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Finance Bill

Volume 475: debated on Tuesday 29 April 2008

(Clauses Nos. 3, 5, 6, 15, 21, 49, 90 and 117 and new Clauses amending section 74 of the Finance Act 2003.)

Further considered in Committee [Progress, 28 April].

[Sir Alan Haselhurst in the Chair]

Clause 49

Greater London Authority: severance payments

I beg to move amendment No. 17, page 25, line 21, leave out ‘2008’ and insert ‘2009.’.

I suspect that the debate will be relatively short—the Committee has a heavy agenda—but it is timely. Hon. Members will agree that we could not let the opportunity pass of discussing something that touches on arrangements for the Mayor of London and the Greater London assembly when that is very much in the public eye.

There is much activity ahead of Thursday’s London mayoral election. One blog that I read this morning even reported that shredders working overtime in the basement of City Hall were responsible for blowing its electrical system and causing the basement to flood. Whatever is going on in City Hall—it will be interesting to discover just how many documents have been shredded and how many computer hard discs have been crushed—it is clear that as the Livingstone regime draws to an end, the Labour party is determined to look after the soon to be ex-Mayor, which is as clear a demonstration as we could ask for that it has written off his chances on Thursday.

Amendment No. 17 is probing. It gives us the opportunity to raise important issues and, hopefully, to gain an understanding of the Government’s thinking on this specific measure and, perhaps, slightly wider issues. Unless the Financial Secretary sorely provokes me when answering my questions, I do not expect that I will press it to a Division.

Essentially, four separate questions arise out of clause 49 and the amendment, the first of which is whether severance payments should be made to the outgoing Mayor of London. I understand that that is not the practice for other elected mayors. The Government have come under pressure from representatives of councillors throughout the country—I think that the body is called the Councillors Convention—to extend arrangements for severance payments to elected members of local authorities. Do the Government have any plans to extend the availability of such payments, or is this a Ken special and what Brian Paddick has referred to as

“Labour looking after its own”?

This House granted powers to the Greater London authority, in the Greater London Authority Act 2007, to set up a scheme for termination payments. In the spirit of devolution, therefore, we have to accept that the decision is no longer ours, but one for the assembly. The assembly must account for that decision to its electorate, who were promised, when the assembly was set up in 2000, that the cost of the Mayor and assembly together would be 3p a week to each council tax payer. Under the Livingstone regime, the spin doctors, publicity, staffing, jollies, jaunts and left-wing jamborees have spiralled out of control, so that the non-borough council tax element in London is now three times higher than it was in 1997-98. A £70,000 payment to the ex-Mayor on his departure will make his going entirely in keeping with the manner of his occupation of the office.

The second question to be addressed, which is more directly relevant to this Committee, is whether the payment should be given tax-privileged status. The measure brings the treatment of a severance payment to the Mayor into line with that of termination payments to Members of Parliament. However, I note that a Mayor aged between 55 and 64, with three years of service, will get rather more than twice as much as an MP of a similar age who has completed a similar length of service.

When I looked into the statute underlying this issue and the arrangements for Members of Parliament, I was surprised to discover that the resettlement grant is payable to Members whether or not they achieve office. As I understand it, a Member who retires is treated in the same way as one who offers himself for election but fails to be elected. I understand that a similar arrangement will be in place for the GLA. The payment is not so much the equivalent of a redundancy payment in the private sector, but a payment that will be made in all cases to a Mayor when standing down. If I am wrong, I am sure that the Minister will correct me, but that is what I have gleaned from the papers published by the House authorities and from my understanding of the GLA scheme.

The general rule is that redundancy payments of up to £30,000 are not taxable if they are ex gratia—if they are not provided under the terms of the contract of employment. Interestingly, Her Majesty’s Revenue and Customs has been seeking to widen the definition of what is provided under a contract of employment to include not only what is provided for in the specific terms of a contract, but benefits that are provided on a routine or customary basis upon termination. Employees have long been able to argue at tribunal that something has been customary in their employment, so it is understandable that HMRC now seeks to extend that logic to attack payments that are non-contractual, but customary, on termination of employment. Given that the Treasury controls HMRC, it is unclear to me why, on the one hand, it seeks to limit the scope of the £30,000 exemption while, on the other, it proposes to extend it in this Bill.

I am certainly not arguing that Members of Parliament should have special treatment which should not then be available to others. Indeed, as I have said, I was surprised to discover that the practice of granting tax-free status extended to payments irrespective of whether the Member had suffered an involuntary redundancy, as it were. Why are payments like this given favourable statutory tax treatment when any other termination payment has to be defended on a case-by-case basis against the Revenue? It is not clear to me why Members of Parliament and Mayors of London should be offered statutory protection from such a challenge.

If we believe that this discrimination between the treatment of politicians and that of everyone else is indefensible—and having now studied it, I think it is—why on earth are we extending it? Surely two wrongs do not make a right. If we are uncomfortable with the current regime, should we really seek to extend it to include the Mayor of London? Perhaps there is a specific reason for defining the tax treatment for MPs in statute, and then a specific reason for extending such treatment to an outgoing Mayor of London. If so, I look forward to hearing the Minister’s explanation of the thinking behind that logic.

The third question is a matter of the timing—hence amendment No. 17 to change the commencement date of this provision from April 2008 to April 2009. I have assumed that the measure before us is not technically hybrid, but there is something uncomfortable—this is not specific to the current, about-to-be former, Mayor of London, but a more general point—about dealing with public legislation that specifically benefits a defined individual or small group of individuals. It means that the merits of the measure inevitably cannot be considered in isolation from the debate about the merits or demerits of the individual or individuals concerned or the manner and circumstances of that individual’s going. I thus ask the Minister whether we should put this change clearly beyond any hint that it could benefit any specific individual currently at risk of receiving a termination payment.

The fourth question is whether there should be a rethink about what is or is not tax-free on termination. I understand that the Liberal Democrats have tabled a broader amendment that looks at the tax treatment of termination payments more generally, rather than just how to deal with Members of Parliament or Mayors of London, so the House will have an opportunity to reflect in further detail when that amendment is debated. It raises the interesting issue of the Government’s general view on this area of taxation of income.

I look forward to hearing the Minister’s explanation of the thinking behind this clause, particularly of why the Government are proposing to extend the statutory tax relief. I look forward to hearing clarification of whether the Government have any plans to extend it further to any other parts of local government, clarification of the Government’s view on the tax treatment of MPs’ resettlement grant payments, and perhaps clarification of the wider issue of the taxation of termination payments.

Perhaps the hon. Gentleman will tell us whether he believes the Greater London authority is more akin to a devolved Assembly, such as those in Scotland, Wales and Northern Ireland, or more akin to a council?

That is a fair comment. It has many of the characteristics of one of the devolved Assemblies, but not all of them. It would also be fair to ask whether elected executive mayors, taking on a full-time role in managing a big city, could reasonably argue that they should be treated in the same way as the Mayor of London is apparently to be treated. That is why I put the question to the Minister. She is a Treasury Minister, so I assume that her instinct will be to resist all pleas for tax-preferential treatment. As I have said, however, pressure is being put on the Government by organisations representing other elected members, and I would be interested to hear the Government’s take on this issue.

As I have made my points reasonably, I should also like to hear whether the Minister agrees that there is a problem when such a provision, which is perhaps intended to have a general and continuing effect, clearly becomes entwined with the fate and fortunes of an individual. We in this Chamber cannot in honesty claim to be able to debate a termination payment for the Mayor of London and its tax treatment without considering the individual who is most likely to benefit from that provision. However, that is a bad way for us to make legislation.

An important issue is at stake. If the current Mayor benefits from this provision, it may well be, as one tax expert was reported as saying, the best £30,000 of public money ever spent, but it is none the less important that we understand the underlying reason for doing this and have some clarification, so that we address any lingering suspicion that the Government might merely be seeking to offer a golden parachute to an old political crony as he comes to the end of his political career.

I shall speak for a far shorter time than I did when you allowed me to continue for longer yesterday evening, Sir Alan.

I think it is rather touching that we in this House believe that our debates that take place a few days before elections will shift large numbers of votes. I am sure that that is why this particular aspect of the Bill has been brought to the fore in the Chamber this afternoon. I fear, however, that our conversation is not being as closely watched by people across the capital city as we might wish. I share the distaste expressed from the Conservative Front Bench for some of the more extravagant spending priorities that the current Mayor of London has indulged in during his period in office, although I do not share the Conservatives’ enthusiasm for their candidate, who has failed to put forward a persuasive case for his election.

Let me, however, return to the topic of severance payments. We think it is reasonable for there to be a package in place for a person who has served a period as an elected politician in this country—that rule also applies to Members of this House. There is a lack of clarity, however, on the wider point of the taxation of severance payments, where a distinction is made between the treatment when that is a one-off redundancy payment that does not attract tax below the £30,000 level, and the contractual payments when there is a tax liability.

A concern has been expressed to my colleagues and me that Her Majesty’s Revenue and Customs does not always act within the spirit of the rules. This is meant to be a one-off payment that softens the burden of redundancy, allowing people to make some provisions for seeking alternative employment and to pay the bills during that transition period. However, it is said that HMRC looks at it as an opportunity to raise revenue—and just at the point when people often require a bit of breathing space to get their financial affairs and working lives back on track. That is a rather aggressive way of trying to raise what is a fairly small amount of money.

May I draw the hon. Gentleman on the specific point? Does he think it generally a good idea to have statutory provisions that exempt politicians from the hazards facing the rest of the population? He makes a good argument about the challenges facing an individual who is in receipt of a payment and needs to defend it against HMRC, but should politicians, be they Members of Parliament or Mayors of London, be exempted by statute from having to go through that process?

The general principle that I would adopt is that politicians should not seek to apply to themselves rules that do not apply to the population as a whole. I add the small caveat that every job and type of occupation has different requirements and contains different contractual elements, and that the circumstances in which politicians find themselves redundant are different, in some ways, from those that sometimes face other people. I appreciate that lots of people in other walks of life can also make such a claim, but people across the country will recognise that it is helpful not to have the Revenue breathing down their neck just when they are trying to get themselves back on their feet again—some people will be in that situation.

Obviously there must be a point where such people are eligible to attract tax, and this situation should not be used as a device to try to circumvent the normal taxation rules. That is why our amendment No. 15 seeks to ask the Treasury to re-examine whether the rules can be more evenly and fairly applied, and to provide that HMRC falls within a tighter set of restrictions than those under which it appears to feel it operates at present.

I notice that the debate on this amendment is so riveting that not a single London Member is in the Chamber, although the hon. Member for Putney (Justine Greening), who is a Front-Bench spokesperson for the Opposition, was present until recently. I have a simple question for the Minister on amendment No. 15: will she tell us what the budgets are for the Welsh Assembly, the Scottish Parliament, the Northern Ireland Assembly and the Greater London authority?

I do not wish to use this opportunity to refer to the present Mayor and to try to exert last-minute influence over an election in which many of our colleagues are probably participating on the streets as we speak. I wish to raise the issue of principle. We face a public expenditure crisis in this country; the Government have overspent, and they are borrowing too much, taxing too much and spending too much money on purposes with which the public do not agree. The proposal before us today is another small example; it is an extension of payment in tax relief to former Mayors should they lose office, one way or another. It legislates not only for one Mayor or one particular payment, but for all future Mayors of London.

I do see the mayoralty of London as a mayoralty; it is the mayoralty of by far and away the biggest city in the United Kingdom. However, the Mayor of London is only one of many mayors of London, because there is a mayor of the City of London and a mayor of the city of Westminster, and there are many borough mayors. Most important local government in London is still carried out by the boroughs, rather than by the rather grand Mayor that was created more recently. It is difficult to see how one can sustain the argument that if it is fair to have severance payment for the grand Mayor of London, no severance payment is offered to the mayors of the individual cities in London, who are, in many ways, responsible for bigger budgets and more important services: they are responsible for education and social services, unlike the overall Mayor of London. As my hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond) has said from the Front Bench, it would be difficult to say that the mayor of Manchester or the mayor of Birmingham should not be given something similar.

I have a challenge for the Government: why do they think that, in the middle of this crisis of over-taxing, overspending and over-borrowing, this is a worthy clause on which to spend more public money? Why do they think that they can hold the line at saying yes to the Mayor of London, but no to the other mayors in London and to the mayors of other great UK cities? They will find it extremely difficult to hold that line.

Let us examine the question of justice and the contrast with the arrangements for Members of Parliament. We live in world in which people often come into the House of Commons at a much earlier age than they would expect to become an elected mayor, and they might be a Member of Parliament for 20 or 30 years. If they suddenly and abruptly lose their seat—perhaps in circumstances outwith the control of individual Back Benchers, because of the performance of their party or Government—one can see how that could prove a dreadful disruption to their lives. They may not be especially well known or have alternative skills, because they have put everything into their life as politicians. That is why that rule, which is unpopular with the public, was introduced, and people stood for election knowing that it was the rule.

It is very different with the Mayor of London. Again, I do not wish to personalise the debate, but I point out that anyone who stood last time round knew that that was not the rule. Why is it fair to change the rules after the election? If such a rule were thought necessary, it should have been introduced at the time that the mayoralty was established and before we had any idea of who would be the first or subsequent Mayor of London.

The other difference is that the mayoralty of London has turned into a celebrity activity, certainly as conducted by the first Mayor. We have already heard from the current Mayor that were he to lose, he thinks that he could have a good life appearing on chat shows and writing articles. I do not think that anyone who has an exciting enough personality to become Mayor of London would be short of a penny or two, should the electorate terminate their contract. They would become famous—

Is not the right hon. Gentleman focusing too narrowly on the Labour and Conservative candidates, who I acknowledge are driven entirely by a love of being on television and the celebrity culture, and overlooking the Liberal Democrat candidate, who has a powerful and persuasive record of reducing crime and tackling the serious threat of criminal behaviour in our capital city?

I do not think that we need to have such petty political debate when I am trying to discuss the principles of the matter. However, if I may be slightly partisan for a minute, I would say that in the totally unreal world in which there could be a Liberal Democrat Mayor—that is not what the polls and the public are saying—he too would become a celebrity and would, in due course, be in exactly the same position as the existing Mayor. Should the electorate tire of such a Mayor, he would be able to command good fees on the speaking circuit.

Given that the length of time that someone is Mayor is likely to be rather different from the length of time for which people may have the privilege of being a Member of Parliament, and because an ex-Mayor would be far better known and have more earning power when the job leaves them or they leave the job, I do not think that the same case can be made as is made even for Members of Parliament. The proposal also has to be set in the context that any payment to any politician is questionable and unpopular. We should not extend such privileges, but seek to cut them back.

When my officials drew to my attention the fact that this Finance Bill would have to contain these measures, I knew that it was not the best time for us to consider them. I know also with absolute certainty that were I in the position of the hon. Member for Runnymede and Weybridge (Mr. Hammond)—I hope that that will not happen for many years—I would not have been able to resist tabling an amendment for discussion on the Floor of the House today.

The hon. Gentleman has taken the opportunity to make one or two light-hearted comments about the contest that is taking place elsewhere, but he has also asked some genuine questions, as have other hon. Members. It is worth noting that this issue was debated in the GLA and, interestingly, Conservative GLA members supported it. The proposal will also benefit some Conservative GLA members who are standing down soon.

The power to establish and administer a severance scheme for the GLA arrived only following Royal Assent to the Greater London Authority Act 2007, in October last year. That is why we have had to include the provisions in this Bill, rather than in the Finance Bill last year.

Has my right hon. Friend had any indication of whether the hon. Member for Henley (Mr. Johnson), who already moonlights as a journalist and is proposing to moonlight in a third job, supports the amendment tabled by his Front Benchers?

No, I have not had any such indication. I genuinely believe that we should avoid personalising debates too much, even when they are as light-hearted as this. Perhaps it is more proper for me as a Minister not to respond in too much detail to points on personality; it is for colleagues to make their points in their own way.

The Greater London authority severance pay scheme is similar to those for MPs and Members of the devolved Assemblies. For the sake of consistency and fairness, it is right that the same tax treatment should apply to all those schemes. Severance payments are taxable only to the extent that they exceed £30,000 when they are made to MPs and Members of the devolved Assemblies. It is right that the same rule should apply to payments to the London Mayor and London assembly members in the event that they cease to hold office at the time of elections.

It is not the case that every member of the London assembly, the Welsh Assembly, the Scottish Parliament or this Parliament works in another capacity. My hon. Friend the Member for Wolverhampton, South-West (Rob Marris) pointed out that some work as journalists. Others work as lawyers. That is not necessarily something to be decried. That fact adds to the quality of debate that we have in this place and enables Members to bring with them wider experience and skills that enrich our ability to debate subjects in Parliament. There is no prohibition on people having such work, but not everybody is in that situation.

It is worth noting that many members of all the public authorities that I just mentioned are full-time assembly members. It is assumed that they will commit a large part of their working time to the job that they do. Most Members of the House these days regard themselves as full-time Members of Parliament and that is why the House has made these arrangements for Members. Although the right hon. Member for Wokingham (Mr. Redwood) said that he did not believe that the Mayor of London should receive the benefits of such schemes, I believe that it is better if we step back from the subject, treat it coolly and calmly and take the personalities out of it so that we look at the broad fairness of the proposal that we are considering.

The hon. Member for Runnymede and Weybridge made me do a double-take. He mentioned the severance scheme—it is a slight diversion, Sir Alan, but he asked me a question. He should look at the review of Members’ allowances that was brought forward in March. He is right; it is proposed that the severance scheme would no longer be payable to Members who chose to retire. However, a number of concerns have been expressed and the matter is subject to further consultation. I am sure that the comments that he has made today and any further comments that he might want to make to the review would be welcome.

I am grateful to the Financial Secretary, as she has genuinely given me a piece of information—that is probably a first in this Committee. I had not looked at that review. She tells me that it is proposed that Members of Parliament who retire voluntarily would cease to be eligible for these payments, but my understanding of the GLA arrangement is that members who retired voluntarily as well as those who lost their places as a result of an election would be eligible for the termination payments. That would put the GLA arrangements out of line with those being proposed for Parliament.

I am grateful for this opportunity to consider the subject. The developments occurred after I considered the proposals for the Bill and after Parliament debated the subject in relation to the Greater London Authority Act 2007. The changes that are being proposed came after our original consideration of the subject. If we are to keep everything in line, the developments will clearly affect other assemblies and Parliaments. It is therefore very sensible that the Senior Salaries Review Body recommendations should be given further consideration and should be considered on their merits. I have my own views and shall be making them known to the Speaker’s review as a result of the fact that the hon. Gentleman has brought the subject to the attention of the Committee—I am grateful that he did so. The proposals in the clause, not those in the amendment, will present no cost to the Exchequer. The costs will be met from the existing GLA settlement.

I ask the Financial Secretary to clarify that statement. Surely we are extending a statutory tax privilege to such payments that would not be available but for this measure; otherwise, there would be no point in clause 49. HMRC would have to test the payment against the usual criteria that it applies, and the Mayor would have to convince it that he had not received the payment as of right and that it was an ex gratia payment. That would be difficult to do when the GLA has made a scheme that makes the payment available to him.

The hon. Gentleman is, of course, right. However, the proposals have been known of for some time, and the settlement for the GLA would therefore necessarily take account of the fact that the proposals were made. Therefore, it would be accepted in the normal course of events that the GLA should budget for such an eventuality.

I am sorry; the Financial Secretary has misunderstood my point, which is that there will be a cost to the Exchequer. If the measure is passed, the payments made by the GLA will not be taxable, and that will be a cost to the Exchequer.

I probably should have that detail with me. I have not got it, but I will write to the hon. Gentleman. Not a great deal of money is involved, but it is a fair question, and I will provide that information to him—the first of many times, I hope, that I will share information with him during the next few weeks.

I believe that there is no comparison with local government. Unlike the London Mayor and assembly members, MPs and Members of the devolved Assemblies, the expectation is that councillors can pursue their duties alongside their normal professions. We do not see councillors as full-time councillors in local government—certainly in England, although things may be different elsewhere. Executive mayors are slightly different, but I do not want to get drawn too far into comparisons with them, because they are not in place everywhere. We are dealing today with an extension to the London assembly of the same provisions that apply to the Welsh Assembly, the Scottish Parliament and, indeed, to Members of Parliament.

I wonder whether the Financial Secretary follows the Conservative spokesman’s argument, which appears to be that, if people want to reduce the overall tax burden to the Exchequer, they should not vote for the Conservative alternative on Thursday, because of the severance payment cost of getting rid of Mr. Livingstone as Mayor of London. [Interruption.]

My hon. Friend the Exchequer Secretary says from a sedentary position that the hon. Gentleman makes a fair point. I will not be drawn down that route.

It is important to make it clear that the proposal does not apply to all those who face a sudden and unexpected interruption of their employment. Tax exemption was first introduced in relation to redundancy or severance payments in 1960, when the limit was set at £5,000. The tax exempt limit was increased to £10,000 in 1978. It was increased again to £25,000 in 1981, and then to its present level of £30,000 in 1988. We keep that limit under review, but we have no current plans to change it.

I am grateful to the hon. Member for Runnymede and Weybridge for moving the amendment. Its sole purpose is to delay the coming into effect of the clause until 6 April 2009. I cannot agree to its enactment. We are bound by an earlier Act of Parliament to introduce the measure. The GLA severance pay scheme took effect from 1 March 2008 and follows the implementation of the power that the GLA was given under the 2007 Act to set up and administer such a scheme. The scheme is based on the same model as the severance pay schemes that affect hon. Members and Members of the devolved Assemblies, and the purpose of the clause is to put the tax treatment of payments under the new scheme on the same footing, as I have said, as those that are made under the longer-established schemes.

The Financial Secretary has just said that we are bound by previous legislation to introduce the measure. Can she explain that? I was not aware that the 2007 Act bound Parliament to introduce the measure today.

The severance scheme was set up under the GLA Act. Extending tax exemption to the scheme in the way that is envisaged would keep the scheme in line with others that we have mentioned. That was always the intention of the Act. The hon. Gentleman picks me up on a slightly loose use of the word “bound”, and I take his point.

The hon. Gentleman asked about the cost to the Exchequer. The cost is so small that, under usual budgetary cost accounting procedures, it is counted as zero in the Finance Bill, hence my earlier point. The total cost this year for six members standing down is about £151,700. My hon. Friend the Member for Wolverhampton, South-West asked whether I had details of the budget; I do not have those details to hand, but I will write to him on the subject when I have had the chance to consider his comments in detail in Hansard.

