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Finance Bill

Volume 492: debated on Wednesday 13 May 2009

(Clauses 7, 8, 9, 11, 14, 16, 20 and 92)

Further considered in Committee (Progress reported, 12 May)

[Sir Alan Haselhurst in the Chair]

On a point of order, Sir Alan. I seek your guidance. Yesterday in Committee, it appeared to more than one Member, including me, that a Member was simply reading from a handheld device, such as a BlackBerry, to make an intervention. Is that in order?

The hon. Gentleman was perhaps more observant than the occupant of the Chair, as it is clear that such a practice is not permitted under the ruling originally given by Mr. Speaker on the use of personal digital assistants in the Chamber. In interventions in particular, and even in a wider sense, reading from either mechanical means or paper should be practised as little as possible if the spirit of “Erskine May” is to survive.

Further to that point of order, Sir Alan. May I assist you? My recollection is that the Member concerned was not in your line of sight or that of whoever was in the Chair at the time.

I say to the hon. Gentleman that the line of sight of other Members is more varied than is possible from the Chair. The matter could have been raised as a point of order at the time, but I suppose it is better late than never. I thank the hon. Gentleman.

Clause 92

Duties of senior accounting officers of large companies

I beg to move amendment 4, page 45, line 18, after ‘after’, insert ‘the first anniversary of’.

The amendment refers to clause 92, which imposes additional duties on senior accounting officers of large companies. The Financial Secretary can be assured that schedule 46 will be discussed in some detail in Committee upstairs, because it raises issues that need to be explored properly. From time to time, we have been complimentary to the Government when they have consulted on legislation: we recognised their efforts in consulting businesses on the taxation of foreign profits, and, after a somewhat tortuous process, the outcome of that consultation was satisfactory.

The apparent absence of consultation was one of the criticisms of clause 92. No one, whether from the industry or an adviser, has come forward to say that they were consulted. The clause has therefore come as a surprise to a large number of people. There is considerable concern among advisers and the industry about what the clause means in practice. The heart of the amendment applies to accounting periods beginning immediately after the Bill receives Royal Assent, because businesses seeking to comply with the proposal have a very short period to understand its purpose and the additional burdens and costs imposed on them, and they seek guidance. The purpose of my amendment is therefore to delay the implementation by a year to give the Government, Her Majesty’s Revenue and Customs, businesses and their advisers time to understand the implications, costs and benefits.

I am following the logic of the hon. Gentleman’s amendment, which is reasoned and, on the whole, has much to be said for it. If one starts to consult before putting proposals in a Bill, however, it is almost impossible to get anything down before it is publicised and various wrecking attacks are made on it. Will he please believe in the good faith of the Government in getting the proposal out there and committing themselves to the consultation that is vital to make it a success, and in which he and his party have a role?

The hon. Gentleman makes an important point, but as we discussed in yesterday’s debate on corporation tax, businesses are angry and frustrated about the lack of consultation before measures are announced, and that is one of the factors that makes Britain a difficult place in which to do business. They want a predictable, certain tax system, in which matters are clearly flagged, and they want more consultation, before legislation is introduced rather than after. From the direction of travel of HMRC, businesses had no sense that the measure was likely to be included in the Bill.

I accept that there must be consultation before the legislation is introduced, and that will be the intention, so I am sympathetic to the hon. Gentleman’s point. But believe me, the best way to get the proposal through in the end is to get something down on which we then consult.

I do not agree with the hon. Gentleman. Consultation should have taken place before the Bill was introduced, but now we have the Bill, we need to consider what to do with it. The thrust of my amendment is that we need to get the proposals right, and we need time to do so. If senior accounting officers are to sign off on whether they have appropriate systems of tax accounting for financial periods starting effectively from when the Bill is passed, they will need guidance. They will need to comply for the whole year, and they will have only a matter of weeks before they must know what is meant by the proposal. I would be pleased if the Financial Secretary followed my amendment and decided to defer implementation by a year. That would achieve the objective of the hon. Member for Coventry, North-West (Mr. Robinson) in getting consultation, it would achieve what I would like, and it would give industry and advisers time to make it work properly.

My biggest concerns are about the Bill’s unintended consequences, its impact on our economy’s competitiveness, and the costs that will be incurred. The regulatory impact assessment flagged up big concerns about the impact of the Bill, and it reminded me of the impact that the passing of the Sarbanes-Oxley legislation in the States had on American businesses, and of its benefit to London’s competitiveness. I have always joked that a statue should be erected in the City of London, first to reflect the contribution of Messrs. Sarbanes and Oxley to the success of the City, and secondly, as a reminder that hastily introduced, ill-thought-through legislation can be damaging.

The clause seems to muddy the water as to auditors’ responsibilities and board responsibilities. It does not say whether the senior accounting officer has to be resident or non-resident. It would be better if we debated such issues before the provision is implemented.

My hon. Friend is absolutely right. We have talked about large companies, and there is also the issue of limited liability partnerships. We think private companies are included as well as public companies. It is not clear who the senior accounting officer should be. Should it be the finance director, or the director of tax? What happens if the parent company is overseas and it has a very flat structure, with lots of operating companies in this country? Does each one have to complete a certificate? There is a raft of questions to which we do not have answers, yet companies will have to start to comply with the measure within a matter of weeks. That is my concern.

I ought to make it clear why I tabled the amendment. Its intention is not to probe; I do think that it is important. However, the jury is out on how the measure will affect business, and we are not opposing it outright. We just need to understand what it means, as does business. That is the purpose of the amendment.

Clause 92 introduces schedule 46, which is for discussion later in Committee, but as the issue of timing causes the hon. Gentleman concern, it is fair to look at that schedule. Paragraph 19 of that schedule provides for regulation-making powers. It would help the Financial Secretary to address the hon. Gentleman’s concerns about timing and involvement, which I quite understand, if it were clearer in the Bill what those regulations would be about, and when they might be made.

Indeed, and the hon. Gentleman makes an important point about those powers. Perhaps when the Financial Secretary responds, he could say whether he expects draft regulations to have been published by the time we debate schedule 46. It would be helpful if that did happen, because given the nature of the consultation that has taken place to date, we would not feel comfortable passing legislation without having seen a draft of the statutory instruments that will implement the detail of the measure. The issue is not just one of consultation. It is about what the measure means in practice. How far does it go? There are already legislative requirements on companies relating to their accounting systems. There is also HMRC guidance on accounting systems already in place.

On drawing up a set of statutory accounts, a number of my hon. Friends, and the hon. Member for Coventry, North-West will know from their business background that businesses are required to have in place a set of accounting systems that enable them to draw up financial statements. Companies’ financial statements will be audited. Auditors will rely on the systems and controls in place to ensure that the accounts are drawn up on a proper basis. The Companies Acts also confer duties on directors to keep adequate accounting records, and there are penalties if they misfile. There are already obligations on companies to ensure that the tax charge and tax balances figures that appear in their accounts are based on proper accounting systems, so it is not clear how much further the Government are seeking to go in imposing additional duties on senior accounting officers. Again, that is a matter on which we need clarification.

One of the things that has surprised industry about the measure is that industry felt that it was working very closely with HMRC on risk assessment—on making sure that HMRC understands the risks in business relating to accounting for tax. Industry feels that that process has been much more open than it perhaps was historically. Guidance on tax compliance risk management is now published as an HMRC manual. It makes it clear that systems have become a key issue in moving corporates away from high risk and towards low risk. There has been a pilot scheme involving detailed systems reviews of 10 large corporates, and numerous other systems discussions are going on with large corporates, both within HMRC’s large business service and outside that unit in the local compliance large and complex teams.

A lot of work is already going on in HMRC with large companies so that they understand the risks for businesses in producing accurate assessments of their tax position. Under the Finance Act 2008, HMRC has the absolute right to see statutory records. Also under that Act, there is an obligation on corporate businesses to provide reasonable assistance to HMRC’s information technology auditors. There are already significant obligations on companies to work with HMRC, so it is not clear, from a tax angle—let alone from the angle of the normal responsibilities placed on a company through the Companies Acts—what more HMRC is looking for through the powers in the Bill.

May I try to assist the hon. Gentleman? Of course, I cannot speak for HMRC, but as ever, I can refer to the explanatory notes. Volume 4, paragraph 23 of the explanatory notes refers to clause 92 and schedule 46, and it says:

“Currently, there is no legal obligation on any particular director or company officer to ensure that the company has appropriate tax accounting arrangements.”

That seems to be the perceived mischief at which clause 92 and schedule 46 are directed. I have to say to the hon. Gentleman that I am surprised that there is currently no such legal obligation.

The hon. Gentleman makes a point about enforceability and about which person should be under an obligation, but of course a senior accounting officer will already have to sign off the tax returns when they are filed, a finance director will have to sign off the accounts, which include a calculation of the tax liability, and directors are responsible for maintaining proper accounting records. There may not be a specific obligation relating to tax accounting, but there are already broad responsibilities placed on directors to maintain proper accounting records. HMRC needs to justify why it is going beyond the existing tax and legal obligations on companies to provide proper tax accounting systems. That justification is missing. It is a question of HMRC trying to establish what the benefits and costs are of the enforceability that we are discussing. That is what is missing.

I was about to comment on personal accountability. The measure imposes a fine of up to £5,000 on senior accounting officers for non-compliance. I suspect that any senior accounting officer would seek indemnity from their company, and would also look to their auditors. It is a slightly odd situation; the accounting officer will provide the certificate to the auditors, but he will also look to the auditors for compliance.

There is an important point to make on the issue of materiality. I know from my experience as an auditor that one works to a “true and fair view”. There is a concept of audit materiality in that, and it depends on the company to say where that threshold of materiality applies. It is not clear where it applies in the case that we are considering. Clearly, the fact that the Government introduced the proposal suggests that the level of materiality in company accounts is not sufficient: otherwise, they would not have needed to include the clause. They would have been content for the matter to rest where it is. I am not sure whether the Government are clear about where they believe that materiality should be. How much inaccuracy would HMRC be prepared to tolerate in the preparation of tax accounts?

There is a real problem, because although only one fine can be levied per year, one presumes that if there was a problem with tax records going back several years, there would be multiple fines. Some poor fellow could retire, and be sitting in Sandbanks in Poole, and get a knock on the door one day. Let us say that, on his watch, there was a problem with record-keeping in a particular company for four or five years; that person could be asked for £20,000 or £25,000. We need more information, because such a situation would very much go against the grain of limited liability, and the liability of boards.

My hon. Friend makes an important point. We will tease out the detail of the measure in Committee—whether it is retrospective, for what period people will be liable, and so on.

On the issue of materiality, let me put a scenario to the Financial Secretary. I do not know what his experience was after the VAT cut in the pre-Budget report. I remember doing a bit of Christmas shopping and being surprised at the number of shops which, rather than calculating the impact of the VAT cut at the till, relied upon the assistant at the till to do a manual calculation on his or her calculator. I hope that in most cases that calculation was correct—[Interruption.] The hon. Member for Wolverhampton, South-West (Rob Marris) asks whether I checked. Despite the fact that I am a chartered accountant, and although I sit at annual general meetings and check that the accounts add up, in the anal way that accountants have, I did not crosscheck the calculations. What I did check, though, was that the VAT cut was calculated not as 2.5 per cent. of 100 per cent., but as 2.5 per cent. of 117.5 per cent. That bit was okay.

Would the senior accounting officer of, say, John Lewis—come to think of it, John Lewis is a partnership, and I do not know whether partnerships are in or out of the proposed regime, but it is a large business—be accountable for somebody at the till making such a manual calculation on a calculator? I think John Lewis programmed its tills properly, so perhaps that is an unfair example. Any big retailer that did not have time to programme its systems after something unexpected happened, such as the VAT cut, would be dependent upon somebody with a calculator to calculate the reduction at the till. Is that material or immaterial? To my mind it is immaterial. If there was a systemic problem in calculating the VAT cut, I suspect that that might be moving towards material, but we need some guidance on materiality.

I know that materiality is a difficult issue for many organisations, particularly regulators, to deal with. If the regime is to work in a way that will reduce the cost burden on business and maximise the value, industry needs some guidance on what is material from HMRC’s perspective, if HMRC is not prepared to rely on the concept of materiality used in the audit of statutory accounts.

The senior accounting officer’s responsibility is to take reasonable steps. We would not have a big discussion on that, although I, as a lawyer, have some idea what that means. Although I understand the hon. Gentleman’s concerns, it has certainly been found in the field of health and safety, which is my specialist background, that if a particular director is nominated as responsible for safety—not for every incident on the shop floor, but to assume overall responsibility for taking reasonable steps to make sure that there are safe systems and so on—safety improves. I expect the Government’s approach is similar in respect of tax accounting.

That is fine, but there is already an obligation on directors to maintain proper books of records. They already have to sign off the accounts. If there was no responsibility anywhere in the business for signing off the books and records or for signing off the accounts, that would be a valid point. That is probably why it is in the Companies Act already. But we are going beyond the existing requirements, to create a new obligation on senior accounting officers, and I query the need for that move, given all the checks and balances that are in place already through the directors’ statutory duties, the audit and the work that HMRC is doing with large corporates on risk management. What is the rationale for going that much further, given all the existing legal responsibilities?

I am grateful to the hon. Gentleman for his generosity in giving way. There is almost a clash of backgrounds here, but I think it is helpful. In the safety field, similarly, there is a panoply of legislation going back to the Factories Acts, the Factories Act 1961, the Health and Safety at Work etc. Act 1974 and so on, and the law of negligence stemming from the seminal case of Donoghue v. Stevenson in the 1930s. Having a nominated director seems to focus the mind of the organisation, even though there is that legislative background and all those duties exist. I suspect the Government’s approach may be that similar focusing is needed in some companies—a minority—regarding tax accounting.

I am still not persuaded. That is why I look forward to the Financial Secretary’s reply, in which I hope he will lay out explicitly, for the first time in public, what the rationale is for the measure. On Second Reading there was not much reference to it.

Behind the measure lies the particular role that the chief financial officer plays in a company. He is the ultimate point of accountability. That is why, in all the companies with which I have been involved, small ones and some comparatively large ones, the chief financial officer has always had the right of appealing direct to the board as a whole, quite apart from the chairman, and to the chairman, but separate from the executive officer. The provision is, in a sense, an extension of the very particular position that the chief financial officer has in relation to an extremely sensitive issue. The Bill is trying to take that a little further by imposing a sanction—which will no doubt be covered by an indemnity—so that the responsibility is registered personally, as all financial matters are and as the hon. Gentleman rightly says, and directly with the financial officer.

The hon. Gentleman and his hon. Friend the Member for Wolverhampton, South-West are trying valiantly to justify the measure, but I am not persuaded. There are already checks and balances in place to ensure that. If there was feedback from HMRC’s risk assessment that directors were not taking their responsibilities seriously and that there were big gaps in risk, that would be an issue. I also question whether HMRC is concerned that there are material issues with tax compliance. I would expect that to be picked up by auditors and appropriate adjustments to be made.

A good example of where finance directors can get leant on, I suppose—with no insidious implication—would be some of the big banks, such as Royal Bank of Scotland, where even the non-executive directors had nothing to say as liabilities racked up. I wonder where the finance accounting officer was in that. It is another aspect of his position, not directly related to tax, but it is clear why singling out one aspect—in this case, tax—and giving it a special focus could have a bearing and give him a reinforced position on the board.

I have great deal of respect for the hon. Gentleman’s business experience. He comes to the House with some knowledge of large companies, but I am not yet persuaded. The case has not been made. It goes back to the point that I made at the start, which he and I first tussled with, about the lack of consultation. The Government have not gone out there in advance of the Bill to make the case for the requirement. If the case was made, we might well change our minds. That is why time is needed to sort out the issue and nail down exactly why it is needed and what the consequences are.

Presumably the penalty is levied directly by HMRC on the company without recourse to courts—I see nothing that involves courts or appeals—and presumably the company gives the name of a senior accounting officer. Do the tax authorities have to accept a particular name? Some people have a certain reputation with the tax authorities—they may call it battle honours. Clearly, somebody who had had quite a few penalties levied against them might not be the most popular person for the Revenue to deal with. There are many issues here, and I am not sure the Government have explained them fully.

My hon. Friend makes an important point. That is part of the challenge. The case has not been made, which is why people outside are perplexed about the need for the measure.

I have touched on materiality and talked about normal accounting systems. “Tax accounting arrangements” is a vague term. Is it simply the processes? Is it the technology or the people involved? What does “appropriate” mean? These are details that we need to take into account.

The measure’s impact assessment raises some questions. The Government say:

“We forecast an improvement in Exchequer receipts of £140 million over 4 years.”

So it would be quite helpful—perhaps before we reach schedule 46—if the Government were to produce an estimate of how the forecast was reached and what they expect to emerge as a consequence of their focusing responsibility on an individual.

The impact assessment also highlights the Sarbanes-Oxley Act, which I touched on earlier. The assessment says:

“This measure draws on the US 2002 Sarbanes-Oxley Act which put obligations on senior officers of US corporations to certify amongst other things that: they have established and are monitoring certain internal controls, and they have disclosed any material weaknesses in those controls to the company auditors.”

That rang alarm bells in my mind, because the Act had a big impact on business in the United States and created some concern about whether the mooted takeover of the London stock exchange by the New York stock exchange would introduce extra-territorial regulation—whether Sarbanes-Oxley would apply here in the UK.

The issue reminded me of a debate that I had with the current Secretary of State for Children, Schools and Families when he was the Economic Secretary to the Treasury. On that occasion, we debated the Investment, Exchanges and Clearings Houses Bill, which was introduced as an attempt to avoid imposing extra-territoriality on UK businesses, triggered by concerns about the impact of Sarbanes-Oxley. I am therefore rather surprised that the Government have used that legislation to back up this measure, because, at the time, the right hon. Gentleman, referring to a conversation with Christopher Cox, the then chairman of the US Securities and Exchange Commission, and Hank Paulson, the then US Treasury Secretary, said:

“I think that they both share my analysis of the current dangers of the Sarbanes-Oxley regime, which is that the way in which it has been implemented is both burdensome and insufficiently risk-based and that therefore it does not achieve the initial intention.”—[Official Report, 28 November 2006; Vol. 453, c. 1039.]

I should have thought that somebody in the Treasury might have remembered that exchange when drawing up the regulatory impact assessment, because they then could have said that perhaps Sarbanes-Oxley was not the best precedent to cite. Indeed, I should have thought that the Chancellor might have remembered the precedent, because, in a 2007 speech to the Institute of Chartered Accountants, he discussed the reforms that were being introduced in the UK and compared them with the US, saying:

“During a visit to the US last year, I was struck by the extent to which the approach taken by Sarbanes-Oxley—overly burdensome and prescriptive rules—was now seen as the wrong response.”

