On a point of order, Mr. Speaker. I tabled a question on 23 June to the Home Office asking how many people on the sex offenders’ register had gone missing. It was a named-day question for 26 June. It is now 4 July and I have not received even a holding answer. Is it right for Back-Benchers’ questions to be completely ignored? What is your advice?

I am grateful to the hon. Gentleman for raising the matter. I have had a discussion with the Leader of the House, who informed me that he is speaking to Ministers to get them to hurry up and put the information before the House.

On a point of order, Mr. Speaker. Yesterday, the armed forces Minister presented a written statement to the House about changes to the Defence Logistics Organisation, which will mean job losses in Shropshire. Should not a statement of such magnitude and with such an impact on constituents throughout Shropshire, especially my own in The Wrekin, be oral, not written?

I am not privy to how those statements are made. Whether a statement is oral or written is up to the relevant Minister. Of course, if hon. Members are dissatisfied with that, it is up to them to apply for urgent questions.

I beg to move,

That leave be given to bring in a Bill to make provision for security of tenure for Gypsies and Travellers on local authority caravan sites; and for connected purposes.

I should like to begin by describing a case that brings security of tenure for Gypsies and Travellers into sharp focus and demonstrates the vulnerability of their position and the resulting injustice. In May 2004, the European Court of Human Rights decided the case of Connors v. the United Kingdom, in which the claimant had been evicted from an official local authority Gypsy site on which she had resided for many years. There were allegations of nuisance, but the local authority did not have to plead those allegations nor prove its case in the possession action that it took in the county court, because the Caravan Sites Act 1968 provides that all that a local authority has to do to gain possession of a pitch on a Gypsy site is to provide 28 days’ notice of termination of the Gypsy’s or Traveller’s licence and then obtain a court order. In Connors v. the United Kingdom, the local authority had served such a notice, leaving the occupant without a defence. The court could neither scrutinise the allegations that had prompted the local authority to serve the notice nor decide whether they were proved and, if proved, decide whether it was reasonable for a possession order to be made. The European Court of Human Rights decided that that lack of any procedural safeguard was a clear breach of the occupant’s rights under article 8 of the European convention on human rights, which provides a right to respect for that person’s home, private life and family life.

Looking back on that case now, one could say that that appears to be an obvious conclusion. Most council tenants in bricks and mortar housing have full security of tenure under the Housing Act 1985. Only those on a trial period under an introductory tenancy, those whose tenancy has been demoted for antisocial behaviour, or those in accommodation for the homeless do not enjoy those full rights. If a local authority wishes to take possession proceedings against a council secure tenant, it must establish one of the grounds of possession in the Act. In the case of discretionary grounds, as in cases involving rent arrears or nuisance allegations, the court must also be satisfied that it is reasonable to grant a possession order.

In November 2004, the Government sent a memorandum to the Council of Ministers indicating that they accepted that they would have to change the law to introduce security of tenure on official local authority Gypsy and Traveller sites. The indications given at the time were that this would be achieved by referring the matter to the Law Commission, which was working on reforms to security of tenure with regard to tenancies of bricks and mortar dwellings. While that was awaited, Gypsies and Travellers on official sites remained without security of tenure.

In the meantime, on the face of it, local authorities were still entitled to seek a possession order without pleading or proving any grounds of possession. Relying on the Connors case, lawyers representing Gypsies and Travellers facing eviction were compelled to resort to article 8 of the European convention and to argue that this could provide a defence to the county court claim for possession of the land, oblige the court to investigate the allegations and decide the issues, and entitle the court to refuse to make a possession order where it considered it disproportionate to do so.

However, to succeed in that argument Gypsies and Travellers had to overcome the decision of the House of Lords in London Borough of Harrow v. Qazi, decided in July 2003. The House of Lords decided that the defendant could not rely on article 8 as a defence, as the domestic legislation provided an automatic justification for any interference with his right to respect for his home and family life.

The challenge to Qazi returned to centre stage in March this year, when the House of Lords, sitting as a seven-member court, heard the cases of Kay v. London borough of Lambeth and Price v. Leeds city council together. By a majority of four to three, the House held that the Connors ruling was, to a limited degree, inconsistent with its decision in the Qazi case. It decided that the Qazi ruling must be modified to the extent that in cases of a special and unusual kind, such as the Connors case, interference with the occupier’s article 8 rights would have to be justified by a decision-making process that ensured that some special consideration was given to those interests.

In May 2006, the Law Commission produced a consultation document entitled “Renting Homes: The Final Report”. It is the commission’s final report—now out for consultation—on the question of reform of security of tenure for tenants of dwelling houses. Despite what had been indicated soon after the Connors decision, there is no reference by the Law Commission to the situation on Gypsy sites. Moreover, it would appear to be by no means certain that the Law Commission’s draft legislation—appended to its report—will go any further. In the light of that, there are still no firm proposals from the Government on what should be done about security of tenure for Gypsies and Travellers on permanent official sites.

I ask this: why should the clearly delineated statutory protection afforded to a council “bricks and mortar” tenant not also be available to a Gypsy or Traveller occupying a pitch on a permanent local authority site in the same circumstances? Both the European Court of Human Rights and the House of Lords have held the present law enacted by Parliament to be in breach of article 8 of the convention, which provides for the right to respect for a person’s home and family life. The rights of Gypsies and Travellers on official sites are also in stark contrast with the charter of rights—recently significantly strengthened by the Housing Act 2004—given to occupants of pitches in park homes regulated by the Mobile Homes Act 1983.

More than 50 years after the United Kingdom signed the European convention on human rights, why should Gypsies and Travellers on local authority sites be compelled to rely on the ingenuity of housing and human rights lawyers—and, of course, their availability—to gain what can only be called basic human rights, whereas “bricks and mortar” dwellers have their rights clearly enshrined in statute and readily applied by the courts? The threat of losing one’s home, with the risk of children being taken into care, is a frightening experience, not just for the tenant or licensee of a pitch but for the whole family.

Parliament's intervention in the form of section 211 of the Housing Act 2004, which gives the courts power to suspend possession orders, does not deal with the mischief that I seek to cure in the Bill. The current state of the law continues to be a source of anxiety, distress and hardship to Gypsies and Travellers on official sites, and clearly defined rights need to be enacted. I tabled the Bill for that reason, and I thank Chris Johnson of the Community Law Partnership and Andrew Ryder for their help in drafting it.

The Bill is designed to adapt the provisions that apply to secure tenants under the Housing Act 1985 to the circumstances of Gypsies and Travellers on official sites. It provides for such rights to be acquired after a successful trial period, and to be lost by means of a demotion order when abused through antisocial behaviour. All that I seek to do is put occupants of local authority official sites on a par with occupants of local authority “bricks and mortar” accommodation. If Gypsies and Travellers on official sites are to be given equivalent security of tenure, it follows logically that they should also have the rights enjoyed by tenants of council housing in relation to succession, assignment, right to exchange and relevant repairing obligations. Accordingly, those matters are also included in the Bill.

In passing, I should like to mention the initiative of Oxfordshire county council, which, in producing new licence agreements for its six county council sites in July 2005, included such rights as a matter of contract.

The Bill is intended to have effect in England and Wales. According to the latest caravan count figures, nearly 50 per cent. of Gypsies and Travellers who live in caravans in England live on official local authority sites. There are no up-to-date statistics for Wales, but I am glad to note that the recent Niner report on Gypsy and Traveller accommodation needs in Wales, commissioned by the Welsh Assembly Government, has recommended that an up-to-date count be undertaken.

The time has come to make sure that Gypsy and Traveller occupiers of local authority sites receive the same protection, corresponding to local authority “bricks and mortar” tenants. We must respect their rights to a secure home and family life. The Bill will provide such protection and security, so I commend it to the House.

