House of Commons
Tuesday 4 July 2006
The House met at half-past Two o’clock
[Mr. Speaker in the Chair]
Oral Answers to Questions
The Secretary of State was asked—
My right hon. Friend the Secretary of State and I are backing Glasgow’s excellent bid to bring the 2014 Commonwealth games to the city. I recently hosted a reception with the Scottish Executive Minister for Tourism, Culture and Sport to encourage support and raise awareness. Scotland’s strategy for attracting, organising and delivering major events is, of course, the responsibility of Scottish Executive Ministers.
I thank the Minister for that response. I also support the Commonwealth games bid, but I also welcome the Government’s intention to host the 2018 World cup. At the moment, the Chancellor seems to be going out of the way to downplay his Scottishness, and when making the World cup announcement, he seemed specifically to exclude Scotland from co-hosting the bid, yet Scotland has some excellent stadiums and some great fans. Has the Minister had any discussions with the Chancellor to make the case for a joint bid between both England and Scotland for the 2018 World cup?
I welcome the hon. Gentleman’s support for Glasgow’s bid. It will be a great boost not just to the city but to the whole of Scotland, bringing in many additional tourists and, of course, raising the profile of sport, and it will also allow those games to take place in other locations in Scotland—such as the excellent proposal to hold the sailing competitions in Inverclyde.
On the World cup bid for 2018, the hon. Gentleman is quite right: the Government launched a study last year into the feasibility of holding the FIFA World cup in England in 2018. The study is being conducted jointly by the Treasury and the Department for Culture, Media and Sport, and we await its outcome.
Does the Minister recognise that a successful Commonwealth games bid by Glasgow will also bring long-term benefits to housing and regeneration in Dalmarnock in my constituency—the best site for the athletes’ village—and, overall, bring benefits to Scotland?
My hon. Friend is entirely correct. Of course the most important part of the games is not so much the event itself—although, of course, that will be the centrepiece—but the legacy of sport infrastructure, plus new community infrastructure, that will remain in some of the most deprived parts of Glasgow. So, taken as a whole, this is very exciting prospect for Scotland, to which I am sure every hon. Member will give their support.
The contract decision is a commercial matter for the BBC, as the television licensing authority. Of course the corporation has a duty to licence holders to achieve value for money in collecting licence fee revenue.
I thank the Minister for that answer, as far as it goes, but does he not recognise that the Scotland Office has a duty to speak up for the needs of Scottish residents, particularly rural residents? In my constituency, there were 41 sub-post offices where licences could have been renewed; now there are only 16 pay points where the BBC will allow that to happen. Should the Minister not remind the BBC that it has a duty to serve rural Scotland, as well as urban Scotland, and that is crucial that the BBC go back to the Post Office and look again at whether they can negotiate a contract to allow rural residents to renew their licences at post offices.
No, I regret that I am not able to interfere in the commercial contracts between the licensing authority and the Post Office. The Government’s role is to ensure that the Post Office receives the investment that it needs to compete in the modern world. That is why we put in £2 billion of additional support so that it can be part of the universal banking network, for example, and a lot of that support is ongoing. That is the proper role of government; I am afraid that to interfere in those commercial negotiations is not the proper role.
Does my hon. Friend not agree that, given the proposal to change the terms of the Crown post office in Irvine, the service will not be as good as under the old system? The post offices in the constituencies of my right hon. Friend the Member for Coatbridge, Chryston and Bellshill (Mr. Clarke) and my hon. Friend the Member for Linlithgow and East Falkirk (Michael Connarty) have also been changed from Crown post offices to franchises, reducing the possibility of buying licences in those new post offices.
I understand the concern that has been expressed, particularly on the proposal to move the post office from 165 High street to 130 High street, where it will become part of a Spar franchise. My hon. Friend will, of course, understand that the Crown post office network represents some 4 per cent. of the entire network, yet it loses £70 million annually. So there are some tough commercial decisions for the Post Office in managing the Crown network, but I hope that his constituents will not suffer any diminution in service of the type that he mentions, because the Post Office has an important role to play, not just in rural Scotland, where, of course, it has a central role, but in urban Scotland, too.
I have meetings and discussions with ministerial colleagues on a wide range of energy matters affecting Scotland.
In the course of his busy schedule of meetings with Ministers, has the Secretary of State has the opportunity to discuss with them the findings of the Energywatch report, “Are fuel poverty targets out of range”, which notes that, mainly owing to rocketing energy prices, fuel poverty levels in Scotland are worryingly close to where they were in 1996? Has he pressed the Treasury and Department for Work and Pensions to end the scandal that, in energy-rich Scotland, pensioners are worried about fuel bills, and to increase the winter fuel allowance, which is now nowhere near sufficient to meet our pensioners’ escalating energy bills?
Of course the hon. Gentleman is right to recognise that fuel bills have been rising. That phenomenon is not unique to Scotland or indeed the United Kingdom, but reflects general changes that have taken place in energy prices around the globe, because we are now dealing in global markets. He is also right to recognise that, in addressing fuel poverty, there is a contribution to be made by the winter fuel payment. It was a Labour Government who introduced the winter fuel payment and a Labour Government who increased that payment. The winter fuel payment has made a significant contribution to addressing the challenge, but we continue to look at the matter in the light of changing circumstances.
Does my right hon. Friend agree that the discussion about the Government’s energy review has been rather focused on electricity generation? Given that electricity accounts for less than 20 per cent. of our final energy consumption, will he ensure that his right hon. Friends at Westminster and Holyrood properly address the issue of improving the energy intensity of our economy?
My right hon. Friend makes an important point. Although there has been, perhaps understandably, a continued focus in the media on energy production, we also face further challenges—in particular, in relation to energy efficiency. That has a major contribution to make in addressing the challenge of fuel poverty. I know from my experience as a constituency MP the effect of the warm deal initiative by the Scottish Executive in many communities. It affects pensioners right across Scotland. When the energy review is published, there will be recognition not just of some of the challenges that we face with energy production, but of the wider issue of energy conservation.
Will the Secretary of State join me in congratulating the work force of Dounreay, by whose excellent efforts in decommissioning the legacy cost of the United Kingdom Atomic Energy Authority has been substantially reduced? Will he further support the local initiative to provide alternative employment for those who are so effectively working themselves out of employment, with an alternative energy park at Dounreay?
I am still struggling to establish whether that contribution was pro-nuclear or anti-nuclear—[Hon. Members: “Both”]—which, in a nutshell, is a challenge not unique to the hon. Gentleman, but which applies to his whole party. Of course we welcome and congratulate people on the work that is being done effectively at Dounreay. There will be challenges in terms of how the work force can use the skills that have been developed over a number of decades. I would be happy to receive representations on that matter from him.
Will my right hon. Friend make it perfectly clear—and does he agree with me—that nuclear power has to be part of a balanced energy policy, and that if no nuclear power stations are to be built in Scotland, future Scottish consumers will be at risk of more massive hikes in the price of gas and electricity, and of blackouts and power cuts, and will also face considerable problems with security of supply?
