson, David
    Cook, Frank (Stockton N)Harman, rh Ms Harriet

    Harris, Tom (Glasgow Cathcart)McKenna, Rosemary
    Havard, Dai (Merthyr Tydfil &Mackinlay, Andrew

    Rhymney)

    McNulty, Tony
    Healey, JohnMactaggart, Fiona
    Henderson, Doug (Newcastle N)McWalter, Tony
    Henderson, Ivan (Harwich)Mahmood, Khalid
    Hendrick, MarkMahon, Mrs Alice
    Hepburn, StephenMallaber, Judy
    Heppell, JohnMann, John (Bassetlaw)
    Hesford, StephenMarris, Rob (Wolverh'ton SW)
    Hewitt, rh Ms PatriciaMarsden, Gordon (Blackpool S)
    Heyes, DavidMarshall, David (Glasgow
    Hill, Keith (Streatham)

    Shettleston)

    Hinchliffe, DavidMartlew, Eric
    Hoey, Kate (Vauxhall)Meacher, rh Michael
    Hood, Jimmy (Clydesdale)Meale, Alan (Mansfield)
    Hoon, rh GeoffreyMercer, Patrick
    Hope, Phil (Corby)Merron, Gillian
    Hopkins, KelvinMichael, rh Alun
    Howarth, George (Knowsley N &Miliband, David

    Sefton E)

    Miller, Andrew
    Howells, Dr. KimMoffatt, Laura
    Hughes, Beverley (Stretford &Mole, Chris

    Urmston

    Morgan, Julie
    Hughes, Kevin (Doncaster N)Mountford, Kali
    Humble, Mrs JoanMudie, George
    Hurst, Alan (Braintree)Mullin, Chris
    Hutton, rh JohnMurphy, Denis (Wansbeck)
    Iddon, Dr. BrianMurphy, Jim (Eastwood)
    Illsley, EricNaysmith, Dr. Doug
    Irranca-Davies, HuwNaysmith,Dr. Doug
    Jackson, Glenda (Hampstead &O'Brien, Bill (Normanton)

    Highgate)

    O'Brien, Mike (N Warks)
    Jackson, Helen (Hillsborough)O'Hara, Edward
    Jenkins, BrianO'Neill, Martin
    Johnson, Miss Melanie (WelwynOsborne, Sandra (Ayr)

    Hatfield)

    Palmer, Dr. Nick
    Jones, Helen (Warrington N)Picking, Anne
    Jones, Jon Owen (Cardiff C)Pickthall, Colin
    Jones, Lynne (Selly Oak)Pike, Peter (Burnley)
    Kaufman, rh GeraldPollard, Kerry
    Keen, Alan (Feltham)Pope, Greg (Hyndburn)
    Keen, Ann (Brentford)Prentice, Ms Bridget (Lewisham
    Khabra, Piara S.

    E)

    Kidney, DavidPrentice, Gordon (Pendle)
    Kilfoyle, PeterPrimarolo, rh Dawn
    King, Andy (Rugby)Prosser, Gwyn
    King, Ms Oona (Bethnal Green &Purchase, Ken

    Bow)

    Quinn, Lawrie
    Kumar, Dr. AshokRammell, Bill
    Ladyman, Dr. StephenReed, Andy (Loughborough)
    Lammy, DavidReid, rh Dr. John (Hamilton N &
    Lawrence, Mrs Jackie

    Bellshill)

    Laxton, Bob (Derby N)Robertson, John (Glasgow
    Lepper, David

    Anniesland)

    Leslie, ChristopherRobinson, Geoffrey (Coventry
    Levitt, Tom (High Peak)

    NW)

    Lewis, Ivan (Bury S)Roche, Mrs Barbara
    Lewis, Terry (Worsley)Rooney, Terry
    Linton, MartinRoss, Ernie (Dundee W)
    Lloyd, Tony (Manchester C)Roy, Frank (Motherwell)
    Love, AndrewRuane, Chris
    Lucas, Ian (Wrexham)Ruddock, Joan
    Luke, Iain (Dundee E)Russell, Ms Christine (City of
    Lyons, John (Strathkelvin)