Question put and agreed to.

Bill ordered to be brought in by Julie Morgan, Mr. David Amess, Ms Karen Buck, Mr. Martin Caton, Harry Cohen, Jeremy Corbyn, Mr. David Drew, Nick Harvey, Kelvin Hopkins, Bob Russell, Mr. Andrew Slaughter and Mrs. Betty Williams.

Caravan Sites (Security of Tenure)

Julie Morgan accordingly presented a Bill to make provision for security of tenure for Gypsies and Travellers on local authority caravan sites; and for connected purposes: And the same was read the First time; and ordered to be read a Second time on Friday 20 October, and to be printed [Bill 206].

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

With this it will be convenient to discuss the following:

Amendment No. 58, in schedule 20, page 377, line 21,  after ‘minor’, insert ‘(whether by exercise of trustees’ powers under such a will or otherwise).’.

Amendment No. 56, page 380, line 30, at end insert—

‘(4A) Where—

(a) section 71 above applied to settled property immediately before 22nd March 2006,

(b) on or after that date a beneficiary (within the meaning of section 71 above) (“B”) became entitled to an interest in possession in that settled property, and

(c) before that interest in possession had come to an end and while B was under the age of 25 and before [6th April 2008] that settled property became held for the benefit of B on trusts such as are mentioned in subsection (3)(b)(i) above,

subsections (3) and (4) above shall apply as though the settled property had become held on the trusts referred to in paragraph (c) above immediately at the time B in fact became entitled to the interest in possession referred to in paragraph (b) above.’.

Government amendment No. 70.

Amendment No. 34, page 386, line 3, after ‘interest’, insert ‘, or

(d) a relationship breakdown settlement interest.’.

Government amendments Nos. 71 to 74.

Amendment No. 59, page 386, line 42, after ‘but’, insert ‘(unless B was the spouse or civil partner of the person entitled to the prior interest)’.

Government amendments Nos. 75 to 77.

Amendment No. 5, page 388, line 18, at beginning insert—

‘6 (1) In section 89 (trusts for disabled persons)—

(a) in subsection (4)(a) at end insert—

“(aa) a person who lacked capacity within the meaning of section 272 below, or”;

(b) in subsection (4)(c), leave out “or middle” and insert “middle or lower”; and

(c) after subsection (4)(c) at end insert—

“(d) a person who satisfies the Commissioners for Her Majesty’s Revenue and Customs that he had a condition that it was at that time reasonable to expect would have such effects on him as to lead to him becoming a person—

(i) falling within subsection (4)(a) or (aa) above, or

(ii) in receipt of an attendance allowance mentioned in subsection (4)(b) above, or

(iii) in receipt of a disability living allowance mentioned in subsection (4)(c) above.”.’.

Amendment No. 6, page 388, line 29, after ‘89(4)(a)’, insert ‘or (aa)’.

Amendment No. 7, page 388, line 34 , leave out ‘or middle’ and insert ‘, middle or lower’.

Government amendment No. 78.

Amendment No. 8, page 390, line 26, leave out ‘or middle’ and insert ‘, middle or lower’.

Amendment No. 9, page 390, line 46, leave out ‘or middle’ and insert ‘, middle or lower’.

Amendment No. 10, page 391, line 2, at end insert—

‘(7) The reference in subsection (1) above to a disabled person includes, in relation to any settled property, a reference to a person who satisfied Her Majesty’s Revenue and Customs that he would, when the property was transferred into settlement, have been entitled to an attendance allowance or disability living allowance, by virtue of entitlement to the care component at the highest, middle or lower rate, whether or not such an allowance was actually claimed.’.

Government amendment No. 79.

Amendment No. 35, page 393, line 9, at end insert ‘, and

(iv) not a relationship breakdown settlement interest.”’.

Amendment No. 32, page 393, line 9, after ‘interest’, insert—

‘10A (1) Section 10 of IHTA 1984 is amended as follows.

(2) In subsection (1)(b) after “with each other”, insert “, or

(c) it is made in accordance with or pursuant to a court order in proceedings for the following types of provision—

(i) financial relief for the parties to a marriage and any children of the family in connection with proceedings for divorce, nullity of marriage or judicial separation including, but not limited to, property adjustment orders or variation of settlement orders under section 24 of the Matrimonial Causes Act 1973 or orders under section 8 of the Family Law (Scotland) Act 1985 and any successive legislation; or

(ii) financial relief for the parties of a civil partnership in connection with proceedings for dissolution of the civil partnership including, but not limited to, property adjustment orders or variation of settlement orders under Schedule 5 of the Civil Partnership Act 2004 and any successive legislation; or

(iii) where a marriage has been dissolved or annulled or the parties to a marriage have been legally separated, by means of judicial or other proceedings in an overseas country and the divorce, annulment or legal separation is entitled to be recognised as valid in England and Wales, in Scotland or in Northern Ireland, financial relief for the parties to the marriage and any children of the family including, but not limited to, property adjustment orders or variation of settlement orders under section 17 of the Matrimonial and Family Proceedings Act 1984 or orders under section 8 of the Family Law (Scotland) Act 1985 and any successive legislation; or

(iv) financial relief for the benefit of a child including, but not limited to, a transfer or settlement of property under paragraph 1 of Schedule 1 of the Children Act 1989 and any successive legislation.”.’.

Government amendment No. 80.

Amendment No. 36, page 396, line 15, at end insert ‘, or

(c) a relationship breakdown settlement interest.”’.

Amendment No. 37, page 396, line 30, at end insert ‘, or

(d) a relationship breakdown settlement interest.”’.

Amendment No. 38, page 396, line 39, at end insert ‘, or

(d) a relationship breakdown settlement interest.”’.

Amendment No. 39, page 397, line 24, at end insert ‘, or

(c) a relationship breakdown settlement interest.”’.

Amendment No. 40, page 398, line 10, at end insert ‘, or

(c) a relationship breakdown settlement interest.”’.

Amendment No. 41, page 398, line 28, at end insert ‘, or

(d) a relationship breakdown settlement interest.”’.

Amendment No. 3, page 398, line 39, at end insert—

‘(2A) After sub-paragraph 1(f) insert—

“(g) a life protection policy as defined in subsection 4 below;

(h) property representing directly or indirectly any sum paid under a life protection policy, within two years following the death of any person giving rise to that sum.”.’.

Amendment No. 42, page 399, line 11, at end insert ‘, and

(iv) not a relationship breakdown settlement interest.’.

Amendment No. 4, page 399, line 25, at end insert—

‘(4) After section 58(3) insert—

“58(4) In subsections 1(g) and 1(h) above a “life protection policy” is a policy of insurance where the sum payable on the death or disability of any person is at all times no less than a number of equal to ten multiplied by the highest total sum of premiums paid in any period of twelve months.”.’.

Amendment No. 43, page 399, line 37, after first ‘interest’, insert ‘, or a relationship breakdown settlement interest’.

Government amendment No. 81.

Amendment No. 33, page 400, line 6, at end insert—

‘20A In IHTA 1984 after section 59 IHTA 1984 insert—

“59A Relationship breakdown settlement interest

(1) Where a person (“L”) is beneficially entitled to an interest in possession in settled property, for the purposes of this Chapter that interest is a “relationship breakdown settlement interest” only if the following conditions are satisfied.

(2) Condition 1 is that the settlement was effected, or if there was a prior settlement it was confirmed or varied, by a court order, in proceedings of the type mentioned in section 10(1)(c).

(3) Condition 2 is that L became beneficially entitled to the interest in possession on or before the date on which the court order came into effect.’.

Government amendment No. 82.

Amendment No. 57, page 400, line 44, at end insert ‘or a disabled person’s interest’.