The energy review reflects not simply challenges relating to diversity and security of supply, as my hon. Friend makes clear, but the energy mix that is appropriate to a modern advanced economy. That energy mix varies north and south of the border. Both Hunterston and Torness operate in Scotland, which accounts for a higher proportion of the energy mix being produced by nuclear power plants in Scotland than elsewhere in the United Kingdom.
It is important to reiterate the point that I made at the last Scottish questions: when it comes to judgments on new-build nuclear facilities, those matters rightfully rest with the Scottish Executive and the Scottish Parliament, given the terms of the Electricity Act 1989 and the devolved nature of planning laws in Scotland.
Dr. Elaine Murray MSP has said that Labour policy at the Scottish Parliament elections will be not to veto new nuclear power stations in Scotland, yet the First Minister appears to take a very different line. What is the Labour position in Scotland?
I had the opportunity to discuss the energy review only a couple of days ago with the First Minister. It is not for me today, on behalf of the Scotland Office, to anticipate the terms of the manifesto that will be produced by the Labour party. That will be devised in Scotland, as has been the case in the past.
Regardless of what our future energy needs may be, does my right hon. Friend agree that we will need a strong manufacturing base to build the future power plants? Will he reassure manufacturing companies such as Mitsui Babcock that, if they hang on in there, work will come their way?
Having had the opportunity to visit Mitsui Babcock in Porterfield road in Renfrew on previous occasions, I know of the leading edge technology that it is developing, not least in relation to clean coal technology. When the energy review is published in due course, there will be significant opportunities not only as regards renewables but more generally as regards power generation. I hope that Mitsui Babcock, along with other Scottish companies, seizes the opportunities that that provides.
It appears that there is still some confusion arising from the Secretary of State’s position on this matter. My party’s position is clear. Does the Secretary of State agree with Scotland’s First Minister, who appears to be suggesting that, with major investment in renewables, Scotland could be free of new nuclear power stations, or with his colleague Dr. Elaine Murray MSP, who says that Labour will not block any applications for nuclear build?
The hon. Lady comes close to offering a new definition of the term “brass neck”, given that her place on the Liberal Front Bench is a direct consequence of her predecessor’s opinions on nuclear power. We make no apology for the fact that there has been a significant and successful push for renewables in Scotland led by the Labour-led Scottish Executive. At the same time, the position of the Scottish Executive—that issues need to be resolved in relation to nuclear waste—has been made clear for several months. A process has been established by the United Kingdom Government and the devolved Administrations to address that, and that work is ongoing.
When the Secretary of State next has a meeting with the First Minister to discuss the nuclear review, will he bring the Prime Minister’s views to his notice? When the Prime Minister spoke to the Liaison Committee this morning, he made it perfectly plain that he personally is completely in favour of nuclear power and that he always had been before he commissioned the energy review. Surely that is an important matter of which the First Minister should be aware?
The hon. Gentleman is one of a number of former shadow Scottish Secretaries speaking today. The Prime Minister has made it clear on several occasions that, along with considering nuclear power, he wants a big push on renewables and a step change in energy efficiency. Those concerns initiated the energy review, and they will all be addressed when the review is published.
As is customary, the Government’s response to the Scottish Affairs Committee will be submitted within two months of the report’s publication date.
The Prime Minister has ruled out a ban on Scottish Members from voting on English-only issues on the grounds that
“if you end up with two classes of MP you will end up with a host of real problems”.
Does the Minister accept that there are already two classes of MP? For example, I speak for my constituents on matters such as education and health, but he does not do that for his. My constituents are rather fed up with the situation and want to know what the Government are going to do about it.
No, I do not accept that. I believe that the Conservative proposals would lead to multitude of different classes of Member of Parliament and, inevitably, the break-up of the United Kingdom. It is not just me saying that. I quote:
“The danger is that Mr Cameron’s plans will only hasten the damaging break-up of a united kingdom…It is up to responsible politicians to seek a more constructive solution.”
That was the voice of the Daily Mail this morning. If even the Daily Mail recognises that the Conservative plans are grossly irresponsible, it is time that Conservative Front Benchers did so too.
When my hon. Friend responds to the consultation document, will he ensure that the idiotic and dangerous Conservative proposals, the logic of which would lead to—
The West Lothian question was rightly flagged up as a problem in the report by the Scottish Affairs Committee. Apart from the radical idea of a penalty shoot-out suggested yesterday in a Scottish newspaper, which of the four suggestions does the Minister prefer? Given the success of independence for the United States, which is marked today, as well as for Norway, Ireland and Iceland, surely independence is the only serious solution, especially for the largest stateless nation in Europe—England?
At least the hon. Gentleman is entirely consistent in his view. It does not bother him in the slightest that there would be multiple categories of MP in this House or that some MPs would vote for some things and some for others, because his party is a separatist party. I understand why his party supports such a daft proposal, but what beggars belief is that the Conservative and Unionist party supports it.
When people from all parts of our country have fought together for Britain, traded and worked together for centuries, and built an NHS established by a Welshman, will my hon. Friend rule out any suggestion that we should destroy centuries of successful partnership for short-term, party political reasons? Crossrail, a London Mayor and Northern Ireland are all examples of issues on which many MPs vote, even though the result will never affect many of their constituents. Will my hon. Friend join me—
And an excellent point it was, too. My hon. Friend correctly points out that the United Kingdom is one of the most successful countries in the history of the world. It is successful because it has brought together in a Union nations who stood together, fought together, traded together and built up a country that is the envy of the world. We put that at risk at our peril. It is a shame that the party that used to be a unionist party has abandoned that principle.
Let me make it clear: this party will take no lectures from the Labour party on our unflinching commitment to the Union. The Minister’s complacency on this issue is astounding. It is the fact that Labour will do nothing about the so-called West Lothian question that puts the Union in question. Although there are many different views about the answer to the West Lothian question, the Minister cannot deny that there is now cross-party support for the view that the present arrangements are unsustainable—apart from the Scottish Affairs Committee, the Father of the House, the leader of the Liberal Democrats, the hon. Members for Hyndburn (Mr. Pope), for North-West Leicestershire (David Taylor), for Nottingham, South (Alan Simpson) and for Chorley (Mr. Hoyle). Will the Minister, for once, agree with Jack McConnell that there should be a mature debate on this important constitutional issue, not the usual yah-boo politics?
The hon. Gentleman is entirely correct to say that there is a multitude of opinions on the matter. That is why his colleague the shadow Defence Secretary, not to mention his colleague the former Foreign Secretary, have legged it in the opposite direction of his proposal to create a multitude of types of MP in this House. Not only that, but Professor Vernon Bogdanor, who successfully torpedoed the last daft proposal that emerged from the Benches opposite—the Bill of Rights—has said that the in-out solution that the Conservatives are putting forward would be the worst of all possible worlds. When will the hon. Gentleman accept that his proposal to have a multitude of different MPs in this House is a massive step along the road to breaking up the United Kingdom?
Private Sector Employment
The macro-economic stability delivered by this Government continues to benefit the whole of the United Kingdom, including Scotland. Scottish employment has hit a new record high with the private sector driving the expansion. There are 124,200 more people working in the private sector than there were in 1999, and every significant business survey suggests that private sector output and employment continued to grow over the year to date.