I do not know whether the Financial Secretary shared the contents of the impact assessment with the Chancellor. If so, the Chancellor might then have remembered that he was quite sceptical about the benefits of Sarbanes-Oxley and the prescriptive rules that it imposed.

Of course, the issue goes right to the top, because even the Prime Minister recognised the implications. He said:

“I was under the same pressure as US legislators to impose blanket proscriptions such as Sarbanes-Oxley. I resisted”—

a great dividing line in politics, there—

“in favour of maintaining a flexible principles-based approach. We will allow nothing to undermine that commitment.”

The Government have argued before that measures inspired by Sarbanes-Oxley are overly burdensome and prescriptive, but the measure before us rings alarm bells: the Treasury has not learned the mistakes of Sarbanes-Oxley and seeks to impose its rules and approach to tax accounting. Interestingly, Deloitte and Touche, when commenting on Sarbanes-Oxley, also queries its relevance, saying that it is

“questionable how relevant the Sarbanes-Oxley experience should be here as the US legislation was developed specifically in relation to financial reporting and so arguably does not extend to tax return preparation process.”

Sarbanes-Oxley led to the significant deterioration in the relative competitiveness of the US when compared with other jurisdictions, but the Bill’s regulatory impact assessment says that


the measure—

“has no impact on competition”

and costs are “negligible”. The Government could not have reached that conclusion without having consulted industry first, but they did not, so they are not in a good position to make that statement.

Again, we return to the issue of consultation. The Government must understand the true cost to business. I am sure that Messrs. Sarbanes and Oxley, at the time of their Bill’s passage through Congress, said, “Oh, don’t worry, it will have no impact upon competition, it won’t involve additional costs on business”; that they were quite breezy about it, in the same way that the Financial Secretary is quite breezy about it in the impact assessment that he has signed off; and that, only when it was too late, did they realise that it had a cost and an impact on the US’s competitive position. I just counsel caution.

The Treasury has rather rushed into the initiative, and it is not clear who its author is. I do not get the impression that HMRC has embraced it as warmly as it would if the initiative had been one of its own; and I do not know whether it was a follow-up to the G20 summit, whereby someone said, “Something must be done,” or a response to the TUC’s campaign on the tax gap—a political, knee-jerk reaction in the same way that Sarbanes-Oxley was to problems in the United States. It is not clear who is the father of this great idea.

Before the hon. Gentleman probes the genesis of the measure, I note that he talked about the costs for competitiveness. However, there are real costs, too. Schedule 46 describes accounting arrangements, including arrangements for keeping accounting records, and many businesses will simply assume that that means that they need to get the most up-to-date and expensive enterprise accounting system. The hon. Gentleman will know that the real cost of delivering that—in monetary terms, consultancy fees and management time—can be quite enormous.

The measure could be expensive, and that is part of the problem. No one knows quite how expensive it will be, because no one knows the detail of a measure that was published without consultation. We would have had a better idea of the cost if someone had bothered to ask business beforehand, rather than just slapping it into a Finance Bill as a cracking idea that might get a few cheers from Back Benchers, trade unions—whoever it was targeted at—and saying, “We’ll just finesse the detail later.” That is not good enough, given the issues that this country already faces about the competitiveness of its tax regime, predictability, stability and certainty.

I am bemused by the clause, as are professional advisers and business. I am not even sure that we have a clear justification from the tax people. I talked about systems and materiality, and there are more than 20 taxes that could affect business. Does the clause apply to the accounting for each tax? Is it simply restricted to corporation tax, VAT, pay-as-you-earn and national insurance—the mainstream taxes? Or will business have to look at other taxes, too? I have not even discussed its impact on UK subsidiaries of overseas businesses or how somebody in the UK will get comfort on overseas subsidiaries, because the issue goes back to materiality.

The hon. Gentleman looks like he is about to make a point, but I know from my experience of working with multinationals that an organisation’s control over, and knowledge of what is happening with, small overseas subsidiaries can be quite limited. It is down to risk and judgment.

The hon. Gentleman asks who fathered the provision; I think that it probably has many fathers. In parts of, for example, Barclays, it seems that no one, including the finance director, knew what was going on, particularly in the separate overseas companies, many of which were seemingly set up for tax purposes. I do not know whether the Government intend to tackle that, but there is a real problem in making a chief finance officer sign off responsibility for the whole company. I understand from my right hon. Friend the Financial Secretary that we are targeting the very biggest companies. If it is the intention to make the chief finance officer responsible for what happens in all a company’s operations, although it is necessary, we must think carefully about what we are doing.

The hon. Gentleman makes an important point about whom we are targeting and the level of control. I remember that the changes that corporate governance control measures introduced got people to examine some of their businesses in more detail. I am conscious of his point about the very largest companies, but I am not sure whether we are considering only those companies. The regulatory impact assessment states:

“Turnover—more than £22.8 million

Balance sheet total—more than £11.4 million

Employees total—more than 250”.

What constitutes “large” for the Government is therefore relatively small.

My hon. Friend the Member for Coventry, North-West (Mr. Robinson) drew on a brief conversation that we had earlier. I will say something specifically about the point that the hon. Member for Fareham (Mr. Hoban) raises, and about narrowing the scope of the provision when I catch the Chairman’s eye.

I am pleased that we seem to have forced a concession from the Financial Secretary. Again, it illustrates the point about ill-thought-through measures and lack of consultation. If the Government had thought matters through properly, the regulatory impact assessment would be better defined than it was when the Financial Secretary signed it off on 20 April. If he is already seeking to narrow the scope, is it a sign that things are coming apart? It demonstrates the weakness of the approach of rushing into something and having to unravel it afterwards.

We had the same experience in last year’s Finance Bill on the treatment of residence and domicile. The relevant provision was delayed till the end of consideration of the Bill to cope with a raft of further amendments on Report. We were assured that it was the last legislation on the matter, yet—lo and behold—this year’s Finance Bill includes more provisions on residence and domicile as a consequence of lack of consultation. I therefore believe that the Government are starting to retreat from their initial position as on 20 April.

Let me reinforce the point that the hon. Member for Coventry, North-West (Mr. Robinson) made. I was with one public limited company, which had 140 units in the UK and one overseas, for five years. It would have been extraordinary if the finance director had been expected to spend half his time examining 139 units and the other half looking at one unit, simply to understand the one overseas operation.

In a way, that goes back to risk and materiality. [Interruption.] The hon. Member for Wolverhampton, South-West said from a sedentary position, “The Bermudan subsidiary.” That is not a reflection on the company for which the hon. Member for Dundee, East (Stewart Hosie) worked. It is interesting to ascertain what constitutes the gap that we are considering. Is it simply straightforward accounting for day-to-day transactions and the normal run of business, or are we looking at a layer of tax planning above day-to-day transactions? Are the Government targeting the latter? I am sure that any attached risks will emerge from HMRC’s risk analysis procedures.

I have spoken for longer than I intended. I thought that I would make a brief contribution to the debate, but hon. Members have made many useful comments about how the provision will work in practice.

I end with a quote from the Institute of Chartered Accountants, which helps summarise the position. It says of clause 92:

“This proposed new requirement appears to impose further onerous obligations whilst adding nothing new in terms of tax compliance. The proposed measure is disproportionate because it applies a potentially onerous personal liability on all the senior accounting officers ab initio. HMRC’s risk analysis procedures should identify the small number of large companies that do not have adequate accounting systems to prepare a correct and complete return. Rather than introduce this measure, if HMRC is concerned about internal accounting systems it would make more sense to extend the existing declaration that is required on the corporation tax return.”

That is a balanced criticism of the provision, which has been hastily introduced with inadequate consultation. There are many grey areas, yet companies will be required to comply with it from an accounting period that starts the day after the Bill receives Royal Assent, without sight of draft secondary legislation. In the interests of maintaining industry’s confidence in HMRC and ensuring that HMRC knows what it is doing, the reason for doing it and what the costs and benefits are, we should delay implementation until the first anniversary of the Bill’s passage.

I want briefly to take up a few points in the light of that discussion. I shall start from the same point as the Conservative spokesman. Clearly, there must be a great deal of consultation on this provision, and it should not be implemented until the consultation has ironed out the bulk of the problems that are bound to be associated with it. However, I put it to the hon. Member for Fareham (Mr. Hoban) that if we consulted in detail on legislation like this before including it in a Bill, we would never get the Bill, because of the attitude of those who, understandably, do not want any form of additional regulation, bureaucratic control or paperwork, or any of the costs that the hon. Member for Dundee, East (Stewart Hosie) identified. We would never get there, so it is much more sensible to produce something first. HMRC is in touch with all companies’ accounting officers. It knows what it is after, and the companies do, too—and that knowledge is built into what is before us. It is not as though the provision had been plucked out of the air—although it may sometimes suit the Opposition to suggest that that is the case.

The time to deal with the detail will be when the Bill goes into Committee upstairs. The companies meet HMRC in between the Committee sittings—that is how it always happens—and I am sure that the Government will be open to amendment, where appropriate. The hon. Member for Fareham makes a good case for consultation, which does happen, but he gets it the wrong way round if he thinks that we could have such detailed consultation before including anything in the Bill.

However, I think that a year’s delay would be sensible, if there were agreement on that—but whether the Government would go that far, I do not know.

There is no question of that. If the hon. Gentleman ever had to work with HMRC and companies—a remote possibility—I would urge him not to believe that he can undertake meaningful consultation before first producing something in a Finance Bill.

Does my hon. Friend share my concern that in the body politic in the United Kingdom, we—this applies to all parties—have developed a regrettable tendency, which is that although we all say that discussion and debate are good, when someone changes their mind as a result of that debate, we claim that they are performing a U-turn, and that that change of mind proves that the original measure was ill thought out or rushed? That is regrettable, because that is what we do in this place: we share ideas here and discuss them, and occasionally people change their minds. That is an honourable thing to do.

Indeed, it is not just honourable; it is the correct way to proceed. I used to start debates in Committee by saying, “Look, this is for discussion and we are looking to get it right.” If a point then came when the Minister made a sensible compromise or came to an agreement—not that that would necessarily happen, because in those days the Opposition had often not even tabled an amendment for the first sitting—we would hear, “The Government are collapsing! A huge concession! Holes knocked in the legislation!” That is not what Committee is about. I never had a problem with reaching for amendments, if that was the right thing to do—that is the whole purpose of the process—providing, of course, that they did not vitiate the essence or the purpose of the Bill. Indeed, if an amendment commends itself to the Minister, it should enhance the Bill.

I was interested in what the hon. Member for Fareham said about the law that was introduced in the United States in the wake of the Enron and WorldCom scandals, when the United States went in for what we called “heavy regulation”, which contrasted with what we over here called “light-touch regulation”, which I am sure the hon. Gentleman and the Financial Secretary will remember. I was not in the Treasury at the time, but I knew what was going on. We thought that that difference would give us a huge competitive edge, but it is interesting to see how things turned out.

That issue was meant to be about financial controls, but what went wrong with the banks was, in large part, to do with the lack of financial controls, albeit in a different sector now. Despite the heavy regulation in the United States, the problem started there—Gillian Tett has shown that clearly in her book “Fool’s Gold”—and then it spread, and we are clearly caught up in it. However, that regulation did no good for the sector that was about to blow up in the United States, whereas our light-touch regulation is now being blamed for what happened here.

What clearly went wrong was that people were not being intelligent about regulation—that is what it comes down to—and neither were the central banks. Although we took away regulation from the Bank of England and gave it to the Financial Services Authority, the Bank still had an overall direct responsibility. I remember Eddie George saying, “I’m afraid of a systemic collapse,” which is why he wanted that responsibility, and the money for it. That responsibility was clearly left with the Bank of England when we made that change. It is no good for the Bank to say, “It was all passed over to the FSA.” It was not: the integrity of the entire banking system was left clearly with the Bank.

Everybody was looking at the wrong thing, or not looking hard enough at the right thing. That is what happened in the United States. If we do not focus intelligently on the area that poses a threat to the economy, we will do no good, whatever sort of regulation we have, however many people we have and however many pieces of legislation we have to back it up.

May I give my hon. Friend an example? The Canadian banking system has been far stronger than the banking systems in the USA or the United Kingdom. However, in Canada, under the Office of the Superintendent of Financial Institutions, there is less regulation. Banking is more heavily regulated in the USA, but the Canadians take a risk-based approach, on the basis that: “We know risk when we smell it and we’ll get in there.” It is not just a question of regulation; it is a question of philosophy.

My hon. Friend is dead right, and I agree with him entirely. The idea of bureaucracy regulating entrepreneurial banks will never be terribly effective.

To return to clause 92, I am pleased that we are approaching the issue in the way that we are. I am sure that the Government will listen hard to what the industry says, and I am sure that we can get things right. As for why we are focusing on tax as we are, to me that does not pose the sort of problem that it seems to pose for the hon. Member for Fareham. In view of the multiplicity of taxation arrangements burgeoning throughout the world, I can quite understand the position of the United States Government under President Obama and that of the German and French Governments, who have always been strong on this issue, and why we have a particular focus in the UK on strengthening tax function and tax accountability; the words in the Bill speak of all this. It seems inevitable that that should be part of the review that we are having, when so much of the tax take appears to be disappearing overseas. I am not sure that that is directly linked, but I cannot help but feel that it is part of the mentality that has led to this part of the Bill.

I welcome the provisions. The chief finance office should be clearly seen to have an independent role in accounting to the board. When my right hon. Friend the Financial Secretary puts the Government’s case, I wonder whether he could tell us whether it is automatically assumed that the chief finance office will be a board member, because the Bill refers to officers or directors. It is terribly important that the person charged with that responsibility should be a director, not some officer who can escape a sense of personal responsibility. A finance office in a major British multinational or international company will feel a heavy personal commitment and a personal burden, which he will have to bear in the interests of the whole company, with a direct responsibility enshrined in law and a fine attached, related to the performance of that function. If a finance officer were to be fined, in all probability he would seek and obtain an indemnity from the company, and rightly so. Nevertheless, the fact that he has been fined will weigh heavily on him, if he is responsible in the exercise of his duties, and therefore reinforce the general sense of this part of the Bill, and the general purpose for which the Government have introduced it—and I am pleased to see it there.

I am sure that the Financial Secretary will reassure us on the need for consultation and the other matters that the industry will bring to him in due course. We look forward to hearing what he has to tell us in that respect.

The proposals are far-reaching in their implications and were introduced without meaningful notice or consultation. I have received representations from groups such as the Chartered Institute of Taxation and the Institute of Chartered Accountants in England and Wales, and from companies such as PricewaterhouseCoopers. They have raised a series of concerns with me, as they no doubt have with MPs from all parties, about the potential implications of what we are considering, including what they regard as possibly unforeseen implications. Indeed, the hon. Member for Fareham (Mr. Hoban) read out a quotation from the Institute of Chartered Accountants that summed up those concerns precisely.

I propose to highlight three concerns that my party and I have about the Government’s proposals, and then to suggest how we might deal with them. The first concern is about the aspect of personal liability. All parties in the House would wish to see companies that failed to comply with the law dealt with accordingly, but the Government’s proposal makes a distinction between the organisation and the individual. The hon. Member for Poole (Mr. Syms) asked what implications that might have, and whether they might go further than the Government envisaged. It is therefore important to explore the aspect of personal liability in greater depth in Committee.

Our second concern is about the lack of clear definition. Paragraph 8 of schedule 46 says that only the most recent senior accounting officer will be liable, but there will still be issues if errors have been made in the past. If the most recent senior accounting officer has been in post only for a short period, the provision may not be so satisfactory, whereas if he or she has been in post for a long time, we would be able to go back much further. There is therefore some doubt about how the provision will apply in practice.

No one knows what HMRC thinks will constitute adequate or accurate reporting systems. One person’s idea of adequacy may be markedly different from another person’s. Indeed, in accountancy, one person’s idea of accuracy may occasionally be different from another person’s idea of accuracy. As far as I am aware, no guidelines have been published so far to clarify those points.

My final point about the lack of definition is about the implications for UK multinationals based primarily in this country—a point that was made earlier. However, I do not think that the following point has been made: what if the senior accounting officer is not based in the United Kingdom, even if most of the company is? How will the law work in practice then?

The third area of concern that I have identified in gathering together the themes that others have expressed to me relates to the regulatory burden and the costs involved. The rules will be up and running from October, and there is genuine anxiety that this does not provide a fair period for companies to respond and incorporate the new rules into their practices. My understanding is that the Government say that the new arrangements merely formalise the procedure that is often observed by companies, but all the representations that have been made to me by the industry bodies that I have just named suggest that the legislation goes further than that. There are also questions about the cost to business and the anticipated extra yield to the Exchequer, and about whether the additional money raised will be sufficient to justify the potential additional cost to business.

Those are my concerns, based on my discussions with others. Thinking through these issues as carefully as I can has led me to come up with four brief guiding principles for seeking to address the situation. First, my party believes that we should support measures to improve accountancy procedures in the interest of transparency. Everyone would accept that we want to see companies complying with the law in a transparent way, and not unreasonably trying to avoid their obligations.

I completely understand the Government’s desire to maximise the tax yield within the laws of this country, particularly when we have such an enormous public deficit. The need for the Government to raise money is obvious for all to see. We also recognise, however, that there are many concerns over the wording, the short notice period, the regulatory burden and the personal penalties in schedule 46. It is therefore reasonable to allow this measure to go to Committee, because although the overall objective of greater transparency is reasonable, there will need to be further consideration of those specific points.

The second point relates directly to the amendment tabled by the hon. Member for Fareham, with which I have a lot of sympathy. It is logical to provide for some breathing space in which the rules can be reviewed, so that companies do not fall foul of them unwittingly. Some concerns have been raised with me, however. First, there could be a tendency for some companies—not those that observe best practice, which are unlikely to fall foul of the rules anyway—to see a year’s delay as another year in which they can ignore the problem, and they might not be any better prepared when the legislation comes into force than they would have been if it had taken effect sooner. To be more cynical, one could suggest that other companies could use the year to give themselves more time to think about how to evade the spirit of the law.