    Chester)

    McAvoy, ThomasRyan, Joan (Enfield N)
    McCabe, StephenSalter, Martin
    McCafferty, ChrisSarwar, Mohammad
    McDonagh, SiobhainSavidge, Malcolm
    MacDonald, CalumSawford, Phil
    McDonnell, JohnSedgemore, Brian
    MacDougall, JohnSheridan, Jim
    McFall, JohnShipley, Ms Debra
    McGuire, Mrs AnneShort, rh Clare
    McIsaac, ShonaSingh, Marsha
    McKechin, AnnSkinner, Dennis

    Smith, rh Chris (Islington S &Turner, Neil (Wigan)

    Finsbury)

    Twigg, Derek (Halton)
    Smith, Geraldine (Morecambe &Twigg, Stephen (Enfield)

    Lunesdale)

    Tynan, Bill (Hamilton S)
    Smith, Jacqui (Redditch)Vaz, Keith (Leicester E)
    Smith, John (Glamorgan)Vis, Dr. Rudi
    Soley, CliveWalley, Ms Joan
    Southworth, HelenWard, Claire
    Starkey, Dr. PhyllisWareing, Robert N.
    Steinberg, GerryWatson, Tom (W Bromwich E)
    Stevenson, GeorgeWatts, David
    Stewart, David (Inverness E &White, Brian

    Lochaber)

    Whitehead, Dr. Alan
    Stewart, Ian (Eccles)Williams, rh Alan (Swansea W)
    Stinchcombe, PaulWilliams, Betty (Conwy)
    Stoate, Dr. HowardWills, Michael
    Stringer, GrahamWilson, Brian
    Stuart, Ms GiselaWinnick, David
    Sutcliffe, GerryWood, Mike (Batley)
    Tami, Mark (Alyn)Woodward, Shaun
    Taylor, Dari (Stockton S)Woolas, Phil
    Thomas, Gareth (Clwyd W)Worthington, Tony
    Thomas, Gareth (Harrow W)Wray, James (Glasgow
    Timms, Stephen

    Baillieston)

    Tipping, PaddyWright, Anthony D. (Gt
    Touhig, Don (Islwyn)

    Yarmouth)

    Trickett, JonWright, David (Telford)
    Truswell, PaulWright, Tony (Cannock)
    Turner, Dennis (Wolverh'ton SE)

    Tellers for the Noes:

    Turner, Dr. Desmond (Brighton

    Mr. Fraser Kemp and

    Kemptown)

    Margaret Moran

    Question accordingly negatived.

    It being more than five and a half hours after the commencement of proceedings on the first Ways and Means motion relating to the Bill, MADAM DEPUTY SPEAKER, pursuant to Order [this day], proceeded to put forthwith the Questions necessary for the disposal of the business to be concluded at that hour.

    Schedule 22

    Employee Securities And Options

    Amendments made: No. 114, in page 278, line 6, leave out

    'In a case within subsection (1)(a),'.

    No. 115, in page 279, line 33, leave out '428(3)' and insert '428(9)'.

    No. 116, in page 310, line 7, after 'sections', insert `421(2) and'.

    No. 117, in page 310, line 9, after 'for', insert 'the acquisition of.

    No. 118, in page 310, line 20, at end insert—

    '"the employer (in Chapter 5 of Part 7)section 471(5)",'.

    No. 119, in page 314, line 8, leave out from 'Table,' to `insert' in line 9 and insert 'at the appropriate place'.

    No. 120, in page 321, line 2, leave out '428(3) and (6)' and insert '428(6) and (9)'.— [Dawn Primarolo.]