I am grateful to my right hon. Friend for pointing out how Scotland gains from its Union with the rest of the UK. Does he agree that those figures show how Scottish business would be put at risk if it were forced to endure four years with a destabilising referendum on breaking up the UK hanging over its head?
I find myself in complete agreement with my hon. Friend and, indeed, with the Fraser of Allander Institute’s study on exactly that question, which made clear the profound risks that other parties would choose to run with the very stability that has been the foundation of our sustained economic success under Labour since 1997.
Does the Secretary of State share my disappointment at last week’s announcement by Jabil that it will close production at Ayr by the end of 2007, with a loss of 217 jobs? Given his positive assessment of the Scottish economy, how optimistic is he that those who lose their job will be able to find alternative employment? What will the Government do to assist them in that matter?
Any job loss affecting any family, not just in Scotland but across the United Kingdom, is a tragedy, and we want to work effectively with the relevant agencies, particularly the Scottish Executive, to make sure that the requisite support is provided to anyone who finds themselves in those unfortunate circumstances. I am certainly happy to write to my hon. Friend about the specific instance that she cited, but she is right to acknowledge that that unfortunate loss of employment has taken place against a backdrop of sustained employment in recent years. The Royal Bank of Scotland, in its most recent study, on 12 June 2006, stated:
“On its own terms May was another strong month for Scotland…Employment growth continues apace on the back of the stable expansion, with net jobs growth for the 15th consecutive month.”
But sadly, the most discussed job creation scheme in the Labour party is not designed to tackle the problems raised by the hon. Member for Ayr, Carrick and Cumnock (Sandra Osborne), as it concerns the job prospects of the Chancellor of the Exchequer and his efforts to become the Prime Minister. Why are Scotland’s employment rates lower than those in Iceland, Denmark and Norway? Why is Scotland’s economic growth only a third of growth in Iceland, and half that in Ireland and Norway? On independence day, instead of aping old Tory arguments, can the Government explain why our neighbours are performing better with independence than Scotland, which is run from London under Labour?
I hardly know where to begin in responding to the political points that are notionally wrapped up in that question. First, I remind the hon. Gentleman that there has been sustained economic growth under Labour, which far exceeds anything that was achieved in 18 years of Conservative government, when two recessions were visited on Scotland. Secondly, we have a record of sustained economic growth in Scotland, which was not achieved to the same extent by previous Administrations. Finally, to respond to the hon. Gentleman’s point about the Chancellor’s record of economic stability, I direct him to any of the recent international studies that observe that the macro-economic framework established by the Chancellor of the Exchequer in 1997 is the foundation on which Scotland and the whole United Kingdom continue to enjoy such prosperity and jobs growth.
I have noticed that the Secretary of State is always keen to agree with the CBI when it supports his argument, but does he agree with the new head of the CBI, Richard Lambert, who said that the fact that the public sector in Scotland
“is noticeably larger than for the UK as a whole…is a constraint”
on the dynamic growth of the Scottish economy?
Candidly, I do not agree with that observation, for the following reasons. First, there is no direct correlation between the size of the public sector and the level of economic growth not just in Scotland but, indeed, in other European countries. For decades, Scandinavian countries, for example, have had a large public sector, along with high and sustained employment. Secondly, it is time that the Opposition left behind the rather tired and familiar argument of “Private sector, good; public sector, bad”. The recipe for modern economic success relies on effective research and development, along with effective vocational skills and education, all of which is contingent on the sustained economic investment in the public sector achieved under the Labour Government.
I have discussions with Cabinet colleagues on a range of subjects. The OECD’s “Boosting Jobs and Incomes” report shows that, for the first time in 50 years, the UK has a higher employment rate and a better combination of unemployment and inactivity rates than any other major industrialised country. The latest labour market statistics show that economic activity in Scotland is at the highest level ever recorded.
Does my right hon. Friend recall that in the not too distant past unemployment was twice its present level, and youth unemployment three times what it is now? Will he and his colleagues continue to do their utmost to ensure that we never ever return to those days?
I am certainly happy to give that assurance. May I pay tribute to my right hon. Friend’s endeavours to tackle poverty and unemployment in his constituency for many years? He is right to point out that our labour market position is better than it has been in decades. According to the International Labour Organisation unemployment count, unemployment has been cut by a third since 1997, and more than 160,000 people have been helped into jobs in Scotland since 1997 through the new deal, notwithstanding the opposition of Opposition parties.
I thank my right hon. Friend for his reply to my question. With the upcoming energy review, there is a massive potential for biofuels. INEOS, which took over the BP refinery and chemical plant at Grangemouth, wishes to establish a massive new biochemical production plant, which may be located at Grangemouth if we all work together. Will my right hon. Friend pledge to join the local council, local management and myself to win that huge investment for Scotland, which is good for energy production, good for the environment and good for the Scottish economy?
My hon. Friend makes a number of important points. Of course I am happy to meet him to discuss the economic proposition that he describes for Grangemouth. He is right to recognise the important contributions that biofuels can make to the energy review, which will be published in due course. In the Department for Transport we have also championed the renewable transport fuels obligation, which will see a biofuels mix being added to the petrol served at the pump in the years to come. I believe that in the years ahead of the target that has been set by the Government, there is further scope for biofuels, but we need to recognise that there are continuing challenges in relation to biofuels, one of which is to be able to secure biodiversity at the same time as addressing the environmental challenges that my hon. Friend describes.
Foreign Criminals (Deportation)
My right hon. Friend has regular discussions with ministerial colleagues on a range of issues affecting Scotland.
When the Secretary of State next meets officials from the Home Office, will he raise with them the question of the bail policy operated by the immigration and nationality directorate? It has become apparent to me while I have been pursuing the case of my constituent Sakchai Makao that the Home Office operates a presumption against bail. Can the Minister tell the House how that can possibly be compatible with the European convention on human rights, under which there is supposed to be a presumption in favour of bail?
I recognise the concern that there has been in the hon. Gentleman’s constituency about the case he mentions. He is experienced enough a parliamentarian to know that I cannot comment on the particular case, especially as a judgment is due to be made soon. Everything that the Government do in that regard is consistent with our obligations under the ECHR, and the hon. Gentleman will have an opportunity, should he wish, to raise the matter directly with the Home Secretary at the next Home Office Question Time.
Communities and Local Government
The Secretary of State was asked—
Planning policy guidance note 15, which deals with planning and the historic environment, sets out the Government’s planning policy in regard to conservation areas. Conservation areas represent a key part of the Government’s desire to preserve and enhance areas of historic importance, and planning policies reflect this.
Does my hon. Friend agree that since they were introduced in the 1960s, the now more than 8,000 conservation areas have greatly enhanced our environment and preserved and maintained local areas? Will she encourage in councils the rejection of the notion that because some historic buildings have gone in particular areas, they should not be accepted for conservation area status? Will she in particular encourage the acceptance of Bebington village as a conservation area and seek to protect the conservation area of Port Sunlight?
