asked Her Majesty’s Government:

How the recent White Paper on international development addresses the main problems of developing countries.

My Lords, the new White Paper is about delivering the promises of 2005. It responds to four big challenges: first, how to promote better governance in countries and globally; secondly, how to improve security, growth and public services to reduce poverty; thirdly, the need to tackle climate change; and, fourthly, reforming the international system so that it is better equipped to deal with international problems.

My Lords, I thank my noble friend for that encouraging Answer. She will not be surprised to hear that I particularly applaud the new £100 million governance and transparency fund. Can she say how this might help women, who suffer the detriment of petty corruption in the provision of health, education, water and other services, arguably more than men, both because they have less means to pay bribes and because they often need to be the procurers of those services for their families?

My Lords, the fund is obviously still at an early design stage, and there will be consultation with civil society organisations on the issues. I expect support for women to arise. Assisting women is one of our commitments, and through that we are placing a big emphasis on education, particularly education for girls.

My Lords, first, I welcome the overall principles behind the White Paper. I am sure that your Lordships will agree with me that, although there may be differences of opinion on how to deliver the aims and objectives, they have wholehearted support across the House. What steps are Her Majesty's Government taking, in particular the Prime Minister, to reinvigorate negotiations in the margins of the G8 and beyond, following this weekend’s meeting, especially with regard to talks on trade?

My Lords, I thank the noble Baroness, Lady Rawlings, for those statements of support, particularly given the history of her Government on development, for which the budget fell steadily up until 1997. We have made it clear that there needs to be a particularly big push on trade, especially given its importance in delivering our agenda. The noble Baroness will know that the talks stalled in Hong Kong; that there were talks at the end of June; and that there is still a problem. The Prime Minister will do everything that he can to reinvigorate the talks with the World Trade Organisation.

My Lords, does my noble friend recognise the severe toll and the economic and human costs of the high level of road traffic accidents and deaths that occur in developing countries, often taking away the young people who are most needed for developing economies?

My Lords, my noble friend is right. It is not an area that we focus on sufficiently. There are high levels of road traffic accidents and death. In some countries, the numbers are as high as those dying from HIV/AIDS.

My Lords, has the Prime Minister’s promise to match the public contributions made in support of the victims of the tsunami on Boxing Day 2004 been fulfilled?

No, my Lords, that promise has not been fulfilled. The British public were so generous that the limited capacity of the countries affected by the tsunami to absorb the money that they were receiving, not only from the British public but from the British Government and other Governments around the world, meant that we did not have to match those promises. The money is of course being spent in other ways.

My Lords, the White Paper is certainly welcome, especially the emphasis on climate change and good governance. However, does the noble Baroness agree that perhaps insufficient emphasis has been placed on the AIDS crisis, which threatens the development of sub-Saharan Africa as much as climate change? The G8 promised last year that, by 2010, all who needed treatment would receive it. Does this paper effectively chart how that will happen?

My Lords, as the noble Baroness will know, our strategy on tackling AIDS is set out in another paper called Taking Action, which is reaffirmed in the White Paper. So the White Paper does not go through all the arguments in Taking Action. They include action to close the funding gap, to improve the international response and to strengthen political leadership. We are on track to deliver the commitment on the provision of free medicines, though we do not have to do so until 2010.

My Lords, while we on this Bench would welcome a great deal that is in the White Paper, I wonder whether the Minister would agree that one of the most serious omissions is the lack of any firm proposals to plug the gap through which illegal moneys are haemorrhaging from Africa to European tax shelters and that more needs to be done to help trace and reverse that serious capital flight.

My Lords, there is a significant problem. That is precisely why the Prime Minister responded to the request from parliamentarians that we should have someone to champion anti-corruption. My right honourable friend Hilary Benn is the UK champion, and a cross-party and cross-departmental organisation, which includes the Metropolitan Police, has been set up to address these issues.

My Lords, can the Minister say where the diverted funds may have finished up?

My Lords, I am happy to do that. Overall, our aid has increased from £2.1 billion in 1997 to £5.9 billion last year. We have spent 39 per cent of that through multilateral organisations such as the World Bank, the Asian Development Bank and others. Of our bilateral budget—the budget we spend with individual countries—we have spent 45 per cent in Africa and 38 per cent in Asia.

asked Her Majesty’s Government:

What have been the implications for Her Majesty’s Armed Forces deployed in Basra of the recent declaration of a state of emergency in that province by the Government of Iraq.

