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Finance (No.2) Bill

Volume 518: debated on Monday 8 November 2010

Consideration of Bill, as amended in the Public Bill Committee

New Clause 1

Video game production

‘Schedule [Video Game Production] contains provision about tax relief for the production of video games.’.—(Mr Hanson.)

Brought up, and read the First time.

With this it will be convenient to discuss

New schedule 2—Video Game Production

1 After section 1216 of CTA 2009, insert—

Part 15A

Video Game Production

Chapter 1



1216A Overview of Part

‘(1) This Part is about video game production.

(2) Sections 1216B to 1216G contain definitions and other provisions about interpretation that apply for the purposes of this Part. See, in particular, section 1216C which explains how a company comes to be treated as the video game production company in relation to a video game.

(3) Chapter 2 is about the taxation of the activities of a video game production company and includes—

(a) provision for the company’s activities in relation to its video game to be treated as a separate trade, and

(b) provision about the calculation of the profits and losses of that trade.

(4) Chapter 3 is about relief (called “video game tax relief”) which can be given to a video game production company by way of additional deductions to be made in calculating the profits or losses of the company’s separate trade.

(5) Chapter 4 is about the relief which can be given for losses made by a video game production company in its separate trade including provision for certain such losses to be transferred to other separate trades.

(6) Chapter 5 provides—

(a) for relief under Chapters 3 and 4 to be given on a provisional basis, and

(b) for such relief to be withdrawn if it turns out that conditions that must be met for such relief to be given are not actually met.


1216B “Video Game” etc

‘(1) This section applies for the purposes of this Part.

(2) “Video Game” includes a game played by electronically manipulating images produced by a computer program on a display screen.

(3) A video game is completed when it is first in a form in which it can reasonably be regarded as ready for copies of it to be distributed to the general public.

1216C Video game production company

‘(1) For the purposes of this Part “video game production company” is to be read in accordance with this section.

(2) There cannot be more than one video game production company in relation to a video game.

(3) A company that (otherwise than in partnership)—

(a) is responsible—

(i) for design, programming and production of the video game, and

(ii) for delivery of the completed video game,

(b) is actively engaged in production planning and decision-making during design and programming, and

(c) directly negotiates, contracts and pays for rights, goods and services in relation to the video game,

is the video game production company in relation to the video game.

(4) If there is more than one company meeting the description in subsection (3), the company that is most directly engaged in the activities referred to in that subsection is the video game production company in relation to the video game.

(5) If there is no company meeting the description in subsection (3), there is no video game production company in relation to the video game.

(6) A company may elect to be regarded as a company which does not meet the description in subsection (3).

(7) The election—

(a) must be made by the company by being included in its company tax return for an accounting period (and may be included in the return originally made or by amendment), and

(b) may be withdrawn by the company only by amending its company tax return for that accounting period.

(8) The election has effect in relation to video games which commence design in that or any subsequent accounting period.

1216D “Video game-making activities” etc

‘(1) In this Part “video game-making activities”, in relation to a video game, means the activities involved in design, programming and production of the video game.

(2) The Treasury may make regulations to—

(a) amend subsection (1),

(b) provide that specified activities are or are not to be regarded as video game-making activities or as video game-making activities of a particular description, and

(c) provide that, in relation to a specified description of video game, references to video game-making activities of a particular description are to be read as references to such activities as may be specified.

“Specified” means specified in the regulations.

1216E Production expenditure”, “core expenditure” and “limited-budget video game”

‘(1) In this Part, in relation to a video game— “production expenditure” means expenditure on video game-making activities in connection with the video game, and “core expenditure” means the total costs that relate specifically to the producing and developing of the video game up to the point of commercial release.

(2) For the purposes of this Part a “limited-budget video game” is a video game whose core expenditure is £3 million or less.

(3) In determining if a video game is a limited-budget video game, any core expenditure that—

(a) is incurred by a person under or as a result of a transaction entered into directly or indirectly between that person and a connected person, and

(b) might have been expected to have been of a greater amount (“the arm’s length amount”) if the transaction had been between independent persons dealing at arm’s length, is treated as having been of an amount equal to the arm’s length amount.

1216F UK expenditure etc

‘(1) In this Part “UK expenditure”, in relation to a video game, means expenditure on goods or services that are used or consumed in the United Kingdom.

(2) Any apportionment of expenditure as between UK expenditure and non-UK expenditure for the purposes of this Part is to be made on a just and reasonable basis.

(3) The Treasury may by regulations amend subsection (1).

1216G Company tax return

In this Part “company tax return” has the same meaning as in Schedule 18 to FA 1998 (see paragraph 3(1)).

Chapter 2

Taxation of Activities of Video Game Production Company

Separate video game trade

1216H Activities of video game production company treated as a separate trade

‘(1) This Chapter applies for corporation tax purposes to a company that is the video game production company in relation to a video game.

(2) The company’s activities in relation to the video game are treated as a trade separate from any other activities of the company (including any activities in relation to any other video game).

(3) In this Chapter the separate trade is called “the separate video game trade”.

(4) The company is treated as beginning to carry on the separate video game trade—

(a) when design begins, or

(b) if earlier, when any income from the video game is received by the company.

1216I Calculation of profits or losses of separate video game trade

‘(1) This section applies for the purpose of calculating the profits or losses of the separate video game trade.

(2) For the first period of account the following are brought into account—

(a) as a debit, the costs of the video game incurred (and represented in work done) to date, and

(b) as a credit, the proportion of the estimated total income from the video game treated as earned at the end of that period.

(3) For subsequent periods of account the following are brought into account—

(a) as a debit, the difference between the amount of the costs of the video game incurred (and represented in work done) to date and the corresponding amount for the previous period, and

(b) as a credit, the difference between the proportion of the estimated total income from the video game treated as earned at the end of that period and the corresponding amount for the previous period.

(4) The proportion of the estimated total income treated as earned at the end of a period of account is given by— C / T x I where— C is the total to date of costs incurred (and represented in work done), T is the estimated total cost of the video game, and I is the estimated total income from the video game.


1216J Income from the video game

‘(1) References in this Chapter to income from the video game are to any receipts by the company in connection with the making or exploitation of the video game.

(2) This includes—

(a) receipts from the sale of the video game or rights in it,

(b) royalties or other payments for use of the video game or aspects of it (for example, characters or music),

(c) payments for rights to produce games or other merchandise, and

(d) receipts by the company by way of a profit share agreement.

(3) Receipts that (apart from this subsection) would be regarded as of a capital nature are treated as being of a revenue nature.

1216K Costs of the video game

‘(1) References in this Chapter to the costs of the video game are to expenditure incurred by the company on—

(a) video game-making activities in connection with the video game, or

(b) activities with a view to exploiting the video game.

(2) This is subject to any provision of the Corporation Tax Acts prohibiting the making of a deduction, or restricting the extent to which a deduction is allowed, in calculating the profits of a trade.

(3) Expenditure that (apart from this subsection) would be regarded as of a capital nature only because it is incurred on the creation of an asset (the video game) is treated as being of a revenue nature.

1216L When costs are taken to be incurred

‘(1) For the purposes of this Chapter costs are incurred when they are represented in the state of completion of the work in progress.

(2) Accordingly—

(a) payments in advance of work to be done are ignored until the work has been carried out, and

(b) deferred payments are recognised to the extent that the work is represented in the state of completion.

(3) The costs incurred on the video game are taken to include an amount that has not been paid only if it is the subject of an unconditional obligation to pay.

(4) If an obligation is linked to income being earned from the video game, no amount is to be brought into account in respect of the costs of the obligation unless an appropriate amount of income is or has been brought into account.

1216M Pre-trading expenditure

‘(1) This section applies if, before the company began to carry on the separate video game trade, it incurred expenditure on development of the video game.

(2) The expenditure may be treated as expenditure of the separate video game trade and as if incurred immediately after the company began to carry on that trade.

(3) If expenditure so treated has previously been taken into account for other tax purposes, the company must amend any relevant company tax return accordingly.

(4) Any amendment or assessment necessary to give effect to subsection (3) may be made despite any limitation on the time within which an amendment or assessment may normally be made.

1216N Estimates

Estimates for the purposes of this Chapter must be made as at the balance sheet date for each period of account, on a just and reasonable basis taking into consideration all relevant circumstances.

Chapter 3

Video Game Tax Relief


1216O Availability and overview of video game tax relief

‘(1) This Chapter applies for corporation tax purposes to a company that is the video game production company in relation to a video game.

(2) Relief under this Chapter (“video game tax relief”) is available to the company if the conditions specified in the following sections are met in relation to the video game—

(a) section 1216P (intended for commercial release),

(b) section 1216Q (British video game), and

(c) section 1216R (UK expenditure).

(3) Video game tax relief is given by way of additional deductions (see sections 1216S and 1216T).

(4) Section 1216U contains provision about unpaid costs and artificially inflated claims.

(5) In this Chapter “the separate video game trade” means the company’s separate trade in relation to the video game (see section 1216H).

(6) See Schedule 18 to FA 1998 (in particular, Part 9D) for information about the procedure for making claims for video game tax relief.

Conditions of relief

1216P Intended commercial release

‘(1) The video game must be intended for commercial release.

(2) For this purpose—

(a) “commercial release” means distribution to the paying public, and

(b) a video game is not regarded as intended for commercial release unless it is intended that a significant proportion of the earnings from the video game should be obtained by such distribution.

(3) Whether this condition is met is determined for each accounting period of the company during which video game-making activities are carried on in relation to the video game, in accordance with the following rules.

(4) If at the end of an accounting period the video game is intended for commercial release, the condition is treated as having been met throughout that period (subject to subsection (5)(b)).

(5) If at the end of an accounting period the video game is not intended for commercial release, the condition—

(a) is treated as having been not met throughout that period, and

(b) cannot be met in any subsequent accounting period.

This does not affect any entitlement of the company to relief in an earlier accounting period for which the condition was met.

1216Q British video game

‘(1) Subject to subsection (2), a video game is a British video game for the purposes of this Part if it achieves a minimum of 19 points out of a maximum of 37 from the following table, with a minimum of 9 points being obtained in sections A and B:


Cultural Content

Number of points


The video game is based on locations in Europe (including fictionalised versions of locations in Europe) or on peoples of Europe.

From 0 to 4 points


The video game is inspired by or based upon: (i) European underlying material (such as a film, a book or artistic work;or(ii) a sport (or sports) that originated in Europeor(iii) an event (or events) held (or previously held) within Europe;or(iv) any other European subject matter.

From 0 to 4 points


The in-video game dialogue and in-video game text is mainly in the English language.

2 points


Cultural Contribution


The video game is an original video game (as opposed to being a sequel to a previous video game).

3 points


The video game is based on or strongly features a narrative (as opposed to being a purely abstract or non-linear video game).

From 0 to 4 points


The video game incorporates any clear technical or creative innovations such as innovations in: (i) gameplay; (ii) graphics; (iii) user interface; (iv) artificial intelligence, audio or physics; or (v) online or multiplayer functionality.

From 0 to 4 points


The video game represents or reflects: (i) diverse European culture;or(ii) European heritage;or(iii) European creativity.

From 0 to 4 points


Cultural Hubs


At least 50 per cent. of the production budget in incurred within the UK.

From 0 to 4 points


The in-video game text is translated into at least two other official languages of the EEA.

2 points


Cultural Practitioners


Executive Producer.

1 point


Lead Programmer.

1 point


Lead Artist.

1 point



1 point


Lead Designer.

1 point


Lead music and audio composer.

1 point

Total Achievable Points

37 points

(2) Notwithstanding the above, a video game is not a British Video Game if it is of a pornographic nature or features extreme violence.

1216R UK expenditure

‘(1) At least 25 per cent. of the core expenditure on the video game incurred must be UK expenditure.

(2) The Treasury may by regulations amend the percentage specified in subsection (1).

Additional deductions

1216S Additional deduction for qualifying expenditure

‘(1) If video game tax relief is available to the company, it may (on making a claim) make an additional deduction in respect of qualifying expenditure on the video game.

(2) The deduction is made in calculating the profit or loss of the separate video game trade.

(3) In this Chapter “qualifying expenditure” means core expenditure on the video game that falls to be taken into account under Chapter 2 in calculating the profit or loss of the separate video game trade for tax purposes.

(4) The Treasury may by regulations—

(a) amend subsection (3), and

(b) provide that expenditure of a specified description is or is not to be regarded as qualifying expenditure.

1216T Amount of additional deduction

‘(1) For the first period of account during which the separate video game trade is carried on, the amount of the additional deduction is given by— E x R where— E is—

(a) so much of the qualifying expenditure as is UK expenditure, or

(b) if less, 80 per cent. of the total amount of qualifying expenditure, and

R is the rate of enhancement (see subsection (3)).

(2) For any period of account after the first, the amount of the additional deduction is given by — (E x R) - P where—

E is—

(a) so much of the qualifying expenditure incurred to date as is UK expenditure, or

(b) if less, 80 per cent. of the total amount of qualifying expenditure incurred to date,

R is the rate of enhancement (see subsection (3)), and P is the total amount of the additional deductions given for previous periods.

(3) The rate of enhancement is—

(a) for a limited-budget video game, 100, and

(b) for any other video game, 80 per cent.

(4) The Treasury may by regulations amend the percentage specified in subsection (1) or (2).


1216U No account to be taken of amount if unpaid

‘(1) In determining for the purposes of this Chapter the amount of costs incurred on a video game at the end of a period of account, ignore any amount that has not been paid 4 months after the end of that period.

(2) This is without prejudice to the operation of section 1216L.

1216V Artificially inflated claims for additional deduction or video game tax credit

‘(1) So far as a transaction is attributable to arrangements entered into wholly or mainly for a disqualifying purpose, it is to be ignored in determining for any period any additional deduction which a company may make under this Chapter.

(2) Arrangements are entered into wholly or mainly for a disqualifying purpose if their main object, or one of their main objects, is to enable a company to obtain an additional deduction under this Chapter to which it would not otherwise be entitled or of a greater amount than that to which it would otherwise be entitled.

(3) “Arrangements” includes any scheme, agreements or understanding, whether or not legally enforceable.

Chapter 4

Video Game Losses

1216W Application of sections 1216X and 1216Y

‘(1) Sections 1216X and 1216Y apply to a company that is the video game production company in relation to a video game.

(2) In those sections— “the completion period” means the accounting period of the company—

(a) in which the video game is completed, or

(b) if the company does not complete the video game, in which it abandons video game-making activities in relation to the video game,

“loss relief” includes any means by which a loss might be used to reduce the amount in respect of which the company, or any other person, is chargeable to tax,

“pre-completion period” means an accounting period of the company before the completion period, and

“the separate video game trade” means the company’s separate trade in relation to the video game (see section 1216H).

1216X Restriction on use of losses while video game in production

‘(1) This section applies if in a pre-completion period a loss is made in the separate video game trade.

(2) The loss is not available for loss relief except to the extent that it may be carried forward under section 45 of CTA 2010 to be set against profits of the separate video game trade in a subsequent period.

1216Y Use of losses in later periods

‘(1) This section applies to the following accounting periods of the company (“relevant later periods”)—

(a) the completion period, and

(b) any subsequent accounting period during which the separate video game trade continues.

(2) Subsection (3) applies if a loss made in the separate video game trade is carried forward under section 45 of CTA 2010 from a pre-completion period to a relevant later period.

(3) So much (if any) of the loss as is not attributable to video game tax relief (see subsection (6)) may be treated for the purposes of loss relief as if it were a loss made in the period to which it is carried forward.

(4) Subsection (5) applies if in a relevant later period a loss is made in the separate video game trade.

(5) The amount of the loss that may be—

(a) set against other profits of the same or an earlier period under section 37 of CTA 2010, or

(b) surrendered as group relief under Part 5 of that Act,

is restricted to the amount (if any) that is not attributable to video game tax relief (see subsection (6)).

(6) The amount of a loss in any period that is attributable to video game tax relief is calculated by deducting from the total amount of the loss the amount there would have been if there had been no additional deduction under Chapter 3 in that or any earlier period.

(7) This section does not apply to a loss to the extent that it is carried forward or surrendered under section 1216Z.

1216Z Terminal losses

‘(1) This section applies if—

(a) a company (“company A”) is the video game production company in relation to a qualifying video game,

(b) company A ceases to carry on its separate trade in relation to that video game (“trade X”) (see section 1216H), and

(c) if company A had not ceased to carry on trade X, it could have carried forward an amount under section 45 of CTA 2010 to be set against profits of trade X in a later period (“the terminal loss”).

(2) If on cessation of trade X company A—

(a) is the video game production company in relation to another qualifying video game, and

(b) is carrying on its separate trade in relation to that video game (“trade Y”), it may (on making a claim) make an election under subsection (3).

(3) The election is to have the terminal loss (or part of it) treated as if it were a loss brought forward under section 45 of CTA 2010 to be set against the profits of trade Y of the first accounting period beginning after the cessation and so on.

(4) Subsection (5) applies if on cessation of trade X—

(a) there is another company (“company B”) that is the video game production company in relation to a qualifying video game,

(b) company B is carrying on its separate trade in relation to that video game (“trade Z”), and

(c) company B is in the same group as company A for the purposes of Part 5 of CTA 2010 (group relief).

(5) Company A may surrender the terminal loss (or a part of it) to company B.