I entirely agree that conservation areas are important for protecting and valuing our historic environment. Conservation areas and the wider historic environment should be recognised in the context of local authorities’ work, particularly in their local development frameworks. Whether a local area should be made a conservation area is, however, a matter for local decision, and I am sure my hon. Friend will continue to campaign vigorously and represent his constituents well on the matter.
In accordance with Government planning policy, in 2004 100 per cent. of new homes in south Buckinghamshire were built on brownfield sites, but is the Minister aware that every one of those brownfield sites was, in fact, a garden? Does she accept that the definition of brownfield sites is not relevant in this case, and that gardens should be exempted from the definition to remove such a crazy anomaly?
Hon. Members are always entitled to raise the matter. It is important that we develop more homes and that those become available for people to live in. We know that there are pressures in the south of England, so we need to continue to consider all options and all the issues that affect them.
The new Secretary of State challenged planning policy head-on in a conservation area in her own constituency when she opposed the building of a block of flats at Markland Hill. Now that the right hon. Lady is responsible for planning policy, will the Minister urge her to use the benefit of her own experience to reform planning law and restore powers to local people over where and how we get the additional housing stock that we need?
Of course it is important that local authorities have appropriate decision-making powers in such situations, and of course we are always looking at and reviewing how these issues are dealt with and what needs to be taken into consideration. But any planning decision must have regard to what is appropriate in a particular environment, so the planning policies have to take those into account and give the local authorities the opportunity to make the right decisions in particular areas within a framework guidance.
Part G of the building regulations, which relates to sanitation, bathrooms and hot water storage, already applies to refurbished homes. The Department is not currently reviewing part G, but is reviewing building regulations as a whole, including water efficiency and conservation, and will look at risks and standards including those under part G.
My hon. Friend will be aware that this year 600 people, three quarters of them children under five, will receive third degree burns to a significant percentage of their body as a result of bathwater scalds. In April this year, 10-year-old Holly Devonport from Wakefield came to this place to launch the hot water burns like fire campaign; she herself lost half of the skin on her body when she fell into a scalding bath as a five-year-old. I urge my hon. Friend to ensure that we achieve change in those building regulations, just as we have made changes to prevent death from electric shocks, gas and fires. Hot water is the last huge risk that is unregulated in the home.
I congratulate my hon. Friend on her commitment and persistence on this issue. She will be aware that in care homes for vulnerable adults measures are already in place through building regulations. We need to consider who is at risk, the level of that risk and the best way to address it. The building regulations review provides an opportunity to do that. I can give my hon. Friend an assurance that we will look carefully at the matter to see what can be done.
New cases of homelessness are at their lowest level since 1985 and the number of households in temporary accommodation is falling. We are achieving this by investing in homelessness prevention schemes, increasing the supply of new social housing and improving opportunities for moving from temporary accommodation into settled homes.
I welcome the progress set out by my right hon. Friend, but will she look at how local authorities interpret the preventing homelessness agenda and the Homelessness Act 2002, especially in Northampton where the local authority has refused to accept responsibility for a man who suffers from leprosy, and faces being turfed out of his home? Does she think that it is acceptable in this day and age that people with such illnesses are left homeless on the streets?
No, I do not. I am not familiar with the case that my hon. Friend has brought to my attention today, but it is important that local authorities not only reduce homelessness but deal with individual cases in a sensitive and appropriate manner. If she would like me to look at the case that she has highlighted, I would be happy to do so.
Is the Secretary of State aware that there is no adult homelessness provision in Shropshire, which leads to homeless people sleeping in cars, in derelict cars, on Ercall wood and on the Wrekin itself. Will the Secretary of State liaise with Labour-led Telford and Wrekin council to do something about this ongoing problem?
It is very important that we have appropriate hostels so that rough sleepers can be properly accommodated, that we take action on bed-and-breakfast accommodation so that families do not have to bring up their children in cramped conditions, and that we encourage local authorities to move people from expensive temporary accommodation into more permanent settled homes. The Government, as the hon. Gentleman will know, have taken action across all those fronts, with rough sleeping falling by 75 per cent.; we are ending the number of families in bed-and-breakfast accommodation, and investing £19 million in hostel provision. There may well be individual areas where yet more needs to be done, and we as a Government, working with Labour local councils, are committed to making that happen.
I am sure that my right hon. Friend is aware that homelessness and the shortage of affordable houses are problems not only in the south but in my constituency in Sheffield, in the north of the country. She will have seen the report of the Select Committee on the Office of the Deputy Prime Minister, which calls for increased house building and for a significant proportion of those houses to be affordable houses for rent. In order to achieve that, will she give greater powers to three-star arm’s length management organisations such as Sheffield Homes, to enable them to build new houses and to contribute to dealing with the housing shortage problem, which affects so many people?
My hon. Friend raises an important point. Over the past nine years we have corrected the £19 billion backlog in repairs, which was vitally needed in order to improve our social housing stock. It is right that we now move our emphasis from the decent homes programme—although that needs to continue, of course—to allowing councils, including councils with arm’s length management organisations, to build new council housing where that is needed. Over the next few years we will increase investment in new social homes by 50 per cent. We also recently issued a document about innovative ways of allowing local councils and ALMOs to build new homes.
I think that the Secretary of State might find that this is the first year since 1997 in which homelessness figures have actually dipped—although Crisis estimates that there are 380,000 cases of hidden homelessness. However, I want to take my question away from such figures. Is not the tragedy of homelessness that its causes and cures are not so much the physical provision of accommodation, but personal matters such as relationship breakdown, mental illness, and the leaving of care or the forces? Is the Secretary of State satisfied that her Department is doing enough to encourage small charities, such as Thames Reach Bondway, King’s Arms, Emmaus and the Jericho Road Project, which are trying to tackle the deep-seated causes and to provide stability for the homeless, to prevent them from being placed in accommodation to clear a statistic today only for them to become another one tomorrow when they cannot cope?
The hon. Gentleman makes an important point. It is important that we work not only with local authorities but with the voluntary and charitable sector, to enable people to live independently for longer in their own homes, and also to support them in whatever form of accommodation is needed. We are investing about £1.8 billion through the supporting people programme, which enables people to live independently for longer. But it is also right to invest more money in hostel provision, which we are doing, and which increasingly links the accommodation needs of individuals with their job-search needs and other needs, to enable them to live independently.
Today the Government will publish their Welfare Reform Bill, which includes a major reform of housing benefit. What discussions has my right hon. Friend had with her colleagues in the Department for Work and Pensions on ensuring that the terms of the Bill sustain people in their homes, and do not lead to a rise in homelessness?
My hon. Friend is right to draw attention to housing benefit and how it is framed, and, of course, my Department and the DWP work very closely on those issues. Let me highlight one issue. We are working with innovative local authorities such as Newham to recycle some of the proceeds from housing benefit when they use the private sector rather than the social rented sector to house vulnerable families, so that they can move more families from high- cost temporary accommodation into settled accommodation. I would like to see such innovative schemes expand. Later this year we will announce a fund for London, which may be replicated elsewhere, and which will allow such schemes to be developed further.
There are 1.5 million households recorded as on the waiting list for social housing. The accuracy of the list varies from area to area, as it is updated in different ways, and lists do not assess the level of need for social housing in an area.