The clause is designed to settle the tax treatment of the resettlement grants that may be paid to the Mayor or members of the London assembly if they cease to hold office at the time of an election. The amendment would mean that the clause could have no practical effect until the 2012 elections. It would also mean that the first payments under the scheme were wholly taxable as earnings, rather than treated as termination payments, the first £30,000 of which are tax-exempt. That would be unfair and churlish, given the treatment of Westminster MPs and Members of the devolved Assemblies. I hope that the current Mayor of London continues in his post for many years and has no need to avail himself of the measures, but I do believe that the Committee should put the measures in place. I therefore ask the hon. Member for Runnymede and Weybridge to withdraw his amendment.

If the Minister really believed that the current Mayor would stay in post for many years, she would not have any problem accepting the amendment. She said that she wanted to depersonalise the discussion; the point of the amendment, which delays implementation until 2009, is to depersonalise it. It would mean that that discussion was not about Ken Livingstone, but about the principle of the tax treatment of severance payments for Mayors of London.

The central point that has come out of the discussion—from the Minister’s remarks about the parliamentary scheme, I think that it is a point in which she is interested—is that we have a curious arrangement whereby there are payments that, in the hands of any person other than a Member of Parliament, a Member of the devolved Assemblies, or a member of the GLA, would have to be defended against the Revenue. The tax treatment on the first £30,000 would have to be earned by demonstrating to the Revenue that the money was not an entitlement, but an ex gratia payment. What we have done in the case of Members of Parliament, and what we are about to do in the case of members of the Greater London authority and London Mayors, is define such a payment, in statute, as non-contractual, even though it is made under statute, and so will certainly be received by the holder of the office in question.

Any payment that someone in the private sector was certain to get when they relinquished office would certainly be taxable in full, and the Revenue would rightly argue that case, so we are creating an anomaly for a very small class of people, all of whom happen to be politicians.

May I point out to the hon. Gentleman that elected representatives who lose their income as a result of the wish of the electorate, and not after voluntarily standing down, are in a rather odd position? Any other employee who is made redundant can claim redundancy and could succeed in getting up to £30,000, tax-free. Clearly, a Member of Parliament who loses at an election is not redundant, because there is someone else doing the job; someone else takes over. That is the anomalous position, which I suspect does not exist elsewhere in the economy.

The hon. Gentleman makes a good point and draws attention to the need to distinguish between office holders who relinquish their positions voluntarily, which is more akin to voluntary retirement or quitting a job, and those who are involuntarily retired by their employer, in the private sector, or by the electorate, in the case of elected officers. There is clearly a much stronger case for generous treatment of those who, through no volition of their own—I will not say no fault of their own—find themselves turned out of office.

There would need to be careful drafting of such provisions. An unscrupulous person—I trust that there are none present—could decide on retirement and then put up as the “Don’t elect me” candidate in a seat where they had no chance of being elected and qualify for the full severance payments. The ruling would have to include the introduction of party into British law and would have to state that the person had to stand again for the same party in the same seat, or it would not be sensible.

My right hon. Friend makes a good point. I will not test the patience of the Chair by going any further down that route, other than to say that equally, there would be the problem that Members in seats with large majorities would be unlikely to find an opportunity to retire by offering themselves for election and failing. Other Members might, at some point in their career, expect to face that problem. I fully accept that there are difficulties.

May I caution the hon. Gentleman about the use of the adjective “generous” in the present context? One can have a debate about the generosity of the amounts that an elected representative would receive under such a statutory scheme, but one should not apply the adjective “generous” to the concept that a sum up to the first £30,000 of any such payment is particularly generous or favourable to elected representatives, because that is the case for everyone else in the population under redundancy schemes.

We do not want to go round the course again, but my understanding is that that is the case for everyone else in the population only if the payment is received ex gratia, rather than as a contractual provision.

Well, perhaps the hon. Gentleman and I can continue the debate outside the Chamber. That is not central to the point at issue.

In her reply, the Minister did not answer the question whether the logic of the Government’s intentions is that elected executive mayors more generally will be afforded similar treatment, both in terms of the ability to receive payments and in terms of the tax treatment of those payments. She made it clear that she does not believe that there is a case for extending such payments to councillors, and she gave a coherent explanation—they are not full-time and they are expected to have other employment—but elected executive mayors, as I understand it, are expected to be full-time. We did not get to the bottom of whether we shall see a further extension of the provision to executive mayors.

On reflection, after listening to the arguments, I have decided that I agree with the tax expert whom I quoted earlier that £30,000 of taxpayers’ money would probably be a price well worth paying to see the back of the spiralling expenditure of the Livingstone regime in city hall. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 49 ordered to stand part of the Bill.

Clause 90

Zero-carbon homes

I beg to move amendment No. 21, in page 51, line 11, leave out from ‘acquisition”’ to end of line 12 and insert

‘means the acquisition of a dwelling when it has not been previously acquired by a buyer’.

With this it will be convenient to discuss the following amendments: No. 13, page 51, line 12, leave out from ‘acquisition’ to end and insert ‘as a zero-carbon home.’.

No. 4,  page 51, line 12, leave out ‘occupied’ and insert ‘acquired by a buyer’.

No. 14,  page 51, line 12, at end insert—

‘(2A) In section 58B omit subsection (6).’.

No. 20,  page 51, line 26, at end add—

‘(8) The Treasury shall, by regulations, define a “zero-carbon home”.

(9) Regulations under subsection (8) must have regard to the desirability of ensuring that all new homes should be zero carbon by 2016.

(10) Regulations under subsection (8) shall be made by statutory instrument.

(11) A statutory instrument containing regulations under subsection (8) may not be made unless a draft of it has been laid before and approved by resolution of the House of Commons.

(12) Regulations under subsection (8) shall be laid not later than 31st December 2008.

(13) On the coming into operation of regulations under subsection (8), regulation 5 of the Stamp Duty Land Tax (Zero-Carbon Homes Relief) Regulations 2007 (SI 2007/3437) shall cease to have effect.’.

Amendment No. 21 replaces amendment No. 4, which should have been withdrawn from the Order Paper.

The Government and the Chancellor claim to be concerned about the environment. In this year’s Budget statement, the Chancellor said:

“our greatest obligation to the future must be to tackle climate change.”—[Official Report, 12 March 2008; Vol. 473, c. 295.]

The Government claim that they want a meaningful reduction in the UK’s carbon emissions and that their zero-carbon homes initiative will kick-start the market for new, highly efficient technologies in homes. They talk about how the policy will set a gold standard for green homes.

I do not think that we are quite there yet, so my amendments are a helpful start. They try to explore and challenge whether the Government’s zero-carbon policy, as it stands, can ever be truly fit for purpose. Amendment No. 21 aims to clarify what could be an ambiguity in the current drafting of the policy. Amendment No. 20 aims to prevent a likely problem from occurring, which, if not stopped, could really damage the Government’s chances of meeting their already challenging ambition of ensuring that all new domestic homes are zero-carbon by 2016. We Conservatives also support that target.

Let us not forget that the zero-carbon homes policy was enacted by regulation only eight months ago, in October 2007. Even so, Treasury Ministers are already changing their own policy, less than a year after it went through Committee. In October 2007, the original statutory instrument specifically excluded flats and maisonettes from being eligible for the relief. At the time, my hon. Friends and I questioned the sense of that exclusion; we now know from later statistics that nearly half of all new homes built in Britain are flats.

Just months later, by the time of the Budget, the Chancellor was already announcing that, after all that, the zero-carbon homes policy would be extended to include flats as well as houses. We very much welcome yet another adoption of a Conservative proposal and I hope that my amendments today will, similarly, be adopted—although without the eight-month delay. I have no doubt that the Government’s ambition, which we support, for zero-carbon homes by 2016 will be better achieved if the amendments are adopted.

Amendment No. 21 is a redrafting of new subsection (2)(b). It aims to define better and more carefully what constitutes a first acquisition. My understanding is that the provision is drafted to ensure that stamp duty relief may be claimed only the first time a home is bought. During our debate on the statutory instrument in Committee, the Minister responding said that extending the relief to second and subsequent sales would provide no value to the taxpayer. However, the proposed Government definition in the Bill covers a dwelling that

“has not previously been occupied.”

In practice, that could allow for multiple stamp duty land tax relief claims on the same property, if that property were sold again but never occupied in the meantime. For example, somebody could buy a newly built zero-carbon dwelling from a developer for their elderly parent to live in. They would gain stamp duty relief from the developer because their parent would not yet have moved in, although they were planning to; the residence would never have been occupied. Under clause 90, if, unfortunately, the elderly parent died prior to occupying the dwelling, the next purchaser would presumably also be allowed to claim stamp duty relief, as the home would still not have been occupied. The amendment would clarify the definition of a dwelling in respect of providing stamp duty relief to mean one that has not previously been acquired. It would remove the ambiguity of the current drafting and would deliver the Bill as the Government intend it.

I can imagine no objection from the Minister to amendment No. 20. It simply provides an insurance policy—that there will be a clear definition of a zero-carbon home by the end of the year, just as the Chancellor promised in the Budget. Crucially, amendment No. 20 would also require the Government to use a consistent definition of what constitutes a zero-carbon home across Departments, in a joined-up way. That definition would have to be approved by the House, and any anomalies between the definition arrived at after the summer’s consultation and the existing definition in the relevant Treasury statutory instrument would have to be identified. Those differences could then be debated and voted on, so that a single, workable definition could be achieved.

The lack of joined-up government between the Treasury and the Department for Communities and Local Government is a critical failure, as it means that we still have no clear definition of what a zero-carbon home is—even though the Government first announced their policy on such homes in December 2006. That means that, by the time a single policy is arrived at, it will have taken more than two years to get the definition that we need.

The Government say that the aim of stamp duty relief on zero-carbon homes is to stimulate demand for such homes, but it is almost inevitable that the present uncertainty, as long as it exists, will hold back both demand and supply. How can industry and buyers aim for a target when that target’s definition is not established or keeps changing? No wonder there is so much uncertainty in the building profession. The Government have told builders and developers that they want all new homes to be zero carbon by 2016, even though they—the Government—do not know what that means. That is why they are having to launch a fresh consultation.

A recent survey by the National House-Building Council found that most of those surveyed did not know what a zero-carbon home was. The lack of explanation and education about zero-carbon homes means that, according to the council, there is a

“distinct possibility that purchasers will decide against buying newly-built, low carbon properties.”

Another cause of uncertainty in the existing Treasury statutory instrument needs to be resolved. It is not clear whether the energy required to power day-to-day appliances used when a zero-carbon house is finally occupied can come from renewable sources via the national grid, or must come from a renewable source connected to the property directly and exclusively by private wire. I think that that is what the statutory instrument suggests, and it would be helpful—certainly for the building industry—if the Minister cleared up that confusion.

Even if we succeed in tying down the Treasury definition of a zero-carbon home, there are other dangers with the approach announced in the Budget. By the end of the year, after the consultation process, we will have a new definition of what constitutes a zero-carbon home, but that definition may well be different from the one contained in the statutory instrument. Any such difference would be even more confusing and damaging: for instance, developers might develop, build and market new houses in the quite proper belief that they were meeting the definition of zero-carbon homes agreed after the consultation, whereas buyers might not be aware that those homes did not fulfil the Treasury definition of zero carbon for stamp duty relief purposes. That is a recipe for unhelpful uncertainty, and it is certainly no way to kick-start the market.

Under amendment No. 20, the Treasury definition contained in the statutory instrument would be amended to ensure consistency with the final definition agreed following the summer consultation proposed on page 105 of the Red Book. Getting rid of the uncertainty matters, but the signs are that designing and developing zero-carbon homes will be a challenge.

So far, the Government’s stamp duty relief policy has been less than impressive when it comes to kick-starting the market. In the eight months between the start of October 2007—when the statutory instrument giving stamp duty relief on zero-carbon homes came into force—and the end of March this year, a grand total of just 10 homes qualified for zero-carbon stamp duty relief. In fact, there were six homes last year and four this year, with just one in March, so the run rate of zero-carbon homes qualifying for stamp duty relief seems to be tailing off, if that would have been thought possible at the end of 2007. Given the lack of homes that are qualifying for the relief, will the Minister enlighten us as to the carbon savings that have resulted from the zero-carbon homes that have qualified so far? What research is the Treasury doing to find out whether the stamp duty relief for zero-carbon homes, as it currently operates, is really making a difference to buyers’ behaviour?

I have a suggestion for the Minister. Given that so few people have qualified for zero-carbon home stamp duty relief so far—just 10—what about getting them all down to Westminster to have a round table discussion about these issues? There are so few of them that it would be perfectly feasible. If she would give me their contact details, I would be happy to organise that meeting so that we could all learn from the minimal transactions thus far—or perhaps we could do a conference call, which might be more environmentally friendly. I would be happy for the Minister to sit in on that.

There is a serious point here. We need to understand which people and which homes have already qualified for the relief. Are the people claiming the relief major developers who have just sold their first prototype building to someone and are perhaps therefore in a position to start being able to mass-produce, which would clearly be very good in terms of reaching the 2016 ambition; or are they, as I suspect, individuals who are keen to play their role in tackling climate change and have had themselves a zero-carbon home built to a more individual specification, which may suggest that we are less likely to see mass production of such homes? I would love to be able to sit down with those people and talk to them about whether they felt that the current stamp duty relief policy had influenced their behaviour in relation to buying a zero-carbon home and, if not, what policy would have positively influenced their behaviour in order to cut emissions further.

I must question the Minister about whether the Treasury’s zero-carbon home stamp duty relief policy joins up effectively and more broadly with the ambition of the Department for Communities and Local Government to have all homes built as zero carbon by 2016. I have discovered through parliamentary questions that the 10 zero-carbon homes that have qualified for stamp duty relief so far were all in a 1 per cent. stamp duty band, which means that they probably had an average cost of £187,500. We can therefore broadly assume that their average stamp duty would have been 1 per cent. of that—£1,875. If so, the £15 million budget set aside to fund the policy from now until 2012 will fund a total of 8,000 homes—fewer than 2,000 a year. If we are to hit our zero-carbon homes ambition by 2016, we should by then be building 240,000 zero-carbon homes a year. These things do not seem to match up with one another. When I questioned the Minister in the statutory instrument Committee when the regulations first went through the House, she was unwilling to explain how the £15 million budget had been arrived at. I am pretty confident, and perhaps she can confirm, that the assumptions behind that budget were that 8,000 homes within the 1 per cent. band were receiving an average of £1,875. Will she have yet another go at clarifying the underlying assumptions as regards the £15 million that is currently set aside for the policy?

Perhaps the Minister could also confirm that the original budget of £15 million was set in 2007—before this year’s Budget announcement allowing flats also to qualify. If nearly half of all new properties built are flats, we should have expected the Treasury to double the amount set aside for the policy. Instead, as far as I can see, it has added no new money whatever to pay for the relief, suggesting an assumption that the Budget change in 2008 will have no impact on the amount of relief it expects to be claimed. Again, that does not make sense.

That brings me to my final point. As with vehicle excise duty changes in the 2008 Budget, which the Government now admit will make virtually no impact in reducing CO2 emissions, the zero-carbon homes stamp duty relief policy came with much fanfare, but as far as the behaviour change it desires to achieve is concerned, it seems destined to fail. Even the Government have said that they expect the original stamp duty relief policy on zero-carbon homes to reduce emissions by 1.6 million tonnes by 2020, when household emissions in 2006 already stood at 155 million tonnes. In this year’s Budget, Treasury Ministers did not even try to pretend that they thought that the Budget would cut emissions. Page 107 of the Red Book describes the environmental impact of the zero-carbon homes change as including flats. It refers to a

“Small reduction of carbon emissions.”

Perhaps the Exchequer Secretary can tell us just how small.

Yet again, a Budget measure has been announced that is designed to reduce carbon emissions, but is in reality a shambles. We have no definition for zero-carbon homes, no idea of the real budget needed by the stamp duty relief policy, no idea of the number of homes that will claim relief and no idea of the reduction in emissions that the policy will lead to. The Treasury may talk a good game when it comes to environmental taxes, but its rhetoric is way ahead of its practice. The only way that things will get better is under a Conservative Government because this is not zero carbon—it is zero credibility.

I am grateful for the opportunity to follow the hon. Member for Putney (Justine Greening), because I agree with the central thrust of her analysis—the Government’s provisions are gimmicky, inadequate and do not start to deal with the scale of the problem that confronts us. Where I depart from the line taken by Conservative Front Benchers is in the conclusions that I draw. I conclude that the Government need to be far more ambitious and visionary. The criticism made by the Conservative party always appears to be that the Government are gimmicky, so we should abandon all hope and not venture down the path at all. As far as I am aware, its central criticism reflects the fact that the party whose leader has a propeller on his roof that does not work thinks that the Government are too gimmicky.

Our amendments aim to make the policy more successful, although I have flagged up some serious concerns about whether it will ever be able to work.

I am grateful for that intervention, because the hon. Lady made a criticism that the Government have not allocated anything like enough money to reflect the scale of their policy. However, I have not heard financial commitments from the Conservative party to fund such policies. The Conservatives seem extremely reticent about giving hard, cast-iron financial assurances that are designed to change behaviour and reduce CO2 emissions in this country. I have seen the leader of the Conservative party riding his bike to this building, with an England flag on the back of it when England is doing well in football matches. I know that he has a propeller on his roof that does not work. I have seen all that imagery and gimmickry from the Conservative party, but I have not seen any concrete policies.

On the contrary, the hon. Lady, whenever she makes a political point at the Government’s expense in this Chamber—a legitimate thing for her to do—says that the Government’s efforts, which I accept are timid and insufficient, will not make any difference, or make only a negligible one. Her conclusion seems to be that the Government should not be venturing down that path at all. However, perhaps she would like to intervene to say that the Conservative party’s position is that vehicle excise duty rates and petrol taxation should be much higher and the number of wind farms should be much greater.

The hon. Gentleman claims that we have made no progress on our environmental agenda, but he is wrong. For example, the Conservative party suggested a tax on a whole plane rather than air passenger duty, and we proposed feed-in tariffs, which the Government are eventually adopting. We do not have to demonstrate our credentials—

Order. The debate is beginning to spin into a much wider field. The defining word is “homes”.

I will be guided by you, Sir Alan. We wait with keen interest to ascertain whether the Conservative party has anything meaningful to say about reducing, for example, private car journeys. At the moment, it seems big on criticism—

Order. I am beginning to detect that the hon. Member has a habit of saying that he will be guided by me, but proceeding not to be. I encourage him to be guided.

We will consider the subject that I mentioned later in our deliberations.

In our amendments on homes, we share Conservative Members’ analysis that the Government lack vision and ambition, but we go on to urge the Government to adopt a more visionary and ambitious set of policies rather than simply throwing up our hands in despair. It is worth sharing some statistics, which show the urgency of the position and the inadequacy of the Government’s proposals.

The current housing stock of 25 million homes in the United Kingdom accounts for around 27 per cent. of the country’s total carbon emissions—approximately double the amount of carbon dioxide that cars in the UK produce. It is worth dwelling on that momentarily because transport gets singled out—not unfairly, because it is a major contributor to CO2 emissions. However, if one stopped the average person in the street and asked whether domestic households or transport was the much greater contributor to global warming CO2 emissions, the reply would overwhelmingly be, “Transport.” Yet the energy produced in our homes is a major contributor. [Interruption.] The hon. Lady says from a sedentary position that the public perception is that transport is not a major contributor to CO2 emissions. [Interruption.] The hon. Lady is giving a running commentary from a sedentary position. If she has something to say, she can intervene.

I did not intend to interrupt the hon. Gentleman’s speech, but I did not claim that the public did not think that there were emissions from transport. I said that many people in my constituency are also aware that their household emissions are even greater than those from transport. That is not to say that they do not believe that transport emissions are a problem.

I am grateful for that intervention. Perhaps we can resolve the matter only through opinion polling or asking a sufficiently wide cross-section of the public. I was not trying to be especially controversial—I simply observed that transport attracts far greater attention in the debate on CO2 emissions than domestic households, yet the latter contribute significantly to the total amount of CO2 emitted in the United Kingdom.

I suggest that—I stress that I am not citing actual statistics—in 20 years, 80 per cent. of current homes will still be used, whereas 80 per cent. of the road transport fleet will not. There is much higher turnover of transport stock and it is therefore much easier to tackle transport emissions than to deal with emissions from homes. I say that as someone who has lived for 25 years in a property that was built in 1888.

I am grateful for that intervention because that takes me—you will be relieved to know, Sir Alan—to the amendments that the Liberal Democrats have tabled. They try to widen the scope of consideration so that the Government do not concentrate only on new homes, which are clearly important, but focus on the UK’s housing stock as a whole. In any given year, roughly 1 per cent. of the houses occupied in the United Kingdom will have been built in that year, while 75 per cent. of houses in 2050 will have been built before 2007. If we concern ourselves solely with newly built houses, we will address the situation only incrementally.

Indeed, I would like us to go much further in that regard, too. It distresses me that large new housing developments are built on the edges of towns throughout the country with the car in mind. It is hard for the people living in those houses to buy a pint of milk or beer without getting in their cars. Such developments are often built without shops, pubs, village halls, churches, post offices or other amenities, which people cannot reach without driving a car. The houses are quite well insulated, but they could still incorporate large numbers of building features that would improve their carbon emissions.

There is a lack of ambition among builders in that regard. However, if we neglect the existing housing stock, we will not tackle the problem with anything like the urgency that it requires, particularly given the interesting cultural dimension in this country, whereby people often aspire to live in older houses. People in the United States, for example, would think that the best house that one could buy would be a brand new one, in the same way that people in this country would, by and large, like to buy a brand new washing machine, car or whatever else.

The most expensive and desirable houses in the United Kingdom are often those built, say, 200 years ago. There is not quite the market drive towards new house building in this country as there is in some countries. Whether because of a cultural or social dimension, it is seen to be desirable to live in an older house, often with not very well insulated windows, for example. We therefore need to turn our attention to how we improve such matters.

I am not the only person who takes that view. In the Select Committee on Communities and Local Government report “Existing Housing and Climate Change”, the hon. Member for Milton Keynes, South-West (Dr. Starkey), the Labour Chairman, called for a

“much clearer focus on what must be done to bring existing housing up to required energy efficiency standards”.

She also said:

“We need the Government to go further and do much more to help householders radically cut carbon emissions from their homes, whether they were built in 2007 or 1707.”