The hon. Gentleman is making an important point about how people could use the year’s delay. He will know from reading the Bill that there are two certificates involved: a type A certificate and a type B certificate. Certificate B is used when a company cannot sign off using certificate A and some explanation is required. One concern that has been expressed is that in the first year many businesses will have to file type B certificates anyway, and give an explanation of why they cannot comply, not because they are being difficult or because their systems are not up to scratch, but because of the short notice period. There is a danger of confusing the picture by rushing this measure in with undue haste, without properly identifying which companies are not compliant and which are.

I completely accept the hon. Gentleman’s point, and his honourable intentions. The trade-off that we always have to grapple with on these occasions is that if a measure has some merit—we all accept that there is some merit in the Government’s proposals—we have to decide how long to delay introducing it in order to ensure that it will work even more effectively. There is a strong case for saying that the added benefit of having a more workable measure will justify the year’s delay in implementation, as the hon. Gentleman’s amendment suggests. However, I believe that such a delay would have potential downsides as well as advantages.

My third point is that I hope the matter will be examined in further detail in Committee. I am sure that the Committee will not seek to remove the clause altogether today, and I hope that I will be able to table amendments in Committee that could reconcile these points, as that might be a more appropriate forum in which to discuss them.

My final point is a broader matter of principle. Objections have been raised about the so-called concept of naming and shaming. I want to put on record the fact that my party is not against naming and shaming per se—the practice might have a part to play—but we want to ensure that it is those who deliberately evade tax who are treated in that way, rather than those who have made a genuine, and in some cases very small, error. The state should not treat individuals and their reputations in a heavy-handed way. If it puts their names into the public arena in a way that damages their career prospects and other private interests, and subsequently finds that that action has been out of all proportion to the offence—which might have been committed unwittingly as well as being modest in scale—it will have exceeded its power in terms of its relative might and the individual over whom it wields its power. We need to observe that important principle in our deliberations. We need to strike a balance between transparency and effectiveness, and between the rights of the individual and the understandable desire of the Government to collect tax revenue legally owed to them.

We accept that there is some virtue in the proposals, but they require considerable further attention, and it might not be desirable to bring these matters to a head this afternoon. After we have heard further representations in the House and externally, we should try to come up with proposals in Committee that are more satisfactory to more people who have a direct interest in these matters.

I declare my interest in today’s proceedings on the Finance Bill, as shown in the Register of Members’ Interests.

I agree with the amendment tabled by my hon. Friend the Member for Fareham (Mr. Hoban). His proposal is very sensible, given the speed with which the Government are trying to rush through the measure.

Although I have a number of questions, I am glad that the Minister has already said that he will tell us House more about the definition of a large company, because that will be useful for our debate. Under the provisions, a company will have to notify Her Majesty’s Revenue and Customs of the name of its senior accounting officer. I assume that it will also have to provide the company’s address, but will it have to provide all the company’s addresses for which the officer is responsible? Will he or she have to give their home address, as they will have some personal responsibility for what is discharged? Will the individual in question have to be resident—could they be a non-dom? These are important questions. HMRC does not require people to have DNA tests, but you never know.

We have to be very careful when setting out what we want from senior accounting officers. We have already discussed subsidiaries, including overseas subsidiaries and those that are sometimes set up for particular financial transactions, such as the purchase of plant, and I think that there are difficulties involved in that. I also think that there are difficulties involved in the appointment of a new senior accounting officer. The first thing that he or she will have to do is go through all the accountancy procedures and conduct a risk analysis of every part of the business. In the case of large companies, that could not be done particularly quickly. We shall need to see HMRC guidance on what senior accounting officers have to do.

We know that there will be penalties for inaccuracies, but it would be useful to be given a definition of what would be considered an inaccuracy. In any large organisation it is possible to make small mistakes involving minimal amounts of tax, and no sensible tax authority will take everything to the nearest penny. However, the individuals living under this regime will need to know about scale. In the case of large or significant tax liabilities, that would seem to be a sensible requirement.

We are told that there will be a fine of £5,000 a company per year. If 20, 30, 50 or 150 companies were involved, could a multiple fine be imposed on a company and its subsidiaries, and could it be imposed over multiple years? What is the potential liability faced by individuals? As I said earlier, this is a bit different from limited liability. Could the fines be levied by HMRC, and is there an appeal process? According to the explanatory notes, a “reasonable excuse for…failure” will be accepted as a reason for HMRC not to levy fines, but we do not know how HMRC will be persuaded that an excuse was reasonable. There might be an argument between the tax authorities, which must discharge their responsibility to collect as much money as possible, and the company about what is reasonable.

We need to know much more about the costs imposed on businesses. Even if the Minister qualifies what the impact assessment says about company size, I shall want to know whether the costs will be reduced for smaller companies. Will HMRC insist on the provisions applying to all limited companies at some point, and what impact would that have?

We need much more information about clause 92. I think that it would be very useful if the amendment were accepted so that the implementation of the schedule could be delayed to allow proper consultation. It is important not to reduce the responsibilities of members of boards, and indeed those of auditors. My hon. Friend the Member for Fareham might agree that auditors quite often avoid their responsibilities nowadays, and that many of our financial problems might be caused by that.

There are a great many questions to be answered. I hope that the Minister can reassure us and that, by the time the Public Bill Committee sits, we shall have much more published information so that we can test the Government’s proposal. We know that it is important to raise legitimate tax from companies, and the American example might be a useful one, but I shall not be in favour of the proposed arrangement unless I am given a great deal more information about the impact on business and individuals, and about the Government’s direction of travel.

Consensus is emerging on the need for a transparent financial and accounting system. There might be a need to improve and tighten up tax accounting arrangements, but I am not convinced of the merit of the Government’s approach. The question that I am still asking is, “Why now?”

The hon. Member for Coventry, North-West (Mr. Robinson) described some ways in which pressure could be put on finance officers in the banking system, but I do not think he was suggesting that there was any evidence that that had already happened. While his observations were valuable as theoretical points, they left me still wondering what specific evidence had led HMRC to require clause 92 to deal with an existing problem. It would be helpful if the Financial Secretary could return to that question.

What the hon. Gentleman says about my comments is pretty well true, but given the entirety of what has happened to investment and other banking systems in America and here, it is hard to escape the conclusion that not just the risk element but the overall finance control system in those banks was nowhere near strong enough.

That is a valid point, but I am trying to establish whether there is a causal link between what happened to the banking system and the introduction of clause 92. So far I have seen no evidence of that, or of a causal link with other things that have gone wrong.

The hon. Member for Coventry, North-West (Mr. Robinson) made a good point about the banks. The views of accounting officers on the company and its reports might depend on whether they were in line for bonuses.

As usual, my hon. Friend makes an interesting observation.

I was not sure whether the hon. Member for Coventry, North-West was saying that it was not a good idea to consult before provisions were inserted in a Bill because that would lead to the distortion of those provisions, but if that were the case, I would not see the point of consultation at all. His argument undermines the whole process and casts an unnecessary pall over what I consider to be the positive and mature way in which organisations such as the Institute of Chartered Accountants have approached consultation on a range of issues with a number of bodies, including the Government.

My basic premise is indeed that it is better to invite consultation once the purpose of proposed legislation has been stated but, as I tried to explain to the hon. Member for Fareham (Mr. Hoban), the corollary is that the Government must be prepared to amend legislation, realistically and willingly, in the course of the consultation.

That is an interesting point, but I do not believe that the trust that is necessary between the bodies being consulted and whoever is consulting them will be strengthened by the fact that they are being consulted only when the structure and philosophy of legislation has already gone quite a long way down the road.

Let me say a bit more about philosophy. The hon. Member for Wolverhampton, South-West (Rob Marris) made a valid distinction between the philosophical differences between the approaches to the clause adopted by the two sides of the Committee which, I think, are exemplified by paragraphs 23 and 24 of the explanatory note on clause 92. Paragraph 24 establishes what we consider to be the better principle-based approach in stating:

“Ensuring appropriate tax accounting arrangements are in place is no more than compliant companies will be doing already.”

There are two points to be made about that.

“Ensuring appropriate tax accounting arrangements are in place”

is the principle that we would expect to underlie the clause, while the words

“is no more than compliant companies will be doing already”

raise the question of why the clause is needed at all. What evidence will there be of the number of non-compliant companies, and how is that number to be established?

Paragraph 23, which the hon. Gentleman quoted, states:

“Currently, there is no legal obligation on any particular director…to ensure that the company has appropriate tax accounts arrangements.”

To me, that illustrates a tendency towards a rules-based system which, in my view, has a number of negative effects on companies’ positive approach to organising their affairs. I am in the principles-based camp; I do not think that we should tie things up unnecessarily.

I wish to turn to the Sarbanes-Oxley Act comparison, because a number of issues arise there. Given that a comparison has been made with that measure and that reliance has been placed on the experience of it, I wonder whether any reasonably substantial and detailed work has been done to examine its effects. It is fine to talk in terms of generalisations and broad comparisons, but we need detailed experience if we are going to rely on it. We have seen one aspect of how that measure could materially affect companies: the additional costs and obligations that it puts on them. I understand that the accounting profession takes the firm view that additional costs arise from the measure.

The other issue that Sarbanes-Oxley raises has already been touched on in relation to materiality. The Act introduced something related to financial accounting rather than to tax accounting. As I understand it, built into that system is a concept of materiality. We need an indication from the Minister as to whether we are now accepting the concept of materiality in tax returns as well as in financials.

It would be useful to understand a bit better the way in which what is required by the clause will interact with the existing accounting framework. Most accounting systems comply with UK generally accepted accounting principles, but are we now saying that changes will be needed to UK GAAP to reflect the tax aspects of the measure? Are we saying that, for tax purposes, we will need additional requirements above UK GAAP? The measure does not address the question of integration within one system and how we judge, in terms of the prospect for revenues, other accounting regulations—not just UK GAAP but overseas regulations.

For the reasons that I and that many hon. Members have given in the light of the uncertainty surrounding the clause, I support the amendment.

We have had a useful discussion on this important measure. In the Budget, the Government took difficult decisions to support fiscal consolidation, taking steps to support businesses and households, but also setting out the credible path that we must follow to return public finances to sustainability in a fair way. Protecting tax revenues is an important part of that. It is right that as part of our fiscal consolidation, we act now—I recognise that there is some urgency—to lock in tax compliance and to protect tax revenues.

The majority of senior accounting officers are already ensuring that appropriate tax accounting arrangements are in place in their companies or groups. For them, the burden of the new requirement will be minimal, requiring little more than to certify the existence of what is already in place. However, a minority—I think it is quite a small minority—of companies do not have robust systems and processes in place. It is difficult for either the company or HMRC to know whether the right tax is being paid. We want identified individuals to take responsibility for putting that right. I will give a couple of examples.

If the weaknesses in the system were so great, would not the Minister have expected those companies’ accounts to have been qualified?

Let me give the hon. Gentleman the examples that I have in mind. There have been companies where tax computations are calculated incorrectly each year due to known accounting system problems. We want it to be clear whose job it is to sort that out. One group had systems problems every year, could not identify the source of the problems and could not satisfy HMRC that the tax computation was correct. It needs to be crystal clear whose responsibility it is to resolve such an issue. Therefore, this is not about human error or genuine mistakes, as paragraph 1 of schedule 46 makes clear. It is about systems problems leading to persistent under-reporting of tax.

Clause 92 therefore places a legal obligation on senior accounting officers to establish and maintain appropriate tax accounting arrangements. It builds on the approach that HMRC has been taking since the 2006 review of links with large business, which I think has been widely welcomed, enabling companies to work with HMRC and to establish a low-risk tax relationship through transparency, picking up the point rightly made by the hon. Member for Taunton (Mr. Browne), and through co-operation. Clause 92 simply provides that existing good practice among the majority of large companies is spread across all large companies. The measure reflects what should already be in place. We are clarifying the responsibility for ensuring that tax accounting arrangements comply with established good practice.

As we have established, the detail of the measure is set out in schedule 46, and I look forward to the full debate that has been presaged in this exchange, when we will discuss the detail in Committee. We said at the Budget that we would move quickly to consult on detailed implementation. I recognise some of the concerns that have been expressed in this debate; indeed, they have been raised with me. In response, we will table amendments to schedule 46 in Committee. I agree with my hon. Friend the Member for Coventry, North-West (Mr. Robinson) that that is the right way to deal with these matters. Let me outline the amendments that I envisage tabling.

First, as I said earlier, we need the right balance between safeguarding revenues from larger companies and the compliance cost for business in terms of what counts as a large company. I am now satisfied that the base of companies within the scope of the measure can be narrowed to strike a better balance. Our current thinking is to limit the measure to those companies with a large business relationship with HMRC, and a customer relationship manager reflecting that—fewer than 2,000 companies in total, compared with about 15,000 under the definition set out in schedule 46 as drafted. We will have further discussions about that approach before we take a final view, but we will then table amendments in Committee, rather than introduce regulations under paragraph 17 of the schedule.

Secondly, schedule 46 as drafted—the hon. Members for Fareham (Mr. Hoban) and for Taunton commented on this—requires senior accounting officers either to certify that the company’s tax accounting arrangements are appropriate or otherwise to explain the respects in which those arrangements are not appropriate, with different certificates for each of those two cases. I am now satisfied that that would work better with a single certificate, on which the senior accounting officer sets out either one position or the other, rather than two different types of certificate as provided for in the draft schedule.

I accept that the requirement to notify the company’s auditors as well as HMRC of the respects in which the tax accounting arrangements are not appropriate could pose operational difficulties for businesses which are disproportionate to the importance of that measure, so an amendment will be tabled in Committee to remove that requirement from the schedule.

On amendments, may I suggest that the Minister looks at the definition of a senior accounting officer? Currently the definition is

“the director or officer of the company who has overall responsibility”.

I think that it should be a director; it should not just be an officer, who could be below board level. I want the focus to which I referred in one of my interventions on the generous hon. Member for Fareham (Mr. Hoban).

I will certainly reflect on that, but it should be for the company to determine who will have the overall responsibility that the schedule sets out, so I would be hesitant about being more prescriptive.

The point of the person being on the board, as opposed to being an officer, is that being on the board carries certain specific personal liabilities. The chief financial officer or the person with tax responsibilities might in many cases be taken off the board precisely so that they avoid that sort of responsibility, which a directorship carries with it. Will my right hon. Friend undertake to look into this point?

I will be very happy to reflect on it, but it should be the company concerned that makes the judgment as to which individual should carry this significant personal responsibility, which is rightly set out in this part of the Bill.

The hon. Members for Fareham and for Taunton asked when guidance would be ready, and I agree with them about the importance of getting the technical guidance right. The legislation must be implemented in a way that is consistent with the intention that I have set out. There should be minimal impact on companies and their senior accounting officers who already have robust systems in place, and HMRC is having some good discussions with those involved. It will work with them to develop and agree the guidance, and I will ensure that draft guidance is with the Committee before it considers the schedule.

The hon. Members for Fareham and for Henley (John Howell) talked about the reference to Sarbanes-Oxley in the impact assessment, and I understand why they did so, but we need to make it clear that we are not here importing Sarbanes-Oxley legislation to the UK. Sarbanes-Oxley is very extensive and covers a far wider range of issues than the quite limited measure in question, such as corporate governance, financial reporting and company law, rather than tax. No specific element of Sarbanes-Oxley is replicated in clause 92 or schedule 46. There is an analogy in that an element of personal responsibility is a characteristic of both the Sarbanes-Oxley legislation and this measure, but none of the specific Sarbanes-Oxley measures is replicated here.

Let me pick up on some of the other points that have been raised in the debate. I hope that former accountants enjoying their retirement in Sandbanks and elsewhere will be reassured to learn that because the obligations imposed apply only in relation to financial years beginning on or after Royal Assent, there is no question of any senior accounting officer being held retrospectively responsible for any shortcomings in a company’s tax accounting arrangements.

I have mentioned one set of regulations that the draft schedule gives us the power to introduce: those to restrict the number of companies. As I have made clear, we will not be introducing such regulations, because we will take the action through amendment instead. We will be able to bring forward in draft form the other set of regulations, on penalties, that schedule 46 allows us to introduce before we reach that part of the debate in Committee.

The Government should be able to expect senior accounting officers to be satisfied that they have the appropriate systems in place to ensure that they can submit accurate tax returns. As I hope I have suggested, there is a problem, which clause 92 addresses.

Will the right hon. Gentleman comment on the issue of materiality? We discussed this point earlier in the context of the materiality that auditors use to sign off accounts. What level of materiality will HMRC employ when looking at the appropriateness of tax accounting systems and the accuracy of returns?

As the hon. Gentleman knows, companies already have an obligation to deliver correct and complete returns. The measure ensures that the minority of senior accounting officers who do not oversee systems that generate correct and complete computations take responsibility for addressing that. That is the level of the bar that we envisage applying.

There may be a systemic problem in a system that means that the calculation of tax on each transaction is out by as little as a penny or as much as a pound, and clearly those different amounts will have a different impact on the tax liability. How precise does the Revenue expect to be in applying these sanctions to senior accounting officers?

That is a perfectly fair point and we will certainly need to address it in the guidance, but what is important is that this is about ensuring that the systems are sound and robust, rather than about the dangers of mistakes that might from time to time occur.

The right hon. Gentleman gave an example earlier involving a company that was systemically under-reporting tax due from year to year. How much is involved in that case?

I do not know the precise figures in that case. The hon. Gentleman mentioned the figure that we set out in the Budget documentation on Budget yield over the next few years arising from this measure. We estimate that in the first year there will be an additional tax yield of £40 million, and a rather larger sum in the years after that. Cumulatively, we are therefore talking about significant sums, and this is an important contribution that is needed for the fiscal consolidation that we require.

As I have said, we need to make some amendments, including in the light of perfectly fair points made in this debate.

There is a natural preoccupation that systems should be robust, but it has always struck me that systems can be as robust, detailed and complicated as we like, but they are only as good as the people who operate them. It is good that this complementarity has been introduced. Systems must be robust, but in order to make sure that they work properly, the first officer responsible has to see to it that the sanction and responsibility put on them will achieve just that end.

My hon. Friend is right and I am grateful to him for making that point.

The hon. Member for Taunton is right that it does not make sense to defer this measure for a year. There are certainly some detailed measures that we need to introduce and debates that we need to have, and as I have signalled, some amendments will need to be tabled. There would, of course, be a cost in deferring for a year. We need to get on with it, and the Government’s response in terms of the fiscal consolidation we have set out needs to proceed. I therefore hope that the hon. Member for Fareham and his hon. Friends will feel able to withdraw their amendment. If they do not, I hope the Committee will reject it.