Bearing in mind the 1.5 million people on the list, is the Minister proud of the fact that under her Government there has been a net loss of 584,000 social homes? Will she consider allowing local authorities to use receipts from social homes sold under the right-to-buy scheme to build more social houses, as well as bringing the 600,000 empty houses into occupation.?
The hon. Lady will be aware that we are increasing the level of social housing and new build by 50 per cent. over the next three years, because we think that we need more of it. We are also investing a lot of the money from capital receipts in supporting housing and infrastructure throughout the country. We have said, too, that when local councils operate the social homebuy scheme, which offers people the chance to buy a share in their home, that money should be recycled into new social housing as well.
In south Yorkshire, which covers Rotherham, Sheffield, Barnsley and Doncaster, according to the House of Commons the latest figures for last year show that the number of social housing dwellings built amounts to 15. Why is the figure so low?
My right hon. Friend will be aware that the distribution of social housing depends on the bids that come forward from housing associations in different parts of the country. He might want to talk to his local council about working with housing associations to come forward with good bids for his area, especially if there is a need for new social housing there. We need to increase the level of social housing throughout the country. It is due to increase by 50 per cent., and the Chancellor has said that social housing will be a priority in the spending review. However, we need closer partnerships among local councils, housing associations and other organisations so that good bids come forward. We also need to use the planning gain system to fund new homes.
Given that hundreds of families throughout south Manchester are waiting to be rehoused, will the Minister join me in condemning my local council’s decision not to guarantee that a proportion of land set aside for development will be for social housing?
Obviously, I cannot comment on individual planning decisions taken by local authorities. However, I can say that we think that local authorities should look seriously at building requirements for social housing into their planning system and approach. It is interesting that of the 140,000 new homes that were built in 2004, some 100,000 were built with no developer contribution to social housing or infrastructure. That is not fair; there should be more contributions.
Does my hon. Friend agree that one way of meeting the demand for social housing would be for every planning authority to stipulate that at least 30 per cent. of houses in every new development should be affordable?
My hon. Friend is right. We should be doing more through the planning system to encourage more social housing. Clearly, the situation will vary from area to area; nevertheless, that is an important approach, which I know that my hon. Friend feels strongly about and has campaigned for. There are ways to use the planning system better, including by using the section 106 system to support and fund a lot of the new homes that are badly needed in local communities.
We applaud the Government’s aspirations for building more social housing, and I hope that the Minister is successful in persuading her right hon. Friend the Chancellor to help the building of social housing to return to the higher level that we had under the last Conservative Government. The Minister will be painfully aware that there are 90,000 empty residential properties in the public sector—including, of course, Dorneywood. However, her recently introduced empty dwelling management orders do nothing to tackle that problem. Instead of creating new powers to seize the homes of the dead, why do Ministers not take action to deal with the paralysis affecting Labour local authorities, such as those to which the right hon. Member for Rotherham (Mr. MacShane) referred?
As the hon. Gentleman will be aware, his party cut investment in social housing, whereas ours has increased it. It is certainly right that land prices and construction costs were significantly lower in the early 1990s, but that was because his party engineered a massive housing market crash. I hope that that is not his approach to providing new social housing now.
The hon. Gentleman raised the issue of empty homes. He is right to say that local authorities and housing associations need to address the problem of empty homes in their areas and ensure that they are refurbished and fit for use. That is why we are putting so much money into the decent homes programme, and thus dealing with the massive backlog of repairs that his party left behind. It is irresponsible of Conservative Members to say that we must do something about the scandal of derelict and abandoned homes that have been left to blight communities, but then to oppose every single measure designed to do something about it.
The review of arm’s length management organisations was published on 7 June.
My right hon. Friend surely knows that the Bolton ALMO is unique, in that it is the only ALMO that is regenerating estates in both the public and private sector. Will she therefore consider extending the Bolton model to other areas with high housing demand, especially urban areas with high waiting lists? She will also know that the Bolton housing waiting list has quadrupled in recent years.
I am familiar with the Bolton at Home ALMO, which is unique in dealing with private as well as public sector housing, and is a three-star ALMO with excellent prospects for improving. My hon. Friend asks me whether the model can be extended, and I think that there is potential for extending it to other areas. He also touched on the future of ALMOs. I suggest that he is trying to get at what will happen to ALMOs after the decent homes programme has finished. My view is that it should be for local authorities, in consultation with tenants, to decide what works best for them. That will always be the yardstick by which I judge future proposals: will the proposed model make the quality of life better for the tenants or others who live in the housing stock?
Will the Secretary of State also have a look urgently at the level of ALMO debts that are accumulating throughout the country? The debt portfolio of my local council, Hammersmith and Fulham, is growing—it was projected to grow under the previous Labour administration—from about £295 million to about £500 million. Almost all of that was due to ALMO debt. Does the right hon. Lady think that that is sustainable? In only four years there has been a £200 million increase in debt.
I am happy to examine the ALMO in Hammersmith and Fulham, which the hon. Gentleman mentions. I think that the hon. Gentleman will recognise the huge additional investment that has gone not only into housing that has gone through the stock transfer process but has also gone through ALMOs to local authorities. We are consulting on ways in which it might be possible for councils that have not gone through the ALMO process to benefit from some extra flexibility, so that they can go on to build more homes and make their communities better, as well as concentrating on the decent homes programme. There is an exciting future for local authorities that want to build up their local housing strategy function and think broadly about not only how to improve the public stock but how to improve the private stock as well, and create better mixed communities.
When large construction companies go bust, a significant number of small to medium-sized enterprises that have completed their work for the large company will invariably go bust as well. SMEs, as we know, are the backbone of the construction industry and payment security is vital for them if they are to survive. Will my right hon. Friend ensure that during the review, part 2 of the Housing Grants, Construction and Regeneration Act 1996 will be amended to ensure that payment uncertainty in the construction industry is brought to an end?
Local Government Finance
My right hon. Friend met Sir Michael Lyons shortly after her appointment, when he discussed with her his report “National Prosperity, local choice, and civic engagement”, which was published on 8 May 2006.
The Minister will know that the inquiry under Sir Michael Lyons has cost more than £2.25 million—which does include £230,000-worth of research. It appears to endorse a new council tax on housing, which will affect more than 4 million households. Will the Minister undertake pilot schemes to test Sir Michael’s recommendations for changes to local government funding? If he does—and I recommend him to do so—where will these tests take place?
I am always willing to listen to suggestions from the hon. Gentleman. [Hon. Members: “Why?”] They normally come with common sense behind them, so I will consider the point that he makes. However, I hope that he will recognise that the report that Sir Michael published was his interim report. We are waiting with great interest for his final report later in the year.
I wonder whether Sir Michael, as part of his report on local government finance, mentioned that two-tier systems within Lancashire are far more expensive for the council tax payer. Would my hon. Friend recommend single-tier government for Lancashire, given the benefit that is enjoyed in Manchester?
I think that it would be wise for me not to do so, so I shall not be tempted to take that course of action. However, my hon. Friend may be interested to learn that we have had discussions on the economic prosperity of Lancashire with both tiers of councils very recently.
