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Finance Bill

Volume 459: debated on Monday 23 April 2007

[Relevant document: the Fifth Report of the Treasury Committee, Session 2006-07, on the 2007 Budget, HC 389-I and –II.]

Order for Second Reading read.

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

At the time of the Budget, my right hon. Friend the Chancellor was able to set out an upbeat account of the state of the British economy. It was not just my right hon. Friend, however: I draw the House’s attention to the International Monetary Fund’s report on the UK economy in February, which referred to

“a decade-long record of strong and steady macroeconomic performance”,

and pointed out that

“growth of real GDP per capita was higher and less volatile than in any other G7 country”.

We have seen a remarkable transformation of the British economy over the past decade. Uniquely among major economies we have avoided a downturn; 29 million people are in employment for the first time ever and gross domestic product per capita is up from seventh to second in the G7 and the economy is growing faster this year than in every other G7 economy. Locking in that new stability, avoiding risks to it and sticking to our fiscal rules are the immovable constraints around which the Budget and the Finance Bill were constructed.

Can the Minister explain why 1 million manufacturing jobs were lost in Britain over that decade and why 5.3 million people of working age are on benefit with no job?

As I have just said, and as the right hon. Gentleman knows, record numbers of people are in employment in the UK and unemployment is falling. The claimant count fell again in the most recent figures. Of course, there has been a shift from manufacturing to services—as there has been across the developed economies—but there has been positive news from the manufacturing sector in recent months, which I am sure the right hon. Gentleman and the whole House will welcome.

As a west midlands MP, may I remind my right hon. Friend that although it is sad that a huge number of manufacturing jobs have been lost, there is record employment in the economy and in the west midlands? Manufacturing output has continued to grow significantly over the past 10 years under the Government.

It has, with particularly strong figures in recent months, as I said, which reflect the strength in manufacturing across the economy. I particularly welcome the strength of the economy in my hon. Friend’s region, to which he referred.

Acknowledging intensifying global competition, the Bill takes the next steps to prioritise investment and innovation. It includes important measures to simplify business tax and to ensure that everybody pays their fair share. With measures to deliver further emissions reductions, incentives to encourage fuel and energy efficiency and further support for renewable energy technologies, the Bill strengthens UK leadership in tackling climate change.

On fair taxation, can my right hon. Friend tell me how many representations he has received from low-paid workers about the abolition of the 10p rate of tax? Constituents of mine who earn only one sixth of what we earn are paying £3 a week more, and I have tabled questions asking how many other people are similarly affected. Is my right hon. Friend satisfied with the balance the Government have struck, and when might I receive a reply to my questions?

I am absolutely certain that my right hon. Friend will receive answers shortly. I am sure that he has seen the analysis published by the Institute for Fiscal Studies showing that the great majority of households will be better off. The IFS also points out that the proportionate gain is highest for those on the lowest incomes, although of course the changes to which my right hon. Friend refers will be in the Finance Bill next year, rather than this year.

But does my right hon. Friend not accept that some people will be worse off and that some of them might have noticed that they are thought to be so unimportant that they do not feature in the reasoned amendment opposing Second Reading?

My right hon. Friend may be correct about that. Some, no doubt, will find themselves a little worse off next year as a result of the changes in the Bill but, by and large, their position will have been considerably strengthened by the other changes over the past 10 years.

Will the Chief Secretary respond to the recommendations in the Treasury Committee’s report on the 2007 Budget, which raises two important issues? The first is that the winners and losers are not clearly identified in the Red Book and that this should be done in future. The second is that take-up of tax credits remains low and further efforts need to be undertaken to make sure that those who could benefit from tax credits actually do so. Many will lose out not only because of the tax changes, but because they are not claiming tax credits.

I welcome the report that has been published today. We will reflect on all the points that it makes. On the second issue that the hon. Lady raised, the report does welcome the recent initiatives, including the information that my right hon. Friend the Chancellor gave to the Treasury Select Committee at its meeting on take-up, but there is no doubt that more needs to be done.

May I clarify something for the House? The abolition of the 10p rate is not referred to in the reasoned amendment because it does not appear in the Bill. No doubt, the right hon. Member for Birkenhead (Mr. Field) will hear more about that issue later in the debate.

On tax, spending and borrowing, the balance that we strike is of crucial importance. Our commitment, with the golden rule, is to borrow only to invest over the course of the cycle, and the Budget reported an £11 billion surplus on the golden rule over the current cycle. On borrowing, to keep net debt sustainable below 40 per cent. of gross domestic product and consistent with those rules, this Bill sets the right balance and underpins our commitment to maintaining the new stability in the economy that has been so invaluable over the past decade.

Crucially, the Bill also provides the resources to equip us to meet future challenges successfully, enabling the new investments for education and skills, science and the other key areas that my right hon. Friend the Chancellor set out in the Budget to be made. With total spending rising to £674 billion in 2010, we are committed to continuing to invest. In a world economy in which competition is intensifying, technology is changing fast and almost every country faces challenges from global insecurity, investment is vital to enable us successfully to address the long-term challenges ahead.

Let me turn to the details of the Bill. First, on business and productivity, our starting point is a very strong one indeed. In the past year, total investment is up by 6½ per cent., business investment is up by 7¾ per cent and inward investment is up by 15 per cent. Business investment is forecast to rise again by more than 7 per cent. this year. Maintaining that success requires a modern, corporate tax system that reflects the intense worldwide competition in the globalised economy, and the Bill introduces the changes that we need. From 2008, there will be a cut in the main rate of corporation tax from 30 per cent. to 28 per cent.

The Chief Secretary appears to think that everything in the economy is rosy. Is he concerned that inflation has hit a 16-year high?

Inflation is currently at 3.1 per cent., and the hon. Lady may have noticed that the recent sending of a letter by the Governor of the Bank of England to my right hon. Friend the Chancellor was the first time it had happened in 10 years. At the outset, it was expected that that would be required every year or two. The system and the macro-economic framework that we have put in place have been remarkably robust and successful. Inflation at 3.1 per cent. is a great deal lower than the rates of inflation that obtained when the party that she speaks for was last in government. At that time, we had double-digit inflation and double-digit mortgage rates. The system continues to work extremely well and the fact that, after 10 years, it has been necessary for a letter to be sent need not give rise to undue concern. Indeed, it is generally agreed by those who study these things that the rate of inflation will fall sharply towards target in the second part of this year.

From 2008, as I said, there will be a cut in the main corporation tax rate from 30 per cent. to 28 per cent. That is a lower rate than those of all our major competitors and has been widely welcomed by, for example, the Institute of Directors and the City of London Corporation, which said:

“The City is very pleased that the Government is making such a clear commitment to keeping London competitive”.

There is clear evidence that a lower headline rate of corporation tax attracts foreign direct investment and that the change will strengthen our position further.

I am listening carefully to the Chief Secretary’s comments about corporation tax. Small companies in my constituency are concerned about the increase in the small companies rate. Will he go on to talk about the representations that he has received from the Federation of Small Business and others?

I shall come to the small companies corporation tax rate in a moment, but let me say a little more about how we are funding the welcome and significant reduction in the main rate. It is being funded by modernising and streamlining the capital allowances system, which has been largely unchanged for the past 20 years and which, in part, still reflects the needs of post-war redevelopment. This is the most extensive reform of investment allowances since the 1980s, better aligning allowances for buildings and plant with economic depreciation, removing tax-driven distortions in business decisions and giving incentives for long-term investment.

My right hon. Friend announced just two rates in future for capital allowances—20 per cent. for short life assets and 10 per cent. for long life assets. Clause 35 paves the way for phasing out over four years industrial and agricultural buildings allowances, so removing a selective and outdated subsidy for some buildings, which is not available, for example, for commercial office space or for science parks. It is a strong package, pro-growth and pro-investment, which is expected to add 0.2 percentage points per annum to investment above the trend rate, strengthening our global competitiveness.

The Bill also sets the small companies rate of corporation tax at 20 per cent. for 2007. We have announced that we will raise it further to 22 per cent. from April 2009 as we remove incentives to incorporate solely for tax reasons. As the Red Book shows, setting out the figures for this year and the following two years, all the proceeds from that increase will be recycled to small businesses that invest, through a package that reduces the tax due from them and gives them incentives to invest, with current first year capital allowances for small firms maintained in the Bill at 50 per cent. until April 2008, and with the Finance Bill next year to introduce a 100 per cent. annual investment allowance of £50,000 for all firms. That shifts the incentives in favour of investment, which will further strengthen small firms.

The Chief Secretary has been extremely generous in giving way. Does he recognise the problem for many small retailers or small service businesses, which cannot make that level of investment to recoup for the tax increase? For example, a newsagent will not be able to make those high levels of investment and will end up with a higher tax bill.

Perhaps the hon. Lady will tell us when she speaks whether her party would reverse the change. We are using the tax system to improve the incentives for investment and thereby strengthening businesses, particularly the wealth-creating, job-creating businesses. I have no doubt that as a result of this package the economy will be strengthened further. It is a matter of using the available incentives in the right way, as we are doing. There will be a significant cash-flow benefit to small businesses that reinvest their profits, offsetting the small companies rate increase for small companies that are investing.

Through clause 50 and schedule 16, the Bill reforms venture capital trusts, the enterprise investment scheme and the corporate venturing scheme. Those measures will give greater certainty to investors and the companies in which they invest and help to secure the future of the schemes, which have been very valuable. All the yields from those changes are being recycled to fund enhancements in research and development tax credits to strengthen further innovation and productivity in the UK. These measures will encourage investment and innovation, promote competitiveness and help to equip the UK to meet successfully the challenges of globalisation ahead.

The Chief Secretary is talking about the ability of companies to invest in some of the things that the Government are doing. However, of the 265,000 businesses in Scotland, 98 per cent. have fewer than 49 employees and 1.3 per cent. have between 50 and 249 employees. That leaves only a couple of thousand firms, of which 1,510 employ more than 500 people. The new definition of small and medium-sized enterprises that applies to much of the research and development tax credit stuff will apply to merely a few hundred companies out of 265,000. Is the Chief Secretary not overstating the benefits in the Finance Bill?

No, I do not think that I am. Of course, I am not familiar with the figures that the hon. Gentleman is quoting, but I suspect that he is including a large number of self-employed individuals. I am certainly not overstating the benefits. He will see in the Red Book the analysis of the additional revenue raised from the change in the small companies rate and the additional sums being relieved through the changes that I have described. Over the period set out, all the proceeds are being recycled.

The Budget extended support to hard-working families. It announced tax changes to help more people into work and to boost further the incentives for employment. But for 2007-08, in the Bill income tax rates are unchanged at 10 per cent., 22 per cent. and 40 per cent. The personal tax reforms set out in the Budget, amounting in total to a reduction in personal taxation of £2.5 billion, will come into effect from April 2008 and will be contained in the Finance Bill next year.

Clause 4 of the present Bill will increase the nil rate band for inheritance tax to £350,000 for the financial year 2010-11, maintaining recent practice of pre-announcing nil rate band increases for future years. That means that 94 per cent. of estates are expected to pay no inheritance tax, with transfers of assets to spouses, civil partners and charities, of course, exempt.

On the issue of personal taxation, will the Minister explain why the changes were not included in this year’s Finance Bill?

If the hon. Lady looks at the arithmetic set out in the Red Book, she will see that the package has been carefully designed. There will be changes next year, balanced by other changes, which are all set out. The phasing of those changes is consistent with our commitments both to fairness and to stability in the economy as a whole.

Part 3 of the Bill includes important changes to ensure that everybody pays their fair share of taxation. We remain firmly committed to advancing fairness by tackling tax avoidance, as well as fraud. For example, clause 25 ensures that workers providing their services through managed service companies pay the same income tax and national insurance as those who provide their service as employees.

The Bill also takes the next steps in our response to the Stern report. It introduces further measures to protect the environment, building on the success of the climate change levy in tackling carbon emissions, supporting the introduction of carbon trading, reflecting our commitment to tackle climate change through effective international action, and providing incentives for change while maintaining our other economic and social objectives. Changes in clause 11 to vehicle excise duty sharpen the environmental signals to motorists to purchase more fuel-efficient cars. Clauses 17 to 19 introduce a range of other measures to encourage energy efficiency.

Stamp duty land tax relief for new zero-carbon homes was a feature of the Budget and is provided for in clause 19. In view of the absence of details in the list of measures, will the Chief Secretary tell the House the estimated cost of clause 19 in a full year and his latest estimate of the number of prospective beneficiaries?

The cost on introduction is small because there are very few zero-carbon homes. I am pleased to be able to tell the hon. Gentleman that a development of zero-carbon homes is going forward at Gallions Park in my constituency. We want to change the nature of house building in the UK and to provide incentives for a completely new zero-carbon approach. There is a lot of confidence in the construction industry that the measure and other mechanisms will enable us to bring about the changes that we want in the coming decade on a large scale.

A very small number, but we want a great deal more. As I said, we want to change the whole nature of house building in the UK. The important and welcome measure will contribute towards that goal.

I am going to make a little more progress.

Clauses 20 and 21 encourage the use of domestic microgeneration by helpfully and supportively clarifying the tax rules. The increases in the rates of fuel duty will help to reduce polluting emissions from road transport.

Clause 12 doubles the rate of air passenger duty with effect from 1 February 2007. I know that the principle of increasing the tax burden on aviation is supported by hon. Members on both sides of the House. The change reflects better the principle that the sector should meet its environmental costs. It is estimated that the measure will save 300,000 tonnes of carbon a year by 2010-11. Of course, we continue to work to ensure that aviation is included as soon as possible within the European Union emissions trading scheme, which is the right long-term solution. Taken together, measures outlined in the Budget will deliver a carbon saving of 6 million tonnes. They will also strengthen the UK’s leadership on critically important international decisions that alone can deliver the worldwide changes that we need.

Did the figure on aviation that the Chief Secretary gave us take account of the proposed expansion of Heathrow?

The figure that I cited is the difference between the emissions after the change to APD and the amount if there was no change.

The Bill is the right next step in extending further our decade-long record of economic success, stability, growth, investment and fairness that my right hon. Friend the Chancellor set out in the Budget. It promotes the international competitiveness of the UK economy because maintaining our success on competitiveness is vital to the prosperity of every family in Britain. The Bill provides further protection for the environment to ensure not only that we stay on track to exceed our Kyoto commitment, but that we strengthen UK leadership internationally. Our aims are to build on the longest period of economic stability and sustained growth in Britain’s history, with a strong economy alongside a strong society, the right balance among tax, spending and borrowing, and Britain equipped to address successfully the long-term challenges of the future. The Bill takes those important next steps and I commend it to the House.

I beg to move, To leave out from “That” to the end of the Question, and to add instead thereof:

“this House declines to give a second reading to the Finance Bill because it fails to equip the UK to compete in the globalised world economy in the face of ever increasing competition from countries such as China and India, penalises small companies with higher tax rates and a more complicated tax system, hits freelance workers with more tax bureaucracy and uncertainty, involves yet further instability and U-turns on pensions policy and does nothing to tackle the UK’s worsening pensions crisis, gives HM Revenue and Customs intrusive and disproportionate new powers of investigation, misses the opportunity to provide effective mechanisms for tackling climate change, fails to reform the UK tax law after years of erosion of its competitiveness, and fails to reverse the massive increase in complexity and instability which the Chancellor has inflicted on the tax system of the UK.”

This Finance Bill might not be quite as long as last year’s—the Government have been able to squeeze it into a single volume—but that cannot make up for the massive increase in complexity and continuing instability that we have seen during the Chancellor’s 10 years in charge of our tax system. Recent reports from Grant Thornton and Ernst and Young highlight the erosion of our competitiveness that has been caused by the complexity of a tax code that has doubled in length during that decade. We believe that there is an urgent and pressing need for tax reform. If the Government shirk the challenge, there is a real risk of an outflow of jobs to other countries. The limited steps in the Bill towards simplification and reform do not meet that challenge, which is one of the key reasons why we decline to give it a Second Reading.

Let me begin with clause 1. The right hon. Member for Birkenhead (Mr. Field) asked why our reasoned amendment did not cover the income tax changes announced in the Budget. As I said in an intervention, that is because they are not in the Bill. However, we remain concerned about the proposals that will be imposed next year, and my hon. Friend the Member for Rayleigh (Mr. Francois) will deal with that matter in his winding-up speech.

When the time comes and an amendment is tabled to provide transitional protection for workers who will be made worse off, does the hon. Lady think that Opposition Members will support the Labour Members who table it?

We will assess that amendment when we see it. We will certainly give consideration to the question that the right hon. Gentleman asks.

I now turn to clause 3. The Chancellor has changed the tax system for small companies in every one of his 11 Budgets, which have included six rate changes. The Bill not only raises tax rates for small businesses, but makes the tax system more complicated for them. More than 12 million people in this country work for small businesses, and it is they who will lose out—the thousands of small retailers on our local high streets just trying to make a living.

Nick Goulding, the chief executive of the Forum of Private Business, described the measures as

“a kick in the teeth for Britain’s small businesses.”

David Frost, director general of British Chambers of Commerce, said:

“This is a substantial rise and will hit those looking to grow their business.”

The verdict of John Wright of the Federation of Small Businesses is that

“Small businesses were the main victims of this Budget”.

The Chancellor and the Chief Secretary to the Treasury claim that the new allowances mean that businesses that invest will not lose out.

I have listened to the hon. Lady’s speech but I am slightly confused, because she quoted a business man saying that businesses seeking to grow would lose out, but a few moments ago another Opposition Member, the hon. Member for Falmouth and Camborne (Julia Goldsworthy), admitted that the Government’s proposals will help firms that seek to invest.

The proposals will not help small business. They will lead to a higher tax bill for small business and a more complicated tax system, and other parts of the Finance Bill make it more difficult for small business to get advice about that complicated tax system. Most small businesses simply do not have the expertise to navigate their way around the Chancellor’s eye-wateringly complex system of incentives and reliefs. The average hairdresser, newsagent or owner of a rural post office will not shell out on the research and development tax credit; it just is not feasible for them. What the Chancellor and the Chief Secretary do not seem to understand is that reinvesting profits is a luxury that many small businesses cannot afford at the moment. Most of them need to take money out of their business to live on, particularly now that inflation is at a 16-year high, and mortgage rates are going up.

I am not trying to be awkward, and I understand some of the points that the hon. Lady is making about the dilemma facing small businesses, but will she concede that the main factor that affects small businesses is what is happening to big businesses and to the economy generally? When the economy is operating at a high level of demand, people have more money in their pockets, and there is more work for small businesses.

Small businesses are affected by rising inflation, like everyone else; they are also affected by rising interest rates and a rising tax bill, and under this Government they have all three.

Does the hon. Lady agree that small and medium-sized enterprises include micro-businesses with fewer than five employees, and that those are exactly the type of business that will find it so difficult to navigate the ever more complex regulations?