    Schedule 33

    Insurance Companies

    Amendments made: No. 121, in page 378, line 29, leave out sub-paragraph (6) and insert—

    '(6) After subsection (6A) insert—
    "(6B) A contract which reinsures risk in respect of insurances to be made only after the making of the contract of reinsurance can constitute a transfer of business by virtue of subsection (6)(c) above only if a potential advantage is conferred on the reinsurer by the contract.
    (6C) And for the purposes of subsection (6B) above a potential advantage is conferred on the reinsurer by the contract if, taking the contract as "the actual provision" for the purposes of Schedule 28AA to the Taxes Act 1988, the effect of making the actual provision instead of the arm's length provision (within the meaning of that Schedule) would have in relation to the reinsurer the effect specified in paragraph 5(1)(b) of that Schedule.".'.

    No. 122, in page 381, line 11, at end insert—

    '(15) The references in subsections (8), (12) and (13) above to an amount being brought into account—

  • (a) in a case where the amount taken into account as a receipt of the company under section 83(2) above in relation to the contingent loan or loans in question is an amount brought into account in an account concerned wholly with non-participating business, are to its being brought into account in that account or in any other account concerned wholly with nonparticipating business, and
  • (b) in a case where the amount so taken into account is an amount brought into account in an account concerned wholly or partly with participating business, are to its being brought into account in that account or in any other account concerned wholly or partly with participating business.
  • (16) Where—

  • (a) a transfer to another fund brought into account for a period of account as other expenditure in any account concerned wholly with non-participating business is brought into account as other income in an account concerned wholly or partly with participating business, or
  • (b) a transfer to another fund brought into account for a period of account as other expenditure in any account concerned wholly or partly with participating business is brought into account as other income in an account concerned wholly with non-participating business,
  • subsection (8) above has effect as if it were a positive amount brought into account as transfers to non-technical account for that period of account in the account in which it is brought into account as other expenditure.

    (17) For the purposes of subsections (15) and (16) above—

  • (a) an account is concerned wholly with non-participating business if it relates exclusively to policies or contracts under which the policy holders or annuitants are not eligible to participate in surplus, and
  • (b) an account is concerned wholly or partly with participating business if it relates wholly or partly to other policies or contracts.".'.
  • No. 123, in page 381, line 48, at end insert—

    `(3B) In subsection (3A)(a) above (and section 89(1B) below) "chargeable gains referable to the company's basic life assurance and general annuity business", in relation to an accounting period, means the chargeable gains so far as referable to that business accruing to the company in the accounting period after deducting—
  • (a) any allowable losses so referable accruing to the company in the accounting period, and
  • (b) so far as they have not been allowed as a deduction from chargeable gains in any previous accounting period, any allowable losses so referable previously accruing to the company.".'.
  • No. 124, in page 384, line 4, at end insert—

    '8A (1) In section 432D of the Taxes Act 1988 (section 432B apportionment: value of non-participating funds), after "value of assets" (in each place) insert "or as other income".
    (2) Sub-paragraph (1) has effect for periods of account beginning on or after 1st January 2003.'.

    No. 125, in page 385, leave out lines 8 to 11 and insert

    The policy holders' share of the franked investment income from investments held in connection with a company's" substitute "So much of the policy holders' share of the franked investment income from investments of a company's long-term insurance fund as is referable to its".
    (3) In section 441(1) and (2) of the Taxes Act 1988 (overseas life assurance business), omit "and section 441A".'.

    No. 126, in page 389, line 7, leave out from 'where' to 'acquires' in line 9 and insert

    ',within a period of 10 days, an insurance company disposes of a number of section 440A securities and (whether subsequently or previously)'.

    No. 127, in page 389, line 34, leave out from 'securities' to 'or' in line 36 and insert

    'which are section 212 assets within the meaning of section 214(1) (rights under authorised unit trusts and interests in offshore funds),'.

    No. 128, in page 390, line 24, at end insert—

    '14A (1) Section 213 of the Taxation of Chargeable Gains Act 1992 (c.12) (spreading of gains and losses under section 212) is amended as follows.