I am sure that the Minister is well aware of the grossly unfair burden of council tax on many residents, and particularly those who are just above benefit level. Will he encourage the Secretary of State to meet Sir Michael Lyons when she is in Bournemouth tomorrow and encourage him to be radical and introduce a local government finance system based on residents’ ability to pay? Perhaps the Secretary of State can play her part by linking her structural review to the Minister’s financial review, which would provide joined-up government for local democracy.
I congratulate the hon. Gentleman on, for the first time, not mentioning local income tax in a discussion about council tax at Question Time. I wonder whether that is a straw in the wind, and whether there will be a change in policy—we shall watch that space with interest. The hon. Gentleman’s point about the equity of the council tax benefit system, which was the subject of one of Sir Michael’s reports, is important, and I repeat that my right hon. Friend met Sir Michael recently.
Having endured the doubling of their council tax since 1997, my constituents are extremely concerned about the impact of revaluation and want to know where they stand. Will the Minister tell us how soon after Sir Michael Lyons’ report is published council tax revaluation will take place?
The hon. Gentleman has made an important point. The former Minister of Communities and Local Government, my right hon. Friend the present Secretary of State for Environment, Food and Rural Affairs, made it clear in his announcement to this House that we were postponing the revaluation of domestic properties in England and that he did not expect that revaluation to take place in the life of this Parliament. That remains Government policy.
I am aware that in Basildon there are currently 185 caravans on unauthorised developments. The Government have offered to work with Basildon and neighbouring authorities to identify alternative sites for Travellers currently on unauthorised developments. The primary responsibility for addressing those issues rests with Basildon council.
The Minister will be aware that with the largest Traveller site in the UK, if not Europe, situated in Crays Hill in my constituency, there is a widespread belief that there is a Government bias in favour of Travellers when it comes to illegal sites, as evidenced by the two-year and four-year stays of execution recently given to unlawful Travellers. Nowhere does that bias seem more evident than in the Government’s unwillingness to meet local residents from Crays Hill, Hovefields and Pitsea to discuss the matter. As I have a letter from the Minister stating that the Government regularly meet local Travellers—they have wined and dined them—does the Minister think that the Government’s refusal to meet local residents is fair, and what is she going to do about it?
The hon. Gentleman knows that I have not met local Travellers to discuss the issue, and that I do not intend to do so. I do not intend meet local residents either because, as other Ministers and I have told him, while a planning application is ongoing it is inappropriate for Ministers to engage in discussions with parties when they may have to make a decision.
Rising housing demand is driven by demographic change, which includes the fact that more people live alone, and by the needs of the economy. If we do not respond to rising housing demand, we will see first-time buyers priced out of the market, rising overcrowding and pressures on recruitment for businesses and public services, which is why we support the provision of new homes.
I am grateful for that answer. Rising demand is driven not only by smaller house sizes, smaller family sizes and longer lives—we welcome that—but by international migration, which accounts for 30 per cent. of rising demand. Is not it cruel and heartless to hand out work permits to people who have no realistic prospect of finding accommodation when they get to this country and who compete, when they arrive, with our most vulnerable fellow citizens for that rare accommodation?
Obviously the hon. Gentleman is right to say that one has to take a sensible approach to immigration and housing policy. However, we must recognise that immigration supports our economy. Migrant workers contribute around 10 per cent. of Government tax receipts and account for only 8 per cent. of Government spending. They are critical to the economy. Of course we must ensure that appropriate housing is in place. I emphasise that 72 per cent. of household growth is accounted for by single households. We need to ensure that we build more new homes to meet the overall needs of the economy, and our changing and increasing population.
My hon. Friend knows that housing demand is perhaps at its most acute among the homeless. She will also know that in December she announced £88 million of assistance to local authorities with homelessness projects. However, does she know that on 7 February the Conservative cabinet member for housing in Birmingham claimed, in response to a question from his son, who is also a Conservative councillor in Birmingham, that the city had received “not one single penny” from that fund? He has repeated that on two or three subsequent occasions, even saying that my hon. Friend should apologise to the people of Birmingham. Is he telling the truth?
Order. The hon. Gentleman is an experienced Member. He should know that supplementaries should be brief. [Interruption.] Sometimes I have seen the hon. Member for Wallasey (Angela Eagle) take her time over her supplementaries, too. The point is that I went over the time to call the hon. Gentleman, and I therefore expected a brief question. I would appreciate it if the hon. Lady did not tell me how to chair the proceedings. She would not know where to start.
Points of Order
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?
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?
The following Member took and subscribed to the Oath:
David Clifford Davies Esq., for Blaenau Gwent.
Presentation of Bill
Mr. Secretary Hutton, supported by the Prime Minister, Mr. Secretary Prescott, Mr. Chancellor of the Exchequer, Mr. Secretary Alexander, Ms Secretary Hewitt, Mr. Secretary Hain, Mr. Secretary Darling, Mr. Jack Straw, Ms Harriet Harman, Mr. Jim Murphy and Mrs. Anne McGuire presented a Bill to make provision about social security; to amend the Vaccine Damage Payments Act 1979; and for connected purposes: And the same was read the First time; and ordered to be read a Second time on Wednesday 5 July, and to be printed. Explanatory notes to be printed [Bill 208].
Caravan Sites (Security of Tenure)
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].
Orders of the Day
Consolidated fund (appropriation) (No. 3) bill
Order for Second Reading read.
Question, That the Bill be now read a Second time, put forthwith, pursuant to Standing Order No. 56 (Consolidated Fund Bills), and agreed to.
Question, That the Bill be now read the Third time, put forthwith, and agreed to.
Bill accordingly read the Third time, and passed.
FINANCE (NO. 2) BILL [WAYS AND MEANS]
Motion made, and Question put forthwith, pursuant to Standing Order No. 52(1)(b) (Money resolutions and ways and means resolutions in connection with bills),
Repos and other structured finance arrangements
That provision may be made in the Finance (No. 2) Bill for the purposes of income tax and corporation tax in relation to—
(a) arrangements for the sale and repurchase of securities, and
(b) other arrangements that equate, in substance, to transactions for the lending of money.—[Ed Balls.]
Question agreed to.
Finance (No. 2) Bill
Bill not amended in the Committee and as amended in the Standing Committee, considered.
That the Finance (No.2) Bill, as amended, be considered in the following order, namely, new Clauses relating to Part 6, new Schedules relating to Part 6, amendments relating to Clauses 155 and 156, Schedule 20, Clause 157, remaining new Clauses, remaining new Schedules, amendments relating to Clauses 1 to 27, Schedule 1, Clause 28, Schedule 2, Clause 29, Schedule 3, Clauses 30 to 37, Schedule 4, Clauses 38 to 42, Schedule 5, Clauses 43 to 76, Schedule 6, Clauses 77 to 79, Schedule 7, Clauses 80 and 81, Schedules 8 and 9, Clause 82, Schedule 10, Clauses 83 to 86, Schedule 11, Clauses 87 and 88, Schedule 12, Clause 89, Schedule 13, Clauses 90 and 91, Schedule 14, Clauses 92 to 102, Schedule 15, Clauses 103 and 104, Schedule 16, Clause 105 to 134, Schedule 17, Clauses 135 to 146, Schedule 18, Clauses 147 to 154, Schedule 19, Clause 158, Schedule 21, Clauses 159 and 160, Schedule 22, Clause 161, Schedule 23, Clauses162 and 163, Schedule 24, Clause 164, Schedule 25, Clauses 165 to 178, Schedule 26, and Clauses 179 and180—[Dawn Primarolo.]