The hon. Lady makes a good point, and one of the big disadvantages of the increasing complexity in the tax system is that it is more difficult for micro-businesses to make sense of it. Small companies such as hairdressers, newsagents, post offices and one-man businesses will be badly hit by the Bill, because it is not feasible in all cases for them to invest at significant levels.

In a double whammy, the Chancellor has hit small service businesses again in schedule 3, on managed service companies. Let me make it clear that we support attempts to crack down on abuse and abusive behaviour. Of course people who are not genuine freelance contractors but are in reality in a relationship with their end client that amounts, to all intents and purposes, to employment, should pay their fair share of tax. However, it sometimes seems as though the Government think that all freelancers are tax dodgers. They are not, and those who are genuinely outside an employment relationship should not be penalised for making that choice about their working life. Flexible contract working is an important part of our economy, and it is invaluable in allowing businesses to respond quickly to changes in demand and innovations in the market. In particular, it plays a vital role in the IT sector, which, as I am sure the Chief Secretary will agree, is a crucial area for maintaining our economic competitiveness in a globalised world.

In seeking to crack down on abusive behaviour, the Government are in danger of hitting all contractors who have incorporated and chosen to outsource some of the administration and finance connected with their company. Whether someone is a genuine freelancer is irrelevant to the operation of schedule 3. It looks as if more or less any involvement with a third-party organisation that provides regular services to contractors and assists them with the operation of their service companies could bring the freelancer and her company within the new managed service companies legislation and completely change her tax status.

One of the worrying consequences of these proposals is that many contractors who have—understandably, given the complexity in the tax system and in regulation— allowed an adviser to take some of the burden of administration off their shoulders will have to set up their own personal service companies. They will no longer be able to outsource day-to-day corporate administration to an adviser. On top of an increase in tax rates and an increase in tax complexity, freelancers will have the hassle and bureaucracy of registering and running their own company into the bargain.

The hon. Lady talks about complexity. Why, therefore, are more small companies operating in the British economy now than when her party was in power? Specifically, which bits of the tax code would the Conservative party abolish?

There are many ways in which we need seriously to reform the tax system so that it becomes much simpler, and in due course we will come forward with detailed proposals.

According to the Institute of Chartered Accountants, we are already seeing the symptoms of the changes involving managed service companies, because well over 56,000 new companies were registered in February—around double the usual monthly figure. Freelancers, as well as having to set up their own companies and being unable to outsource, are likely to see the bill for professional advice go up because of the risk that their advisers could find themselves caught by the definition of a managed service company provider; those professionals could find themselves liable for the tax debts of their clients. It is difficult to know in advance how the carve-out for professional advisers in proposed new section 61B(3) will be interpreted. While some basic accountancy and legal services may steer clear of the rocks, how will everyday tax advice, company formation and company secretarial work be treated? We will have to wait for a court decision before we can understand the legal position with confidence, leaving freelance workers and their professional advisers in an expensive limbo in the meantime.

The Contractors UK website reported many contractors feeling that

“this latest legislation is just part of an inevitable ongoing revenue attack. Freelance contractors are a valuable section of our flexible workforce, and once again, they feel victimised by this assault on their livelihoods.”

Freelance software development expert Mr. David Hazell recently wrote that the Chancellor

“and his ilk have spent the last 10 years slowly twisting the public view of my chosen way of keeping myself in work to something akin to benefit fraud. Contractors are not tax dodgers, and they have better things to do with their time than spend it getting their heads around Gordon’s corkscrew-like reinterpretations of tax and company law.”

Martin Hesketh, who provides professional services to freelance workers, said:

“The UK economy relies heavily on people freelancing, and the Government has promoted this ‘flexible’ way of working for some time now to attract more people into the work force. However, the new rules seem to work against the Government's own agenda. Not only are they adding more confusion to this already complex market, but…are also requiring contractors to take on additional layers of legal and accounting responsibilities—something they’ve clearly not asked for”.

A major plank of the Government’s proposals is not even in the Bill for scrutiny this afternoon. Their highly controversial draft rules on making third parties liable for other people’s tax debts are still to come, so we only have part of the picture—the rest is to be inserted via regulations. Yet clause 25 would bring the rules into effect from 6 April. People are being asked to deal with that upheaval even before the rules have been finalised and agreed by the House.

The Chancellor’s attack on enterprise and small business start-ups continues in schedule 4 with the restrictions imposed on sideways loss relief. Under the Bill, it seems that people are damned if they do incorporate and damned if they do not, with schedule 4 hitting business partnerships. Restricting the ability to set off partnership losses against other income could have an impact on several important high-risk investment areas.

Several concerned entrepreneurs have contacted me about sideways loss relief, including Mr. Antony Blakey, who told me that many investors and scientists were worried about the impact on private collective investment. He told me that

“we now have a serious problem for environmental research and small business start-ups.”

Film production is an example of something that could be negatively affected. I acknowledge that not everyone in the film industry is worried, especially since the Government carried out their spectacularly rapid U-turn on applying the rules to section 42 and section 48 reliefs. However, some in the film industry are worried, and concern about schedule 4 stretches to several other sectors, including the multi-billion-pound computer games industry, in which the UK has such an important opportunity to compete alongside the best in the globalised world economy.

I have also received representations about the damage that schedule 4 could do those trying to make use of the special capital allowances that the Chancellor introduced to encourage environmental projects. Biotech investment could also be hit. Rupert Lywood of Matrix Securities contacted me about a project to develop cancer vaccines. He told me that it would have been much harder to get that off the ground without sideways loss relief, because it would have been difficult to find a single investor who could fund the entire project. To get the necessary critical mass of investment for such high-risk projects, one generally needs several investors and, consequently, a partnership.

If investors can no longer relieve losses against other income, the risk increases and ventures find it more difficult to get financial backing. In many cases, spending 10 hours a week on the project, as required by the new rules, simply would not be practical. Mr. Lywood tells me of a business venture concerning Down’s syndrome and genetic diseases, which is now in jeopardy as a result of schedule 4.

Again, it is true that avoidance has occurred, and we support attempts to crack down on abusive schemes, but the Government already have extensive tools with which to deal with partnership-based avoidance. Schedule 4 fails to distinguish between abusive and non-abusive schemes. We need to find a way to save sideways loss relief for projects undertaken for genuine commercial and entrepreneurial motives rather than for tax reasons, and we will table amendments in Committee to bring that about.

Coupled with the new restrictions on venture capital trusts in clause 50, schedule 4 comes as a body blow to enterprise in Britain, and we desperately need to encourage enterprise if more jobs are not to be sent offshore to India and China.

Let us consider the Bill’s proposals on green issues. Tony Juniper of Friends of the Earth said that the measures announced were “disappointingly weak” and described the Chancellor’s record as “woeful”. During his 10 years at No. 11, green taxes have been falling as a proportion of total tax receipts. The much-hyped climate change levy is flawed because it targets the use of energy rather than focusing on carbon emissions. The Renewable Energy Association branded the low carbon buildings programme a fiasco. Clause 19’s stamp duty exemption for zero carbon homes will make a minimal difference, especially as the Chief Secretary cannot tell us with certainty whether any houses in the entire country qualify for that relief.

The Chancellor’s tax break for microgenerated energy sold back to the national grid is not exactly a big giveaway, since HMRC admits that it has never collected income tax on such payments to date. The Renewable Energy Association called the £22 a year that that might save home owners

“a drop in the ocean”.

The Bill may contain provisions that are labelled as environmental, but it is not a genuinely green Finance Bill.

Part 6 deals with powers. Of course we acknowledge the importance of ensuring that the authorities have the right tools to fight tax fraud and organised crime such as missing trader intra-Community—MTIC—fraud. However, we also agree with the Chartered Institute of Taxation about the importance of

“ensuring those powers are used only by those who need them and are subject to proper control.”

We welcome the extensive consultation carried out on that issue. There has certainly been an improvement since the initial draft, which took an Inspector Gene Hunt-type approach: “Kick the door down first and ask questions afterwards.” Real progress has been made since the “PACE is for wimps” stance with which some of the proposals started. However, there are still a number of instances where the criminal powers granted by clause 81 to HMRC exceed those given to the police under the Police and Criminal Evidence Act 1984, so we will scrutinise those proposals with care.

Vesting responsibility for both civil and criminal investigation in the hands of a single body does give rise to certain risks; I am sure the Chief Secretary will acknowledge that. HMRC’s criminal investigation officers should be separate and distinct from the rest of the organisation. There needs to be a limit to the range of people who can exercise the very considerable powers that the Government are asking the House to sanction in the Bill. We do not want to see every tax inspector given a power of arrest, so we seek assurance from the Government that the draconian powers to tackle smugglers that have built up at Customs and Excise over the years will not be allowed to leak into HMRC’s civil jurisdiction.

Without even getting into the issue of the ferocious powers already vested in the Revenue and Customs Prosecution Office, we would welcome the clearest guarantees from the Financial Secretary in his summing up that that the powers of arrest and investigation contained in the Bill will not be used in the context of HMRC’s day-to-day tax collection duties. We hope and trust that he will also be able to assure us that submitting a late tax return will not mean a dawn raid and frozen bank accounts.

Before my hon. Friend leaves the subject of fraud—specifically MTIC, or missing trader intra-Community fraud—she will recall that we debated the provisions of the reverse charge in last year’s Finance Bill. The Government appear to have gained agreement from our allies in the European Union on this subject, but reports suggest that in doing so, they made concessions on our rebate. Does my hon. Friend share my concerns that the Government may have made concessions on the rebate in order to deal with MTIC fraud?

Getting the derogation is certainly welcome, but it is deeply regrettable that it has come at the expense of our rebate. The Prime Minister’s original decision to give £7.2 billion more of our money to the EU is regrettable, and the Chancellor is only confirming that in the negotiations on MTIC. That is indeed of great concern to Conservative Members.

Lastly I turn to pensions, and clauses 67 and 68. Clause 67 is not a particularly high-profile part of the Bill. It removes tax relief from something called pensions term assurance. On 6 April 2006, as probably every hon. Member knows, the Government introduced new rules on certain types of life cover as part of their A-day reforms, which included new rules on certain types of life cover. Their aim, they said, was to increase fairness, but their premise seemed to be to give people who did not have access to employer-based death-in-service schemes access to similar benefits if they set up their own personal cover. The result was that the tax treatment for such schemes was the same both for employees and for the self-employed.

The Secretary of State for Communities and Local Government, when she was Financial Secretary to the Treasury, told the House that A-day reforms would

“create a transparent, consistent and flexible system that is readily understood. That will make it easier for people to concentrate on the things that matter, such as when and how much to save for their retirement, rather than on trying to understand anomalies between the different tax regimes.”—[Official Report, Standing Committee A, 8 June 2004; c. 427.]

When the A-day reforms were being negotiated, the insurance industry made very plain to the Government what the impact of those changes would be—that certain types of life cover would be given the same tax treatment as a pension. The Government were clearly told by the industry about the sort of products that would be developed in response to the legislation. From A-day onwards, a competitive market developed in what became known as pension term assurance, or PTA.

Then suddenly, in December last year, after only 9 months, the axe fell and the Chancellor announced that tax relief for PTA policies was to be scrapped. As the Association of British Insurers put it, the Government had managed

“in one blow—to put an end to a developing market that they had only just helped create”.

Scottish Widows estimated that £35 million had been spent on developing PTA plans.

We can see that the Government also found their reverse gear on clause 68, which introduces significant restrictions on the use of alternatively secured pensions—again, only nine months after their introduction on A-day. The Government have carried out U-turn after U-turn on pensions. These two latest examples come hard on the heels of their reverse on self-invested personal pensions—SIPPs—last year.

What we want is for the Government to work out what they want to happen to pensions and to stick to that. We want them to get their pensions legislation right the first time, not to create legislation that generates whole industries, and then shut them down. Time and again, we see the Government producing legislation with a wholly predictable outcome about which they are warned in advance—yet when that outcome duly materialises, they decide that they do not like the consequence about which they were warned, and seek to amend the legislation and crack down on products that they themselves were effectively responsible for creating.

This instability serves only to heighten the pensions crisis in this country. No wonder the savings ratio has halved in Britain since in 1997, when there is always a threat that the rug could be pulled from under people’s feet at any moment if the Government decide that they have got their legislation wrong yet again. These repeated blows to Britain’s savings come on top of the Chancellor’s £100 billion raid on our pension funds. The right hon. Member for Birkenhead (Mr. Field) has pointed out that

“when Labour came to office we had one of the strongest pension provisions in Europe and now probably we have some of the weakest”.

The Chancellor should accept his share of the blame for that disastrous decline.

No, I am about to conclude my speech. The hon. Gentleman will have his chance later.

In conclusion, the Opposition decline to give a Second Reading to the Finance Bill because it fails to equip the UK to compete in the globalised world economy in the face of ever-increasing competition from China and India; it penalises enterprise and business start-ups and imposes higher tax rates and a more complicated tax system on small companies; it hits freelance workers with more bureaucracy and uncertainty; it does nothing to tackle the UK’s worsening pensions crisis; it is ineffective in the fight against climate change; it fails to reverse the massive increase in complexity and instability that the Chancellor has inflicted on Britain’s tax system; and it implements a Budget that was a tax con, not a tax cut.

I refer the House to my entry in the Register of Members’ Interests.

It is sometimes useful to remind ourselves of why we have Finance Bills. They have two principal purposes, and one is to assess the state of the economy and make the necessary fiscal changes to ensure that we strike the proper balance between expenditure programmes and reasonably fair revenue raising systems. If we look back at Finance Bill debates of the past—I see at least one face opposite who used to take part in them with me—we see that the major focus has been on the macro-economic impact of the legislation. It was about whether the Finance Bill that followed on from the Budget was appropriate to regulate the state of the economy.

The second purpose of a Finance Bill, today as always, is to look at the way in which fiscal rules—and sometimes expenditure rules relating to matters such as education—affect the economy. Do they achieve what they set out to achieve? Do they raise the necessary revenues that the system was introduced to raise in the first place? Is it a fair and efficient system? Has it kept up with the times? Those are both legitimate purposes for a Finance Bill, and those are legitimate arguments that should take place across the Floor of the House.

I have read the Opposition’s reasoned amendment—it is more of a rhetorical amendment—which comments on competing in the globalised economy. I hope that I am right in assuming that that relates to the first purpose of a Finance Bill, in that it deals with Britain’s place in the world. The amendment goes on to mention a number of other issues, including whether small company taxation and the system that taxes freelance workers are appropriate. Is it better to be a freelance worker who sets up a company to manage the system or to have it managed by someone else? Should those people simply be self-employed? That is a legitimate argument, as is the question about the extent to which interventions or intrusions by the Revenue are proportionate. Those are all legitimate issues for debate on the Finance Bill, both in the House and in Committee, and our colleagues who will serve on the Public Bill Committee look forward to them. I may take part in the Committee of the whole House next week, but they may wish to look at the detail of those issues, and it is right that they should do so.

The problem with the Conservative amendment is that the first part does not relate to the second part. The way in which small companies are taxed, the tax regime for freelance workers and the degree to which the Revenue has powers of intrusion do not, in the real world, make a massive difference to the British economy. They make a difference to people who employ freelance workers and to people involved in a small company but, generally, but there is consensus among those who take an interest in those subjects that they do not make a big difference to Britain in the globalised economy, because they do not relate to the major issue of the level of expenditure and revenue in the economy. They do not relate largely to interest rate regimes in the economy or to Government expenditure programmes that equip the economy for future effectiveness and so on.

That is the problem with the amendment. It would have been better if the Opposition were more honest, like the right hon. and learned Member for North-East Fife (Sir Menzies Campbell), the Liberal Democrat leader, who said in the Budget debate that the Chancellor had governed a successful economy. At least the Liberal Democrats conceded that there was a successful economy in Britain, so it would be legitimate for them to argue about whether those micro-fiscal regulations are appropriate. The Conservatives, however, have not conceded the point about Britain competing in the globalised economy, and I want to focus on that in my contribution. I am happy to look at other issues, but I am not prepared to concede that what we do on the tax regime for freelance workers will make a colossal difference to the state of the British economy and our ability to compete in a globalised world, which is the principal point made by the Conservative amendment.

The amendment is entitled to refer to all aspects of the Budget, but on its first point—competitiveness—what does the hon. Gentleman think about a whole dockyard in Britain being stripped out, sold and taken half way round the world, and a whole car plant being folded up and sent half way round the world to China? Is that a sign of success?

I am tempted to tell the right hon. Gentleman that a few more dockyards, shipyards, car plants, steelworks, coal mines, engineering factories and chemical factories were either closed or shipped off somewhere else when the Conservatives were in power than is the case now. I am not one to say that, because an industry is in a particular position, it should be there forever. Things change, and I will come on to discuss high-value investment and jobs.

My main point is that the evidence for the Conservatives’ argument that we are failing to compete in a global world does not hold up. I am happy to trade any evidence that the Opposition Front Bench wishes to use as a test. We would all agree, for example, that growth is a reasonable test, and the British economy has now had an all-time record 59 consecutive quarters of growth.

Is the hon. Gentleman concerned that this country came 22nd out of 27 European Union member states on economic growth? Is he also concerned that the UK has fallen from fourth to 10th in the World Economic Forum competitiveness league?

I am also a bit of an anorak on football goal averages, so I am always happy to look at statistics. I want to take time to reflect on the hon. Lady’s particular points, but in 1997 we came bottom among the G7 countries for growth, whereas in the last year for which figures are available we were second only to the United States. A longish to medium-term analysis of the past 10 years demonstrates significant, sustained growth in the British economy. That may have just fallen out of the sky—some would allege that that is the case—but I think that there are more fundamental reasons why that has taken place.

The hon. Gentleman was comparing the position in 1997 with the position now. Is he concerned that inflation is now running at about twice the 1997 rate?

I am grateful to the hon. Lady for raising that point again. When I was a union official in the early 1980s, I used to negotiate 27 per cent. wage increases as my contribution to improving the state of the British economy. She will know that the Conservative years in the 1990s had average annual inflation of more than 10 per cent., and between 1981 and 1991, that figure was worse.

There is no scope for the hon. Lady to say that we might have won the growth argument, but that we can be challenged on the inflation argument. Inflation is a reasonable test of the direction of the economy, as it affects expectations, which are colossally important for investment. It is the right measure to consider, but I am not sure that the conclusions drawn are accurate.

Will my hon. Friend also consider the impact of interest rates—which, in the early 1990s, were at 15 or 16 per cent.—on businesses?

I welcome my hon. Friend’s point. In those days, it was not just the high level of interest rates that made planning future investment difficult, but the wild fluctuation in interest rates. A fluctuation of 15 or 20 per cent. on an annual interest rate of, say, 15 or 17 per cent, has a lot more impact on the international competitiveness of a company than a 15 per cent. fluctuation on a 3 or 4 per cent. interest rate, as will be obvious to most Members.