    (2) In subsection (3)—

  • (a) for "subsection (3A)" substitute "subsection (8H)",
  • (b) in paragraph (b) for "one of the next 6" substitute "either of the next 2" and for "subsection" substitute "section",
  • (c) in paragraph (c), for "any intervening accounting period" substitute "the intervening accounting period (if there is one)", and
  • (d) in paragraph (ca), for "none of the intervening accounting periods is" substitute "the intervening accounting period (if there is one) is not".
  • (3) Omit subsections (3A) and (3B).

    (4) For subsection (5) substitute—

    "(4A) The following provisions apply where an insurance business transfer scheme has effect to transfer business which consists of the effecting or carrying out of contracts of long-term insurance from one person ("the transferor") to another ("the transferee").
    (5) Subject to subsections (5A) to (7) below, any chargeable gain or allowable loss which (assuming that the transferor had continued to carry on the business transferred) would have accrued to the transferor by virtue of subsection (1) above after the transfer shall instead be deemed to accrue to the transferee."
    (5) After subsection (8) insert—
    "(8A) Subsection (8B) below applies where—
  • (a) immediately before the transfer the transferee did not carry on business consisting of the effecting or carrying out of contracts of long-term insurance,
  • (b) the transferor and the transferee are, at the time of the transfer, members of the same group,
  • (c) the net amount for the accounting period of the transferor ending with the day of the transfer, or for the immediately preceding accounting period of the transferor, ("the relevant pre-transfer period of the transferor") represents an excess of gains over losses,
  • (d) the net amount for the accounting period of the transferee in which the transfer takes place, or for the immediately following accounting period of the transferee, ("the relevant post-transfer period of the transferee") represents an excess of losses over gains (after taking account of any reductions made by virtue of this section), and
  • (e) within 2 years after the end of the relevant post-transfer period of the transferee, the transferor and the transferee make a joint election in respect of the whole or part of the net amount for that period by notice to an officer of the Board.
  • (8B) Subject to subsections (8C) to (8E) and (8H) below, the net amounts for both the relevant pre-transfer period of the transferor and the relevant post-transfer period of the transferee shall be reduced by the amount in respect of which the election is made.
    (8C) Subsection (8B) above does not apply if—
  • (a) the relevant post-transfer period of the transferee is the accounting period immediately following that in which the transfer takes place, and
  • (b) the relevant pre-transfer period of the transferor is the accounting period immediately preceding that ending with the day of the transfer.
  • (8D) If—
  • (a) the relevant post-transfer period of the transferee is the accounting period immediately following that in which the transfer takes place, and
  • (b) the relevant pre-transfer period of the transferor is the accounting period ending with the day of the transfer,
  • subsection (8B) above applies only if the conditions in subsection (8F) below are satisfied in relation to the accounting period of the transferee in which the transfer takes place.
    (8E) If—
  • (a) the relevant post-transfer period of the transferee is the accounting period in which the transfer takes place, and
  • (b) the relevant pre-transfer period of the transferor is the accounting period immediately preceding that ending with the day of the transfer,
  • subsection (8B) above applies only if the conditions in subsection (8F) below are satisfied in relation to the accounting period of the transferor ending with the day of the transfer.

    (8F) The conditions referred to in subsections (8D) and (8E) above are that—

  • (a) there is (after taking account of any reductions made by virtue of this section) no net amount for the accounting period, and
  • (b) the company whose accounting period it is did not join a group of companies in the accounting period.
  • (8G) A copy of the notice containing an election under subsection (8A)(e) above must accompany the tax return for the relevant post-transfer period of the transferee; and paragraphs 54 to 60 of Schedule 18 to the Finance Act 1998 (claims and elections for corporation tax purposes) do not apply to such an election.