(6) On the making of a claim by company B the amount surrendered is treated as if it were a loss brought forward by company B under section 45 of CTA 2010 to be set against the profits of trade Z of the first accounting period beginning after the cessation and so on.

(7) The Treasury may, in relation to the surrender of a loss under subsection (5) and the resulting claim under subsection (6), make provision by regulations corresponding, subject to such adaptations or other modifications as appear to them to be appropriate, to that made by Part 8 of Schedule 18 to FA 1998 (company tax returns: claims for group relief).

(8) “Qualifying video game” means a video game in relation to which the conditions for video game tax relief are met (see section 1216O(2)).

Chapter 5

Provisional Entitlement to Relief

1216AA Introduction

‘(1) In this Chapter—

“the company” means the video game production company in relation to a video game,

“the completion period” means the accounting period of the company—

(a) in which the video game is completed, or

(b) if the company does not complete the video game, in which it abandons video game-making activities in relation to it,

“interim accounting period” means any earlier accounting period of the company during which video game-making activities are carried on in relation to the video game,

“the separate video game trade” means the company’s separate trade in relation to the video game (see section 1216H), and

“special video game relief” means—

(a) video game tax relief, or

(b) relief under section 1216Z (transfer of terminal losses from one qualifying video game to another).

(2) The company’s company tax return for the completion period must state that the video game has been completed or that the company has abandoned video game-making activities in relation to it (as the case may be).

1216AB The UK expenditure condition

‘(1) The company is not entitled to special video game relief for an interim accounting period unless—

(a) its company tax return for the period states the amount of planned core expenditure on the video game that is UK expenditure, and

(b) that amount is such as to indicate that the condition in section 1216R (the UK expenditure condition) will be met on completion of the video game.

If those requirements are met, the company is provisionally treated in relation to that period as if that condition was met.

(2) If such a statement is made but it subsequently appears that the condition will not be met on completion of the video game, the company—

(a) is not entitled to special video game relief for any period for which its entitlement depended on such a statement, and

(b) must amend accordingly its company tax return for any such period.

(3) When the video game is completed or the company abandons video game-making activities in relation to it (as the case may be), the company’s company tax return for the completion period must be accompanied by a final statement of the amount of the core expenditure on the video game that is UK expenditure.

(4) If that statement shows that the condition in section 1216R is not met, the company—

(a) is not entitled to special video game relief for any period, and

(b) must amend accordingly its company tax return for any period for which such relief was claimed.

1216AC Video game tax relief on basis that video game is limited-budget video game

‘(1) The company is not entitled to video game tax relief for an interim accounting period on the basis that the video game is a limited-budget video game unless—

(a) its company tax return for the period states the amount of planned core expenditure on the video game, and

(b) that amount is such as to indicate that the condition in section 1216E(2) (definition of “limited-budget video game”) will be met on completion of the video game.

In that case, the video game is provisionally treated in relation to that period as if that condition was met.

(2) If it subsequently appears that the condition will not be met on completion of the video game, the company—

(a) is not entitled to video game tax relief for any period on the basis that the video game is a limited-budget video game, and

(b) must amend accordingly its company tax return for any such period for which such relief has been claimed on that basis.

(3) When the video game is completed or the company abandons video game-making activities in relation to it (as the case may be), the company’s company tax return for the completion period must be accompanied by a final statement of the core expenditure on the video game.

(4) Subsection (5) applies if that statement shows—

(a) that the video game is not a limited-budget video game, or (as the case may be)

(b) that, having regard to the proportion of work on the video game that was completed, the video game would not have been a limited-budget video game had it been completed.

(5) The company—

(a) is not entitled to video game tax relief for any period on the basis that the video game is a limited-budget video game, and

(b) must amend accordingly its company tax return for any period for which such relief was claimed on that basis.

1216AD Time limit for amendments and assessments

Any amendment or assessment necessary to give effect to the provisions of this Chapter may be made despite any limitation on the time within which an amendment or assessment may normally be made.”.

2 In Part 9D of Schedule 18 to the Finance Act 1998, references to film should also include references to video game.’.

As the House will be aware, my hon. Friend the Member for Wallasey (Ms Eagle) referred on Second Reading to the fact that we want to bring forward a provision on tax relief in order to help to support the video games industry. Although, undoubtedly, new clause 1 would not do that in every respect, I want to put it before the House, so that we can have an in-principle debate about video game industry tax relief. The new clause provides an opportunity for the House to consider enhanced relief based on UK expenditure on video game production.

The new clause suggests that we might consider qualified tax relief for the video game industry, and that it should be based on strict criteria: the video game must be for commercial release; it must be a British video game, assessed on the basis of a points system; and it must meet a 25% UK expenditure threshold, whereby 25% of the total expenditure on the production and development of the video game is UK expenditure on goods or services. We intended to look at that issue, and I would have tabled a much more detailed new clause, but the advice was that we could not. I hope that I have, however, tabled sufficient proposed changes for the Government to consider bringing back at a future date, or supporting the principle of, tax relief for this vital sector in the United Kingdom.

The video games industry is a real success story for British industry, and we look to support it in detail. As I am sure that the Minister is aware, research from TIGA, which represents the gaming industry, shows that over a five-year period games tax relief could create or save about 3,500 graduate-level jobs, secure £450 million-plus in new and saved development expenditure, and generate about £415 million in new and saved tax relief. I hope that it would do so in a way that ensures that the cost to the Treasury amounts to about £192 million over five years, which would be more than paid for by the jobs and investment, and encouragement to the industry, that that would develop in due course.

My hon. Friends the Members for Dundee West (Jim McGovern), for Liverpool, Wavertree (Luciana Berger) and for West Bromwich East (Mr Watson) have been very vocal in supporting such a tax relief. I hope that the Minister will consider it in principle, so that we can begin to develop a cross-party consensus in due course.

If it works for this industry, why does it not work for others? Why is the right hon. Gentleman limiting it to this one industry?

Our proposal is based on an existing tax relief for the film industry, which has been very successful in helping to generate extra revenue for that industry and keeping production in the United Kingdom. I am sure that the right hon. Gentleman will be interested to know that the Under-Secretary of State for Culture, Olympics, Media and Sport, the hon. Member for Wantage (Mr Vaizey) said this on 13 April—I accept that that was in the middle of an election campaign, so we will take these words as being from that particular time:

“We are committed to a tax break along the lines of the video games tax credit. We have been calling for tax breaks for the video game industry for the last three years.”

In the spirit of cross-party co-operation, the hon. Member for Bath (Mr Foster), who then held the esteemed position of Liberal Democrat shadow spokesman for Culture, Media and Sport—the Lib Dem spokesmen are now all subsumed into one entity—said:

“Liberal Democrats support the introduction of a Games Tax Relief. Following consultation on the details, we would implement the Relief as soon as possible.”

At that time, my hon. Friend the Member for Wallasey, who is shadow Chief Secretary, the then shadow Culture Minister, who is now a Minister, and the then Liberal Democrat spokesperson supported this proposal, as did I. Since then, however, it has vanished without trace—until today’s debate.

The right hon. Member for Wokingham (Mr Redwood) may oppose tax reliefs generally. However, such a relief has been proved to work in the film industry to date. Unfortunately, the Chancellor of the Exchequer said in his Budget:

“we will not go ahead with the poorly targeted tax relief for the video games industry.”—[Official Report, 22 June 2010; Vol. 175, c. 512.]

I want to test with the Minister whether that is an in-principle opposition to tax relief for the video games industry. If not, is his opposition based on a poorly designed scheme by the previous Labour Government or on poorly targeted suggestions in today’s proposals? Is there, in principle, room for discussion, so that it would be possible for him to bring back, at some point, a tax relief that meets the objectives of the hon. Member for Bath, the Under-Secretary and ourselves, and that would, I hope, help to support the video games industry?

Just to clarify the point, the right hon. Gentleman should know that I believe that lower tax rates result in more revenue. I am delighted to see that he is now a recruit to that cause, but I suggest that he should not limit it to one industry.

We are happy to consider on a case-by-case basis whether tax relief helps to generate employment and earn business and crucially—I think that this is the right hon. Gentleman’s point—to maintain that business in the United Kingdom rather than transferring it overseas. The film tax credit has proved that that can be the case, and I suggest in the new clause that we consider it for the video games industry.

My right hon. Friend mentioned the British film industry. Is he aware that figures provided by TIGA, which represents the computer games industry, suggest that the cost of a tax break for computer games would be £55 million, whereas the film industry already gets a £110 million break, even though the revenue generated by both is much the same?

Indeed, and TIGA—my hon. Friend says “tiger”; I say “teega”, but we both mean the same thing—has estimated that we can make savings to the Treasury by investing in a tax relief up front and keeping jobs in this country. That is the crucial point.

I know that the industry is important to Scotland, so following my hon. Friend the Member for Dundee West, I give way to the hon. Member for Dundee East (Stewart Hosie).

The right hon. Gentleman was right to mention the Chancellor’s argument that the proposed tax break was poorly targeted, but he will be aware of the evidence given to the Scottish Affairs Committee by Edward Troup of the Revenue. He said:

“I am not sure I would say it was poorly targeted. It was targeted at the video games industry…it was perfectly designable if we had continued with it”,

and so on and so forth. Does not that experience from the coal face, from inside the Revenue, directly contradict the argument that the Government used to do away with the plan?

The hon. Gentleman has effectively read out the next section of my speech. I have indeed examined what was said in the Scottish Affairs Committee. The Under-Secretary said at the same meeting on 20 October:

“It may be that we can revisit a video games tax break in the future.”

Was he speaking for the Department of Culture, Media and Sport or for the Treasury? I presume that the Chancellor was speaking for the Treasury in ruling out the idea, but three months later his Minister in the DCMS said that we should consider it in future.

I do not necessarily wish to press the new clause to a Division, but I have tabled it so that the Exchequer Secretary can clarify whether, in the next 12 months or two years, he can meet the objectives that my hon. Friends the Members for Dundee West, for West Bromwich East and for Liverpool, Wavertree, and the hon. Member for Dundee East, have championed so strongly.

The important point about the new clause is the unique position of the video games industry. It has the potential for explosive growth and to create far more high-level, highly paid, highly skilled jobs in the UK. Yet its competitors, with a fiendish interpretation of international competition rules, are picking off the very best designers and developers from UK production shops one by one. The industry worked long and hard with the Treasury to build a robust model for a specific rate to allow the industry to grow over the coming years. That is why hon. Members are so concerned—many jobs are at risk if the new clause is not accepted.

My hon. Friend makes the important point that those are high-skilled, highly technical jobs that will bring investment to this country. They are intellectual capacity jobs that are helping to grow the areas of our international markets that we need to grow.

To follow up on what the hon. Member for Dundee East said, Edward Troup, the managing director of budget, tax and welfare at the Treasury, said to the Scottish Affairs Committee:

“There would be issues; there would be boundary issues,”

but crucially, he continued, “but it would work.” I am not trying to make political capital out of the matter, but if it is proved that the tax break would work—meaning that it can be applied, can deliver, will keep jobs in this country, will grow business and will help resources be reinvested in the British economy—will the Exchequer Secretary be willing to accept the principle and introduce an appropriate clause in some future Finance Bill?

If it is found that the tax break would work but the Exchequer Secretary will not introduce it, I will have to presume that he is not interested in doing so, rather than that he is concerned about its applicability and workability. If so, he is on an entirely different page from the one that the Under-Secretary was on in April, that the Chancellor was on before the general election and that the hon. Member for Bath, who is part of the coalition, was on at that time.

The right hon. Gentleman makes a perennial point that shadow Ministers make, to which actual Ministers presumably perennially say no. May I point out to him the table in proposed new section 1216Q of the Corporation Tax Act 2009, in new schedule 2? It mentions points being given for at least 50% of a game’s production budget being incurred in the UK, and proposed new section 1216R states what the percentage of UK expenditure has to be. Will he confirm that that does not conflict with any European law provision?

I have taken advice in drafting the new clause, and my advice is that it is workable and applicable, although I have had to leave out certain aspects. My purpose is not to force this particular model on the Treasury, but to use the new clause as a debating point, so that the Treasury can respond to the principle and decide whether this is a good proposal that will help matters, bring investment back to the United Kingdom and be supportive. I would, potentially, be happy to withdraw the new clause at the end of the debate, and I am happy to listen to what the Minister says, but I want to get to the nub of the issue.

The Under-Secretary, the hon. Members for Bath and for Dundee East, who speaks for the Scottish National party, my hon. Friend the Member for Dundee West and Labour Front Benchers all think that some form of games tax relief to help maintain the industry in the United Kingdom would be a good thing. All I want today is for the Minister to say, “Yes, I agree with that general principle. Over a period of time, I will look at how we make this proposal workable and how we bring it back in a future Budget or Finance Bill.” Indeed, he could say today that he is happy with the proposals and that the Government will look at them again in the near future in whatever format they choose. It is important to get that on the table.

Dr Richard Wilson, TIGA’s chief executive, has set out his view that we will potentially lose jobs. He said that

“the UK is losing out on jobs and investment because of the absence of Games Tax Relief.

High-skilled jobs could be created in Manchester and Warrington. Instead they are being created in Montreal.”

He says that that is particularly because our

“key competitors, particularly Canada, have tax breaks for games production. The UK does not.”

Others who comment on these matters, such as Danny Bilson, THQ’s vice-president for core game brands, has said:

“The talent in the UK is extraordinary...We have a studio up in Warrington that’s an excellent studio…but I’m sorry, it’s…about money at the end of the day.”

We need to ensure that we have the support for such things. That is the reality of the market. World-leading publishers recognise that we have an asset, which it has taken years to build up and which is worth hundreds of millions of pounds, but it will go abroad if we do not compete on the same level as our Canadian colleagues. In France, there is a 20% tax reduction for video games, and tax provisions in Canada have driven up staff numbers by 43%, but in the United Kingdom we have seen the head count start to decline over the past few years.

I do not want to go into great detail or to take up the House’s time. I simply want to tell the Minister that there is real scope for these proposals. There is scope to develop the UK film tax credit model and to use it for the UK video game tax model. We can ensure that we help to grow the sector, and we can meet the commitments that colleagues made during the general election campaign. I tabled the new clause so that we could hear whether the Minister is still of the view that there is no scope for such proposals or whether he could look at the issue in detail and bring back proposals in due course. I commend the new clause to the House.

The video games industry is very important. Its spiritual home is, in part, in my constituency, in places such so Soho and Covent Garden—

They are the spiritual home of so many things, as I am sure the Opposition Whip would agree.

I have spoken on many occasions to leading lights in the video games industry, and they outlined many of the concerns that have been expressed by the hon. Members for Dundee West (Jim McGovern), for Dundee East (Stewart Hosie) and for West Bromwich East (Mr Watson). There is a risk that a significant amount of business is leaving these shores because of a perception, and indeed the reality, that there is unfair tax and regulatory competition from further afield.

One of my concerns, which I expressed before the election to leading lights in the video games industry, is that trying to emulate the film tax credit is not necessarily the right route down which to go. Back-Bench and Front-Bench veterans of Finance Bills going back a decade or more—you are one, Madam Deputy Speaker, from your time as a Minister, as am I from my time in opposition—will know of the concern that the film tax credit has had to be updated almost annually, because of the clear abuses and unintended consequences resulting from it. There was a sense that although the film business in this country benefited from it, there was a significant through-flow of cash that was not in the interests of either the Exchequer or the high-quality products of which our film industry has been rightly proud in decades gone by.

Notwithstanding the hon. Gentleman’s points about the film tax credit, I am sure that he will understand the business model around which the video games industry operates. A large amount of cash is spent in the development of games, but revenue drops off in the run-up to a new hardware offering or console being developed. The difficulties that the sector faces are exacerbated by the regular new hardware offerings. Does that not make a stronger case for some sort of assistance?

I accept that. There is also little doubt that we have some tremendously high-quality people working in this business. I must say, in parenthesis, that one difficulty is that hitherto we have had to import far too many such people from beyond these shores. I know that our university media studies industry is much discredited, but those media studies courses that are linked to the video games industry in particular often ensure that we get some of the brightest and best of the home-grown talent in our universities entering the industry.

I take on board the concerns of the right hon. Member for Delyn (Mr Hanson), given that the issue before us has been in the ether for years. I would prefer not to rush into anything, although I hope that my hon. Friend the Minister will take on board the deep concerns expressed today so that we can come back, perhaps during next year’s Finance Bill, with a workable model based on the proposals before us.

I would like to put in a word not just for the video games industry, unique though its interests are in the minds of those who run and work in those businesses, but for the animation industry. It is a related industry within the media sphere, and faces many of the problems expressed by the hon. Member for Dundee East and businesses in the industry. The animation industry is deeply concerned that it is losing some of its brightest talent, and feels that—this is felt not just in the animation sector—it is facing unfair competition not only from the Canadian and French models, but from Ireland and, dare I say it, Scotland. It feels that it is losing out to a large degree. I would therefore like to see a clause that brings the video games industry, the animation industry and all these other industries under a single protocol. Such a protocol could operate well and effectively, so I hope that the Treasury will consider one in next year’s Finance Bill.

The hon. Gentleman has indicated that part of the computer games industry is based in his constituency—in fact, he seemed to indicate that the industry originated there. Does he agree that a change of name or title is required? When people hear “computer games industry”, they think of young lads between 15 and 30 sitting in front of a computer screen playing “APB” or “Grand Theft Auto”, when in fact, as people who have visited Abertay university in Dundee will have seen, it is used in medical research, construction and architecture. Perhaps we need a change of focus, rather than continuing to call it the “video games industry”.