That is the position of my party, too. We have put forward large numbers of policies to try to accelerate the level of home insulation, as well as other measures that can be put in place to try to reduce CO2 emissions both in Britain’s existing housing stock and in newly built houses. That is the scale of the ambition that we urge the Government to adopt. We have no problems with the measures in the Budget; we just think that they do not go far enough.

The speech that the hon. Member for Putney (Justine Greening) gave was interesting, as is her amendment No. 20. Unfortunately, however, as sometimes happens, she leavened her speech with too much righteous indignation. I will bear that in mind when I think of the reports of the views of Conservative party activists on eco-towns, for example, which the Government are putting forward and which are so important.

I want to distinguish between the construction and the occupation of new properties. If we are talking about zero carbon, the first thing that I would like to do is change the terminology. It is a little late for that, because the terminology is already in statute, from the Finance Act 2003, but we are almost certainly not talking about zero-carbon homes. Rather, we are talking about zero-CO2 homes. I venture that almost no home will be built in the United Kingdom in the next 100 years without any carbon in it, because wood is carbon and the architraves around the doors, if nothing else, are likely to remain wood.

The reason I stress that point is that it highlights the use of language and whether we are talking about emissions when we talk about zero-carbon homes—I will use that phrase, because it is in the legislation already and in the proposals before us. However, we need to distinguish between emissions from the construction and emissions from the occupation of such homes. That is why amendment No. 20 is interesting. Indeed, I shall be interested to hear what my hon. Friend the Exchequer Secretary says about definitions and the need for definitions.

I find it difficult to envisage the construction of a new home in the United Kingdom in the next 20 years involving zero CO2 emissions, if only because for many years to come it is quite likely that some of those building the home will drive to the site in a car fuelled by fossil fuels, not by electricity. They will use electric saws to cut wood, and sometimes electric concrete mixers, and some of the electricity might well come from fossil fuel. We might move to mass renewables. We could move to nuclear, but the building of nuclear power stations involves CO2 emissions. Construction workers might drive to the site in a vehicle powered by electricity from a renewable resource and plug in rotary saws that are powered in the same way. A consideration of zero CO2 emissions during a home’s construction depends on how far one wants to take things towards the absurd. If we are to avoid reaching an absurd situation, the definitions must be clear and we must distinguish between construction and occupation.

On the occupation of houses, should we require those seeking the tax exemption to guarantee that their washing machine will be run only on electricity from renewable resources? How far should we take things when we consider zero CO2 emissions for occupation? I am worried that we will move towards bringing into the equation CO2 offsetting, which is one of the biggest boondoggles around. My hon. Friend the Member for Nottingham, South (Alan Simpson) has mentioned in the Chamber—wittily, as usual, but quite rightly—that there is an adultery offset website. Allegedly, the person behind it is a rather spotty youth called Kevin from somewhere like Plymouth. He agrees to remain chaste and not to engage in sexual relations—certainly not adultery—so that someone who signs up to the website can engage in adultery absolutely guilt free because of the adultery offset—[Laughter.] That might produce a laugh, but it highlights some of the problems with CO2 offsetting. Although this is being exposed, CO2 offsetting is often a complete con. It is said that Coldplay chose 10,000 trees in somewhere like Indonesia to carbon offset one of their world tours, but that all the trees were dead.

I raise this point regarding the definition of a zero-carbon home under amendment No. 20. Will CO2 offsetting come into the definition on the occupation side of the equation—when someone is living in the house—and when measuring whether the occupation leads to no net use of CO2? We need tight definitions and a clear political direction, preferably with cross-party consensus, to determine exactly what constitutes a so-called zero-carbon home.

I am following the hon. Gentleman’s argument carefully. I am aware of his concern about the issue and he is right to ask for clear definitions. However, when carbon offsetting is done properly, sensitively and in sufficient volume, it can genuinely offset the carbon that we use. Would he want to discount it completely from a definition?

I would not want to discount it completely from a definition, but one would have to be careful about bringing carbon offsetting into the definition of a zero-carbon home. There have been carbon capture and storage projects in Norway for several years and in Saskatchewan, Canada. Most people would regard CCS, when properly carried out, as suitable CO2 offsetting. However, planting trees that then die—either naturally or prematurely—is not really CO2 offsetting. We need to be careful with the definitions. I urge the Exchequer Secretary, bearing in mind that she is a Treasury Minister—she is a very able Minister—to try as best she can to give the Committee some clarification, with regard to amendment No. 20, about what a zero-carbon home really is.

I rise to support my hon. Friend the Member for Putney (Justine Greening). Her amendment makes a lot of sense, and I hope that the Minister will simply concede that. I am sure that the Government intend the tax exemption to be available only on the first sale-and-purchase transaction. The drafting in my hon. Friend’s amendment would ensure that rather more accurately than the drafting in the Bill, so it would make sense to accept it.

Like the hon. Member for Wolverhampton, South-West (Rob Marris), I wish to concentrate more on amendment No. 20 and what constitutes a zero-carbon home. I approach the issue from the proposition that it is better to try to change people’s conduct using tax incentives than through tax impositions or compulsion. The principle in the amendment is therefore welcome. It is right that the Government should try to address emissions related to the home environment as well as transport emissions. We well know why that is important: many more of the typical family’s emissions come from the family home. The problem is a difficult one, but it can be addressed using a series of incentives and proposals, of which this would be just one.

I understand my hon. Friend the Member for Putney’s worry that the measure will have a small impact. Part of the reason it will have a small impact is to do with the definition, which lacks clarity about what is a zero-carbon home. There might be a feeling out there in the marketplace that zero-carbon homes are unachievable, and that we should move our targets to what might better be called low-carbon homes as technology develops and the marketplace responds. That is what we do with motor vehicle manufacturing, the regulation of which is tightened progressively over the years, so that each generation of cars is successively better. As a result, exhausts have been cleaned up, and there have been changes regarding the production of fuel to give a certain level of performance. We could have a similar trajectory with housing and the improved performance of our homes, preferably through an incentive scheme.

The hon. Member for Wolverhampton, South-West rightly said that the zero-carbon home of the Government’s imaginings is not truly zero-carbon because the construction process will entail a certain level of carbon dioxide emission. He could add to his list the emissions of vehicles used on a site to dig the ground and move the earth, as well as any pile-driving and concrete mixing required to provide the foundations and a stable platform on which to build.

Another aspect of all building processes that causes perhaps even more carbon emissions is the manufacture of building materials. Most of the building materials going into a typical British house have been produced using energy-intensive processes. The cement industry is a big energy user, as is the brick industry. That consideration needs to be fashioned into a policy. Although it will be good news for those who wish to cut carbon emissions if homes can be constructed that emit few or no carbon emissions, it will not be such good news if the building materials used to achieve that degree of insulation and that carbon-free standard were produced using energy-intensive methods or if they had to be transported quite far. Such homes would take many years to break even on the carbon account.

These issues are difficult. Carbon accounting is a rudimentary science at the moment, and all too many people considering it think that there are silver bullets and easy answers. They think, for example, that stopping people driving would make the problem go away, but it would not. The issue is more complicated than that. All sorts of processes and circumstances involve carbon dioxide emissions, and a sophisticated carbon account is needed before sensible policy conclusions can be reached. I hope that the Minister will produce rather more sophisticated research—perhaps not today but in the months ahead, as this policy develops—so that we can have a better idea of what the true carbon account would be on a so-called zero-carbon home. I hope that the Minister will be able to provide a little more definition today, as my hon. Friend the Member for Putney requested. If the policy is to have any chance of working, the wider world, interested in building new homes, needs a clearer idea of what is required, and we need a clearer idea of whether it is achievable.

I would regard as a failure a policy under which only 10 homes qualified in more than half a year, and, if I were a Minister, I would regard it as my important duty to tweak and change it until I had a decent number of homes coming forward, so that I could claim that the policy was some kind of success. I put it to the Minister either that it is a problem of persuading the market that what she has in mind can be done—the Government are meant to be good at putting out messages through the media—or that perhaps more work needs to be done on the sort of home that is envisaged, working in conjunction with the industry, so that we can roll out a policy for the hundreds and thousands rather than the one and twos as we seem to have at the moment.

I think that a stamp duty tax break is a very attractive tax break, as stamp duty is very high on the more expensive houses and still a lot of money on the relatively cheap houses because house prices have increased so much. We would expect to have something for the expenditure of tax revenue forgone; we do not seem to be getting it at the moment, so I hope that the Minister will use amendment No. 20 as an opportunity to clarify and improve the definition so that it delivers on the carbon front, taking into account the production of carbon in building the house as well as in subsequently living in it, as well as delivering the number of homes needed to fulfil the targets.

I am delighted to return to the subject of stamp duty exemptions on zero-carbon homes, as provided for under clause 90 and the amendments proposed by my hon. Friend the Member for Putney (Justine Greening). I have some interest in the issue, having been fortunate enough to encounter it during the Committee stage of last year’s Finance Bill and, by happy coincidence, when I joined my hon. Friend during the subsequent debate on the statutory instrument in December. Some members of the Committee may also have been present last year and will remember that we had great fun in the debate, largely at the expense of the then Economic Secretary, the right hon. Member for Normanton (Ed Balls). However much we teased him and laughed at his ability to tie himself in knots, there was a broad consensus that we wanted the policy to work in practice.

Stamp duty is a considerable expense for anyone trying to get on the housing ladder and last year’s revenues reached some £6.4 billion—a 40 per cent. increase on the previous year. It is quite right for the Government to seek to influence behaviour by reducing some of the burdens of that huge rise in taxation. In that respect, the potential benefits of the policy are wrapped up with how it is perceived by home buyers—and, of course, home builders.

In the same constructive spirit, I welcome the change proposed in clause 19, which will extend the relief to registered flats—something that I asked for when we debated the statutory instrument and the then Economic Secretary gave the Government’s favourite answer: that it would be reviewed. To give credit where it is due—it is right to do that sometimes—it has not only been reviewed but acted upon and duly extended, so I am delighted that once again the Government seem to be listening to the Conservative party; but it is a shame that neither the Economic Secretary nor the Chief Secretary, who I am sure would have been particularly well briefed on the subject, could be here for today’s debate. It is a shame because there is already a sense of discontinuity creeping into the way in which the zero-carbon homes agenda is being dealt with and there is a sense in which the Government’s lofty aspirations are not being matched by the reality of delivery.

As my hon. Friend the Member for Putney has already mentioned, parliamentary questions have done what endless questions in Committee could not: they have elicited the number of zero-carbon certificates that have actually been issued. Unfortunately, it is a very small number indeed—my right hon. Friend the Member for Wokingham (Mr. Redwood) made that point. Will the Exchequer Secretary update us as to what the latest number is?

That matter worries me less, however, than does the caveat that appears at the end of a couple of parliamentary answers. As the Exchequer Secretary stated in one of them:

“We expect the number of qualifying transactions to rise as more properties eligible to claim the relief go on the market.”—[Official Report, 19 March 2008; Vol. 473, c. 1223W.]

I am sure that the number of transactions will rise given that we are starting from a very low base, but it seems that the Government expect some magic exponential effect to occur, and they always seem to expect it to occur soon rather than now.

Last year, the then Economic Secretary proposed the same kind of optimistic but ill-defined acceleration as is now appearing in such parliamentary answers. He said—in the way that only he can—that

“there will be a non-linear, progressive, accelerating build-up over time on the basis of which we will get to a figure of 200,000 by 2016.”—[Official Report, 26 June 2007; Vol. 462, c. 198.]

However, he also admitted that the pace of the acceleration depended on the definition that was adopted for zero-carbon homes.

I do not wish to plough the same ground too many times, but the Government have never given satisfactory answers in the repeated questioning over the costing of this measure. There still seems to be a disparity between the £15 million that was set aside for stamp duty rebate and the 200,000 houses that the Government hope will benefit from it by 2016. My hon. Friend the Member for Putney made that point in her excellent speech at the beginning of the debate. Can the Minister confirm the total value of the stamp duty land tax relief for new zero-carbon homes that has so far been claimed, and whether that figure fits in with the projected cost to the taxpayer of £15 million by 2011-12? Moreover, since clause 90 extends eligibility for the relief to flats, may we have an updated costing? It will, presumably, be in excess of £15 million, but by how much? I ask that as there does not appear to be a figure in the Red Book that reflects the extension.

Given the low initial take-up, the ongoing scepticism about the definition, the uncertainty over costing, and the damage that all this does to the public perception of the policy, do the Government propose to undertake a full review of the operation of the policy in its first six months, and will they publish the results? We called for regular such reviews last year, but the only information on progress since then has been provided by sporadic parliamentary questions. The Government’s seemingly boundless optimism cannot compensate for lack of detail on how the policy is working in practice and how it is expected to evolve over time.

I shall now return to the question of the public perception of the zero-carbon standard. The National House-Building Council Foundation has recently published a research paper entitled “Zero carbon: what does it mean for homeowners and housebuilders?” which presents a detailed investigation of public expectation and reaction. The first challenge that the Government face is that only 4 per cent. of those polled had any knowledge of the stamp duty exemption that we are discussing today. The NHBCF also suggests that that is unsurprising, given the very low uptake revealed in parliamentary answers. If the policy is to be a success, awareness and uptake will need to feed off each another, and raising awareness is a huge challenge. Part of the reason for these issues is simple scepticism about what the standards mean, what they will cost to implement and how they will affect homebuyers’ lifestyle choices.

The NHBC Foundation’s chairman, the right hon. Member for Greenwich and Woolwich (Mr. Raynsford), stated in the report’s press release:

“It is vital for homebuyers to actually want to live in zero carbon homes if they are to be a successful reality. If this does not happen, there is the distinct possibility that purchasers will decide against buying newly-built, low carbon properties.”

The report found that home owners tended to view the 2016 zero-carbon aspiration as laudable, but did not believe it to be at all realistic.

Furthermore, home buyers tend to view energy efficiency in stark economic terms; if it saves them money, they will buy it. For example, nearly half those polled were open to the £700 additional cost of meeting the code level 1 standard, because it generates savings of about £50 per annum, but fewer than one in 10 believe that a £400 saving is sufficient return on the £35,000 additional investment needed to meet the code level 6 standard, which reflects a true zero-carbon home. If the cost of qualifying for the zero-carbon stamp duty exemption is an additional £35,000, as the Government estimate, and the maximum stamp duty rebate is £15,000 on a £500,000 property, clearly a significant amount of additional cost must still be met from elsewhere.

Perhaps that gap explains why opinion on the house builders’ side is, if anything, less favourable. Although there is widespread awareness of the code for sustainable homes, the report found that

“the perception of the industry is that, whatever the merits of the Code itself, it is being severely undermined by the muddled and incoherent way in which the Code agenda is being driven.”

The construction industry will ultimately determine whether the zero-carbon aspiration is a success or a failure. When confidence in the 2016 target was assessed, only 26 per cent. of house builders polled believed in their technical ability to deliver the standard and just 14 per cent. had confidence in the commercial sense in doing so. The following quote from one builder is indicative of the tone of the study:

“I have no confidence in it whatsoever. We are currently involved in building a Code Level 6. If the Government expects Code Level 6 houses in 2016 with the technology that’s available today then there won’t be any houses built in 2016. It’s so complex and expensive.”

That is the background to this issue, and it is the challenge that the Government must meet. The process of meeting that challenge is not helped by the level of uncertainty surrounding both the zero-carbon standard and all the Government’s sums, which are contingent on it. Perhaps that is why the report concluded that many builders wanted to pause for breath at the code level 4 standard, and that they tended to view the huge additional investment required to create a genuine zero-carbon home as impractical and inefficient.

The Government have committed to review the operation of the stamp duty incentive in 2012, which is midway between now and the 2016 deadline for all new homes being zero-carbon. May I draw the Minister on whether the Government will reconsider offering graded reliefs to properties that meet one of the intermediate code levels but are not strictly zero-carbon? Such an incentive structure might help builders to commit to further costly investment in new technology.

The Budget announced new pump-priming funding for a new 2016 delivery unit to guide, monitor and co-ordinate the zero-carbon programme. That is welcome, but will the new unit have within its remit the ability to re-evaluate the operation of the incentive structure? Even more importantly, will the unit act decisively to end the confusion about the zero-carbon standard?

The NHBC Foundation found, rather like the hon. Member for Wolverhampton, South-West (Rob Marris), who had his own non-linear, progressive, accelerating build-up to this point, that

“some confusion does exist, however, with the fundamental issue of what ‘zero carbon’ actually means”.

That is the focus of today’s debate. I appreciate that the draft Stamp Duty Land Tax (Zero-Carbon Homes Relief) Regulations 2007, which the House approved in December, had been amended to bring them in line with the code for sustainable homes and that issues such as connection to gas mains were cleared up. Nevertheless, there is evidently still a degree of confusion within the industry, which is why it is paramount that the Government act quickly.

One house builder in the NHBC Foundation study is quoted as saying:

“The Building Research Establishment...assessors do not know whether a 2016 carbon neutral home is carbon neutral for the whole house or is it just for the energy and lighting in the house. If the BRE assessors don’t know, how are the housebuilders supposed to know?”

The Red Book does include a commitment—in the Treasury’s usual and modestly named “utopia-regular” font—that a definition of a zero-carbon home for the purposes of the 2016 ambition will be forthcoming at the end of the year following further consultation. But that being so, I see no reason why the Government will not accept amendment No. 20, which would commit them to laying regulations on the long-term definition before the House by the end of December.

This policy and its associated definitional problems have now had a very long gestation period and things are still changing in fits and starts. In its first six months of operation, the stamp duty exemption has been used a mere handful of times. Nevertheless, it has already been the subject of one backdated statutory instrument, in December, and now another backdated clause in this Bill to extend its remit. We have now debated it several times and come at it from so many angles that I am beginning to feel as though this is groundhog day.

Every month that goes by without certainty is a month in which the confidence of the building sector and the general public in this policy will be further eroded. This policy is becoming the very definition of spin over substance. The time has surely now come to make a commitment in the Bill to get the long-term definition right once and for all, and I welcome our amendment to that effect.

We have had an interesting debate. I have been struck by the good will on both sides of the Committee towards making progress to achieve the desired outcome—the existence of zero-carbon homes, whatever the definition—and to ensuring, by 2016, that all new house building is zero-carbon. That is very positive.

My hon. Friend the Member for Wolverhampton, South-West (Rob Marris) made a point about the turnover of housing stock being much slower than the turnover in, say, transport. That has a direct bearing on the carbon savings calculated from the existence of zero-carbon houses. By definition, those savings start slowly and increase as zero-carbon and low-carbon homes, which are not the same thing, are built and have an increased presence in the housing stock. The benefits in carbon savings from the existence and development of such homes will start off as minuscule and rise slowly. If the process is successful, the carbon savings will be much greater at the end than at the beginning. Clearly, they will have to be much greater by 2050 if we are to reach the 60 per cent. or 80 per cent. savings that the Stern report demonstrated were necessary to achieve climate stabilisation. I thank my hon. Friend for bringing that point to the Committee’s attention.

The other point that needs to be borne in mind before I get into the detail of the debate was made during a very good speech by the right hon. Member for Wokingham (Mr. Redwood). He said, to quote him, that carbon accounting is a very rudimentary science at the moment. That is true, and it will evolve and develop as we go along. We cannot expect to have the same level of sophistication in how we do something this new and novel, even though it is important, as we can in other accounting methods.

Hon. Members in all parts of the Committee will have to be patient as we develop our measurements and standardise them for reporting back to the House. We also need to avoid the problems that we have had with the more ordinary accounting methods for companies, which were developed a couple of hundred years ago. They were developed all over the world on different bases and it has taken 200 years to standardise them.

We need not only to develop our standards of carbon accounting for our economy, but to do so in a way that can be standardised across the globe if we are to develop emissions trading systems and ways of measuring life-cycle carbon emissions. That is what my hon. Friend the Member for Wolverhampton, South-West was talking about in his speech. Although it is an aspiration for us all, and although these are important tools, we cannot pretend that we have all the answers now. If the Government are to be criticised for keeping coming back to definitions and for making minor savings in carbon emissions at the beginning of an important but long-term process, as a Minister I will have to put my hands up to that.

Hon. Members from all parties need to understand, as some have made clear they do in their comments today, that the situation is evolving. Standards have not yet been set and they need to evolve. Global standardisation also needs to evolve. Carbon accounting is a rudimentary science that needs to become much more sophisticated very quickly if we are to be effective. I hope that hon. Members will bear those issues in mind as we deal with the detail on the amendments, as well as with the new clause.

Before I deal with the amendments in more detail, let me say that much fun has been had with the number of zero-carbon homes that are in existence, and people have said that the carbon savings are so minuscule that they will make no difference. The stamp duty exemptions that we are debating under clause 90 and the amendments to it are important, but they are only one part of the work that the Government are doing.

By definition, since the exemptions are attempting to create a different standard for the emissions of a house over its general life, such houses will form a tiny part of the housing stock and will have to be in the new-build areas. Hon. Members should not forget that the Government have a raft of other policies that deal with existing housing stock and make it more energy efficient. Those policies include the carbon emissions reduction target regulations and Warm Front regulations, which are doing so much on energy efficiency. We have a whole range of retro-fitting activity, if I can lump it all in that phrase, that attempts to deal with our existing housing stock.

It is true that we need to go for housing with low carbon emissions and to try to retro-fit some of our stock in order to bring that about, but the strict definition of zero-carbon would require most existing houses virtually to be demolished and rebuilt for them to reach code 6. When we consider the work that the Government are doing, we should distinguish between new build and how important it is to have radically more energy efficient, very new buildings that people can live in, of which I know there are only 10, although I hope that there will be very many more soon. However, it is not surprising that the process has taken this long, when we did not start with definitions that people agreed on and when a lot of this work is new and being done for the first time. Therefore, I crave the indulgence of the House in saying that such work is front-end loaded and that the results are back-end loaded. I hope that people will accept that, by definition, that must be the case.

Clause 90 has two purposes, the first of which is to ensure that the relief from stamp duty land tax for new zero-carbon homes is extended to cover new flats. I perceive that that has a general welcome around the House. The relief will apply to any new flat that meets the stamp duty land tax zero-carbon standard that is purchased from 1 October 2007, which is the date on which the existing relief was introduced. We do not want to exclude any zero-carbon home, whether a flat or house, that comes on to the market.

The original explanatory memorandum to the statutory instrument excluded flats and maisonettes. So will the Exchequer Secretary confirm that, when she talks about flats, she means that flats and maisonettes are now included?

Yes, that is my understanding. Clearly, the delay was caused by checking how common parts and other issues could be dealt with to maintain a definition of zero carbon that was robust enough to qualify for the relief. Again, that was done to ensure that silly mistakes are not made in new areas. The hon. Lady had fun criticising the Government for not including such provision originally, but the work had to be done to find out whether it was doable in principle, and I think that she welcomed the extension to flats under the clause.