    (8H) Subsections (3) and (8A) and (8B) above have effect where the company, or the transferee, in question joins a group of companies in the accounting period for which the net amount represents an excess of losses over gains as if a claim or election could not be made in respect of that net amount except to the extent (if any) that the net amount is an amount which, assuming there to be gains accruing to the company or transferee immediately after the beginning of that period, would fall to be treated under paragraph 4 of Schedule 7AA as a qualifying loss in relation to those gains.

    (8I) References in this section to a company joining a group of companies are to be construed in accordance with paragraph 1 of Schedule 7AA as if those references were contained in that Schedule; and in subsection (8A)(b) above "group" has the same meaning as in that Schedule."

    (6) This paragraph has effect where the accounting period for which the net amount represents an excess of losses over gains is an accounting period beginning on or after 1st January 2003.'.

    No. 129, in page 391, line 3, leave out from `transferor")' to 'is' in line 6 and insert—

    '(2) Where the last period covered by a periodical return of the transferor ends otherwise than immediately before the transfer, there'.

    No. 130, in page 391, line 11, leave out 'takes place'.

    No. 131, in page 391, leave out lines 15 to 17 and insert—

    '(2A) Where the last period covered by a periodical return of the transferor (whether or not by virtue of subsection (2) above) ends immediately before the transfer, there is to be deemed for the relevant purpose to be a periodical return of the transferor—

  • (a) covering the time of the transfer, and
  • (b) containing such entries as would have been included in an actual periodical return covering the time of the transfer,
  • (and so making the time of the transfer a period of account of the transferor for the relevant purpose).

    (2B) Where the last period covered by a periodical return of the transferor ends after the transfer, the periodical return covering that period is to be ignored for all purposes of corporation tax other than the relevant purpose.

    (3) In this section "the relevant purpose" means'.

    No. 132, in page 396, line 7, at end insert—

    `(2ZCA) For the purposes of subsection (2ZC) above—

  • (a) closing liabilities of the transferee are to be taken not to relate to the business transferred to the extent that they are liabilities which, immediately before the transfer, were reinsured by the transferor with the transferee, but
  • (b) closing liabilities of the transferee are to be taken to relate to the business transferred to the extent that they are liabilities which, immediately before the transfer, were reinsured by the transferee with the transferor if the business transferred consists of or includes that reinsurance business.'.
  • No. 133, in page 397, line 10 [Schedule 33], after `431(2)', insert

    `of the Taxes Act 1988'.

    No. 134, in page 397, line 32, at end insert—

    'Meaning of "period of account"

    '26A In section 431(2) of the Taxes Act 1988 (interpretative provisions relating to insurance companies), after the definition of "periodical return" insert—

    ""period of account" means the period covered by a periodical return;".'.

    Dawn Primarolo.]

    New Clause 10

    Registered Social Landlords: Treatment Of Certain Leases Granted Between 1St January 1990 And 27Th March 2000

    '(1) This section applies to a lease in relation to which the following conditions are met—

  • (a) it is a lease of a dwelling to one or more individuals;
  • (b) it is for an indefinite term or is terminable by notice of a month or less;
  • (c) it was executed on or after 1st January 1990 and before 28th March 2000;
  • (d) at the time it was executed the rate or average rate of the rent (whether reserved as a yearly rent or not) was £5,000 a year or less; and
  • (e) the landlord's interest has at any time before 26th June 2003 been held by a registered social landlord.
  • (2) A lease to which this section applies (whether or not presented for stamping) shall be treated—

  • (a) for the purposes of section 14 of the Stamp Act 1891 (c. 39) (production of instrument in evidence) as it applies in relation to proceedings begun after the day on which this Act is passed, and
  • (b) for the purposes of section 17 of that Act (enrolment etc of instrument) as it applies to any act done after that day,
  • as if it had been duly stamped in accordance with the law in force at the time when it was executed.

    (3) If in the case of a lease to which this section applies the Commissioners are satisfied—

  • (a) that the instrument was stamped on or before the day on which this Act is passed, and
  • (b) that stamp duty was charged in respect of it,
  • they shall pay to such person as they consider appropriate an amount equal to the duty (and any interest or penalty) so charged.