I am not convinced by the Financial Secretary’s response to the debate. He talks about what we are considering being an appropriate measure of fiscal consolidation that will raise £40 million in the first year. This is in the context, of course, of a budget deficit of £175 billion. I asked him about the monetary amount of the systems error that he prayed in aid in respect of this measure, but he did not know how much that was going to be. I worked out, not in a systematic way but on the back of a notional fag packet, that the amount involved per business covered by this measure would be £30,000 to £40,000, which is not a material sum. I am just not persuaded yet that the Financial Secretary has made a case as to why we should impose this legislation on large businesses, notwithstanding the welcome concession that he has made in restricting the number of businesses to which it will apply. Why would this measure be imposed without any real work having been done by the Government on the costs that businesses will incur as a consequence of its introduction?

The hon. Member for Coventry, North-West (Mr. Robinson) takes a very bullish view on consultation, and it is important that we get tax legislation right. The Financial Secretary has accepted that there will be amendments in Committee, and I welcome that. However, there are examples of legislation that has been rammed through quickly and which we have had to come back to in successive years to get right, and I just do not think that the Government have taken sufficient care over this measure to warrant its introduction when this Bill receives its Royal Assent some time in July. More work needs to be done by the Government to get this right, and to understand issues associated with materiality, who the senior accounting officer will be and the application of this measure. It is right to delay implementation by a year, so that the Government get it right and do not impose an unnecessary cost on business without a firm grip on the benefits that this is due to bring. I therefore ask my hon. Friends to support amendment 4.

Question put, That the amendment be made.

Clause 92 ordered to stand part of the Bill.

Clause 14

Rates from April 2010

Question proposed, That the clause stand part of the Bill.

I do not know whether it is appropriate to say so in these circumstances, but it is a pleasure to serve under your chairmanship, Mr. Atkinson.

Vehicle excise duty was one of the stories of last year’s Finance Bill and the 2008 Budget. I will be relatively brief—and I can assure the Exchequer Secretary that this issue will not keep her here until the early hours of the morning—but it may be useful to return to the proposals in that Budget. In particular, I wish to take the opportunity to pay tribute to the tenacious work of my hon. Friend the Member for Putney (Justine Greening) in examining and unravelling the Government’s case.

The Committee will recall that in the 2008 Budget the Chancellor of the Exchequer set out his proposals to reform vehicle excise duty, which included introducing a greater range of gradations in bands on the basis of CO2 emissions. He told the House that that was a sensible green measure, saying that

“the road tax system should do more to support the use of more carbon-efficiency…There will be an incentive to encourage drivers to choose the least polluting car.”—[Official Report, 12 March 2008; Vol. 473, c. 297.]

My hon. Friend started to examine the details of that policy and several points emerged.

First, the Chancellor claimed that the proposal was a green measure, but it clearly sought to raise revenue. Of course, the proposals on vehicle excise duty in this Finance Bill have been largely shaped by the arguments and the analysis of last summer. Thanks to my hon. Friend’s work, it emerged that the original proposals would reduce motor vehicle emissions by 160,000 tonnes a year by 2020. To put that in context, that is a fraction of 1 per cent. of total transport CO2 emissions, which in 2006 amounted to 120 million tonnes. We can see immediately that the proposals’ green credentials were somewhat weakened, and I would be grateful if the Exchequer Secretary gave her assessment of the green benefits of the original proposals and of the proposals in clause 14.

Another green argument needs to be addressed. It was persuasively argued that a number of older cars would essentially become unsaleable and have to be scrapped as a consequence of the new VED scheme, which would have an environmental impact. I do not wish to deviate from the subject of VED, but that point throws up the issue of the environmental impact of the car scrappage schemes. It would be helpful if the Minister said a word or two on the environmental pluses and minuses of scrapping older cars. Clearly, newer cars are more efficient and, by and large, have lower CO2 emissions, but quite a lot of carbon is involved in car manufacture. I ask that purely to inquire about the Government’s analysis.

May I inquire, purely to seek information, whether the hon. Gentleman can confirm that his party stands by its commitments on green issues, particularly on green taxation?

Yes, we do. I shall come back to that point—that was a perfectly fair question. I suspect that quite a bit of this afternoon will be devoted to green taxation of one sort or another. After this debate, we will debate fuel duties and I want to say quite a bit more on the subject at that point.

My second point is to ask whether the VED proposals in the last year’s Budget and those in this Finance Bill are retrospective. I have already praised my hon. Friend the Member for Putney, but a word should also be said about the hon. Member for Blyth Valley (Mr. Campbell), who tabled an early-day motion and secured considerable support from both sides of the House—

Indeed, it would be a great omission not to mention him.

Is the measure retrospective? If someone has bought a car that was made or registered after 2001, and subsequently found that they will pay more VED in future years, they are committed to that car. They are stuck with it and are faced with a tax bill that they did not anticipate. People argued whether the provision was retrospective—I think that it is —and I would be grateful if the Minister confirmed her view. On 14 May 2008, in column 1495 of Hansard, she referred to page 121, paragraph A.97 of the Red Book, which, she said, contained details of the retrospective element. It seems to me that there is a retrospective element, and that point applies to this clause, albeit that the effects are less dramatic than perhaps was originally envisaged last year. Will the Minister confirm her interpretation of that point?

That raises the issue of unfairness and of who will be hit by the provisions. The hon. Members for Blyth Valley and for Wolverhampton, South-West asked who would be affected by the change in VED. Let me put that in the context of the clause, although that question could still be asked of the original proposals. It would appear that some 1.2 million drivers will experience rises of more than £200, and that many others will be affected. They would say that it is very difficult to change their behaviour when they have already acquired the cars, which comes back to the green taxation point I was making a moment or so ago.

I will. I should make it clear that the figures I have been quoting are those given in the debate last year. If the Exchequer Secretary can update me, I would be very grateful.

Will the hon. Gentleman at least acknowledge that we are talking about increases in VED this year of no more than £5 per car and increases of no more than £30 next year?

I do. In the pre-Budget report, the Government changed their position, and many of my remarks praise those who were able to persuade the Government to do so. I am asking the Minister to explain what persuaded them to change their position. Was it the argument that it was not a green tax? Was it the argument that it was retrospective? Was it the argument that those who were going to be affected were not just rich executives driving around in gas guzzlers but those across the income distribution scale? What persuaded the Government to move from the position we were in this time last year to the position we are in now, where, as the Minister says, the increase will be no more than £5 this coming year and no more than £30 next year? I am trying to understand the Government’s position.

There is continuity in what we had last year and what we have this year. In both the Budget and the pre-Budget report, which essentially set out what we have now, the Government stated that the majority of drivers will be better off or no worse off under the proposals. That is right, in my understanding. However, it is right in relation to the original proposals only if one includes those drivers who are not paying graduated VED at all. Let me quote the figures from last year—I am sure that the Minister will update the Committee on the figures for this year. The vast majority of the 15.5 million motorists who paid graduated VED would pay more. I would be grateful if the Minister said that that figure no longer applies.

I want to make it clear that we are not just talking about the larger models. The duty would also apply to people who drive Ford Mondeos. I should declare an interest as a driver of a Ford Mondeo estate—

Larger is all relative. We are not talking about sport utility vehicles or Humvees. Renault Méganes and even some Nissan Micras were affected. Where do we stand now? By 2010-11, how many people will be paying more? Who is affected? What is the breakdown?

This year, VED is not the big controversial policy it was. That is largely due to the efforts of hon. Members of all parties, and we are grateful that the Government listened to the case made by my hon. Friend the Member for Putney and others. They said that the policy announced in last year’s Budget was misguided and retrospective, that it was ineffective as a green policy and that it would affect people of all incomes.

Progress has been made, but I look forward to the Minister explaining precisely which arguments the Government found so persuasive that they were prepared to back down.

As you know, Mr. Atkinson, I and my hon. Friend the Member for North-West Leicestershire (David Taylor) have tabled amendment No. 16. For reasons that we well understand—although people outside may not—it is not in order for that amendment to be called today, so I am grateful to be able to participate in this debate. In my short contribution, I shall talk about VED but also, if I may, about other forms of taxation on motorists.

I accept that taxation is going to go up in the next five-year period, so I shall not undertake any special pleading to try to convince the Minister that the concerns of my constituents should somehow render them exempt from the Government’s need to balance the national accounts over the medium term. The hon. Lady is the Member for Wallasey, which means that she is my neighbour in the Wirral—

And friend, very much so. I was going to call her my very honourable Friend, as both of our expenses have been published, but I did not know whether the term would be in order. The Minister is, of course, my very, very hon. Friend the Member for Wallasey, and I hope that she will say whether, before the next Budget, the Treasury will assess the distributional impact on households with different incomes and in different parts of the country of duties imposed on motorists as a result of the need to increase revenue across the board.

Such an assessment would add to the rationality of the debate, but since I have not got 38 or so Back-Bench Labour MPs to sign the amendment it poses no threat to the Government. However, it would help our constituents to understand that the Government are thinking carefully about any future tax increases that they may have to make. It would also help to convince them that taxation on motorists will be underpinned by a distributional analysis to ensure that the poorest motorists are better protected than the richer ones.

I am grateful to have an opportunity to contribute to the debate on an element of the Bill that I readily concede—and as the hon. Member for South-West Hertfordshire (Mr. Gauke) noted—is less contentious than it was last year. What made it so contentious last year was the element of retrospection, and I remember an interesting debate about whether all new taxes had a degree of retrospection. However, many hon. Members felt keenly that the proposals on VED last year had a greater degree of retrospection than most tax proposals.

I will in a moment. To some extent, the fact that the higher rates will not be implemented until next year means that the sting has been taken out of the proposal—although perhaps not to the entire satisfaction of the right hon. Gentleman.

I thank the hon. Gentleman for giving way. As the Budget comes after the beginning of the financial year, is not all taxation retrospective?

I do not want to get too far off the beaten track, Mr. Atkinson, but for a person who earns £200,000 a year, the Government’s proposal to introduce a 50p rate of tax on incomes over £150,000 a year could be called retrospective, on the basis that that person could not have anticipated the change when he accepted a job offer in the first place. It was argued that the proposals on VED were no more retrospective than the example that I have just given because, if that example was seen as retrospective, whole areas of the Finance Bill would be deemed to be unacceptable.

I was not entirely sympathetic to that argument. I understood it, but I felt that any attempt to effect behavioural change by using VED differentials meant that the tax change also had to impact on people buying cars for the first time. They had to be in a position to make important decisions about such a purchase and so they had to know the VED rates that they would face.

It is important that we examine these matters in detail, but the danger is that we lose sight of the big principle, about which all parties are essentially in accord. We may differ on the degree, but we accept that there must be some differential between the lowest polluting cars and the highest, and that that differential should be graded. My party argued for that differential before the Government introduced it in 2001. We had made the case forcefully for many years before then, and I remember that we were sometimes criticised for doing so. However, the notion of having a differential seems now to have become the accepted wisdom.

Why is a differential deemed to be a good idea? Transport clearly contributes to CO2 emissions and pollution. It is only one contributor among many, but it is significant, so encouraging people to use more fuel-efficient models of car is deemed to be in our collective environmental interest.

It is also worth noting in passing that the principle is being applied more widely. London’s congestion charge may be rather inaccurately titled now, but it contains an element of the principle. Interestingly, residents’ parking in the Taunton Deane borough council area in my constituency will be free for people whose cars are in the lowest category of emissions, and half price for those whose cars are in the second lowest category. Instead of disincentivising people with high-emitting cars, the scheme incentivises people with very low-emitting cars, and that is a sensible and practical change.

My point may be slightly off the beaten track, but incorporating a component in VED that attempts to affect people’s environmental behaviour is widely accepted to have merit. If it is not retrospective, one would hope that the impact would be of even greater benefit to the environment, and that the population at large would deem the tax to be fairer.

In the past, my party has spoken about the impact of VED rises on very rural areas, something that always comes up in these debates. People in such areas need to use cars—

The hon. Gentleman says that that is the subject of the next debate, which is about fuel. He is right, and people who have to drive longer distances because they live in remote rural areas are going to use more fuel. However, some people in urban areas may not need to drive at all, whereas people in remote rural areas may have no choice—for example, they may have no other way of getting to work. My party has said that we should at least explore options for giving assistance with VED to people whose principal address is in a very remote rural area.

People who live in remote rural areas often find it essential to have a larger, more fuel-inefficient vehicle, thanks to the nature of the climate, the need to drive on winter roads, and so on. Also, their vehicles often have to have a dual purpose: they have to be family vehicles and they also have to be able to cope with work, be it on farms or in the forestry or tourism industries. People in remote areas do not have the same choices as people in urban areas.

My hon. Friend makes a perfectly valid point. People in extremely remote areas, and not just those who live outside the big cities, have two practical considerations. The first is that their need to drive is much greater, because there is little or no public transport where they live. The second consideration is the one that my hon. Friend described, which is that they may need to drive a vehicle with higher emissions because of off-road requirements and so on. That issue is worth exploring, but the clause does not do so and I shall therefore not dwell on it any further.

The provisions of the clause and those on fuel duties—the subject of our next debate—are precisely the reason why I made the plea to the Government to take a more comprehensive view of the impact of vehicle taxation, both geographically and on various income groups.

The right hon. Gentleman makes an interesting suggestion, but I do not agree with his central premise for two reasons. First, there would be a significant revenue shortfall—I assume that that is why he was not able to get his amendment selected for our consideration. That is a serious point when we have an annual budget deficit of £175 billion. Presumably, the Government’s measures are intended simultaneously to effect behavioural change and to raise revenue, which is not impossible. The Government raise revenue and try to effect behavioural change through tobacco duty, for example. There is a trade-off of sorts, but it is possible to pursue both objectives simultaneously.

The hon. Gentleman is of course right to say that it is possible to raise revenue and effect behavioural change at the same time. Although I would not put them in precisely the same category, VED and tobacco duties are examples of that phenomenon. However, I assume he agrees with me that if one is really successful in changing behaviour, the revenue-raising aspect of the tax tends to diminish.

Indeed it does. The Government face the peril of being more successful than they intended to be.

That leads me neatly to my second concern about the proposals made by the right hon. Member for Birkenhead (Mr. Field), which is that the straightforward commercial or financial incentives to pick lower-emission cars would be reduced. My party wants those incentives to be in place.

The right hon. Gentleman makes an interest point about the impact of some behavioural taxes on different social groups. Tobacco taxation, for example, has a disproportionately large impact on people in the lower income deciles, because they have a greater propensity to smoke. That is one of the reasons why, in percentage terms, the total tax burden on people on lower incomes is in many cases greater than the burden on people on higher incomes.

There is a serious social question to be asked about some of the behavioural taxes, but it applies less to VED because many people in the lowest two or three income deciles cannot afford to drive—although I take the point made by my hon. Friend the Member for West Aberdeenshire and Kincardine (Sir Robert Smith) that that is more true in urban areas than in rural areas: some people in rural areas on very low incomes have to drive. However, large numbers of people, particularly in cities, on low incomes do not have cars, and those on relatively low incomes who do have cars tend to pick models with smaller engines, although not exclusively, of course. My point is that the social impact of VED differentials is less pronounced than that of other forms of behavioural taxation.

I do not want us to get muddled up with smoking taxation. I am raising the issue of low-paid workers—people who want to work and who do work—who face the cost of getting to work in their cars. The question they posed, which I put to Treasury Ministers, is whether there might not be fairer ways of raising the necessary revenue—I am not asking for revenue cuts—by shifting from taxation of petrol towards the taxation of vehicles.

Perhaps the Minister will deal with that in her response. I recognise, as I am sure all hon. Members do, that there are practical considerations for people on low incomes who wish to work and for whom motoring represents quite a large proportion of their overall expenditure. That is particularly true in rural areas, where the need to drive and to drive longer distances is greater. However, I do not accept that that alone makes the case against VED differentials. In fact, one could argue that it would be more appropriate to have more pronounced differentials, so that people with low-emission cars are incentivised to an even greater degree compared with people who have high-emission vehicles.

That is why I mentioned in passing—Mr. Atkinson, I hope you agree that, if I touch on it only briefly, it is relevant—why I am keen to see measures introduced that do not have significant revenue-raising implications, such as giving people tax exemption on residents’ parking if they have low-emission cars. That positively incentivises environmentally responsible behaviour. Not only can such measures have a positive impact on low-income groups, but they send out a powerful signal about our collective environmental responsibilities.

My party has argued for an initial VED levy to be charged on new cars and graded so that the charge is highest on high-emission cars. We talked about a so-called showroom tax and, in effect, the Government are introducing a variant on that theme by setting a higher initial rate. One can brand measures in different ways, but the objective remains the same, which is to encourage people to think about buying a lower-emission new car by giving them a financial incentive to do so.

I am not sure that the Government’s policy is entirely consistent across the piece. The so-called scrappage scheme is to be introduced, which seems to be designed to encourage people to buy new vehicles, whereas some might interpret the VED measures as a fairly strong inducement to stick with their existing vehicles, as doing so means that they will not incur the additional higher VED rate in year one. I am interested to know whether the Minister believes that the measure will stimulate the sales of new cars, as some MPs, especially those representing west midlands constituencies and parts of the country with a motor manufacturing tradition, want. Are the Government trying to stimulate sales through the Department for Business, Enterprise and Regulatory Reform, but trying to restrict them through the Department of Energy and Climate Change and the Treasury? If so, people are being sent conflicting signals.

We are pleased that the measure is not retrospective. It seems to be far less controversial than last year’s VED measure, and it sends out a powerful environmental signal. Although we do not accept it in its totality and think it could be modified and improved, the broad principle behind the Government’s thinking seems to us to be aimed in the right direction.

For the purpose of this debate, I declare an interest in that I drive a car with CO2 emissions of 119 g/km and my wife drives one with emissions of 108 g/km.

I am delighted that the Government reconsidered the retrospective measures proposed in Budget 2008, following the work done by me—I think that I was the first person to raise the subject in the Chamber—my hon. Friend the Member for Blyth Valley (Mr. Campbell) and the hon. Member for Putney (Justine Greening), who was present for the early part of this debate. It raises a question about the concept of being open to discussion and public debate and the tendency in the UK body politic to decry changes of position by Government or Opposition parties as U-turns, when such changes are often the result of productive discussions, informed by fresh information. That is what my Government did in relation to the VED proposals made last year, which were withdrawn and have been reintroduced, in a very much reworked form, in clause 14. They are now much better.