The clause will also create the power to introduce regulations that permit Departments that are carrying out assessments of whether homes meet zero-carbon standards to charge reasonable fees for providing such a service. Regulations that provide for fees will be made immediately after Royal Assent has been granted to the Bill. The clause will amend sections 58B and 58C of the Finance Act 2003 to ensure that the relief from stamp duty land tax for new zero-carbon homes introduced in October 2007 is extended. The relief will apply to any new flat that meets the stamp duty land tax zero-carbon standard that is bought from 1 October. Therefore, if any new zero-carbon flats have been built since the introduction of the relief, they will be included.

As with new zero-carbon houses, the relief will provide for the complete removal of stamp duty land tax liabilities on all new zero-carbon flats up to a purchase price of £500,000. If the purchase price of a flat is in excess of £500,000, the stamp duty land tax liability will be reduced by £15,000. The relief will help us meet our 2050 climate change targets by encouraging house builders to build homes that are more energy efficient and that maximise renewable technology. The stamp duty land tax incentive is designed to help to kick-start the market for new methods and to support the 2016 ambition of all new homes being built to a zero-carbon standard.

The hon. Member for Putney (Justine Greening) was under the impression that there were two definitions of zero carbon. In fact, there is only one Government definition. The Treasury definition and the code for sustainable homes definition are the same. The Department for Communities and Local Government will consult in the summer on the 2016 definition of zero carbon, but we believe that larger developments can meet the current definition and that it is harder for small city infill developments to meet it. Clearly, when practical issues to do with the definition come to our attention, it is important that we are flexible in how we respond, so that we do not disadvantage particular areas.

Is the Minister saying that in 2016 people who think that they have bought a zero-carbon home will discover that they did not do so—they just bought a zero-carbon home as defined in 2008?

No. The stamp duty land tax relief applies to the first sale of a house. The emissions-related benefits of that house are then thought to be important enough in themselves to be worth having; I hope that all Members in the Committee agree. The stamp duty land tax exemption is important in making it more attractive for house builders to build new zero-carbon houses—new, more radical, energy-efficient houses—and for buyers to purchase them. It is important to ensure that our existing housing stock becomes zero-carbon over time.

I said earlier that although it is important to be certain about the definition of zero-carbon homes as there is more sophistication in terms of what is available, how such homes can be produced and built, and what materials are used, it is important that we are flexible, and the hon. Member for Putney nodded. I hope that she will accept that point. It would be absurd if I were to say, “We will define zero-carbon homes as we did in the regulations. The definition will not change in the next 20 years, no matter what new technologies, building methods or ways of measuring or defining zero-carbon come along; we must stick with the definition that we first made.” I hope that she will realise that it is important for us to accept that the definitions could evolve. However, there is already a definition with which house builders know they can work; many are already doing so. I can tell the House that two developments are now being planned that will result in the building of 400 homes that meet the current definition of zero-carbon, so there are already signs that house builders are beginning to engage positively with the process.

Moving on to the amendments that we are debating, I detect that no matter what scepticism there may be, the extension of the zero-carbon homes provisions to flats and maisonettes is supported by Members in all parts of the Committee. The Government have considered the amendments to clause 90 that deal with extending stamp duty land tax relief. Amendment No. 4 would change the definition by replacing the word, “occupied” with the phrase “acquired by a buyer”. We believe that, in practice, a relief that is restricted to homes that have not been previously occupied will have the same, or virtually the same, scope as a relief restricted to homes that have not been previously acquired by a buyer. The amendment is therefore unnecessary.

Amendment No. 13 would extend the relief to all acquisitions of a zero-carbon home, whether new or old, and regardless of whether the home has changed hands before. As I have said, the Government believe that the relief should be restricted to the first acquisition of a new zero-carbon home. That fits in with the key objective of the measure, which is to kick-start the building of zero-carbon homes by stimulating consumer demand. Once the homes are built, we expect the benefit in terms of energy savings to remain in the home for many years. We do not believe that it would provide any value to the taxpayer if the relief were extended to cover second and subsequent acquisitions of a home, as is envisaged under the Liberal Democrats’ amendment No. 13.

On the issue of existing homes, I hope that the hon. Member for Taunton (Mr. Browne) will recognise the fact that the Government have a range of policies in place, including the carbon emissions reduction target and Warm Front, that provide for the retro-fitting of energy efficiency to existing homes. The standards associated with zero-carbon homes are designed to accelerate the provision of new energy-efficient technologies in new build, rather than to be applied to existing houses. New developments can meet the standards more cost-effectively, as it is possible to use special new building materials and techniques to reduce a home’s energy consumption to close to zero, and to deploy larger-scale, development-wide generation technologies to fill the gap. That is not possible in the same way in a retro-fit scenario.

Amendment No. 14 would remove the sunset clause in the Finance Act 2007 that ensures that the relief will not apply on or after 1 October 2012. The Government do not accept the amendment because we estimate that by 2016 or 2017 the cost to the Exchequer of providing stamp duty land tax relief on all acquisitions of a zero-carbon home, whether old or new, and regardless of whether the home has changed hands before, would be well over £2 billion a year. We further estimate that the cumulative cost of the amendment to the Exchequer by 2016-17 could be as much as £6 billion. That reflects the fact that by 2016 it will be mandatory for all new homes to be built to a zero-carbon standard, and a significant number of zero-carbon homes will be starting to change hands for the second time. The amendment is unnecessary in any case, as the Treasury has the power to extend the end date of the relief by Treasury order if there is a case for extension when we reach that date.

Finally, let me turn to amendment No. 20, which has a number of parts. In the amendment, it is suggested that the Treasury should define a zero-carbon home through regulations by no later than 31 December 2008. It is also proposed that the regulations be subject to the affirmative procedure, and that when they come into effect, existing regulations defining a zero-carbon home should cease to have effect. The Government do not accept the amendment, because a zero-carbon home is already defined by regulations laid before Parliament in December 2007 under the vires in section 58B(4) of the Finance Act 2003. As has been said today, a draft of those regulations was approved through a resolution of the House last year. Furthermore, the Government believe that that definition balances the requirement for a robust definition that delivers value for money to the taxpayer against the need for an achievable standard that will incentivise the development of the zero-carbon homes market.

The Government will conduct an interim review of the stamp duty land tax relief by 2010. That review will provide an opportunity for examining the effectiveness of the tax relief in stimulating the innovation that is necessary if we are to realise the ambition of all new homes being zero-carbon by 2016. I therefore propose that the amendment be withdrawn.

I will not withdraw my amendment; I will press it to a Division. I do not feel that the Minister has addressed the issues behind my amendment sufficiently well to make me seek to withdraw it. Her response suggests that people who are in right-to-buy contracts with a developer, and who may occupy a zero-carbon home before eventually buying it, would not qualify for stamp duty land tax relief, which seems unfair. On that basis, and because of the uncertainty about the definition, I will press amendment No. 21 to a vote.

Question put, That the amendment be made:—

Clause 90 ordered to stand part of the Bill.

New Clause 1

Collective enfranchisement by leaseholders

‘(1) Section 74 of the Finance Act 2003 is amended as follows.

(2) In subsection (1) omit “by an RTE company”.

(3) Omit subsection (4)(a).

(4) In subsection (4)(b) omit “by an RTE company”.’.—[Mr. Gauke.]

Brought up, and read the First time.

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

New clause 1 is an attempt to rectify a small but aggravating injustice in the stamp duty land tax. It is an injustice against the thousands of people who own the leasehold of their property and wish to acquire the freehold under the Leasehold Reform, Housing and Urban Development Act 1993. It is a technical problem recognised by hon. Members on both sides of the Committee, and we hope to provide a solution to it this evening.

I shall have to take a few moments to set out the technical concern; I hope that I do not empty the Chamber in doing so. The problem exists for many people. I must confess that I have tried to identify the number of people affected, but I have not succeeded. I do not know whether the Exchequer Secretary will be able to shed any light; it is a complicated matter, and I would be surprised if she could.

Let me give an example. There is a block with, say, 100 flats. The leaseholders wish to acquire the freehold, which is worth, in aggregate, £600,000. That, of course, would mean an average of £6,000 per flat—well below the stamp duty land tax threshold. However, I should say something about how such a transaction works. The freehold is acquired by one company formed by the leaseholders; the acquisition is therefore viewed as one transaction. The consideration of £600,000 would fall within the 4 per cent. band for stamp duty land tax, so 4 per cent. stamp duty would be payable. The leaseholders would be liable for an average £240 each, and the Government would collect £24,000 in stamp duty land tax.

One could say, “So what? The purchasers knew that they would have to pay up, just as one would normally have to for such a transaction.” However, let us consider the issue from the individual’s point of view: they would be paying £6,000, and stamp duty is not normally payable on such a sum. To be fair, the Government recognised the issue and sought to address it in section 74 of the Finance Act 2003. The purpose of that section, as set out in the Act’s explanatory notes, was that

“the total stamp duty land tax due will be more in line with the stamp duty land tax that would have been due had each share of the freehold been bought separately.”

To return to our example, there would be 100 different transactions, each at £6,000. Not one of those would exceed the stamp duty threshold. There would not be a single transaction of £600,000 on which stamp duty would be payable, and the leaseholders acquiring their freeholds would not be paying stamp duty land tax.

However, there is a problem as section 74 refers to amendments to the 1993 Act, to which I have referred, and they are set out in the Commonhold and Leasehold Reform Act 2002, which refers to a right to enfranchise, or RTE, company. Such a company is defined in section 4A of the 1993 Act, as amended by the 2002 Act. At this point, I am surprised to see a few hon. Members still in the Chamber.

The problem is that the provisions implementing section 4A had not come into effect in 2003—nor have they now, in 2008. To benefit from the provisions, the freehold would have to be acquired by an RTE company. However, strictly speaking, such an entity does not exist. That is clearly an example of a failure to provide joined-up government; presumably, the Treasury and the Office of the Deputy Prime Minister, which was responsible for the 2002 Act, should have been working together and come up with a consistent definition. When the Treasury was preparing the Finance Act 2003, one would assume that it consulted with the Office of the Deputy Prime Minister, which would have given the Treasury assurances that it could make use of the definitions in the 2002 Act and proceed on that basis. Sadly, things have not worked out that way.

There is an ambiguity. One could advance the argument that because there was a definition of an RTE—indeed, draft regulations further set out the definition—one could still fall within the definition even if it had not been enacted. Precisely those circumstances have obtained in one case. The leaseholders of Elizabeth court in Bournemouth grouped together and formed what would have been an RTE company, had such an entity existed. Their group complied with the definition in section 4A and draft regulations.

Her Majesty’s Revenue and Customs took the view that it was impossible for people to benefit from the relief contained in section 74 of the Finance Act 2003 until section 4A came into force. Presumably, HMRC need not have pursued the matter as vigorously as it did. It could have used its discretion not to pursue, but it did not do so, with the result that the case—Elizabeth Court (Bournemouth) Ltd v. HMRC—went to the special commissioner.

On 31 October 2007, the special commissioner decided that the relief was not available until the RTE provision came into effect, and it is worth noting why she came to that decision. In part, it was because an ambiguity in the statute made it necessary for her to look at Parliament’s intention. The special commissioner did that, and determined that Parliament’s intention was that the relief under section 74 would not be available until section 4A had come into force. I do not know whether any clarification in the course of this debate would lead to a change in the law, but it is worth noting that Parliament’s intention was considered.

The aggregate cost of acquiring a freehold is likely to exceed the stamp duty land tax thresholds. What progress are the Government making in addressing that problem? The hon. Member for Liverpool, Riverside (Mrs. Ellman) submitted a parliamentary question on that point, to which the Under-Secretary of State for Communities and Local Government, the hon. Member for Hartlepool (Mr. Wright), responded:

“In relation to the RTE company provisions, there are a number of legal and practical difficulties which still need to be resolved and work is continuing in order to determine a way forward. Therefore no timetable has yet been set to bring these provisions into force.”—[Official Report, 29 February 2008; Vol. 472, c. 1988W.]

Another parliamentary question was asked by my hon. Friend the Member for Enfield, Southgate (Mr. Burrowes), who I know has pursued this matter on behalf of his constituent, Mr. Leo Athanasatos of Windsor court in Southgate, where 34 leaseholders are trying to acquire the freehold. The Under-Secretary of State stated that

“tenants exercising their right of collective enfranchisement do not yet benefit from the SDLT relief provided for in section 74 of the Finance Act 2003, although this remains the intention once the practical difficulties have been resolved.”—[Official Report, 11 March 2008; Vol. 472, c. 238W.]

The Government have had five years to resolve those practical difficulties. So far, they have not produced even a timetable for dealing with the problem: the relief remains ineffective, and there is no sign that the Government will address that. It is a significant matter for many thousands of people, as many flats are held on a leasehold basis, especially in London. I own a flat on that basis. I hasten to add that I have no intention of acquiring the freehold, and so have no interest to declare, but many people in London do want to do that. Even so, the Government do not appear to be tackling a concern that hon. Members of all parties recognise.

New clause 1 is the Opposition’s attempt to rectify the problem. It would remove the references to “an RTE company” in section 74 of the Finance Act 2003, and provide that the relief would be available where a chargeable transaction is entered into in pursuance of a right of collective enfranchisement. We do not want the present problems to drag on. Instead, we want to resolve what is an aggravating matter for many people. It is clearly unfair for people in the circumstances that I have described to be hit by stamp duty when that is not the intention of either the Government or the Opposition.

If the Government cannot accept new clause 1, we hope that they at least exhibit some urgency about bringing forward their own solution. The present legislation is defective, and HMRC appears to be pursuing relevant cases with some vigour. It is taking in revenue, even though that is not what the Government have said is their intention. The Government have promised that they will deal with the matter, but there appears to be little or no practical activity in that regard.

There is a failure in the system, and we believe that new clause 1 would deal with something that has been allowed to fester for far too long.

First, may I say that my party has considerable sympathy for new clause 1, as presented by the hon. Member for South-West Hertfordshire (Mr. Gauke)? That is principally because so much time has elapsed since the proposals were first put forward, and the case in Bournemouth to which he referred will no doubt be replicated throughout the country.

As has been made clear, the Leasehold Reform, Housing and Urban Development Act 1993 entitled qualifying tenants to bring about the enforced sale of the freehold of a building to the tenants acting together. Sections 121 to 124 of the Commonhold and Leasehold Reform Act 2002 make changes to the collective enfranchisement rules under the 1993 Act. They provide that collective enfranchisement must be carried out by an RTE company, as defined under section 4A. As we have heard, the SDLT will be calculated by dividing the amount paid for the collective purchase by the number of flats involved.

That seems fair and reasonable, and we all accept that that approach should be adopted. The Government argue that the relief rate provided by the Finance Act 2003 will ensure that RTE company members—that is, the individual tenants—fund the SDLT

“at a rate broadly appropriate to their own contribution to the purchase and do not suffer a higher rate of tax because they are acquiring the freehold under a collective arrangement.”—[Official Report, 11 March 2008; Vol. 472, c. 238W.]

That too seems entirely sensible and reasonable, so it is somewhat amazing that SDLT relief is still not available to tenants exercising their right to collective enfranchisement, even though the principle was agreed six years ago. Sections 121 to 124 of the 2002 Act have not been brought into force, which means that section 4A has not been introduced.

We have heard that several Members have raised questions with Ministers, who have indicated that there are legal and practical difficulties which need to be resolved and that work is continuing in order to determine the way forward. There is no idea of when that work will be determined, when we will get to a resolution, or what the legal and practical difficulties are that are being experienced. Perhaps the Minister will be able to inform us about that.

Many of these legal and practical difficulties also apply in my constituency, and they should have been thought through some five years ago. The relief is intended to provide an incentive for leaseholders to work together rather than individually. As the hon. Gentleman and my hon. Friend the Member for South-West Hertfordshire (Mr. Gauke) rightly point out, this anomaly should be ironed out at the earliest possible opportunity. Does the hon. Gentleman agree that these so-called legal and practical difficulties were not foreseen some five years ago?

That is exactly right; it is a shame that none of us spotted them. As was observed in the court case, the problem seems to be to do with the Government’s intention. I would have thought that we could easily have sorted that out.

In the court case, or the special commissioner’s case, the fact that section 4A had not been brought into effect meant that it came down to intention. As the hon. Gentleman says, it has not been brought into effect because of the practical difficulties that the Government have identified.

I am grateful to the hon. Gentleman for that clarification.

New clause 1 would remove all references to RTE companies from section 74 of the Finance Act 2003 so that sections 121 and 124 of the Commonhold and Leasehold Reform Act 2002 do not need to be enacted for groups of tenants to be able to qualify for stamp duty land tax relief. That would logically lead to any group of tenants pursuing their right to collective enfranchisement becoming eligible for such relief under the 2003 Act. I am not certain whether this is a probing new clause or one that will be pressed to a vote, but it is over-simplistic in terms of the legal and practical difficulties, and it could create huge uncertainty for tenants pursuing their right to collective enfranchisement. The purpose of requiring an organisational set-up in the first place is to create that legal certainty and to allow its members clear and defensible rights. Removing RTE companies from section 74 of the 2003 Act would mean that any form of grouping could qualify for SDLT relief, and there could be all sorts of further loopholes and exploitation. We do not know what basic rights the tenants will have. The new clause would certainly not empower them in the way envisaged in the proposals, and it could even undermine their security.

A way round this might have been to introduce an amendment entitling RTE companies retrospectively to claim the relief once the Government had solved their problems with the 2002 Act so that we knew that this was going to happen or could implement a deadline for its commencement. Neither of those would be ideal, but they might be more legally defensible and give tenants some of the security that they require.

Could the hon. Gentleman elaborate on exactly how the new clause would undermine tenants’ security? I cannot see how it would, and he has not given the Committee any guidance on that.

The whole purpose of setting up an RTE company as a legal entity would be to bring these groups of tenants together into one legal entity and to have certainty that they could then exercise basic rights under the legislation, which would include SDLT relief. Lots of groups of tenants would not necessarily be RTE companies. Removing RTEs would presumably open this out to all sorts of tenants. While that might have some relevance to SDLT, it could undermine some of their other rights and certainties. Another option would have been to introduce changes to remove an RTE company and replace it with a common definition of a company in the original legislation—the Leasehold Reform, Housing and Urban Development Act—and the 2003 Act. In that way, tenants could qualify for SDLT relief while having the legal protections and certainty afforded by being a company.

The essence of the issue—I am glad in a way that the hon. Member for South-West Hertfordshire has raised it—is that these legal and practical difficulties cannot be allowed to go on for ever. After five years, the Government must tackle them head on and decide what they are going to do so that we have some certainty this time that these reasonable and justifiable reliefs can be given to all the groups of tenants who have got themselves together in RTEs and are now waiting to get the thing done. I would be grateful if the Minister explained how the Government are going to tackle that and resolve what has been an outstanding issue for far too long.

I promise not to detain the Committee too long. Not least, I will try not to go into the legal jargon that my hon. Friend the Member for South-West Hertfordshire (Mr. Gauke) had to use in order to make sense of this, and thereby clear the Chamber.

The hon. Member for South-East Cornwall (Mr. Breed) accused the new clause of being too simple, but it would resolve the problem very quickly. Defective legislation is wrong. We are here to introduce legislation that supports our constituents and supports the country in moving forward. The Government admit that they have defective legislation on the statute book, yet one would have thought that in the past five years the great minds that have been in post in the Treasury might have got their act together and moved forward. This is the sort of defective legislation that an incoming Government might expect to have to resolve, but it is that of an existing Government trying to introduce measures to help people in purchasing the lease of their property.

I must admit that this would probably not affect many properties in my constituency. However, having grown up in a seaside town once I eventually got away from London in my early teens, I know that there are huge effects in seaside towns with large purpose-built leasehold blocks, as well as in many of the cities of this great country. I find it difficult to understand why over the past five years the great minds of the Treasury have not made proposals to repair defective legislation that is taxing people of this country as it was not designed to do.

I support new clause 1 and hope that my hon. Friend the Member for South-West Hertfordshire will press it to a vote.

I rise to support my hon. Friend the Member for South-West Hertfordshire (Mr. Gauke), who has done the Committee and the nation a great service by highlighting the ridiculous position that we find ourselves in. I hope that Ministers will take this away and come up with an answer more rapidly than their predecessors have been able to over the previous five years.

As I understand it, the Labour party and the Labour Government wish people to have this exemption if they are buying the leasehold interest in their flat. Certainly, the official Opposition wish them to have that exemption. The hon. Member for South-East Cornwall (Mr. Breed) was rather more muddled. At one point he seemed to be in favour of certain people having that exemption, while at other times he seemed to worry that undesirables would be allowed in.

It is easy to understand that if one wants to ensure that people have certainty, that relates not only to their stamp duty land tax but to all the other rights that need to be protected. If people go into this as groups of tenants who do not have the protection of an RTE company, they may well lose some rights and benefits in order to gain in terms of tax.

That just shows the muddle that the Liberal Democrats are in. On the one hand they say that they want to join the Government and the official Opposition in trying to expedite people getting this tax relief for the purpose of enfranchisement, and in his next breath the hon. Gentleman says that it might not be a good idea to let them have that freedom because they might make a mess of it. Once again, we see that the Liberal Democrats do not actually believe in freedom at all. They do not believe that people are intelligent or able to make their own decisions; they believe that they have to micromanage decisions from Parliament. It would be even better if the Liberal Democrats got out of their muddle by agreeing with the Government and the Opposition. People should have the right to enfranchise their lease and buy the freehold, and they should be able to do so free of tax. We could then say to all those seeking to interpret the will of the House that the whole House was united, not just the two major parties.

I would like to make one new point during this brief debate. While Ministers are trying to get the right legal advice and put the right form of words into the necessary provisions so that the will of the House five years ago and now can be properly enforced, they could have a word with the Revenue, which is becoming far too aggressive. Given that it is the House’s intention that such transactions should be exempt, the Revenue should not be pursuing and hounding people by taking up cases at considerable expense, with much legal advice, against the clear wish of the House of Commons that such transactions should be exempt. That would give a little more time for those who wish to get on with their lives and buy their share of the freehold, while the Government’s lawyers get their act together and introduce the necessary wording.

It beggars belief that it has taken more than five years to carry out something relatively straightforward such as giving the leaseholders of Britain the opportunity to buy a modest share of their freehold for a modest sum without being taxed as if they were multi-millionaires carrying out a big transaction. I hope that Ministers will soon find a way to do so.