The hon. Gentleman is right to make that important point, although it also raises the question of how we couch such a new clause and schedule in a future Finance Bill to ensure that it takes on board an industry that we want to encourage rather than see go much further afield. I am not a young lad of 15 or 30—or even of 46—so the industry has passed me by, but there is no doubt about the enthusiasm of the companies operating in this sphere. One of my biggest concerns is that all too often those companies have to employ programmers from eastern Europe and other parts of the world in order to get the relevant level of expertise. That is a regrettable state of affairs. None the less it is undoubtedly a thriving and enormous industry, in which we are cheek by jowl with the Japanese in terms of our expertise and export potential.

I implore the Minister to take our concerns seriously. Now would not be the time to accept a proposal such as the one before us, but I hope that he will give sufficient comfort to Opposition Members to ensure that they do not press the matter to a vote. However, the issue is worth discussing at length today.

One thing that I have not understood—I have not understood it from either the debates that we had in the Public Bill Committee, on which I served, or the responses to the various parliamentary questions that have been asked about the video games industry and tax relief—is whether the objection is to the detail of previous proposals or this proposal, or whether there is a more fundamental objection about giving such a relief at all. At times, it seems to be suggested that it is not appropriate to give such a relief, but it would be extremely helpful to know which it was.

If the issue is the detail or exactly how the proposal is to be implemented, that could be discussed further. However, targeting such an industry—or indeed any industries—might be felt to be inappropriate. In one answer given in the Chamber last week, the suggestion seemed to be that a lower rate of corporation tax generally would be sufficient, without targeting specific emerging industries. However, a tax relief is important to a growing industry in that it allows it to get off the ground and develop in the way that it needs to. People have already spoken about the cash-flow difficulties for sectors such as the video games industry, so it would be helpful if the Minister could clarify where the Government are on this issue and what their future plans might be.

I am delighted that the Opposition have highlighted the example of the video games industry. However, I fear that it is only one example among many of how we are at risk of losing talent, enterprise, jobs and business development in a number of areas because our rates of taxation are now not internationally competitive. It is interesting that the Opposition, who do not normally favour lower rates, have identified lower rates—or a lower tax imposition—as the answer in this case. I hope that they will think on these things more widely, because the combination of a high marginal rate of income tax and what is now quite a high rate of corporation tax by international standards is not a good combination in an intensely competitive world, where there has been a shock to overall demand and where we are having to fight for our commercial lives in world markets.

From my point of view, there are a couple of problems with the proposals before us. The first is that going for 25% British content is a low ambition. I would have thought that one would want a rather higher rate of British content if we were formulating some special treatment for the industry. There is also a problem with concentrating on the profits that a company generates, because some companies will be small businesses with talented entrepreneurs. They might have just one good game in them that earns them an awful lot of money in a short space of time. That is when high marginal rates on apparently high earnings—they become genuinely high earnings where it is possible to sustain them—could become quite an imposition, because those entrepreneurs might get caught in the year or two of their success, but find afterwards that they are no longer able to achieve that.

The issue is therefore not just about corporation tax or profits tax; it can also be about income tax. I hope that the Minister will reassure us by saying something about how he sees our overall tax regime developing, in both corporation tax and income tax, because we have a general problem and we need to show the way to lower rates as quickly as possible in this very competitive world. I would also repeat to my hon. Friend the simple point that the evidence from the American and the British experiences is that when countries have been bold enough to cut rates on enterprise, income and profits, they have usually found their revenues increasing. It is quite obvious that the Government need a lot of extra revenue, so I would recommend that proposal to him.

New clause 1 and new schedule 2 seek to provide additional tax relief for companies producing video games. The measure was announced, but not implemented, by the previous Administration. As the Chancellor said in the emergency Budget statement, this tax relief for the video games industry is poorly targeted, which is why we have decided not to introduce it.

The United Kingdom’s video games industry is recognised as a world leader, having produced hugely successful games such as the “Grand Theft Auto” series, and has led to innovations in industries as diverse as defence and health care, as the hon. Member for Dundee West (Jim McGovern) pointed out. All that has been achieved without specific Government intervention for the sector through the tax system.

We estimate that the relief proposed by the Opposition would cost some £40 million to £50 million a year—that was the costing for the previous Administration’s proposal—and we believe that without strong evidence of a market failure in the games industry, it is difficult to justify spending that amount of money on such an intervention, particularly given the state of public finances.

At a recent meeting with the Minister, I told him that before the Budget that announced the intention to promote tax breaks, there were at least six ministerial visits to Dundee, which included the then Secretary of State for Scotland, Ministers from the Departments for Business, Innovation and Skills and for Culture, Media and Sport, and the Chancellor. There was a lot of consultation before the then Chancellor eventually announced the decision on tax breaks. Will the Minister tell the House how many visits were made to Dundee before this Government’s decision to withdraw them?

The circumstances facing us in the run-up to the June Budget were such that we wanted to introduce a more fundamental reform of corporation tax. In that Budget on 22 June, we announced a reduction in the main corporation tax rate from 28% to 24% over the next four years. In doing that, we wanted to show a sense of direction, to ensure that Britain was open for business, and that we were providing lower rates. Our approach is to have a broader base but lower rates rather than targeted intervention, unless there is clear evidence that intervention is the right approach.

The Minister is being generous. He is paraphrasing the Green Book, which says that the Government will

“prioritise spending which supports private sector growth and investment”.

Various forms of those words have been used since his party and the Liberal Democrats took office. Surely tax breaks that would cost perhaps £195 million and would deliver £415 million in tax receipts are precisely the sort of investment in precisely the sort of industry that would meet the Government’s objectives.

We have heard the figures quoted by TIGA, but we do not accept the validity of that analysis because we feel that some of the assumptions underpinning those estimates are erroneous. The research commissioned by the industry implicitly assumes that the investment incentivised by the subsidy is entirely additional to the UK economy. In reality, it is likely that the relief will displace investment from elsewhere in the economy, so the net impact on total UK investment could be limited. For example, it is possible that such a tax subsidy would divert investment from more productive sectors to the detriment of the productivity of the UK economy as a whole.

If Opposition Members are making the case that lower taxes always result in growth in the economy, I would listen with great interest and it would—my right hon. Friend the Member for Wokingham (Mr Redwood) made this point—be an interesting conversion to supply-side economics. I do believe, however, that the strongest economic case can be made for lower tax rates as a whole, across a broader base, as opposed to targeting some sectors, unless there is a strong case that there is some kind of market failure. We have not yet heard such a case being expressed in a way that we find persuasive, and that is why we decided not to proceed with video games tax relief.

That is not to say that we do not wish to support British businesses—far from it; we do. It is vital that we have a strong private sector to drive the recovery, but we must support that growth in the right way. In the emergency Budget, the Government announced a major package of reforms to the business tax regime with the aim of creating the most competitive corporate tax system in the G20.

The Minister has twice referred to the concept of market failure. Did not the hon. Member for Dundee East (Stewart Hosie) make a compelling argument when he spoke about the very nature of this market? Perhaps we should be talking not about market failures but about the way in which the video games industry operates and the fact that its nature makes it susceptible to the kind of tax relief that we are looking for. The Minister is understandably, and rightly, sceptical about some of the figures being put out by TIGA, but a multiplier of nine seems pretty high. What level of multiplier would be so unacceptable as to allow this kind of relief to be put in place?

The TIGA analysis makes the assumption that everything achieved as a consequence of the relief would be additional to the economy. It does not appear to recognise that there would also be displacement, and that highly skilled graduates would not remain unemployed if they did not find work in the video games industry. We are therefore sceptical about the TIGA analysis. My hon. Friend makes his point well, however, and the nature and profile of the video games business clearly have some significance for his constituency, but we are as yet unconvinced of the necessity for the tax relief that was proposed by the previous Government, and that is proposed in the new clause.

The Government’s focus must be on providing a strong business environment for sectors across the board, including video games. Our reforms will reduce rates of corporation tax by four percentage points over the next four years, which means that the UK will continue to have the lowest main rate in the G7. This will improve our relative position significantly, compared with that of our competitors, after the years in which we have fallen behind. This will benefit companies across the economy, including those in the video games industry.

My party welcomes the reduction in corporation tax; we believe that it is a good thing. However, some of the businesses that are creating video games are not big enough to pay corporation tax. Many of them are dependent on the annual allowances, but some of those have now gone, and one has been halved. So although I welcome the reduced corporation tax, the overall package will not necessarily help the start-up studios and small studios as they develop their games.

We have also reduced the small profits rate of corporation tax from 21% to 20%, when it was set to go up to 22%, and we have effectively reversed the jobs tax—the increase in national insurance contributions that would have hurt start-ups. We are also offering start-ups, including those in the hon. Gentleman’s constituency, a national insurance contributions holiday for the first 10 employees, so there were plenty of positive policies for start-ups announced at the time of the Budget. Indeed, given the state of the public finances, it was a very pro-business, pro-growth Budget in the way that it set up proposals for lower taxes.

On tax simplification, the Office of Tax Simplification earlier today announced the list of reliefs and exemptions within the tax system. When its work began in the summer, the general expectation was that there would be about 400 reliefs and exemptions; the total reached is 1,042 such reliefs and exemptions. Many play an important role within our tax system—I do not wish to decry that—but we have to think carefully about introducing new areas of complexity and new reliefs and exemptions, unless there is a strong case for doing so. Members have already made the case for video games, but the Government remain unconvinced.

I thank the Minister for giving way again. He talks about hearing what has been said in the Chamber, but as far as I am aware he has not yet met Richard Wilson of TIGA. Like everyone else who mentions the organisation, I originally referred to it as “teega” but Mr Wilson continually refers to it as “tiger”, and I assume that he knows better than I do. I believe the logo resembles a tiger, so there is a connection with the pronunciation there. Will the Minister agree to come to Dundee and I will arrange for Richard Wilson to be there? If figures are to be bandied about, with the Minister saying they are erroneous and Richard Wilson saying they are correct, it would be better if those two were in the same room at the same time to discuss the issue.

I am grateful for that invitation. I am sure it will be small comfort to the hon. Gentleman, but I will accept the pronunciation “tiger” and concede that point. I am not sure that it would be terribly helpful if we were all in the same room to discuss these particular numbers. As I say, we are not convinced by the case made on these numbers. Of course, Members with constituencies that have a concentration of video game companies will want to make that case, but it is right for the Government to look at the economy as a whole and to bring forward policies that benefit all parts of the country and all sectors, including the video game sector. As I said in the meetings I have had with the hon. Member for Dundee West, there is no sense in which the Government are in any way anti-video games or think it is an antisocial issue or anything like that. It is a question of economic efficiency and where we believe the role of Government can be best used—and that is in providing a favourable climate for businesses.

I appreciate that the new clause and new schedule proposed by the right hon. Member for Delyn (Mr Hanson) are probing measures, but I would like to touch on a point made by my hon. Friend the Member for Dover (Charlie Elphicke). This relief is targeted at a specific sector and it would be considered to be state aid; as such, it would require notification to and approval from the European Commission. The new clause and new schedule would be effective from Royal Assent. As the Government would not be able to secure approval in such a short period, the provisions would create an illegal state aid. As I said, I understand that the amending provisions are probing, but the same issue applies to the previous Government’s proposals—and they, too, would have required state aid approval, which is worth putting on the record.

The new clause would create unjustified distortion and complexity in the corporate tax system. We do not think that such an intervention would represent good value for money for the Exchequer or be conducive to providing a simple and competitive tax system. The UK needs a tax system that supports all businesses, because it is the private sector across the board that will drive the recovery. I therefore ask the right hon. Gentleman to withdraw the new clause and new schedule.

I am grateful for the Minister’s clarification of the Government’s response. If we take into account the comments made by my hon. Friend the Member for Edinburgh East (Sheila Gilmore), it is clear that the Government are not in favour of the principle of this type of tax relief rather than the practicalities of the suggestions in the amending provisions. I am disappointed about that. I remind the Minister again of what the Under-Secretary said. When asked during the election campaign whether the Conservative party was in favour of a games development tax break, he answered:

“emphatically, 100 per cent in support for game tax breaks. No ifs, no buts.”

That does not appear to be the Government’s position today, which disappoints me.

Perhaps at this point I should declare that PricewaterhouseCoopers helped me to draw up the new clause. I shall register that in due course.

I think that we need to reflect on this issue. The right hon. Member for Wokingham (Mr Redwood), the hon. Member for Cities of London and Westminster (Mr Field), the hon. Member for Dundee East (Stewart Hosie), my hon. Friends the Members for Dundee West (Jim McGovern), for West Bromwich East (Mr Watson) and, outside the Chamber, for Liverpool, Wavertree (Luciana Berger) have demonstrated great support for their industry. Many jobs depend on it, not least in the constituency of my hon. Friend the Member for Nottingham East (Chris Leslie). We must ensure that we do not transfer jobs to Canada, France and other countries just because of the impact of our tax regime on the industry, and just because—as has been pointed out—some companies do not qualify for the help that the Government have provided through capital gains tax relief owing to their size.

I accept what the Minister has said today, which I interpret as a closed door, but I must tell him that Members, including those with constituency interests, will return to the issue. I hope that he will accept the suggestion of my hon. Friend the Member for Dundee West that it should be examined in detail, that he will meet representatives of the industry, in London if not in Dundee, and that he will consider discussing with those who are helping to create this wealth how we can ensure that we keep the jobs in the United Kingdom. I hope he will not allow that door to remain completely closed.

I give the Minister notice that both Back Benchers and Front Benchers will return to the issue, so that we can all fulfil our manifesto and election pledges and, more important, protect the industry in the United Kingdom as a whole. Having said that, I beg to ask leave to withdraw the clause.

Clause, by leave, withdrawn.

New Clause 2

Independent taxation and family benefits

‘The Treasury shall, within six months of the passing of this Act, commission and publish an independent review of the implications of the operation of section 32 of the Finance Act 1988 (Married couples—abolition of aggregation of income) on methods of determining eligibility for family benefits including child benefit.’.—(Chris Leslie.)

Brought up, and read the First time.

(Nottingham East) (Lab/Co-op): I beg to move, That the clause be read a Second time.

New clause 2 would force the Treasury to come clean on its plans to withdraw child benefit from families with higher-rate taxpayers from January 2013, which will take £2.5 billion a year from those families from 2014-15 onwards.

Ever since the Chancellor announced the policy of means-testing child benefit a month ago at the Conservative party conference, the policy has gradually unravelled. The Treasury has struggled to spell out exactly how it will implement the idea—especially as there has rightly been separate and independent taxation of individuals since 1990, when it was recognised that there were major problems with taxing women as though their income were effectively part of their husbands’ property. Those days may seem long ago now—it is 20 years since Lady Thatcher left Downing street, and 20 years since Britain joined the exchange rate mechanism—but the Government have adopted a déjà-vu approach to policy making which looks set to reopen that history.

We have grown used to the principle of independent taxation over the past two decades, and many now take it for granted, but we ought to pause and reflect on why it is so important. The Government’s proposed changes to child benefit imply a requirement for mothers to disclose their receipt of child benefit to their partners, and a requirement for partners or husbands to be taxed on the income of their spouses. That represents a potential breach of the principle of separate and individual taxation which, as the new clause says, was introduced in the Finance Act 1988, and which applied from 1990 onwards.

The 1988 Act introduced a radical change in the system of taxing husbands and wives: independent taxation. Until then, husbands and wives were viewed as one person for tax purposes, and the Revenue, of course, saw only the husband. The spouse’s income and gains were added together, and the couple were treated as if the total income were that of the husband. He was responsible for completing the annual tax return and for paying all tax due, including that on his wife’s income and gains. However, with the introduction of independent taxation, spouses were treated as separate individuals for tax purposes and for the first time married women enjoyed privacy in, and responsibility for, their own tax affairs. In addition, some married couples were paying more tax because they were married than they would have if they had been cohabiting. That drew much criticism at the time.

It is instructive to look back at the speeches advocating the virtues of independent taxation, especially by the then Chief Secretary to the Treasury, who has since been ennobled as Lord Lamont. In the 1988 Budget debate he called this reform

“a radical proposal for independent taxation…It will give married women the independence and privacy in tax matters that they have been denied for so long…Under the new system, a married woman will be treated as a taxpayer in her own right with a full personal allowance to set against her income, and her own basic rate band. She will have responsibility for her own tax matters and will be able to enjoy complete privacy if she wishes…It is an important principle that there should be independence and privacy in taxation matters.”—[Official Report, 16 March 1988; Vol. 129, c. 1193-94.]

Clearly the Prime Minister should heed the words of his former boss in these matters. I gather that Lord Lamont is still occasionally called upon to give advice to his former special adviser. Perhaps their diaries clashed on the day of the fateful decision on child benefit, but there is still time for the Prime Minister to make that call to Lord Lamont, and to see the error of his ways and rein in his doctrinaire Chancellor on this issue, especially as the Prime Minister promised before the general election to protect child benefit. Winding the clock back 20 years and reversing decades of progress in equality in taxation and in the responsibilities of individuals for their own income risks creating a set of major perversities in the tax system that could have significant ramifications. That is why the Opposition are opposed to the changes in child benefit.