My Lords, I am sure that the House will wish to join me in expressing our sincere condolences to the family and friends of Corporal John Cosby of the 1st Battalion, the Devon and Dorset Light Infantry, who was killed yesterday in Iraq.

UK forces are undertaking tasks in support of the Basra security plan announced by Prime Minister Maliki under the authority of the state of emergency. The plan includes an increased Iraqi Army presence, a programme of projects aimed at improving conditions through development, and enabling support for better governance. UK forces continue to provide training, mentoring and other tasks in support of the Iraqi security forces.

My Lords, on these Benches we, too, send our condolences to the family of the corporal. Two other soldiers were wounded by a roadside bomb in a separate incident. Can the Minister confirm whether they were in a Snatch Land Rover? If that was the case, how many more soldiers will be killed or wounded before Ministers take action? Will the Minister responsible for the Defence Procurement Agency and the Defence Logistics Organisation now insist that those bodies set to immediately to provide commanders on the ground with an armoured option before they have to resort to Warriors?

My Lords, as my right honourable friend the Secretary of State has announced, we are undertaking a review of our protected patrol vehicles in Iraq and on operations in Afghanistan. We anticipate taking action following that review, both on short-term solutions and on the longer-term solutions that we have already announced. However, I stress that, given its mobility and size, the Snatch Land Rover has an important role to play, particularly in areas such as downtown Basra.

My Lords, we add our condolences to the family of the soldier who was killed and our hopes for a speedy recovery to the two soldiers who were injured. We also extend our sympathy to the families of the 100 Iraqi civilians killed in the past 24 hours. Does the Minister agree with the remarks last week of the US Army Chief of Staff, General Schoomaker? He said of Iraq:

“The challenge is becoming more complex”.

He went on to say:

“I think we’re closer to the beginning than we are to the end of all this”.

If the Minister agrees, what does that mean for UK force planning over the next three years?

My Lords, we have a plan, and we have seen the progress of that plan in recent weeks. It is a case of sticking to it and being patient for the results. We have transferred responsibility for Al Muthanna province to the Iraqi security forces in the past week, and we anticipate that in the next six months we will transfer three of the four provinces that are the responsibility of the United Kingdom in MND South-East, leaving only Basra. We expect all provinces in Iraq to be handed over to the Iraqi security forces over the next 18 months. We recognise the challenges in Basra, but we are seeing the effectiveness of the Basra security plan. We must be patient and allow the results to bed down and take effect.

My Lords, the noble Lord mentioned a review. When will it be completed?

Shortly, my Lords.

My Lords, why is the Ministry of Defence failing to notify the Royal British Legion and other charitable organisations relating to the Armed Forces of members of the Armed Forces who have been in Selly Oak hospital after being discharged on sickness grounds? Why has it also not passed information about the Royal British Legion to those people, who are suffering as a result?

My Lords, I do not have information on communication with the Royal British Legion, but I will look into the matter and write to the noble Baroness.

My Lords, if by the end of this year the Iraqi Parliament carries a resolution requiring the withdrawal of American and British forces from Iraq, and that resolution is opposed by the Iraqi Government, who will we listen to, the Government or the Parliament?

My Lords, we should not speculate about events that may or may not take place. We have set out clearly the criteria under which we are supporting the establishment of the rule of law and democratic government in Iraq. The handover or transition of responsibilities in each province is managed by a joint committee for the transfer of security and responsibility. We have set out clearly the criteria under which that transition will take place. Our ability to hand over Iraq depends on the establishment of those conditions on the ground.

My Lords, has the Minister seen the authoritative item on the front page of the International Herald Tribune today, which reports that the Iraqi security forces are regarded in large parts of Baghdad by Iraqis simply as the agents of Shia militias? Is it part of the criteria for our withdrawal, of which the noble Lord speaks, that the security forces to whom we hand over are actually proven in their integrity as servants of Iraq as a whole?