I hope that I can cast some light on what is a complex problem, as I have discovered recently. I have to thank the hon. Member for South-West Hertfordshire (Mr. Gauke) for bringing it to my attention and causing me to look back at what has been going on during the past five years.

As far as I can tell, the issue is not defective legislation but the difficulty in putting into effect provisions that allow right-to-enfranchise legislation to be commenced. I hope that I will be able to explain at least in passing—I do not feel qualified to go into great detail as the matter is being dealt with by the Department for Communities and Local Government—at least some of the issues. I thank the hon. Gentleman for bringing the matter to the attention of the Committee; he has done the right thing.

We have considered the proposed new clause to amend section 74 of the Finance Act 2003, which deals with stamp duty land tax treatment of collective enfranchisement. The hon. Gentleman was right to set out the background, including the fact that section 4A of the Leasehold Reform, Housing and Urban Development Act 1993, which was introduced by the Commonhold and Leasehold Reform Act 2002, defined and made provision for what was known as a right-to-enfranchise company. The provisions sought to resolve a problem whereby qualifying leaseholders were being deliberately excluded from purchasing a share of the freehold by other leaseholders. Under the right-to-enfranchise provisions, leaseholders proposing an application for collective enfranchisement must first form a company, which then makes an application and becomes the new owner of the freehold. Under the RTE company provisions, all leaseholders—and this is the point, I think—must be invited to take part in the application to prevent the exclusion of qualifying leaseholders.

Section 74 of the Finance Act 2003 was designed to ensure that when an RTE company purchased a freehold, the rate of stamp duty land tax was set by the value of the aggregate consideration divided by the number of flats in respect of which the right of collective enfranchisement had been exercised. As hon. Members have said, that would bring the rate of stamp duty land tax broadly into line with the rate that would have been charged had each share of the freehold been purchased separately.

As Opposition Members have pointed out, section 74 of the 2003 Act has not yet taken effect because section 4A of the 1993 Act, on which it depends, has still to be commenced. A number of practical difficulties have emerged that require further work and consideration. The issues involved are not directly relevant to the Finance Bill, and I can outline them, and their effect on what is proposed by the new clause, only briefly. The main difficulty in implementing the provisions in section 4A of the 1993 Act has been how to resolve disputes that may arise concerning the fair apportionment of costs of acquiring the freehold and the expenses of the RTE process among participating members. Failure to resolve that practical difficulty could allow members of the RTE company to offer unfair terms to particular leaseholders in order to exclude them from participating.

It had originally been envisaged that RTE company members could agree on how such costs would be apportioned and that normal company law mechanisms would be available to enforce those agreements and determine any disputes arising. However, legal advice received indicated that there were a number of problems with that approach. First, company law mechanisms could not be used to determine the terms upon which tenants were able to participate in an enfranchisement action. Those had to be settled outside of the mechanisms and such terms should be clear to tenants at the outset of the process when they decided to become members of the company that would purchase the freehold on their behalf. That matter is currently being worked on.

Moreover, human rights issues arise because the right to enfranchise is a civil right, which means that in the event of a dispute about such rights, the person concerned would have a right to go to court if there were no mechanism under the legislation for resolving such disputes. It is a matter of attempting to work out in detail how such mechanisms can be put in place, but not by using existing company law, unfortunately; it seems that it will not be available for such use. I understand that it is work on those issues that has caused the problem. RTE commencement lies at the end of a long process, which has involved 12 consultation papers on the 2002 Act, and 18 sets of associated regulations to bring most of the rest of it into effect in phases. I suspect, although I do not know for certain, that the most difficult bit has been left until last because it is causing such difficulties. I am told that it is being worked on with commitment, and it is hoped that the matter will be resolved.

The Government believe that it would be wrong to amend section 74 of the Finance Act 2003 to break the link with the RTE company at this stage. Further investigation has been done to explore whether the RTE provisions can be made to work. If they can, that would be preferable to a different kind of fix, for the reasons hinted at by the hon. Member for South-East Cornwall (Mr. Breed).

The Government will do further work on consideration of the best way to resolve these complex issues, including whether a clause in next year’s Finance Bill is necessary. The Government have received only a handful of representations on the matter, and the Treasury and HMRC have received none on section 74 of the 2003 Act. I thank the hon. Member for South-West Hertfordshire for bringing it to my attention, however. I am now more aware of the matter than I would have been. Given that I have explained some of the difficulties and said that we may be willing to consider a change to next year’s Finance Bill—once we have seen how the Department for Communities and Local Government has wrestled with the problems—I hope that he will not press the motion to a vote.

I thank the Exchequer Secretary for her thanks to me and for an informative answer, which set out the problem. I am not sure whether that was previously on the record, so it is helpful for the Committee to have a better understanding of the problem. I did not realise that the Human Rights Act 1998 was part of the reason for our inability to tackle the matter previously.

I also acknowledge that the subject has largely been a matter for the Department for Communities and Local Government. However, given that, if Departments do not work, the Treasury tends to step in and sort out the matter—that is my understanding of the way in which things work—it is right to debate the subject during consideration of the Finance Bill.

The Exchequer Secretary states that we are considering not defective legislation but practical problems. However, if legislation cannot come into force after five years, it fulfils the definition of defective. I note that the Exchequer Secretary does not rule out the possibility of breaking the link between RTE companies, a right to collective enfranchisement and section 74 of the Finance Act 2003. I am therefore not convinced that there is a difficulty with pursuing that route. The matter could have been tackled in the past five years, but that has not happened. I see no reason for waiting a sixth year and I would like to press the new clause to a Division.

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

Clause 117

Penalties for errors

I beg to move amendment No. 1A, page 73, line 12, at end insert—

‘(3A) An order under subsection (2) may not be made until—

(a) the provisions of Schedule 24 to FA 2007 which are amended by Schedule 40 have been in force for not less than 12 months, and

(b) the Treasury has laid before the House of Commons a report setting out its assessment of the effectiveness of those provisions.’.

With this it will be convenient to discuss the following amendments: No. 2A, line 23, at end insert—

‘(7A) A statutory instrument containing an order under subsection (2) may not be made unless a draft of it has been laid before and approved by resolution of the House of Commons.’.

No. 3A, line 13, leave out subsections (4) to (6).

No. 4A, line 24, leave out subsection (8).

It is a pleasure to speak on the issue of penalties. As with so much in this year’s Finance Bill, we have to go back to last year’s Bill to gain a full understanding, although I suspect that we shall not see quite the same drama that we saw in last night’s debate about income tax.

Schedule 24 of the Finance Act 2007 introduced a single new penalty regime for incorrect returns in respect of income tax, self-assessment, pay-as-you-earn, corporation tax, capital gains tax and VAT, which involved a common structure of stepped penalties depending on taxpayer behaviour. The provisions of schedule 24 of the 2007 Act were broadly well received. Those who can recall last year’s debate will remember the concern about the expression “HMRC think”, which was contained in the first draft of that Bill, but which was thankfully amended by the Government following representations from all parts of the House. However, there was little dispute about the common structure of stepped penalties.

Schedule 24 of the 2007 Act addressed only the main taxes, as they were described, and did not try to cover all taxes. Its provisions are only now coming into force, so that they will come into effect only for returns or documents due to be sent to HMRC on or after 1 April 2009. HMRC says that the new penalty regime is already having an effect. However, given the stage that we are at, it seems far too early to jump to any conclusions about the effectiveness of schedule 24 of the 2007 Act.

None the less, the Government seek to extend the regime set out last year. We question the timing of that. Two logical positions could be taken on the matter. The first is that it is confusing to have two different penalty regimes for errors in tax returns and therefore right to move to one common structure as quickly as possible. That could be described as the big bang approach to penalties, if that is not overdoing it. The alternative is to take a more gradualist approach, by seeing how the new system works, extending the approach in stages by a process of trial and error, learning as we go along, identifying strengths and weaknesses, and imposing a new system of penalties for tax returns over a number of years.

Both are acceptable positions and there are arguments for adopting either. However, in attempting to take two different approaches, the Government appear to be in an inconsistent position. In the 2007 Act, the Government did not seek to apply the new penalty regime comprehensively; instead, they just picked out the main taxes and left the rest. That would indicate the gradualist approach. However, long before the existing provisions come into force and it is possible to assess the effectiveness of schedule 24 of the 2007 Act, the Government are seeking to expand the regime to a new set of taxes, as we see in schedule 40 of the Bill. The taxes include inheritance tax, stamp duty, stamp duty land tax, petroleum revenue tax, insurance premium tax and a wide range of duties.

Over the course of a year, the Treasury and HMRC have gone from a gradualist approach to one of trying to impose a single regime as soon as possible. However, clause 117(3) allows different days to be appointed for different provisions, so things might not work out like that and some taxes might be treated differently over time. If the Government had wanted to introduce all the measures as quickly as possible so that different regimes were not running simultaneously—I acknowledge that there is an argument for doing so—we must ask why they did not do that in 2007 by applying the new penalty regime more broadly. I hope that the Financial Secretary will address that point. It appears that the Government changed their mind during the past few months and I should be grateful for an explanation of why that happened.

The Government also seemed to change their mind in a rush. “Modernising Powers, Deterrents and Safeguards: Penalties Reform—The Next Stage”, HMRC’s consultation paper, was published only on 10 January. It is rumoured that it would have been published earlier, but that it was delayed because of HMRC’s difficulties owing to the missing data discs. Perhaps it would have been too embarrassing for HMRC to consult on the penalties that it would impose on taxpayers for errors when HMRC itself had been guilty of the most horrendous errors.

It is worth noting that annexe A of the document contains the consultation criteria in the Department for Business, Enterprise and Regulatory Reform code of practice. The first criterion states that a consultation should

“Consult widely throughout the process, allowing a minimum of 12 weeks for written consultation at least once during the development of the policy.”

The consultation closed on 6 March, just eight weeks after the document’s publication on 10 January. Why was that the case? If it had closed any later, it would have finished after the date of the Budget—12 March—and, clearly, announcing the policy of extending the penalties regime while the consultation was still under way would have been too obvious. The credibility of the consultation was undermined because the consultation period ended on 6 March and, just six days later, HMRC published board notice 96, in which it announced the Government’s plans to legislate.

The consultation document stated:

“HMRC would welcome views on…extending the penalty regime…to incorrect returns for other taxes”.

Six days after the date for submitting those views, it announced that legislation would be introduced in the Finance Bill 2008

“to create a single penalty regime for incorrect returns”

across all taxes, levies and duties administered by HMRC. HMRC might well have welcomed views on the subject, but it is difficult to believe that as much consideration was ever going to be given to views that conflicted with what the Government seemed determined to do in the first place. There are plenty of stories that Treasury officials were burning the midnight oil in the run-up to the Budget and that there were all sorts of last-minute changes, but I suspect it is unlikely that the intense review of submissions to the consultation on penalties was the reason.

It has not been a good winter for HMRC consultations. Draft legislation on non-doms had to be corrected mid-review because it was already damaging the UK’s reputation. The consultation on income shifting was so widely castigated that plans to introduce measures were withdrawn. The consultation on penalties might not have been in the same league for controversy, but its timing—eight weeks, not 12—and its completion six days before the Government announced their policy, gave every impression that HMRC was simply going through the motions. That concern is shared among various professional groups. That is not to say that there is no support for the proposals; indeed, the principle of a single system for penalties has many supporters. However, serious points of substance were raised during the consultation.

I do not intend to get into a detailed debate about schedule 40—we will return to that in much greater detail upstairs—but it is worth briefly highlighting the concerns raised through the consultation process to show that there are issues to address, as I think that the Minister accepts. In such circumstances, a hurried consultation was far from ideal.

I shall outline several of the concerns. The proposals involve penalties that are based on underlying behaviour. That is widely supported, but the Institute of Chartered Accountants, for example, believes that there is a problem with distinguishing between prompted and unprompted disclosure for one-off taxes, such as inheritance tax and stamp duty, compared with the situation for taxes that are paid repeatedly, such as income tax or corporation tax.

A third-party penalty for incorrect inheritance tax returns was raised during the consultation process by the ICA, which said that it was not convinced by the Government’s proposals, and the Chartered Institute of Taxation, which had strong reservations about penalties on third parties generally. The Government have moved on that point, but worries still exist. The ICA raises an important concern that proposals on penalties for failure to notify might discourage persons operating in the shadow economy from regularising their position. Both the CIT and the ICA raised the issue of suspended penalties. There are substantial issues for us to debate, but I think I have demonstrated that important points were raised in the consultation process, so it is not good enough to steamroller through the measures. Given the limited time allowed for consultation, our assessment and evaluation upstairs will be all the more important.

I welcome you to the Chair, Sir Nicholas. It is a pleasure to serve under your chairmanship.

I declare an interest as a member of the Institute of Chartered Accountants.

I do not understand why the institute and other organisations were put to the trouble and cost of becoming involved in a consultation that lasted for only eight weeks when I understand that the Government recommend minimum consultation periods of three months.

Yes, as I said earlier, the Government’s code of conduct states that consultations should last 12 weeks. However, it simply was not possible to do that and to get everything done before the Budget, when the policy was announced. That raises the question whether we are rushing into this somewhat. My hon. Friend makes a helpful point.

There is further evidence that the matter has been rushed. The Financial Secretary wrote a letter dated 24 April to my hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond), the shadow Chief Secretary to the Treasury, about the powers under clause 117(4). Her letter makes the point that HMRC is still working through old legislation to work out what consequential amendments need to be made to that legislation in what is, admittedly, a complicated area. That prompts us to ask, again, why legislation is not ready at this point. The fact that it is not suggests that there is a rush.

Having highlighted several issues of substance that we need to debate, let me point out that the consultation timetable has made it difficult for the Government to respond regarding the latter two substantial points—on penalties for failure to notify and suspended penalties. We would be in a much better position to assess the validity of those arguments if we knew how the regime for main taxes that was introduced in the Finance Act 2007 had bedded down. If we were able to see how that had worked over a given period, we would be able to see whether there is a strong argument on these points. But we do not have that opportunity, because the Government wish to proceed much more quickly with extending the penalty regime.

Amendment No. 1A would give us the chance to pause and reflect, thus enabling us to see how schedule 24 works out in practice. It would also give the Government more time to consult properly—as my hon. Friend the Member for Wellingborough (Mr. Bone) has pointed out, they consulted for only eight weeks—and give a genuine response that does not look as though it had been ready to print, regardless of the submissions that have been made. Amendment No. 2A would require the use of the positive resolution procedure to implement schedule 40, which would give the House a proper opportunity to debate this matter again.

We do not criticise the Government for seeking to introduce a single penalty regime. However, given last year’s decision to do that in one go, the Government should pursue this matter carefully, by listening to the concerns of professional bodies, assessing the measures that they have introduced and examining the effectiveness of those measures before acting. Amendment No. 1A would enable them to do precisely that.

Amendments Nos. 4A and 3A—particularly 3A —address another concern that several bodies have raised: that subsection (4) seems to be what is sometimes described as a Henry VIII clause. I learned the definition of such a clause only today, from the first report of Session 1992-93 of the House of Lords Select Committee on the Scrutiny of Delegated Powers, which I had not read before. It states that a Henry VIII clause is

“a provision in a Bill which enables primary legislation to be amended or repealed by subordinate legislation, with or without further Parliamentary scrutiny.”

I do not pretend that it is the first time that such a clause has been used, but its use is a matter of concern. Subsection (4) states:

“The Treasury may by order make any incidental, supplemental, consequential, transitional, transitory or saving provision which may appear appropriate in consequence of, or otherwise in connection with, Schedule 24 to FA 2007 or Schedule 40.”

Subsection (4) is extraordinarily broad. We must put that in the context of the Prime Minister’s statement last year that he was looking for a

“new British constitutional settlement that entrusts more power to Parliament”.—[Official Report, 3 July 2007; Vol. 462, c. 815.]

The measure seems to take power away from Parliament, because it gives the Executive enormous flexibility to amend the provisions that we will consider in schedule 40 to the Bill, and those that we considered in schedule 24 to the 2007 Act.

Not only do Henry VIII clauses seem to be more prevalent, but they are more widely drafted. Section 97 of the 2007 Act, which implemented schedule 24, gave the Government the power to make an order that may include “incidental, consequential or transitional” provision. This year, in addition to those words, an order may contain a supplemental, transitory or saving provision. The word “supplemental” is particularly vague, and I hope that the Minister will indicate what she means by that. I note also that subsection (6) states:

“An order under subsection (4) may make different provision for different purposes.”

I confess that I am not sure what that means, and I should be grateful for some elaboration on that point. However, it appears to be extremely broad.

Is not the Henry VIII clause typical of what the Government do these days? They rush through legislation and do not have proper consultation, taking the view that if they get things wrong they can alter them without coming back to Parliament. It is a way of rushing things through without giving them proper consideration.

My hon. Friend, who is a doughty defender of the rights of Parliament, makes another good point. His comment brings together the first and second parts of my argument, the first being that there seems to have been a rush to get the legislation in place this year, and the second that the Government have had to protect themselves as a consequence. To be fair to the Financial Secretary, she acknowledges that this is a technical area that is likely to require a great deal of consequential amendment. However, rather than try to get the Bill right first time and take a more methodical approach to it, they provide themselves with powers to go back to it and address these issues again.

I might have misheard the hon. Gentleman—I have learned that he is very thorough in his approach to such matters—but he quoted a definition of the so-called Henry VIII clause from 1992. He will know that a different party was in government in 1992, and that this issue has long been a complaint of parties in opposition.

Sometimes parties in opposition are right. I thought that the Financial Secretary would pick me up on that point, but I did say that the use of such clauses seemed to be more prevalent. That is our concern. They are also more comprehensive. A comparison with last year’s Henry VIII clause shows that we seem to be getting bigger Henry VIII clauses by the year. That is a concern.

I shall take my hon. Friend’s comment in the manner in which I am sure it was intended.

The Financial Secretary talks about 1992, but it was only last year when the Prime Minister said that he wanted the House to be consulted more. She waves that comment away—perhaps the Prime Minister’s comments should be waved away more often—but such comments are important. If we are to believe what the Prime Minister says, then why have the Government used another, even larger Henry VIII clause?

I am grateful to my hon. Friend, who makes a very good point. To be fair to the Financial Secretary, I must stop trying to put her into embarrassing positions in respect of the Prime Minister’s comments, as she had to cope with denials over the losers in the 10p tax rate issue last night. On this occasion, however, I think that the Prime Minister was right to say that Parliament should be in the centre of things to a much greater extent, and we would like to see that happen in practice rather than just hear the rhetoric, but we see no evidence of it in the Bill. In fact, we see Parliament being marginalised because it will not have the ability to scrutinise or control legislation as it should.

Let me draw a couple of comparisons with provisions elsewhere in the Bill. Clause 118, for example, deals with penalties for failure to notify and covers equivalent provisions, while clause 119 relates to HMRC decisions, reviews and appeals. That, too, employs similar wording, but unlike clause 117 it requires the affirmative resolution process. Amendments Nos. 3A and 4A would remove the powers. If the Government wish to amend the law in this area, we believe that they should do so through primary legislation and amend schedule 40 accordingly. If HMRC is not ready to do so and is still working its way through existing legislation, that is a further argument for delay, as I said.

I referred earlier to the Financial Secretary’s letter of 24 April 2008 to the shadow Chief Secretary, in which she states that the

“order-making power contained in clause 117(4) is a reserve power to provide for the smooth transition from the old penalties legislation to the new, allowing for interim rules to apply if necessary when the new legislation comes into force”.

In arguing that it is purely about a smooth transition, the Government’s difficulty is that the provisions are much wider than that. For example, there is no sunset clause that would satisfy the concerns identified by the Financial Secretary, but it would at least provide some comfort to Opposition Members who are concerned about these provisions.

If the Financial Secretary says that she will not use the powers more widely than is set out in her letter, I would not for a moment doubt her integrity on the matter; I fully accept that, but she will not necessarily hold her position for ever. I mean that in a positive way, as I am sure that promotion beckons. I, for one, think she would make an outstanding member of a Labour shadow Cabinet, but Parliament should require greater protection of its rights than the assurances of one particular Minister, however popular.

There is already an issue about parliamentary scrutiny because these measures are contained in a Finance Bill and it is worth making the point that the other place does not have an opportunity properly to scrutinise these measures for that reason. Given that the provisions greatly affect the balance between the liberties of the individual and the sanctions that the state requires to enforce the law, there is a strong argument for saying that any fundamental review of HMRC’s powers, as we saw in last year’s Finance Act and this year’s Finance Bill, should be contained in separate legislation that is not part of a money Bill. Any such separate Bill could then be examined in the other place. I would be grateful if the Government gave consideration to that point, which has been raised by a number of bodies.

As well as the constitutional argument, there is a practical point about the way in which the Government seek to amend legislation through statutory instruments. The design principles followed in the review of HMRC’s powers are referred to in the consultation document I mentioned earlier, which states that penalties should be

“visible and set in statute”.

I accept that even if it is amended by statutory instrument, it will still be in statute, but there is a genuine point that if the Government are going to use orders to amend legislation in that way, it will not be “visible” and it will not be as easy for practitioners to go to one or two schedules set out in Acts to work out how it works. Anyone who works on Bills knows how difficult it can be to juggle various legislative instruments to find out the most up-to-date status. There is thus a practical point about trying to achieve legislative change through orders, as it is harder for professional groups to monitor.

In conclusion, in determining the balance between the rights of individuals—in this case, taxpayers—and the sanctions necessary for the state to enforce its powers, Parliament has a vital role. In the context of income tax on the low paid, we hear that Parliament has taken control of the matter, so we, Parliament, should not surrender our rights to control the penalties imposed on taxpayers either. It would appear that this set of proposals has been somewhat rushed and that the consultation has been inadequate. There is a danger that Parliament will not be able to scrutinise measures made pursuant to schedule 40 as closely as it should. For those reasons, we tabled the amendments and we look forward to hearing the Minister’s comments on them.

Before I call the next speaker, I remind the Committee that we can discuss all four amendments in the group, but that amendment No. 1A is the lead amendment.

Let me say straight away that I share all the concerns of the hon. Member for South-West Hertfordshire (Mr. Gauke) about what the Government have done, or rather not done, so far. The amendments are very pertinent.