Let us consider the administrative shambles that would be created if the Government were to get their way. The Wall Street Journal has reported insiders in the civil service talking of “panic stations” at the Treasury with growing acceptance that the policy is virtually “unenforceable” and “likely to be ditched”. If a mother is under no legal obligation to tell the father that she is in receipt of child benefit—unless we do see the end of independent taxation, of course—how can this tax on families work? Currently, the father’s tax status is irrelevant to the mother’s entitlement to child benefit. Can the Minister tell the House how this clawback arrangement will work, especially if parents are divorced or divorcing or separated or separating, or if the mother simply declines to report the tax status of the father of her children to Her Majesty’s Revenue and Customs officials?

Can the Minister also tell us whether the rumour that the Treasury is considering a new database to match mothers with their partners is true, and would that not make the Child Support Agency seem a bit like a pocket calculator by comparison? Will the Minister spell out the mechanisms the Treasury envisages in respect of this policy, and the enforcement mechanisms it is planning to put in place to take these sums off families earning approximately £45,000 or above? Will the Treasury be relying on a self-certification approach by the partner not in receipt of child benefit? Will the Minister take this opportunity to state for the record that the Government will continue with the important principle that mothers should be the primary recipient of child benefit payments?

The poor design of this policy could easily undermine revenue plans too. Clawing back the cost of the benefit from higher rate taxpayers through the tax system would be “intrusive” and involve lots of form filling. That is the opinion of one of the Chancellor’s own advisers on tax policy, John Whiting, whom the Chancellor recently appointed as the tax director of the Office of Tax Simplification. Mr Whiting suggests that the policy would be an administrative burden that would merely “make a dent” in the estimated £2.5 billion of savings the Treasury claims the change would bring. We are not alone in questioning the logic of this ill-thought-through proposal, therefore. We know from the reporting on this policy that the Chancellor rode roughshod over his Cabinet colleagues when it was announced at the Conservative party conference. Clearly many in the Cabinet were oblivious to those plans when the Chancellor sprung them on them, but it is now clear that he also rode roughshod over those in the civil service. They were insufficiently included in the plans for this policy and had he consulted them properly, they would have pointed out the chaos that it would create.

These are serious matters affecting millions of families across the UK, not only millionaires such as the Chancellor’s family or the Prime Minister’s family, but those on relatively modest incomes. They include police officers, college tutors, health service workers, senior teachers, pharmacists, paramedics, train drivers and air traffic controllers. Many are caught up in this category, the arbitrary design of which will create great unfairness with punitively high marginal rates of taxation.

The hon. Gentleman seems to want to convince the House that £45,000 a year is not very much money, but he should tell that to my constituents, whose average annual earnings are less than £20,000; that is what the average job pays in Dover and that is the norm in many parts of this country outside London. My constituents look askance at the fact that people on £45,000, a sum of earnings that they aspire to and dream of having, receive benefits. They tell me on the doorstep that they think that that is wrong, in principle, and that this measure is the right one to take.

The hon. Gentleman is doing his job, supporting a policy that was not the one espoused in his party’s manifesto. It certainly was not the policy that the Prime Minister advocated before the election when he promised to protect universal child benefit—he now says that it should be taken away from these “rich” individuals, but I do not agree. I do not believe that this class of middle-income families is necessarily finding life easy on this particular range of salaries. We have to speak up for that squeezed middle in society and that is absolutely what the Opposition intend to do. Where a policy could see a £1 pay rise for these families result in the loss of £2,000 in child benefit, depending on the number of children involved, it involves a punitively high rate of marginal taxation that surely even Members on the Government Benches would agree is flawed.

At last week’s Treasury Committee sitting, the director of the Institute for Fiscal Studies, Mike Brewer, described these cliff-edge issues as “economically perverse” and “distorting”. He also said that it “seems unfair” that two families in different circumstances but perhaps separated by very small sums should be “treated so differently”. His colleague, Carl Emmerson, added:

“The income tax system, by being individually based, is basically neutral about whether individuals”

should be taxed separately or together and that that is an “advantage” in the tax system.

My right hon. Friend the Leader of the Opposition has rightly asked,

“why should a family on £45,000 where one person stays at home lose their child benefit—£1,000, 2,000, £3,000 a year—but a family on £80,000 where both partners… are working should keep their child benefit?”—[Official Report, 13 October 2010; Vol. 516, c. 322-23.]

Even the Treasury has, begrudgingly, had to publish some statistics showing that this policy would create all sorts of anomalies and odd behaviour. It published a figure in the Budget suggesting that it expected to lose £270 million each year in revenue from people tax planning as they navigated this madness.

A family with three children on £33,000 a year after tax is to lose £2,500 from 2013—that is the equivalent of a 6p in the pound hike in their income tax. Middle-class families are being hit, and it is particularly pernicious of the Conservatives and the Liberal Democrats to focus on children in this way as a means of raising money—they are clubbing families over the head with a higher tax burden while, of course, letting the banks off the hook. At the very least the Treasury should accept the new clause and agree to publish an independent review of the consequences for independent taxation if its plans for child benefit taxation of higher rate paying family members are to proceed.

The conflicting press reports on this policy that we have seen over the last couple of months mean that the Government must explain their plans to withdraw child benefit. Like many commentators and Members of this House, I am deeply concerned by proposals that will see a lone parent or single-earner couple earning just above the higher rate threshold lose their child benefit while a dual-earner couple both earning just under the threshold would continue to receive it.

The reform could also distort incentives for those with incomes around the higher tax threshold. As I understand it, those earning above the 40% tax bracket will no longer receive child benefit for their children—that bracket is currently about £44,000. The system is complicated by the fact that that rule applies to single wage earners. If both parents earned, say, £42,000—or £84,000 between them—their family would continue to receive child benefit.

The Treasury has a duty tonight to explain how its plans to withdraw child benefit from families with a higher rate taxpayer could work in practice. Some tax experts have said that ending child benefit payments to couples with one higher rate taxpayer earning more than £43,875 a year is unenforceable. The method of recovery will require taxpayers to submit annual paperwork, new HMRC tax codes and a change in the law to cover parents who separate or live apart.

Higher rate taxpayers will need to tick an honesty box on their tax return, stating whether they or their partner have received child benefit in the past year, and it is said that they will be fined if the information provided is incorrect. According to press reports, taxpayers might face fines if they fail to disclose whether their household received child benefit. On 29 October 2010, the Financial Times stated:

“From 2013, higher-rate taxpayers in the self-assessment system will be required to tick a box declaring that their household claims child benefit. They will then pay a higher rate of tax corresponding to the level of benefit, which is worth £1,700 to a couple with two children.

Those on the pay-as-you-earn tax system will be asked in a letter to disclose if their household claims the benefit—a declaration that will put them into a different tax code. The benefit would then be deducted in the next tax year, in an ‘end-year adjustment’ similar to that in the tax credit system.”

We have seen the problems that that has caused over the past couple of years. The article went on:

“Legislation to implement the changes will include laws setting out what will happen to the benefit if parents split up, remarry or share custody.”

To me, it is not clear how a system based on an end-year adjustment would cope with in-year changes in circumstances such as the birth of a child, a partner moving out or a new partner moving in. It is also unclear what a household will constitute for these purposes. As I have said, parents who earn £42,000 each would keep the benefit—worth £1,752 a year for a couple with two children—whereas a family relying on one income of £44,000 would lose out. Someone with children on a £42,000 salary would be better off than someone on a £45,000 salary, as they could keep all their child benefit.

At present, there are no definitions of “household” in either tax or child benefit law. Defining a couple is not easy, particularly if a couple split up. He might be a higher rate taxpayer while she is the carer for the children—or, with equality fresh in the mind, she could be a higher rate taxpayer while he is the carer for the children. When they part, she could claim child benefit as she has little other income, but if the rules treat them as still part of the same household—perhaps they have split up but are still living together—she could lose her child benefit, or even have to pay back whatever she has received.

We already knew that the plans were unfair, but what has been increasingly clear is that they simply have not been thought through. We do not even know if the provisions on independent taxation will be repealed. If mothers are under no legal obligation to tell fathers that they are in receipt of child benefit, how can this tax on families work? The policy will simply create more work; there will have to be a lot of checking up. People will have to put a lot of effort in to get it and to make sure they are getting the right amount.

We are now seeing significant confusion about what the policy means in practice. Quite simply, it is creating more questions than answers. In the June emergency Budget, it was announced that the income tax personal allowance will rise by £1,000 to £7,475 from April 2011. However, the 20% tax band is being squeezed so as not to benefit higher rate taxpayers: whereas the 40% tax band currently starts at £43,875, with no tax on the first £6,475 and 20% on the next £37,400, that will change from April next year. At that point, the 40% tax bracket will start at £42,375, with a personal tax allowance of £7,475 and a reduced £34,900 tax band of 20%. Does that mean that people could lose child benefit even if they earn less than £44,000 from April next year? If that is the case, an additional 800,000 wage earners will be brought into the higher rate tax band from next April, which makes a mockery of the Government’s claims to be on the side of hard-working families. If tax allowances remain as planned, those earning more than £42,375 will be denied child benefit. The Government must answer these questions ahead of April 2011.

Let me make three very quick points, parts of which will pick up on comments that have already been made.

The first point is the issue of declaration. My hon. Friend the Member for Nottingham East (Chris Leslie) mentioned last week’s Treasury Committee hearing, during which I asked the Chief Secretary to the Treasury how he intended to enforce the new child benefit measure. He said that the coalition Government will introduce legislation to require higher rate taxpayers to declare whether child benefit is coming into the household. Such a declaration is partly dependent on information being passed from one partner to the other. The Chief Secretary was very clear that the obligation to provide the information will be on the higher rate taxpayer. Why not also introduce a requirement in respect of the other half of the couple? As the Chief Secretary did not answer that, will the Minister now shed some light on it and reveal whether the Treasury has taken proper legal advice? The hon. Member for Dover (Charlie Elphicke), a former tax lawyer, is in the Chamber. I wonder whether he advised his colleagues.

I thank the hon. Gentleman for his kind words. As a lawyer, I might be very cautions, but as someone who has been in a relationship and who has found that couples tend to talk, I will ask the hon. Gentleman whether he is aware of any couples with children who do not share their financial information?

I do not usually ask my friends and acquaintances whether they share financial information with their partners, but I hear the comments of the hon. Gentleman.

My second point is, how will it be possible to prove the connection between the mother and the higher rate taxpayer, bearing in mind the problems that we have been having at Her Majesty’s Revenue and Customs? Given that HMRC’s resources have been cut over the past few years, how will it be able to keep tabs on the situation between couples on a monthly basis? As some 1.2 million families will be affected by the new measure, will HMRC be given any more funding to enable it to enforce the new change and to keep tabs on what is happening out there in the nation?

Finally, John Whiting, joint interim head of the Office of Tax Simplification, has obviously commented on the problems of the new measure, but what is the point in setting up such an office when the people working within it and those heading it up have not been properly consulted or asked to advise on this measure? Surely, if the Government are not minded to accept this new clause, it would be a good idea to delay the introduction of this measure and ask the Office of Tax Simplification to do its job and advise on how it can be more efficiently introduced.

My hon. Friend makes a powerful case to look again at the detail. Does he agree that if the objective was to be fair and to put the burden on to the broadest shoulders, surely it would have been better to raise the marginal rate of tax from 40% to 41% , so that the people who have more pay more, and not just clobber people with children, who now have to pay more for their children. Those are couples, only one of whom might be working, where the 40% does not signal the best-off households.

No doubt the Government will consider my hon. Friend’s interesting suggestion and comment accordingly.

One of the main problems with the new measure is that people fall off a cliff edge when they hit the higher rate. Have the Government considered introducing a taper mechanism to prevent that anomaly from occurring, because obviously that is where the unfairness shines through?

The new clause would link the future withdrawal of child benefit from higher rate taxpayers with the principle of independent taxation. The payment of child benefit is clearly a spending issue and is not directly linked to the Bill. I therefore shall not try your patience, Madam Deputy Speaker, but it is important to set out the background to the change.

The spending review set out how the Government will tackle the deficit that they inherited from the previous Administration. Given the comments that have been made by the Leader of the Opposition—I congratulate him on becoming the recipient of another child benefit payment, and wish him and his family well—as well as by the hon. Member for Nottingham East (Chris Leslie) and several other Labour Members today, I take it that the Labour party remains opposed in principle to our reform of child benefit and believes that it should continue to be paid to all households.

Does the Minister agree that this is a case of reforming in haste and repenting at leisure? However tempting it might be to put in place something that sounds simple in principle, the complexity of the proposal should have been examined. The Government could have acted differently, such as by making child benefit part of taxable income. I do not necessarily suggest that that would be the best solution, but it would mean that several issues around independent taxation would not apply. If the Government wish to reduce child benefit to some households, there are other ways of doing it.

I take the hon. Lady’s point, but I am not clear about whether her party’s position is to say, “Something should be done, but we don’t like the way it’s being done,” which, I think, is the position that she sets out, or to say, “We don’t think anything should be done at all,” in which case we must include the £2.5 billion that the measure will save the Exchequer—that is an estimate from the Office for Budget Responsibility—as part of our assessment of the Opposition’s fiscal policies.

The Minister cites savings of £2.5 billion, but will he estimate the likely cost of administering the new policy, which will have an impact on those savings? John Whiting has said that the extra burden associated with administering the change in the way it is envisaged will make a fairly big dent in the expected savings.

The hon. Gentleman asks a fair question, but I will not give him a precise number because that is something that we continue to consider. The implementation of any policy clearly involves a cost, but I assure him that this cost will be small when compared with £2.5 billion. I am keen to ensure that the policy does not place an undue burden on HMRC. He made a fair point about HMRC. It faces a budget reduction, even though the Government are protecting it by ensuring that it has more resources to tackle evasion and avoidance, but we are keen to ensure that the burden of administering the policy will not cause it undue difficulty.

We have to take tough decisions and make tough choices, and this is one of the decisions that the Government have taken because we believe it is the right thing to do. We do not think it is fair to tax people on low incomes to pay for the child benefit of those earning much more. We cannot afford to continue providing financial support through child benefit to better-off households where there is a higher rate taxpayer. From January 2013, the Government will therefore withdraw child benefit from families that contain a higher rate taxpayer. Despite the noises from the Opposition, the British people understand that this is a tough, but fair, decision.

Can the Minister explain why the proposal to tax higher rate taxpayers in that way was made and announced before the comprehensive spending review? I put it to him that the reason for that was to warm up the audience and to make out that the comprehensive spending review would be fair and balanced, as opposed to the IFS’s conclusion that it hit the poor two and a half times as much as it hit the rich. Was not the timing of the announcement entirely cynical?

The policy underlines the fact that the Government are looking to address our deficit in a way that is fair, and to ensure that all parts of society play their part and those with the broadest shoulders make the biggest contribution. That is what we are doing. It is remarkable that it is Opposition Members who appear to be trying to prevent that happening, though I am not sure whether they object to the way in which it is being done or whether they intend to fight in the last ditch to defend the principle of universality as it applies to child benefit.

We wanted to avoid creating a complex new means test for household income. To do so would fundamentally change the nature of child benefit and come at a significant cost to the taxpayer. This policy has therefore been designed to avoid affecting the vast majority of the population—some 80%—who are basic rate taxpayers. It also avoids additional systems being developed, as the measure can be delivered within existing pay-as-you-earn and self-assessment systems.

Let me deal with the issue behind the new clause—the principle of independent taxation, which was introduced in the Finance Act 1988. It is a great pleasure to hear Opposition Members applauding the 1988 Budget. If I remember rightly, proceedings in this place at the time were interrupted as the Chancellor of the Exchequer was shouted down by some Opposition Members. Section 32 abolished the provision that a wife’s income was income of her husband for income tax purposes. That remains the case, and none of the proposed changes to child benefit alters it.

Child benefit is provided for a child within a family and it is therefore necessary to consider the family as a group. The policy merely withdraws child benefit from a family to whom it is difficult to justify paying it. Furthermore, the withdrawal of child benefit from families containing a higher rate taxpayer will not affect the personal allowance or rate band applicable to an individual. The changes apply a simple test to ensure that child benefit is not provided to those who need it the least.

Of course, the House will have the full opportunity to debate the changes to child benefit when they are legislated, ahead of implementation in January 2013. That would be a better time to discuss the various specific issues that have been raised in the course of the debate. Although I understand that Opposition Members may wish to draw a link between child benefit and independent taxation in order to have this debate today, it is clear that the two systems remain separate and independent.

I am trying to follow the Minister’s logic. Does HMRC envisage child benefit continuing to be paid to all mothers, but that higher rate taxpayers will have a sum equivalent to child benefit deducted from their income, on top of taxes?

The hon. Gentleman, who has been somewhat ingenious in tabling the new clause, again seeks to draw me into a wider debate about the implementation of child benefit. He sets out one way in which it could work; in other circumstances, claimants might seek to stop receiving child benefit. However, I must stress that, although he has been somewhat ingenious in raising the issue in the context of the Finance (No.2) Bill, the new clause has nothing to do with independent taxation, so I ask him to withdraw it.

I am astonished by the Minister’s blinkered approach in sticking to the robotic text, “This has absolutely nothing to do with independent taxation,” when it patently does. If a higher rate taxpayer is being asked to pay for income that their partner or spouse receives, that clearly breaches the principle of independent taxation. The hon. Gentleman would not be drawn into the mechanism by which the scheme would be set up, but, given the great fanfare with which the policy was announced at the Conservative party conference, I would have thought that by now the panic stations at the Treasury might surely have subsided, and that he would be able to share with the House exactly how the measure would work.