Government amendment No. 83.

Amendment No. 44, page 401, line 21 , after ‘interest’, insert ‘, or

(iii) a relationship breakdown settlement interest.’.

Government amendment No. 84.

Amendment No. 45, page 401, line 27, after second ‘interest’, insert ‘or a relationship breakdown settlement interest’.

Government amendment No. 85.

Amendment No. 46, page 401, line 30 , after ‘interest’, insert ‘or a relationship breakdown settlement interest’.

Government amendment No. 86.

Amendment No. 47, page 401, line 37 , leave out ‘neither’ and insert ‘not’.

Government amendment No. 87.

Amendment No. 48, page 401, line 37, leave out ‘nor’ and insert ‘or’.

Amendment No. 49, page 401, line 38 , after ‘interest’, insert ‘or a relationship breakdown settlement interest.’.

Amendment No. 50, page 402, line 2, at end insert ‘, or

(d) a relationship breakdown settlement interest.”’.

Amendment No. 54, page 403, leave out line 1.

Amendment No. 55, page 403, line 2 , leave out ‘the’ and insert ‘a’.

Government amendments Nos. 88 and 89.

Amendment No. 11, page 403, line 26, at end insert—

‘“lacked capacity” means lacked capacity, within the meaning of the Mental Capacity Act 2005, in relation to any financial matter;’.

Amendment No. 51, page 403, line 26, at end insert—

‘“relationship breakdown settlement interest” means a relationship breakdown settlement interest for the purposes of Chapter 3 of Part 3 (see section 59A above);”’.

Government amendments Nos. 90 to 92.

Amendment No. 12, page 404, line 6, at end insert—

‘(iii) a disabled person’s interest, within the meaning given by section 89B of that Act; or’.

Amendment No. 52, page 404, line 6, at end insert—

‘(iii) a relationship breakdown settlement interest within the meaning given by section 59A of that Act, or’.

Government amendments Nos. 93 to 96.

Amendment No. 53, page 405, line 5, after ‘interest’, insert ‘or

(iii) a relationship breakdown settlement interest.’.

From the day the Chancellor slipped out these proposals contained in schedule 20 of the Finance Bill in Budget note 25 on 22 March this year, they were greeted with dismay and viewed as a matter of grave concern. Protests came from thousands of professionals across the country who were deeply worried that the Government had failed to carry out any consultation on the proposals and that those proposals would have a retrospective impact on thousands of trusts. Above all, Richard Platt, of Brewin Dolphin Securities, spoke for many of similar mind when he said that the proposals would

“hit Britain’s hard-working families at a time when the Government is encouraging families to safeguard their long-term financial security.”

The Society of Trust and Estate Practitioners, which has campaigned hard on the issue, estimated that at least 1 million wills would have to be reviewed or rewritten. The VAT on the £250 million or so of professional fees incurred in reviewing all those wills would have outstripped the mere £15 million that the Government expected to raise from what must have been one of the least cost-effective tax proposals ever made.

The Paymaster General dismissed the measured concerns that I expressed about these matters on the Floor of the House by saying that I did not know what I was talking about. Despite that robust defence, in Committee the Government then proceeded to table no fewer than 33 amendments to schedule 20 in an attempt to mitigate the serious problems about which I and so many others had protested.

The key changes were to reduce the new tax penalty imposed on trusts where property does not vest until the age of 25, and to restore the spouse exemption for trusts set up in wills. The Chancellor’s retreat continues today, with another 27 Government amendments to schedule 20. I welcome Government amendment No. 75 in particular, which more or less completes the Government’s U-turn on the spouse exemption and covers the point made in our amendment No. 59. The Government dismissed my arguments on the point in Committee, but they seem now to have conceded that successive life interest for spouses should not always fall under the new regime set out in schedule 20.

Will my hon. Friend give way?

Certainly.

I am very grateful to my hon. Friend, and I look forward to supporting the amendments and new clauses that she and my other hon. Friends on the Front Bench have rightly tabled. At the outset of her remarks, she said that the Chancellor had “slipped out” these proposals. It may be that the right hon. Gentleman expatiated eloquently and at length on these matters in his Budget speech, but I do not recall him doing so. Will my hon. Friend refresh my memory as to the correct chronology of events?

My hon. Friend is correct. The Chancellor did not choose to refer in his Budget speech to these radical proposals, which have been called the most significant changes to inheritance tax for a generation.

I also welcome Government amendment No. 89, which effectively puts into effect our amendments Nos. 54 and 55 and removes serious technical obstacles that would have prevented trustees from making appointments under trusts set up in discretionary wills. I am grateful for the sympathetic approach to the matter adopted by the Paymaster General in Committee, which has been confirmed in the Government amendment. However, some very serious problems in respect of schedule 20, and the Chancellor’s proposed new inheritance tax charges on trusts, remain unsolved.

New clause 2 and the other Opposition amendments in the group focus on four main areas: technical issues relating to trusts for young people; disability; life insurance, and trusts arising from relationship breakdown.

First, amendment No. 56 would correct an anomaly in proposed new section 71D, which was introduced in Committee and which reduces the harsh impact of schedule 20 in relation to existing accumulation and maintenance trusts. The proposed new section introduces a new taxation scheme allowing trustees to opt into a regime under which inheritance tax at 4.2 per cent. is paid if a vesting age of 25 is retained. However, if a beneficiary under such a trust has obtained an interest in possession since Budget day, it seems that the new taxation rating cannot apply because the trust entered the relevant property regime before steps could be taken to comply with proposed new section 71D. Thus, there is no opportunity to convert into a form of trust that would satisfy the new rules.

If the Paymaster General will not accept our amendments, I hope that she will at least clarify the matter. In Committee, she maintained that proposed new section 71D had been tabled merely to clarify what had always been the Government’s intention. If that is so, it seems very unfair to penalise people who are victims of the Government’s admitted failure to make their intentions clear on publication of the Bill.

Amendment No. 58 is also technical in nature, but would make an important change to provisions in respect of the bereaved minor trust. That is an important part of the Government’s new framework, and the amendment deals with the circumstances that arise when a will leaves property on trust to a spouse for life, with the remainder going to children on trust, vesting when they reach 25. That arrangement will attract the full force of the new schedule 20 charges, unless it can be varied to comply with the requirements of proposed new sections 71A and 71D. Trustees may wish to do that, but proposed new section 71A(2)(a) means that a change made by trustees will not enable them to opt into the bereaved minor trust regime. That is because such trusts apparently can arise only under a will and, in the circumstances that I have outlined, the trusts arise as a result of the exercise of the trustees’ powers—that is, not directly under the will.

Amendment No. 58 would ensure that a change by trustees in that situation will suffice to bring the trust under the proposed new section 71A regime. If it is not adopted, many thousands of wills, perhaps more, will still need to be reviewed. I hope that, at the very least, the Paymaster General will give the House clarification on that point.

Turning to the more substantive issues, rather than the technical one, our amendments would broaden the definition of disability in section 89 of the Inheritance Tax Act 1984. Section 89 has received little attention up to now, because plenty of more useful and more flexible trusts could be set up for vulnerable people outside the scope of section 89. Now that the majority of such trusts will be hit by the new inheritance tax charges under schedule 20, the section 89 carve-out has suddenly grown significantly in importance.

Some problems in respect of trusts for disabled people have been solved by amendments tabled by the Government in Committee and the retreat continues with their amendment No. 92, which will be considered this afternoon and is to all intents and purposes identical to Opposition amendment No. 12. As drafted, the Bill would impose a double tax hit on the death of a disabled beneficiary under an interest in possession trust. Both inheritance tax and capital gains tax would be payable, which would leave disabled beneficiaries facing a higher tax bill than they would have done before Budget day. I am relieved that the Government have had second thoughts about imposing that extra tax hit on vulnerable people, despite the Paymaster General’s rejection of my amendment on that matter in Committee.