I did want to say a little about the general structure of VED, because I think it is entirely right that it should be graded according to the CO2 emissions of the vehicle. I know that my right hon. Friend the Member for Birkenhead (Mr. Field) has some reservations about that, particularly because of the impact the duty could have on lower socio-economic groups driving older cars, which tend to be bigger-engined. I would caution that if we moved away from the proposal in clause 14 to grade VED according to emissions to one based on engine size, that could present difficulties for diesel engines, for example. The car I drive has a diesel engine of approximately 1400 cc and it produces a much lower rate of CO2 emissions per kilometre than a 1300 cc model of the same car with a petrol engine, so one has to be a little careful. I know that there are concerns about diesel engines and particulates, but I am told that such concerns are sometimes overstated.

May I say, somewhat parenthetically, that I welcome the slight change to the company car tax regime on CO2 emissions per kilometre, which I believe is a progressive measure, referred to in paragraph A.119 on page 167 of the Red Book? There is also a reference in paragraph A.120 on the same page to the lifting of the £80,000 cap on the list price, which I must confess I did not previously know existed and seems rather bizarre.

Why does clause 14 still provide for the “reduced rate”, as it is called? My understanding, as it stated in paragraph 28 of the explanatory notes to the clause, is that the reduced rate

“applies to cars using alternative fuels or featuring a hybrid fuel-electric powertrain. Alternative fuels include Liquefied Petroleum Gas, Compressed Natural Gas and high blend (85 per cent. content) bioethanol.”

On grounds of tax simplification and the rate differentials in tables 1 and 2 of clause 14—they are not, in any case, very great—I would urge the Government to reconsider whether the reduced rate should exist at all. That consideration is particularly relevant when some environmental concerns have been raised about whether we should encourage the use of LPG fuel in vehicles.

According to table C6 on page 131 of the Red Book, for 2009-10, VED is projected to raise £5.6 billion. Given the changes that will take place from 2010-11, as set out in tables 1 and 2 of clause 14, I hope that the Minister will be able to tell us this afternoon what the projected VED revenues will be for 2010-11 and even for 2011-12, bearing in mind that VED principally covers light passenger vehicles, but also commercial vehicles, light vans and so forth.

I start from the point—as, I suspect, do most hon. Members apart from the flat earthers on climate change—that it is a good thing to use taxation measures to discourage polluters. Cars that emit higher levels of CO2 per mile driven pollute more and mess up the planet more, so I salute what the Government have done in recent years by introducing the 15 bands of VED in an attempt to change consumer behaviour through a tax mechanism. I similarly salute what the last Conservative Government did, following the efforts of the Campaign for Lead-free Air of which I was a member, to encourage motorists through a tax mechanism to switch from leaded to unleaded petrol. That produced changes very quickly—both in consumer behaviour and the type of vehicles produced by motor manufacturers within the UK, including the west midlands, and abroad.

In recent months, because of the oil price spike last year and what the Conservative party refers to as the age of austerity, I understand that sales of small cars are increasing proportionately to those of large cars. I would categorise a Ford Mondeo estate as a large car in respect of its dimensions and, in many versions, its engine size. I view the change as a step forward, but I stress the word “proportionately”, because although small cars may have recorded more sales in recent months, overall sales have fallen markedly. That, of course, adversely affects the motor industry around the country.

Table 1 in clause 14 shows that a new vehicle will be exempt from VED in the first year when it produces fewer than 130 g of CO2 per kilometre driven. That is a good step forward and, in future years, I urge the Government to keep the matter under review with the aim of lowering the exemption threshold from, say, 130 g to 120 g. The European Union has been striving against backward-looking motor manufacturers—those manufacturers are now, sadly, reaping the whirlwind, as are their workers—to get the average for each manufacturer’s fleet production down to 130 g. Table 1 currently provides for a first-year exemption only for those vehicles described as below the EU average.

I share the hon. Gentleman’s instincts. However, I am always a little cautious about exempting only such small cars because that makes the person in the street think it is just a ruse to provide the appearance of environmentalism, given it is so hard to find models that actually qualify for the exemption. Surely there may be some benefit in exempting some reasonably popular models of cars; they may not be right at the end of the emissions scale, but they are nevertheless near it. That might offer people what they regard as a genuine inducement rather than a bit of political manoeuvring.

I take the hon. Gentleman’s point. I am not an expert, but I understand that there are some relatively large cars coming in at an emissions rate of 130 g or below. In order to drive the motor industry by means of a taxation mechanism and to drive consumer behaviour—to use an appropriate verb—we need to keep the grading under review and push it further in the future. It is no coincidence that the European Union manufacturer with the lowest fleet average—from memory, I believe it is about 136 g per kilometre driven for all the new cars sold last year—is the one that is quite likely to take over Chrysler and Opel-Vauxhall: namely, Fiat. Relative to many other motor manufacturers, Fiat is thriving at the moment. Of course, all these things are relative, but I suspect that has happened because Fiat had the foresight to concentrate on smaller and lower-polluting vehicles. The two do not always go together. It is possible to buy some pretty polluting cars that have small external dimensions, just as it is possible to buy some relatively low-polluting cars that have quite large external dimensions.

Turning to table 2, in clause 14, I note an element of retrospection in paragraph (a) relating to higher-polluting cars. For those cars with emissions between, say, 225 g and 250 g, for which the standard rate of vehicle excise duty would be £425 per year, for those registered before 23 March 2006 that rate will be £235. Such cars would now be three years old, but given the number of years for which society has imposed tax penalties for more polluting vehicles, I welcome and am content with that relatively minor level of retrospection. Similarly, for those cars registered before the 23 March 2006 cut-off date that produce more than 255 g in emissions, the standard rate of VED will be £245 per year rather than £435.

Given the hon. Gentleman’s undoubted expertise in this area of industry, does he anticipate that motor manufacturers, which, in many cases, are desperate for sales, might absorb the costs of first year VED, and include it in the list price for consumers? If so, will that stimulate demand and weaken the environmental message that the Government seek to send?

As is the hon. Gentlemen’s wont, he jumps ahead of me. I was referring to table 2, which relates to vehicles after the first-year loading. I am about to refer to table 1 and vehicles in the first year. I think the small element of retrospection is acceptable. Those vehicles with emissions of 255 g registered after 23 March 2006 will not get the discount from £435 to £245 that those registered before that date will get.

Turning to table 1, to which the hon. Gentleman referred in his speech and intervention, there is a risk in relation to shifting cars in the showroom. As far as I know, almost everyone who buys a new car does so with the vehicle excise duty paid—it is shown on the invoice. Just as we see advertisements for “No VAT”, which are not technically accurate as a discount is being given equivalent to the VAT chargeable on a list price, we may see such sales techniques creep into advertisements with regard to VED—for example, “No VED loading on a brand new car.”

VED loading simply on a first-year basis is not the way to go. As the hon. Gentleman put it, it would be a variation on a showroom tax. Company cars constitute quite a high proportion of the UK car market. Three years ago, the Liberal Democrats commendably picked up my proposal of about four years ago for swingeing vehicle excise duty on new cars bought after an announced change in the taxation regime had taken effect. That would be not merely a first-year loading. For example, under table 1, a car that emits 255 g or more of CO2 emissions would pay £950 at the standard rate in its first year, dropping to £435. For that kind of vehicle, swingeing vehicle excise duty is needed every year, not only to dissuade people from buying it, but to make them bear in mind the resale of the car. Such swingeing vehicle excise duty, as I proposed one year, although I put the grams per km threshold higher, would affect resale massively, and cause company as well as private buyers to think about whether they would buy such a polluting vehicle. They might be able to afford to run such a car year to year, but they would not be able to afford the hit on the resale price.

Previously, I have had complaints from the public, who misunderstand the proposal. It is not an attack on 4x4 drivers. The last time I looked, nine out of the 10 most polluting cars on sale in the UK were not 4x4s. The one 4x4 in that top 10 was a Land Rover, which is produced in the United Kingdom. The others in the top 10 were sports cars and top-of-the-range cars such as Bentleys, which have huge engines and are huge vehicles. I urge the Government to consider again an ongoing—not retrospective—swingeing rate of vehicle excise duty for the most polluting vehicles. That would discourage people from buying such vehicles, not only because of their running costs but because of the adverse affect on their resale price. I hope the Minister will assure me that the Government will consider that in future years.

I hope that I can deal with some of the points raised by Opposition Members and by my hon. Friends on clause 14. As has been pointed out, the clause makes changes to vehicle excise duty rates for cars and vans, and those changes take effect from 1 April 2010. The clause introduces first year rates of VED for brand-new cars, as was, I think, mentioned by all who spoke. First year rates will be chargeable on the first vehicle licence taken out on a new car from 1 April 2010. They are intended to influence, up front, the purchasing choices of drivers who are buying brand new cars by acting as a strong signal at the point of purchase that people can save money by choosing lower-emission cars.

The introduction of first year rates means that cars emitting up to 130 g of carbon dioxide per kilometre will pay no duty on their first vehicle licence. Cars emitting between 131 and 165 g per kilometre will pay the same amount for their first year rate as they will for all subsequent licences. For cars emitting more than 165 g per kilometre, first year rates will be higher than the standard rates applicable on all subsequent licences. Only those new cars with the very highest emissions will pay the top rate of £950.

My hon. Friend the Member for Wolverhampton, South-West (Rob Marris), the hon. Members for Taunton (Mr. Browne) and for South-West Hertfordshire (Mr. Gauke), and to a lesser extent my right hon. Friend the Member for Birkenhead (Mr. Field)—the latter talked about the distributional effect of the measure, and I will deal with that point separately, if he will allow me to—all pointed out that tax measures try to change behaviour, certainly when they are based on trying to incentivise activities that have a smaller carbon footprint. That is a clear way of trying to change behaviour. As my hon. Friend the Member for Wolverhampton, South-West and the hon. Member for Taunton pointed out, the measures are also revenue raisers.

Revenue raising is an important aspect of the part of the Budget documents that we are discussing. The remainder of our debates today are about duties that raise a certain amount of revenue. We must not forget, or lose sight of, the fact that it is perfectly reasonable for Governments to raise revenue with which to finance the things that they do with public money. I often have that discussion with the many people who come to tell me that we should reduce all the taxes that are levied, but who never tell me where we can find the extra revenue that they wish to see spent on whatever is in their interest; in the context of vehicle excise duty, that is often on roads or other infrastructure. I can see the hon. Member for South-West Hertfordshire wriggling in his place; I am happy to let him intervene.

I am far from wriggling. I wish to thank the Minister; she is being very clear, and the Committee appreciates that. The clause is about changes to vehicle excise duty, and that is about raising revenue. Governments have to raise revenue, but does she accept that when the policy—or rather, last year’s policy—was announced, it was very much presented as an environmental policy? However, the Government’s figures suggest that the environmental impact will be very limited.

I hoped that I was saying that there are some taxes through which one hopes to change behaviour, but which also have a revenue-raising element to them. Vehicle excise duty is one of those. Obviously, we wish to change behaviour, and I will talk about that later. We wish to incentivise people to buy cars with a smaller carbon footprint and lower CO2 emissions than those that were on the road in the past.

That is a clear aim, but another aim is to raise revenue. We can do both. As was said earlier, there can be a balance. If a Government are very successful at changing behaviour, they may have to find other ways to raise revenue, because the more successful they are at changing behaviour by giving signals through taxes, the less their tax take will be. As they need to finance public services and everything that our constituents want the public services to provide, such as health and education, other ways must be found to finance them. That balance exists, and is accepted in all parts of the House.

Tax measures are only one means of changing behaviour. Another is regulation, which applies particularly in this instance, as was pointed out by my hon. Friend the Member for Wolverhampton, South-West, with his knowledge of these matters. He mentioned the European Union regulation governing car emissions. We have successfully negotiated increasingly tight limits on emissions to be set for manufacturers. In answer to his question whether 130 g was the correct point at which to allow an effective exemption from first year rates, our judgment is that it is correct at present, but as we always do after every Budget, we will keep an eye on the development of engine technology. We want the incentive to remain taut. As engines become much more efficient, we will review that rate.

The other main way of driving behavioural change and driving down CO2 emissions is through new technologies. The Government have made some significant announcements about how we wish to support the car industry through its short-term difficulties, and incentivise it to be at the forefront of the dash to innovation in energy efficiency and carbon efficiency in engine design and the design of transport generally. Despite the significant progress that has been made in engine efficiency—new cars are 30 per cent. more efficient than 10-year-old cars because of innovation and change—we must recognise that road transport still accounts for 20 per cent. of all UK emissions.

Given that the House passed the Climate Change Act 2008—this year’s Budget contains the first three carbon budgets—we have a legal duty to achieve the huge reduction in carbon emissions that Parliament set us in that legislation. One of the ways in which we must approach that is by dealing with the 20 per cent. of emissions that come from road transport. That means that we must incentivise technological change and innovation, as well as behavioural change.

The changes in the Budget, which my hon. Friend the Member for Wolverhampton, South-West spoke about, form a coherent package to achieve that aim. It includes, as he pointed out, the changes to the tax on company cars, with lower tax for lower-carbon cars, lower rates in capital allowances for the business car regime for lower-carbon cars, and the differential rates of VED that we are discussing. Outwith the Budget process, but of equal importance, there is the £250 million of support to provide incentives for ultra-low-carbon cars, too.

The hon. Member for South-West Hertfordshire talked about scrappage—a term that also passed the lips of the hon. Member for Taunton. The point of the scrappage scheme is not to reap environmental benefits, except in a secondary way, and we have not argued for it as an environmental measure. It is designed to try to put some confidence back into the new car market in a timely and temporary way. That is why it is time-limited—it ends in March next year—and its cost is capped at £300 million. The scheme is explicitly designed to kick-start, from a confidence point of view, the new car market.

The environmental gains, if there are such, will be secondary and consist of the fact that new cars are more energy-efficient than older cars. Therefore, by definition, if an older car is scrapped and replaced with a new, more efficient car, there will be some minor gains. However, I shall not stand at this Dispatch Box and argue that the scrappage scheme is primarily an environmental measure, because it is not designed in that way.

Again, I am grateful to the Exchequer Secretary; she has been very clear with the Committee, which will appreciate the point that she makes. Taking her pointers to the environmental benefit of the scrappage scheme, I should be grateful to know whether there has been any assessment of its environmental downside, in that more cars will be bought. I appreciate that the Government have not presented the measure as principally environmental, but will she examine the environmental minuses as well as the pluses?

We may be able to discuss scrappage in more detail at another stage of the Bill. To answer the hon. Gentleman’s question, however, the point of the scrappage scheme is that to qualify, a car must be scrapped, so we are talking about replacing existing cars with newer, more energy-efficient cars. Clearly, on the issue of whole-life costs, there would have to be an assessment of whether we save on the environmental costs of making new cars, and some work is being done in that area. However, I would not want the hon. Gentleman to run away with the idea that the primary aim of the scheme is anything other than to try to give a temporary, and I think much-needed, boost to a great British manufacturing sector that is in great need of support. That is the point of scrappage.

I shall now deal with the points that my right hon. Friend the Member for Birkenhead made. His argument was hung on an amendment that has not been selected, so we shall not talk about that, except to say that it would definitely be retrospective to try to go back to engine size rather than CO2 emissions as a basis for VED. We were the first country to base vehicle excise duties on CO2 emissions, and six more European countries now do so. We have achieved major reductions in emissions from our car fleet as a result—partially, at least—of that change. It sends good signals to consumers, but we need to improve on and even increase those signals if we are to hit our very demanding targets for averting dangerous climate change. Clearly, that is something in which we all have a direct interest.

My right hon. Friend was right, however, to focus on the distributional aspects of progress in new, greener technology, because, as the Committee on Climate Change, which the House tasked with taking a closer look at these matters, said in no uncertain terms in its report to Parliament, there are often distributional effects when we switch to lower-carbon activities. As a country and as a society, we will not be able to persuade our electorate that we need to make progress and avert climate change if we cannot also demonstrate that we have a fairness agenda. In other words, if there is no fairness for those who are poor and least able to buy new, or shift from existing goods to newer, more energy-efficient ones, we will not get public support for the changes that we need.

My right hon. Friend is therefore right to worry about some of those issues. We have some data that hint at connections, but not in the sort of detail that he would like. Some data suggest that low-income households are more likely to own cars with smaller engines. However, the hon. Member for Taunton was right in his analysis that the poorest do not own cars, so the distributional shape of the tax is not the same as that of, for example, tobacco duties.

We also have data to suggest that the majority of the cars that emit the most carbon are owned by higher-income households. Again, the data are not geographically well represented or spread in the way that my right hon. Friend wanted. I am happy to talk to him to ascertain whether we can analyse the distributional impact of the shift from high to low CO2 emitting cars on the engine pool, and particularly on his constituents and many of mine, who are not always known for going to the latest car showroom and getting the latest model.

My right hon. Friend may also like to correspond with the Committee on Climate Change, which is developing some expertise in the matter, to ascertain whether it can study the issue.

I shall take up the Exchequer Secretary’s offer and her suggestion about others with whom I might make contact. I think that our poorer constituents accept that the Government need to raise revenue, and that they raise it from drivers in different ways. However, their plea is that we take account of the total impact of all the levies that we impose on drivers when we consider the distributional effect. We hope that we will not have a Government who are not green-minded, as my hon. Friend describes this Government to be.

We try to bear the big picture in mind throughout the budgeting process. We do not consider vehicle excise duties in isolation, but alongside other duties. We then examine their distributional impact, so I hope that we can make my right hon. Friend pleased with our fair approach.

The system of CO2 based vehicle excise duty applies to cars registered from 2001 onwards. Cars registered before then continue to pay the duty according to their engine size because we do not have comprehensive data on their CO2 emissions. Clearly, over time, the number of cars in that pool diminishes. Although engine size can act as a proxy for emissions, my hon. Friend the Member for Wolverhampton, South-West gave a few examples of perverse results. It does not, therefore, provide as accurate a measurement of emissions as that used in CO2 based VED: grams per kilometre.

I hope that hon. Members will join me in supporting the clause.

Question put and agreed to.

Clause 14 accordingly ordered to stand part of the Bill.

Clause 16

Rates and rebates from September 2009

I beg to move amendment 13, page 10, line 24, at end insert—

‘(2A) In section 6 (excise duty on hydrocarbon oil) after subsection (1A) (as amended by subsection (2) above), insert—

“(1AA) In every Budget Statement and pre-Budget Statement the Chancellor of the Exchequer must provide a forecast for oil prices and set out anticipated yield from fuel duty and VAT on fuel for that price and for a range of prices up to 50 per cent. above his forecast.