I am glad that the hon. Gentleman congratulated my right hon. Friend the Leader of the Opposition on the arrival of his new baby. May I, too, add my congratulations to my right hon. Friend? It reminds me that I should have possibly declared an interest in child benefit at the beginning of the debate, but there may be a sufficient quantum of participants to make that unnecessary.

My hon. Friend the Member for Islwyn (Chris Evans) was right to describe the chaos involved in the measure. He asked, will tax circumstances be adjusted for in-year changes in circumstance? The answer is no, unless of course a child happens to be born at the very beginning of the tax year, but perhaps that is part of the Government’s plan: children will be able to be born only at certain parts of the year, or by quarter, so that HMRC is able to apply the tax rules with administrative ease.

My hon. Friend the Member for Streatham (Mr Umunna) pointed out the Government’s sketchy plans in relying on a declaration by the higher rate taxpayer in order to disclose about child benefit—something of which, of course, they may or may not be aware. The fact that the Office for Tax Simplification—again, much vaunted when it was established—does not seem to have been consulted or involved leads me to suspect that the OTS may well have been set up for the benefit of high net-worth individuals, rather than to simplify the tax arrangements of ordinary taxpayers.

The Minister has failed to set out how the child benefit taxation arrangement will work. There are hundreds of thousands of families throughout the country hanging on his words and trying to find out how on earth the scheme will be arranged, particularly given the perversity that will be introduced through the high marginal rate of taxation. Do not let us forget that that extra pound could result in an individual losing £2,000 in child benefit.

In my constituency, my hon. Friend’s constituency and throughout the country, there are women who do not earn any money but live in a household with a partner, receive child benefit and spend the money on their children. In the light of their uncertainty about the future, given what we all know about the divorce rates, those women are critically concerned that the hand of government will suddenly come in and snatch that money from them or their children because of what the man earns. The Bill is clearly an infringement of independent taxation and an attack on children and mothers.

My hon. Friend highlights the fact that I cannot see this being the end of the matter. The Minister suggests that the measure is part of the Government’s carefully calculated spending commitments, but I do not think that they will continue with the plan. There are so many anomalies and problems in its design and operation that they clearly did not think it through properly. They might have looked at the ready reckoner, saying “Oh yes” as they licked their lips at the £2.5 billion that they could take from families, and went straight to the first day of the Conservative party conference to announce their proposal, but it is unravelling by the moment.

The Institute for Fiscal Studies and others are starting to highlight the economic perversities and distorting effect of this measure. Even the sole issue of independent taxation is sufficient to hole below the waterline the Government’s plans to tax child benefit. I therefore hope that we can divide the House on the new clause.

Question put, That the clause be read a Second time.

New Clause 3

Bank taxation

‘The Treasury shall publish a report before the 2011 Budget examining the level of taxation on the banking and financial services industry.’.—(Chris Leslie.)

Brought up, and read the First time.

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

This is a short new clause, which stands in my name and those of my hon. Friend the Member for Bristol East (Kerry McCarthy) and my right hon. Friend the Member for Delyn (Mr Hanson). It might be naive of me to expect that the promises made by the Prime Minister in opposition still hold good today, but this debate is necessary because of his rhetoric then, when he said that

“there should be a day of reckoning”

for the banks—

“A day when we would not flinch from spelling out the rightful consequences of irresponsible behaviour…this is a question of fairness…on behalf of working families”.

He continued:

“we show clearly that…there is not one rule for the rich and a different rule for everybody else.”

Those are the words of the Prime Minister—before the last general election, of course. Time has moved on, the ministerial cars have become very comfortable, but the Treasury has barely lifted a finger to fulfil the promises to reform the tax regime in which the major banks operate. Perhaps that is a convenient state of affairs for the Conservatives and Liberal Democrats as they desperately try to shift attention from the banks’ culpability for the state we are in, but there is still an urgent need to take stock of their contribution to repairing the public purse and to see decisions taken that might help to alleviate the looming crisis of public service redundancies and cutbacks.

The Chancellor’s spending review, to which the Opposition obviously take great exception, is based on the pretext that “There is no alternative”. In other words, anyone who even dares to murmur that there is any other course of action is somehow using flawed, unreasonable or unrealistic logic. That not only insults the intelligence of the public at large, but is profoundly short-sighted, as there are a great many alternative strategies that the Government should be considering. However, they insist that there is no plan B.

The new clause would shed further light on the facts behind the claim that there are no alternative revenues that could alleviate the burden of service and welfare cuts, which will fall heaviest, as we know, on middle-income families and some of the poorest adults and children in this country. We surely owe it to those people—our constituents—to try harder to find ways to close the tax gap, to create growth and new jobs, to generate new income and to bear down on the tax avoidance that costs billions of pounds each year.

Let us remember why we have the budget deficit. Contrary to the spinology that we will no doubt get from Government Members, who are obviously desperate to politicise the deficit in the hope of providing cover for their ideological scaling-back of public investment, our national debt was caused primarily not by a spending spree, as they claim, but by a dramatic collapse in revenues to the Treasury from income tax, VAT and corporation tax as a result of the global credit crunch and recession. The £132 billion rise in the deficit in the last financial year was, yes, partly the result of £53 billion in extra social protection expenditure, which was necessary, for example, for unemployment benefits. More importantly, however, there was the £79 billion decrease in revenues. It is that collapse in revenues, which was compounded by the need to spend billions shoring up the banking system and preventing its collapse, that the Conservative party consistently and mysteriously want to overlook.

Let us remind ourselves of the banking bail-out, because significant sums were spent, and had to be spent, on it. Those sums included £76 billion to purchase shares in the Royal Bank of Scotland and Lloyds Banking Group, £200 billion to indemnify the Bank of England against losses occurred in providing liquidity support, £250 billion to guarantee banks’ wholesale borrowing and strengthen liquidity in the banking system, £40 billion to provide loans and other funding to Bradford & Bingley and the Financial Services Compensation Scheme, and £280 billion agreed in principle to provide insurance for a selection of banking assets. All in all, it was the credit crunch, as we know, that led to the banking crisis and the recession. It is those things, not the public service inflation on which the Conservative party is completely fixated, that were the underpinning factors fuelling the deficit.

The banks owe taxpayers a massive debt of gratitude—that much is clear. They would have gone bust were it not for the deficit facility that we are now grappling with. My constituents are therefore repeatedly asking one simple question: will the banks be made to pay their fair share, getting us out of the deficit that they helped to create because of their business mistakes? Before the election, the Prime Minister gave every impression that that would be so, but so far very little action has been taken.

I do not want to penalise the banking sector to the point of annihilation; nobody wants our economy’s financial services sector to fail further. Indeed, it should be resurrected in a more sustainable, diverse and healthy form for the future. However, when the Government are raising VAT on the rest of us, cutting police budgets, for example, by 20%, severely squeezing students and those on housing benefit, and forcing the closure of fire services, libraries and community services—the list goes on and on—we should surely examine more closely the level of taxation that the banks are paying. That is the point of new clause 3.

The Government say that the banking levy is the answer—that is what we will hear from Ministers tonight—but let us explore that point. Although the banking levy is in principle welcome, it is now patently obvious that it has been set at a woefully inadequate level. When the Chancellor unveiled it in the June Budget, it was greeted with relief in the City, which had been bracing itself for a hit of about £5 billion a year. The eventual 0.07% tax that the big UK banks will pay on their assets is less than half the rate envisaged in the United States when it was planning to implement a parallel scheme.

Most City experts know that, in reality, the banks are getting off quite lightly. Citigroup estimated that Lloyds could pay a levy of only about £268 million in 2012, compared with £292 million for RBS and £368 million for Barclays, and that for HSBC the levy for the same year could be £311 million. Deutsche Bank analysts said that the Budget was “a good outcome” for the banks, and a City insider was quoted in the Daily Mail as saying:

“Privately, some banks will have a feeling of glee at the way this has worked out. But none would be stupid enough to say anything openly.”

HSBC’s banking analyst said:

“We’d expect most domestically-orientated banks, for example Lloyds, to be better off after four years than they were pre-budget”.

This is interesting. I have seen many of these quotes before, and I am certainly minded to support the new clause, if the hon. Gentleman pushes it to a vote. An examination of the level of tax on banking is sensible, but I would like to know what the Labour party proposes for the level of taxation, given that every billion out of the banks is about £10 million to £15 million less to lend in the real economy. I am curious, therefore, to find out how punitive the Labour party would be.

I accept the hon. Gentleman’s point. We have to be prudent in how we address these questions, and I hope to come to some of the matters he raises as we explore corporation tax and so on. If he bears with me, I will—hopefully—elaborate.

UBS analysts said that they expected Lloyds and HSBC to benefit by 2012 because of the cut in corporation tax bills, which in their case was larger than the hit they expected to be sustained through the banking levy. It seems, therefore, that the banking levy is playing quite a small part, perhaps a walk-on character—

I would like to put a couple of points to the hon. Gentleman. First, taking the case of Lloyds and RBS, are there not likely to be substantial carry-forward losses in those banks, which will not be paying corporation tax for many years to come, let alone by 2012? Secondly, were they then to face a higher rate of tax, which I believe he is proposing, would the cost on those banks not result in the devaluation of their shares, which are now owned by the public? Surely, it would go round in a circle.

I will come to deferred tax in a moment, because the corporation tax questions require much greater scrutiny. That is one reason we tabled the new clause. I hope that the hon. Gentleman will join me in the Lobby, should we divide on this issue—unless the Treasury concede it—and that he agrees that we should have a review of the level of tax the banks are paying. If they are paying too much, which I doubt, I will be happy to look at the evidence and the facts. However, there is opacity about these questions, and given the hit falling on the shoulders of families and children in this country, it is incumbent on us to ask whether the banks will be paying their fair share. That is all we are asking this evening.

We think that the Government’s banking levy has been a limp effort so far. Given some of the corporation tax changes, there is a bit of a cashback arrangement for some of the banks. I would like to touch on three areas of corporation tax that I think require more serious and rigorous review. The first is that cashback boost for the banks resulting from the reduction in corporation tax rates announced in the Budget. The Exchequer Secretary confirmed in a written answer that over the lifetime of the spending review the Treasury expects that the cut in corporation tax main rate from 28% to 27%, and eventually down to 24%, will return £1 billion to the banks—specifically to the banks:

“£0.1 billion in 2011-12, £0.2 billion in 2012-13, £0.3 billion in 2013-14 and £0.4 billion in 2014-15.”—[Official Report, 1 July 2010; Vol. 512, c. 610W.]

It is dangerous to intervene given that I do not have the answer to which the hon. Gentleman has referred in front of me, but my recollection is that the answer to that parliamentary question was in the context of financial services companies as a whole, including insurance firms, not specifically banks.

It might well be that in that written answer the Exchequer Secretary’s definition of “financial services” extends slightly beyond the banks. I am happy to concede that point. Of course, we framed the new clause in order to explore the tax burden not just on the banks but on financial services more widely. However, even the hon. Gentleman would have to concede that the banks will probably be the principal beneficiaries of the corporation tax cut that he is choosing to give them at a time when he is taking money from young, pregnant mothers—the health in pregnancy grant, to name one example of an incongruous decision that might be questioned by our constituents.

I can see that the hon. Gentleman is slightly confused about the written answer, so I want to clarify it for him, as I have a copy of it. The figures he gave relate to “financial sector” companies, so does he accept that he got his figures wrong when he said he was talking specifically about the banks?

The hon. Lady has several thousand civil servants—for the time being, at least, before they are made redundant—in the Treasury to help her with the costings for such questions. I can only go with the facts published in Hansard. Perhaps she could save me the trouble of tabling a further written question to find out what the bank cashback arrangement will be on corporation tax. I will give way to her if she has to hand the precise figures on what the UK banks will be gaining from the corporation tax cut. Can she tell us what those figures are? If not, I will table a written question. If she can swiftly answer that, it will be for the benefit of the House. I am pretty sure that it will be a net gain for the banks.

Let me deal with this directly. The Treasury and Her Majesty’s Revenue and Customs figures that we have look at hits by sector—in this case, the financial services sector, which includes not only banking but insurance and financial auxiliary services. The hon. Gentleman quoted his figures and suggested that they represent a net gain. In fact, by the time we get to 2014-15, the bank levy will be £2.4 billion. At the same time, the corporation tax cuts in 2014-15 will benefit the financial services sector by £0.4 billion. However we divide £0.4 billion, it is hard to see how it will ever be higher than £2.4 billion.

Were those the only two relevant factors, that might be the case, but of course they are not. There are other tax changes through which the banks will more than benefit from the arrangements. If the Exchequer Secretary had had the patience to wait, I would have elaborated on that. I will come to that quicker.

It is important that the Exchequer Secretary listens to those experts who have talked about the benefit to the banks from the corporation tax change. Lloyds Banking Group plc could gain more from a cut in corporation tax than it loses under the new banking levy, according to analysts at Redburn Partners legal practice. Lloyds, 41% of which is owned by the British Government, might see a 3% rise in its earnings per share in 2012 as corporation tax begins to fall to 24% from 28% over those four years, according to Redburn analyst, Jon Kirk. There will therefore be a net positive for Lloyds. That is one example of a net gain for the banks.

Secondly, the banks have already found a way of minimising their corporation tax liabilities. A report published only last week by the TUC on the corporation tax gap showed a gap between the headline rate of corporation tax paid and the actual or effective rate of corporation tax paid. The TUC’s analysis of data on UK corporate returns showed that the larger a company is, the better it tends to be at reducing its effective rate of corporation tax, which fell from 28% in 2000, when the headline rate was 30%, to about 23% in 2009, when the headline rate was 28%. On that basis, the TUC’s economists predict that by 2014, the largest companies will be paying corporation tax at a rate of no more than 17% on average, while small companies will still be paying corporation tax at 20% or more.

The hon. Gentleman will know that there are all sorts of reasons why the headline rate of corporation tax may not reflect the rate of corporation tax that is actually paid, which are to do with credits for R and D, and all sorts of things. He keeps quoting what the TUC report says about larger companies, but what does it say about the banking sector?

The TUC says that the effective rate of corporation tax for the banks will fall from 25% in 2000 to below 20% this year, which means that, in reality, they are already paying a rate that is below the headline rate that small firms pay. Those findings are certainly eye-catching. All I am saying in new clause 3 is that they merit further review and consideration, which would be a reasonable step to take. Indeed, those findings suggest that we could even be heading towards a regressive corporation tax system in the UK. Small businesses should be paying less in corporation tax than the banks, but the evidence suggests that that might not be the case.

The third wheeze that the banks might benefit from, in their navigation of the corporation tax system, is known as deferred tax, which can be defined as the tax liability that might be payable at some point in the future because of transactions that have already taken place, albeit where there is no certainty about when it will have to be paid. Deferring the payment of tax is not something that ordinary taxpayers can indulge in with great ease, yet it appears that the banks are playing that game on a gargantuan scale, according to the findings of Richard Murphy, the director of Tax Research LLP. He suggests in his recent report that the banks’ deferral of tax reserves are absolutely phenomenal. He calculates that a sum totalling nearly £19 billion, which is nearly half what this country spends on capital projects annually, might not be paid by the banks in corporation tax as a result. He describes that as

“an extraordinary double subsidy going on for these banks.”

Not only were the banks underpinned by the taxpayer in 2008—they are still underpinned in the form of the guarantees offered by the Treasury—but they may receive another fillip, he argues, from that deferred corporation tax gain.

Unless my memory is playing tricks on me, at least one of the nationalised banks used those unused or deferred tax assets to pay for the asset protection scheme, which was set up—rightly—by the Labour Government in the previous Parliament. Without those unused tax assets or that deferred tax, the asset protection scheme would not have been possible, thereby imposing an even bigger burden on the banks, so I am not quite sure where the hon. Gentleman is going with this.

I am not making any particular proposals at this point; I am simply saying in new clause 3 that we should review the level of tax that banks are paying. There may be perfectly good and justified reasons for it, but we are talking about enormous sums of money. If, as some allege, the banks are playing a canny game, with sums of money that might have prevented many of the swingeing cuts that we are seeing to public services, it is incumbent on us, on behalf of our constituents, to ask those questions. If we are indeed “all in it together”, as we are constantly told, we should ensure that the banks pay their fair share and do not leave the rest of us picking up all the bills.

Banker bonus season is around the corner. It seems rather than showing restraint, the bankers may be showing a return to form. Last week, Deutsche bank reported its third quarter results, saying that it had set aside £4 billion in the bonus pool for its corporate and investment bank over the first nine months, amounting to around €285,000 per employee. According to the financial services recruitment firm Astbury Marsden, banks and hedge funds are stepping up their bonus buy-out offers, as they try to prise key staff from their competitors. Goldman Sachs, a Wall street bank with a large British operation, has managed to set aside around £236,000 per employee in compensation for the first nine months of the year, which is obviously less than the $527,000 that we saw this time last year, although it still demonstrates that potential pay-outs are being lined up in the City for February, when they are traditionally handed out.