As has been said, schedule 24 to the Finance Act 2007 introduced the single penalty regime for inaccurate documents. I recall that there was considerable discussion when it was introduced. The taxes, levies and duties for the penalties that are payable have been considerably extended to include environmental taxes such as the aggregates levy, the climate change levy and landfill tax; excise duties such as those on alcohol, tobacco, oils, gambling and air passenger duty; stamp duties such as stamp duty land tax and stamp duty reserve tax; and inheritance tax, insurance premium tax, pension schemes and petroleum revenue tax. It is difficult to think of any instance in which a penalty would not have to be paid if someone inadvertently supplied false information. The level of penalty is dependent on the amount of tax that has been understated, the underlying behaviour and the extent of the disclosure by the taxpayer. I suppose that we would not argue with that, as none of us wants to give any comfort to people who deliberately try to avoid paying taxes for which they are liable.

I am particularly pleased that the new provisions do not apply to tax credits. I cannot imagine what might happen if they did; I do not know how many million people might suddenly find themselves liable to investigation.

In my experience, it is the Revenue that is making the errors, so it would have to pay penalties to my constituents.

That is an excellent point. Indeed, some payments have been made, but I suspect that they were nowhere near adequate compensation for what people will have had to go through—not only all the telephone calls and letter writing, but all the stress, and sometimes negotiations with banks—because they properly provided information, but it was not taken into account, so they found themselves in great difficulties.

There are two overall themes to our concerns. One is the lack of certainty. Most people would accept that good legislation requires certainty. The current group of amendments, like the previous one, deals with the fact that there is very little certainty on which people can rely. We also feel that HMRC should be putting its own house in order. We are very cautious about extending the powers of HMRC—an agency that has consistently sought to push to the absolute limit the powers that it already has. I am thinking of its attitude to chasing tax on contractual termination payments under clause 49 and the attempts in this year’s Bill to give it unlimited access powers to businesses. Those are draconian powers, and when such an approach is combined with uncertainty, we will have an unacceptable mix.

Reference has been made to the Financial Secretary’s letter of 24 April, which clearly went to a number of colleagues, and to the penalties for errors dealt with in clause 117. It is the fact that no real certainty is provided that concerns us. To say that work in this area is ongoing, which is a bit like what was said about the last set of amendments, gives no great reassurance to anyone. Good legislation requires certainty, so if the Government believe that interim rules are required, they should state them in primary legislation and not try to bring them in through the back door in regulations later in the year. The Government need to provide real reassurances, and it is essential to tighten up the clause.

We think that it would be better to tighten up the provision, if that is possible, than to remove it. We agree that there is a legitimate expectation that individuals who deliberately provide false information for the purposes of tax evasion should be penalised, but we cannot support the clause as currently drafted. We support amendments Nos. 1A, 2A, 3A and 4A, however, because they would introduce a measure of control over what the Government are trying to do. We urge the Government to abandon the drip, drip method of using regulations to amend these powers, as it seems to be catching on far too much, and we think it should be curtailed.

May I also give advance notice that we shall certainly want to oppose the inspection powers in clause 108? We will no doubt discuss that provision upstairs in the next few weeks. We feel that it is just another example of the powers that are being provided to an already over-powerful agency, and that does very little to assist us in being convinced about it. What the legislation proposes is sensible, but it is not clear enough for us to be able to support it. Therefore, we will support the amendments if they are pressed to a Division.

I rise to support the amendments of my hon. Friend the Member for South-West Hertfordshire (Mr. Gauke). I am deeply concerned about two points. First, I am concerned about why the Government are so worried about their own 2007 legislation, which they have not managed to enact yet; indeed, they have got their knickers in such a twist that they want to bring in new legislation long before that 2007 legislation takes effect and in a rush, as has been mentioned by several Members.

It seems frightening that legislation that we debated at some length last year in Committee and on the Floor of the House on the industry and individuals getting together to discuss and try to understand what the penalties for errors will be is being dealt with in such a way. The Government have rushed through what sounds like quite a bogus consultation, as they have not been able to give the time that everybody—particularly the experts in the field—would need in order to consult and so that the Government could respond with answers to concerns, and so that proper consultation could take place. From what I have heard this evening, it sounds like the Government had already made their mind up before the consultation even took place. It seems a complete sham to give only such a short period, when their own regulatory advice is that it should be three months.

I also wish to address the point about the Henry VIII clause. My hon. Friend—I think he is my friend—the Member for South-West Hertfordshire alluded to the power of such a clause, and also made some other comments in respect of my intervention. I fully accept that Henry VIII clauses were used before the current Government were in power, but that does not make them right. They should be brought in only in exceptional circumstances. I am deeply concerned that this House will be excluded from debating, and being consulted on, important measures that have an effect on almost all our constituents, and that we will leave that power with the Minister of the day. I agree with my hon. Friend that the current Financial Secretary is exemplary in her—[Interruption.] I am pleased I have cheered up the Financial Secretary, especially after the couple of days she has had. She will almost certainly not be in her current position after the next general election, however. I have grave concerns about other Ministers of whatever party having such Henry VIII powers.

I will support the amendments, so that this House continues to have the powers it should have, fulfilling the promise of the current Prime Minister, and to make sure that we debate measures of significance to our constituents, especially on penalties they may incur.

First, let me make the same observation that I made last night: it is a pity that once again not a single Labour Back Bencher is present to support the Government’s proposed legislation. That is disappointing, not least because I enjoy a good debate.

As my hon. Friend the Member for South-West Hertfordshire (Mr. Gauke) is a solicitor, I am sure he is far better placed than me to scrutinise the Government’s use of the Henry VIII powers in clause 117, and he does so through his amendments Nos. 3A and 4A. I am grateful to him for his thoughtful explanation of the amendments. Nevertheless, the name that has been given to the powers is an evocative one that summons all the images of unaccountable government that we could ever need. The Government’s use of such powers should be of interest, and ultimately of some concern, to each and every Member, because of their impact on our ability to exercise effective scrutiny and hold the Government to account. Crucially, the matter should also be of concern to Members in another place; indeed, I believe it already is. The fact that these powers crop up in a money Bill will exclude them from further scrutiny in another place, particularly by the Delegated Powers and Regulatory Reform Committee, whose Members take a special interest in these matters. That is the key point I take from my hon. Friend’s arguments.

I note that there are some specific requirements relating to the scrutiny of such powers which do not, by default, apply to the passage of the Finance Bill because it is concerned with supply. Indeed, the DPRRC’s guidance for Departments on the role and requirements of the Committee lays those requirements down clearly, including the submission of a memorandum that is required to justify the necessity of the power in some depth. I understand the general situation regarding the right of another place to scrutinise and delay Bills that Mr. Speaker has certified as money Bills under the Parliament Act, and perhaps it follows that another place cannot delegate scrutiny powers that it does not itself enjoy to one of its own Committees. However, I question the general principle that another place should not be able to scrutinise delegated powers that are to be exercised under the Finance Bill simply because it deals with supply. The other place’s right to scrutinise this Bill may well be truncated by the Parliament Act, but it is not entirely removed.

The scrutiny of the sort of powers that appear in clause 117 has attracted considerable attention. The Delegated Powers and Regulatory Reform Committee looked in depth at the issue of the Henry VIII powers in its third special report of 2002-03, upon which its departmental guidance draws. One of the report’s striking conclusions was on standard wording for Henry VIII powers. The Committee shied away from recommending the use of standard wording, because on the advice of parliamentary counsel, its concern was that any standard wording would need to be as broad as possible if it was successfully to catch all potential situations. The concern was thus that Departments would automatically grant themselves powers for which they had no need and would justify the decision to do so by dint of the standard form of words.

A letter from the parliamentary counsel to the Committee gave the draftsman’s perspective in some detail, but the germane point was that draftsmen should always refer to the specific needs of any particular Bill when framing Henry VIII powers. Typical terms might include “incidental”, “supplemental”, “consequential” and “transitional”, as appropriate. However, clause 117(4) contains not only the words “incidental”, “supplemental”, “consequential” and “transitional”, but the words “transitory or saving”. Furthermore, subsection (6) seems to widen the scope of the powers further still. I am no draftsman, but it seems to me that the power is framed as widely as it could possibly be. Is the Minister confident that that is necessary, and can she justify that necessity to the Committee?

My second main concern is the sheer potential breadth of operation of the powers in practice, given that they can amend not only the Act that will implement them, but every Act that it in turn amends. I have not yet gone through the Bill to see how many other Acts it will amend, given its length, but I suspect that the list will be very long indeed. Can the Minister confirm whether the proposed powers under the clause will give the Treasury the right to amend any part of any other Act that this Bill itself happens to amend, without further recourse to Parliament?

During the Delegated Powers and Regulatory Reform Committee inquiry into Henry VIII powers, questions were raised as to what level of parliamentary scrutiny over them is appropriate. The parliamentary counsel’s opinion was:

“The question is one of policy for ministers.”

As this is a policy matter and not one of drafting, can the Minister therefore justify why the powers, as they stand, provide only for the negative procedure, instead of the affirmative procedure, despite appearing to be drafted as widely as they could have been?

A third concern is derived from the Delegated Powers and Regulatory Reform Committee’s 2002 special report findings. The report states that

“we are persuaded that the Government should, in the Explanatory Notes accompanying any new bill...offer an explanation of the reasons why a particular form of wording has been adopted in each case.”

I am sure that the hon. Member for Wolverhampton, South-West (Rob Marris), who is an assiduous user of explanatory notes, would concur. The report specifies any new Bill and does not exempt money Bills, yet the explanatory notes on clause 117 are very brief indeed—brevity is not apparent elsewhere in the 1,148 pages, so I am a little puzzled. The notes do nothing beyond paraphrase the subsections to which they refer, and that seems explicitly to contravene the recommendation that I just cited. Perhaps the Treasury believes that because this Bill does not fall formally within the Committee’s remit, its guidance does not apply to it. I would be interested to hear whether that is the case, as I am sure would the Committee.

Given that the staff of the Delegated Powers and Regulatory Reform Committee confirm that they cannot examine the Finance Bill, and given that there seems to be no explanation for that in the Standing Orders of the House beyond the supply exemption, is it not time for the Government and for Parliament to re-examine this issue? The Delegated Powers and Regulatory Reform Committee has no equivalent in the House of Commons and, as such, it could be said to be exercising its functions on behalf of Parliament as a whole, rather than just on behalf of another place. The Committee is very widely respected in both Houses for its thorough and timely work, as was emphasised in its rapid handling of the Banking (Special Provisions) Act 2008, for which I am sure the Chancellor was grateful.

The Government have at least three options in responding to what is undoubtedly a legitimate concern. First, they could simply extend that Committee’s remit, so as to allow it scrutiny of the very wide powers in this Bill and future money Bills, notwithstanding the limitations implicit in the Parliament Act. Secondly, even if the powers really are necessary and expedient, the Government could still remove the clause and schedule 40 from this Bill and reintroduce them in a future non-money Bill, which would be subject to proper scrutiny in another place. Finally, the Government should accept our amendments Nos. 3A and 4A and remove the powers altogether. Their doing nothing would contravene the Prime Minister’s reaffirmation of his respect for the House and for Parliament as a whole.

It is a pleasure to see you in the Chair this evening, Sir Nicholas. I hope that you will agree that this has been a very good debate. I congratulate the hon. Member for South-West Hertfordshire (Mr. Gauke) on tabling these amendments. I do not adopt an ideological or partisan line on this area of work, and I have found listening to the concerns that have been raised helpful.

Before I deal with the amendments, I would like to discuss the background to the clause. As we have had a wider-ranging debate instead of dealing with the two groups independently, it might be helpful if I were to respond more broadly. The clause is part of a larger package of measures in the Bill. It is the latest stage of the review of the powers, deterrents and safeguards of Her Majesty’s Revenue and Customs, which is aligning and modernising the powers inherited from the Inland Revenue and Customs and Excise. Many, if not all, the anomalies in the law result from the piecemeal way in which tax legislation has evolved, particularly in two separate departments. Those differences are confusing for taxpayers, they are costly to administer and they reduce HMRC’s ability to ensure that the right tax is paid.

Our aim is to provide a modern framework of law and practice for HMRC. Penalties are a good example of the wide variety of approaches across different taxes that exist in the law at present. For example, a person filing an incorrect excise duty return may receive a fixed penalty of £250, whereas an understatement on a corporation tax return resulting from the same behaviour could attract a penalty in law of up to 100 per cent. of the tax lost. Neither approach has proved effective or fair, so reform is needed. The review has been commended for its approach, especially the breadth and depth of its consultation and the willingness of HMRC officials to listen and make changes.

Inevitably, there will be tensions as we seek to ensure that HMRC has appropriate powers to work effectively and that taxpayers have strong safeguards. The hon. Gentleman questioned why we were doing this now, and suggested that it was rushed, as did other hon. Members.

HMRC inherited different powers from the two former departments. Those were inconsistent in places, which is confusing for taxpayers and imposes undue burdens on them and on the Exchequer. The full benefits of merger cannot be delivered until those powers have been aligned where it makes sense to do so. The way in which the review of powers and safeguards works is to engage stakeholders in an ongoing round of consultations that include formal public documents, workshops and literally dozens of face-to-face meetings.

Development of the provisions in the Bill has been an iterative process, and stakeholders acknowledge that HMRC has made changes throughout in the light of their views. The January consultations were therefore part of a very long process. I accept what the hon. Gentleman says about the relevant part of the Cabinet Office code of practice on written consultations and I take that very seriously. The code clearly states that we should consult widely throughout the process, allowing a minimum of 12 weeks for written consultation at least once. I assure him and others who have expressed concern that those guidelines have been followed for all the powers clauses in the Bill.

This is the last stage of an extensive consultation process over two years, involving previous 12-week consultations, dozens of meetings with interested parties and workshops. Knowing that time would be tight in March, HMRC raised key issues in meetings with stakeholders and sought suggestions for improvements. Changes to the draft law were identified and action was taken before the consultation period closed. All written responses were considered in detail and several changes were made in the final few days, as parliamentary draftsmen were about to be commissioned. A full response document was published on 27 March.

Since 2005, the review has issued 13 consultations and has had meetings with representative bodies and interested parties, as well as exposing draft legislation. That is to be commended as a form of consultation on the Government’s intentions. HMRC has worked with representatives of business, the professions and low-income groups on guidance and codes of practice. For this year’s penalties changes, HMRC has made a particular effort to reach out to more specialist representatives for the particular taxes involved—for example, the oil, alcohol and insurance industries.

I wish to put on the record my thanks to all those who have given their time to participate in the development of the measures in the Bill, with particular thanks to those who attended meetings with HMRC throughout, which meant that issues could be considered and addressed at an early stage—

I did not mean Members of Parliament: I meant stakeholders and interested parties. I have some interesting quotations from some organisations—

I apologise to the Minister, but I thought that she was talking about the missing Labour Members. One would think that they would be on the Back Benches to support her during the passage of the Bill.

I do not wish to rub salt into the Financial Secretary’s wounds, but it is strange that some 300 Labour Members are floating somewhere around the House, but not a single one is on the Back Benches—

Order. That is not a relevant intervention. The hon. Gentleman has made his point and I hope that the Financial Secretary will not take time to reply to it.

I regret giving way and I am grateful for your guidance, Sir Nicholas.

Clause 117 is about creating a single penalty regime for incorrect tax returns to apply across taxes and duties administered by HMRC. It does that by extending the scope of schedule 24 of the Finance Act 2007 and replacing the current separate and different regimes. The new penalties will be related to the amount of tax understated, the behaviour—as the hon. Member for South-East Cornwall (Mr. Breed) described—giving rise to the understatement and the extent of disclosure by the taxpayer. Much more of the penalty framework will be set out in primary legislation than in the past and, together with appeal rights, which I would have thought would be singled out for approval, to an independent tribunal against all penalties, that will ensure greater consistency.

These provisions will repeal the large number of different penalty regimes that are specific to particular taxes and can be confusing for the taxpayer. Amendment No. 1A seeks to postpone applying the new penalties for the additional taxes for 12 months and until the new regime’s effectiveness for the main taxes has been evaluated. Such a delay would be a huge missed opportunity to simplify, modernise and align penalties across HMRC, to enable clear deterrent messages to be sent and to move to a more effective and fair response to taxpayer errors.

Before the new penalties were even put forward for consideration in last year’s Finance Bill, HMRC undertook a review of settled cases, to assess the likely impact and effectiveness of the new penalties, and this, combined with international comparisons and the support of analysts and academic research, all helped in developing the overall structure. These penalties are a good example of evidence-based policy making.

In practice, holding introduction back by 12 months would actually mean three to four years’ delay, because meaningful evaluation could not be started until sufficient cases had been worked and completed. As with all proposals in the review of powers, deterrents and safeguards, the penalties reforms have been the subject of extensive consultation since 2006. The Institute of Chartered Accountants in England and Wales wrote:

“We think it would be sensible to have a single system of penalties for incorrect returns across the tax system”.

The Chartered Institute of Taxation concurred:

“We are pleased to note the proposals by HMRC to extend the Finance Act 2007 approach for the main taxes to other taxes, which is in line with our comments in earlier consultations.”

The Association of British Insurers, which is not always in favour of Government proposals, wrote:

“The benefits of aligning penalties for incorrect returns across taxes outweigh any difficulties.”

The Society of Trust and Estate Practitioners said in relation to inheritance tax:

“The principle of alignment of penalty regimes is logically sound and appropriate to the taxes that affect trusts, estates and their administration. It is appreciated that alignment of penalties will simplify the structure.”

I could continue with other such positive quotes, but I detect a degree of twitchiness in the Committee about the length of time that I am taking. However, this is an important debate and I wish to respond seriously to the measured points that have been made on occasion by Opposition Members.

Amendment No. 2A calls for the Treasury order commencing the penalties for the additional taxes to be made under the affirmative procedure. That would be contrary to the normal practice for commencement orders in tax matters, which are usually made under the negative procedure. I can recall that between 1992 and 1997 I made similar points to those made by the hon. Member for South-West Hertfordshire and his colleagues. In those days, a popular way for the Opposition to extend the length of a debate was to make a routine and well worked complaint about the conduct of the Government. We learned the lesson of where the previous Government had got it right in terms of administering legislation, and we implemented that lesson.

I am saying that I learned a lesson. When I came into government, I was able to appreciate that the previous Government had done some things that were right. We therefore adopted those measures.

I see no sensible reason why an exception should be made in this matter. The order will simply set out the dates from which the new penalties will apply for the additional taxes and is expected to be very similar to the commencement order made in March this year for the 2007 penalties. We expect the order to state that the new penalties will apply to all the additional taxes at the same time. That will be for return periods starting on or after 1 April 2009. That is 12 months after the commencement of the 2007 penalties.

Moving swiftly on, amendments Nos. 3A and 4A would remove from clause 117 provisions to make incidental, consequential or transitional changes by Treasury order in connection with the new penalties for error. The use of those words has been picked up on by Opposition Members, but they are necessary phrases that form part of the legislative process. The fact that we have a Parliament indicates that legislation has to be revisited from time to time in the light of new circumstances in which it applies. The amendments would make the Treasury’s order-making power completely ineffective, presumably in an attempt to prevent the new penalties for errors from ever coming into effect for the additional taxes set out in schedule 40. They seem to contradict amendment No. 1A, which merely seeks to delay the start. It could be that that is a probing approach, and I am sure that we will return to the subject in Committee.

All the substantive changes to primary legislation are included in schedule 40, which is due to be debated at a later time. In order to have a smooth transition from the numerous old penalty regimes that are being repealed to the single new behaviour-based penalty regime for errors, a number of minor consequential and transitional changes to the law are required. I believe that they are minor, consequential and transitional changes. However, as I said at the beginning, I do not take an ideological or partisan position on these measures. I am listening to the representations made by the hon. Member for South-West Hertfordshire and by his hon. Friends, and those made by the hon. Member for South-East Cornwall.

If amendments Nos. 3A and 4A were accepted, that would leave the legislation unclear and untidy. Surely that cannot be right. I hope that the hon. Member for South-West Hertfordshire will withdraw his amendments. If he chooses not to do so, I am afraid that we must resist them.

As ever, the Financial Secretary presents her case in a reasonable tone, but I will disappoint her as I have not been convinced by her arguments about protecting Parliament’s position in scrutinising legislation in this area or about the concerns that the consultation has been insufficient and the measures have been rushed through. She quoted the Institute of Chartered Accountants. If I may, I shall quote its remarks in its briefing for the Committee of the whole House. It said:

“The FA 2007 penalty provisions are far-reaching and we think it is right that these recently introduced provisions should be given time to bed down before consideration is given to extending them further.”

I intend to press amendments Nos. 1A and 3A to a vote. If it emerges that the Labour Back Benchers who attended the debate were so persuaded by my arguments that we are successful, I might look to press the other amendments to a vote. If that does not happen—that is a distinct possibility, given that there were no Labour Back Benchers present—I shall press only those two amendments.

Question put, That the amendment be made:—

Amendment proposed: No. 3A, page 73, line 13, leave out subsections (4) to (6).—[Mr. Gauke.]

Question put, That the amendment be made:—

Clause 117 ordered to stand part of the Bill.

Clause 15

Rates of vehicle excise duty

I beg to move amendment No. 9, page 8, line 4, at end insert—

‘(3A) In paragraph 1C (the reduced rate)—

(a) in sub-paragraph (1) for “or C” substitute “C or D”;

(b) after sub-paragraph (4) insert—

“(4A) Condition D is that the vehicle is a working vehicle.”; and

(c) in sub-paragraph (6) insert at the appropriate place—

““working vehicle” has such meaning as may be prescribed by the Treasury in regulations made by statutory instrument,”’.

The Temporary Chairman: With this it will be convenient to discuss amendment No. 10, line 17, at end add

‘(subject to subsection (7)).

(7) The amendments made by subsection (3A) shall come into force on a day which the Treasury may by order appoint.’.

I have no ideological or intellectual difficulty with using price to change behaviour, such as the Government want to do with fuel duty, or with using price and changes to vehicle excise duty to encourage car manufacturers, for example, to create low-emission vehicles and to encourage people to buy them. However, I do have difficulty with the implementation of provisions such as those in the Bill, particularly where the consideration of those provisions seems to have taken place without considering the groups of people on whom they may have a disproportionate impact. I suppose that in respect of that argument, there is a similarity with how the Government went about the abolition of the 10p rate, seemingly not understanding the impact that it would have on 20 per cent. of households in the country.

The groups about whom I am concerned in relation to VED are mainly in agriculture, forestry or similar occupations and they work mainly in remote and rural areas. They tend to be employees on low, agricultural wages, although they may be self-employed; they may be small farmers, for example. Many such people need 4x4 vehicles simply to get to or do their work. However, they are unlikely ever to be able to afford a brand new 4x4 with lower emissions, even if such a vehicle existed. They are therefore unlikely ever to benefit from the lower rates of VED.