    (4) Any such payment must be claimed before 1st January 2004.

    (5) Entitlement to a payment under subsection (3) is subject to compliance with such conditions as the Commissioners may determine with respect to the production of the instrument, to its being stamped so as to indicate that it has been produced under this section or to other matters.

    (6) For the purposes of section 10 of the Exchequer and Audit Departments Act 1866 (c. 39) (Commissioners to deduct repayments from gross revenues) any amount paid under subsection (3) above is a repayment.

    (7) This section shall be construed as one with the Stamp Act 1891 (c. 39).

    (8) The reference in subsection (1) above to the landlord's interest being held by a "registered social landlord" is to its being held by a body that—

  • (a) is registered in a register maintained under—
  • (i) Article 124 of the Housing (Northern Ireland) Order 1981 (S.I.1981/156(N.I.3)),
  • (ii) section 3(1) of the Housing Associations Act 1985 (c. 69),
  • (iii) Article 14 of the Housing (Northern Ireland) Order 1992 (S.I.1992/1725 (N.I.15)),
  • (iv) section 1(1) of the Housing Act 1996 (c. 52), or
  • (v) section 57 of the Housing (Scotland) Act 2001 (asp10), or
  • (b) is a body corporate whose objects correspond to those of a housing association and which, pursuant to a contract with Scottish Homes, is registered in a register kept for the purposes by Scottish Homes.
  • (9) Section 129 of this Act (relief for certain leases granted on or after 1st January 2000) does not apply to a lease to which this section applies.'.— [Mr. Boateng.]

    Brought up, and read the First time.

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

    With this it will be convenient to discuss the following: amendment No. 8, in page 29, line 30, clause 42, leave out 'stamp duty land' and insert 'property transaction'.

    Government amendments Nos. 53 to 57.

    Amendment No. 98, in page 35, line 40, clause 53, leave out 'stamp duty land' and insert 'property transaction'.

    Amendment No. 9, in page 37, line 30, leave out Clause 56.

    Government amendments Nos. 58 to 63.

    Amendment No. 21, in page 42, line 28, clause 62, leave out 'stamp duty land' and insert 'property transaction'.

    Government amendments Nos. 64 to 68.

    Amendment No. 22, in page 47, line 23, Clause 68, leave out 'stamp duty land' and insert 'property transaction'.

    Government amendments Nos. 69 to 76.

    Amendment No. 23, in page 59, line 24, clause 93, leave out 'stamp duty land' and insert 'property transaction'.

    Amendment No. 99, in page 65, line 11, clause 104, leave out 'stamp duty land' and insert 'property transaction'.

    Amendment No. 24, in page 69, line 1, clause 114, leave out 'stamp duty land' and insert 'property transaction'.

    Amendment No. 25, in page 69, line 10, clause 114, leave out 'stamp duty land' and insert 'property transaction'.

    Government amendments Nos. 77 to 79, 143 and 144.

    Amendment No. 26, in page 75, line 2, clause 123, leave out 'stamp duty land' and insert 'property transaction'.

    Government amendment No. 80.

    Amendment No. 100, in page 75, line 22, clause 125, leave out 'SDLT' and insert `PTT'.

    Amendment No. 101, in page 75, line 23, clause 125, leave out 'stamp duty land' and insert 'property transaction'.

    Amendment No. 102, in page 75, line 26, clause 125, leave out 'stamp duty land' and insert 'property transaction'.

    Amendment No. 103, in page 75, line 28, clause 125, leave out 'stamp duty land' and insert 'property transaction'.

    Government amendment No. 81.

    Amendment No. 10, in page 161, line 35, leave out Schedule 5.

    Government amendments Nos. 82 to 86.

    Amendment No. 104, in page 219, line 33, schedule 13, leave out 'stamp duty land' and insert 'property transaction'.

    Government amendments Nos. 87 to 90.

    Amendment No. 27, in page 232, line 37, schedule 15, leave out 'stamp duty land' and insert 'property transaction'.