Richard Lambert, the outgoing director general of the CBI, has called for a global ceasefire between banks, to stop bonuses spiralling upwards, thereby further undermining the public’s trust. In his speech to the CBI’s annual conference this month, he said:

“Carrying on with business as normal would seem arrogant and out of touch,”

pointing out that many workers were facing job cuts and pay freezes. Those comments came as a survey found that seven out of 10 bankers expected to take home more pay this year, with half expecting a bigger bonus than last year, according to the website eFinancialCareers. City head-hunters Morgan McKinley found that 48% of financiers are expecting a higher bonus. The Centre for Economics and Business Research has predicted that £7 billion is likely to be paid out this year.

The former Chancellor, my right hon. Friend the Member for Edinburgh South West (Mr Darling), wisely instituted a bank payroll tax on banker bonuses while Labour was still in charge, netting some £2.5 billion for the Exchequer. Yet despite the coalition agreement promising to

“bring forward detailed proposals for robust action to tackle unacceptable bonuses in the financial services sector,”

nothing significant has yet materialised from the Government. In fact, worse, the Government now appear to be rowing back from their commitments to tackle excessive banker bonuses. Last Monday, the Treasury Minister in the House of Lords, Lord Sassoon, told peers that

“the Government have taken action to tackle unacceptable bonuses in the banking sector,”

although it was not quite clear what that action was. He continued:

“The Financial Services Authority is updating the remuneration code, which will ensure that bonuses are deferred and aligned with the underlying risks, and significant portions of any bonus will be paid in shares or other securities,”

which was not something that originated with the Conservatives. He went on:

“Employees in this industry will no longer receive all their bonuses in cash while leaving their shareholders, and potentially the taxpayer, exposed to the long-term consequences of the risks they take.”

When asked by my noble Friend Lord Myners whether that meant that future bonuses would be “deemed to be acceptable”, Lord Sassoon merely reiterated his earlier remark, saying:

“My Lords, what I said was that we have indeed taken action”.—[Official Report, House of Lords, 1 November 2010; Vol. 721, c. 1417-18.]

Has my hon. Friend noticed that in the same package of measures in the emergency Budget—this was also touched on in the comprehensive spending review Green Book—there is also provision for a remuneration disclosure scheme? In the emergency Red Book and the CSR Green Book, we were told that the Government would come forward with details on how they would implement the scheme, which would require greater transparency in the financial services sector, so that the country could see what those in the sector were earning and whether there were irresponsible remuneration packages in place. It seems that the scheme will not now be implemented in time for the bonus round that my hon. Friend has just mentioned.

Absolutely, and it is no coincidence that it is on the first page of promises in the coalition agreement—actually, the reason is alphabetical; the first page starts with b, for “banking”—that many of those promises, including the promise to tackle banker bonuses, were made. The Government have tried to suggest that they are being tough and that they will take action, but that action has not been forthcoming. I want to hear from the Minister whether the Government are now content with the current framework, in which higher banker bonuses look set to continue to be paid. If not, will he say when the Government will bring forward proposals to act? It is a specific and simple question. The House wants to hear what the Minister has to say.

The coalition agreement also promised to use net lending targets for the nationalised banks as a means of getting credit flowing to businesses, as the hon. Member for Dundee East (Stewart Hosie) has suggested. Yet last week, the Prime Minister again shifted his stance. In a meeting with business leaders in Hertfordshire, he stepped back from that pledge, and indicated that lending targets for banks would not be reintroduced. He said:

“You can go for lending agreements with the banks. The trouble is, what I find with lending agreements is that they will promise to do a certain amount of lending to one sector, but they’ll shrink it somewhere else.”

His comments were followed by similar remarks from the Minister with responsibility for small businesses at the Department for Business, Innovation and Skills, the hon. Member for Hertford and Stortford (Mr Prisk). Last Monday, the Government published their response to the Green Paper consultation on financing the economic recovery, and it was conspicuous by its absence that no mention was made of net lending targets. Have the Government softened their position on the pursuit of net lending targets to business?

During the summer, the Chancellor said that he would be exploring the costs and benefits of a financial activities tax on profits and remuneration. He repeatedly said that he would consider such a levy on the total profits and remuneration of financial institutions rather than on individual transactions, and the European Commission backed the financial activities tax, but when it was brought forward for discussion at the EU Council summit on 28 September, Ministers seemed to be rowing back from even that pledge. Will the Minister tell the House where the Government stand on the proposal for a financial activities tax? The rumour was that the Government did not want that idea going forward to the G20 summit in Seoul this coming weekend. If so, why?

Many of our constituents will be aware of the proposal from 50 or so charities and other voluntary bodies for a financial transactions tax, which is slightly different from a financial activities tax, and would apply to a wide range of individual capital movements, including equities, bonds and derivatives. That Tobin tax or Robin Hood tax deserves a thorough review, although clearly there are arguments for and against with regard to the details and the relative impact on London as a centre for financial transactions. Nevertheless, the Government have singularly failed to respond to that campaign so far. Any review of banking taxation would need to analyse the case for a financial transactions tax far more rigorously as it is a serious proposition meriting a serious response. All in all, the banks’ tax position needs a far more serious review than the piecemeal commitments offered by Ministers so far.

We want to review it. Does the hon. Lady? Is she interested in looking at the proposition, or is she ruling it out completely?

I note that the hon. Gentleman failed to answer my question. I will respond to him broadly when I have heard the rest of the debate, and when I have a chance to respond to his new clause.

I thought it was a simple question. I thought the whole point of a debate was to exchange views. I am happy to review the financial transactions tax. It is an important proposition, and it deserves serious consideration. The Minister does not seem to know whether she is allowed to review it. Perhaps some inspiration has come down from on high. There is scurrying around, and I see that the Chancellor has been paging her officials. I am sure that inspiration will come to her shortly.

Will the Minister say whether there should be a change in tax policy to rectify some of the loopholes, such as those in corporation tax? Should there be a further review of, for example, the bank payroll tax? Should banks have their right to carry tax losses forward limited so that they expire after a specific time, or would that be detrimental? Clearly, the Government’s feeble attempt to recoup something from the banks through the banking levy alone is barely denting their balance sheets and is dwarfed by, for example, the deferred tax assets that the banks are wielding according to the report.

Ministers should concede that the whole matter needs clearing up urgently if they are to have any hope of preventing widespread public cynicism, discontent and anger. In short, as things stand, all we see from the Government is a puny banking levy, banks still using corporation tax loopholes at taxpayers’ expense, promises on bankers’ bonuses unfulfilled, promises on banks’ net lending targets more distant than ever, and inaction on reforms to the banking taxation system. The taxpayers of this country deserve better.

Since coming to the House, I have seen a lot of history being rewritten. We are told whenever we stand in the Chamber that we must apologise for the economy, but to coin a phrase from The Sun on the day after the general election in 1992, “It was the banks wot did it.” There is widespread public anger with the banks, and people believe that they are getting away scot-free.

At my surgeries, in my local Labour party and out in the streets, people ask me why our nurses and teachers are bearing the brunt of the deficit—what about those casino bankers? If it were not for their reckless practices, why did the then shadow Chancellor just before the general election commit to follow Labour’s spending plans for two years if we were so bad at running the economy? The simple fact is that the banks have not paid the price for the deficit that they helped to run up.

The new clause is not about destroying the banking system; it is about strengthening it, which means changing it and making it mixed. I know that this is outwith the amendment, but I would like a mutual element in the banking system, and that could start with Northern Rock. The simple fact is that the banks received £1 trillion. Can anyone imagine what £1 trillion looks like? Can anyone imagine what public works we could do with £1 trillion? Projects in my constituency are crying out for money. The Newbridge Memo, the memorial hall, needs restoration. So much could be done with a tiny part of that £1 trillion. But the bankers remain blasé and people think they are plain arrogant.

If no one believes me, let them look at Lloyds TSB, which this week appointed a chief executive. I will not embarrass myself by trying to pronounce his Spanish name, but we are told he will receive a package of £8 million. Who is worth £8 million, and what message does that send to people who are struggling to get by? It sends the message that the Government do not care how much damage bankers have done—they can carry on as they have been. When we read about such figures, what are we saying to people on the ground? They are the ones who must pay.

My hon. Friend the Member for Nottingham East (Chris Leslie) talked about bankers’ bonuses, and I wholeheartedly agree that something must be done to rein them in. However, I have been a high street banker. I worked for Lloyds TSB, and I know for a fact that someone working as a personal account manager or personal banker is desperate for their bonus at the end of the month, because it makes up their wage. If we rein in the big City bonuses, we must think about the people on the ground. Let us not rein in their bonuses. They still have to pay their bills, and we must think about that. I ask the Government to consider the new clause because the banks really must pay their fair share.

I endorse the comments made by my hon. Friend the Member for Islwyn (Chris Evans). I, too, hear similar sentiments expressed on the streets throughout my constituency.

Opposition Members are not under any illusion that banker-bashing, as it has been called, or reining in bonuses alone will sort out the problems with the financial services sector. It is important to reform the way it operates generally, which is why I welcome the banking commission that the Government have set up. Its terms of reference are sensible and, as a member of the Treasury Committee, I look forward to providing some input to that.

There are legitimate questions to be answered on whether the financial services sector is doing what the Chancellor said in the emergency Budget he would require it to do. He said:

“I believe that it is fair and right that in future banks should make a more appropriate contribution, reflecting the many risks that they generate.”—[Official Report, 22 June 2010; Vol. 512, c. 175.]

That is why I welcome the new clause. We should reflect on the huge contribution that the British public have had to make to the financial services sector since September 2007 and before.

Of course, some banks were taken into public ownership, including Northern Rock, Bradford & Bingley, Royal Bank of Scotland and Lloyds HBOS, but we are not talking only about the measures implemented by the previous Government on the eve of the financial crisis to nationalise or take a public stake in those banks. A package of measures was also put in place for the many other banks that were not taken into public ownership, as my hon. Friend the Member for Nottingham East (Chris Leslie) has mentioned. In addition to the special liquidity scheme, there were the inter-bank lending guarantees and the banning in 2009 of short selling practices.

All those factors contributed to helping the entire sector and, as a result, those banks are still operating today. Their balance sheets are looking far healthier and, during the summer, the five biggest players in the sector reported half-year pre-tax profits of more than £15 billion. So the good times are back in the City. My hon. Friend also mentioned the predictions of the bonuses that are likely to be paid in the current round. Over the weekend, for example, we read that at RBS some £2.1 billion has been accrued to pay staff salaries, benefits and bonuses, compared with £2.2 billion a year ago, at a time when revenue has dropped from £9 billion to £6.3 billion.

I am puzzled by the package of measures in the CSR Green Book that tell us that the banking sector will be required to make a greater contribution. If we look at the banking levy, for example, we see the sum of £2.5 billion being bandied about as the amount that we can expect the banks to pay. However, I have been told in an answer to a written parliamentary question that the amount coming in from them will be £1.15 billion in 2011-12, that it will be £2.32 billion in 2012-13, and that it will reach £2.5 billion only in 2013-14 before falling back to £2.4 billion in 2014-15. My right hon. Friend the Member for Kingston upon Hull West and Hessle (Alan Johnson) has pointed out that, by the end of that four-year period, the banks will be paying less than all the parents who are giving up their entitlement to child benefit, thanks to the measures announced by the Chancellor at the Conservative party conference on 4 October.

I would also be interested to hear the Minister’s comments on the fact that the banking levy is to be implemented in such a way that the banks will not have to pay it on the first £20 million of taxable liabilities. It is extraordinary that they appear to be receiving a tax break before the tax has even been introduced. Will she also comment on the views expressed by the International Monetary Fund on the rate at which the levy is to be imposed? The IMF is clearly of the view that the banking industry in general has been under-taxed, and it has called for the levy to be tripled so that it could bring in at least £6 billion a year. Just think what we could do with the extra moneys! We could reinstitute the future jobs fund, for example.

The IMF’s proposal is quite moderate when we consider what Oxfam is proposing, however. It argues that the levy should be imposed in such a way that it raises £20 billion. That is not even being proposed by Opposition Members at present. I ask the Minister to reflect on whether the measures that appear in the CSR Green Book under the heading “Everyone making a fair contribution” will do as they say they will do—namely, require the banking sector to make a contribution that is proportionate to all the problems it has caused for our constituents.

The Prime Minister will be attending the G20 summit in Seoul this week. Looking back at the G20 summit in April 2009, I believe that we as a country can be proud that we hosted that summit, and that it resulted in a package of measures that had a major effect on the way in which the financial services sector operates. Lord Turner introduced proposals on remuneration in the industry, which were tabled to all the G20 countries. Many of those proposals were adopted. The tax havens that had been operating around the world were clamped down on, and I believe that the banking levy was first proposed in an international context at that summit. Will the Minister tell us what leadership we can expect from the Prime Minister at Seoul this week? What measures will he argue for, and what can we expect to come out of that G20 summit that will make the financial services sector cease the reckless behaviour that led to the global financial crisis and, above all, contribute to paying down the deficit, on which the Chancellor is so fixated?

My right hon. and hon. Friends have asked a number of questions that deserve detailed answers. The new clause calls for a review of the total level of taxation on the banks and the financial services sector before the setting of the 2011 Budget, and at its heart is the simple question of accountability, transparency and openness. It must be made clear to the people of this country that the banks are paying their fair share. It was, after all, the banks that got us into this situation. At a time when this Government are taking so much away from honest, working people—particularly those with families—it is crucial to demonstrate that we are all in this together and that the banks are paying their fair share.

People are facing an increase in VAT, students are facing a trebling of tuition fees, the education maintenance allowance is being taken away, and child benefit is being capped, frozen and even taken away from many people. With all those massive cuts in public spending, it is crucial that we should know for certain that the banks are paying their fair share. That is all that the new clause endeavours to achieve. We want to make it clear that the banks are not continuing with their present bonus culture, and that they are making a fair contribution to the country. After all, it was the taxpayers who delved into their pockets to keep the banks afloat. This is a simple proposal, simply put, about openness, transparency and accountability, and I can see no good reason not to support it. It would give the people of this country great confidence in the Government if they were to accept this proposal tonight.

The new clause relates to the taxation of the banking and financial services industry, and proposes that the Treasury publish a report before the 2011 Budget examining the level of taxation on those sectors. Before I discuss the new clause directly, I think it would be helpful to set out some of the background and context relating to the Government’s approach to taxation of the banking sector. The Chancellor set out clearly in the recent spending review the Government’s objective in taxing the banking industry. We inherited the largest peacetime deficit in UK history, and, during these difficult times it is only right that steps are taken to ensure that the banks pay a full and fair contribution.

I listened with interest to Opposition Members, who appear to have a very blinkered perspective of regulatory issues. They skimmed over their own Government’s part in the regulatory failures that led to the banking sector crisis. It is worth going back to some comments made by the previous Prime Minister, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown). I know he is now making speeches in the House again, but it might have been helpful if he had participated in this debate, given his own involvement in these matters. When opening Lehman Brothers’ new European headquarters in 2004, he said:

“I would like to pay tribute to the contribution you and your company make to the prosperity of Britain”.

He also said that Lehman Brothers

“has always been an innovator, financing new ideas and inventions before many others even began to realise their potential.”

The last Government clearly had a huge role to play in that the regulatory system they brought in during their term in power absolutely failed the British public.

I will give way. I see that Labour Members have now perked up from when they were skimming over their past, as they were so clearly intent on doing. It is more difficult for them, is it not, to hear the failures of their Government being set out so clearly? Let us not forget that the last Prime Minister, back in 2007, described this as a golden age. He obviously felt that the regulatory system he had put in place was a great one, but that was subsequently proved not to be the case.

Does the Minister not accept that there was a move towards a light-touch regulatory model across the entire political system? I am well aware of this because I used to work in the industry myself, and I do not recall the Economic Secretary or any of her colleagues jumping up and down when the Financial Services and Markets Bill went through this House, complaining that it did not introduce stronger regulation. Secondly, did she, like me, hear the comments of the Governor of the Bank of England, Mervyn King, at the Treasury Committee this summer? He was asked whether, if the new regulatory model championed by the Minister had been adopted, the global financial crisis would have been averted—and he said no.

If the hon. Gentleman checked the Hansard of our debates on the original tripartite regulatory system, he would see that we did raise concerns about the nature of that system. We were told that our warnings were wrong. It is not acceptable for Labour Members simply to wash their hands of the regulatory system that they now clearly feel absolutely failed.

In fact, we have to respond to the regulatory failures of the past by returning the role of supervising the banks to the body charged with the overall monitoring of the economy—the Bank of England. That is why we have also set up the Independent Commission on Banking to advise on the reforms necessary to ensure that we are better protected against another banking meltdown in the future.

On that point, I entirely agree with the Minister. A fundamental part of this is the new capital requirements under Basel III—some 7% higher for at-risk banks. Does she not agree, however, that a review of bank taxation, along with the Bank commission and the new Basel III regulations, would be sensible to ensure that we have the balance in the round between taxation and capitalisation, risk and regulation, and supervision both at the UK level and with respect to this rather complicated European structure?

The hon. Gentleman is right that the bank levy itself needs to be viewed in the context of overall policy. He is right that it is not just about the bank levy; we have to look at it in the light of the broader changes around regulatory reform and the work of the Independent Commission on Banking. I will shortly come on to explain what that means for new clause 3.