Similarly, I welcome the Government’s acceptance of the point made in Opposition amendment No. 52—that it would be unacceptable to leave a disabled beneficiary struggling with the administrative problems caused by the related settlement regime of IHTA section 80 when others are exempted. Unless the Bill is amended on that point, people setting up trusts for a disabled spouse will be in a more disadvantaged position than those leaving a life-interest trust in their will to a non-disabled spouse.

Even with the solution of those problems, however, significant difficulties will still arise in relation to the impact of schedule 20 on trusts for vulnerable and disabled people—some of the most disadvantaged communities in our society. Robin Williamson of the Low Incomes Tax Reform Group put it more articulately than I possibly could. He said:

“On Budget day…this year…the Government proposed—without prior consultation—the most far-reaching changes to inheritance tax in a generation. Their intention seems to be to exclude trusts for disabled people from the scope of the new tax charges to be levied on most other types of trust. But the definition of disabled person used for this purpose, substantially unaltered for more than 20 years, is so narrowly framed as to leave many disabled beneficiaries of trusts out in the cold.

While the rest of government forges ahead in its understanding of disability issues, with the Disability Discrimination Acts 1995 and 2005 ushering in a new age of inclusion, the tax system clings obstinately to ancient precedents. The final opportunity to put these matters right comes when the Finance Bill receives its third reading on Tuesday and Wednesday 4 and 5 July. We urge the Government to reconsider, otherwise this once-in-a-generation opportunity to bring the tax definition of disabled person up-to-date and into line with the rest of Government thinking on disability will have been missed.”

So that the issue is fully intelligible to those of us who were not privileged to sit on the Standing Committee, and to others outside this place who are very interested in this point, will my hon. Friend explain precisely what is the rather narrow definition that the Government have hitherto insisted on using?

Yes, I shall explore that point in a moment.

In a joint statement, the organisations Mind, the Society of Trust and Estate Practitioners, the Parkinson’s Disease Society, the Chartered Institute of Taxation, the Institute of Chartered Accountants, the Law Society, the Low Incomes Tax Reform Group and the National Autistic Society said:

“We are not seeking favoured treatment, but to prevent vulnerable trust beneficiaries from incurring a tax penalty that they would not have incurred before Budget day. There are so many inconsistencies in the definition in section 89 that we firmly take the view that the legislation cannot go forward as currently drafted without causing severe prejudice to the interests of vulnerable trust beneficiaries, and discrimination between different classes of beneficiary, some of whom may qualify as a “disabled person” under the definition and some of whom will not.”

Turning to the point made by my hon. Friend the Member for Buckingham (John Bercow), the current section 89 definition covers two groups: people who, by reason of mental disorder within the meaning of the Mental Health Act 1983, are incapable of administering their property or managing their own affairs and people who are claiming attendance allowance or the highest or middle rate care component of disability living allowance.

I seek to broaden the debate very slightly. I fully agree with the argument being advanced by my hon. Friend from the shadow Treasury team, but is it not utterly wrong that there should be prejudice in the Government against the cascading down of wealth from one generation to the next, particularly against those who are seeking to hand on by way of a trust to those who are disabled, either physically or mentally, or to those who have looked after their elderly parents, thus sacrificing their own career? Their future is prejudiced because of the measure that the Government want to introduce—that is, it is unfair. Does my hon. Friend agree?

It is certainly enormously important that parents who wish to provide for a disabled child for the rest of their child’s life are not prevented or inhibited from or penalised for setting up a trust for that purpose. It seems to be the most worthwhile thing in the world for people to want to provide security for their disabled children. That is what the Opposition seek to do in our new clause and amendments this afternoon.

Perhaps the hon. Lady would explain to the hon. Member for Macclesfield (Sir Nicholas Winterton) that the Government carried out a consultation exercise on this very issue two years ago and that, overwhelmingly, all the organisations consulted said that they want to stick with the provisions of the Mental Health Act 1983. Would she also explain to the hon. Gentleman that we are talking about inheritance tax avoidance, not about planning for disabled children?

On the second point, the Paymaster General and the Government repeatedly say that schedule 20 is all about preventing the super-rich from sheltering their wealth from inheritance tax, but they adduce no evidence that trusts are used in that way. It is almost impossible to see how trusts can be used in that way, because they are taxed in the same way as an outright gift. The reality is that schedule 20 will hit a vast number of arrangements that have nothing at all to do with taxation. The fact that someone might wish to save their money and put it into a trust to provide after their death for their disabled child seems to have nothing whatsoever to do with inheritance tax.

I am glad that the Paymaster General referred to the consultation that the Government carried out, but she failed to mention that the consultation on the definition is two years old.

I just said that.

I am sorry—a slight omission—but certainly no mention was made of the fact that the consultation was carried out in the context of an income tax provision, which did not have nearly the same significance as section 89. Furthermore, again, I quote the QC to whom I referred earlier:

“Until now the tax reliefs for disabled persons have been almost entirely irrelevant because the value and importance of the reliefs have been trivial. The reliefs have not been significantly used because they are more trouble than they are worth. Thus it does not matter that the definition of disabled has been drawn extremely narrowly.”

Even more importantly, the Mental Capacity Act 2005 had not been finalised when the consultation was carried out, so it would have been difficult for the organisations to refer to such matters directly. Although a significant number of charitable organisations were involved in the consultation, only six responded on that issue during the two consultation exercises that were carried out.

A number of influential organisations protested that the definition was too narrow. On this point, the Treasury summary of the responses states:

“There was concern that the definition of vulnerable set out in the discussion papers—which covered disabled people and orphaned children—was too narrow.”

In Committee, the Paymaster General referred to the Disability Alliance as supporting the current section 89 definition. I would therefore like to quote from its response on the consultation, which it publishes on its website. Under the heading “Defining categories of disabled people”, it states:

“The proposals to restrict eligibility to those mentioned in paragraph 2 above appears to be far too restrictive and would exclude many disabled people who are currently defined under social security legislation. In this regard it would not appear to fit in with the government’s proposal of fairness.”

I was only too happy to take up the Minister’s invitation to refer to the consultation.

The Paymaster General quite rightly points out that the consultation began more than two years ago, but she has failed to acknowledge that no mention was made during that consultation of the main issue before us in relation to the changes in schedule 20—the reduction in age from 25 to 18 for accumulation and maintenance trusts. That was not referred to in the consultation at all. Nor was any evidence given by the Paymaster General in Committee of any systematic abuse. The consultation exercise failed to reveal the issues that the Government are now trying to introduce.

I agree that it was deeply unfortunate that the Government carried out the two-year consultation and never once mentioned the proposals on inheritance tax that they were seeking to put forward.

Will the hon. Lady indicate whether her amendments are aimed at dealing with trusts for people with disabilities set up inter vivos or on death? Those things are very different in terms of whether one is making provision for a child with a disability. Amendment No. 7 seeks to include the lower rate of disability living allowance as a kind of qualifying gateway. What level of disability is encompassed by the lower rate of DLA definition? Will she give some examples?

I will come to the second point later. On the first point, the amendments are most important in relation to inter vivos trusts, because at least there are other options open in relation to trusts set up on death. After the Government’s amendments in Committee, it will now be possible to set up life-interest trusts under a will without suffering the tax penalties. The primary advantage to be gained by the Opposition’s amendments is in relation to the establishment of inter vivos trusts, which would obviously otherwise incur the charges.