Although the lower rates will apply to vehicles registered before 21 March 2006, many of those who can least afford the additional cash for the higher rate may be forced to find it in future, as vehicles registered after that date, still roadworthy, become affordable——in five, 10 or 15 years’ time—to people on low wages in the sectors that I have mentioned. By that time, those vehicles will attract the higher rate.

Amendment No. 9 would substitute the reduced VED rate for designated working vehicles. It would allow the Treasury to define “working vehicles” by regulation for that purpose and the regulations to be approved by statutory instrument. That would allow scrutiny but enable the definitions to be done quickly. Amendment No. 10, an associated amendment, would allow the changes brought about by amendment No. 9 to come into force on a day that the Treasury may appoint, without a vote in the House, to ensure that they can be introduced speedily.

I said that “working vehicles” would be defined by the Treasury, but I envisage that they would include the vehicles of such people as farmers, particularly hill farmers, and those in associated sectors in remote and rural areas. I hope that some of the comments that I shall cite, from the National Farmers Union Scotland and others, demonstrate not only the desirability but the need for such a measure.

It is worth putting it on the record that many of the people affected by the higher rates of VED, who live in remote rural areas, are already paying very high prices on very low wages, not least for fuel and energy. I think particularly of fuel—diesel is routinely hitting £1.30 a litre.

The hon. Gentleman has talked about remote rural areas, and I am sure that he would include the county of Sutherland in that description. He will be aware that crofters, who I hope would be included in his description of those affected, have a particular problem. Very often, the working vehicle is the only vehicle—it is what takes the ewes to market and the children to school. The county is the area with not only the highest diesel price, but the greatest distance between filling stations. Taken together, those factors create real need, and there is no public transport to ameliorate the difficulty.

The hon. Gentleman is absolutely right in every regard, including his comments about Sutherland. Crofters are defined in a number of ways; there are Acts that define crofting. Crofting is employment, but in a sense it is also a way of life. The hon. Gentleman is absolutely right to say that the vehicle is not only necessary for the job of crofting; given the location of some crofts, it is also absolutely essential to get to the front door from what passes as the main road.

I turn to the support for the measure that I propose, or one similar to it. Jim McLaren, president of the National Farmers Union Scotland, said:

“The Chancellor is clearly trying to penalise those driving big cars in city centres, but hikes in excise duty…will also be penalising those who have no alternative. Particularly after the dismal year faced by many farmers in 2007, an extra ‘showroom’ price hike on what is an essential business tool is another slap in the face.”

Anna Davies of the NFUS put it more clearly when she said only two weeks ago:

“The NFUS has long stressed that 4x4 vehicles are essential for farmers and changing the tax bands to penalise more heavily polluting vehicles will penalise farmers who have no choice but to use these types of vehicles. The key for farmers is band G. An increase in the band G rate vehicle excise duty will have a detrimental impact on farm businesses, since farmers are not able to purchase a vehicle that has lower CO2 emissions and is still able to do the job required of it around the farm.”

When she sums up, I hope that the Minister will comment on that technical matter. The NFUS says that farmers have no alternative, and that they simply cannot purchase vehicles with lower emissions that are able to do the job on the farm.

In addition, I hope that the Minister will be a little more generous than she was when she responded recently to a senior Member of the House. In answer to an oral question, she said that he was

“the epitome of Range Rover man.”—[Official Report, 24 April 2008; Vol. 474, c. 1449.]

I shall spare the hon. Gentleman’s blushes, Sir Nicholas, but that answer suggests that the Government believe that all the people who drive 4x4s—be they brand new Range Rovers or a beat up old Land Rover on a hill farm—are really just versions of the same person, and that they drive the same cars for the same reasons. That, of course, is wholly and utterly wrong.

The National Gamekeepers Association has said that it is worried about the impact of increased 4x4 taxes on what it considers to be essential rural work. Alex Hogg, chairman of the Scottish Gamekeepers Association, said that four-wheel drive vehicles were

“essential tools for Scotland’s gamekeepers, and rarely travel further than rough tracks or estate roads. Gamekeepers use these vehicles for 365 days of the year, and like farmers we simply couldn’t do our work without them. We are concerned that an increase in taxation would not only be unjustified in our case, it would also add an extra burden on the sector which is already under serious pressure.”

Once again, I hope that when she sums up the Minister will say something about the essential nature of 4x4 vehicles, and that she will take on board the assertion by the Scottish Gamekeepers Association that they

“rarely travel further than rough tracks or estate roads.”

They are clearly working vehicles, doing precisely what they are designed for. The people who use them do not earn big money: many are self-employed and bear the full burden of the costs, and I hope that the Minister will take that into consideration in her reply.

I want to say something about two other small groups of people—one, the employees of Scotland’s five ski resorts, is very small indeed. They are a tiny group in the big picture, and people such as ski lift operators earn very low wages, but they are essential to keeping the ski resorts operating. They also ensure that nearby resorts and towns remain tourist destinations for 12 months a year.

Such destinations are sited in parts of Scotland where the economy is very fragile. I fear that the unintended consequence of the fact that the Government did not consider the people employed in Scotland’s winter sports sector will be that those people’s lives are made harder.

My constituency has two of Scotland’s ski resorts, and I want to emphasise how important they are when it comes to bringing in money at different times of the year. The changing climate has added extra burdens on those who try to run the resorts, and they do not need the Government to add any extra costs at a time when they are worried about making decisions on serious investment priorities.

The hon. Gentleman is right, and two separate costs are involved here. The first is the cost to the businesses, which are often marginal: for instance, although they have had a very good season this year, one of them may still not have made any money. However, the second cost is borne by the people who work as ski lift operators in the winter and who become forest and agricultural rangers in the summer. They are tiny in number, but essential to the sector, and I hope that the Minister will say something about them.

The final group that I would like to mention comprises those involved in mountain rescue. Some 500 vehicles in Scotland are used for mountain rescue. Mountain rescue teams are concerned about vehicle excise duty on the vehicles that they, and their many volunteer members, use to get up the hill to commence a rescue. The example of mountain rescue opens up two interesting points. The mountain rescue commission for Scotland has told me that 4x4 vehicles used as ambulances are already fully exempt from VED, so there can be no argument that this cannot be done. I also understand that the Treasury has been in negotiations with the UK body representing the commission since late last summer, and that the discussions—I hope that the Minister can confirm this—may be about exempting all mountain rescue vehicles from VED.

We have small numbers of people in fragile economies earning low agricultural-level wages. We are absolutely not arguing that price should not be used as an incentive for behavioural change—we believe on balance that it should. However, in terms of the implementation of this measure, the impact on some of the poorest-paid people in the most fragile economies and key sectors could be damaging. I very much look forward to hearing what the Minister has to say, Sir Nicholas—I hope that I spared your blushes earlier—and shall decide after that whether to press my amendment to the vote.

It is a pleasure to appear before you, Sir Nicholas.

I have some sympathy with the points made as lucidly as ever by the hon. Member for Dundee, East (Stewart Hosie), who takes a great interest in Finance Bills generally and issues affecting Scotland in particular. I am sure that the Minister will be able to reassure me with her answer, but I will be interested to hear it.

I have to say that I have a bit less sympathy with amendment No. 6. Is it in order to address some remarks to that, Sir Nicholas, or should I wait?

I should wait.

I want to talk generally about CO2 emissions, because that is related to the whole issue. First, I should like to correct some of the figures given by the hon. Member for Taunton (Mr. Browne) on household emissions versus vehicle emissions. I see that you are looking concerned, Sir Nicholas. Please tell me—I am sure that you will—if you think that I am straying too far.

We are debating amendments Nos. 9 and 10, and a separate debate on amendment No. 6 will come later. The Chair is always flexible, and if the hon. Gentleman gives an undertaking that he will not speak on amendment No. 6, perhaps we can allow him to digress slightly in respect of his remarks on amendments Nos. 9 and 10.

I am grateful to you for that guidance, Sir Nicholas, as ever. I am not sure whether my remarks would be better addressed to these amendments or to amendment No. 6, so perhaps I will seek to catch your eye later when we move on to amendment No. 6.

The hon. Member for Dundee, East (Stewart Hosie) is right. The economies in the remote parts of the United Kingdom are suffering greatly and are very fragile. Many of the businesses in those areas—farming, crofting, forestry and so on—need vehicles that can go off road, and often the same vehicle is used for business purposes as for going into the village. Those businesses therefore need a reduced rate of VED.

I am sympathetic to the amendment, but on the condition that the regulations to which it refers would have to be very tightly drawn to ensure that they were not abused. We would not, for example, want company cars, or even the First Minister’s car, to be defined as working vehicles. The regulations would have to apply only in a rural situation and only to cars that are essential to the running of a rural business.

It is not a question of creating a precedent. The hon. Gentleman already referred to existing precedents: police cars and cars used in the health service are exempt, as well as many others. There is a long list of exemptions already, and I urge the Government to accept the amendment so that there can be consultation on the regulations. Regulations should be drawn up that allow the reduced rate to be applied to vehicles that are essential to the operation of a small rural business. I hope that the Government will be sympathetic to rural business by accepting the amendment.

Thank you for calling me, Sir Nicholas. I was caught slightly on my heels by the very brief speech by the hon. Member for Wolverhampton, South-West (Rob Marris) a moment ago.

My party proposed differentials in vehicle excise duty to reflect the emissions from cars in advance of the legislation being introduced in 2001, and it remains our position that it is reasonable to persuade people of the merits of driving more fuel-efficient and energy-efficient vehicles by creating a differential in the vehicle excise duty that they pay. We are not, therefore, seeking to dispute that principle, but we are sympathetic to the amendment tabled by the hon. Member for Dundee, East (Stewart Hosie) for the reasons already outlined in previous speeches. Those in remote rural or agricultural settings do not find it practical to go about the business of running a profitable organisation using low-emission cars because such vehicles are not able to cover muddy terrain or pull sufficient weight, which farmers, for example, need to do to perform tasks in order to complete their duties.

I have listened to what the hon. Gentleman says, and I accept his point about the principle of VED differential for carbon emissions. However, another principle is important: we should take into account the needs of rural and remote areas. If we do not do so, we will undermine the effort to get everyone to sign up to meeting climate change targets. Despite the principle concerning emissions, the hon. Gentleman is right. We agree with his point, which was also made by my hon. Friend the Member for Dundee, East (Stewart Hosie).

I agree with the hon. Gentleman and I was not seeking to imply anything else.

I represent a constituency in Somerset. That is a long way from Scotland, but it has remote rural areas, including parts of Exmoor national park. I observe that the use of expressions such as “Chelsea tractor” give a quite urban perspective on the debate about fuel emissions and vehicle excise duty. I understand the frustration that people have in many towns and cities, which were built and designed before the invention of the car—certainly before the invention of very large cars. It is difficult to manoeuvre one’s way along small roads in this country using large 4x4 vehicles, and doing so may have an impact on other road users and pedestrians.

There are concerns about the practicality of using 4x4s in urban settings, but the overall context, of course, is concern about emissions and global warming created by transport—particularly private transport. My party and most people in this House are sympathetic to the case for differentials in vehicle excise duty in that context. We must then consider the exemptions that we put in place to help people who find themselves in exceptional circumstances.

Is not the key principle that when one is seeking to change behaviour, there has to be another pattern of behaviour to change to? If there is no alternative, all one is doing is punishing. The point is that there is no alternative in remote rural areas.

As always, that point was extremely well put by my hon. Friend. It is difficult to get about a farm in a Nissan Micra in January, and anyone who attempted to do so would not be running a very successful farming enterprise. There are circumstances, to which I referred earlier, where it is necessary to have a vehicle that can pull more weight or operate on more unsympathetic terrain. That is most obviously the case for farming but other examples, such as forestry, have been given.

Let me inject a note of reservation into our deliberations. The amendment is widely drawn, and some will be concerned that it does not include a definition of a working vehicle, but leaves that to the Treasury. The hon. Member for Argyll and Bute (Mr. Reid) said that some people may believe that the First Minister is transported in a working vehicle but others may be less sympathetic to that view.

The definition of a working vehicle has been left to the Treasury to ensure that it is not too widely drawn, not least because the Treasury will want to maximise the revenue yield. I am sure that it will be sympathetic enough to draw it sufficiently widely to cover those who will be affected by the changes.

I shall take the intervention of the hon. Member for Na h-Eileanan an Iar (Mr. MacNeil) before moving on.

I am grateful to the hon. Gentleman. Surely the definition of a working vehicle is a 4x4 or a pick-up that does a job that a Nissan Micra could not do. As a crofter, I know of umpteen situations on a farm in which something with a bit of guts and bigger wheels is needed to do something that a Nissan Micra could not do. Many of my neighbours are crofters and, like me, use vehicles to do things that a Nissan Micra clearly cannot do. That is one basis for a definition.

I made that point earlier. However, we must be careful that the exemptions are not too wide. Let us consider a famous Scotsman, David Coulthard—I note that he chooses not to pay tax in Scotland. He drives a vehicle that is essential for his task. If he drove a Nissan Micra, he would be less successful in his occupation.

Indeed. It would have to be an extremely souped-up engine. Nevertheless, I am not sure that the exemption should apply in that case.

The point is that the job that what is known as a Chelsea tractor does in Chelsea could be done by a Nissan Micra.

Indeed, I agree with the hon. Gentleman. His demeanour suggests that we are at odds, but that is not the case. We all agree on the need for differentials in vehicle excise duty to try to influence behaviour and that, in some circumstances, when there is no alternative—the best example is in a rural setting on a farm—an exemption is necessary. The only point of controversy or dissent that I make is that the exemption should not be too widely drawn. The amendment cannot satisfy us that that would be the case because it leaves the matter open.

The Liberal Democrats agree with the principle of the amendment and are sympathetic to the concerns of people throughout the United Kingdom who are in the circumstances that have been outlined. We therefore intend to support it.

The hon. Gentleman is right about the difficulty with definitions. I do not know whether it is an urban myth, but it is said that, before the introduction of the October congestion charge changes in London, there has been a huge increase in expensive cars being registered as mini cabs. Those definitional problems are difficult to solve.

There is a danger of widening the debate too far, but the hon. Gentleman makes a reasonable point. If I were a Treasury Minister, I would always be wary of creating exemptions because they may cover many categories that one did not envisage.

I fear that Scottish National party Members appear to be rather resentful that we are supporting them. [Interruption.] They had hoped to be in splendid isolation—the press releases had already been written and will now have to be rewritten, based on my comments. I have disappointed the hon. Member for Na h-Eileanan an Iar by saying that we will support him. [Interruption.]

To conclude, I am afraid that I am going to disappoint the hon. Member for Na h-Eileanan an Iar and others, by being sympathetic to the arguments that they have put. Even though their amendment is rather too widely framed for our tastes, we will nevertheless support it, because we share their objectives.

I declare an interest as a former owner of a Nissan Micra, which seems to be relevant to this debate. I want to reinforce the importance of recognising just how difficult life is for those operating in the rural economy and how symbolic it would be for the Government to accept the amendment. Doing so would send a signal to those communities that the Government understand just how difficult the current climate is. The rising world costs of fuel and other inputs into agriculture are severely stretching the farming and forestry economies. Removing the added cost of vehicle excise duty on vehicles that many have no choice but to operate would be a way of sending the rural community the signal that the Government understand how difficult life is.

The recent problems in Grangemouth have exacerbated that concern in rural communities. Concerns in those economies about both price and supply could be addressed if the Government took the amendment on board. They would have to come back with regulations and the House would have to approve their drafting, which is an important caveat.

The cost of diesel, at £1.34 a litre, exacerbates the situation and underlines exactly what the hon. Gentleman is saying.

Current costs—far higher than any planned for by the Treasury—are such that the market is already sending dramatic signals to the wider economy. The amendment would be an important way for the Government to send the signal that they understood the burdens faced by rural economies and the important role that the rural economy plays in the fabric of our society. I urge the Government to support the amendment.

I am probably the first hon. Member to address the amendment whose constituency does not contain any remote rural parts.

No, I have not got a 4x4, either.

I sympathise with the concerns raised by the hon. Member for Dundee, East (Stewart Hosie), who made a persuasive case for his amendment. However, we are working in a matrix of ways to determine the exemption that owners of such vehicles will apply for. Part of that is about location and about what is rural and remote—no part of Fareham is rural and remote, which makes things easy.

That matrix is about employment, too. The hon. Gentleman specified some occupations—agriculture, forestry and people working in ski resorts—but it would not take very long to come up with some more suggestions. What about a rural shopkeeper, who might use his 4x4 to load up at a cash and carry? Where do we draw the line in defining the occupations that should be supported through the exemption?

The third element to the matrix is the type of vehicle that will be used. I understand as well as anybody that some vehicles will be seen as a lifestyle choice or fashion statement in one context and a lifeline in another context. The context will depend on where a particular four-wheel drive vehicle is, who is using it and what its purpose is.

That makes it quite difficult to say how we should characterise the types of vehicles that should qualify for the exemption. My concern is that accepting the amendment would put us at risk of having to produce detailed and complex regulations, which would create uncertainty in the minds of taxpayers. They would be expensive to comply with because, when applying for a new VED disc, people would have to provide not only valid MOT and insurance certificates, but proofs of residence, occupation, and whether the job was part or full-time. The process would create a burden for people applying for exemptions, and it would not be as straightforward as the hon. Member for Dundee, East suggested.

Does the hon. Gentleman agree that unless one got the definition right, people could drive a coach and horses through it?

I suppose that a coach and horses would not qualify for an exemption. However, the gist of the hon. Gentleman’s remarks holds true.

I understand wholeheartedly the point that the hon. Member for Dundee, East makes. I have friends and family who live in remote rural areas—

Perhaps the hon. Gentleman should spend some time on a Finance Bill Committee to understand how important it is to get this right, not only from HMRC’s point of view, but on behalf of our constituents. Getting the issue right is not straightforward, and that is the problem with the amendment. Although we understand the sentiment behind it, we could not support it in the Lobby.

We have had an important, if short, debate about something that has an impact, especially in rural areas. We heard some arguments in support of the exemption proposed, with perfectly reasonable intent, by the hon. Member for Dundee, East (Stewart Hosie) through amendments Nos. 9 and 10. However, we also heard, not least from the hon. Members for Fareham (Mr. Hoban) and for Taunton (Mr. Browne), why it is difficult to draw a clear line to produce an exemption that would achieve the aims of the hon. Member for Dundee, East.

I welcome the acceptance of the principle that price should be used to influence behaviour. That is an important point of agreement throughout the Committee, and it is good to find points of agreement in such debates before homing in on matters on which there might not be 100 per cent. agreement. I recognise the points made by the hon. Members for West Aberdeenshire and Kincardine (Sir Robert Smith) and for Argyll and Bute (Mr. Reid) about the difficulties experienced in their areas and the pressures on rural businesses and industries.

As the hon. Member for Fareham said, it is important to try to get any exemptions on duties right, be that VED or anything else, and to ensure that they can be defended and maintained consistently and coherently. Although the hon. Member for Taunton is supporting the amendment—and taking quite a lot on trust—he made similar points about the practicalities of any of the exemptions suggested. There are some 4x4 vehicles in bands E and F. We hope that the changes to VED rates in this Bill and those that are signalled for future Finance Bills will lead to the introduction of new 4x4 vehicles in lower bands.

Let me answer the specific questions asked by the hon. Member for Dundee, East, especially that about mountain rescue. First, we have been considering the tax treatment for mountain rescue vehicles, but there is an issue with charity law. Government policy on the tax treatment of charities is neutral between them, and we would not want to pursue a policy that appeared to favour one charitable cause over another. The charitable status of mountain rescue organisations therefore presents the Government with potential difficulties, as a specific VED exemption would appear to favour them over other charities. Some mountain rescue vehicles that are registered as ambulances are exempt, but there is a difficulty with other such vehicles, which we are considering whether we can get around. That is one reason why we have not been able to announce a complete exemption for mountain rescue vehicles.

The hon. Member for Dundee, East discussed a potential exemption, helpfully leaving the relevant definition to the Treasury. It would be difficult to define the exemption in a way that would achieve his aim. His amendment would apply the VED alternative fuel discount to working vehicles, which are undefined in his amendment, but the discount currently applies equally to vehicles that are used primarily either for private travel or for business activity. Adding the condition that only working vehicles that are alternatively fuelled qualify for the reduced rate would undermine the incentive for other vehicles and would unnecessarily complicate the tax system.

We also believe that the compliance and administrative costs of such a change would be considerable, as the hon. Member for Fareham sensibly pointed out. The Driver and Vehicle Licensing Agency would need to verify that a vehicle was a working vehicle, which would be difficult to do on an individual basis and even more difficult to police. Working vehicles such as agricultural vehicles are already exempt from VED, and there is a separate exemption for vehicles, including four-wheel drives, that are used mainly on the land. That exemption is available where a vehicle is used only on a public road for a distance of no more than 1.5 km to pass between different areas of land that are occupied by the same person. So there are already exemptions, which could be policed and guarded more effectively than the very open exemption that the hon. Gentleman suggests.

I understand what the Minister says about definitions, but surely, someone who receives the single farm payment is highly likely to have a working vehicle, whereas someone who lives in Chelsea, for example, is unlikely to be receiving that payment. Many people who receive the single farm payment use such vehicles, but the Government are going to pretend to be blind to them. The Treasury and the Department for Environment, Food and Rural Affairs will be aware that such people have working vehicles. I ask the Treasury to look through DEFRA’s eyes; it should then be clear and plain which are working vehicles.

We always try to be reasonable and consider how these matters can sensibly be policed. I know what the hon. Gentleman means, but what looks simple from his constituency might not look simple at the DVLA, which would have to issue all the licences.

I hope that Opposition Members will accept that there are already exemptions, and will consider that working vehicles that are used off-road can use red diesel. Red diesel rates are lower than ordinary petrol rates and are therefore worth a considerable amount of money. Red diesel and main road fuel differentials widened under the 2007 Budget, which gives some advantage to people who use red diesel. That has not been mentioned, but it should not be sniffed at.

The amendment would clearly be administratively burdensome and complex, confusing for motorists and difficult to police. As the hon. Member for Fareham said, it would be difficult to keep within boundaries. I am therefore in sympathy, but I am afraid that I am unable to think of a workable definition for the purpose of the amendment, so I invite the Committee to reject it.