We know that we have to tackle the regulatory failures of the past. We also know that it is right that banks make a contribution in respect of the risks they pose to the UK economy, but there is no benefit in taking action that would simply drive banks abroad. As the hon. Member for Islwyn (Chris Evans) pointed out, hundreds of thousands of jobs across the UK depend on Britain being competitive in this industry. For the financial services sector as a whole, as of June 2009, it had 1 million employees. The jobs are not just in London and the south-east, as there are nearly 100,000 people employed within the financial services industry in the north-west, while there are between 69,000 and 70,000 people employed by that industry in the east of England and about 90,000 in Scotland. Although there have been serious failures in the past, we also have to remember that many of the jobs that are part of this overall sector do not bring in high incomes, as the hon. Gentleman pointed out.

I am following the hon. Lady’s logic. She is saying that we do not want to do anything that would drive the banks away—that old chestnut again—but is she seriously saying that the proposal in the new clause to have a review of the level of taxation would be enough to frighten them all offshore? Is she really saying that?

I am sure that the hon. Gentleman is following my comments closely. I was setting out the context for the situation in which we find ourselves. I have pointed to serious regulatory failure, which needs to be sorted out, and the fact that we have inherited a huge fiscal deficit, which also needs to be sorted out. In that context, we should recall that the previous Government had said that they would not introduce a bank levy at the national level and that they wanted international agreement before any such levy were put into place. At that time, we argued that we should get on with that, as a Government, and not necessarily wait for international agreement. The Labour Government rejected that.

In our first Budget, we decided to introduce a permanent levy on banks, which we expect to generate about £2.5 billion of revenue each year. The levy reflects the potential risks that banks pose to the UK’s financial system and the wider economy, and it will ensure that banks make an appropriate contribution to deficit reduction that balances fairness with the competitiveness of the UK banking sector. It is also intended to encourage banks to move away from risky funding models that threaten the stability of the financial sector.

We were the first country in the G20 to take such action—the hon. Member for Streatham (Mr Umunna) talked about leadership, and I think this is leadership—and we have been joined by France and Germany, which made announcements on bank levies in June. Germany’s plans for its bank levy have been before Parliament there, while France outlined the details of its bank levy at its budget in September. Hungary, Portugal and Austria have since also outlined plans to introduce bank levies, while Sweden has already introduced a levy. Our bank levy is a permanent one and a regular source of revenue—unlike the one-off bonus tax of the previous Administration.

What does the Minister say to the International Monetary Fund? I have already mentioned the IMF’s views on the level at which this levy should be imposed. Conservative Members are fond of quoting the IMF to us time and again, yet the IMF takes the view that at least £6 billion a year can be raised from this levy. Does she agree with the IMF and, if not, why does she think it is wrong?

The IMF has expressed its own views around levels of taxation. In the broader international context, which the hon. Member for Nottingham East (Chris Leslie) mentioned, there are questions about the introduction of a financial transaction tax and a financial activities tax. Unlike the hon. Gentleman’s party, we were prepared to introduce a bank levy nationally, but there are also discussions taking place about international measures that might be taken.

In fact, over and above the bank levy, the Government are taking a tougher approach to tackling tax avoidance by the banks. Prior to the spending review, only four of the top 15 banks had adopted the previous Government’s code of practice. We have asked Her Majesty’s Revenue and Customs to work with banks to make sure they adopt and implement the code by the end of this month, thereby making the commitment to comply with both the letter and the spirit of the law, and not to engage in or promote tax avoidance.

New clause 3 provides:

“The Treasury shall publish a report before the 2011 Budget examining the level of taxation on the banking and financial services industry.”

We have had some sort of rationale for it, but I have to say that I see little merit in making such a report in isolation. The report itself would be no substitute for the overall strategy for improved regulation and the complementary bank levy ensuring banks make a contribution in respect of the risk they pose to the financial system and wider economy. As set out in the spending review, the Government will continue to monitor tax receipts from the banking sector to ensure that banks make a fair and growing contribution to the public finances as the economy recovers.

In addition, there are, of course, already statistics available on the amount of tax revenue derived from the financial services sector. Historical figures for corporation tax receipts paid by several broadly defined business sectors are regularly updated and published on the HMRC national statistics website. To improve predictability, it is important that the Government provide clarity on the direction of tax policy, and the vehicle through which that is best delivered is the Budget itself. The new clause would require the Government to produce a superfluous report in advance of the Budget and therefore in advance of any announcements that the Chancellor might wish to make about tax policy generally that might impact on the banking and financial services industries.

The Opposition want a report on the banking industry. What the Government want, and what we have, is a strategy to ensure that the financial services sector pays its fair share. We have been clear about what we want to achieve, not only through the bank levy but through the code of practice, and by fixing the banks’ ineffective regulatory system—the system established by the last Government, who let our country down so badly. The new clause does nothing to support those aims, and I ask the hon. Member for Nottingham East to withdraw it. If he is not willing to do so, an apology to the British people for the mess of a regulatory scheme that he left behind would not go amiss.

What cheek the Minister has to start claiming, in that revisionist way, that her party was always saying that it wanted heavier regulation of the banks in the 1980s and 1990s, and that the Labour party was always advocating the lightest of light touches.

The Minister has completely failed to address the substance of the new clause. We were not even arguing for a change of policy, although I think that we may deal with that on another occasion; we were simply asking for a review of the levels of tax paid by the banks. The Minister did not address that. Nor did she address the issue of bankability. My hon. Friend the Member for Islwyn (Chris Evans) rightly distinguished between lower-paid employees in the banking sector and the high-rolling, highly paid bonus recipients who are in a league of their own.

The Government have taken no action on banker bonuses, despite all their rhetoric. As my hon. Friend the Member for Streatham (Mr Umunna) pointed out, although the Government had claimed earlier that they wanted to see the banks paying their fair share, they were quite happy to set the banking levy at a puny level. It was interesting to note that the Minister body-swerved the point about the IMF’s suggestion that the levy should be higher, and I think that we should examine that methodology on another occasion.

My hon. Friend the Member for Scunthorpe (Nic Dakin) rightly observed that new clause 3 simply seeks transparency and accountability, which must be an important part of proving that we are genuinely all in it together, as the Government like to claim. The Government are going to hit the public generally, cutting services, abolishing education maintenance allowances, taxing child benefit and raising VAT; yet they are unable to do anything about the banks.

We accept that the Independent Commission on Banking is investigating the matter and that regulatory reform is needed, but why can we not have a review of the level of taxes? That is all that we are asking for. What are the Government scared of? They have not given us an answer, and I think that we should divide the House.

On a point of order, Mr Deputy Speaker. I have never seen you in the gym, although you may visit it regularly, but when I was there earlier this evening, the Division Bell did not ring. I do not know whether it did not ring in other parts of the estate, but I hope that it will ring on this occasion—although I am here now.

Funnily enough, that is a point of order for me. It may be the first that I have taken.

I do go to the gym, although I do not go to the one to which the hon. Gentleman has referred. I thank him for giving me notice of his point of order. I have asked for someone to be in the gym in time for the next Division in order to ascertain whether the bells are working normally. The hon. Gentleman should be reassured that the matter is being investigated as we speak.

Question put, That the clause be read a Second time.

The House proceeded to a Division.

Mr Deputy Speaker: Order. It has been brought to my attention that there is a problem with the Division bells not only in the gym, but in other parts of the parliamentary estate. I am therefore giving Members a further two minutes to vote in the current Division. In the meantime, may I ask that the bells be investigated in Norman Shaw North as well as in the gym? I also advise all Members to be attentive to the monitors as well as the Division bells, because there may be more Divisions this evening.

New Clause 5

Definition of ‘incapacitated person’

‘(1) The Taxes Management Act 1970, section 118 is amended as follows.

(2) In subsection (1), the definition of “incapacitated person” is substituted as follows:

“‘incapacitated person’ means any person under the age of 18 years or who, within the meaning of section 2(1) of the Mental Capacity Act 2005, lacks capacity in relation to tax or financial matters.”.’.—(Chris Leslie.)

Brought up, and read the First time.

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

New clause 5 takes us into completely different territory from that of the previous debate, and it picks up on a discussion we had in Committee about the legal definition of incapacitated persons. Committee members were concerned by the outdated nature of some of our tax law, under which antiquated terminology can often still find its way into our tax regime through extracts from statutes simply being cut and pasted into today’s legislation.

One such anomaly concerns a definition in the Taxes Management Act 1970, which I am told is still very much a cornerstone of our tax law. It defines an “incapacitated person” as

“any infant, person of unsound mind, lunatic, idiot or insane person”.

Those terms of reference are clearly insulting and demeaning to people who would be regarded as incapacitated. Not only is it out of date for those terms of reference to be extant in our legislation, but it is hurtful to those individuals who may suffer from incapacitation to be categorised and described in such derogatory terms. That definition derives from the 19th-century lunacy Acts and today appears grotesquely at odds with modern terminology, and this insulting state of affairs ought to have been reformed many years ago. That definition relates to section 72 of the 1970 Act, which says that an incapacitated person’s tax liabilities should apply to their

“trustee, guardian, tutor, curator or committee”

as if to a non-incapacitated person.

In Committee, we pressed Ministers to concede this small and surely non-controversial reform. We did not feel that it was a matter of party politicking; after all, it should not be a dividing line between the parties. The new clause is simply and straightforwardly about replacing and modernising the definition of an “incapacitated person” and aligning it with the meaning in the more modern and more appropriate Mental Capacity Act 2005, whose far more flexible and sophisticated definition is less hurtful in tone and more precise in its interpretation. It states:

“For the purposes of this Act, a person lacks capacity in relation to a matter if at the material time he is unable to make a decision for himself in relation to the matter because of an impairment of, or a disturbance in the functioning of, the mind or brain.”

That is a far more appropriate definition.

By updating the definition, we would also update provisions to encompass new arrangements relating to trusteeships. For example, the new arrangements would also modernise those of donees of powers of attorney, who would be properly included in the legal definitions, as well as those of Department for Work and Pensions appointees. I should like to thank the Chartered Institute of Taxation’s low incomes tax reform group—LITRG—for highlighting the issue consistently. It has been championing this minor technical change in the law for at least seven years and has been promised on numerous occasions that, “A tax law rewrite is just around the corner”, “More time is needed for consultation” and so on. I gather that it has been having discussions with officials, following our discussion in Committee. Although LITRG may have cause to trust the Minister’s officials, I believe that time is running out for this change to be made. When the Minister was unable to concede on this point in Committee, I said that we would try to have this debate on the Floor of the House because of the importance and urgency of making this reform.

It is a pity that the Minister has not tabled a Government new clause on Report, but I shall wait to hear what he has to say. We did try to reflect on the points that he raised in Committee. The provision that we had tabled then did not refer specifically to children and we have rectified that by making the appropriate change for the Report stage. As far as I can see, this new clause has no revenue implications and there is no clear reason for any Member to dispute the need to modernise this terminology. There is clear evidence that people are hurt and insulted by the terminology from a bygone age. It therefore seemed sensible to put this point again on Report, and I urge the Minister to accept the new clause.

As we have heard, new clause 5 seeks to change the definition in the Taxes Management Act 1970 of an “incapacitated person”. I appreciate that the purpose of the new clause is not to change the scope of the definition, but to ensure that it better reflects the modern understanding of an “incapacitated person”. Members of the Committee will recall that we debated a similar proposal at the end of the Committee stage. As I explained then, a definition is required to ensure that the obligations of the 1970 Act properly fall to those acting for children or for those with mental health problems. The existing definition can be traced back to at least 1880, and I reiterate that I agree that the wording used, such as “lunatic” or “idiot”, no longer feels appropriate, belonging as it does to the Victorian age, rather than to today’s times.

Before I address the wording used in this new clause, I wish to reiterate to Opposition Members that I welcome this issue having been raised and am willing to take action. That is not an empty promise: I asked my officials to explore quickly what they thought was possible with the low incomes tax reform group. We now better understand what that group wants to achieve and the complexities involved. My officials are working with LITRG and are willing to listen to it and to others about how best to achieve these objectives.

LITRG thought that it should be feasible to change the definition in the next year or two, and I am confident that the Government can work to that timetable in a carefully considered way. In contrast, I do not think that the new clause achieves its objective, nor do I think it is the most appropriate way to make this change. It, like its predecessor debated in Committee, seeks to link the 1970 Act definition of an “incapacitated person” to the Mental Capacity Act 2005.

The provision debated in Committee failed to take into account the fact that children were also included within the existing legal definition of an “incapacitated person”. The revised new clause seeks to remedy that position by including

“any person under the age of 18”.

Once again, I point out that the provision remains deficient, as the definition would inadvertently include Scottish people between the ages of 16 and 18, who are not included within the current definition for most purposes of the 1970 Act. I do not think that the reclassification of that group in a way that is contrary to the position in Scotland is the intention of Labour Members.

In addition, our preliminary discussions have revealed that the reference to the 2005 Act may well create a different definition in practice. The current definition refers to a person’s general mental condition, whereas this provision would depend upon an analysis of a person’s capability at a specific point in time, and the implications of such a change may be significant. It would be irresponsible to make such a change without considering these potential differences thoroughly with the appropriate representative bodies.

The repeated technical difficulties demonstrated in the new clauses serve only to reinforce the point I made in Committee that such changes should not be made in haste, for fear of inadvertently moving groups of persons in or out of the definition. As hon. Members will be aware, the Treasury launched a new approach to tax policy making alongside the June Budget.

Earlier today I made the point, on another matter, that it may be unwise to reform in haste and repent at leisure. I am very pleased that the Minister has now decided to agree with me.

I am delighted if that is how the hon. Lady interprets my remarks, and if that pleases her, it pleases me.

In June, we produced our paper on the making of tax policy and we believe that it is very important to adopt a deliberative and consultative approach and, wherever possible, to consult thoroughly. We wish to avoid the experience of making reactive and piecemeal policy announcements that have been insufficiently thought through and result in unexpected consequences—we saw too much of that under the previous Government. Instead, we believe that appropriate consideration should be given to changes, thus providing an opportunity for those affected to comment and have certainty about our decisions. Any change on this matter should go through that process to ensure that we can come to this House with legislation that will work as intended.

Let me be clear that I agree that the wording in the current definition is outdated and that I am committed to delivering change. As I have said, my officials have already started to work with LITRG and will work with other groups that have the expertise to ensure that we get this right. The hon. Member for Nottingham East (Chris Leslie) has alluded to the fact that LITRG is happy to work with Treasury officials and accepts the need to get this right. I believe that it will be possible to deliver change to the definition in the next couple of years along the timetable that LITRG accepts.

I ask the hon. Gentleman not to press his new clause to a vote, but I hope that he will engage with us on how to make the change behind the clause that we both agree is necessary. I am grateful to him for raising the issue in Committee and today. I agree that this should not be a matter of party political dividing lines and we will seek to address it. It has been of long-standing concern, but the Government are determined to address it, so I ask him to withdraw the clause.

I am impressed that the Minister has taken the time to encourage his officials to meet LITRG. I am pleased that he agrees about the outdated nature of some of these archaic terms: “idiot”, “lunatic”, “insane” and so on should not be part of our modern legislative lexicon. I am interested that yet again he manages to find a flaw in the drafting. It is almost like one of those circular nightmares: no matter what point any Opposition party makes to any Government, there is always a desire to resist by pointing out drafting and terminological problems. I think that the Minister accepts the spirit in which we have been trying to raise this issue.

I agree entirely that it is important to take whatever time is necessary to frame the definitions correctly in law, but we are not talking about designing a whole new regulatory regime for financial services or some convoluted way of taxing child benefit. We are simply talking about a minor change to modernise the terminology in tax law. I am still slightly sceptical about the argument that we need to take another couple of years to do so.

Does the hon. Gentleman agree that it is important that any proposals work for the whole of the UK and not just for one or two parts of it?

Indeed, and that is probably why on this occasion I am happy to accede to the Minister’s request that Treasury officials be given more time to frame the change. However, I think that the patience of the House will be tested if we go for another seven years with these terms still in statute as we go through Finance Bill after Finance Bill after Finance Bill—we are going to have three, after all, this year, with another possibly coming shortly, although it is up to the Minister when that happens. I do not want to be back here tabling similar amendments. I hope that during the Minister’s tenure, before he is promoted to even higher office—I accept that that is probably imminent, whenever the reshuffle might come—he will make a commitment, at least, to show that this was one reform that he was able to champion. I would be grateful for that. On that basis and in that hope, I am happy to beg to ask leave to withdraw the clause.

Clause, by leave, withdrawn.

Clause 4

Seafarers’ earnings

I beg to move amendment 1, in page 7, line 40, leave out clause 4.

In Committee, we discussed the implications of clause 4, which I am happy to discuss again. It seeks to extend to seafarers resident in the European economic area the same 100% deduction from income tax of their earnings from employment as a seafarer wholly or partly outside the UK during an eligible period. I know that this is something about which many Members of the House will be very concerned.

At present the tax relief is available only to those seafarers who are ordinarily resident in the UK, but there are clearly seafarers resident in other EEA states yet not ordinarily resident in the UK who might also warrant the seafarers’ earnings deduction. The measure is listed in the Budget Red Book as costing the Exchequer £5 million annually and we debated the technical details of the clause, such as the navigation of waters beyond the UK continental shelf, how long would be spent away from the UK and how many seafarers are involved in the concession. The Minister said that it was in the order of 16,000.