I am grateful to the hon. Gentleman for the history lesson in fluctuating interest rates. I think that the point he is trying to make is that expectation of interest rate movements has an influence on business investment. Does he agree that businesses currently have to operate in a very uncertain environment, with rising inflation and the expectation of rising interest rates? What will be the impact of that on business investment this year?

I am happy to have an interjection of monetarism into my historical examination. To go back to the 1990s—in the sense of saying, “You started it”—the fluctuations on high interest rates made conditions extremely difficult. I am not saying that we can accurately predict interest rates—indeed, I am still in a quandary about whether to buy dollars today or wait until Friday. I accept that there is an expectations issue, but there is much greater stability. The ability to predict generally the trend that is going to take place greatly affects those who make the major investment decisions. As I said to the hon. Member for Chipping Barnet (Mrs. Villiers), if we get the major investment decisions right, in general, the small investment decisions will be right as well.

Does the hon. Gentleman agree that one key to ensuring that we have more stable inflation and interest rates was the decision to give independence to the Bank of England to allow the Monetary Policy Committee, rather than a politician, to decide such things? That was obviously a Liberal Democrat proposal.

The leader of the hon. Lady’s party was helpful in the Budget debate in acknowledging the success of the British economy. I am grateful that she has acknowledged the correctness of the policy that was struck in 1997. If that was a policy that the Liberal Democrats agree with, it goes to show that it is not possible to get it wrong all the time. We all very much welcome that.

There are many other indicators. My test is not growth, although that is important. The thing that affects human beings of working age more than anything else is whether they have a job. If one looks at the misery in families up and down the country over the years, which we have all come across, sometimes in our own families, we can see that things have been at a nadir when people have had the least opportunity of getting employment.

The major gain in our economic performance made by the Government is the fact that employment is at an all-time high. Unemployment—not just this year or last year, or this month or last month, but over 10 years—is at a sustained low level. Unemployment in my constituency is way under half of what it was in 1997. That is the major achievement. That is what gives people hope, dignity and opportunity. That, to me, is the test of success in a global economy. If we do not compete successfully in a global economy, we do not compete on employment in the world in which we live.

It is useful again to consider further why we have been able to achieve that. To some extent, it is about the business world and people in general having confidence in what is going to happen—in knowing that the economy is in good hands and that policies on tackling inflation, on having an independent determination of interest rates and on having high employment as a major political and economic goal are going to be consistent. Everybody knows that that is the case. People might not agree with some of the objectives, but they know what they are. It is that stability, given by the strong leadership of this Government, and in particular by the Chancellor, who has sustained it over 11 Budgets, that has got the economy in a position where it is competing successfully in the global world.

Does the hon. Gentleman appreciate that we are in the middle of a cycle where UK plc is shedding about 1.5 million jobs and the small and medium-sized business sector is creating about 2 million jobs? In the light of his comments about employment, what impact does he think the increase in corporation tax for small business will have on that scenario?

I come back to the point that I raised with the hon. Member for Chipping Barnet. I am not underplaying the importance of taxation regimes for the small business world, although they have to be fair. There must be equity between people who work for themselves and people who work for themselves with perhaps others in a company. That is an important principle of taxation. However, I do not believe that what we do in that regard ultimately affects our international competitiveness very much. What does affect our competitiveness is the ability of the economy to sustain a high level of aggregate demand, along with our ability to invest now to ensure that that continues in the future.

I know that I have been speaking for rather a long time, and that many other hon. Members want to speak, but I want to say more about education and reskilling. I do not wish to underplay the hon. Gentleman’s point, but sustained demand helps small businesses more than anything else. If someone wants to buy a product, there is an incentive for the producer to ensure that it is worth buying. Businesses must live with the various regulatory regimes—financial, environmental, or whatever they may be.

Leadership and predictability are important. It is also important to understand that we live in a global world in economic and indeed in social terms. It is not a case of Bradford competing with Birmingham or Bordeaux; it must compete with every town in the world that begins with “B”.

Beijing, yes. Bombay—well, that has changed to Mumbai.

Small business people who are trying to sell engineering products or the like know who they must compete with. They know the market: they know what other businesses compete in it, and what those businesses are doing. There is now a recognition in the British economy, driven to some extent, but not entirely, by the Government, that we operate in a global world. It does not matter whether we are talking about BAE Systems, employing thousands of people, or a small contractor, perhaps a freelancer, doing some computer work for it. That recognition is a major achievement. It may not have been achieved only by the Labour Government, but it has been achieved while there has been a Labour Government. It means that we must have a more flexible economy than we have ever had before, in all sorts of different ways. A flexible economy does not mean throwing away workers’ rights, which should be secured, but the workers must be flexible in the way in which they do their jobs.

How can we keep all this going? There is not much difference in the availability of capital around the world. Someone who has a good idea in the relatively stable political environment that much of the world can offer can usually obtain capital from somewhere to finance it. If it is necessary to develop or purchase technology, it does not matter where one is in the world, as long as people are prepared to provide money to be invested in technology. Where we can make a difference is in labour. The business environment factor is also important, but the labour factor is crucial, as I think all Members recognise.

The test of the Budget is, does it help? Will the Government’s policies generally, as reinforced by the Budget, and the specific policies in the Finance Bill help us to invest in a skills base in the future? The evidence suggests that it is possible. I am told that we expect to spend £90 billion on education in 2010. We are now spending 5.6 per cent. of our gross domestic product on education, compared with 4.7 per cent. in 1997. Our expenditure levels have increased dramatically, and we all know what that has enabled us to do in our constituencies. There are new schools in Westerhope and Gosforth and new equipment in virtually all the schools in my constituency, and that is replicated in most constituencies in the country. There has also been more spending per pupil. Earlier Budget decisions gave head teachers more control over the way in which expenditure could be used, and those welcome decisions have been reinforced in this year’s Budget.

We have doubled the number of apprenticeships, which provide an important way of improving how we adapt to the new technologies that we must use in our economy. The one-to-one tuition proposal, which is partly financed by the revenues raised in the Finance Bill, is one of the most radical measures taken in education policy—certainly by this Government, and arguably by any Government in my political lifetime. We all know that if a child attending a state school—and sometimes even a child at a private school—is suffering, a parent who has a couple of bob in their pocket can buy extra tuition. Many people have done that, but it has not been possible for those whose finances are tight—and they are tight for far more than 50 per cent. of families. The Government’s proposal that anyone can get additional tuition in English and maths is fundamental to improving skills levels, which will help small businesses in five or 10 years’ time—or 15 to 20 years’ time—to get the skilled labour that they need and that we as a nation need if our economy is to be successful.

I will not trade in education statistics—because, to be frank, I do not know much about that—but the aggregate figures that I have looked at show that we have better results at all levels in education, right through from primary school to university. That is a reflection of a greater commitment to society and of the investment of more resources. However, although there will be many long-term benefits in our economy, there is a problem to do with labour which we must address more effectively than we have thus far been able to address.

In the past few years, the strange situation has occasionally arisen that at the same time as unemployment has increased—which it did in some months last year—so, too, has employment. That has never happened in any period of economic history that I have looked at, and certainly not during my political lifetime. There is a simple explanation for it: where companies have had a demand for labour, they have met that demand by bringing in people from somewhere else—such as Australia or eastern Europe. They have frequently got good skilled labour, but as they have been able to do that, some employers have not worked as hard as they might have done in the past, when it was not possible to do that, to improve the skill levels of our indigenous people—of those who have been in the country a lot longer. There is a certain amount of alienation among some of those people who have not experienced the benefits of increased prosperity and growth in the economy. We must look into that territory more carefully.

I am vehemently in favour of the mobility of labour. I would hate it if a Government somewhere in the world were to tell me that I could not go and sell football programmes in their country—in Milan, or Africa, or wherever. As a human being, I like to live under a regime where people can do that. Therefore, I do not want any restrictions on immigration. There must sometimes be controls on the numbers over certain periods by using different methods—such as visas—but the principle should be that people are able to move around: people should be allowed to move to where there is demand for labour. However, we must also help people in our country—especially in constituencies such as mine—who often do not get any of the benefits that come from that.

The Budget has recognised that issue in a number of ways, and it is therefore covered in our Finance Bill. The extension of the working tax credit threshold will help, as will the extension of the £40 work credit. Increasing the minimum wage, which is financed by the Budget, is another helpful measure, and the partnership for jobs proposal points in the right direction. However, we must address the issue more seriously than we have in the past.

I absolutely accept that the business climate is nowadays merely a factor of production. We must make sure that we get that climate right, if we are to achieve economic prosperity. The corporation tax proposals in clause 2 will overwhelmingly be welcomed by large and small companies alike. They will be welcomed by large companies because their tax burden will be reduced, and by small companies because that will create more growth in the economy. The provisions in clause 36 for extending capital allowances for small companies are also important. In past Finance Bills we have extended tax relief on research and development. That is done again in this Bill, and it needs to be done on a greater scale. Investment in public science is a crucial factor in improving our productivity in the future.

I do not wish to interrupt the hon. Gentleman’s paeon of praise for the various measures in the Budget, but he mentioned the welcome that he anticipates that they will receive from smaller companies. How many smaller company proprietors or managers in his constituency have actively welcomed the measures to increase the rate of corporation tax for smaller companies?

Before the hon. Gentleman intervenes again, he should know that I am not a born sycophant. Although I have a list, it does not include every measure. If one consults the bodies that represent small companies in my constituency, such as the chamber of commerce, one finds that they have all said that education is the priority and that we need to raise the revenues and have the right educational programmes to make us more efficient and productive in the future. They are right about that.

Every small company that I know, and I know quite a few, is most concerned about whether someone wants to buy their product, not the hassle they have with Revenue and Customs. One always has hassle with Revenue and Customs, so that is not the issue. They are concerned whether anyone wants to buy their product or service and whether they can make that product or deliver the service in a way that will make people want to buy it tomorrow. That tends to be determined by attitudinal feelings in the economy and the level of aggregate demand.

Does my hon. Friend agree—in relation to his earlier point—that when it comes to selling products around the globe, the need is for the highest levels of skill, ability and knowledge to make a product stand out, which is of crucial importance when wage rates across the globe are so markedly different? For example, tax rates are so low in the far east that companies in this country will never be able to compete on price if they are simply trying to sell the same product.

I agree. When a product has many different inputs, the question is which bit we want to concentrate on, and that is a decision that companies often have to make. The machine tool industry is a classic example. Instead of trying to sell the whole machine—the whole Cincinnati, for example—one can try to sell a specific high-value part of it as a contribution to others’ productions systems. Decisions like that have to be made all the time, and my hon. Friend is right about that.

I am happy to give way to the hon. Gentleman, but I should say that I do not usually go on at such length.

The hon. Gentleman is being very generous. I just wondered how many service industry small businesses there are in his constituency, because there would appear to be none. More importantly, the hon. Gentleman seems to discount the impact of regulation, taxation and other problems faced by small businesses. Does he not recognise that in relative terms the impact is up to 30 times greater on small businesses than it is on UK plc companies?

Of course I accept that there is a disproportionate impact on small businesses. That is bound to be the case as it is in the nature of small businesses. But my general point, which I am not moving from, is that that does not generally affect the prosperity of the small business which is, as I have already said two or three times, based on whether people have the money to buy their products—

Yes. The service sector is crucially important, but we are now seeing changes in definition. When I used to work at Rolls-Royce, we did everything, but it is all subcontracted now. Some of the subcontractors are classified as service industries, such as the catering, management systems and accountancy, but previously they would have been involved in manufacturing. There are slight changes in definition, but I take the general point that services must be a major part of Britain’s economy—we have to up the value of service industries if we are to compete in the future.

I thank the hon. Gentleman for giving way, because I am keen that he does not underestimate the importance of the contribution that micro-businesses make to the economy. Micro-businesses are the largest employers in the county of Cornwall, which has one of the lowest GDPs in the country, so supporting the smallest enterprises in the small and medium-size range is critical to turning around the county’s economy.

I understand the predicament in areas such as the one the hon. Lady represents. Helping small businesses is fine and throwing money at them may keep them going for a little while, but if they do not change and find products that people want to buy or if they do not operate in an economy where people have the money to buy their products or services, that help will not solve their problems. That is why the general state of the economy and our ability to compete on skills in the future is what really matters for small employers in her constituency.

No one is suggesting that we should throw money at micro-businesses. The point is that we should not penalise them with such an incredibly heavy regulatory burden and that there will be real problems if the tax burden is increased, as it will be by the Bill.

I feel that I should apologise for repeating myself, Mr. Deputy Speaker, although I do not seem to be the only Member in the Chamber who is guilty of doing so. No small business wants regulation. Small businesses just want to get their products or services right, but regulation—whether environmental, labour or tax—is something they just have to put up with. In big companies, experts earning handsome salaries deal with all those things—I have sometimes been a beneficiary of those services in the past. There is a completely different environment for such companies, and that fact will not change. That is not the political argument about whether the Finance Bill is appropriate, because small businesses will always feel the same about regulation. The test is whether the regulations that are being prepared—for example, on freelance workers—are fair. It is legitimate to argue about that, but whether or not such regulations are fair or appropriate will not make much difference to the viability of those workers. A subcontractor in the software industry may have an easy time under a particular regulatory regime, and if it changes they just have to adapt, but keeping their skills up to date will very much determine whether they have a job—self-employed or working for an employer. That is the key issue for freelance workers, just as it is for small businesses.

Before I allow myself the luxury of intervening on other Members, I want to make a point about regional policy. We need to re-think regional policy, to consider what we need to do to bring about greater opportunity for regions, including mine—the north-east of England—which have not been as successful in the past in purely economic terms. That is not to say that the way of life in those regions is not desirable, which is a separate issue—[Interruption.] I see that the hon. Member for Dundee, East (Stewart Hosie) is nodding; the situation is the same in parts of Scotland.

Regional policy used to be about persuading people with money to invest to go to Scotland, the north-east or Northern Ireland rather than locating in the over-heated areas of the south of England. Then regional policy was about encouraging external investors to invest in the regions rather than in an overcrowded area. Both those policies were right at the time, but that is not what regional policy is now about.

Regional policy is now about getting small companies—on behalf of their industry, their skills and their regions—to upgrade themselves so that they can compete globally. For example, it is important that the management consultancy companies based in the north-east of England upgrade themselves in a way that allows them to compete internationally. The same is true of the finance industry in Edinburgh. Upgrading design, creative and management sciences and engineering and back-up skills is as crucial in regional policy as all the other things, such as making the right infrastructure available. Such upgrading can generate huge incomes that can lift regional economies.

Over the past 10 years, the London economy has grown twice as quickly as those in Scotland and the north-east despite the fact that huge sums of public money have been poured into Scotland and the north-east. How does the hon. Gentleman account for that? What alterations should be made to Government policy to try to get the north-east and Scotland to grow as fast as London?

If I knew the answer to that, I would have solved an awful lot of problems in my constituency and elsewhere. Part of the answer is cultural.

As my hon. Friend says, part of the answer is skills, but another part is cultural. For example, firms in the software industry locate in the Thames valley because other software firms are there. People in the software industry know each other, they probably play tennis together and their kids go to the same schools. They create a community, so it is difficult for a small business in the software industry to locate anywhere else if it wants to be part of that cluster. That is an important factor.

The key is to create clusters that are competitive in other parts of the country. Edinburgh is pretty competitive in the financial industry and there is a cluster there, although they all play golf and not tennis. There is a community of people who know each other and who can link up to help their firms to grow. In the north-east, there are cultural links between design companies in the engineering and oil industries. Companies that have been located in the area for many generations have upskilled themselves and exported their services around the world, and that is good for the area.

The trick in regional policy is to create more of those clusters. Teesside believes that firms in the pharmaceutical industry could become a cluster that would be of advantage to the area, and each area has to consider how it can build such opportunities. In Newcastle, we have high hopes that, based on biosciences, we can develop a cluster of embryonic industries that can then employ the graduates who go to universities in Newcastle. By the way, we play football in Newcastle, but creating such a cluster would help to address many of our economic problems.

Development agencies in many parts of the country have to rethink how they approach these issues. I know that they have been thinking of how they can help to upgrade the skills that will give the regional economies a stronger base in the future.

I am very grateful to the hon. Gentleman for being so generous in giving way. As he considers how to improve the effectiveness of regional policy, I would be interested to hear his views on the idea that has been floated by a number of people, including, I believe, the Chancellor. That would involve devolving more of European Union regional policy to a national level. The closer we get the decision to the individual communities concerned, the more likely we are to get it right.

The hon. Lady is right to raise that point, and I have no difficulty with it at all. The closer we can get to the activity, the better. I would support such a general move.

Our educational institutions have a vital role to play in creating regional clusters of skills and industries around the country. We must bring them in more. Some are desperate to get in. Newcastle university, for example, is keen to get some of its wonderful scientific and technological breakthroughs translated into an applied state so that they can benefit the region. The regional development agencies ought to give universities more assistance in that respect.

I am enjoying the hon. Gentleman’s treatise on the commanding heights of the economy from a free market perspective. He mentions IT clusters and life science clusters. Dundee is very strong on both of those, particularly the latter, because of private money from the Wellcome Trust and £50 million from Wyeth. With reference to the Bill, does he agree that small companies in those sectors which are trying to grow will be affected by the new SME rules for research and development tax credits? He mentioned science education. Does he agree that the 0.9 per cent. of GDP which is to be maintained, and only maintained, for the next four or five years, and which is going into science education, is not good enough and that there must be a real-terms increase? In terms of the competitive advantage for the nations of the regions, why does he not consider full fiscal autonomy for Scotland and perhaps for Wales, so that we can lower corporation tax rates and really compete not just in the UK or in Europe, but in the world?

The hon. Gentleman raises an awful lot of issues in that intervention. Scottish small companies are in the same position as small companies in other parts of the country. I come back to my point: if the economy is in a good state, they generally prosper. That is the case in Scotland as well. If, in this election period in Scotland, the hon. Gentleman proposes complete fiscal independence, he must accept the consequences of that for the revenue-raising powers and the revenues that would be available for Scottish public expenditure. If the Scottish people look at the figures, they will not be very keen on that. My constituents in Newcastle are not overwhelmed by the present division of the cake. The Scottish cake would be significantly smaller, were it not part of the United Kingdom.

One thing Governments can do on regional policy is spread public investment. Why, for example, is all the military located in the south-west? Why are all research institutes located in the Oxford-Cambridge area? One could continue with Government offices of all kinds. Government could do a lot in that regard. The present Government have done a great deal, but they need to do more.

I think that I have said enough. I commend the Bill to the House. It tackles the major issues of macro-economic policy and puts us in a position to take on the global challenge. It faces up to some of the major decisions that need to be made on climate change and other issues. All the detail of the arguments about fiscal regimes for freelancers and for small companies can be explored further in Committee. I do not say that every dot and comma of the Bill should remain unchanged after it has completed its parliamentary stages, but I endorse the general thrust. By opposing the Bill, hon. Members would threaten to undermine the success of our economy and the importance of that to the various enterprises, big and small, in their constituencies.