    Amendment No. 28, in page 234, line 4, schedule 15, leave out 'stamp duty land' and insert 'property transaction'.

    Amendment No. 29, in page 234, line 10, schedule 15, leave out 'stamp duty land' and insert 'property transaction'.

    Amendment No. 105, in page 234, line 26, schedule 15, leave out 'stamp duty land' and insert 'property transaction'.

    Amendment No. 30, in page 234, line 29, schedule 15, leave out 'stamp duty land' and insert 'property transaction'.

    Amendment No. 31, in page 235, line 1, schedule 15, leave out 'stamp duty land' and insert 'property transaction'.

    Amendment No. 32, in page 235, line 4, schedule 15, leave out 'stamp duty land' and insert 'property transaction'.

    Amendment No. 33, in page 235, line 11, schedule 15, leave out 'stamp duty land' and insert 'property transaction'.

    Amendment No. 106, in page 235, line 14, schedule 15, leave out 'stamp duty land' and insert 'property transaction'.

    Government amendments Nos. 91 to 95.

    Amendment No. 34, in page 240, line 17, schedule 18, leave out 'stamp duty land' and insert 'property transaction'.

    Amendment No. 35, in page 240, line 21, schedule 18, leave out 'stamp duty land' and insert 'property transaction'.

    Amendment No. 36, in page 240, line 25, schedule 18, leave out 'stamp duty land' and insert 'property transaction'.

    Amendment No. 37, in page 240, line 27, schedule 18, leave out 'stamp duty land' and insert 'property transaction'.

    Amendment No. 38, in page 240, line 29, schedule 18, leave out 'stamp duty land' and insert 'property transaction'.

    Amendment No. 39, in page 240, line 32, schedule 18, leave out 'stamp duty land' and insert 'property transaction'.

    Amendment No. 40, in page 240, line 37, schedule 18, leave out 'stamp duty land' and insert 'property transaction'.

    Amendment No. 41, in page 241, line 11, schedule 18, leave out 'stamp duty land' and insert 'property transaction'.

    Amendment No. 42, in page 241, line 15, schedule 18, leave out 'stamp duty land' and insert 'property transaction'.

    Amendment No. 43, in page 241, line 21, schedule 19, leave out 'SDLT' and insert 'PTT'.

    Amendment No. 44, in page 241, line 28, schedule 19, leave out `SDLT' and insert 'PTT'.

    Amendment No. 45, in page 241, line 31, schedule 19, leave out 'stamp duty land' and insert 'property transaction'.

    Amendment No. 11, in page 241, line 32, schedule 19, at end insert
    `but no order under this paragraph shall appoint a date earlier than 1st December 2004.'.
    Amendment No. 46, in page 241, line 35, schedule 19, leave out `SDLT' and insert 'PTT'.

    Government amendment No. 96.

    Amendment No. 47, in page 242, line 22, schedule 19, leave out 'stamp duty land' and insert 'property transaction'.

    Amendment No. 48, in page 242, line 26, schedule 19, leave out 'stamp duty land' and insert 'property transaction'.

    Amendment No. 49, in page 242, line 37, schedule 19, leave out 'stamp duty land' and insert 'property transaction'.

    Amendment No. 107, in page 243, line 10, schedule 19, leave out 'stamp duty land' and insert 'property transaction'.

    Amendment No. 50, in page 243, line 13, schedule 19, leave out `SDLT' and insert 'PTT'.

    Amendment No. 51, in page 243, line 14, schedule 19, leave out `SDLT' and insert 'PTT'.

    Amendment No. 108, in page 243, line 15, schedule 19, leave out 'stamp duty land' and insert 'property transaction'.

    Government amendment No. 97.

    Amendment No. 15, in page 246, line 8, schedule 20, after 'other', insert 'transitional'.