I am grateful for that clarification. Perhaps I have misunderstood the hon. Lady, and she can clarify things if I have, but the reply that the Opposition amendments are related to inter vivos trusts suggests that we are talking about a tax dodge, rather than the laudable aim of a parent of a child with a disability—who will have that disability for life and who is likely to outlive their parents—who wants to make provision for that child after the parent is gone. I can see the situation with trusts on death, but the hon. Lady is talking about amendments relating to inter vivos trusts. I hope that she will realise why there appears—certainly prima facie—to be a tax dodge in that scenario.

I know that the hon. Gentleman is keen to crack down on tax avoidance, but it is harsh to accuse parents who set up trusts to provide for their disabled children of doing that for motives of tax dodging. Let us take, for example, a situation in which the parents of a disabled child are becoming elderly. They may find it difficult to continue to manage the financial affairs as their own capacity starts to diminish. It is an entirely understandable wish on the part of a parent to get things sorted out, set up and finalised well before they die. There is a real social need to sort out and secure the future of one’s children, even before one’s death.

The definition in the 2005 Act is much broader than in the 1983 Act and will more easily cover the people with partial, variable and fluctuating levels of capacity to which I referred earlier in the quote from James Kessler, QC.

Moreover, the definition in the 2005 Act is more up to date—many of the relevant provisions of the 1983 Act are soon to be repealed. That Act is geared towards determining whether compulsory treatment is required. The background to its operation is the question whether someone is a risk to themselves or others—that is, whether they should be sectioned. In contrast, the 2005 Act focuses on whether someone has the capacity to manage their own affairs and considers their ability to make decisions about their own lives. It is much more empowering. It focuses more closely on the situation that we are considering, whereby a disabled person may wish to use a trust to assist them in managing their property. Our amendment is focused specifically on capacity in relation to financial matters.

The key problem is that many people who need trusts to help them to tackle the serious difficulty that they may have in managing their finances fall short of the degree of mental illness required to bring them within in the definition in the 1983 Act. For example, many people who have a diagnosis of manic depression or schizophrenia will not be ill enough to fall within that definition, yet they may be the very people who need trusts most of all. As the charity, Rethink, points out on its website, people with manic conditions often believe that they are richer than they are and go on irrational spending sprees. One family wrote to me about the trust that it had set up for their daughter, whose bipolar disorder, more commonly known as manic depression, leads to such irrational spending. They said:

“We are not wealthy and we imagine our assets are probably about average or less for families that live in this part”—

of the country.

“We know that other parents in Scotland of modest means whose children suffer manic depression or problems such as drug addiction, alcoholism etc. have also set up IIP trusts. We need flexibility from limited funds to care for the surviving spouse as well as for a mentally sick (but not disabled) offspring. We write to ask you to seek to influence the legislation. We are concerned that trusts that have no tax avoidance intention or action will suffer unfairly large taxation…Our sole intention is to provide trustees to regulate my daughter’s income so that she does not make herself destitute by claiming her legal share of assets if they are not protected by an existing IIP trust.”

I hardly think that people in that position can be accused of engaging in a tax dodge, as the hon. Member for Wolverhampton, South-West (Rob Marris) suggested. Unless amended, the Bill will impose a 20 per cent. tax charge on capital plus a 6 per cent. tax charge every 10 years on a trust of this nature set up for a vulnerable person. The definition in the 2005 Act was subject to 12 years of consultation. It has a wide range of support among groups working with people with mental health difficulties, and I appeal to the Government to accept its incorporation into the Bill.

Turning to the second limb of the section 89 definition, the Low Incomes Tax Reform Group and its influential coalition point out that the benefits-related test is a very blunt instrument. In many cases, people with serious disabilities will not qualify for the middle or highest rate care components of disability living allowance as required by section 89. To qualify even for the middle rate—here I respond to the intervention by the hon. Member for Wolverhampton, South-West—someone must be so severely disabled that they require frequent attention or continual supervision throughout the day or night. In particular, the provision excludes beneficiaries under trusts set up for personal injury damages or to cover money from disaster funds, who may have a high mobility component and a lower care component of DLA—in other words, they may need an hour’s care a day or more but not frequent or continuous care. Surely such cases, where for example personal injury damages have been obtained, are exactly the type of situation in which a trust can be most useful, in that a large cash sum is received that has to be managed carefully to provide for the rest of the beneficiary’s life. Again, the Government want to slap a 20 per cent. up-front charge on those damages and a 6 per cent. charge on capital every 10 years. As the Society of Trust and Estate Practitioners points out, such people can ill afford to pay those new charges since the quantum of damages awarded to them has been carefully assessed to meet their needs for the rest of their life.

We should remember that the sums involved in such damages settlements and court cases are likely to be very significant. As they are intended to cover the rest of the claimant’s life, with the high cost of living with disability factored in, they may well exceed the inheritance tax thresholds. The Opposition have tabled cautious amendments to extend the scope of section 89 as regards those who can claim the lower rate of the care component. That would embrace many more disabled people. We urge the Government to accept those amendments in order to seize this last opportunity to prevent schedule 20 from penalising some of the most vulnerable and disadvantaged people in our community.

I declare an interest, in that I used to work for Thompson’s personal injury solicitors, who give money to my constituency Labour party. I point out to the hon. Lady that under her amendments some personal injury victims would get a windfall. When their awards were calculated the then tax regime would have been taken into account, and if she then ameliorated the tax regime, those individuals would get a windfall. Secondly, the Government are, rightly, encouraging PI victims with large settlements to take them as a series of staged payments, to put it in the vernacular, rather than in one large lump sum.

The point is that the courts have not taken the new tax regime into account. The changes will impact on existing trusts, so, far from a windfall, there will be a tax penalty. Even if the courts had been sharp enough to say, “We will look at what is in the Finance Bill and start tailoring compensation awards accordingly,” how are they supposed to know how the legislation will turn out? Only two days ago, the Government were still tabling amendments. They have tabled 50 amendments to schedule 20. It is completely impossible for any court in a PI case to have tailored its settlement to take into account the current tax regime because, quite frankly, no one knows what it is. The hon. Gentleman may shake his head, but he knows that that is a valid point. [Interruption.] Indeed, the Government have been making it up as they go along.

That brings me neatly to insurance, and a prime example of how the Government have been making it up as they go along. It has been a problem for them ever since they slipped out Budget note 25. They simply did not think through the impact of schedule 20 on millions of people who hold life insurance policies in trust. Writing insurance policies into trust has been considered best practice for many years because it means that money can be paid out to the family swiftly in the event of tragedy, without lengthy delays waiting for a grant of probate. It also means that it is simple and easy to change the beneficiaries under a policy to take account of changing family circumstances.

Data from the Association of British Insurers suggest that there are 22.5 million single premium and regular premium life policies in force, and anecdotal evidence indicates that about 20 per cent. are written in trust. The ABI estimated that about 4.5 million policies may have to be reviewed as a result of schedule 20. The families affected would be faced, at worst, with the threat of a punitive new tax bill, and at best with the need to review and amend their policies. Prudential and Standard Life both suspended the sale of life policies under trust because of the uncertainty surrounding the Finance Bill.

Initially, the Government’s reaction was denial. They denied that there was a problem. They issued a guidance note and dismissed the furore as scaremongering. However, following the Bill’s publication, it was clear that there was no specific exclusion for life policies. Kevin Martin, the Law Society president, confirmed that millions of life policies would still be caught. Julie Hutchinson of Standard Life expressed the concerns of many when she said:

“We’re extremely disappointed that the clear statements in the guidance note are not carried into effect in the bill itself and will be making further representations via the ABI on this retrospective effect issue”.