The Minister also helpfully explained that the clause was brought forward as a result of the European Commission’s decision to challenge the compatibility of seafarers’ earnings deductions with the UK’s treaty obligations and to comply with our EU and EEA associations. It is welcome that the Conservative party is rushing to legislate to comply with these European arrangements. I know that some hon. Members—including the Minister of State, Foreign and Commonwealth Office, the hon. Member for Taunton Deane (Mr Browne), who is sitting on the Front Bench opposite—will be more pro-European than others, but he seems to be persuading the Conservative party towards the pro-European stance. It is interesting that there is no dissent from that interpretation.

In Committee I raised in particular a specific and contemporary issue that has been a subject of some controversy: the impact on the mackerel fishing dispute between UK and Icelandic fishermen. The clause is highly relevant and might have a significant bearing on that dispute, because if enacted it would grant to the Icelandic fishermen—and the Norwegians for that matter—a set of tax relief arrangements that would be very useful to them. I asked the Minister a series of questions on that, but he merely asserted in his indomitable way that the clause was “not relevant” to those discussions. So, I want to try again.

Will the Minister say what discussions have taken place between the Government and the Governments of Norway and Iceland in the drafting of the provisions and in what respect they will be reciprocated for UK-resident seafarers in those countries? Has the Minister spoken with his counterparts in the Department for Environment, Food and Rural Affairs, the Scottish Executive—I know that some hon. Members will be interested to learn about that—and the FCO regarding the impact that the change might have on the sensitive negotiations between the EU, Norway and Iceland over the mackerel quota? I gather that the practice of the Icelandic fishing community unilaterally to declare a larger catch quota for valuable fish, risking the sustainability of fish stocks and disrupting previously settled agreements, has caused consternation in some quarters. Is it therefore appropriate for the Treasury to grant this tax concession to Icelandic fishermen while there is such great sensitivity?

On Friday, I understand that the Icelandic ambassador to the UK, Benedikt Jonsson, met the chief executive of the Scottish Fishermen’s Federation and others to discuss the mackerel dispute at a meeting in Aberdeen organised by the Icelandic consulate. I gather that “frank views”, as they are often called, were exchanged about what constitutes responsible management of that mackerel quota. Iceland continues to assert its right to catch a significantly increased quota this year outside the bounds of the international agreements. What are the UK Government doing to bring the dispute to a sensible conclusion? Would it not be wise to pause on the gifting of the seafarers’ earnings deduction to the Icelandic fishing community until such time that the question over the fair fishing of mackerel stocks is resolved?

Other issues might be relevant, too. Are we, for instance, still confident that the relationships between the UK and Iceland are ensuring that our fiscal position is protected? For example, the UK ought to be getting money back from the collapse of Icesave and other Icelandic banks, but there have been recent suggestions, particularly resulting from protests in Iceland, that there might be some delay in repaying foreign creditors with the priority that is deserved. Is it sensible to be offering tax concessions to Iceland when such negotiations are going on? I understand that there are also some question marks over whether the EEA treaty arrangements necessarily require such a tax concession to be ceded to the Icelanders.

I have asked a number of questions and I wonder whether the Minister can address them. They are not necessarily at the top of people’s minds in every constituency in this country, but there are some corners of the country where this is a big issue. I would be grateful for the Minister’s attention to it.

As we have heard, amendment 1 seeks to remove clause 4 on the seafarers’ earnings deduction from the Bill. Doing so would prevent the extension of seafarers’ earnings deductions to EEA resident seafarers. By way of background, it is worth pointing out that in November 2008 the European Commission sent a pre-infraction letter on this matter. The Commission stated that the rules for seafarers’ earnings deductions are incompatible with the EU rules because the deduction is available only to seafarers who are ordinarily resident in the United Kingdom. After due consideration of the Commission’s letter, the previous Government decided to respond by enacting a change in the law. Consequently, last year they said that they would legislate to extend the rules for this deduction, enabling European economic area resident seafarers from outside the UK to claim. The previous Government committed to implementing the change from April 2011.

Given the expectations that were set by the previous Government, we decided that it was better to enact the changes this year. After the election, we decided to follow the same approach as the previous Government in response to the Commission’s letter, although we postponed legislating until this second Finance Bill of the Session. In July, the draft clause and explanatory notes were published along with the rest of this Bill. Only one response was received, from a professional body, and it did not raise any concerns about competition effects on UK seafarers. Other discussions with interest groups exposed no objections to the extension of the rules because it was felt that it would not have a significant impact on UK resident seafarers.

Opposition Members are concerned that making such a change will benefit Icelandic and Norwegian fishermen, who compete with UK fishermen for their catch. In particular, the hon. Member for Nottingham East (Chris Leslie) raised the matter of the so-called mackerel war. Although I understand such a position, the clause will make no significant difference. The Government estimate that a maximum of 1,500 EEA resident seafarers will become entitled to claim seafarers’ earnings deduction, at a potential cost of £5 million per annum. The numbers and amounts involved are relatively low because few non-UK resident seafarers pay income tax on their earnings in the United Kingdom. Non-resident seafarers are liable to UK tax on earnings in UK waters—that is within 12 miles of the shore—or if they visit a UK port. In reality, that means that they would probably be working in the UK or for UK businesses. Even if there were a liability to UK tax for such individuals, most double taxation agreements would give primary taxing rights to the home state, making the application of the deduction redundant.

In practice, we estimate that about 4,000 non-UK resident seafarers pay income tax in the UK. As many of those are not EEA residents, we estimate that the extension of the entitlement to EEA residents would enable a maximum of 1,500 non-resident seafarers to claim the deduction.

The Icelandic mackerel fishermen are most unlikely to be subject to United Kingdom taxation. First, many fishermen are self-employed, and so outside any entitlement to the deduction. Secondly, Icelandic fishermen would be entitled to claim the deduction only if they were employed to fish in UK waters or if they visited a UK port. It is unlikely that there are many Icelandic fishing vessels operating within 12 miles of the UK or landing their catch at our ports. Even if they did so, such individuals would still be subject to the double taxation agreement, which in almost all cases gives Iceland primary taxing rights over its resident seafarers.

This Government take the mackerel fishing issue extremely seriously. The Under-Secretary of State for Environment, Food and Rural Affairs, my hon. Friend the Member for Newbury (Richard Benyon) has been engaging with his counterparts on this matter across Europe. We are disappointed that no agreement has yet been reached and we find the continuing action by Iceland unacceptable. We will consider further action in due course.

The hon. Member for Nottingham East seems to have forgotten why this measure is being put in place and what the consequences are of not enacting it. If we passed amendment 1, the Commission would certainly take a significant and immediate interest, which could result in substantial uncertainty for UK seafarers. If we lose before the European Court of Justice, the result could be a fine from the European Commission of at least €11 million, and we would still have to enact the measure. To reject the amendment will mean an estimated cost of no more than £5 million per annum, with few —if any—consequences for the UK fishing fleet. I therefore ask the hon. Gentleman to withdraw his amendment.

I am grateful to the Minister for his comments, which, given that he addressed some of the issues pertinent to the mackerel wars question in respect of arrangements for Icelandic fishermen—that was probably the biggest reason for the question mark over this clause—were certainly more thorough than those we had in Committee. He mentioned a couple of reasons why he did not feel that the measure would bite on that issue—if I may use that fishing pun. I am glad that he did not repeat his red herring claim against the amendment. The self-employment point was a fair one. He also said that the measure would hit only if there was a claim when Icelandic fishermen were landing their catches at UK ports and so forth. In particular, he talked about the European Court of Justice situation and the requirement that would fall on the UK and the consequences that would come from that. I know how much Members on the Government Benches are keen to abide by their European obligations. Given those strictures, I am happy to beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Third Reading

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

We find ourselves in the unusual situation of having considered three Finance Bills this year. The first, as usual, was introduced following the May Budget, but was curtailed by the election. The second allowed this Government to enact measures that were deemed necessary to address the financial mess that was left to us. This third Bill has allowed this Government to take forward those technical and uncontroversial measures set out by the previous Administration. The nature and timing of this third Bill are a product of both the economic position and our commitment to improving future Finance Bills.

The enormity of the challenges facing Britain was one of the catalysts for a brief, focused Finance Bill in the summer. As my right Hon. Friend the Prime Minister set out, private sector-led growth is at the centre of the changes that this Government need to make to avoid the mistakes of the previous Government. The first part of providing that must be macro-economic stability, which is why it was necessary to enact in the summer those policies that would quickly tackle Labour’s deficit. Doing so restored the confidence in the economy of both the financial markets and the British people. Stable public finances are the only way in which to prevent higher interest rates, rising inflation and more taxes.

Alongside such policies was the need to show that Britain is, once again, open for business. We have taken such steps and committed ourselves to more. In so doing, we have been opposed by Members on the Opposition Benches, particularly on our measures for growth. I am sure that many hon. Members will remember the hon. Member for Wallasey (Ms Eagle) invoking Lord Kitchener on Second Reading. I am more drawn to the words of Churchill, who contended that a people taxing themselves into prosperity is like a man standing in a bucket and trying to lift himself by the handle. That is why we are reducing the rates of corporation tax for large and small companies and removing nearly 1 million people from tax, and why we did not go ahead with Labour’s jobs tax.

It was because of the need to take such steps in the summer that a short, focused Bill was required, which meant that an additional Bill was needed in the autumn. However, this Bill has also been an opportunity for the Government to demonstrate how we will improve tax policy making. On 12 July, the clauses in the Bill were published in draft for consultation. More than 60 comments were received and resulted in changes to nine clauses. The publication of the clauses in draft followed the commitments set out in the June Budget. The changes will ensure greater predictability, fewer changes and better consultation. We have already made a good start on the first of those. Last week, my right hon. Friend the Chancellor announced the date of the Budget, four and a half months ahead of time. This evening, I can confirm that we will be publishing the majority of the clauses for the Finance Bill 2011 later this year. We will set out the draft clauses on 9 December.

I have discussed the foundations of the Bill and the process that we will undertake for future Bills, but we should not forget the important measures before us. Clauses 1, 2, 3 and 16 will provide for fairer tax treatment for carers. Clauses 5 and 6 will assure the future of venture capital schemes, which have supported more than £10 billion of investment. The support to real estate investment trusts under clause 10 will allow them to meet their regulatory requirements more easily. The changes in clauses 19 to 22 ensure EU compliance on several technical but necessary issues. I shall not press this point, but I remind hon. Members of the important action that we are taking against long cigarettes and the tax avoidance connected with them.

The Bill is a result of necessary action that was taken earlier in the year and of the greater scrutiny and consultation to which all future Bills will be subjected. Although it is not packed with headline measures, it will help many groups. It assists businesses and individuals, supports investment and benefits those in need. The Bill will make a real difference in the real world and I commend it to the House.

The Labour party predominantly supports the Bill. It had its genesis under the previous Labour Government when my right hon. Friend the Member for Edinburgh South West (Mr Darling) brought forward many of its measures. We give the Bill a warm reception, although we scrutinised it in Committee, as was our duty, as the Opposition.

I was going to give the Minister a much warmer welcome than I might now do, but he raised several points that strayed beyond the Bill, even though they are important for the House to consider. There is a clear difference between the Government and the Opposition on public spending and taxation regimes over the next few years. Even during today’s consideration of the Bill, we saw the clear differences between us on child benefit, taxation on banks and video game tax relief. We will return to such important issues in due course. They will frame the economic debate between the Government and the Opposition over the next 12 to 18 months, and we will watch closely how the backdrop to the Bill meets the needs of my constituents and those of my right hon. and hon. Friends in relation to employment, prosperity, taxation and the economic health of the United Kingdom, because we remain of the view that the Government are cutting too far, too fast, and that they will therefore damage the economy. However, let us put those matters to one side because they are not in the Bill.

As I said, my right hon. Friend the Member for Edinburgh South West developed many of the policies in the Bill. The uncontroversial nature of the Bill is attested by the fact that there were only two Divisions in Committee. One was on the sittings motion, following a disagreement about a clash of business in Committee and on the Floor of the House—as a matter of good practice, we should try to avoid that in future. The other Division was on a matter of more significant principle: the definition of “incapacitated person”. We had a rerun of that debate today.

We support many of the detailed provisions in this technical Bill. It includes important measures on foster care relief and relief for adopters. It contains provisions to simplify value added tax and to address film tax credit. As the Minister said, it includes important measures to tackle the smuggling of cigarettes through its consideration of taxation regimes for long cigarettes. We support those measures, which were the subject of discussion in Committee. The Bill puts in place important and welcome green allowances as a kick-start for zero-emission goods vehicles. When we discussed those measures in Committee, there was broad support for their implementation.

The Bill gives welcome support for asbestos-related trusts through taxation measures, including on capital gains tax. After we tested the Minister on those measures, we reached the conclusion that they were worthy of general support. We also support the clarification in the Bill on landfill tax.

Try as I might in Committee, I could not find much in the Bill with which to disagree. However, our sittings allowed us to tease out the Government’s thinking on a range of issues and to reflect the concerns of a number of outside bodies about the implementation of policy, rather than the policy itself.

As hon. Members can see, Labour Members are so content with the Bill—and have such trust and faith in my ability—that they have left it to me to bring our proceedings on it to a close. Although we welcome the Bill, we will consider real differences between us regarding the economy of the United Kingdom on future days, and I look forward to those debates in due course.

As a member of the new intake, it was a privilege to serve on the Government side of the Pubic Bill Committee. I congratulate Ministers on ably putting forward the Government’s case in Committee.

This important Bill is one of the three key pieces of the Government’s programme for the finances of the country—the first was the emergency Budget and the second was the comprehensive spending review. It forms part of the way in which we will start righting the finances of the nation. Only today we heard a lot of deficit denial from Labour Members, yet the nation needs its finances sorted out. We in Dover are trying to help to do that, in our small way, through the prospective sale of our port. We say, “Don’t wait two years to flog it off overseas like Cadbury; let’s get on and do it now, with a community mutual purchasing the port, to ensure that the Government get their money by the end of the financial year.” Understandably, the harbour board is not pleased about that. Under its plans, it hopes to get millions for management, but I want millions for the people of Dover and the betterment of the community, just as the Government, through the Bill, seek the betterment of the nation as a whole.

Our finances are in a bad state. We have a structural deficit of £109 billion a year. By the end of the Parliament, even after we have reined in the deficit, our debt will have increased by £292 billion, and that is before we get on to asking how we pay down the national debt. The key message of the Bill, the Budget and the comprehensive spending review is that we must stop debts mounting before we can pay down the mortgage. We must get the finances of the nation back under proper control and on a level keel.

Just as I was privileged to be a member of the Public Bill Committee, I am privileged to support the Bill, and I congratulate Ministers on their excellent work.

I wish to start by briefly mentioning the public consultation on the Bill. During our discussions about the Bill and the comprehensive spending review, much was said about the previous Government’s mismanagement of the economy and the behaviours that led them to spend £5 for every £4 that they brought in, but the systems that they put in place did not help either. The Minister has referred to the failure of regulation, but the previous Government’s other practices—the prime example is their failure to hold a comprehensive spending review—hindered public and parliamentary scrutiny of their ability to manage the economy. That enabled a bad situation to escalate, with a scandalous overspend, as well as allowing them to adopt the shocking scorched earth policy in their death throes with which we are all familiar.

I therefore welcome any move towards more transparency and public consultation. We have heard that Departments will publish business plans, and we were given reassurances in the summer that the clear line of sight project would allow us to see not just what Departments were spending, but what they were raising. In addition, consultation on Finance Bills is an extremely good innovation in the interests of quality and transparent Government. I hope that in future consultations, a broad audience beyond the usual tax practitioners will let their views be known to the Treasury. That will help to hold Governments to account, and it will certainly give us something interesting to talk about in Committee.

With reference to the Bill, I welcome the amendment to collection procedures for income tax for individuals and the harmonisation of administration regimes for different taxes, which is a further advance towards simplification and transparency. I have received assurances on the issues that I raised on clauses 26 and 27 about the failure to make returns and late payment. I sought assurances that those measures would not overburden taxpayers or impose disproportionate penalties.

I applaud first-year allowances for zero-emission goods vehicles, a genuine incentive for logistics firms to pursue a green agenda, and a sign of the Government’s determination to reward green behaviour. In Committee, there was some discussion about what constituted a vehicle, which at the time I thought might be rather a waste of time, but given that earlier today, at Defence questions, an hon. Member managed to ask a question about aircraft carriers under the topic of vehicles, perhaps the discussion in Committee was not a waste of time at all.

The clause that will be of most interest to my constituents is clause 31, because many people in Portsmouth North are suffering from asbestos-related illnesses. The clause will facilitate compensation payments and is a proper response to the tax liability to which many well intentioned trusts have found themselves exposed. Many of our constituents will suffer from asbestos-related industrial illnesses. The long period from exposure to presentation of symptoms, as well as lack of awareness, means that we will see new cases for decades to come.

Currently, the trusts established to pay compensation to asbestos illness sufferers can be liable for inheritance tax, capital gains tax and income tax on their assets. Clause 31 will introduce a retrospective exemption for trusts established between 6 April 2006 and 23 March this year. Ultimately, that means more money going to victims, and it will be warmly welcomed in Portsmouth. I was reassured to learn during the debate in Committee that other trusts that do not fall into that time frame will not miss out. No trusts that might be affected have been set up since 23 March, and in future the problem can be avoided if new trusts fully consult the Charity Commission and HMRC. This is an extremely important clause in an important Bill, and I urge all hon. Members to support it.

Question put and agreed to.

Bill accordingly read the Third time and passed.