    Amendment No. 16, in page 246, line 9, schedule 20, leave out
    `appear to them appropriate in consequence of abolition'
    and insert—
    `are necessary or reasonably incidental to effect the replacement'.
    Amendment No. 17, in page 246, line 13, schedule 20, leave out
    `appear to the Treasury to be appropriate'
    and insert—
    `are necessary or reasonably incidental to the replacement of stamp duty except on instruments relating to stock and marketable securities; but any such provision or any such regulation which is not necessary or reasonably incidental to such purpose shall not take effect.'.
    Amendment No. 18, in page 246, line 15, schedule 20, leave out
    `annulment in pursuance of a'
    and insert 'an affirmative'.

    No one listening to you read out that little lot, Madam Deputy Speaker, could say that we have not listened. I am afraid that the hon. Members for Arundel and South Downs (Mr. Flight) and for Torridge and West Devon (Mr. Burnett) will say that we have not listened, but we have. We have now reached a group of amendments on stamp duty and stamp duty land tax. I shall deal first with new clause 10, which is one of the many examples of our having listened to the concerns of stakeholders. I shall then deal with the Opposition amendments. Finally, I shall deal with the Government amendments. Some of them are technical, but most again reflect our willingness to listen to concerns that have been expressed in Standing Committee and by stakeholders.

    6.30 pm

    New clause 10 further extends the targeted relief from stamp duty for registered social landlords. Many RSLs have been using a particular form of lease under the impression that it was exempt from stamp duty. However, it now appears that those leases should have been stamped. Recognising the valuable role played by RSLs, we do not believe that it is appropriate now to seek stamp duty on the many lease agreements currently in place, not least because under current stamp duty provisions, it is unclear whether the liability should be met by those RSLs or their tenants.

    The new clause therefore exempts from stamp duty indefinite tenancy agreements granted between 1 January 1990 and 27 January 2000 where the landlord at any time before 26 June 2003 has been an RSL. That means that it will apply to indefinite tenancy agreements both granted by and assigned to RSLs. The new clause also removes the administrative burden of stamping tenancy agreements that have not previously been stamped, which means that RSLs will now have certainty that their tenancy leases comply with stamp duty legislation. I commend this worthwhile new clause to the House.

    I now turn to the Opposition amendments. Amendments Nos. 8, 21 to 51 and 98 to 108 simply attempt to change the name of the tax and would have no effect on its scope or operation. Their aim is clearly to cause unnecessary alarm and confusion among house purchasers and their advisers by suggesting that the Government are introducing a new tax— [Interruption.] Quite so; Opposition Members attempted to make that suggestion throughout the proceedings in Committee. I should have thought that it had been rebuffed sufficiently for them not to want to repeat their folly on the Floor of the House, but I fear that that is not the case.

    I fear that we are now about to hear folly in triplicate from the hon. Gentleman.

    I am not sure I am grateful to the Chief Secretary for giving way on that sour note, but perhaps he will answer this question: in what sense is this tax a stamp duty, since it involves neither a stamp nor a duty?

    It is a reflection of a continuing process of modernisation that was begun by the Conservative party, which should welcome it. I am surprised that, having heard the arguments, the hon. Gentleman, who has an open mind, should persist in that one.

    Let me emphasise that those who already pay their way—the vast majority of purchasers and their advisers—will notice little difference as a result of the implementation of SDLT. The rates for residential purchases will remain the same. The main difference will be that payment of SDLT will be accompanied by a return rather than an original document, but the information on the return will be virtually the same as that already provided to the Revenue, so there is no change there.

    The legal and accountancy professions are familiar with the name "stamp duty land tax" as a result of the customer education programme that we have already launched. It would cause a great deal of needless confusion if, in the unlikely event of the amendment appealing to the House, that name were to be changed. Those who will notice a difference are those who have used the archaic features of stamp duty for avoidance purposes. The modernised structure and procedures will ensure that they pay their proper share. I hope that the Opposition will support us in that aim and the changes that are necessary to achieve it.

    This is where I shall labour the point at a little length—