My Lords, I have not read the article to which the noble Lord refers, but I will read it. However, we know that in certain elements of the Iraqi police there are serious issues relating to sectarian allegiances. We have seen significant improvements in the performance and effectiveness of the Iraqi Army; we are seeing that on the streets of Basra now. Without doubt, its visibility and the effectiveness with which it is undertaking operations is testament to the excellent mentoring and training that it has received from UK forces and to its commitment and resolve.

My Lords, my noble friend has mentioned the 18-month period of transfer, at the end of which it is anticipated that the regions will be handed over to Iraqi control. Will he indicate what he anticipates will be the numbers, and more specifically the spread of roles, of the British forces at the end of that period?

My Lords, it is not possible for me to set out specific numbers. As I have said, it depends on the development of conditions. We have set out our expectations of the timetable, which depends on the conditions on the ground. Generally speaking, we want our forces, as coalition forces, to be able, once handover has taken place in a province, to carry out a strategic overwatch role in the area and then to withdraw to the provinces where handover has not taken place.

asked Her Majesty’s Government:

What steps they are taking to ease pressures on public services and to assist local authorities in areas where migrant workers are concentrated.

My Lords, local authorities are in the best position to allocate the funding available to them to meet the changing needs of their populations, and the information that we have suggests that in general they are succeeding very well in doing so. We are keeping the situation under very close review and look forward to receiving the findings of the Audit Commission report on this subject.

My Lords, I thank the Minister for that reply and for the reassurance that the situation is under review. I declare an interest as through my family business I employ migrant workers, and I know what a positive role they play in the economies of many rural areas. Is the Minister aware of the report commissioned by South Holland District Council? It clearly identifies the pressures that exist, which it is finding extremely difficult to cope with. The numbers involved are substantial. Particularly in housing and healthcare, we are dealing with considerably greater numbers than might have originally been anticipated by the Government or by anyone in the House. Is the Minister aware that, for example, 53 per cent of those workers would like to settle here? That is a permanent change.

My Lords, I congratulate the noble Lord on making intelligent and good use of the migrant workers scheme and on his positive attitude towards it. We are aware that there are problems in some areas, but in general terms the scheme has worked extremely well. The information that I have suggests that nearly 400,000 A8 nationals have played a part in the worker registration scheme since its inception in early 2004. The noble Lord’s assertion that 53 per cent of them would like to stay in the United Kingdom raises an interesting statistic, but our information suggests that 94 per cent of workers in the scheme have no dependants in the United Kingdom and are making fairly minimal calls on what might loosely be described as the welfare state.

My Lords, it was a relief to hear that the Government were considering the impact of increased population caused by the arrival of migrant workers, and it is a given that many areas of our economy absolutely depend on their presence. A month ago, the House was told that no demands on our public services were caused by the arrival of migrant workers. I ask the Minister to confirm that, if the Government were planning a new town of, say, 25,000 people, there would be a requirement for GPs, schools and other services. If there is in a given locality an extra population of some 90,000, as we have in South Holland, why is no particular provision made for migrant workers?

My Lords, the noble Lord, Lord Taylor, observed that migrant workers very much fit into a part of our labour force that is mobile and flexible; therefore, making specific provision in one area is a challenge. However, our information suggests that local authorities are coping well. Where there are particular difficulties, of course the Government will listen, and we are more than happy to meet the Local Government Association, if it thinks that there is a national problem. But the migrant worker scheme is working extremely well and calls on the welfare state have been minimal. For instance, my understanding is that, since the scheme started, nationally only 400 claims for any sort of financial support for migrant workers have been considered. That is a fairly staggering reflection on the energy of the migrant workforce.

My Lords, the noble Lord, Lord Taylor, made an important point. In all the research that I have seen, migrant workers make less of a demand on public services than they contribute towards the economy of this country, but, by the very nature of their settlement and movement, they tend to put considerable pressure on certain local authorities. In the past, the Government used opportunities such as Section 11 of the Local Government Act 1966—the urban programmes. Do they have anything in mind to assist such authorities?

My Lords, as I said at the outset, the Audit Commission is carrying out a study of the implications of the Accession 8 migration programme for local authority services. We expect the findings to be delivered in the autumn and will study them with great care. We are aware that the arrival of a large number of new migrants can pose challenges for local authorities and local services and, for that reason, we work closely with the Local Government Association and listen carefully to its representations.