The concerns that I set out on Second Reading were brushed aside, then a few weeks later, in Committee, the Government suddenly tabled a set of deeply obscure and complex amendments. Although I welcome the Government’s change of heart on that, as on so many other aspects of schedule 20, a number of serious problems remain. As Colin Jelly of Skandia Life pointed out, the Government’s amendments in Committee were only a small, albeit a welcome, step in the right direction. He said:

“A significant number of people are still likely to be affected by the changes and the government is doing nothing more than tinkering at the edges of the proposed legislation.”

The carve-out introduced by the Government in Committee does not cover all pre-Budget day policies. It therefore contravenes the Treasury’s guidance note of 7 April and the statement made to the House by the then Chief Secretary on Second Reading that

“no one who wrote a life insurance policy in trust before Budget day will have to pay a new inheritance tax charge as a result of these changes.”—[Official Report, 24 April 2006; Vol. 445, c. 369.]

This statement is still not true. The new charges will still apply to pre-Budget day policies where there is a change of beneficiaries, except where that change results from death. If, for example, a new baby is added to a policy, that will amount to a new settlement and will trigger the new penal schedule 20 regime. Furthermore, where an interest in possession is removed from someone who remains a beneficiary, the new reservation of benefit rules in paragraph 33 of the schedule mean that the trust could be liable for a 40 per cent. inheritance tax charge on the death of the former life tenant.

Because of those gaps in the protection provided by the Government amendments that were made in Committee, substantial numbers of people—perhaps millions—will have to review their policies. Even more worryingly, the Government’s climbdown in Committee does nothing to assist life insurance policies written into trust after Budget day, all of which will be subject to the new regime and charges. Having originally thought that no policies would be affected at all, the Government appear to be happy that some policies will be caught by the new charges from now on. Almost by accident, they have proposed to introduce significant new taxes on life insurance policies that will operate in an arbitrary way when the 6 per cent. charge is levied on the 10-year anniversary of the trust.

Why does my hon. Friend think that the Government are against saving, which is for the benefit not only of an individual family but of the country? The measures appear to accuse people of avoiding inheritance tax—I personally believe that inheritance tax is a pernicious second tax, which I would abolish altogether—but why is it wrong to save for insurance policies related to a trust?

To be fair to the Paymaster General and the Government, I do not think that they are actively against saving, and I do not believe that their motivation in schedule 20 is to try to discourage saving. However, the reality is that the new charges are a tax on thrift, prudence and responsible behaviour, which is why the Opposition oppose the new inheritance tax charges.

But does the hon. Lady agree with her hon. Friend the Member for Macclesfield (Sir Nicholas Winterton) that inheritance tax should be abolished—yes or no?

We have made it clear that we are not making promises to cut taxes at present. We accept the long-term importance of reductions in taxes, but—

rose—

I will give way to the right hon. Lady in a moment.

We have promised to share the proceeds of growth between real increases in public spending and reduced borrowing and taxes over the economic cycle.

If the hon. Lady is not making any commitments at all, bearing in mind what her hon. Friend the Member for Macclesfield said about abolishing inheritance tax, will she give him an undertaking that she will consider the matter and inform him and the House in due course?

Our tax reform commission is looking at all those issues, and it will report very soon.

We are not discussing the current inheritance tax regime, however, but penal new inheritance tax for people who use trusts to provide responsibly for their future and for the future of their family. The new taxes will operate in an arbitrary way, because the value of the life insurance policy—[Interruption.]

Order. The Economic Secretary should not interrupt the hon. Lady, because it is unfair.

Thank you very much, Mr. Speaker.

I am not seeking a commitment from my hon. Friend that we should abolish inheritance tax. I was expressing a view as an independent Conservative—the tax is pernicious, and we should consider abolishing it in due course—but I was not asking her to give a commitment.

I am grateful to my hon. Friend.

Returning to the subject of the debate, the arbitrary operation of schedule 20 in relation to life insurance policies arises because those policies depend on the health of the person insured. They have virtually no market value unless the insured person is very ill or terminally ill. If the 10-year anniversary occurs when they are fit and healthy, the value of the policy is minimal, and inheritance tax is not payable, because its value is likely to be below the nil rate band.

If, however, the insured person becomes seriously or terminally ill just before that 10-year anniversary occurs, that could push the value of the policy above the threshold and the IHT charge will apply. At this point there is no property in the trust to pay the tax, and the insured person faces an unwelcome extra tax bill at a time when their possibly terminal illness presumably means they are too ill to work. Remember, the proceeds generated by such policies must be very considerable to give bereaved families a sufficient income on which to live, so it is entirely possible that a tax charge will be triggered in this situation. Not only is schedule 20 a tax on prudence, but in this instance it is a tax on terminal illness as well.

Opposition amendments Nos. 3 and 4 would take policies such as term insurance, whole life insurance and critical illness cover out of the scope of the new charges. The amendments are drafted to take out policies that insure against a specific risk or tragic event, such as early death or critical illness hitting the family’s principal breadwinner. They are designed to leave other insurance policies, which are essentially savings-based, within the new schedule 20 framework. The ABI expressed support for similar amendments tabled in Committee, stating:

“We are particularly concerned about the impact”—

of schedule 20—

“on individuals buying life insurance to protect dependants from financial hardship following death or serious illness…It is important that people should be encouraged to take financially responsible steps to protect their dependants from hardship in the event of a tragedy. The tax system should not create disincentives for prudence by introducing unnecessary tax charges. Life insurance offers valuable financial protection for individuals and their family in the event of an early death or serious ill-health, which can have dramatic adverse consequences particularly if the life insured is the main or only income provider. It provides the means for those even on modest incomes to be self-reliant and not dependent on the state for hand-outs.”

Naturally, we await the Paymaster General’s response with eager anticipation, bated breath and beads of sweat upon our brows, but as I hear my hon. Friend develop the argument against the measures that the Government are proposing, it beggars belief that Ministers can propose a manifestly callous and mean-spirited provision. Was it dreamed up by some parsimonious official or is it the preferred position of members of Her Majesty’s Government?

No doubt the Paymaster General can respond for herself, but I fear the Government did not think through their proposals or did not understand their consequences.

Most people in Britain are hopelessly underinsured. Those who insure are far less likely to fall back on benefits and state support than those who do not. Slapping arbitrary punitive new taxes on those who seek to make provision for death or serious illness to the main breadwinner makes no sense. It penalises thrift and prudent behaviour, and we hope the Government will support our amendments.

The last set of Opposition amendments would remove the threat that an increased tax bill could be added by schedule 20 to all the other unhappiness that occurs in divorce cases. I refer to Mr. Ian Buckley of Rathbone solicitors, who explains the problem as follows:

“The current trend of family breakdown and multiple marriages has resulted in the increased use of trusts. They provide a fair and workable solution in the division of assets in circumstances of both death and divorce. They are widely used in the divorce courts and the inflexible arrangements in the new rules outline will be a poor substitute.”

Following the raft of Government amendments moved in Committee, the Chartered Institute of Taxation states:

“Overall we give the changes one and a half cheers—there are still things to be done. We now need the Government to show they have listened to all of our arguments about the defects in these proposals, and to make similar changes”

where schedule 20 impacts on divorce.

In this context, trusts are used to give the spouse with the main child care responsibilities the right to live in the family home until the children finish their education. At this point the home is sold and the proceeds divided between the former spouses. Such arrangements will be protected from the 20 per cent. entry charge of schedule 20 by section 10 of the Inheritance Tax Act 1984, but not from the 6 per cent. periodic charge.

The Treasury seems to assume that everyone can have a clean-break settlement. If they are able to do so, most people will indeed prefer a clean-break settlement for various reasons, emotional as well as financial. However, not everyone can afford a clean-break settlement. Trusts are an invaluable aid in making the assets of one household stretch to cover two. The people who will be penalised in this context, as in all the other contexts where schedule 20 applies, are those who have sufficient assets for them to come within the inheritance tax net, but not enough for them to have sufficient capital to spare for outright transfers and a clean-break settlement—the sort of people of modest means who have been hit all too often by the Chancellor’s stealth taxes.