The hon. Member for Newcastle upon Tyne, North (Mr. Henderson) raised some interesting questions about regional policy, which I agree needs to be re-examined. I represent a constituency that belongs to a region extending from the Scilly Isles to Bristol and Swindon. Clearly, we need to re-assess what the regions, as currently defined, have in common. There is a great difference between the local economies of Penzance and of Bristol.

The hon. Gentleman also raised some interesting issues about the purpose of the Finance Bill. He posed the question whether it should focus on macro or micro-economic issues. Perhaps the process that we go through each year in dealing with the Bill should be reviewed to try to encourage it to be more strategic.

The last few sentences of the Chancellor’s Budget included some pretty explosive fireworks, so initially I expected some pretty explosive stuff in this year’s Finance Bill. However, it turns out that it is a bit more of a damp squib. Much of the Chancellor’s wider legacy will be left to his successor to sort out—we have seen increases in unemployment recently, and we have rising interest rates, rising inflation and rising personal debt—and the same is true of the Finance Bill. The most uncomfortable bits for the Chancellor to justify and explain will be left to someone else to deal with next year. I am sure that the Paymaster General hopes that, after 11 Budgets of leading the Committee on the Finance Bill, it is not going to be her.

The clearest example is the changes that were announced to income tax in the Budget. The changes cut the basic rate by 2p and abolish the 10p starting rate, which for 2 million people will in effect mean that the rate of tax that they will pay will increase by 10 per cent. The Chancellor said those last few sentences just before he sat down and in the immediate aftermath the proposals were broadly welcomed, even on the Liberal Democrat Benches. They seemed to mirror proposals made by the Liberal Democrat party to try to make the tax system fairer. As my hon. Friend the Member for Twickenham (Dr. Cable) said, initially it gave him a frisson of flattery, but as ever, the devil is in the detail.

The Chancellor did not make it explicit in his Budget speech that the tax cut that he was trumpeting was going to be funded by raising taxes for those on the lowest incomes—mostly people who are lower paid and childless couples, who will pay more in tax. He is abolishing a rate of tax that he introduced. Perhaps that is why he is keen to leave the detailed debate to his successor. I would like the Minister to confirm that it would have been possible to include the income tax changes for next year in this year’s Finance Bill, even though they may not take effect till next year. If it was decided not to do that, on what basis was that decision made? I hope to return to that when the Bill enters a Committee of the whole House.

Other changes to the taxation system that were flagged up in the Budget have made their way into this year’s Finance Bill. As we have already heard in some of the lengthy discussions about taxes on business, on the surface the changes look like simplification measures. They look like they should be welcomed, but once one looks in the Red Book and sees the way in which the revenue is changing, it is clear that there are complicating fingerprints from the Chancellor all over them. The changes were intended only to grab the headlines, not to make the system simpler or fairer.

The headline cut in corporation tax from 30p to 28p in the pound is welcome in itself and follows the lead of many other leading economies, but it is going to be paid for by changes to capital allowances that will disproportionately hit some sectors over others. Small businesses will, in effect, see their corporation tax rate rise and they will still be trying to work out how they qualify under the changes to the other allowances that are proposed in the Finance Bill. As I have mentioned in interventions, micro-businesses will be the least well placed to try to navigate the new geography.

I draw attention to clause 35 on industrial and agricultural buildings allowances. It seems that proper consideration has not been given to the kinds of businesses that will be adversely impacted. Two of the areas that have been highlighted are the hotel industry and poultry farmers. The clause withdraws after March 2007 the final allowance or charge that was previously taxable or tax deductible on disposal of these buildings. When implemented, the clause will change the impact of long-term investment decisions that might have been made many years ago. Hoteliers are concerned that that will increase room rents considerably. Hoteliers that have recently refurbished their hotels may find it difficult to raise room rates enough, compared with market rates.

Turning to the agricultural buildings allowance, I would like to refer briefly to an issue raised by a constituent of my hon. Friend the Member for North Devon (Nick Harvey). The constituent referred to the abolition of the agricultural buildings allowance over four years and cited what he called something of a killer fact. He wrote:

“Mr Brown describes in Budget Note no. 7…the reason for this abolition is that it removes ‘outdated and unjustified distortions’ implying that the ABA is some sort of tax break to encourage investment in the post war period. This is completely wrong. Poultry buildings”—

this man is a poultry farmer—

“in which I have a particular interest with my brother…will not last much longer than 25 years no matter how much you repair them, and so it would be quite proper to write them off against tax over 25 years at 4 per cent.”

The point is that even some sub-sectors of particular sectors will be disproportionately disadvantaged. I am worried that the matter was not properly investigated before the announcement was made, because the measure was proposed to grab headlines. No strategic context undermines the long-term stability of the taxation system more than investor confidence. Was any assessment made of the differential impact of the measure on sub-sectors of the economy, such as the agricultural sector?

The hon. Lady refers to the poultry sector. Her constituency covers a remote agricultural area. Has she heard of similar examples involving other agricultural sectors, such as potato farming—I believe that potatoes are farmed in Cornwall? Other sub-sectors of the meat sector and fruit farmers require substantial capital investment, which involves long-term decision making.

The hon. Gentleman is right. The measure will affect many other sectors. The key point is that the buildings involved will have a relatively short life span, yet require long-term investment, which is being undermined by the changes proposed in the Bill.

The Chancellor’s pet projects are flagged up even when there is limited evidence of their success. There has been increased investment in research and development tax credits, especially those for larger companies, even though companies often need to make the decision to invest before they examine whether they are eligible for tax credits. The same is true for smaller businesses. Indeed, many very small businesses will not be aware of some of the credits that are available.

A report last year by the Institute of Chartered Accountants in England and Wales made the point that R and D tax credits had not had a clear impact on the decision about whether to invest. It also pointed out that the largest companies benefited from them disproportionately. Recommendation 18 of the Treasury Committee report that has been published today states:

“It is not clear whether measures such as the increase in the R&D tax credit and the introduction of the Annual Investment Allowance will have the desired beneficial impact on investment levels by small companies. We recommend that, prior to the 2009 Budget, the Treasury review the impact of these measures on business investment in order to ensure that the measures are having a positive impact on investment and business growth, including … small businesses”.

Surely there should have been an investigation of the validity and usefulness of the credits before they were extended further. Does the Department intend to undertake a full review of the efficacy of the system, as recommended by the Treasury Committee?

While R and D tax credit is one of the pet projects, or touchstones, that the Chancellor likes to highlight, it is frustrating that we have again seen tokenism on the environment this year. Limited progress has been made, but that seems to have been only in response to a considerable increase in public pressure. Amendments on vehicle excise duty that the Liberal Democrats tabled to last year’s Finance Bill look remarkably similar to measures before us today. This year’s proposed increases represent a welcome improvement on last year’s measures. The increase for some of the most polluting cars in the higher band of VED for new cars that was introduced last year was equivalent to the cost of less than half a tank of petrol. This year, the difference between the bands has increased to about £95. However, last year’s Energy Saving Trust report indicated that the price differential required to have an impact on behaviour would need to be nearer £2,000. If the Government are serious about using such measures to bring about real changes in behaviour, there is still a long way to go.

Is the hon. Lady saying that it is Liberal Democrat policy to put £2,000 a year in extra tax on certain types of car? Also, is she saying that because she does not want the 10p band abolished, she would not cut income tax by 2p?

I am sure that the right hon. Gentleman will know that it is the recommendation of the all-party group on climate change that we look again at banding issues. On our wider taxation policy, the Liberal Democrat tax commission will report in September—I am sure that he will watch for that with great interest—and we will respond to the changes made in this year’s Budget in that report.

The point that I was about to make is that the changes are welcome, but the concern is that the price changes will not have any impact on the behaviour of some people living in rural areas, because there are no public transport alternatives for them. That holds true for the vehicle excise duty rises, as well as for increases in fuel duty. We made proposals last year to try to flag up that issue, and considered a discount for the first vehicle registered by a household in isolated rural areas. I draw the Minister’s attention to other options that the Treasury might consider that have been used in other areas where the issue has been recognised, and where people have sought to ameliorate it so that people for whom price will not make a difference do not suffer disproportionately.

There is an EU derogation, which I understand is used in France, that assists isolated rural areas, and I understand that in Australia there are reliefs, as regards rural fuel stations, for drivers who are registered in an isolated rural area. That deals with the issue that my hon. Friend the Member for Inverness, Nairn, Badenoch and Strathspey (Danny Alexander) raised last year; he said that in remote areas such as the highlands, fuel prices are much higher, just because of transport costs. There are alternatives elsewhere in the world that I hope the Minister will consider.

The environmental proposals in the Budget get one cheer, rather than three, not least because, to turn to the issue of stamp duty land tax for zero-carbon homes, which has already been raised, there are many other things that could be done to help to try to improve the efficiency of the many thousands of houses that will be built in forthcoming years. That issue was raised in debate on the Local Planning Authorities (Energy and Energy Efficiency) Bill, a private Member’s Bill introduced by a Labour Back Bencher, the hon. Member for Gower (Mr. Caton). The Bill sought to give more flexibility to local authorities to allow them to set higher environmental standards for new properties, but it was talked out by the Government, so there is an issue about the amount of cross-departmental co-operation that takes place to allow improvement to important environmental measures.

Obviously, one of the key environmental measures in this year’s Budget and this year’s Finance Bill are the changes to air passenger duty. The changes were introduced without the House having the opportunity to debate or vote on them. We should combine that with the fact that many thousands of passengers had bought their tickets before the changes were introduced on 1 February; there are a lot of disgruntled people out there who see that kind of tax change as a means of raising money. It has done nothing but make people more cynical about any other tax proposals that the Government make to reduce emissions.

I note that the Treasury Committee’s report on the pre-Budget report, in which the changes were announced, said:

“As a general rule, we consider that, where increases in rates of duties or taxes are proposed in the Pre-Budget Report, those increases should not come into force until after the House of Commons has had an opportunity to come to a formal decision on the proposed increase following the Budget.”

The Treasury Committee went on to say:

“We draw the attention of the House of Commons to the unusual timing of the implementation of the increases in Air Passenger Duty, for which the Treasury has not cited any relevant precedents.”

I invite the Minister to cite any relevant precedents on the Floor of the House today, and to explain why the time scale that was used was adopted. That is important, because we are talking about credibility, public confidence about whether such measures are being taken for the right reasons, and ensuring an opportunity for debate.

One of the other frustrations about the increases in air passenger duty is that they bear no relation to how busy the flight is, to the aeroplane’s emissions or to its fuel-efficiency. We must therefore question what impact they can have on changing behaviour.

As an alternative, the Conservatives have suggested giving everybody an allowance for one long-distance flight a year, and possibly a limited number of short-haul flights, but that would create another database of everyone’s movements and be impossible to monitor. Nevertheless, there are alternatives that the Government could and should investigate. Although they can be set out in more detail in Committee, it would be interesting to know at this stage whether the Government have considered applying to aviation principles similar to those that apply to vehicle excise duty, taking account of different sizes of planes, their differing emissions and their destinations. Such an approach would be useful in preparing for permit trading for aviation emissions—assuming that the Government are committed to that principle in the long term—because it would have to relate to how full flights are, the efficiency of aeroplanes, and the distances they are travelling.

The system that the hon. Lady proposes sounds awfully complicated. Referring to her earlier remarks, would she, in true Liberal Democrat style, further complicate it by having a lower aircraft movement excise duty for aeroplanes flying into rural areas such as Truro or the Outer Hebrides?

I was not going to raise that, but there is an issue about the accessibility of rural areas. Of course, there has to be that balance. Given that vehicle excise duty takes account of the emissions of different vehicles, why is it more complicated to extend that principle to aviation? That is a common-sense approach. If we are serious about tackling emissions in one of the areas where they are growing fastest, we must think about taking painful decisions.

The general theme of this year’s Finance Bill is that there is not much of a strategic approach. The primary motivation for the issues we have discussed so far has been to grab headlines, which leads to unintended consequences. There is more than meets the eye to the so-called simplification measures. Once again, we are seeing an incremental build-up on previous legislation, changing it slightly and then changing it slightly again, often with little consultation with industry—or if there is consultation, actively ignoring the comments that come back from it. The Government can be seen to be building up trouble for themselves on a whole series of issues. Thankfully for my biceps, this year’s Finance Bill is considerably shorter than last year’s and I have fewer volumes to try to carry around with me. Perhaps that is a recognition that last year’s Bill went too far. However, there are still plenty of clauses that build on previous legislation—although I accept that that may be necessary in some cases.

To echo the hon. Member for Newcastle upon Tyne, North, what is the Finance Bill actually for? Should it deal with our tax and spending policy in strategically changing the balance of taxation, or is it an annual opportunity to include any tinkering by the Treasury and representations that might have been made to it? Unfortunately, it is sometimes the latter, and provisions are included whereby if the Treasury had taken a step or two back, and a more strategic approach, there would not be these endless changes. A classic example has been that of anti-avoidance legislation, which in this Bill comprises 10 clauses and four schedules.

The hon. Lady gets my brass neck of the day award. Three minutes ago, she suggested a very complicated vehicle excise duty scheme with exemptions for registered users in rural areas. She moved on, barely pausing for breath, to suggest a very complicated parallel aircraft vehicle excise duty, but possibly with exceptions for rural flights to the Isles of Scilly and so on. Now she has moved on to claim that the Government are responsible for all kinds of complicated tax measures that she decries the complications thereof. I congratulate her.

I assume that the hon. Gentleman believes that the current banding of vehicle excise duty is too complicated and that he would like it to be simplified, regardless of its negative environmental impact. If he takes that as understood, I do not understand why it cannot be read across.

I want to try to make some progress, if the hon. Gentleman does not mind.

The anti-avoidance provisions in last year’s and this year’s Finance Bill constitute a cat-and-mouse game whereby the Government try to close a loophole and another one opens that requires subsequent revisions in other Finance Bills. No sooner does one loophole close than another opens and the process starts again. It is endless. That adds weight to the argument that we should get rid of swathes of legislation and provide for a general anti-avoidance rule. Such a rule has already been successfully rolled out in Australia.

When I consulted some professional bodies before the Second Reading debate, they said that they opposed a general anti-avoidance rule. I was interested in the reasons for their objection and I asked them to explain why they would be unhappy about such a rule. They said that they had no confidence that a general anti-avoidance rule would not be introduced on top of all the current anti-avoidance legislation. If the Government made a clear commitment to get rid of swathes of legislation and introduce a system that has been effective elsewhere, it would remove a few pages from “Tolley’s Tax Guide” and help restore confidence.

Clause 25, which deals with managed service companies, is a case in point. It attempts to deal with a genuine problem. The Government believe that many people avoid paying the right amount of income tax and national insurance by providing their services through a managed service company and being paid through dividends rather than a salary. As a result of the changes for which the Bill provides, managed service companies will, among other things, have to operate PAYE, deducting income tax and national insurance contributions on all payments, regardless of whether the individual receives a salary or dividend.

We accept that abuse is occurring and needs to be tackled, but I should like to flag up some of the implications of clause 25. First, do the changes deal with the underlying problem of why people choose to operate through managed service companies? There is no balance between the taxation systems for the employed and the self-employed. Instead of directly dealing with that, the Government are basically saying that anyone who operates through a managed service company will continue to bear the risk of being self-employed but enjoy none of the benefits. That problem has not been resolved.

The other problem is that even flagging up issues and stating an intention to legislate has again encouraged behavioural changes with which HMRC will struggle. In response to consultation, the Institute of Chartered Accountants said that it had seen correspondence from managed service companies to their customers that already offers an alternative service. It involves setting up each individual in a personal service company, of which the individual is the sole shareholder or director. Customers are then asked to self-certify whether they are within the rules of IR35. Many of those individuals cannot realistically know that.

The Institute of Chartered Accountants continues:

“We have had confirmation from Companies House that there were 56,218 new companies registered in February 2007, while a more usual monthly figure would be approximately 28,000.”

The figure has therefore nearly doubled. The institute goes on:

“In one week alone, there were 20,000 new companies registered. Our initial conclusion is that the proposed new rules may not work and may cause more problems than they solve.”

That will ultimately cause more problems for HMRC, which is cutting front-line staff at a point when there could be a massive explosion in the number of individuals who register themselves as personal service companies and therefore need closer attention from local HMRC officers. How will HMRC manage the additional burden of ensuring that all the PSCs are compliant? We are seeing more legislation with unintended consequences, which could ultimately occupy all HMRC resources.

Equally frustrating is the way in which the consultation was undertaken. In many cases, as confirmed by my experience of last year’s Finance Bill, proposals are rushed through in order to fit in with the annual Finance Bill timetable without due consideration being given to professional opinions and concerns. The classic example last year was the inheritance tax treatment of trusts, which was launched on an unsuspecting industry and public without any consultation and then went through several iterations in Committee with significant changes being made to both the clauses and the schedules. Although we do not have anything on that scale this year, there are signs of a similar approach.

I have already talked about air passenger duty and how it was introduced. My point also applies to clauses intended to expand the powers of HMRC in clauses 81 to 86. Even though there was a consultation process in January, in which concerns were raised about taking on arrest powers, the Treasury response was to concede that there was a need for guidance, but to state:

“This will be published as soon as possible and before any changes come into force.”

My understanding is that the guidance has not yet been published. Will we see it before next week when these issues are debated on the Floor of the House? It would certainly help to inform our debate. If it is not going to be available, I find it very worrying. I hope that the Minister will be able to confirm that the guidance will be available before next week.

Concerns have also been raised about clarity and about how widely drafted the provisions are. Once again, the issue has been dismissed and we are told that the clarification will come through guidance. It is a cavalier approach. Ultimately, any legal action taken in future will be based on the law as it stands, not on the guidance, which can be subject to change without consultation or even without any reference to Parliament. Those concerns are depressingly familiar, as we have seen them in relation to previous Finance Bills. Key questions about process are raised. Surely the position could be improved by better pre-legislative consultation and scrutiny, so that we could have an open and public debate with professional bodies about the strategic approach of our tax system.

It might also help if we had a full Finance Bill only once every two years, perhaps with a beefed-up Budget resolution in between. In that way, we could get back to the strategic perspective of what the tax system is supposed to achieve. It would then no longer be a vehicle just for tinkering on a minute level.

On that point, the idea that there should be a Finance Bill every two years is not a new proposition. Will the hon. Lady explain how she would deal with the catastrophic loss—or potentially catastrophic loss—of revenue on account of avoidance if the House presided over a two-year Budget?

Not every single clause in the Bill deals with those issues, which could be dealt with through a beefed-up Budget resolution process—[Interruption.]

The point I was making to the hon. Lady was that there is a difference between policy and technical amendment. She previously complained about anti-avoidance policy being too long, so will she explain how that matter could be dealt with just through Budget resolutions without discussion by the House?