The hon. Member for Argyll and Bute (Mr. Reid) was sympathetic and I entirely agree with him that the regulations should be tightly drawn. The hon. Member for Taunton (Mr. Browne) was sympathetic in parts, but he taught us all the important lesson that one should not speak when one has very little to say. He was followed by the hon. Member for West Aberdeenshire and Kincardine (Sir Robert Smith), who actually made the speech that the hon. Member for Taunton should have made. The hon. Member for Fareham (Mr. Hoban) spoke about difficulties in defining the matrix and he quite rightly drew a distinction between lifeline and lifestyle—a very good way to put it, but I was disappointed that he followed that up by finding difficulties rather than solutions to what are very real problems in many parts of the country.

That brings me to the Minister. I welcome the fact that the Government are looking at what can be done for mountain rescue, and I appreciate that. There is, however, a singular lack of pragmatism in seeing the equality of treatment between charities as important, yet being unable since last year’s discussions to find a way to help lifeline 4x4s for people setting off in mountains in the middle of winter to rescue others and save lives. In short, having listened to what the Minister said, I feel she was seeing difficulties in the solution rather than seeking a solution to the difficulties faced in many remote and rural areas—difficulties that will be intensified not just by the burden of high fuel costs, the burden of high inflation and the burden of low wages, but by the additional higher vehicle excise duty charge on essential vehicles. With that, I am sorry to disappoint the Minister, but I shall press the amendment to a vote.

Question put, That the amendment be made:—

I beg to move amendment No. 6, page 8, line 17, at end add—

‘(7) The Treasury shall publish, not later than the date of the Budget 2009, an estimate, audited by the Independent Committee on Climate Change (as established by the Climate Change Act 2008), of the carbon emissions savings resultant from the changes to vehicle excise duty contained in this section.’.

I am delighted to see that the Chief Secretary to the Treasury has decided to respond to this debate; having missed the earlier groups, she has kindly agreed to help her colleagues deal with this amendment. I look forward to her detailed exposition of the excise duty changes. Perhaps I should keep my speech short so as to give her more time to expand at length about her views on the topic. Relief has arrived, however: the Exchequer Secretary to the Treasury has returned to her place, which means that the Chief Secretary need not respond to this debate in her stead.

We must recognise that at the heart of the vehicle excise duty issue is the fact that the reforms announced in the Budget and the increases included in clause 15 will lead to the imposition of higher taxes on motorists. When motorists see their vehicle excise duty rates increasing, they will ask what benefit that brings in terms of reducing carbon emissions. It is worth reminding the Committee that in 2006-07, vehicle excise duty raised about £1.9 billion. In 2008-09, according to an answer given by the Exchequer Secretary, VED will raise £2.9 billion—an increase of £1 billion in the space of two years. That is a significant tax take that has been justified on the basis that VED is an environmental tax.

The Chancellor put the environment at the centre of his Budget and said that

“our greatest obligation to the future must be to tackle climate change.”—[Official Report, 12 March 2008; Vol. 473, c. 295.]

It was clear that a centrepiece of that was the reform to VED that he announced, with the move from seven bands to 13 to widen the differentials between the most and the least polluting cars, and the introduction of a first-year charge to incentivise people to buy the lowest polluting cars at the moment of choice.

Does my hon. Friend agree that we need to look at the changes against the new background that petrol at the pump has gone up to at least £1.10 a litre, of which a massive 70p is now tax and duty—far more than the Government planned at the time of the Budget? We need to view the VED increases in the light of that big environmental tax that the Government are imposing by stealth.

My right hon. Friend makes a valid point. In fact, just this morning I had an e-mail from one of my constituents who was concerned about the increased tax take that the Government were getting from the increase in petrol prices at the pump. I am conscious that that is outside the scope of amendment No. 6, so I cannot dwell on the issue at as much length as I might have liked to do in other circumstances.

The consequence for many families is that the rate of VED that they have to pay on their car will go up. An analysis of the changes indicates that VED rates will rise on 88 per cent. of cars. The percentage increase on a Nissan Micra is actually greater than that on a Porsche Cayenne. We are starting to see a series of increases in differentials that gives rise to some of the comments mentioned by the hon. Member for Dundee, East (Stewart Hosie) earlier.

The problem is whether people see the increases in VED as simply a tax increase or a legitimate way to tackle carbon emissions. In the evidence given to the Treasury Committee in its inquiry on the 2008 Budget, John Whiting from PricewaterhouseCoopers commented in the context of the environmental measures:

“What is lacking is a clear statement, a clear framework, by Government which says…‘Are we raising money by environmental duties or are we changing behaviour?’”

The CBI said that the Government were approaching environmental taxes in “completely the wrong way”. It argued that the primary aim of environmental taxes should be to change behaviour and not to raise revenue.

In that context, it is important that there is a mechanism that enables people to measure the behavioural changes that take place as a consequence of the changes announced in the Budget. That is what amendment No. 6 seeks to do, by asking the independent committee on climate change that will be established by the Climate Change Bill to produce a report, not later than Budget 2009, on the carbon emission savings resulting from changes to the vehicle excise duty in this Bill.

Is not the hon. Gentleman making a false antithesis? Surely any increase in price involves a change in behaviour. The extent of the change will be a function of the price elasticity of demand. If one puts up the price of anything, one reduces demand for it, thereby changing behaviour. Is the Conservative party seriously determined to go back on the changes to VED if it comes to power, or is it just thrashing about for a way to criticise a measure without having the courage to pledge to reverse it, and talking about environmental monitoring as a sort of alibi?

The hon. Gentleman should pay more attention to the issues. We have said that we support environmental taxes being used to change behaviour, but unlike the Government whom he now supports, we believe that those additional tax revenues should be used to reduce the burden of taxes on families rather than simply to increase tax revenue. That is part of the problem at the heart of the Budget. We are seeing an increase in vehicle excise duty that will simply fill the Treasury coffers, so people can be much more cynical about environmental taxes. They do not see them as ways of changing behaviour, but simply as a way in which the Government can fill the black hole that is opening up in their finances. The hon. Gentleman is right to say that we should see environmental taxes that help to change behaviour. That is why we want the independent committee on climate change to report on the impact of the amendments.

As I was about to say before the hon. Gentleman intervened, my hon. Friend the Member for Putney (Justine Greening) tabled a question to the Exchequer Secretary to ask what the impact of the VED reforms would be on emissions. The Treasury estimated that by 2020 emissions would be reduced by 160,000 tonnes, which is less than one tenth of 1 per cent. of vehicle emissions. It would appear that the way in which the changes have been designed has led to a situation where the change of behaviour is estimated to be minimal. That is the problem and it is why people are becoming concerned about whether the taxes are genuine attempts to reduce vehicle emissions or whether they are seen simply as a way of raising revenue for the Exchequer.

It is important, as part of creating a sense of trust about the motives behind the tax increases and ensuring that there is some transparency about their impact, that we should ensure that they are independently reported on. I believe that amendment No. 6 would deliver that objective. All Members who are serious about increasing transparency on climate change and want to see the independent committee make a major contribution to the debate should support the amendment. I hope that they will support us in the Lobby tonight.

As I was saying before I so rudely interrupted myself, the hon. Member for Taunton (Mr. Browne) gave some figures on transport CO2 emissions and household CO2 emissions. The figures that he gave are almost the reverse of the figures in the Red Book—although perhaps he was right. He said that 25 million households produce 27 per cent. of CO2 emissions in the UK, which was double the amount produced by cars. According to paragraph 6.19 on page 94 of the Red Book, CO2 emissions from transport account for 28 per cent. of UK CO2 emissions. Paragraph 6.63 on page 103 states that households account for 14 per cent. of UK CO2 emissions, albeit that households account for a quarter of energy consumption.

In moving the amendment, the hon. Member for Fareham (Mr. Hoban) said that constituents will ask what they are getting. On one level, he has a point. The changes are designed to change behaviour, yet between 1995 and 2005 the average CO2 emissions of new vehicles purchased in the UK fell by about 1 per cent. a year. CO2 emissions overall in the UK this century have increased rather than decreased. However, the amendment considers only—this is a criticism—the causes of climate change. Some hon. Members will know that one thing that upsets me about the tone of public debate in this Chamber and elsewhere is that we do not look sufficiently at the effects of climate change. I do not doubt the hon. Gentleman’s figures about the tax take from vehicle excise duty going up markedly from £1.9 billion in 2006-07 to £2.9 billion in 2008-09. That amount of money should mean that our constituents—and constituents around the country—will potentially get protection from the effects of climate change. The part of the equation that we seldom discuss in the House is adaptation, which is the sort of thing that the amendment does not address.

I have referred to the effects of climate change, and the Association of British Insurers estimates that last summer’s flooding, principally in England, cost £3 billion. That money effectively comes from almost every householder in Britain, because the insurance premiums of all households, not just those affected by flooding, go up. The Government have massively increased the spending on flood control, both inland and with coastal defences and so on. That is the sort of thing that VED money is being spent on, albeit that it is not hypothecated, and it is something that our constituents are getting from this green tax. They are getting something that deals with adaptation—the effects side of the equation of climate change; it is not just about causes.

The hon. Member for Fareham went on to say that 88 per cent. of vehicles will pay more. I do not doubt him on that figure. I warn the Government that, next year, we will risk another 10 per cent. kind of debate. This coming year, a vehicle in band F, which emits perhaps 201 g of CO2 per kilometre, will pay £210 in vehicle excise duty. From 2009-10, it will be in band K, paying £300 in vehicle excise duty. That is a £90 or 42.86 per cent. increase. A vehicle in band E, which emits 181 g of CO2 per kilometre, will pay £170 in 2008-09. That vehicle will go into band J from 2009-10, and it will pay £260 in vehicle excise duty. That is an increase of 52.94 per cent.

The difficulty with those increases is that, to most of our constituents, they are retrospective. Table A.8a on page 122 of the Red Book is headed “VED bands and rates for cars registered after 1 March 2001”. It relates not to new vehicles that are bought with those CO2 emissions from, say, next year, but to vehicles that are already in the fleet. So, as I understand it—the Exchequer Secretary can correct me if I am wrong—someone who bought a new car in band F in 2002 will experience a 42.86” per cent. increase in their vehicle excise duty for the very same vehicle—or, in the other example that I gave, a 52.94 per cent. increase. My constituents will regard that, quite understandably, as a retrospective tax increase; they will not take kindly to it, and the Government need to think again.

My party is happy to support the amendment on the basis that it is always good to monitor progress on environmental matters. I suspect that our motivation for supporting it is rather different from that for which it was tabled. That motivation was to try to make a broader political point about the lack of effectiveness in environmental taxation, whereas my party and I are enthusiastic exponents of the potential benefits of such taxation.

I suspect that the Conservative party’s true motive for proposing the review is to make a broader case that the Government’s policy on vehicle excise duty differentials has been ineffective in dealing with climate change. Therefore, the Conservatives will argue that we ought to conclude that the policy is ineffective and not one to which they are sympathetic, whereas I draw a different conclusion: if the Government’s policy on vehicle excise duty differentials is not having the desired impact on CO2 emissions, it is a good reason for their policy to become more ambitious and the differentials wider to create greater incentives for people to drive fuel-efficient vehicles, rather than for the conclusion that I suspect many Conservative Members draw, which is that the bands should be narrower, because the policy has been deemed to be a failure.

We might draw the conclusion that the Government’s approach is not well designed enough to bring about the behavioural changes that they hope it will. It is a design issue, I think.

I am grateful for that intervention, because for many years—since before the Government introduced the policy—my party has been an exponent of the merits of differentials in vehicle excise duty. We want to try to encourage, rather than compel, behavioural change through price mechanisms. In 2001, the Government introduced a timid, modest form of the policy for which the Liberal Democrats have long argued. Over a number of years, the Government have slowly sought to expand the number of bands, and to make the policy more radical. Our argument is that the policy should be more adventurous still, that the rewards for driving low-emission cars ought to be greater, and also that the penalties for driving high-emission cars ought to be greater, with one or two exemptions that we touched on in discussion on the previous group of amendments.

The hon. Member for Fareham (Mr. Hoban) asked whether the differentials in vehicle excise duty were about raising money or changing behaviour. We argue that they are about both. It is perfectly possible for both those effects to be produced simultaneously. Taxation on cigarettes, for example, is designed to try to dissuade people from smoking, but it also raises substantial amounts of revenue for the Treasury.

I agree with the Conservative party spokesman, and the Conservative party more generally, that environmental taxes are discredited if they are used solely as a revenue-raising measure. Certainly, my party would like money raised through environmental taxation to be used to offset other types of taxes, including taxes on income, particularly the income of those on low salaries, who most need assistance at a time of rising prices.

The Conservative party is playing a risky political game. Its leader cycles to work at the House of Commons—[Interruption.] I will ignore the interjections about how his clothing gets here. He cycles here, and he and others create the impression that the Conservative party is extremely sympathetic to wind farms and low-emission vehicles, yet that is done with a nod and a wink. For example, in The Daily Telegraph’s lead story a few weeks ago, people who might be inclined to vote for the Conservative party were encouraged to believe that the party is not sympathetic to vehicle excise duty differentials. Indeed, in Treasury questions last Thursday, a Conservative Front-Bench spokesman, the hon. Member for Putney (Justine Greening), asked:

“Will the Minister add the band A to J losers to the 10p compensation package review?”—[Official Report, 24 April 2008; Vol. 474, c. 1449.]

She sought, slightly bizarrely, to create some sort of parallel between people who drive high-emission vehicles and some of the poorest people in the country who are losing out as a result of the doubling of the 10p rate. That is not an accurate parallel.

The Conservative party is in danger of trying both to persuade people that they are victims of a malicious environmental policy put in place by the Government, and to outflank the Government with their green credentials. The Conservative party says “Vote blue, go green”, but what it is effectively saying is “We’ll talk green; vote blue.”

May I inquire whether the hon. Gentleman would support the retrospective application of the vehicle excise duty differentials?

What we propose is trying to ensure that people are given the greatest encouragement to drive fuel-efficient vehicles.

I will come to the point that is being made. People need to be persuaded to drive fuel-efficient vehicles wherever possible, and they need to be persuaded that there is an environmental benefit from doing so. The Government change vehicle excise duty rates every year, and our view is that those changes should, over a period, persuade people to drive cars that are more fuel-efficient. I warn the Conservative party that it is in danger of trying to have it both ways; it cannot claim, as a rebranding exercise, to be the party of the environment, but consistently refuse to support environmental measures when it comes to votes in the House.

I am glad that my party tabled the amendment. It is important to see whether there would be a reduction in carbon emissions from the rather large further increase in taxation on motorists. I cannot see how such a proposal can change behaviour when it applies to cars that people have already bought, because by definition they cannot change their behaviour—they have already bought their cars—unless it is the Government’s intention to have all those cars scrapped prematurely, in which case one needs to do proper carbon accounting to see how much carbon would be emitted in the manufacture of the replacement vehicles, which should be taken into account. That would have to be amortised over their shortened life, if one is to continue the practice of ratcheting up the vehicle excise duty on vehicles already purchased and out there in the vehicle park.

If the main aim of the Government’s policy is to reduce emissions from vehicles, surely tax should be placed on use of vehicle and on fuel, which the Government are doing in huge measure anyway. They recently increased that greatly by stealth as a result of the increase in petrol and diesel prices at the pumps, rather than putting the tax on ownership of the vehicle. There is nothing environmentally unfriendly about owning a vehicle once it has been made and purchased, whereas using the vehicle can be environmentally unfriendly.

I hope the Government will think again and will understand that this is another rather difficult equation where we need better carbon accounting in order to know what the true impact of the policy is. We should not let the debate go by without somebody saying that motorists have been clobbered time and again by the Government, who do not seem to understand that many people need working vehicles, and that many people have to go by car because there is no public transport alternative. The provision is just another sign that the Government regard the motorist as a source of massive revenue and are hitting them for owning a car, buying a car and using a car—

Does my right hon. Friend agree that there is another group of poorly paid workers who are hit doubly? I am referring to community nurses, for example, in large rural areas such as mine. The HMRC tax-free allowance on mileages has not risen in line. When I pursued the matter with Treasury Ministers, the answer came back that they were trying to change people’s behaviour and encourage them to get out of their cars. Try selling that to the district nurse in Tisbury.

My hon. Friend is right. There are other low-paid workers who work antisocial hours and clearly need their car to get to and from work. People often have to take their children to school by car because there is no alternative. I hope that Ministers will think again about the overall magnitude of tax. After all, Ministers must have some spare money to play with, because we know that far more will be collected from diesel and petrol than was in the original Budget forecast. I tabled a question elsewhere to try to get at that figure. Why cannot some of that money be used to abate some of the severity of the proposal?

We have had an interesting debate about vehicle excise duty rates. Various Members on both sides of the Committee have made important points and observations about the general approach. The amendment calls for an estimate of the carbon savings that result from the changes to VED contained in the clause, and for that to be audited by the independent committee on climate change, which is being created by the Climate Change Bill. We hope that when that is approved by both Houses and is on the statute book it will enable us to make progress towards our carbon accounting, which we have discussed in relation to more than one amendment this evening.

UK vehicle excise duty rates are set at their current rates for good reasons—to raise revenue to fund essential services, and to help to achieve our environmental obligations and objectives. The changes to vehicle excise duty in 2008-09, which were announced in Budget 2007, further sharpen the environmental signal to motorists to purchase more fuel-efficient vehicles and continue to support the development of the low-carbon market. The rate for the most polluting cars in band G increases by £100 to £400 in 2008-09, whereas the rate for low-carbon band B cars is frozen.

In deciding VED rates the Government take account of all relevant economic, social and environmental factors, including proportionality and fairness to motorists to ensure that there are appropriate signals across the entire system. The vehicle excise duty system is designed to signal, at purchase, that the more polluting the vehicle, the more VED will be payable and the higher its fuel costs will be. As my hon. Friend the Member for Wolverhampton, South-West (Rob Marris) pointed out, table 7.2 of the 2007 Budget sets out the environmental effect of the VED changes announced in that Budget. However, the climate change committee’s role is not to audit Government policy, but to advise on technical issues, such as setting carbon budgets and the level of the 2050 carbon emissions target, which will be needed if we are to stabilise climate change.

Although the carbon savings from VED changes are initially small, they will increase over time as the number of low-carbon cars is forecast to increase significantly. In addition, VED is part of a package of measures that support the European Union 2012 proposal to reduce average new car CO2 emissions to 130 g per kilometre, which could save as much as an additional 800 tonnes[Official Report, 30 April 2008, Vol. 475, c. 6MC.] of CO2 per year by 2020. Estimating the amounts of CO2 saved merely through VED rates is a tiny part of the entire picture. It is easy to argue that increases in tax achieve only tiny savings in CO2 emissions, but that is not the whole story, although some Conservative Members are trying to make out that it is.

The change in respect of CO2 emissions and engine technology was pointed out by Professor Julia King in her important report, which was published alongside this year’s Budget. She said that a 100 g target was achievable by 2020. In the 2008 Budget, the Government confirmed that they will push the EU Commission to include a longer-term target of 100 g per kilometre by 2020 in its proposals for reducing vehicle emissions.

Professor King has also concluded that a typical driver can reduce their fuel bills and CO2 emissions by 25 per cent. by choosing the most efficient vehicle in the preferred class. That is why this year’s Budget contained announcements that further increase the VED signals that aim to encourage people to move from high-emission to low-emission cars; confusingly, however, they are not in this Finance Bill, but for debate in next year’s Finance Bill.

My hon. Friend the Member for Wolverhampton, South-West also read out some of the increases planned not for 2008-09, but for 2009-10 and 2010-11. I suppose that he is entitled to consider the very high emitting levels in the top bands, including the six new bands that have been created. However, in the interests of fairness he should also have pointed out that 55 per cent. of drivers will be better off or no worse off as a result of the changes announced in this year’s Budget. Their VED bands will be frozen or go down.

The changes to the VED bands are designed to strengthen the signals so that people move from the top-emitting class of car to lower-emitting cars. I am thinking first of purchasers, but the changes are also designed to give those who design and produce new cars further incentives to produce more cars that qualify for the lower bands of VED.

I appreciate that there has been much discussion of working vehicles during the debate on a previous amendment. However, may I draw the Minister’s attention to a group that has not been mentioned this evening? I am thinking of disabled people and those who have great difficulty with mobility. A saloon car is extremely difficult for them to access, so they must use a four-wheel drive vehicle. Will she encourage car manufacturers to look hard at the possibility of developing more small-engined, low-emission vehicles to meet the needs of that group of people?

I agree that our signals through the VED rates are for those designing and putting new cars on the market, as well as for purchasers. We want to see more accessible vehicles in lower-emission bands. That is why these signals have been sent through the tax system.

What signal is given to people about reducing CO2 emissions when the biofuel duty discount is reduced? The result is that the price of biofuel is going up.

The hon. Gentleman makes an important point, and we could spend a long time talking about it. Some worries are emerging about the effects of biofuels on CO2 emissions, and work is being done to determine biofuels’ whole-life emissions levels. We have to look very carefully to see whether there are advantages to maintaining the differentials for biofuels. The idea of raising the biofuels differential before the new evidence about biofuels’ CO2 emissions and whole-life costs came into the public domain was dealt with in the King report, which I recommend that the hon. Gentleman has a look at. The original idea was to shift the Government’s support away from the development of the biofuels industry, and to transfer it to the road transport fuel obligation. However, new and important questions have been asked about biofuels. What are the whole-life costs of producing them? Are they putting food prices up and displacing the growth of food for human consumption? If so, what effects is that having, and what are biofuels’ overall CO2 emission levels?

We could talk about all those things at great length, but I do not want to go down that road this evening. We are talking about VED at the moment, and I am sure that many of the hon. Members who have come into the Chamber to vote would not want me to move away from that.

The Minister has cited my earlier remark about sending a signal. I agree that we should send a signal to prospective purchasers of new cars, but the changes that will come into force next year and the one after that will send a retrospective signal to people who may have owned a vehicle for upwards of seven years already. The problem with the proposals is that they are retrospective.

My hon. Friend makes his point in his own way, but the important thing is to strengthen the signals being given to people with higher-emission cars. We have announced what VED rates will be three years into the future: the higher a car’s emissions, the more likely it is that its VED costs will rise. We are attempting to bring about a behavioural change. People need to look at how they can migrate over time to lower-emission cars.

I turn now to why we are opposing amendment No. 6 and recommending that clause 15 stand part—[Interruption.]

Order. The level of private conversations among people who have just come into the Chamber has risen considerably in the last few minutes. Some hon. Members have been here throughout the debate and would like to hear the Minister’s response.