Remember that we are referring to homes here, and in many cases, particularly in London and the south-east, the value of those homes will exceed the inheritance tax threshold.

My hon. Friend makes a good case for there being a number of great difficulties that vulnerable people will face as a result of this legislation. Would it not be easier for the Government just to drop all these proposals on trusts and go back to where we started?

That would indeed be a highly desirable result and the Government still have the opportunity to do that if they so wish. I certainly hope that they do. This is the Minister’s last chance to save divorcing couples and people in a civil partnership facing relationship breakdown from an unwelcome new tax charge, and I hope that she will seize that opportunity.

The Government went badly wrong with schedule 20. Their preconceptions about trusts and the people who use them were fraught with misunderstanding and, frankly, with prejudice. The Star Group of solicitors, expert in the field of trusts, points out the simple truth that has somehow eluded the Government, that

“trusts are very often set up for reasons that are nothing whatever to do with tax…they are widely used to prevent families’ assets from being squandered…to protect individuals from themselves or others”

and to maintain family harmony.

The Government have failed to produce any empirical evidence of the widespread use of trusts for avoidance purposes, apart from bare assertions and a couple of theoretical examples. Nor have they responded to the direct request of the Treasury Committee to provide evidence for their assertion that only a minority of a minority of 100,000 discretionary trusts would be affected by schedule 20.

The Government may have U-turned on a number of hugely important points, but schedule 20 still imposes new taxes on thrift, prudence and responsible behaviour, on the sick and the dying, on divorce, and on the mentally ill and disabled.

I close by quoting an e-mail that I received just a few days ago that illustrates the high human cost of this whole debacle. It reads:

“My father was seriously ill earlier this year. His will is in favour of his 6 grandchildren and contains a trust with the age set at 25…Because of the Finance Bill, I had to arrange for his solicitor and both executors”—

to see him—

“so he could say whether he wanted them to maintain 25 or pay the penalty or revert to 18. So there he was lying in bed coughing up a lung, 88 years old…terrified of dying, and I had to explain all this. He cried for a couple of days after from distress. How many others I wonder have had to do”—

the same?

The Government have been at great pains throughout the Committee stage to point out that there are some areas where there is abuse of the trust system in relation to inheritance tax, and their proposals would close those loopholes. In their efforts to do so, where we have felt that there is a case to be made, we have supported them. However, the initial publication of the Bill raised huge concerns about the number of people who would be affected by the changes. In particular, concerns were raised about the treatment of spouse exemption, and fundamental concerns were raised about how the assumptions behind the spouse exemption had changed—instead of spouse exemption from IHT being automatic, it initially appeared that it would apply only if certain criteria were fulfilled.

Government amendments at Committee stage dealt with the issue explicitly and the fears of many people were allayed. However, had the Government taken the time before the Bill’s publication to consult, they might have avoided so many people fearing that their arrangements would have to be changed and that they would be affected by the Government’s new proposals, when in fact that was not the case. However, as the hon. Member for Chipping Barnet (Mrs. Villiers) has pointed out, there are still areas of considerable uncertainty, where trusts are used not to avoid IHT, but to make satisfactory family arrangements, particularly in difficult family circumstances.

It is those issues that many of the latest Government and Opposition amendments seek to address. One need only look at the amendment paper to see how many amendments have been tabled, not only in Committee but at this very late Report stage—60 Government amendments and many more Opposition amendments—and still there is a great deal of uncertainty in many areas. Some of the broad issues have been outlined in new clause 2.

There are not 60 Government amendments in this group, although I do not think that that was what the hon. Lady meant to say. Secondly, in every Finance Bill Ministers say in Committee that they will go away and look at something, and if they think that there is a case, they may table amendments. In fact, we have tabled an amendment on a matter that the hon. Lady raised—is she suggesting that I should not have done so?

Of course I am not suggesting that those amendments should not have been tabled. However, it is unprecedented that we have this many amendments, which would significantly alter the sense of the measure. Great uncertainty has been expressed by many professional bodies.

Government amendment No. 70 deals with an issue that I raised in Committee on the part of schedule 20 that deals with trusts for bereaved minors. In Committee, I raised concerns about the Bill as it then stood, which allowed favourable treatment in respect of inheritance tax for bereaved minors, but only if the trusts in question were set up by a parent. Government amendments made in Committee resulted in the measure being extended to include step-parents. However, minors whose legal guardians were not their parents or step-parents would have been very vulnerable because they would not be provided for under the measures. The amendment deals with that problem. It extends the provisions to all those who have parental responsibility under the Children Act 1989 for England and Wales, the Children (Scotland) Act 1995 for Scotland, and the Children (Northern Ireland) Order 1995 for Northern Ireland. Although the conclusion on this has probably not been reached in the most efficient manner, the result is a vast improvement on the original proposal, so we will support it.

I now come to Opposition amendments relating to bereaved minors. My understanding of amendment No. 58 is that it would create a situation in which the trustees of the will of a parent of a bereaved minor could set up a trust for the benefit of the minor. I support the amendment, as it offers further safeguards for those very vulnerable young people.

There are several Government and official Opposition amendments that address questions that remained following debates in Committee on transitional serial interest, but fundamentally the Government amendments do the job. Government amendments Nos. 74 and 75 set out that serial interest can be extended beyond 2008, but only when the spouse succeeds upon death. That was the only real area in which spouse exemption remained in some doubt. There would be some existing pre-22 March 2006 life interest trusts for one spouse to provide for the other spouse to take a successive life interest after their death. If the schedule were left as originally drafted, it would have overwritten that spouse exemption if the life interest was passed on after 2008.

I want to raise a question with the Paymaster General about the difference between the Government and Opposition amendments. Opposition amendment No. 59 would extend the scope laid out by the Government amendment to outside death by also applying to situations in life. Why did the Government decide to make the provision applicable only on death, but not in life?

Concerns have continued to be raised about how narrowly drawn are the restrictions surrounding the eligibility to fall within the proposals for disabled trusts. Although Government amendments Nos. 80 to 85 ensure that disabled life interest trusts will not be affected by the changes made to the inheritance tax treatment of other life interest trusts, concerns remain about how narrowly drawn are the definitions of “disabled”. Liberal Democrat Members have supported a series of Opposition amendments that have tried to draw definitions in more modern terms that reflect more recent legislation on this issue.

As things currently stand, the definitions of disability are out of date, so many people who today are classified as disabled will be excluded under the Bill. Organisations such as Mind have been working with the Low Incomes Tax Reform Group to help to overcome these problems. I understand that the LITRG helped to draft amendments Nos. 5 to 12. The amendments would help to address those concerns, so I will support them. Among such organisations’ primary concerns are individuals with fluctuating conditions, such as manic depression and schizophrenia, and also people with some physical disabilities, such as multiple sclerosis. They were keen to impress that all disabled persons should not be exempt, but that the proposals in their current form would mean that those who could not cope with a large inheritance or gift could still fall outside the regime. They therefore strongly believed—I support them on this—that reference to the Mental Capacity Act 2005 would be better able to capture the issue regarding capacity, because it is able to capture partial capacity. There could be someone with a physical disability. That person may have no problem in managing their financial affairs or vice versa. That is why amendment No. 11 points to a definition of capacity in terms of lacking capacity

“within the meaning of the Mental Capacity Act 2005, in relation to any financial matter”.

The terms of the Act are flexible enough to include definitions of partial capacity.