Let me offer an alternative that the right hon. Lady might find more palatable. If Treasury Ministers are not prepared to adopt such a radical approach, I suggest that the Finance Bill be included in an approach to legislation for which there is already a precedent. I sat on the Committee considering the Statistics and Registration Service Bill earlier this year. It was one of the first Bills in respect of which we had the option of taking evidence in public before the Committee stage. I understand that the enabling primary legislation specifically excluded the Finance Bill, but in my opinion the Finance Bill would be one of the best possible candidates for inclusion in the process. There are some very technical issues, but the experts dealing with them end up being mediated through hon. Members on both sides of the House. If we had the opportunity for proper pre-legislative scrutiny and for expert bodies to be able to provide evidence on the record, I believe that it would significantly facilitate the process. I hope that the Paymaster General will give serious consideration to that.

I am just about to conclude my speech, so if the hon. Gentleman does not mind, I will not.

The key test for the Finance Bill is to ask to what extent it makes the tax system simpler, fairer or greener. In none of those areas do we sense an appetite for consistent strategic action through the Bill. On a superficial level, some things are simpler, in that the Bill removes income tax bands, aligns income tax with national insurance and cuts corporation tax, but there is also plenty of complication, despite opportunities for simplification such as those relating to the general anti-avoidance rule. Even when the Bill gains in simplicity, it loses out in fairness. Individuals on low earnings will now be hit with a tax increase, small businesses will feel the impact of some of the proposed changes, and nothing has been done to address the wealth inequalities that have grown under the Labour Government.

In green terms, we have seen welcome but limited changes to vehicle excise duty, and arbitrary and very limited changes to air passenger duty. I suppose that the Bill is slightly green around the edges, but there is no clear indication that it will have a significant impact on behaviour, or that those revenues will be spent on cutting taxes elsewhere to make the system fairer. Again, that leaves the public feeling cynical. It is because the Bill is inadequate in all those important areas, and because of the technical concerns that we have raised earlier, that we are so desperately disappointed with this year’s Finance Bill.

I should like to clarify one or two points raised by the hon. Member for Falmouth and Camborne (Julia Goldsworthy). She asked me earlier about vehicle excise duty, and made a completely unwarranted assumption, which shows how short her memory is. It was I who tabled an amendment to last year’s Finance Bill proposing a £2,000 level of vehicle excise duty on the most polluting vehicles, for new vehicles. So why she should assume from my straightforward question in an intervention today that I was against banding is completely beyond me.

I want to make two further points about the hon. Lady’s speech, then I will gladly give way to her.

I congratulate the hon. Lady on extending her brass neck further by apparently making Liberal Democrat policy on the hoof, in proposing biennial Finance Bills. I have not heard a whiff of that before. It was clear, following some penetrating questions from my right hon. Friend the Paymaster General, that that policy was being made on the hoof. The hon. Lady did not seem to understand the difference between a Finance Bill and Budget resolutions, and she really floundered when asked what she would do about the haemorrhage that might occur if an avoidance loophole were suddenly discovered.

I have a further reason to question the hon. Lady’s memory. I, too, was on the Public Bill Committee considering the Statistics and Registration Service Bill. She referred to pre-legislative scrutiny, but my recollection is that no outside body availed itself of the new opportunities under the procedure of this House to put forward evidence on that Bill. She was suggesting that such evidence might be taken on a Finance Bill. I understand her point of view, although I am not sure that I agree with it, but to pray in aid a Bill on which no outside body put forward evidence seems to provide rather weak support for her case.

I would be interested to hear from the Minister why the Finance Bill was specifically excluded from those provisions. The hon. Gentleman will know that the Statistics and Registration Service Bill was the first for which these scrutiny and evidence-taking sessions were available. As he proposed the introduction of a new vehicle excise duty band, I would also be interested to know why he feels that the system is so complicated that there could be no read-across to the aviation industry.

On the hon. Lady’s first point, I cannot answer for the Minister. The Minister is answerable for the policy of the Government. On vehicle excise duty, the hon. Lady was not listening to me, as is sadly all too often the case. Perhaps it is my own fault for not being clear enough. I merely made some points and asked her a question in an intervention. In my opening remarks, I responded to the points that she had raised, as she would not let me intervene further on her. I have not decried complications in the Finance Bill, although she seems to assume that I have, and that there is therefore a contradiction in my position. Such a contradiction exists in her position, however, given that she decries complications and then suggests that we should introduce them. I entirely agree with her that it would involve complication to introduce a band of £2,000 for the most polluting new vehicles—I stress that it would apply only to new vehicles; there would be no retrospection—nine out of 10 of which are not 4x4s, by the way. But, unlike the hon. Lady, I have not, so far as I can recall, stood before the House, before any Finance Bill Committee or before any other body decrying complications in the Finance Bill. So although there is a contradiction in her position, I see no such contradiction in mine.

Does my hon. Friend think it a little odd that the Liberal Democrat spokesperson, who represents a constituency in Cornwall, sought to encourage the Minister to increase taxation on aviation, and did not come up with a banding system that would take into account legitimate flights to the Isles of Scilly?

My hon. Friend is absolutely right. Again, it underlines my point that the hon. Member for Falmouth and Camborne was indeed making Liberal Democrat policy on the hoof.

Indeed. As is so often the case, that is not a good idea, but it is something that the hon. Lady alleged—wrongly, I think—that the Government were doing.

Well, that is certainly true with the Liberal Democrats, because we do not really have any Liberal Democrat policy. As the hon. Lady proudly told us, some tax review will report some time later this year—I stand to be corrected, but I cannot recall whether she said July or September. If she is anxious to reinforce that point to the House, no doubt she will do so in an intervention, but some time later this year, we might find out a bit more from the Liberal Democrats.

I apologise for interrupting the hon. Gentleman’s flow, but it is worth noting that not only do we not have any Liberal Democrat policy on something as important as the Finance Bill, but there are no Liberal Democrat Back Benchers here today, either.

The hon. Gentleman is quite right. That may say something about the quality of the contribution by their Front-Bench spokesperson, or they may all be off somewhere trying to put policy together—I know not which.

I shall move on to the main part of my speech, which refers to the reasoned amendment moved by the hon. Member for Chipping Barnet (Mrs. Villiers) on behalf of her right hon. and hon. Friends. I wish to address two aspects of the amendment; the first relates to the so-called pensions crisis, and the second to tackling climate change. On the first point, we need to put the situation in three contexts: the experience of current pensioners; the experience of prospective pensioners; and, given the recent history of this country, the experience of those two groups combined. That covers, for example, someone who was a prospective pensioner in 1997, has since reached retirement age and is now drawing their pension. It is to those three groups—current, prospective, and current and prospective together looking at the history—to which I now turn.

First, on current pensioners and the so-called pensions crisis, the hon. Member for Chipping Barnet used the hackneyed phrase about our having the weakest pension system in Europe. That shows a certain ignorance about other European countries with pension schemes. I do not claim to be an expert, but if she genuinely thinks that the pension system in the United Kingdom, both public and private, is, for example, anywhere near the systems in Albania, Bulgaria, Romania or some other European countries, I suspect that she is wrong.

I did not make that assertion; it was new Labour’s first pensions Minister who did. Was he wrong?

I may have misunderstood the hon. Lady—I apologise if I have—but she was quoting that person approvingly, which suggests that she associated herself with those remarks, with which I disagree.

I was indeed quoting approvingly, but I was quoting with the authority of new Labour’s first pensions Minister, which must give those remarks some strength.

If someone is quoting people approvingly, it is better to know the substance to which the quote relates, and whether they agree with it or are just mouthing the words, which may make a glib soundbite but which are, I think, inaccurate.

Secondly, on the position of people who are pensioners in the United Kingdom, we need to look at how far we have come in the last 10 years. That is often overlooked by Her Majesty’s Opposition, for understandable reasons, because they had a terrible record in that regard. In 1997, when the Government came to office, a single pensioner was expected by the state to live on £69 a week. There has been some inflation in the intervening 10 years, but that figure is now roughly £120 a week. To make the comparison clear to the House, a pensioner then could have received council tax and housing benefit on top of the £69—but that is also true for the sum of about £120 a week.

Of course it includes pension credit. The hon. Lady will intervene on me if I have misunderstood her, but I think that she is trying to say that one third of those who would be eligible for pension credit do not claim. Again, she has given a sloppy statistic, because a lot more than one third of pensioners do not claim pension credit—it would be a waste of time for millionaire pensioners to claim pension credit.

To put the current pensions situation in context, we also need to consider the national health service. It is estimated, although such estimates are difficult, that two thirds of spending on the national health service goes—understandably and properly, because it is a great thing—on pensioners. Generally, as people get older, they tend to have poorer health. In the first 11 years of the Labour Government—we know the figures for the coming year—NHS spending has increased from about £30 billion to £90 billion a year. That is a £60 billion increase. Two thirds of that increase would come to £40 billion per year, for about 12 million pensioners. I am not very good at doing mental arithmetic on statistics, but that comes to about £3,500 per pensioner per year. The working generation are putting forward, quite properly, an average of £70 a week—I defend that stoutly—in support of pensioners.

Most pensioners do not think that a load more administrators and a very expensive computerisation programme represents an increase in their welfare. To return to the comparison, the Conservative Government did not expect pensioners to live on the sums to which the hon. Gentleman referred. We assumed that they would either have a good private pension top-up, because we did not tax it and wreck it, or that they would receive means-tested benefits, as is the case under this Government. The big change that we made was to link the standard pension to prices, not earnings, which obviously made an impact. This Government have done exactly the same for the past 10 years, and will continue to do so for the next five years, if they stay in power.

As ever, I stand to be corrected, but part of that intervention shows the shocking state of the country in 1997, when senior Members such as the right hon. Gentleman were not aware of the nature of the pension system. The means-tested figure was £69 a week.

I note the right hon. Gentleman’s sedentary intervention. I made it absolutely clear that the £69—compared with the £120, which includes pension credit—could have housing benefit and council tax benefit on top.

I seem to recall members of the then Conservative Government telling pensioners to stay in one room, knit themselves a woolly hat and have a flask at their side to stop themselves expiring over the winter, because of exactly the situation that my hon. Friend describes.

My hon. Friend is absolutely right. I say rhetorically—I stress the adverb “rhetorically”, because I do not want any misunderstanding—that the Conservative Government did not want people going out to the local hospital, because every year there was a winter crisis, such as we have not had for several years, and they did not want them going out and voting Labour, either, so they told them to stay at home.

Should not we also remember the previous Administration’s imposition of VAT on fuel, which penalised pensioners, and Labour’s removal of that and introduction of winter fuel allowances?

My hon. Friend is absolutely right. Contrary to the perceptions of some individuals, the Government’s support for pensioners over the past 10 years has consisted of a mixture of means-tested benefits such as pension credit, and non-means-tested benefits such as winter fuel allowances and free television licences for the over-75s, which I hope will be provided for the over-65s. We also restored free eye tests—another non-means-tested benefit. To focus help on the poorest pensioners, which the Government have tried to do, we must—surprise, surprise—have some means of determining who the poorest pensioners are.

Before the hon. Gentleman gets too carried away describing this utopia for senior citizens, he will recognise that independent work done in Edinburgh in the past year showed pensioner inflation at 9 per cent., with fuel prices skyrocketing. Although we have winter fuel allowances—which have never been uprated—I hope that he will recognise that many pensioners still had to choose between eating and heating last winter. Work does need to be done on pensions, and especially on the introduction of a properly indexed citizen’s pension in the future.

I would not want the hon. Gentleman, or the House, to think that I am suggesting that everything is rosy for pensioners. I am trying to draw a contrast between the situation for pensioners today and that in 1997. Pensioner inflation has been higher, and one hopes that that will lessen markedly, with gas prices coming down by 16 per cent. Sadly, the energy companies are occasionally a little slow to feed those decreases through to domestic customers. I am not saying that all problems are solved for pensioners, or that pensioners are living in a land of milk and honey. Many pensioners in my constituency, however, have said to me that life now for pensioners is not nearly as bad, bleak and grim as it was when they had to sit at home in one room, in a woolly hat, with a one-bar half-kilowatt electric fire on for half the day. Far too many pensioners found themselves in that situation in 1997. The situation for pensioners has improved. In that context it is not right to talk about a pensions crisis—and it is bit rich coming from the official Opposition.

The situation of the category of pensioner that I delineated—those who were prospective pensioners in 1996, but who are now pensioners—is undoubtedly grim. Pension schemes have gone bust at the British Shoe Corporation, Allied Steel and Wire in south Wales and Chart Heat Exchangers, at which establishment some of my constituents worked, in the constituency of my hon. Friend the Member for Wolverhampton, North-East (Mr. Purchase), who is in his place.

The situation of pension schemes in the private sector today, however, was not simply caused by the Chancellor’s tax changes in 1997, as some—but, to their credit, not all—Opposition Members would seek to suggest. I agree that those tax changes, taken by themselves, had an adverse effect on private pension funds—[Hon. Members: “Ah.”] I hear “Ahs ” from the Conservative Benches, but I do not hear them from the Liberal Benches, because there is only the hon. Member for Falmouth and Camborne sitting there. There was a change to corporation tax at the same time, however, which more than made up for other changes in the tax regime, such as those in advance corporation tax.

Another factor in the difficulties in which private pension funds found themselves from 1997 onwards was the dotcom bubble. Some of them thought that it was like the South Sea bubble, but they did not realise that it was a bubble. Whether one looks at Kondratiev waves or other cycles in the economy, things go up and down, and the stock market vastly overvalued dotcom companies.

My hon. Friend might be interested to know that H. H. Robertson was originally the Wolverhampton Iron Works, and people walked from Wolverhampton to Ellesmere Port to get their jobs. Its pension scheme collapsed—prompting the first case of any Member arguing for what became the financial assistance scheme—under the Conservative Administration.

My hon. Friend is right. There are strong links between his constituency and mine, forged not least by Stan Cullis—I have an office in Stan Cullis House. Pension schemes were getting into difficulty before 1997, most notably in the Maxwell case, when the remedies put forward were not the same.

As for the reasons for pension funds’ difficulties, one of the legacies that built up to 1997 and onwards was that of underfunding, and contribution holidays taken by greedy employers. The extent of that underfunding started to emerge only when the Labour Government insisted on FRS 17, to try to get pension funds to indicate whether they were solvent. Some of them had been hiding the situation for years. It was like pyramid sales: they had been taking contribution holidays, building up deficits in the scheme and not telling anyone about them. We often hear about such cases in this place. I understand the ebb and flow of politics. When a Government change a regime so that there is greater transparency, they can catch a political cold for disclosing something that has been building up for years.

Parenthetically, I say that we had the same difficulty with methicillin-resistant Staphylococcus aureus in hospitals, about which the Conservative Government did almost nothing for 18 years. They would not publish the figures, but we did. That transparency meant that our constituents became aware of the widespread difficulty with MRSA in some health institutions. We got clobbered for something that had been allowed to build up, almost totally unaddressed, under the previous Government.

The hon. Gentleman places considerable emphasis on pensions holidays as a contributory factor to the pensions crisis. What relative weight would he place on that, which was estimated in last week’s debate to have cost £18 billion, compared with the estimate of between £50 billion and £500 billion for the cost of the Chancellor’s decision to scrap dividend tax relief? Which is the greater?

We debated pensions last Tuesday and Wednesday. I was in the Chamber for part of Tuesday’s debate, and I think that the hon. Gentleman was present at the time. He will know my views on some of those figures. He will also know my view that actuaries were a bigger factor than those that I have mentioned. I suspect that if one makes negative comments in this place about a particular profession, one is often then contacted by representatives of that profession, who take the opportunity to explain their position by saying that one’s remarks in the House were either incorrect or demonstrated a misunderstanding of the probity and history of their profession.

As a non-practising solicitor, I can tell my hon. Friend that it does work with lawyers, because I get contacted by the Law Society.

Last Tuesday I again made the remarks, which I shall repeat, about my views about the responsibility of the actuarial profession—not every actuary—for the difficulties in which some private sector pension schemes have found themselves. I made those remarks on two occasions many months ago, and I have never been contacted by even one actuary suggesting that I was wrong.

As many right hon. and hon. Members will know, I was on the panel of the Law Society of England and Wales as a personal injury specialist from its inception in, I think, 1991. That is roughly equivalent of being a hospital consultant. It is a recognition of one’s professional expertise in a particular area of legal endeavour and practice. As a personal injury lawyer, I would calculate lifetime losses. If someone has a fairly catastrophic injury and suffers a loss that will continue for the rest of their natural life, one cannot calculate in most cases—although sadly, in some cases one can—what their individual life expectancy will be. For the purposes of the calculation, one notes their age and gender and takes it from there.

I used to get new life tables every year or two and would adjust my calculations. Rising life expectancy meant that in calculating a lifetime loss for any client, it would have been negligent of me, as a solicitor, not to take into account the fact that statistically, that individual was now expected to live longer than had been the statistical expectation perhaps two years previously for someone of the same gender and age. I would adjust the calculations that I would otherwise have made under old life tables and make them under the new life tables to reflect the longer life expectancy.

I was not the only solicitor doing that, I hasten to add. It was standard throughout the profession. We were taking into account rising life expectancies in our professional practice. It appears that far too many actuaries were ignoring rising life expectancy when doing their calculations and advising pension schemes on how much funding a scheme should have—for example, how much the employer should contribute or whether that employer should continue their pension contribution holiday. Although that was not the only driver, it was one of the major drivers, and probably the biggest single driver, of the pensions difficulties that have been disclosed in the past 10 years. They have been disclosed because of FSR 17 and pension organisations having to come clean about how much, or how little, they have in the kitty.

The reasoned amendment refers to a pensions crisis. There is a crisis for many people, and that is appalling, but another driver, which will feed through to those who have not yet started to receive their pension, is the change from final salary schemes to money purchase schemes—from what are sometimes called defined benefit schemes to defined contribution schemes. I am not a defender of final salary schemes in the private sector. They are a historic dead end. They cannot be underwritten by, say, a trading company, because we all know that companies that trade, such as H. H. Robertson or Chart Heat Exchangers, go bust and cannot top up the scheme.

Our constituents are understandably saying, “I’m going to get a worse pension than I thought I would because the company’s changed the scheme,” and in almost every case of which I am aware—I am aware of quite a lot, because I was on the Select Committee on Work and Pensions throughout the last Parliament—employers who are changing from a final salary scheme to a money purchase scheme are cutting their contributions as a percentage of payroll. It is not simply a technical move, with them deciding to restructure the scheme in a different way to give greater security—although that is how they may try to sell the change to their employees. They are markedly cutting contributions.

Quite a big private sector employer in my constituency commendably puts in to a final salary scheme that is now closed about 26 per cent. of payroll every year—I think my figures are right; I am doing them from memory, but they are something of that order. The employee contributions are 7 or 8 per cent. for those who are in the scheme, which closed to new entrants about five years ago. Under the new scheme, the employer’s contributions are markedly lower. I cannot remember them precisely, but I think that they are in the order of 7 or 8 per cent.