(1AB) The Treasury must, following each such statement, by regulations made by statutory instrument reduce the rates of duty specified in subsection (1A) in direct proportion to the increase in the costs accounted for by VAT.

(1AC) Whenever international oil prices rise above the level estimated by the forecast made in accordance with subsection (1AA), indexed fuel duty increases shall not take effect until the international oil prices return to the forecast level or the forecast price is amended by the next Budget or pre-Budget Statement.”’.

With this it will be convenient to discuss amendment 11, page 10, line 40, at end add

‘, provided that before this date, the Chancellor has published a report examining the costs and benefits of the introduction of an automatic fuel duty stabiliser whereby the rates set out in HODA 1979 vary inversely in comparison to oil prices.’.

The arguments that I want to present have been reprised over many years. Indeed, I have the Hansards of all the debates going back to 2005 and will refer to some of them. On a number of occasions when I have tried to introduce a similar measure, there have been rather different circumstances, with modest, and sometimes significant, price spiking, the consequence of which we have seen.

In 2005, when I first attempted to introduce a similar measure, I pointed out that the price of a litre of unleaded petrol had risen by 6p over six months, to 86p a litre. By the time that we debated the issue in 2008, the price of fuel had gone up to between £1.10 and £1.30 a litre, and on some of the islands, as well as in the more remote rural areas, it was significantly more. Today the price is relatively stable at about 95p a litre and $50 a barrel. Just for hon. Members’ information, in 2008 the price crashed through the $140 a barrel level.

However, there is no certainty that prices will remain relatively low or relatively stable. Indeed, as the world comes out of recession, they might well rise. If India and China regain some of their impetus, there will be increased demand and inflationary pressures. If there is a cold European or north American winter, there will be demand on hydrocarbons and inflationary pressures. There might be supply-side shocks if there is war or terrorism in an oil-producing region, thereby causing the barrel price to rise. If we have natural disasters that take out refining capacity, which has happened before, there might be a significant price rise.

Even without any of those eventualities, which are risks that we can identify, some future prices—for next year’s delivery, for instance—are already 40 per cent. higher than those today. Indeed, I have seen delivery costs for 2015 that are more than 40 per cent. higher than those today. My judgment, which reflects comments made in previous debates, is that it is better to try to introduce a mechanism to smooth out price increases when prices are relatively low and we have relative stability than to wait until prices shoot up again. We must take cognisance of the eventualities that we can predict—we know what has happened in the past three or four years—and take action to mitigate identifiable risks, not least because we know the impact of a prices spike on families and businesses, including the haulage sector and other communities.

In our 2005 debate on this subject, when there was a modest increase, the AA was quoted as saying that, because of the 6p increase over the previous six months,

“individual motorists have seen the monthly cost of petrol for a typical privately owned car rise from £87.43 in January to £94.02 in May. In households with two cars this represents a £13.18 hit on family expenditure each month”.

That was a modest rise, but it was none the less significant over the piece. In that debate, we also learned that bankruptcies among hauliers were running at twice the average for other industries at that time. We must avoid that in future. Hauliers’ average running costs then were 52p a mile and, as was pointed out:

“Competition from hauliers in Europe, driven by lower fuel prices elsewhere, have led to a massive reduction in the percentage share of cross-channel freight delivered and carried by UK hauliers. The industry and, indeed, domestic car users pay some of the highest fuel prices in Europe, driven by some of the highest taxes on fuel in Europe of 69 to 74 per cent.”—[Official Report, 6 July 2005; Vol. 436, c. 361-62.]

We can therefore see the impact that even modest rises have, in terms of additional bankruptcies in the haulage sector.

On the crisis in the haulage sector, does the hon. Gentleman think that the Government’s failure to get to grips with the vignette scheme and ensure a level playing field with foreign hauliers was a contributory factor to the challenge facing hauliers?

It was, but that is wide of this issue, as is the cabotage issue, although I might refer to that later. The hon. Gentleman is absolutely right to say that although fuel costs form a massive part—more than a third—of the cost of running a haulage business, other issues can have an impact on a company’s competitiveness and ability to stay in business.

Our 2006 debate was held less than a year after the 2005 debate, but by that time the price of fuel at the pump had crashed through the £1 barrier in many parts of Scotland. There had been a 20 to 25 per cent. rise in the cost at the pump and that exacerbated the difficulties faced by families and businesses, and by the haulage sector in particular.

We tabled similar amendments for debate in 2008, at which time the reports were quite frightening. The Sunday Herald reported in April 2008 that, out of the average £37,000 a year that it cost to tank up a typical 44-tonne truck, the Government took £25,000 in tax. The same article confirmed that a 20-vehicle haulage business would have to make £30,000 more simply to meet its increased costs, and that was on top of the £30,000 that it had to find for increased fuel costs in the previous year. Within a few months of that report in April and our debate in July 2008, there was a price rise of more than 14p a litre, and the price of oil was expected to reach $140 a barrel.

We know that that had an impact. When Ramage, a haulage firm, went into administration, its administrator cited the high cost of fuel as a contributory factor. Normal families running a single diesel car were facing additional costs of not £13 a month, which they had dealt with in 2006, but £30 a month. A family running two petrol cars was paying an extra £46 a month, or about £500 a year.

May I pick up the hon. Gentleman’s point about hauliers? A number of them have introduced a fuel surcharge and, rather like the airlines, they now add that surcharge to their normal bills. However, the surcharge has not always come down in line with the price of fuel. Has that been drawn to his attention?

It has. The price might not always come down in line with the price of fuel, but I must point out to the hon. Gentleman that many of the surcharges were put in place when the price rises were expected to be modest. They were also capped, and as the cap could not be exceeded, when the price spiked dramatically, hauliers that I know of—I name no names—made a loss.

To bring us right up to date, we have heard about hauliers in difficulty and about bankruptcies. Ramage went bust, as did many others, and fuel costs were cited as a contributory factor. We know from previous debates that hauliers in Campbeltown were selling trucks and laying off drivers. The Freight Transport Association, citing figures released by the Office for National Statistics, tells us that the number of people seeking work as a heavy goods vehicle driver has risen from 3,280 in March 2008 to 15,000 this year. I suspect that that is because of the number of drivers who have been made redundant, rather than because a huge number are training to become hauliers at this very difficult time.

We need to take action. We cannot mitigate all the price rises, because they occur for all kinds of reasons, including because of costs of sale and delivery, but we need to militate against the worst rises, particularly when they are driven by the barrel price of oil. I therefore propose, as I have done before, a simple measure that would oblige the Government to lay out their forecasts and to introduce a statutory instrument to reduce the duty when the price rises. The reduction would be the equivalent of the amount of extra VAT that would be gained due to the increased price at the pump. That amount could come from the VAT windfall or the North sea windfall, because it would be directly related to the price of oil.

The hon. Gentleman has hit on a problem and proposed a solution, but will he enlighten us on one point? His proposed new subsection (1AB) states:

“The Treasury must… reduce the rates of duty”,

but it does not specify the times at which the Treasury must do that. Would it happen every month, every day, or every six months?

I left that open-ended and simply referred to a statutory instrument because I wanted the provision to be practical and workable. It has been argued that the reductions could not be made hourly or daily—or, I concede, perhaps not even weekly. None the less, there must be a mechanism, and the statutory instrument would determine the most appropriate one. It must be responsive without being excessively bureaucratic—it is vital to get the balance right.

Proposed new subsection (1AC) would provide that when the oil price spiked, the normal indexed rises would be automatically cancelled. Decisions on whether to postpone or proceed with an indexed rise should be no longer left to a political whim, but based on the needs of the population, industry, families and the haulage sector.

According to the Federation of Small Businesses, which conducted a poll after the Budget, 80 per cent. of small business men whom it consulted estimated that even the 2p rise in fuel duty would have an adverse impact on their businesses. Its national policy chairman said:

“Small businesses…the engine room of the…economy…have been choked by the Budget…with increases in fuel”.

How much worse would it be for business if the price suddenly spiked above the 2p rise?

The chief executive of the Road Haulage Association has said:

“Many of Britain's road hauliers face being priced off the road by foreign competition benefiting from the new open market for haulage but fuelled with diesel hugely cheaper than can be bought in the UK.”

He added:

“We cannot understand why the Chancellor has turned a deaf ear to our industry’s pleas”.

The Road Haulage Association in Scotland has said:

“At this challenging time the last thing the haulage industry in Scotland needs is an increase in costs. More so now that the cabotage regulations have been relaxed making it easier for European hauliers with lower costs to compete in the UK domestic market…The case for a regulator is as strong now as it ever was”.

We think that amendment 13 represents the right approach and I hope to press it to a Division. As for amendment 11, although the Conservatives have historically resisted its proposals, they changed their minds last year. Their amendment uses different words, but its fundamental objective is the same: not the mitigation of all price rises, but the smoothing out of the spikes. They propose a two-way regulator, whereas mine is open. In other words, they propose reductions in duty when the price rises and increases when it falls. I am relaxed about that, because the purpose is to deliver stability.

The hon. Gentleman refers to a two-way regulator, but although his proposed subsection (1AB) in amendment 13 contains the words “reduce the rates”, the amendment does not make any reference to increasing the rate.

I would leave the statutory instrument to decide that. As I have said, if the SI were to opt for a two-way regulator, I would be perfectly content, because this is about stability, not about who wins political points. As I said in last year’s debate, when the Conservatives changed their minds, I do not care whether we have a fair fuel stabiliser, a fuel duty regulator or the version proposed by the hon. Member for South Thanet (Dr. Ladyman), a former Transport Minister. We need to finalise a deal with families, hauliers and businesses to smooth out price spikes so that we do not experience the shocks to the system that we encountered in 2005, 2006 and 2008.

I think that the hon. Gentleman should deal with the previous intervention in slightly more detail. He seems keen to give the impression that his amendment would benefit motorists and that, by and large, it would lead to them paying less duty. When it is pointed out to him that they might pay more in some circumstances, he is quick to say that all that will be dealt with by a statutory instrument and that we need not consider it at great length now. However, there is a real possibility that if we vote for his amendment, we will be voting for all our constituents to pay more for their fuel than they would otherwise.

I have said four or five times that this is about stability, certainty and smoothing out the unexpected spikes that are so damaging. I know that there are Liberal Democrat Members who have supported that concept in the past. I know that there are others who have more difficulty because of their alleged green policy. If the hon. Gentleman—I say this kindly—wants an excuse not to vote for the amendment, he can have one, but I am putting forward a proposal that is gaining support from other parties. It was massively supported in the real world last year. I hope to press the amendment to a Division. With the greatest respect, I hope that he can see his way to support it, because his constituents would benefit from it.

I now have to announce the result of a Division deferred from a previous day. On the Question relating to the Equality Bill carry-over, the Ayes were 331 and the Noes were 136, so the Ayes have it.

[The Division list is published at the end of today’s debates.]

It is a pleasure to follow the hon. Member for Dundee, East (Stewart Hosie), who rightly set out the concerns that exist about wanting to smooth over the oil price spikes that have an impact on our constituents as petrol and diesel prices increase. I say at the outset that Opposition Members support the objective of ensuring that a greater proportion of taxation is raised by environmental taxes, and fuel duty is the key, principal environmental tax that we have in the United Kingdom.

I wonder whether the Conservative party still supports the idea that that increase in money from green taxes should be put into a separately audited family fund, which was the original announcement?

We want to reduce the tax burden on good things and we would pay for that by increasing the tax burden on bad things. We think that the proportional shift needs to be moved on to carbon and pollution. I am sure that the Minister will be delighted to learn that details of our policies will be made clear in due course.

We recognise that fuel duty is an environmental tax, that it is going to play a part in addressing carbon emissions and that it raises a great deal of revenue for the Exchequer. We do not in any way dismiss it, but we also recognise—I think hon. Members on both sides of the Committee do—that there are times when fuel duty causes considerable pain to our constituents. It does hurt.

We have already heard references to particular groups and rural areas. I know that we will be debating this matter at greater length later, but rural areas particularly feel the pain of higher fuel prices. We know that hauliers feel the pain. All of us can recall, especially those who were in the House at the time—I was not—the hauliers protest in 2000.

We have a dispute, but I think it was 2000. We also know that in the summer of 2008 there was a great deal of concern about fuel prices.

In recent years, the Government have lacked a clear framework on how fuel duties should be raised. They continued the fuel escalator that was brought in by my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke), but that in turn had to be abandoned when it was no longer sustainable. Having stepped on and then off the fuel escalator, there have been times when the Government have announced a fuel duty increase only then to postpone its implementation. At other times, they have introduced unexpected increases, as we see in clause 16 and the announcement to move back on to the fuel escalator with substantial increases in fuel duty both before and after the next general election.

The problem with the Government’s position is the lack of a framework, which is why we opposed their Budget resolution measures. Essentially, we think that the Government policy on fuel duty is unsustainable in the sense that it is not possible to bring along public support unless the oil price remains low. In a period during which the oil price rises, there is a distinct risk that the strength of public opinion will lead to any Government feeling under great pressure to abandon the fuel escalator. We will then be left once again in a period in which there is no stability or certainty about the direction we are going in.

We share the objective of the hon. Member for Dundee, East of trying to address what we should do when there is a spike in the oil price. Our proposal is the fair fuel stabiliser. The intention of amendment 11 is to ask the Government to review how this policy could be implemented, just as we are doing in consulting on the issue. In essence, what we are looking for is a mechanism whereby when fuel prices go up, the fuel duty will fall, and when fuel prices go down, fuel duty rises. It is not a blinding revelation to state that fuel prices hurt people when they are at their highest, and that is when the political pressure in respect of fuel duty is at its greatest. There are a number of advantages of going down this route.

As the hon. Gentleman well knows, the price of fuel was considerably lower at the time of this year’s Budget than at the time of last year’s Budget. Therefore, if this fuel stabiliser had been introduced last year, how much higher would the price of fuel at the pumps be now compared with the actual current price?

I will not give precise figures, as we are consulting on this. The principle the hon. Gentleman puts forward is absolutely right, however: when fuel prices fall, the duty will increase. It will not do so to the extent that the actual fuel price will increase; it will just not fall as much. Equally, when fuel prices are rising, there will still be an increase, but not by as much. This is a stabiliser, but it is not an attempt to fix a price—so that it shall be 97p a litre for ever more, for instance. The price will still vary, but we will smooth out the bumps. I think that that is an objective that the hon. Member for Dundee, East has set out. We have also identified it as a laudable objective, and we think that there is a practical way of achieving it.

What the hon. Gentleman is identifying is the fact that fuel duty is a very crude method of sending an environmental message to motorists. Does he think that, in the long run, the best way of smoothing this out and sending that signal to motorists will be to move towards introducing road user pricing, not fuel duty, as a mechanism? That will also deal with the rural and haulage issues, as well as the level playing field issues.

I note the hon. Gentleman’s point, but I am focusing today on fuel duty. I think we can address that in the short term. There are various issues to do with road pricing, and it needs to be looked at in more detail. I do not want to go too far down that road—whether it is priced or otherwise. I take on board his point, however.

The hon. Gentleman is talking about smoothing out bumps, which I am always in favour of doing, especially when I am doing my ironing. Will he tell us a bit about where he would set the baseline, because that is important? If one is smoothing out the bumps, one has to have a place where one thinks the price is reasonable, and that is a very difficult area of this entire debate. We all have to remember that we are dealing with a very volatile commodity price.

The Exchequer Secretary makes a good point; one of things that we have asked in our consultation is where and how one sets that baseline. It is possible to find a baseline that recognises where the burden falls on the motorist and what an acceptable level is. That is not an insuperable difficulty.

I agree that it is not insuperable. Once the baseline is identified, the real key is the ability to reset it at regular intervals. One of our suggestions was that at the Budget and the pre-Budget report the ticker could be reset, so that if we found that there was a structural increase, the baseline would be reset, whereas if we found just a cyclical change or a spike, it might not need to be reset. The timing is as important as the baseline figure.

The hon. Gentleman makes a good point. I agree that there needs to be flexibility on the baseline and that it needs to be reviewed regularly, but that in no way undermines the stability that could be brought to fuel prices. The stabiliser has a number of advantages. Leaving aside the big advantage that it protects the public from spikes in oil price, it helps price stability as a whole. Fuel prices can contribute to inflation significantly, so the stabiliser would assist the Monetary Policy Committee of the Bank of England in ensuring that its attempts to target inflation were not affected by volatile international markets.

We have some difference with the Scottish National party on how we would pay for and justify our approach. The hon. Gentleman makes the case in his amendment that the Government benefit from increased VAT when oil prices increase and that that windfall can be used to reduce fuel duty. I am sure that the Exchequer Secretary will make the point—that, in itself, does not make it wrong—that consumers then spend less on other things. With an increase in the VAT revenue obtained from fuel, there tends to be a decrease in revenue from other areas. However, there is a link with North sea oil production and the revenue that comes from it. When oil prices fall there is a shortfall in that duty, but when they rise there is an increase in that duty, as the numbers for the past couple of years show. In 2008-09, the revenue from North sea oil increased by 66 per cent. when oil prices were increasing, whereas the revenue will halve for 2009-10—at least that is the Treasury’s estimate—as oil prices fall. That is what happens when fuel prices move in opposite directions. Thus, we believe that over a cycle—over a reasonably long period—this proposal would be revenue neutral, and that we can do things in a more cautious way. The proposal would provide stability to not only personal finances, but the public finances.

The environmental case is that if the price of carbon were stabilised, it would be easier for businesses to plan ahead. Environmental taxes work most effectively when they are kept stable—a point made by the Stern review—and there are no risks of fluctuations in the marginal costs that could increase the total cost of any mitigation policy. As far as our carbon emission target is concerned, it would be beneficial to have a mechanism ensuring that we were not quite so dependent on volatile international oil markets.

Finally, some 20 businesses cover 99 per cent. of fuel sales. They should be able to administer a fuel stabiliser, and we want the Government to investigate whether that would be practical. Consultation would be needed as to how that would work precisely—for example, how frequently it would need to be reset, as the hon. Member for Dundee, East mentioned.

This proposal could be a useful addition to the fuel duty structure—

The hon. Gentleman has not touched on the differential in price in remote areas. How would his stabiliser help those people who are paying 14p, 20p or even 25p more a litre than those in metropolitan centres?

We will turn to the issue of remote areas in the next debate, and I see that the Liberal Democrat Benches are filling up, as they traditionally do at this point in deliberations on the Finance Bill—[Interruption.] My hon. Friend the Member for Poole (Mr. Syms) will have to spread out a little.