New Clause 2
Trusts relating to divorce, life protection policies and disabled persons
‘The provisions of Schedule 20 shall not operate so as to discourage, impede or prevent the use of trusts which are set up—
(a) as a result of relationship breakdown and create a “relationship breakdown settlement interest”, as defined in section 59A of the Inheritance Tax Act 1984; or
(b) in relation to the proceeds of life protection policies, as defined in section 58(4) of the Inheritance Tax Act 1984; or
(c) by or in favour of disabled persons within the definition set out in section 89 of the Inheritance Tax Act 1984.’.—[Mrs. Villiers.]
Brought up, and read the First 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—
(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.
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.
The Opposition seek to broaden both categories of the definition. In accordance with the representations made by Mind and other concerned groups, we propose to add a reference to the Mental Capacity Act 2005, so that it is sufficient if the beneficiary falls within the definition of incapacity contained in the Mental Health Act 1983 or the 2005 Act.
The problem that we seek to address with the new clause and these amendments was highlighted by James Kessler, QC, when he said:
“The definition of disabled is extremely narrow…the large majority of mentally vulnerable people will not be included. No relief is given for those with partial mental capacity… No relief is available to those who are aged or infirm or incapacitated whose disability is less than the grievous state required for relief.”
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 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.
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.
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.]
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 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.
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.
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?
The Law Society has raised the concern that not all the alternative devices will be appropriate for all families:
“For example, the use of clean break orders is only feasible where a couple have sufficient assets to enable an outright division of assets between so as to provide both with a home. For many families, where the only significant asset is the matrimonial home (and whose value is over the inheritance tax threshold, currently £285,000) this is not a realistic option since the sale of the house may not raise sufficient funds to provide a home for both parties.
Where assets are transferred from one spouse to another, the spouse exemption does not apply if the transfers take place after decree absolute. Under Schedule 20, the spouse exemption would now not apply before decree absolute where a new trust is created by one spouse for the other. This we believe wrongly penalises the use of trusts on divorce settlements.”
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.
Although the Government have moved somewhat to protect vulnerable groups in specific circumstances, the protection is not comprehensive. There will be hard cases and difficulties if all we do today is accept the Government amendments. The simplest way to protect vulnerable people is not to proceed in that direction. We therefore revert to the fundamental questions: what is the purpose of the provisions? How much money is at stake? Are the Government sure that they will capture a few rich people who use the current system unreasonably, in their view, while not capturing many others? We have learned that those others perhaps include the hon. Member for Falmouth and Camborne (Julia Goldsworthy), who imprudently took out a life protection policy without knowing what her tax position would be. Wallowing in ignorance in that way, with one’s money at risk under the very measure that one is trying to amend or improve, is not a good advert for Liberal Democrat advice on financial planning. Obviously, the hon. Lady has a lot to learn in all sorts of ways as she trains on the job of speaking to the difficult set of clauses and schedules before us.
Those on the Treasury Bench find themselves in some difficulty over these measures. I do not think that they have a great deal of enthusiasm for the job in hand; I do not see them leaping to their feet to say that this is the best thing that they have ever done. I do not suppose that they will include in their leaflets to their constituents the fact that they are proud to have done considerable damage to the trust regime for those who are divorcing. Nor am I sure that that will be the leading subject in their election leaflets when we get to the next general election. They will not be saying, “I have great news, o electors! The Labour party has managed to make your divorce even more painful and to secure even more money for the Treasury rather than for you.”
May I say how much I am looking forward to seeing the right hon. Gentleman’s next newsletter, in which he explains this issue to his constituents? If he believes what the hon. Member for Chipping Barnet (Mrs. Villiers) has said, but it turns out not to be true, he will have to issue a subsequent newsletter.
I am always extremely careful to check the accuracy of the information that I put out to my constituents, and I am pleased to say that, so far, I have not had to send out any corrections. I will endeavour to be equally careful in the future. However, I will not find myself in the position of having to put out an apology or an explanation of why my party has backed a silly scheme that messes around with the complex tax regime on trusts in such a way that it might capture the vulnerable as well as those—whom the Government have still to name—who are apparently more worthy targets for increased taxation.
It gives me great pleasure to support the noble work of my hon. Friend the Member for Chipping Barnet (Mrs. Villiers) in trying to chip away at the undesirable consequences of this clause and schedule. I am not sure that I am in sympathy with the hon. Member for Falmouth and Camborne, however, whose remarks were as tedious as they were opaque. I look forward to the Government having third thoughts on this matter. I enjoyed their second thoughts, which were certainly better than their first thoughts. When in doubt, Ministers should not legislate, not proceed, not pass “Go”, and not collect our £200. They should think again, ditch the clause and the schedule, then we would all be much better off. We could then put something in our newsletter about which we all agreed, namely, that it was a good idea that, on this occasion, the Government had thought better of legislating.
I am extremely honoured to follow that highly entertaining and thought-provoking contribution from my right hon. Friend the Member for Wokingham (Mr. Redwood). I rise to discuss some of the issues on schedule 20 that were picked up in Committee, and I should like to start with the Government’s two-and-a-half-year consultation period on the modernisation of the trust regime, during which the age reduction for accumulation and maintenance trusts from 25 to 18, as proposed in the schedule, was not raised.
I am most grateful to the hon. Gentleman for that reminder. I declared my interest at almost every sitting of the Committee, and I am happy to do so again today. I am a settlor of an accumulation and maintenance trust for the benefit of my children, which gives me a certain amount of authority on this subject, unlike the Government, who appear to have entered into these arrangements without any understanding of their implications—as we have heard, they are now into the third set of major revisions—and without any consultation with the industry on the extent of the supposed mischief or abuse that the measures were designed to prevent. The Paymaster General was challenged repeatedly in Committee to provide evidence of the abuse, but was able to come up with only one or two astonishingly tortuous examples. When challenged by my right hon. Friend the Member for Wokingham, she could provide no information on the scale of the abuse, but I hope that she will now have been briefed on how widespread it is.
The hon. Gentleman is not fairly reflecting what happened in Committee. The Committee asked for examples, and I gave examples. Conservative Members do not like the examples that I gave, and consider them theoretical. Amazingly, that does not stop them advancing a theoretical case to attack the Bill. I gave the hon. Gentleman the evidence: I specified the types of tax planning. He does not agree with me, and that is fair enough, but I did supply the evidence.
The Paymaster General is obviously somewhat irritated by my accusation that she failed to give proper evidence. What she did give were two theoretical examples. On several other occasions, she listed organisations that had substantiated the case she was making, but in this instance she did not mention any, presumably because there was none.