I understand why the company has made that change. It is trying to remain competitive with other companies, and some bright spark came up with that idea in some part of the country, and it snowballed from there. However, the demise of final salary schemes, which continue to exist in as much as they are not insolvent, has been driven not by changes made by the Government, but by employers trying to lower the pension contributions that they make on behalf of staff—effectively, to cut their wage bills. There are many things for which one can try to blame a Government, but one cannot blame any Government, of whatever political party, for employers effectively cutting the wages of their employees. I do not think that they should do that, but that is what has been happening.

As for the third category of prospective pensioners—in particular, those who were in a scheme that is now insolvent—the official Opposition appear to think that the Government should be the insurer of last resort for every private pension scheme. I disagree. I have made it clear to the Government many times that they have a responsibility—as did the previous Conservative Government—for allowing misleading leaflets to be put out to prospective members of schemes and members of private company occupational pension schemes on how secure those might be.

Others also bear responsibility in that regard. Those who were advising individuals on pension schemes—independent financial advisers and so on—should have known better, as should, dare I say it, trade unions on some occasions. I say that as a proud member of the Transport and General Workers Union. There was a somewhat cavalier attitude across the board, with individuals who were involved in giving advice to employees not stopping and thinking enough about how secure—or, as it sadly turns out in all too many cases—insecure private occupational pension schemes were.

The Government, reacting to pressure from Ministers as constituency MPs and Members on both sides of the House, have done a pretty good job with an 80 per cent. guarantee and a commitment last week from the Secretary of State for Work and Pensions to see whether that could be higher, although we do not have the costs of that. Through the budgetary mechanisms of the Treasury, the Government are putting forward £8 billion in future value, not in net current value, for the financial assistance scheme. They are also acting to try to stop the shenanigans of companies playing fast and loose with their pension schemes. We all know that that was going on in the 1990s: we know that the amount of money in a pension scheme fund predicated whether there would be a takeover. The Pension Protection Fund, which I believe came into force in April 2005, was introduced by this Government to prevent a repetition of the scandalous behaviour that had been so devastating for pension scheme members.

My hon. Friend mentioned Government leaflets and advice. Does he accept that any Government must depend on the honesty and integrity of the managers of pension funds, and that there has been dishonesty in the case of a considerable number of pension failures? My hon. Friend referred to FRS 17, which opened a Pandora’s box, but any Government must give advice on the basis that people will be honest and obey the law. Surely the system has collapsed not because of bad advice, but simply because some employers have been blatantly dishonest in the management of pension funds.

I agree with my hon. Friend and neighbour. To put it succinctly, there were some rip-off merchants around. This Government introduced schemes such as the financial assistance scheme to help those who suffered as a result of past rip-offs, the aim being to clamp down on past rip-offs and any prospective future rip-offs; and if any more rip-offs do occur, the Pension Protection Fund is there to prevent more people from suffering. There were bad people around, and, as my hon. Friend says, there is only so much that a Government can do to deal with that. Sometimes they have to act after the horse as bolted, as with the financial assistance scheme or the Pension Protection Fund.

I am sure that the Paymaster General has the figures at her fingertips and will correct me if I am wrong but, according to my recollection, in recent years, during the so-called pensions crisis referred to in the amendment, the amount in pension funds has more or less doubled. It is up to about £790 billion. The Opposition may speak of a pensions crisis, but although there are problems with pensions and people’s lives have been devastated—I do not want my position to be misunderstood in that regard—it does not strike me as very illuminating to use the term “pensions crisis” in a general sense when the amount of money in pension funds has doubled. I repeat that I do not underestimate the devastation of people’s lives, but I would not describe it as a general crisis, as the amendment seems to. Of course it is a crisis for some individuals—about 125,000—and it must be absolutely awful for them.

My hon. Friend is a very learned Member, if I may use that term in its widest sense. What effect does he think a proceeds of growth rule would have on funds for the financial assistance scheme?

It could be disastrous. Any subsequent Government might not have enough money to meet the commitment that this Government had made—in so far as any Government can bind their successors—of a considerable amount of taxpayers’ money for the future.

As my hon. Friend will know, some Members have suggested what is sometimes described as a lifeboat scheme. Indeed, I hear rumours that there may be an amendment to the Pensions Bill to that effect. Interestingly, the lifeboat scheme has been decried by the Association of British Insurers, which regards it as being akin to ripping off other people’s money, so I am not sure that it would be a very good idea.

The hon. Gentleman raised the question of pensions on the basis of the Conservatives’ amendment, which refers to a pensions crisis. He mentioned the FAS and the £8 billion, which of course is welcome, but does he understand the frustration felt by people who, although their schemes are eligible, are still not receiving money because the full schemes have not been wound up? That may happen in the case of even a small scheme if a single ex-member cannot be identified. Does he share our frustration? We may welcome the extra money for the FAS, but it is not yet quite delivering for all the people for whom it should be delivering.

I think that there is frustration throughout the House about the fact that, although the Government have committed a considerable amount to assist the 125,000 pensioners, only about 1,500 have received any money. Surprise, surprise, some accountants who are acting as receivers for insolvent schemes appear not to have been exactly speedy in dealing with the paperwork to enable members of those schemes to obtain money from the FAS. If I am going to slag off professions, I might as well go for bust, although there are exceptions such as my hon. Friend the Member for Stoke-on-Trent, South (Mr. Flello)

Chart Heat Exchangers is a prime example. It is based in the constituency of my hon. Friend the Member for Wolverhampton, North-East, but three of my constituents have notified me of their interest. It is all very sad. From correspondence that I have received, and I suspect from correspondence that he has received, as I understand he has led on the issue in Wolverhampton, it seems that PricewaterhouseCoopers has not been very speedy.

According to my understanding of the way in which these things work—perhaps PricewaterhouseCoopers will write to me tomorrow and tell me that I am wrong—the company is being paid but the pensioners are not being paid, and some are indigent for that reason. One suspects that not many people who work for PricewaterhouseCoopers or similar organisations are exactly indigent, so it appears that the cash is in the wrong place.

The hon. Member for Dundee, East (Stewart Hosie) is right: the slowness of the system has been extremely frustrating. However, I see cogs turning in his brain, for he is a smart man. Could we have made the system work more quickly? I am not sure that we could. As he said, there are technical difficulties with tracing people and getting the trustees to act. If there had been an immediate payout, we would have risked a situation like the one that we have experienced, to a small extent, with tax credits—overpayments, and people having to pay some of the money back. We have carefully avoided that in the case of the disastrous rural payments scheme.

Members will be relieved to learn that that concludes my brief remarks about pensions. I now want to speak about climate change, as I warned the House that I would at the beginning of my speech. Those who know me, and Members who take an interest in Finance Bills and associated matters, will be aware that climate change is a particular concern of mine.

Both the hon. Member for Chipping Barnet and the hon. Member for Falmouth and Camborne properly highlighted green issues such as climate change in their speeches, and the amendment refers to tackling climate change, but yet again we have heard about only one side of the equation. Of course cutting emissions is important, but we do not hear about the other side of the equation—adaptation. The right hon. Member for Wokingham (Mr. Redwood) nods. He and I have had conversations about the issue; I know that he takes an interest in it, and I know that the Government do as well. This is the third or fourth time that I have spoken about this in the last 12 months, and I am about to do so again at some length, and I urge the House once more to start talking about both sides of the equation. We must talk about adaptation to climate change as well as emissions. We must talk about dealing with the effects as well as the causes.

The point that I always make, and will continue to make until Opposition Front Benchers understand it a little better—I believe that my Front Benchers have understood it, and I will explain why in a moment—is that we are dealing with the half of the equation that is broadly beyond our control, because the United Kingdom is responsible for roughly 2 per cent. of world emissions. It is important for us to show global leadership. We emit roughly twice the world average because we are a rich country, and it is important for us to reduce our emissions, but we persist in talking about the half of the equation that is 98 per cent. beyond our control unless we can secure international agreements that can then be enforced—Kyoto, for example, has not been enforced because there is no enforcement mechanism—while not talking about the half that is wholly within our control: effects. We should of course talk about the half that is not within our control, but not at the expense of talking about the half that is.

The hon. Gentleman is making an important point. The Bill is concerned with revenue-raising measures, and investment is one of the key ways of mitigating climate change. I note that the Department for Environment, Food and Rural Affairs is cutting the flood defence budget by £200 million. Will he ensure that there is cross-departmental co-operation to ensure that the critical issue he has raised is not ignored or understated?

I understand the hon. Lady’s point and will come on to how what I am talking about intersects with the Budget. I am mentioning it because it is raised in the amendment of the right hon. Member for Witney (Mr. Cameron). On flood defence budgets, the hon. Lady really must do her homework. The Government cut flood defences by about £15 million in the last financial year, but they have increased that budget this year. The cut was not of a sum such as £200 million; the hon. Lady has a rural constituency, so she ought to know that. In my constituency in Wolverhampton, flood defences are not a big issue. They are a big national issue, and I agree that they are important but, as the hon. Member for Northampton, South (Mr. Binley) is aware as he knows the area well, flood defences are not a big issue there. The flooding of Smestow brook in my constituency is not a big deal. The hon. Member for Falmouth and Camborne might know that Wolverhampton does not have any coastline, so there is no coastal defences issue. We are quite high up: about 120 m above sea level. It is said that our arch rivals at football, West Bromwich Albion, have the highest league football ground in England, which is about 135 m above sea level and we are about the same height above sea level. Let me say again that flooding is an important issue, and that the Government have rightly reversed the budget cut mentioned.

Let me now turn to what the Environment Agency says about the difficulties that we face. I will, Mr. Deputy Speaker, link this point not only with the amendment but with the contents of the Finance Bill, and with the measures that I would have preferred to have been included in the Finance Bill. The difficulties that we face—

I am grateful to you for that guidance, Mr. Deputy Speaker.

Climate change is already happening in the United Kingdom. The Government are taking steps to adapt, such as by enabling us to build things such as flood defences, but we are not doing enough in that regard, and the Finance Bill represents a missed opportunity. Let me set out the sorts of steps that we should be taking, and for which there should have been tax reliefs in the Budget—to refer to the point of the hon. Member for Falmouth and Camborne as to how the Budget as a revenue-raising measure intersects with this issue. We should have more tax reliefs than those that currently exist in our financial regime, and those that the Finance Bill introduces should be stronger. We should also have had some new tax reliefs.

There should be tax reliefs for adaptation measures. I broadly agree with a point made by the right hon. Member for Wokingham, when he told me to look at what his Conservative Government did when they were faced with a campaign for lead-free air. A tax regime was introduced whereby there was a tax discount— not a tax relief—for unleaded petrol. When it was introduced, some people found that their car needed no adaptation whatsoever. I was putting in unleaded petrol before there was a tax break and, at one point in 1985, there were only two petrol stations in the entire city of Wolverhampton that offered unleaded petrol. I was driving a Volkswagen, which did not need any adaptation at all. However, other cars, on slightly different technology, needed adaptation, which at that time cost about £30, if I remember correctly. A tax differential of lower excise duty for unleaded petrol than for leaded petrol massively boosted what had been a tiny market almost overnight. It happened very quickly—within a year, I estimate. There was at that point no legislation banning leaded petrol; perhaps there should have been, but there was not. The shift was driven by the market, which was driven by fiscal changes. In the Finance Bill, there should have been more such general measures to do with adaptation for dealing with the effects of climate change.

I would like boosted research and development tax credits. They have already been boosted a lot by the Government, and there are also some changes to them in the Finance Bill. I understand that what I say on this is open to a charge of complexity, but we will need boosted R and D for endeavours such as research into the medicines that we will need to deal with the new diseases that we will get in this country, such as malaria. It will not just be cases of malaria in people who have been on holiday: we will also have malaria in southern England because of climate change as rising temperatures mean that malarial mosquitoes will come into our country. Research must be done on that.

We also need research on the kind of crops that we will be able to grow in this country. We will not simply be able to transplant a crop that has grown in a more southerly latitude, because the configuration of daylight hours is different the further north we go. In some places, there are longer summers and shorter winters, so we cannot always simply transplant a crop from Algeria or Malaga, for instance, up to Margate or Manchester to replace those that might no longer be viable because of shortages of water and higher temperatures. There must be a research and development push on that. Steps are being taken, but we need to encourage that further with fiscal measures that I would have liked included in the Finance Bill.

There is a similar point to be made on biodiversity, and The Wildlife Trust is doing a great job in driving that. It produced a document on,

“Adaptation to climate change. Sustainable local economies. Abundant wildlife. Healthy cities and green space for all”.

The document was produced last year, and I went to TWT’s excellent reception in the Members’ Dining Room. Many other groups are also taking such steps, but they need some fiscal encouragement.

The VAT regime has been referred to indirectly, and perhaps ironically, from the other side of the equation by my hon. Friend the Member for Ellesmere Port and Neston (Andrew Miller). There has been some levity on Opposition Benches regarding changes in measures such as stamp duty land tax for low-carbon homes; Opposition Members chuckle to themselves about how many low-carbon homes there might be.

There is a fiscal measure in the Finance Bill to do with tackling climate change, which the reasoned amendment decries the Government for not doing. It is a measure to make a market and drive a market. In and of itself, it will not make or drive a market, and it is not equivalent to the situation with regard to unleaded petrol, but it is similar: it is a fiscal measure to try to kick-start a market.

Under this part of the amendment, does the hon. Gentleman agree that the two most important steps that we must take to adapt—I agree with him that that is what we must do—are to collect more of the water that falls when it rains to use during the dry periods, and to have better coastal defences, especially to protect the 7 million people in the London area, because we are told that the Thames barrier will soon no longer be fit for purpose?

I entirely agree. The right hon. Gentleman foreshadows remarks that I was about to make on building adapted homes—zero-carbon homes, for which there are fiscal incentives in the Finance Bill. However, I am not aware that there are any fiscal incentives—in this Bill, or previously—to deal with matters such as those that he refers to.

The drainpipes on older homes will need to be changed. In many parts of the country, people will need bigger drainpipes because of the increased incidence of sudden deluges. All Members will remember what happened in Boscastle in 2004, when 8 in of rain fell in a very short period. Lest any Member wishes to treat this matter with levity, let me say that I am not saying that bigger drainpipes would have prevented the disaster in Boscastle, but it is a graphic example of why we need adaptation to deal with heavy torrential downpours the like of which we have not hitherto experienced in the United Kingdom on a frequent basis. On present indications, they will become more frequent in winter. I am not aware of there being any fiscal incentives in this Finance Bill to address that.

I am not aware of any incentives for adapting the heating and ventilation of homes that already exist, in contradistinction to the low-carbon tax break for new homes. That is a health issue as well as a comfort issue, because a lot of people will die. It is estimated that 20,000 older people died across Europe in 2003, including in the United Kingdom but principally in France, as there was very hot weather in July and August. Homes will need to be adapted. There will need to be fiscal incentives, particularly through VAT—by lowering the VAT rate and, perhaps, going to the European Commission and saying, “All 27 countries face this, and we need to have powers to derogate in lowering the VAT rate for building adaptations to existing buildings.”

Similar points apply to land drainage and other issues. We need tax breaks with very strict compliance mechanisms for the water companies to get them to build more reservoirs. We will need more reservoirs. On all current projections, there will be an increase in drought in the UK, particularly in southern England but also in East Anglia, which most of us would not consider part of southern England, and further north––even, on current indications, in parts of lowland Scotland.

Does my hon. Friend agree that we need a fundamental review of our infrastructure in many areas? For example, a heavy downpour is lost immediately through the storm drains.

That is certainly the case. I heard a claim the other day—I do not know whether it is true, but it is the typical sort of figure that one hears in the House—that we have less rain per capita than Sudan. We do not have much rain in this country, especially in England and, in particular, in East Anglia. Geographers count large parts of East Anglia as a desert, in terms of annual rainfall. We have to use that rain carefully.

We already do a good job in recycling water. People were shocked in Australia recently by a proposal to use grey water, but we found it extraordinary that that should be so new to them. To make the best use of such approaches, we need not only the regulatory and planning regimes, but some fiscal incentives. The Government are actively pursuing a policy of adaptation to climate change, but they should do more, including fiscal incentives.

If I may be allowed a personal advertisement, I proposed a private Member’s Bill on climate change adaptation, which was the first climate change Bill in this Parliament. It would have required the Government to report annually to Parliament on what had been done to adapt for climate change. I am pleased to say that, broadly, that has been incorporated in clause 37 of the Climate Change (Effects) Bill. However, annual reporting of adaptation is not by itself enough. It is part of greater transparency, but we need to make progress.

Some great work is being done by the Oxford-based UK Climate Impacts Programme, which gets a paltry £800,000 a year from the Government. I have visited the programme, been to its conference and talked to the staff, and it does great work, but we need to produce the big changes in behaviour and adaptation before it is too late. As the right hon. Member for Wokingham said, 7 million people will be at risk of flooding in London, although those who built the Thames barrier were far-sighted and it is being used much more frequently now. As I understand it, a new Thames barrier will be needed, although I am not an expert on London and the south-east, because I am a west midlands MP. I pick up such information because it is the capital of our country and we cannot let it drown, even though—or perhaps because—that would make Birmingham the capital of England. Seriously speaking, we cannot let London drown, so we need to push forward adaptation measures.

As we saw with the change to unleaded petrol, measures in the Finance Bill have a big role to play in change. They could have a big role to play in emissions and their causes, and mention has been made of vehicle excise duty, although the Bill does not go far enough. Such measures as are included are very welcome, but we need more to encourage adaptation to climate change, because that is the one thing that the UK can control, whereas the level of emissions is subject to the winds of change in the world.

It is always a pleasure to follow the hon. Member for Wolverhampton, South-West (Rob Marris), who made a wide-ranging contribution. I intend to confine my comments to a narrower issue: the treatment of small businesses and, in particular, the introduction of the provisions to increase the corporation taxation rates for small businesses to 22 per cent. from 19 per cent.

We have heard much debate in the House, today and previously, about the fact that that increase in taxation on small businesses is intended to be neutral. The argument is made that the annual investment allowance of £50,000, intended for businesses to invest to grow, will counteract the increase in the headline rate. That certainly has not been the impression gained by small businesses. The chairman of the Federation of Small Businesses said:

“This is the Chancellor’s eleventh Budget and this year’s offering is no different to the others—he gives with one hand and takes with the other. However, this year, after some welcome initiatives for our members he throws it all away with a tax hike aimed at small businesses. Corporation tax was cut for large firms but increased for smaller ones. Small businesses employ fifty eight per cent. of the private sector workforce—over twelve million people—and the increase in their tax rate fails to acknowledge their contribution.”

That comment reveals the concerns felt by small businesses across the country about what the changes will mean. The British Chambers of Commerce has talked of

“the damaging increase in the Small Companies’ Rate”.