Is the hon. Gentleman saying that the Liberal Democrat Benches are filling up because this is an issue about which we care? Should we infer from the state of the Conservative Benches that this is an issue about which the Conservatives do not care?

I think that we should infer that this is an issue on which many Liberal Democrats will be sending out press releases to their local press. I suspect that many Conservative Members will be sending out press releases on amendment 5—

My hon. Friend should take the lack of support as a sign of confidence in his ability to command the Committee.

I am very grateful for that intervention and I am sure that my hon. Friend speaks not only for himself, but for the party as a whole.

We urge the Government to investigate the fair fuel stabiliser with a view to implementing it. Their approach to fuel duty has been ad hoc and haphazard and there is a lack of certainty about where we will be in future. To some extent, the Government are reacting to fuel prices and pursuing a fuel stabiliser policy almost by default—when fuel prices fall, they are bolder in their increases, but when fuel costs rise they hesitate to raise duty. That is understandable, but we think that such decisions should be made within a proper framework. It would be good for inflation targeting, public finance stability and the environment. I hope to have an opportunity to press amendment 11 to a Division.

Thank you, Sir Michael, for giving me the opportunity to speak on this group of amendments. I echo the concerns expressed about the difficulties faced by motorists and businesses when fuel prices rise and when they are high, as well as about the impact on businesses of other higher commodity prices. It is advantageous to businesses and individuals if budgets can be planned in advance; price volatility makes it harder for any individual or organisation to plan to such a level.

I have sympathy for the hon. Member for South-West Hertfordshire (Mr. Gauke). I know that he instinctively believes in free-market economics, yet he has been overruled by people in his party who have required him to come here and give us a sort of reheated 1970s form of socialism. He made a good attempt to argue for it. He said that the Government arrangements were ad hoc and haphazard, but that is called the free market. He seems to want prices to be determined not by supply and demand but by the wisdom of the shadow Chief Secretary to the Treasury. That is not the intellectual case that the Conservative party has made for the past 30 years.

The Conservatives say—this is essentially the point made by the Scottish National party, too—that oil price variants are potentially problematic, which is why they would introduce a fair fuel stabiliser. However, when food prices vary or are volatile, that can be problematic for consumers or businesses. A huge increase in the price of milk or bread has an impact on the bottom line of a catering business, so I look forward to the Conservatives’ fair food stabiliser. What about the effect on businesses when energy prices vary or when gas or electricity prices go up? That will have an impact on nearly all businesses, but it will have a profound impact on those that are particularly energy intensive. When will the Conservatives introduce their fair energy stabiliser? The truth is that they regard those matters as less politically sensitive and, as a result, they do not have stabilisers. That is not because of intellectual coherence, but because they think that it is not electorally expedient.

The distinction is very clear. The majority of the cost of fuel is a duty of tax, but the same does not apply to food or energy. We are not trying to set a price that everyone must sell at or intervening in the contractual relationship between a buyer and a seller with some sort of price policy. We are simply varying that element that is within the Government’s control—the duty—depending on what we think individuals and businesses can bear.

In that case, I look forward to the fair alcohol stabiliser that the Conservatives will no doubt introduce in due course when the core ingredients of beer, for example, go up, as commodities do in the market place.

Both the Conservatives and the Scottish nationalists are extremely coy about the downside of their proposals. I noticed that the hon. Member for Dundee, East (Stewart Hosie) said that the purpose of amendment 13 was to smooth spikes in oil prices. What he did not say—I can only infer that this must be the case—was that he would also smooth out the troughs: that is, that he would put prices up. Otherwise, he would not be smoothing out anything at all. There has to be a downside as well as an upside. The Conservative spokesman, using almost exactly the same language, said that his amendment would smooth out the bumps. That is the difference between the SNP and the Conservatives; the Conservatives deal with bumps, not spikes. Presumably, he would also smooth out the dips at the same time.

My hon. Friend the Member for Argyll and Bute (Mr. Reid), with characteristic diligence, has done some more research into the effects of Conservative party policy. I must admit that I look forward to the Conservatives distributing leaflets on the issue in my constituency—as Michael Ashcroft put so much money into their endeavours, they must be able to afford to do so. Let me run through the effect of their policy. This is not a party political point—it is central to amendment 11.

According to the average UK fuel prices published on the AA website, at the time of last year’s Budget, March 2008, a litre of unleaded petrol cost 106.8p. It cost 118.2p in June, when the House had the opportunity to vote on the Budget proposals. The price rose by 11.4p between the Budget and the vote in the House, which allowed the shadow Chief Secretary to the Treasury to say that the fair fuel stabiliser would cut the cost of petrol by 5p a litre.

However, with his characteristic generosity, my hon. Friend the Member for Argyll and Bute said that he had calculated the saving to the motorist of last summer’s Conservative party policy at 5.7p a litre. That seemed very popular, and people asked me why the Liberal Democrats opposed the policy. They said that the rises in prices were extremely unpopular, and that the Conservatives seemed to have reached a brilliant conclusion. They seemed to know better than the market, and to have an electoral advantage in pursuing that option.

Unfortunately—and this is the twist—petrol prices started to fall rather dramatically just as the Conservatives chained themselves to their policy. I am again indebted to the research done by my hon. Friend the Member for Argyll and Bute, who showed that the price of a litre of unleaded petrol had fallen, according to the AA website, to an average of 90.6p by March 2009. A fall of 16.2p since that year’s Budget was dramatic enough, but the fall from the peak of the market was close to 30p. That peak roughly coincided with the period when the Tories were championing the fair fuel stabiliser most energetically in this House.

What would be the impact on motoring if amendment 11 were agreed to? I have done a calculation, and I am afraid to say—this will come as a shock to hon. Members across the Committee—that the amendment would impose a crippling rise in duty on every motorist in the country.

The Conservatives may have keen environmental reasons for wanting to increase petrol prices so markedly but, if they do, I do not understand why they should be so coy about them. I hope that the hon. Member for South-West Hertfordshire will tell us why his party is not selling the policy with vigour, because I am about to explain what its impact would be.

As I said, at the time of last year’s Budget, a litre of unleaded petrol cost 106.8p, but that had fallen to 90.6p by March 2009. If amendment 11 had been in operation at that time, it would have brought about an 8.1p increase in fuel duty. To be fair, the Government raised fuel duty by 2p in December 2008 and by a further 1.84p in April 2009, so it seems only reasonable to take those rises away from the figure that would otherwise form the basis of the calculation. If a provision equivalent to amendment 11 had been passed last year, motorists would have had to pay an extra 4.5p, approximately, for a litre of unleaded petrol over and above what they in fact have to pay at the pump at present.

That would have been the impact of the Conservative amendment. One could call it smoothing out the bumps, or putting up the price of petrol for motorists across the country. The Scottish National party has a variant on that, and it is perfectly honourable for both parties to take that approach, but they should be explicit about their intentions.

My hon. Friend the Member for Dundee, East (Stewart Hosie) made it clear that the object of the exercise was to get rid of spikes in prices. Does the hon. Gentleman understand how the haulage industry works? The fact that hauliers use long-term fuel contracts that cannot reflect price spikes has caused many companies, especially those in rural areas, to run into difficulties. The hon. Gentleman mentioned food stabilisers, but in Scottish rural areas—such as my constituency or the areas represented by the hon. Members for Argyll and Bute (Mr. Reid) or for West Aberdeenshire and Kincardine (Sir Robert Smith)—everything comes by road because there is no alternative. As a result, fuel price rises feed through to ordinary goods, hitting shops, pubs and every small business in towns and villages throughout our constituencies. Stabilisation will get rid of the massive spikes in fuel prices, and the difficulties associated with them.

I completely accept the hon. Gentleman’s point on the haulage industry and the costs added to other goods, but my point is that the stabiliser does not just smooth out the spikes. That is what is so disingenuous about the claims made for amendments 13 and 11. If he had intervened to say, “The measure will smooth out the spikes but, to be honest, we—the SNP—will tell hauliers that, if there is a drop in prices, we will require them to pay more than the market rate,” I would understand it. That would be a perfectly noble and fair policy—it might even be revenue neutral. However, the Conservatives and the SNP cannot argue one side of the equation and not the other—well, they can, but not in a way that is intellectually compelling.

For a party such as the Conservatives, who, when they are addressing business audiences, claim that they believe in free market economics, it is not intellectually consistent to say in the House of Commons that free markets are far too “haphazard” and, in fact, Government know best. That is intellectually dishonest. It is honourable to tell the electorate the consequence of policy, and the consequence if the amendments are made today will be that motorists pay more for their driving. By our calculations, they will pay approximately 4.5p per litre more, and that—

I am bringing my remarks to a conclusion.

That would have a serious impact on motorists. It is only reasonable that the parties point that out in this Committee and to our constituents.

We have had a most illuminating debate. I shall add to the questions that have been well put by the hon. Member for Taunton (Mr. Browne) about the other side of the Conservative policy, which has not been the subject of press releases or announced with all the fanfare to which the original proposal was treated, when it was calculated that a 5p cut in fuel duty would be the result. I wonder why we do not see similar press releases when, as oil prices fall, the policy would result in increases in duty. I have seen no press release boasting about that, or front-page newspaper coverage of how the Conservatives would put fuel duty up—by 4.5p, if their so-called fuel duty stabiliser is applied to the current oil price.

I have to acknowledge the persistence of the hon. Member for Dundee, East (Stewart Hosie), who has been raising this matter since long before I arrived on the Treasury team as Exchequer Secretary—and he has the Hansards to prove it. We certainly congratulate him on his persistence. The Conservatives were latecomers to the party—quite late, given that they voted against the hon. Gentleman’s amendment to the same effect to last year’s Finance Bill. They were converted, perhaps on the road to Damascus, but certainly on the way to Report stage, when the mathematics looked good. They produced their consultation document, but since then, everything has gone terribly quiet. The Conservative consultation closed in December, but no consultation summary has been produced and no further announcements have been made.

Does the Minister agree with my observation that the moral of the story for Opposition parties is that they cannot be governed solely by the need to put out good press releases? They must also come up with intellectually robust policies, which would work in practice and in office.

I could not agree more with the hon. Gentleman. When the press release looked good, it was generalised into a policy, which featured in Report stage of last year’s Finance Bill. That was followed by a consultation, but then—funnily—everything went quiet because the oil price started to plummet, which the Conservatives were not expecting. With prices going only in one direction—down—their arithmetic looked rather difficult. It is interesting to note that this year, unlike last year, we have an amendment that asks us to produce the information needed to justify the Opposition’s policy. Presumably, the Conservatives’ consultation paper has come up with some of this, although we have not been allowed to see the results and we have had no further announcements even on how this policy has evolved, if I may put it that way, in the interim as the oil price continues to plummet.

The fact that the oil price has done something unexpected—something that perhaps could not have been predicted at the height of the spike last year—shows precisely the problem with seeking to take the volatility out of what is, after all, a commodity that is traded in a completely free market and has notorious price fluctuations. They are always very difficult to predict with any degree of certainty. Oil prices can be affected by sudden events—weather events, political instability in a particular area and a whole range of other things. It is very difficult to stabilise something so volatile.

I am grateful to the Minister for her brilliant lecture in free market economics, which I am sure will be beneficial to the Conservative Front-Bench team. Is it not also important to acknowledge that, at the time it happens, it is hard to know whether one is dealing with a spike or a broader trend that may or may not come to represent a spike retrospectively? We keep hearing about spikes, but at the time, one does not know whether it is really a spike or part of a long-term trend.

That is right. I dare say that even Nostradamus could not tell whether a spike was a spike or part of an ongoing upward or downward trend.

That brings us on to important issues about how on earth a baseline could be set and what behavioural effects it would produce. I want to go into some detail here, as these issues keep coming back and many of the practical difficulties with such proposals are skated over by those who make them as if they were really not a problem. I submit that they are.

Before I do so, however, let me say on free market economics that there are very few even socialist theorists who would suggest that commodity prices were somehow controllable—certainly not on the global level—as the Tory Front-Bench team now seems to want to suggest. I particularly enjoyed hearing the observations of the hon. Member for Taunton about the range of stabilisers that might be forthcoming if this particular approach to world commodities were to catch on.

Amendments 11 and 13 are designed to make provision for a new fuel stabiliser or regulator mechanism that would reduce the main fuel duty rate when international oil prices exceed their forecast levels. One has to think about what those forecast levels would actually mean in this context. In amendment 13, the hon. Member for Dundee, East seeks to establish a system directly, while in amendment 11, the Conservative Opposition have suddenly become much more coy than they were last year: they ask us only to prepare a report, rather than having the courage of their convictions in the consultation paper and actually tabling a specific amendment to the Finance Bill. We have not seen such an amendment, so I detect a retreat from the direct implementation of their fuel duty stabiliser policy as it was announced last year. It has now become a meek request for us to prepare a report rather than being a direct amendment to the Finance Bill.

Both the amendments argue that such a mechanism would stabilise fuel prices at the pump by offsetting the impact of oil price fluctuations, but the mechanism is based on the incorrect premise that the Government receive a revenue windfall from high crude oil prices, which can be used to make up the difference in Exchequer revenues as fuel duty revenues fall. In fact, such a mechanism would destabilise the public finances—the opposite of the intended effect—by producing wild swings in duty rates, and pose significant administrative problems to both the Government and fuel producers.

How can the Government determining to spend some of the revenue yield have any impact whatever on fuel producers? The argument is wholly spurious. The proposals have no bearing on fuel producers whatever.

First, I will deal with the point about the so-called windfalls, which do not exist. Secondly, the hon. Gentleman’s mechanism is about VAT, but the other mechanisms under discussion are, as far as we can tell, about the income we purportedly get from North sea oil when prices rise.

May I read to the hon. Lady paragraph C.46 from the Red Book? It says:

“The surge in oil prices up to mid-2008 is reflected in North Sea revenues of £12.9 billion in 2008-09, up 66 per cent on the previous year.”

The next paragraph states:

“North Sea revenues are expected to almost halve in 2009-10.”

To use her expression, that is wildly fluctuating, but it is fluctuating in the opposite direction to fuel duties. We argue that the two can be balanced out.

I will explain why that is not the case, and why the proposal will produce perverse results. When oil prices rise, the premise is that the Government receive a windfall from either increased North sea tax revenues or greater revenues from VAT on fuel. As I argued last year, however, that is not the case. Although high oil prices might push up revenues from North sea oil taxes, there is no automatic link, as the significant increase in costs for oil companies that accompanied the last price spike showed. The impact of high oil prices on the wider economy means that the increase in North sea revenue is offset by falling revenues elsewhere for the Government. Lower GDP growth and higher energy costs reduce the yield from income and corporation taxes, while higher fuel prices lead to lower fuel consumption and lower revenues from fuel duty. For example, in 2008-09, when oil prices reached record highs in the summer, fuel duty receipts were £300 million below their 2007-08 level. In that sense, there is no windfall. [Interruption.] It is easy for Opposition parties to spend windfalls, but they do not exist as net windfalls for Government revenues, as I have just demonstrated.

Turning to VAT and the alleged windfalls that form the basis of the Scottish National party’s regulator mechanism, high fuel prices at the pump do not produce an overall increase in VAT receipts. When consumers have to pay more for fuel, they tend to buy less of other goods, thereby paying less VAT elsewhere. To prove that, in 2008-09, when crude oil prices and fuel prices reached record levels, total VAT receipts were almost £2 billion below their 2007-08 levels. Again, Opposition parties are trying to spend windfalls that do not exist in net form for Government receipts. They are trying to attach automatic mechanisms that would oblige us to spend windfalls that we do not have. Such distortionary effects on public spending would do great damage and achieve the opposite of stability—volatility, with large, sudden holes in public finances, which could be avoided without such mechanisms.

As well as that fundamental objection to the principle of the fuel duty regulator, there are also serious practical problems with its implementation. Under the proposed Scottish National party mechanism, the Chancellor would produce at each Budget an oil price forecast for the coming year, which would act as what is described as a baseline price. Fuel duty rates would be reduced when oil prices rose above that baseline, and would rise when oil prices fell below it. We should take a bit of time to focus on how important the baseline—and the amount at which it was set—would be. It would have a real effect on tax duties, yet it would be very subjective.

I am fascinated by the process by which the Minister thinks that the baseline would be arrived at. Is it something about which Lord Hattersley, or other people with expertise in Government intervention from the 1970s, would be able to advise the Conservative party?

I suspect that Gazprom, or some of the more centralised old Soviet planners, might be able to take a view on the correct baseline for oil. I must confess that I do not know how one could set that baseline, other than very subjectively. What would be a fair baseline price? The process of determining the baseline would be likely to be highly arbitrary, and therefore open to frequent challenge. The Government would have a constant incentive to set the baseline higher, and motorists and other organisations would call for it to be lower, because that would have an effect on whether prices went up or down.

Last summer, the Opposition appeared to suggest that the Budget forecast should be used as a baseline, but as is well known, oil prices can be volatile and difficult to predict. I suspect that if the Conservative party had predicted oil prices, and had known what was to come, it would not have released its press release and developed its so-called fuel duty stabiliser. It is certainly indisputable that in recent years, forecasts of the price of oil have been subject to wide margins of error. In Budget 2008, the average of independent forecasts, which is what we use for the Red Book, was just below $84 a barrel, yet within four months of last year’s Budget, oil prices had reached a record peak of just over $146 a barrel. Another four months later, by the time of the 2008 pre-Budget report, oil prices had fallen by more than 60 per cent. to below $50 a barrel. After further fluctuations in the first few months of this year, on Budget day 2009, the Brent crude price closed at $49.81 a barrel.

According to information from the Conservatives outlining the policy for their so-called stabiliser mechanism, a $6 per barrel shift in the crude oil price would result in a 1p per litre adjustment to the fuel duty rate, yet as my right hon. Friend the Chief Secretary pointed out on the subject last year—she is here, listening to the debate with great interest—crude oil prices frequently moved by more than $6 a barrel in a single day. In the past year, the oil price moved by more than $12 a barrel on five occasions in the course of a week.

Instead of a change being triggered by a $6 difference in the oil price, one could, I suppose, adjust fuel duty at certain set points throughout the year, as the Conservatives originally suggested, but there would then be a significant risk of a market distortion. If the crude oil price were to be regularly compared against the baseline price, it could offer oil traders incentives to bid up the oil price before each assessment date, in the hope of artificially engineering a lower fuel duty rate. Gaming takes place when there are such things to predict and bet against, as I am sure the hon. Member for South-West Hertfordshire (Mr. Gauke) knows.