The amendments allow for greater flexibility in the creation of trusts. At present, only the affected individual can self-settle if they have a condition that they expect will lead to disability. If they are already ill, someone can create a settlement for them. Those who expect to become unwell or have a fluctuating condition have to self-settle. Amendment No. 5 allows for others to set up similar self-settlement trusts. The wider amendments bring in the 2005 Act for a lower level of severity and then will enable someone who expects to be unwell to have a settlement created for them.

For how long should these trusts last? Given the sort of disability to which the hon. Lady refers, some people will have a disability and then recover. Should the trust then be wound up? What would she say should be the tax situation then?

We do not want vulnerable people who may have a partial lack of capacity in financial matters finding themselves falling out of a regime that was designed, in theory, to help to support such people.

In Committee, the mainstay of the Government’s strong position towards these proposals was based on the results of consultation that was carried out two years ago. The Paymaster General has already referred to that consultation. The consultation took place on a different subject in relation to income tax and capital gains tax. It preceded any of the deliberations on the changes that have been set out in the Bill, and pre-dated the 2005 Act.

The organisations that contacted me were at pains to point out that the consultation barely referred to definitions of disability and involved only a few disability organisations, of which none was a mental health organisation. In some areas the consultation has been superseded by the amendments that have been put forward by the Government.

It would help me enormously if the hon. Lady would list the organisations that approached her. I would then be able to list those that agreed with the definition.

I understand that there were representations from Mind. I was provided with further information about the details of the consultation. The representatives were concerned that no mental health organisations were included in the consultation. Will the Government undertake proper consultation on these matters, given that the Bill has created a new situation that was not covered by prior consultation?

I will put a proposition to the hon. Lady, and I would be grateful if she were to respond to it. The Government consulted two years ago with many organisations, which I shall list. Those organisations agreed with the definition that is currently being used. The hon. Lady has quoted one organisation, and another representative, as saying that they do not agree with the definition. She then asserts that we should provide a definition in a Bill that is not yet law. Why should there be consultation on that basis when we have already undertaken consultation?

The 2005 Act is on the statute book. Even if it has not yet been implemented, definitions are clearly stated and are on the statute book. Perhaps the Minister will refer to which mental health organisations took part in the consultation process. If she did so, I would be grateful.

Another key area is that of trusts that are commonly used to sort out family arrangements. That is not as a means of avoiding inheritance tax, but of relationship breakdowns settlements. There is a series of official Opposition amendments on that. Trusts are commonly in use as a means of settling assets in the context of a financial settlement. A primary reason is to ensure that, for example, children have a roof over their head or are able to remain in a family home. Some of those trusts are established by a court order. What is the basis of withdrawing some of those options for the family? Was there any evidence of inheritance tax avoidance in such cases? What alternatives would the Government propose for families facing these circumstances? Although other measures such as clean break orders, legal charges and other devices are available, what is the rationale for targeting trusts in that area in particular?

I have already heard that point from the hon. Member for Chipping Barnet (Mrs. Villiers), who was lobbied by the same people as the hon. Member for Falmouth and Camborne (Julia Goldsworthy). However, there is an alternative, because a charge could be taken on the property, so it is simply not true that it cannot be done. Those who have been unfortunate enough to go through divorce know that the normal procedure, if a clean break cannot be made, is that a charge is taken on the property.

I understand from explanations given by the Paymaster General that the intention behind the changes on the use of trusts was to tackle inheritance tax evasion, but I wonder whether she will state the extent of avoidance in that area.

The hon. Member for Chipping Barnet has discussed some of the remaining problems on life insurance. I declare an interest as someone who took out a life insurance policy after the Budget, but before the Finance Bill, because I still do not know how I will be affected. My estate is well below the inheritance tax threshold, but I understand that I may still need to change my affairs, which I have recently set up—there is a still a lot of uncertainty.

On Second Reading, concerns were raised about the number of people affected by the proposals. Again, I ask the Treasury to publish the background work that it undertook before determining whether a regulatory impact assessment was necessary. It has been stated in written answers that it is not “normal procedure” to publish that information, but given the fact that the Treasury Committee asked for it before the Bill was considered in Committee, is there any reason why the Treasury cannot make it available, because many organisations and individuals would benefit from knowing the intended scope of the regulations?

It has not been explained why wholesale changes to the provisions on trusts are required to tackle what the Government have emphasised is still a small number of abuses. Although the key concerns surrounding the spouse exemption have been removed, in other cases normal family arrangements will fall foul of the rules, although there is no evidence of trusts being used to abuse the exemption.

The potentially exempt transfer option remains for those who want to transfer their wealth and escape inheritance tax, provided that such individuals have the liquidity and life expectancy to fulfil the requirements. Given the harshness with which the Government have approached the trust regimes, do they have similar plans for potentially exempt transfers?

The Government have improved the legislation, but there are still plenty of rough edges, despite all the amendments tabled in Committee and on Report. I fear that we will have to revisit the issues and deal with further unintended consequences in future Finance Bills.

Unusually, I find myself in sympathy with amendments tabled by hon. Members on both sides of the House, which is a tribute to the mess that clause 2 and schedule 20 were in before the Bill was considered in Committee.

I am delighted that the Government have seen fit to make modest improvements around the edges, but I hope that they will think again about both the clause and the schedule and realise that the Bill would be better and stronger without either of them, because the existing regime of trusts works okay. It was not full of scandal or the centrepiece of tax evasion and avoidance. The provisions are therefore unnecessary.

The explanatory notes state:

“The clause and Schedule align the inheritance tax (IHT) rules for assets held in trust…The IHT treatment for trusts which do not come within the special rules will be aligned with the mainstream IHT rules for trusts. The clause and Schedule provide transitional arrangements for existing trusts.”

We have never had a satisfactory explanation of where that emanated from. Those who wish to be kind to Ministers could say that the provisions are a product of a bureaucratic mind that likes compatibility, tidying and creating symmetry in a complex and evolving tax structure. If that is all that has happened, Ministers should have no hesitation in dumping the provisions immediately. The worst thing that a Minister can do is give in to a bureaucratic request that something should be tidied up, aligned or changed for the sake of it.

The alternative explanation, which we have sometimes heard from the Treasury, is that Ministers believe that they are trying to tackle a problem. They appear to believe that, from time to time, the trust arrangements enable people to avoid paying inheritance tax, which the Government think they should pay. The case would be greatly strengthened if we had more reliable numbers and it would be useful if the Paymaster General could tell us more about how much more missing tax revenue would be captured if the Government amendments were accepted but the others were not. The Government should remember that there are knock-on effects to the proceeds from capital gains tax, which should also be taken into account. Some of those consequential effects would defer or prevent payment of CGT that would otherwise have fallen due. The position would not be win-win, even on the Government’s basis.

It is strange that a Government renowned for their fascination with the popular mood and the media should choose not only to attack head on children, people who are in mourning and the disabled, but to do so at the same time. It is a rare and infelicitous conjunction in a Minister’s life to be on charges of being unkind to all three categories. Indeed, there is an even more hard-pressed category—children whose parents are recently deceased. One would have thought that they, above all, needed help and support from every adult in the community. However, that does not apply to the Government, who, in their new role of ruthless oppressors of anyone with any money left after all their other taxes, are now trying to squeeze out more from the minors who are in such unfortunate situations.

Earlier, the right hon. Gentleman quoted the explanatory notes to clause 157. If he read on—I am sure that he did—he would realise that they continued:

“So far as new trusts are concerned… it continues the current special treatment for ‘interest-in-possession’ trusts created on intestacy and straightforward interest in possession trusts created by will; and for ‘accumulation and maintenance trusts’ to trusts created on the death of a parent where beneficiaries will take the trust assets at age 18.”

Although the right hon. Gentleman may argue—incorrectly, in my view—that the Government are attacking specific groups, he is wrong about the recently bereaved.