The head of taxation for the Association of Chartered Certified Accountants said:

“This decision flies in the face of the Chancellor’s previous aim to encourage more businesses to incorporate and shows an irrational hostility to micro enterprises.”

The CBI, which does not necessarily focus on smaller businesses, has suggested that the changes will lead to “some significant losers”.

The changes certainly give the impression that rather than being simplified for smaller businesses, the tax system is being made more complex. It also comes against a background of change in the way in which tax is levied on smaller businesses. In 1997, the Chancellor cut the rate of taxation for smaller businesses from 23 per cent. to 21 per cent. He cut it to 20 per cent. in 1998. In 1999, he introduced the new 10 per cent. rate and in 2002 he cut the 10 per cent. rate to zero and the small companies rate to 19 per cent. In 2004, he reversed the zero percentage rate on distributed profits and in 2005 he abolished the zero rate altogether. In this Bill, the tax rate has gone up again, this time to 22 per cent.

Such fluidity—so much change in a comparatively short period—makes it very difficult for small businesses to plan and work out a strategy. It is therefore interesting to consider the rationale advanced for the changes in the Bill. Paragraph 1.18 of the Red Book says that the change has been introduced

“to tackle individuals incorporating to minimise tax and national insurance liabilities”.

In other words, it is an anti-avoidance measure, although we have not had the precise rationale explained at any point. I hope that when the Minister winds up the debate we will get some clarity about why such a draconian measure was felt necessary to combat that pattern of behaviour.

The issue was recognised and debated when the zero rate band was introduced in the first place. Many businesses were actively encouraged to incorporate as a consequence of the prevailing tax regime. It is interesting to look back at the consideration of the Finance Bill in 2002, when that point was raised. It was argued that the zero rate would force companies into incorporation. The Paymaster General said in response:

“We seek to strike a balance as best we can in not driving businesses into a particular structure. The balance is not perfect. The decisions that businesses take, the access they have to different relief and their structure are very much choices for them.”––[Official Report, Standing Committee F, 16 May 2002; c. 104.]

That may be true, but the Paymaster General seemed to recognise that the possibility of small businesses taking advantage of the incorporation measures had been actively considered. It was understood that the changes in the tax regime might have that implication. I hope that the Financial Secretary may be able to comment on what went wrong and whether it was contemplated that companies that incorporated as a result of those changes might be in an uncomfortable position if the measure were reversed. Companies incorporate for legitimate reasons. The action is not necessarily driven by taxation reasons, and that factor should be understood in the context of such a big change to tax rates for smaller businesses.

My fear is that some small businesses that incorporated under the earlier regime—in many ways, the Government encouraged them to do so—will be trapped now that the tax regime is changing completely, with the implication that tax rates will be higher. As a former corporate lawyer—no longer practising—I know that changing from incorporated to unincorporated status is not without cost. Lawyers and accountants are required so that the company can break out of the incorporated mechanism. Many small companies that have legitimately incorporated, for whatever reason, will be in the difficult situation of having to decide whether to accept higher taxes or higher professional costs to change from an incorporated to an unincorporated structure—possibly their former status.

Reference has already been made to small service companies. It will obviously be difficult for them to take advantage of the new tax breaks proposed by the Government as an offset mechanism. There is a strange irony in the fact that the Government are saying, “We shall increase your tax but you can take it back from us”. The proposals underline the complexity of the Government’s mindset.

We need to address the valid concerns about companies that may be in financial difficulty. An increase in the tax rates applied to them might tip them over the edge if they were already in a precarious financial position, because they would certainly not be able to take advantage of the new mechanisms and benefits for companies that can invest. Evidently, they cannot invest because they are already in a difficult financial position. Given the problems that may arise, the neutrality of the measure is not as straightforward as has been suggested.

The provisions on corporate taxation are complex—like the Budget itself. I was struck by a comment made by Andrew Tenon, a tax director at Tenon advisers, in an edition of Taxation. He said:

“We spent several hours on Budget day running numbers through spreadsheets trying to make sense of the various hints that we could pick up in the small print about what precisely the figures would be. It is a sign of just how complex this all is that, between us, with at least 100 years of combined tax experience, we could not agree on what the impact of the changes will actually be.”

If even learned tax advisers find it difficult to assess the effect on smaller companies of the changes in the Bill, it will be tricky, to say the least, for the companies themselves to work out what the impact will be and how to take advantage of the investment regime to ensure that the benefits are effectively applied. That comment and others clearly show the problems that arise from the complexity of the provisions and their application to small businesses.

There seems to have been a complete reversal of the Government’s approach to the treatment of small businesses over the 10-year period. We have almost come full circle in the latest Finance Bill. There is real concern that the Government are turning their face against small businesses, notwithstanding the fact that 99 per cent. of all enterprises are small. A huge number of small companies contribute a large amount to our economy, ensuring that it is vibrant and strong and continues to employ people and generate wealth in this country.

The hon. Gentleman is making an interesting point, but what does he think is in the best interests of small businesses? Is it the environment now or the environment when we had two major recessions, interest rates at 15 per cent., inflation in double figures and unemployment at 3 million? Perhaps he thinks that unemployment at 3 million will be beneficial to small businesses. Was the environment better when his Administration were in control or is it better now?

The hon. Gentleman is drawing false parallels—perhaps understandably, to assert his case—but I certainly do not understand his comment that I support high unemployment. Obviously we want to generate employment and get people into work. One of the problems at present is the structure of the system, which means that labour is immobile. Too many people are trapped by social immobility, without the skills or opportunity to realise their potential to change their lives and make the most of their assets. I am passionately against that and it is highly unfortunate in many ways that growth in our economy has had to be driven by the importation of labour and that people do not have the opportunity to obtain skills, as Lord Leitch found in his report. There is a structural problem in our economy and it is not in the hon. Gentleman’s interest to suggest otherwise. We need urgently to deal with those skills issues to ensure that people can realise their potential and get into the employment that is denied them at present.

Not on this occasion—I am just about to finish.

Small companies face huge uncertainty: rising inflation, rising interest rates and, in the Bill, rising taxation. My fear is that the Budget will make things worse and that companies already in a precarious situation will be tipped over the edge. I hope my assessment is wrong, but I have real concerns about the consequences of those taxation measures for small companies.

I want to take a few moments of the House’s time to go through a few points in the Bill that relate to my constituents. My hon. Friend the Member for Newcastle upon Tyne, North (Mr. Henderson) made some good points on the wider general implications of the Bill, but I want to look at its impact on my constituents and others in Staffordshire and to focus the debate more locally.

The reasoned amendment refers to increasing competition from countries such as China and India and suggests that the Bill will cause difficulties and problems. Perhaps it is because I am a fairly straightforward and humble chap, but that argument confuses me somewhat. China, India and the far east have had an impact on the work that was done for many years in the mines in my constituency before they were closed—

Indeed, closed by the Tories. Those countries also had an impact on the Shelton Bar steelworks, which were just outside my constituency before they were closed under the previous Administration, and on the Michelin factory, which employs many thousands fewer workers than it did 20 or so years ago and has changed the emphasis of its work. However, it is still a very valued employer in the constituency. Furthermore, the pottery industry employs a fraction of the people it once did. None of those job changes was the result of the Finance Bill.

Let us consider specifically the situation at Trentham Lakes, the site of what was the Hem Health colliery. More people are now employed on the site, albeit in completely different jobs, than when it was a colliery. Many people who work in the distribution centres used to be employed in the pottery industry and have acquired different skills.

The reasoned amendment asserts that the Bill’s complexity will somehow kill off or stifle the opportunity for businesses to grow. A few years ago, I did some work with the United States tax code and advised and assisted employees from the US working in the UK and employees from the UK going to work in the US. The US tax code is horrendously complicated. Indeed, one could almost say that ours is an open, brief and simple tax code by comparison. However, has the US suffered for years from a crippled economy that is unable to compete on a global stage? Are its businesses unable to do well? The facts on that speak for themselves.

Is my hon. Friend aware that a table is produced by, I think, the Organisation for Economic Co-operation and Development setting out the number of person hours or even days that an average business needs to expend to deal with the tax regime in a given set of countries? Some 190 countries are listed and the United Kingdom is very near the top of the list, the top being countries where people spend the least time dealing with such matters. The issue is not just to do with the number of pages in Tolley’s or whatever, but with how much businesses can use the legislation.

I am grateful to my hon. Friend for making that point. The code and the tax legislation are there for a purpose. As many Members have said in what has been an interesting debate, provisions are in the legislation for specific purposes. The hon. Member for Falmouth and Camborne (Julia Goldsworthy) is, sadly, no longer in her place; two is the maximum number of Liberal Democrats whom we have seen in the debate. At one point, I wondered whether they rotated to ensure that just one was here.

None the less, the point was made that we cannot have it both ways. We cannot aim to address a specific point through tax legislation without having the necessary clauses in the Bill. One has to make sure that the Bill does what it is required to do.

Does the hon. Gentleman agree that if we had the same income and company tax rates as those in the best states in America, we might share their rather faster growth rates?

Our employment levels speak for themselves. When we take into account federal tax, state tax and county tax, we almost move into the realms of the Liberal Democrats’ proposal for a local income tax.

The point that has been made about skills and research and development shows the contradiction between what appears in the Bill and in the reasoned amendment. We need to ensure that my constituents and those in the wider UK have the skills needed to ensure that a manufactured product or service can compete in the global market. Given our labour costs, it is impossible to compete on price with some of the growing economies and, indeed, some of the extremely well developed economies around the world. We need to compete on skills.

For example, firms in India are doing tax return work extremely well. Information is sent to the firms, it is processed in India and completed tax returns are brought back to the UK ready to be signed off by clients. If a country is able to do such work at a cheaper rate, the only way we can compete is to ensure that the level of knowledge in the UK is much greater. We need to make sure—the Bill and previous Finance Acts have endeavoured to do this—that young people and all workers across the UK are able to acquire the skills they need.

Did my hon. Friend spot an apparent—and I think a real—paradox in the position expressed by the hon. Member for Hornchurch (James Brokenshire)? He said that the tax changes in the Bill might have an adverse impact on small businesses, but then went on to talk about skills. As a generalisation, small businesses in the UK are not very good at training people or spending money on skills training. Therefore, that has to be done by the state, and the state needs tax revenue to pay for it. That tax revenue has to come from somewhere, and one place from which it will come will be small businesses.

My hon. Friend makes an extremely good point. If an organisation is not willing to undertake the training that the nation needs, we have to find alternative ways of funding the training through the tax system.

My right hon. and good Friend the Chancellor the Exchequer made an announcement about raising education spending to £90 billion over the next couple of years. Those improvements and changes are what Finance Bills and Finance Acts bring about and they are the backbone of British innovation. The proposed increase in the number of apprenticeships is fundamental to this country being able to take itself forward.

I chair a Staffordshire taskforce that works with people who have been made redundant in some of the traditional industries and, indeed, some more modern industries. I am a member of Unity, Amicus and the Transport and General Workers Union, and Unity acts as the umbrella on the taskforce for a number of other trade unions and organisations. Through its excellent work, the work force are given the opportunity to gain the skills that they require and the modern market needs. We must make sure that the competitiveness of the UK economy supported, and legislation such as the Finance Bill, can aim to push through provisions for that.

Those on the Opposition Front Benches said that the Bill could upset the economy. However, as other hon. Members have argued, we have an extremely stable economy. We have low and stable inflation. Yes, there are peaks and troughs within that, but overall the situation is extremely stable compared with—[Interruption.] I hear derisory comments from the Opposition Benches. During the 18 years before the Government took office in 1997, the situation could in no way be described as stable or level. There was no considered growth during that period, with two deep and damaging recessions, as has been mentioned, and with inflation and interest rates out of control and at times changing almost daily.

I recollect the tables produced by the Inland Revenue when I had the great good fortune of working for that organisation in the early part of my career. Tables produced for calculating the interest on the late payment of tax would be amended with frightening regularity because of the fluctuations in interest rates. The derision from the Opposition Benches seems to have stopped.

My hon. Friend may be aware that when arguing for lower corporation taxes—and the Budget does cut corporation tax somewhat—the Conservatives often pray in aid the economy of Ireland, yet it has recently emerged that the economy of Ireland is not exactly stable, with personal debt at 190 per cent. of GDP, and with Ireland being locked into the euro. Does my hon. Friend agree that it was a very wise decision, which I supported at the time and continue to support, that the United Kingdom should not enter the euro?

I am grateful once more for the wise words from my hon. Friend. In the extremely inspired piece of insightful thinking that produced the five tests, the Chancellor was absolutely right to make sure that we would consider such a move only if it were right and in the interests of Britain. Clearly, it has not been. I am sure that after their experiences, other countries wish that they had had our Chancellor and the skills that he would have brought to bear for them.

What are the five tests that the Government set? What is the difference between those and the original five tests for EMU entry? With reference to the intervention from the hon. Member for Wolverhampton, South-West (Rob Marris) about debt in Ireland, will the hon. Gentleman comment on the £1.3 trillion worth of personal debt in this country?

I am grateful for the hon. Gentleman’s intervention. In answer to his first question, I recommend to him the Library services across the corridor. On personal debt, the level is high in most of the advanced economies, like our own. However, I agree that there is cause for concern where people are taking on debt that they are unable to sustain. My views on that are on record.

We can reject the first part of the reasoned amendment tabled by the Opposition, because it does not stack up. It does not make sense. As soon as one starts reality- checking, the wording falls away. I looked at the employment figures provided by the Library, which I again recommend to the hon. Member for Dundee, East (Stewart Hosie). The reduction in the number of people unemployed in my constituency, Stoke-on-Trent, South, is approaching 20 per cent. There is a huge amount of work still to do because I do not want any of my constituents to be without work, but the improvement has been incredible. That was made possible by provisions such as those in the Bill.

My hon. Friend the Member for Wolverhampton, South-West made some valid points about the real reasons why 125,000 people are in the financial assistance scheme. It is right and proper that Back Benchers of the governing party put pressure on Ministers whenever possible, and I take the opportunity to do so now. We need to ensure that every single one of the pensioners who were adversely affected gets whatever help we can give them. I shall not adopt the Opposition attitude and suggest that we can wave a magic wand and put everybody in the position that they wish they were in and that they were promised by the trustees of their schemes, but equally we are not seeking a proceeds of growth rule that would mean that the money was not available to back up the promises being made.

I hope that the review that is under way will ensure that the good provisions in the Bill, which I welcome, are built upon. Although the increase from £2 billion to £8 billion projected costs, the 80 per cent. payout and the increase in the cap are all good moves, we should do what is morally right and push for as much help as possible to be given to those 125,000 people.

Finally, I shall canter through the provisions of the Bill and how they will impact on my constituents. On the main rates of tax for financial year 2008 and the changes to the small companies rate, on which several hon. Members have commented, yes, there are concerns. There are small businesses in my constituency that will understandably be worried about the impact of future changes to those rates. However, the fall in the basic rate of tax to 20 per cent. must be welcomed. A large number of my constituents who receive tax credits will welcome both the drop in the basic rate and the increase in tax credits.

Every Member of Parliament regularly sees people in their surgeries who have problems with the tax credit system, just as we see constituents who have problems with speeding tickets or with housing. We only ever see the downside. We rarely have anyone coming to us and saying, “This works for me”, but when we are out on the doorsteps talking to people, we find time after time people who are being helped by tax credits. I welcome the proposals in that regard.

As a non-smoker I welcome anything that persuades smokers to relinquish the habit, but I note that the increases in tobacco product duty are broadly in line with inflationary measures. The work that has gone on, separate from the Finance Bill, to help people kick the habit of smoking is the right approach. It is time for much more carrot and less stick in future years to move people away from an addiction to tobacco.

On vehicle excise duty, I shall not detain the House by rehashing the enlightening discussion that took place between the hon. Member for Falmouth and Camborne and my hon. Friend the Member for Wolverhampton, South-West. I would not want to revisit an exchange that was at times, I think, painful for the hon. Lady.


On energy-saving houses, it is a little rich—to quote the phrase again—of Her Majesty’s loyal Opposition to be critical of the provision relating to zero-carbon homes simply on the grounds that there are not any, or that there are very few. The point was made earlier that when there was a reduction in the rates of duty on unleaded petrol to persuade people to go down that route, we heard comments that only a handful of garages in particular areas sold unleaded petrol. But as a result of measures in the then Finance Bill, people were persuaded to change their habits. They moved to driving vehicles with unleaded fuel. I hope that the relief for new zero-carbon homes will persuade people that it is right to move towards having zero-carbon homes. Any assistance in that regard has to be positive.

Criticism was made about domestic microgeneration. Given that the Leader of the Opposition has or had a wind turbine—[Interruption.] I understand that it has been removed. That is a great pity. That would otherwise have been a good example.

I do not want to detain the House by rehashing the arguments and discussions about managed service companies. We need to make sure—the Finance Bill moves in the right direction—that there is fairness and that we do not have a situation in which somebody decides to adopt a particular corporate or non-corporate structure purely for a tax advantage rather than because it suits their business. I am sure that most businesses in that situation would not dream of using the tax system for pecuniary advantage, but the provisions make sure that that is so. I hope and expect that in Committee some of the corners will get knocked off and things will move forward.

I do not want to detain the House by exploring what has already been debated in a good and positive fashion this afternoon. I hope that a lot of the points that have been made by me and other right hon. and hon. Members will be taken on board by the Minister when looking at the issues.

I want to close with a plea about the regional impact—something that was mentioned by my hon. Friend the Member for Newcastle upon Tyne, North (Mr. Henderson). With my wider Staffordshire hat on as chair of the taskforce, as well as my constituency hat on as the Member of Parliament for Stoke-on-Trent, South, I think that we need to make sure that when the Finance Bill and wider provisions—designed to help, guide and promote different industries—are brought in, stronger direction is given to regional development agencies to make sure that there is a much greater focus on the types of business that they are promoting in different areas.

A number of potential large employers wished to come to Stoke-on-Trent, but unfortunately, the office space in the city was not sufficiently large to accommodate them. So a large number of extremely well-paid, high-skilled jobs were not able to come into the city. That was a terrible loss for an area such as Stoke-on-Trent, which has fantastic people who are able to learn specialist, complicated and creative skills. The lack of office space meant that we did not get those jobs. However, the regional development agency had been in place for some time and did not hesitate to ensure that distribution sheds were built. It pushed that aspect. It is just a pity that the opportunity was not taken some years back to make sure that some large office space was built quickly. I make a plea to the Minister to turn his eye in that direction.

All in all, it is a good Bill. As has been mentioned, it could perhaps go a little further in some areas. I do not take the point that the Liberal Democrats made about its being an over-burdensome, over-complicated Bill—particularly given that they then contradicted that point by saying that the Bill could do with more clauses relating to aircraft flying over rural areas of their constituencies. I certainly commend the Bill and I hope that it will receive support from both sides of the House.