Speculation that the duty rate was about to change as the assessment date approached could encourage forestalling activity to avoid duty, producing yet further instability. Overall, frequently changing the rate could impose significant additional administrative burdens on fuel producers.

I am interested in this point, because amendment 11 asks the Chancellor to undertake research. As the Minister rightly said, the report from the official Opposition has been suppressed, and it is now the task of the Treasury to try to undertake that research. Can she give me an assessment of the cost of undertaking that research, and tell me what the administrative burdens will be on retailers, specifically petrol retailers, who might find it impractical if the price is adjusted every single day as a consequence of the stabiliser? Such retailers may also find that the system has a detrimental impact on employment.

Depending on how the so-called stabiliser was applied, those would clearly be important issues. I look forward to seeing the results of the Opposition’s consultation, where they will no doubt set out these issues out in great detail so that we can make an even more detailed judgment of their policy.

Fuel prices do not immediately alter following adjustments in the oil price. If fuel duty were altered on a monthly or bi-monthly basis, it would be highly unlikely to result in a constant fuel price, as oil prices often rise and fall at very short notice. If the stabiliser were to alter on a six-monthly basis, it might not respond to oil spikes at all.

For example, imagine that in 2008 the Budget oil price forecast of $84 a barrel had been used as a baseline, but the fuel duty rate was adjusted only every six months, on 1 April and 1 October, say. On 1 April 2008 the Brent price was $100 a barrel, but on 1 October 2008 the Brent price was $95 a barrel, so had a stabiliser been operating on a six-monthly basis, it would barely have changed, yet we would have had the huge spike in the middle, with no response to it whatsoever. That is a funny definition of stability, or lack of bumps, so to speak.

Even that is an optimistic reading of what the Opposition have proposed. A close reading of pages 3 and 4 of their consultation document, which they put out last July, suggests that their so-called stabiliser might be based on fuel prices rather than oil prices, which is another odd way of doing it. If we were to interpret the Opposition’s proposal in this way, today’s average petrol price figures quoted from the same source as they used,, would mean that the fuel duty stabiliser would put an immediate 5.5p on the price of unleaded fuel. If such a mechanism were introduced in the future, there would be potential for significant gaps in the public finance forecast.

It is clear that these proposals are populist. They would not work in practice, they achieve the opposite of what they claim on the tin, and they do not achieve stability at all. They achieve unreliability and great volatility. I therefore hope that the House will vote against them.

The Minister has spoken for some time. In her usual generous way, she explained the Government’s position carefully. At the beginning she spoke about persistence. That is correct. We recognised that there is a problem. She also criticised the concept, and at one point spoke about trying to manipulate commodity prices. The price of oil, the commodity, may drive the policy, but there is no attempt at all to manipulate the commodity price. The amendment is designed to smooth out the price at the pump as a consequence of movements in commodity prices.

The Minister also spoke about VAT. We have not spoken of a VAT windfall. We have spoken of a value equivalent to the increase in VAT, which would be generated by an increase in the price at the pump. That is a perfectly reasonable measure to use.

The hon. Member for Taunton (Mr. Browne), who speaks for the Liberals, made a number of spurious claims. He ignored the ability to reset the baseline, which was vital. He chose a starting point for his example which, if not random, was certainly chosen to—

If it was the hon. Gentleman’s calculation, he should have known better. I am going to rush through this quickly.

Order. The hon. Gentleman must remember that it is my task to decide whether hon. Members are allowed to stand up or sit down in the Chamber.

Thank you, Sir Michael. [Interruption.] The hon. Member for Argyll and Bute (Mr. Reid) indeed chose a rubbish starting point.

I recognise that, as the Minister said, the price cannot be fully stabilised. The argument is that it is simply smoothed out. The Government’s other argument was that it would be difficult to determine whether a change was a spike or a structural change in the price. The whole point about setting regular dates when the measure would be revisited—and about allowing for that flexibility—is to ensure that we identify whether there is a real spike, an upward trend or a systemic or structural change to the price.

We need to do something about the issue and take action. I have heard the criticisms and arguments from the Exchequer Secretary and her hon. Friends, because she, too, has been persistent for many years. However, in the absence of a Government alternative or, even, any recognition of the real difficulties for families, businesses and hauliers, I beg leave to press my amendment to a Division.

Question put, That the amendment be made.

I beg to move amendment 5, page 10, line 39, at end insert—

‘(8A) After section 14F insert the following—

“14G Remote rural fuel discount scheme

(1) The Treasury shall by regulations provide for the introduction, by no later than 1 April 2010, of a remote rural fuel discount scheme.

(2) The purpose of the scheme is to provide a rebate on road fuel duty at qualifying retail outlets in qualifying areas to reduce the premium paid for fuel in such areas over the national average.

(3) Qualifying retail outlets under subsection (2) are outlets located in qualifying areas meeting any criteria as defined under subsection (4).

(4) Qualifying areas are remote rural areas as may be defined by regulations under subsection (1).

(5) Regulations under subsection (1) may—

(a) specify the amount of the fuel duty rebate;

(b) define ‘remote rural areas’;

(c) define qualifying retail outlets, including any restriction;

(d) specify how the rebate is to be applied, including—

(i) authorising HMRC to define procedures and conduct audits, and

(ii) how any administrative costs are to be defrayed;

(e) provide for it to be an offence for a person fraudulently to supply or sell rebated fuel other than as proscribed by these regulations;

(f) provide for a system of registration of eligible retail outlets; and

(g) provide for the scheme to be administered in Scotland by the Scottish Executive, in Wales by the Welsh Ministers and in Northern Ireland by the Northern Ireland Executive.”.’.

I am delighted to move amendment 5, which stands in my name and that of several of my hon. Friends. Hon. Members will notice that this amendment is similar to amendments that have been tabled by hon. Friends on the Liberal Democrat Benches in previous years, and I make no apology for returning to the subject this year. The aim of the amendment is to tackle the continuing unfairness of the fuel premium that drivers have to pay in remote rural areas. This serious problem has a severe impact on the economy of those areas on the mainland and on all our islands.

The hon. Gentleman will be aware that, in constituencies such as mine and his own, we pay more tax per litre of fuel than in any other part of the United Kingdom. That anomaly should not continue, and a fuel duty regulator is urgently needed by our island communities so that our taxes can be fair, equal and level across the country.

The hon. Gentleman is absolutely right to say that his constituents and mine pay more tax on our fuel than people in the rest of the country. The way to tackle that is through the proposal in our amendment for a rural fuel discount.

People who live in remote rural areas suffer a triple whammy on their fuel. First, by necessity, they have to travel long distances. Secondly, the price of fuel is higher than in urban areas. Thirdly, there is a complete lack of public transport. The premium that people in remote areas have to pay for their fuel varies. I will give some examples that compare the prices in my own constituency with those charged in Glasgow. Close to the eastern boundary of my constituency, which is closer to Glasgow, the price tends to be 1p or 2p a litre higher than it is in the city. Moving to the furthest part of the mainland from Glasgow, the price differential around Campbeltown, down at the tip of the Kintyre peninsula, was 6p a litre more than in Glasgow the last time I checked. The price tends to be even higher at some of the small filling stations in the more rural parts of the mainland.

On the islands, the price differential in Rothesay on the Isle of Bute was 5p a litre when I checked recently. That is bad enough, but the price differential becomes far larger on the Atlantic islands. On the larger islands such as Mull and Islay, the price of fuel is usually about 15p a litre higher than in Glasgow, and as much as 30p higher on smaller islands such as Coll and Colonsay. That price differential, which has to be paid by local people going about their ordinary daily lives and by local businesses, makes daily life and running a business much more difficult in those areas.

I am grateful to the hon. Gentleman for giving way again; he is most kind. When I first raised this issue with the Treasury three years ago, I was told that if a fuel duty regulator such as that proposed in the amendment was brought in for the islands, people would travel from places such as Glasgow to buy fuel in Stornoway, Benbecula or Barra. That was clearly nonsense, and the hon. Gentleman’s proposal represents at least a step towards the kind of parity that is sadly lacking at the moment, as we can see from his figures.

The hon. Gentleman is absolutely right. The Treasury has certainly used that argument in relation to the mainland, although even Treasury Ministers have not tried to argue that that would be the case for the islands. I will describe later how that supposed pitfall can be overcome on the mainland. Clearly, no one would pay the extortionate fares charged by Caledonian MacBrayne to go to the islands in my constituency.

The hon. Gentleman is tempting me, but he knows perfectly well that the Scottish Government treat my constituency much less fairly than his. However, I shall return to the subject of the debate before you intervene, Sir Michael.

In remote areas, the car is an essential, not a luxury. Let us consider the purpose of the high fuel duty. One argument that the Government put forward is that it is designed to encourage people to change their behaviour and to use public transport instead of their cars. However, that fails completely in remote rural areas because of the complete lack of public transport alternatives. No environmental purpose would be served by local councils in remote areas subsidising more buses, because they would be running with only one or two passengers, and a couple of passengers on a bus are clearly a great deal less environmentally friendly than people using a car.

Is my hon. Friend aware that Royal Mail, in its pre-privatisation mode, has slashed post bus services in many of our constituencies? As a result, there are now no post buses, and no bus services of any kind, on the north coast of Scotland.

Royal Mail is also removing two post bus services in my constituency, on the islands of Colonsay and Lismore, thus causing more difficulties for local people and visitors alike.

To add insult to injury, as well as paying a higher price for their fuel, people pay more to the Exchequer in tax because the higher price means that VAT is higher as well. A basic principle of taxation is that it should be equitable, but it is clearly not equitable for an area to pay more VAT than is paid in other parts of the country. What makes the position even more perverse is that fuel costs are lower in areas with public transport alternatives than in areas with none.

My hon. Friend is making a strong case. As he has pointed out, a key element of the problem is that it is harder to run businesses and other services in some rural areas. Although some may view such areas as prosperous, wages are often very low, and the economy is under threat for all sorts of other reasons.

I am not sure whether my hon. Friend has been reading my speech over my shoulder, but I was about to make that very point. In the highlands and islands, incomes are much lower than in the rest of the country, but the Treasury is asking people there to spend far more on fuel and to pay more tax on it. Fuel represents a greater share of disposable income in the highlands and islands in the first place.

The purpose of amendment 5 is to identify a workable solution to the problem: reducing the premium that people are paying for their fuel in remote rural areas. On previous occasions, the Chancellor and other Treasury Ministers, including the Exchequer Secretary, have expressed sympathy and a desire to look at the evidence. As a result, my hon. Friend the Member for Caithness, Sutherland and Easter Ross (John Thurso) produced a paper, a copy of which I have with me. My hon. Friend circulated the paper, sending it to, among others, the Chancellor, and the amendment is based on it.

Scottish national statistics include what is described as the eightfold urban-rural classification, which is shown on a map in my hon. Friend’s paper along with the definitions. I understand that similar definitions exist in other parts of the United Kingdom. The Treasury could use various classifications depending on exactly where it wanted to target the scheme, but in Scotland I should prefer it to include all the islands as well as two of the mainland classifications: very remote rural areas with a population of under 3,000 and more than a 60-minute travel time to a settlement with a population of over 10,000, and very remote small towns with a population of between 3,000 and 10,000 and more than a 60-minute travel time to a settlement with a population of over 10,000. Other definitions could be used, however, and the amendment allows the Treasury to define the area to be covered by the scheme in regulations.

So it is perfectly possible to define the area to be covered by the scheme, but we also need—and the amendment provides for—a simple method of passing the tax rebate through the system. To do that, we need only designate the retail filling stations. Different filling stations would be eligible for different levels of discount depending on where they were situated. Obviously, a far higher discount would apply on islands than on remote parts of the mainland.

All motorists using those filling stations would benefit, whether they be locals, tourists or people visiting on business. The scheme works for all of them. If we agree that retail petrol stations are to be designated, all that will then be required is a robust system with an audit trail to ensure that the rebate is passed to the consumer and is accounted for in a way that ensures that there is no fraud. My hon. Friend’s paper uses the VAT system to ensure that. There are details in the paper. I will not go through them all today but that paper has been made available to the Treasury and was circulated to any hon. Member who was interested. The paper provides for a robust audit to ensure that the rebate arrives at the pump and benefits the motorist at the pump.

In previous discussions the major criticism that Treasury Ministers have always made of the scheme is on the issue of cross-border exploitation. They expressed the fear that motorists might cross a border to get cheaper fuel, but those who know the geography of remote rural areas—

As my hon. Friend says, The Daily Telegraph clearly does not. That perhaps indicates that people based in London often do not understand the daily problems of life in the highlands and islands of Scotland.

The fear has been expressed that someone might cross a border to get cheaper fuel.

I think that the point about borders needs to be nailed down. In my case, if someone is to cross the border to get to Shetland, it is going to require a 12-hour ride on a ferry from Aberdeen, and the petrol would probably still be more expensive than in Aberdeen. How many people does my hon. Friend think are likely to cross that border?

The answer is zero. No one is going to take the ferry from Aberdeen to Orkney or Shetland to benefit from cheaper fuel. The same would clearly apply to any ferry journey. Even with the cheap ferry fares to the Western isles that people can pay now, it would not make sense for anyone to travel there for that reason, and certainly not in the case of the extortionate ferry fares that the Scottish Government charge to my constituency.

If the amendment were passed, at least the tourists who travelled to that area would face the same costs as they would if they chose to be a tourist elsewhere in the country. It would be fairer for the economy of the area in developing its potential as a tourist destination.

My hon. Friend makes an important point. At the moment, tourists are often put off returning to remote rural areas. When they get there, often they express outrage at the cost of fuel and say that they will not come back, despite the beautiful scenery. As for the islands, there is no argument that the scheme could be defrauded.

The hon. Gentleman is making a good point. Does he accept that one of the problems for those of us who represent rural areas is that petrol companies already offer a highly differentiated system of charging to individual garages or petrol stations. I would want some assurance that those petrol companies would operate with total transparency, so that we then knew what they expected motorists to pay. In my area I have one garage, which just happens to be within the area of Cheltenham, that is able to offer fuel at a much lower cost than that charged by every other local garage, and that cannot be fair.

The hon. Gentleman is right and I thank him for that intervention. The paper that my hon. Friend the Member for Caithness, Sutherland and Easter Ross has written goes into such charging in detail and makes it clear that there must be a detailed audit trail to make sure that the discount is passed on to the motorist at the pump.

As for the mainland, attempts to commit fraud there would be similarly impractical. The important point about our scheme is that the fuel discount would be set at such a level to reduce the extra costs that motorists are paying at the pump compared with urban areas, but it would not eliminate them entirely. Therefore, the price of fuel would still be slightly higher in remote parts of the mainland than in urban areas but the current obscenely large differentials would cease to exist. As a result, there would be no point in a motorist travelling a long distance—from Glasgow up into the highlands, for instance—to buy fuel, because it would still cost them more in the highlands than in Glasgow. However, those travelling to remote areas would benefit in any case, and tourists would be more likely to return rather than being put off from doing so by the current high fuel prices.

In the amendment, proposed new subsection (5)(g) provides for the Treasury, after it has agreed to the scheme, to devolve it and permit the Scottish Government, Welsh Assembly Government and Northern Ireland Executive to operate it in their own jurisdictions.

This workable scheme tackles a genuine and serious problem—remote rural areas suffer from high fuel prices, and have no public transport alternatives. It is clearly ridiculous and unfair that people in those areas pay more tax on their fuel than people in urban areas. The amendment would right an obvious wrong, and I urge the House to support it.

I am grateful to the hon. Member for Argyll and Bute (Mr. Reid) for tabling this amendment. Such discussions are, it is fair to say, a regular event for those of us who have dealt with a few Finance Bills; indeed, I sometimes wonder whether it is a constitutional obligation that we debate a remote rural fuel discount scheme during our deliberations on the Finance Bill. Such debates provide a good opportunity for some Members to highlight what is clearly an important issue for the areas that they represent—the higher fuel prices that their constituents experience. I also recognise that in many remote rural areas public transport is very limited. Some people work in areas where using their own vehicles is a necessity—and they are very often vehicles that are not as efficient as others, because they are dual-purpose. For those reasons, it is understandable that Members should wish to highlight this issue.

I have some concerns, however; again, I think it is part of the routine on these occasions for both the Government and the party aspiring to government to raise one or two practical concerns, and I shall do so during the course of my brief remarks. One thought that crossed my mind is that, essentially, what the hon. Gentleman and the other supporters of the amendment—including those on the Liberal Democrat Front Bench—want to do is manipulate the price paid at the pump in order to bring down the price in remote rural areas. I do not support that idea, because the way that such things are done is by reducing tax, but—unless I am missing something—based on the logic of what we heard in the previous debate, presumably there are some who think that this is an attack on the free market. As I have said, that is not my position, but I look forward to hearing the comments of the hon. Member for Taunton (Mr. Browne).

I shall give way to the hon. Gentleman. I am not sure whether he was present for the previous debate, but if he was, he will have heard that any attempt to lower the price paid at the pump is an attack on free markets.

I was present for the contribution of my hon. Friend the Member for Taunton (Mr. Browne); in fact, I am distraught that the intervention I made on the hon. Gentleman himself had so little impact that he has forgotten it already. What I wish to say to him now, however, is that there is a distinction to be drawn between a properly operating free market, which is what we were talking about earlier, and a failed market, which is the case with fuel prices in the highlands and islands. Does he agree with his colleague in the Scottish Parliament, Alex Johnstone, who in a debate a few weeks ago, said:

“I assure members that we are not opposed in principle to the proposal in the motion”—

that is the same principle and the same sort of proposal as is before us today—

“and will not oppose it.”—[Scottish Parliament Official Report, 30 April 2009; c. 16931.]?

First, I seek the hon. Gentleman’s forgiveness for failing to remember that he made an intervention that, on second thoughts, I realise was memorable. Secondly, we will not oppose the amendment, just as we have not opposed this proposal in any of the previous years when it has come up. We are not persuaded by the amendment, so we shall abstain—assuming that the hon. Member for Argyll and Bute presses it to a Division—but that is consistent with the comments made by my friend in Scotland.

I am being provoked by the hon. Gentleman. Is there not a distinction between believing that it is not suitable to set oil prices for the whole country in a Whitehall Department, which is what I understood him to be arguing in the previous debate, and this amendment, which recognises that additional costs are incurred in sparsely populated areas? The same recognition applies to the greater sum given per pupil to small primary schools in remote rural areas because of the lack of critical population mass. That is nothing to do with free markets; it is just a realisation of the difficulty in providing for low-density populations.