That takes me to the point that I wanted to make about the age issue. The Government are trying to introduce a blanket change in the age limit below which children can benefit outright from the accumulation of maintenance trusts, without taking account of the individual circumstances of many of those children. Given that people become adults at the age of 18, I might be using the word “children” rather loosely. We are talking about young people under 25.
It is not unheard of for people to acknowledge that the financial sophistication of those under 25 is not what one might hope to see in more mature adults. Most commercial industries that must contend with those aged between 18 and 25 in a financial context impose certain constraints. Most mortgage lenders, for instance, have their own policies on the granting of mortgages to young people, but many require a parental guarantee. Those aged between 18 and 25 are likely to pay higher motor insurance premiums, because they are perceived to be a greater financial risk to the insurance companies. Many car rental companies will not allow people under 25 to hire cars, or, if they do, will impose a surcharge.
In March this year one of the Government’s own regulatory agencies, the Financial Services Authority, undertook research in an attempt to establish how sophisticated young people were in financial matters. It concluded that
“whilst the need to plan ahead is perhaps greatest in early adulthood, financial capability in terms of planning ahead clearly improves with age”.
Those aged between 18 and 20 scored 27 out of 100 in terms of financial capability, while those between 20 and 29 scored 40. One of the Government’s own regulatory agencies has acknowledged that people under the age of 25 are not as well adjusted to the business of dealing with their financial affairs as older people.
I wholeheartedly agree with my right hon. Friend the Member for Wokingham. The schedule has been dreamt up by the Government for reasons that were not thought through properly, hence the plethora of amendments with which we are regularly having to deal. In my view, the logic stems from the Government’s resentment that people may be in a position to control the distribution of their money during their lifetimes. What they are doing is meddlesome and interfering, and it is characteristic of their approach.
There is a specific illogicality in the Government’s actions. The Paymaster General has tried to claim that they are simply bringing the inheritance tax regime relating to trusts of this kind into line with those relating to others. That might be so in a very narrow sense, but the Government are also throwing the system completely out of kilter with the existing inheritance tax regime relating to gifts. Clearly, someone who places assets in a trust—often for sound practical reasons—will no longer be able to benefit from the potentially exempt transfer regime, and must therefore subject those assets to potential inheritance tax charges that did not exist before. That is not tidying up, but creating an additional layer of complexity.
I support what my hon. Friend the Member for Chipping Barnet (Mrs. Villiers) said about the definitions of disability. On a couple of occasions, we discussed in Committee the means of ensuring that the Bill provides an appropriate definition to cover people who are experiencing either partial or fluctuating capacity or who have a progressive illness. We discussed individual illnesses and conditions at some length.
Although the Government have made some movement, they have still failed to address the matter adequately. The issue of the settlor who is able to benefit from the exemptions for disability has been dealt with poorly. The provisions do not cover individuals who become disabled or people who are in a position of parental authority. That amounts to a glaring omission, which I hope the Paymaster General will reflect on and seek to put right. I am thinking particularly of people who are made wards and where courts or insurance companies, neither of which are in a position of parental responsibility, are making provisions to set up trusts.
In conclusion, it appears that the Government are seeking to deal with an abuse that they have failed to prove. They are seeking to impose constraints on individuals and how they organise their financial affairs, which shows their mistrust of people. I wholeheartedly endorse the suggestion of my right hon. Friend the Member for Wokingham that the Government should scrap the schedule in its entirety.
There was a great deal of uncertainty when the Bill was published and when it began its progress in Committee. The large number of amendments that were supported by hon. Members of all parties is testament to that, and some of the uncertainty remains. I hope that it will be fixed by the Government amendments and others as we progress. I am particularly pleased with Government amendment No. 70, which brings those with parental responsibility into play in the same way that birth parents are in respect of trusts. We discussed that issue in Committee and I am delighted that the Government have taken it into account.
I shall not re-summarise all the briefing notes that others have mentioned—we have all read them anyway—but I shall make one or two specific points. It is important to discuss vulnerable people and I am not at all convinced that the definition of such people is sufficient. It is too narrow and some vulnerable people clearly fall outside the specified disability living allowance category. I would like to bring to the House’s attention a letter from a small solicitor firm, J W Hughes and Co. from Llandudno, which was given to me by my hon. Friend the Member for Meirionnydd Nant Conwy (Mr. Llwyd). The letter makes that very point—that some vulnerable people fall outwith that definition. The concern was expressed by a small county lawyer with no political axe to grind.
It is interesting that other lawyers have approached me about other issues. Even as the amendments were being progressed and more information was emerging about the shape of the Bill, there remained a great deal of concern about the number of wills that would have to be changed as a result of insurance and other policies being written into trusts in the wills. Another local solicitor—a small, county solicitor based near my constituency—advised me that his business has some 18,000 to 19,000 wills under management and that in his best assessment about 40 or 50 per cent. of them would need to be changed. Unfortunately, it is not certain which 40 or 50 per cent. will require it. It may be based on a misunderstanding that the changes will impact only on trusts and funds that breach the inheritance tax threshold. None the less, I ask the Paymaster General to concentrate on the issue of vulnerable people and how they will be looked after under the new regime. She should also focus on the inheritance tax threshold with particular regard to the great fears of many people and many law firms about the potential for hundreds, thousands or millions of wills having to be changed.
In the continuing debate about these matters, and especially in respect of the definition of a disabled person, the Paymaster General has made great play of the fact that a consultation process was held two years ago and that a particular answer was reached. I shall return to that in a moment, but we are discussing the question of trusts today, a matter that was debated at some length in Committee. It is therefore somewhat ironic that the right hon. Lady should praise the role played by consultation, given that the Government have produced a set of proposals in respect of trusts without engaging in any consultation at all.
The proposals have been rushed out, but the Government have not asked legal professionals or accountants how trusts work in reality. They have failed to understand how insurance companies draft policies, or how lawyers draft wills. The hon. Member for Wolverhampton, South-West (Rob Marris) quoted from the explanatory notes, but they were drafted before the Government came up with the various amendments that they have tabled to schedule 20.
In essence, the hon. Member for Wolverhampton, South-West said that straightforward interest-in-possession trusts would be unaffected by the Government’s proposals, but the reality turns out to be somewhat different. Under the original wording of schedule 20, a standard will—for example, one in which a person who gets married for a second time seeks to ensure that the second spouse receives an interest in possession but that the capital goes to the children of the first marriage—would indeed have been affected.
As a result, both in Committee and again today, the Government have staged a series of withdrawals from their original position. Their approach deserves very serious criticism, as there is no good reason why the matter could not have been consulted on. The Paymaster General rightly said that, in Committee, she gave examples of potential abuses under the existing law, but Government projections suggest that we are talking about only £15 million in the first year. The amounts involved are not so sizeable, nor the abuses so great, that the Government had to deal with the matter with such enormous urgency. Why was there no consultation, especially when the Government were consulting about trusts in any event?
Indeed, Her Majesty’s Revenue and Customs considered that trusts should be tax neutral. It said that, although trusts should not be used as a way to avoid tax—and I entirely agree with that—it also believed that artificial obstacles should not be raised against their use for that purpose.