I am a non-executive director of companies and I am also a trustee of a pension fund, as declared in the Register. I would like to begin by speaking to the amendment in the name of my right hon. and hon. Friends, beginning with the most important case set out in that amendment: that the Finance Bill fails to equip the UK to compete in the globalised world economy in the face of ever-increasing competition from India and China.

Whenever Opposition Members venture criticisms of the current state of economic policy and tax policy with respect to competitiveness, we hear from the Labour party—as we did again this afternoon—that things were worse during the worst period of the exchange rate mechanism. That is not only ancient history, it is agreed ground across the Floor of the House. It ill behoves those on the Liberal Democrat Benches to join in. They should understand that they strongly recommended that this country join the exchange rate mechanism and link its currency to the Deutschmark. It is even worse for those on the Government Benches constantly to throw this back at us, when the Chancellor of the Exchequer was a keen advocate of linking our currency to the Deutschmark and has never yet apologised for the mistake that he made.

Of course, it was the Conservatives who made the mistake in office. The Conservatives have long apologised for it, moved on and learned from the mistake. I hope that the Government have learned from the mistake as well. There are some indications that they may have learned from it, because at the moment they do not wish to take us into the euro currency. The ERM was a stepping stone towards the euro, and had we gone the full way we might have had boom and bust—high interest rates and then low interest rates or inappropriate interest rates—because we would have been committed to the euro.

I just wish that the Government would learn the full lesson of those bad periods in the early ’90s. Surely the full lesson is learned only when a party comes out and says that it must be no to the euro—just as it must always be no to the exchange rate mechanism. We tried it. All three parties wanted it. Some of us disagreed. It failed. Now it must be no to the euro, as the hon. Member for Wolverhampton, South-West (Rob Marris) quite rightly said. I would feel happier if the Chancellor of the Exchequer ruled it out in principle for all time, instead of constantly going through this nonsense that there have to be five tests, and that there might be circumstances in which the euro would be a good idea.

If we wish to compete successfully in the world economy, we need to understand the weaknesses of our current position, as well as its strengths. My party and I have been the first to admit that it is not bad news that we had growth continuously during the last years of the Conservative Government and that we have had growth continuously during the Labour period. My party is delighted that we have had, on average, worldwide, low interest rates over the last decade. That climate has been extremely helpful. My party is glad that China and India have emerged as economic titans. They are so competitive that they are now helping growth in the world, because as well as producing good-quality cheap exports, they need imports, and their cheap exports enable us to keep inflation down at a less penal cost in terms of interest rates and money control than we would need to incur were it not for that Indian and Chinese competitiveness.

However, the Government must understand that it is now 2007 not 1992, that an awful lot has changed since 1992, and that although some things are better—many of them because of the world background although some of them because of decisions made by Governments since 1992 and the exit from the ERM—there are still many things that are not ideal, and are limiting our ability to compete with the extremely competitive world economies emerging in Asia.

I asked a Labour Member if he was happy debating the Finance Bill and the tax incentives and changes for business against the background of the recent news that a large British shipyard is going to be literally unbolted and transported to Asia so that advantage can be taken of the better organisation and lower labour rates, and use can be made of the capital equipment that once fuelled a mighty British industry. I am sure that Labour Members are not happy about that. I am sure that they are not happy that Rover went bust on their watch, and that some of the equipment from the Longbridge plant was taken to pieces and exported to China so that Nanjing Auto can now make cars in China instead of in the United Kingdom.

We in this debating Chamber should ask ourselves collectively whether such accidents can be avoided in the future. Are there things that we could do through the Finance Bill that would create a more favourable climate for business here in the United Kingdom? The answer is yes. Things could be done to make it easier for manufacturing businesses to survive and flourish in the United Kingdom and to make it less likely that those businesses would go bankrupt, have to sell up, or have to sell some of their prime assets or capital equipment to companies in China and Asia that would use that plant and equipment to compete against us and undermine other countries in the United Kingdom.

The Government understand part of the argument. I am delighted that the Bill and the Budget show that the Government see the need to lower the corporation tax rate in the United Kingdom. There is abundant evidence from throughout the world that countries that set a tax on profits markedly lower than the world average do a great deal better than the rest of the world at attracting new investment, encouraging new company formation and attracting large enterprises to choose that country to establish new plants to undertake their activity.

The single most important reason why Ireland has grown rapidly over the past decade or so has been its attractive corporation tax framework. The United States is far richer per head than we are, and despite starting off as a richer country, has grown faster than us for nine out of the 10 years for which the Chancellor has had responsibility. Again, lower tax rates on personal incomes and company profits—if one is established in the right state of the Union—have been an important influence on the United States of America’s better competitiveness. The countries in Asia that are doing best usually have a tax regime that attracts investment in the sectors and industries that they are keenest to attract.

The second thing that an economy needs to be attractive and competitive, and to take on the emerging might of China and India, is regulations that are not too complicated. This country is in danger, through regulations made by the House and by accepting a great deal of the regulation designed in Brussels, of over-regulating companies that are already here and creating a framework of over-regulation that will deter companies from coming here.

Hon. Members have drawn our attention to the growing complexity of tax legislation on this Government’s watch. The great increase of the number of pages in Tolley’s tax manual is one indication of how the complications have increased. However, while the clauses before us make up a Finance Bill that is relatively slender by the Government’s standards, that is because in most areas the Bill just says that something will be done to a tax measure, and more of the detail is in the many pages of schedules. In due course, the Treasury will probably produce lots of secondary regulations that will have a direct bearing on business and lots of interpretative documents that tax lawyers, company directors and others will have to master to determine their legal due to the Government, and so that they can find out whether the regime is still sufficiently attractive to allow them to carry on their business here.

The Government should take on board the warning about the complexity of tax legislation—and I am delighted that the Economic Secretary to the Treasury is in the Chamber, because he has been carrying out interesting work with those in the City who are worried about how competitive our tax system is.

The third important issue is whether we still have a fair system that is properly and consistently enforced by a Revenue that does not regard everyone and every business as someone who is trying to break the law or get away without paying a reasonable amount of tax. Many businesses have become concerned in recent months because they feel that the reasonably fair-minded Revenue now goes on fishing expeditions and tries to reopen old years that the businesses thought had been honestly and honourably settled. There is a worry that too many people who have been successful and made money individually or through their companies are being challenged unreasonably.

Is not the right hon. Gentleman in effect condoning VAT fraud? There is a vast amount of such fraud in this country, which costs the Exchequer billions each year. Surely we want more tax inspectors so that we can get more of that VAT in.

I was careful not to condone any kind of fraud. If someone is guilty of deliberately misleading Her Majesty’s Revenue and Customs by not giving the correct information, or any information at all, enforcement measures must be taken. My party has always said that and the Government always rightly do that—that seems to be a perfectly fair system. I am getting reports from people who are nervous about being named because they do not think that the system is entirely fair any more. They say that there is a feeling that matters that were thought to have been honestly and honourably settled can be reopened because the Revenue takes a different view of a measure in tax legislation than that which it accepted, and which the company’s tax lawyers and advisers put to it, when the figures were settled in the first place.

The Government need to be careful. Of course they wish to raise as much revenue as possible without apparently upping the rates, but if too much of the philosophy and mentality of Customs and Excise is inserted in the Inland Revenue and operated against law-abiding businesses and people who just happen to be successful, the impact will be the opposite of that which the Government want. The country will merely be given a reputation as the kind of place in which people will not want to base their businesses or tax affairs because they fear that they will not be treated fairly, or where they will never know where they are, because something that was thought to have been settled with the Revenue will turn out not to be have been settled at all.

If the hon. Member for Luton, North (Kelvin Hopkins) does not believe me, he should talk to the people to whom the Government have been talking. They will confirm that the business side is worried. If that worry becomes more general, it will put big companies off coming to this country and encourage more big companies to do what Shell and some of the banks are doing: think of taking their headquarters offshore and going to a different tax jurisdiction that might not only have lower tax rates, but give a fairer response to their honestly filed tax returns, and a clearer answer.

Is it not right that people should pay the tax that they are due to pay? If they argue that they are paying too much, they can take that matter up. The right hon. Gentleman seems to be saying that people should be let off what they are due to pay to the Exchequer.

On the contrary. Of course people have to pay the taxes that are due. However, we now have the combination of thousands of pages of extremely complicated tax law and a fear that those who interpret the law—the tax inspectors—can change their minds. For example, a company could have honestly settled its tax affairs for a particular year with a tax interpretation that has been signed off by not only their tax advisers and accountants but by the Revenue—and then the Revenue can come along and say, “Actually, we’ve changed our mind. We don’t think that that clause meant this; it meant something else.” I am not talking about companies that are trying to get away with something.

Companies want certainty about how much tax they should pay in a given year. They take advice from tax lawyers and accountants and put a proposition to the Revenue. If the Revenue accepts the proposition, that should be the end of the matter. It should not be possible for the Revenue to reopen the case later and say that it has changed its mind. If the Revenue were to think that a company’s original filing misunderstood the tax law, it would be its duty to say, “We think you’ve misunderstood this point. This is how we interpret it; will you ensure that your filing is in line with that?” The process is iterative and requires discussion, because these matters are not as pure and simple as the hon. Member for Alyn and Deeside (Mark Tami) implies. Incredibly difficult judgments must be made, because of the thousands of pages of opaque material that the House passes as successive Finance Acts; we are discussing several hundred rather difficult pages today. It is not easy for law-abiding, decent citizens to know exactly what the legislation means, so they expect a bit of understanding from the Revenue.

Does the right hon. Gentleman agree that smaller enterprises are fearful of experiencing problems because of the changes in HMRC that are moving it towards more of a call-centre approach? The closure of more local offices is threatened, which will make it more difficult for people to access someone to address their concerns.

Yes. I was going to come on to smaller enterprises, but so far I have been discussing very big companies of the sort that go to the Chancellor’s City forum, and large industrial companies. They are professional and want to pay their dues, but no more than their dues. They want to know where they stand, but there is a growing fear that that they do not.

The hon. Gentleman is right to say that for smaller businesses the problem becomes overwhelming. They cannot afford to pay for really good accountants and tax lawyers who understand all the complicated detail. They will probably have a general accountant to help them, to whom they can afford to pay a modest fee. They, too, need help from the Revenue. It would be better if they could have a face-to-face meeting, if they really needed one. There needs to be understanding on both sides. If a person is normally co-operative, and is clearly trying to make an honest account of their business activities, the Revenue should help them to get everything straight from the Revenue’s point of view. That is what it used to do, but our worry is that it is wobbling in that respect.

I am sure that the right hon. Gentleman is sincere in his statements to the House that he is in no way attempting to condone tax avoidance. In fact, his position has tended to be more open and public than that: he has been an advocate of substantial cuts in business tax, and of the abolition of stamp duty and capital gains tax. Are those proposals likely to make it to the final version of his competitiveness report?

The Economic Secretary will have to contain his excitement. My personal position is well known and was put into print some time ago. I can tell him that not all the things that I would like to do will be part of my economic policy review, because I do not think that it will be possible to do them all in the very early stages of a Conservative Government. However, I can assure him that I fully support my right hon. Friend the Leader of the Conservative party and my hon. Friend the shadow Chancellor when they say that a lower-tax economy is a more successful economy—a line that I could have written myself—and when they say that they wish to share the proceeds of growth between tax reductions and better public services. That is eminently achievable, because there is a lot of waste and unnecessary expenditure in public services.

If we root out some of that waste, as I know the Government are trying to do— although they are not yet very successful at it—and if there is a reasonable growth rate in the economy, the economy can be reinforced, because if some of the proceeds of growth are given back to taxpayers, that will raise the growth rate. After five years, if all went well, we could be spending more on public services than if we had not cut tax rates, because we would be generating more through the economy as a whole; that is the wonder of tax reduction.

And the right hon. Gentleman would expect the public spending share of national income to fall over that period, would he?

If we had a faster growth rate, I would expect the amount spent on public services to go up faster than if we had a lower growth rate and operated under the Economic Secretary’s kind of model, so public services would not be short-changed. But yes, of course the proportion spent on public services would fall; his arithmetic is clearly as good—or as bad—as mine. The proportion would fall, but that would be in the context of a rising total of public spending. Ironically, the faster the economy grows, the more quickly the proportion spent on the public sector falls, but the better the increases in public spending. That, to me, is success.

There was a period when the current Chancellor of the Exchequer followed exactly that kind of model; he kept public spending under some kind of control, and public spending fell as a percentage of national income because there was some growth in the economy. If he had reinforced that with more competitive tax rates, we would now face a very different position. We would be able to afford the public spending level to which the Chancellor has moved, but it would be lower as a proportion, because the economy would be bigger. It is a great pity that we missed that opportunity.

The Chancellor’s work has fallen into three parts. The first part was perhaps a bit tight on public spending, but it was very good in getting borrowing down, and in getting the public finances into good order. We could have used that as a launch pad for faster growth. The second phase was a pity; he overdid public spending and did not get value for a lot of the extra money that he injected into public services. The third phase will be the least pleasant, because all sorts of clamps will have to be placed on public spending, including the control on nurses’ pay. Obviously, that is not popular with nurses, and it will cause tensions within the labour movement.

To summarise, the right hon. Gentleman is saying that the proceeds of growth rule will mean an acceleration in the fall in spending as a share of gross domestic product, and that will pay for the medium-term business tax cuts that he has talked about. Will he expect a fall in the share of spending in GDP over the medium term to pay for the tax cuts that he is proposing?

The Economic Secretary is moving from being sensible to playing silly crude politics of the kind that he and his boss always play, and it does not do him justice. I was very clear; I said that the proportion would fall faster only if the amount spent on public services was rising faster because the overall growth rate had accelerated—and that is the statement with which I will leave him. I can tell him that I do not envisage a Conservative Government cutting the share of public spending in national income as quickly as the Chancellor did at the beginning of his period in office—but who knows? If growth were really fast, it would be possible to do that safely, and to give people back some of the proceeds of that faster growth; that would reinforce the growth rate. However, as the Economic Secretary well knows, one can play all sorts of tricks with compound arithmetic and percentages. If he now rushes out a press release saying that I have signed up to massive cuts, it will be another typical piece of misinformation, and will bear no relation to what I have just said to the House.

I am strongly of the view that we will need to increase spending on nurses, teachers and doctors, as the current Government did, and as the Conservative Government before them did. We will argue about the percentages and proportions nearer the time when we come into office, when we can see how big the need is, and how much resource there might be. There are lots of other areas in which we will not need to spend so much. When we come into office, we will be able to cancel the identity card scheme and the wasteful centralised computer schemes, if they are still running. We will be able to get rid of a lot of regional government; I recommend that to the Economic Secretary as a good cut to make.

I assure the right hon. Gentleman that I have no intention of rushing out a press release. I was just interested in his views; as he will know, I have been a close follower of them for many years, and we have always enjoyed our debates. I am just worried that his position may be shifting. He previously supported a steady fall in spending to 35 per cent. of GDP. Is that no longer his medium-term objective? He has not been persuaded to back off from his previous positions, has he?

I do not remember ever being so incautious as to name a figure as a proportion of GDP. The amount of spending depends entirely on the state of the cycle, the growth rates, the public spending needs and so forth, and those judgments have to be made from year to year, much as the Government are trying to make them this year, for the economy in its current state of play. I have no idea what judgment it would be appropriate to make for 2011, which may be the first Budget year for an incoming Conservative Government. It would be wise for my right hon. and hon. Friends on the Front Bench to continue to be a little cautious about making pledges on such matters until we are nearer that point, when we will have more information, as the Government do.

I am slightly worried that the right hon. Gentleman is backing off from his previous positions. His principled approach has always been to advocate cuts in business taxation. For example, he has advocated the abolition of capital gains tax and stamp duty. I am worried that his radicalism is being blunted by external pressures. I hope that he can reassure us that he will continue to hold his previous principled positions.

I have been crystal clear with the House: my personal position is that I would like to get rid of all those taxes that I have often argued we should abolish. I am asked to listen to all the different strands of opinion within and outside the party, and all the people who are giving evidence, and then to produce a policy report making recommendations to an incoming Conservative Government. In due course, I will publish that report. I assure the Economic Secretary that the report will be true to my principles, which are that lower taxes generate a more successful economy and that we need to move to lower taxes. He will have to wait for the final detail, as will I, because it is not only I who am involved in the production of the report. It has to be well judged and it has to speak to the wider nation. It will not recommend doing, in the short term, everything that I have personally pledged myself to do, but it will not rule out doing those things if the world turns out to be a really exciting and good place.

No, that is one thing that I cannot tell the impatient Minister, because the publication of the report is not in my control. The timing of the publication will be decided by my right hon. and hon. Friends in the shadow Cabinet, who will publish it when they see fit. They may, by then, already have considered it and thought about their response, or they may wish to publish some of it in advance; clearly, there is a good audience out there, and I am happy, in the remainder of my speech, to give the Government some advice on the Finance Bill.

The right hon. Gentleman has been very kind in giving way, and I thank him for that. May we assume that it is not a question of when, but if, the report is published?

No. I am sure that the report will be published; the issue is whether it will be published as a serial or in one glorious complete whole. Who knows? There may be so much demand that we need to publish it chapter by chapter, which might delight the audience and allow Ministers more time to read each piece and deal with it as they see fit. They could go through it and decide, “Those two ideas we will adopt; those three are rubbish.” I might recommend to my right hon. Friends that to make the Government’s life a bit easier we should give them more time by publishing it in bits and pieces. We have already published one or two things, which I am sure Ministers have already read and are deciding what to do about.

Having dealt with global competition, the Opposition’s reasoned amendment goes on to talk about our dislike for penalising small companies with higher tax rates and a more complicated tax system—an issue that Liberal Democrat Members tried to draw me into a little prematurely. My hon. Friend the Member for Chipping Barnet (Mrs. Villiers) has already made a powerful speech about how unfortunate it is for small businesses that under this Chancellor there have been so many changes in rates and so many different signals over whether small businesses are welcome.

In the middle phase of the Chancellor’s period in office we felt that he was keen to raise the rate of small business formation, which is a very good thing to do. He sent strong signals by offering the zero rate—one cannot send a clearer fiscal signal than that—and it clearly started to work. It was miserable of him then to start saying, “Gosh, we didn’t expect that people would actually incorporate,” or, “Look at this—so many people are incorporating that here’s a wonderful source of revenue.” Step by step, including in this Bill, he has gradually upped the rate until it is no longer attractive as an incentive, as was originally intended.

That is a great pity. It is incumbent on us, as tax legislators, to send strong and consistent signals, and if the Chancellor wishes them to work and get companies and individuals to respond as he chooses, they must be applied over a period of years. It is no good putting in an incentive in one year and then ditching it in the following year—[Interruption.] Do Ministers wish to intervene again, or are they just having a private conversation?

I am happy to take the opportunity to continue this most enjoyable debate. The right hon. Gentleman says that we are raising the small companies rate to a level that is no longer attractive, but it is still one percentage point lower than what we inherited in 1997. Did we inherit an unattractive tax regime for small businesses?