My Lords, would my noble friend accept that the pattern of migration, permanent and temporary, poses particular pressures on inner-city authorities as well as on some rural authorities? Would he ask his fellow Ministers from government departments that are disposing of public assets—including his own, the Ministry of Defence and the Department of Health—as well as local authorities to consider the possible use of those assets for permanent or temporary social housing, rather than simply for selling at the market price?

My Lords, my noble friend, as ever, makes an important point, and I am sure that that concern is among those that will be reflected as part of the process of reviewing the impact of migration under the scheme. I shall ensure that we pass his observation on to officials in the appropriate departments.

My Lords, has the Gangmasters (Licensing) Act been implemented?

Yes, my Lords.

asked Her Majesty’s Government:

What plans they have for the future of British Nuclear Fuels Limited and its subsidiary companies.

My Lords, the 2003 joint strategy review of BNFL concluded that the company’s focus should be on UK nuclear clean-up with value being realised from its other businesses. Statements have been made to the House on the sale of Westinghouse to Toshiba and the future sale of British Nuclear Group. The future of Nexia Solutions is being considered, possibly as part of a national nuclear laboratory. There is not expected to be any significant role for the BNFL corporate centre beyond March 2008.

My Lords, that is a much more encouraging Answer than I expected. If, indeed, Nexia Solutions is to be regarded as part of the national nuclear laboratory of which we learnt only last week in the energy review paper, that offers some prospect of the Government retaining, as was stated in the paper, a substantial research and development capacity. But where stands then the statement made by the noble Lord’s colleague, Malcolm Wicks, only two months ago in the context of the sale of Westinghouse and British Nuclear Group? He said:

“In addition, we are considering the future of BNFL's research and development arm, Nexia Solutions”.—[Official Report, Commons, 18/5/06; col. 1181.]

Has that potential sale been abandoned?

My Lords, as my honourable friend said, that was being considered. While, in the long term, the R&D required in any new nuclear build situation will come from the market, the Government are very concerned that in any transitional period the resource that is Nexia Solutions should be protected and should be available to the people where it is necessary.

My Lords, given BNFL's dubious previous safety record, will the Minister ensure that, whatever happens to the company and whoever takes it over, it will be fit for purpose in this Government's rush for new nuclear build for power stations? Will they ensure that the successor sees that safety is foremost?

My Lords, as I think I made clear in my original Answer, BNFL will almost certainly not exist beyond March 2008, and the various parts of it will go to other organisations.

My Lords, given the importance of BNFL to the economy of west Cumbria, can the Government assure us that BNFL and its owners will continue to honour their moral and legal obligations to the people who live in that part of England?

My Lords, I repeat that BNFL, as such, will not continue to exist. Many of the facilities that it owns will go to other bodies, and those bodies will look at the facilities in the light of their own objectives and take the appropriate action. In reality, I do not think that that will mean significant changes in the location of its activities.

My Lords, I remind the House of my involvement in the company that is the subject of the Question. Does my noble friend accept the allegation that the safety record of BNFL is as bad as was suggested, certainly compared with the rest of industry in Britain?

My Lords, it is always extremely difficult to give precise answers to those questions. However, the point is that this is not something that we need to go on being concerned about because, for very good reasons, the different parts of BNFL are being put under other bodies, most of which have good safety records.

My Lords, with the leave of the House, my noble friend Lord Triesman will repeat a Statement later this afternoon on developments in the Middle East. We shall take the Statement immediately following consideration of Commons amendments to the Commons Bill.

My Lords, I beg to move the two Motions standing in my name on the Order Paper.

Moved, That the draft regulations laid before the House on 5 June be approved [29th Report from the Joint Committee] [Considered in Grand Committee on 4 July].—(Lord Drayson.)

On Question, Motion agreed to.

rose to move, That the fifth report from the Select Committee be agreed to.

The report can be found at http://www.publications.parliament.uk/pa/ld200506/ldselect/ldprohse/197/19703.htm

The noble Lord said: My Lords, Members have expressed a wish for the Minutes of Proceedings to be more helpful, both on paper and online. We have responded with a new design to appear in the new Session. I hope it will be welcome.

I should draw attention to one aspect. From the new Session, Starred Questions will be renamed “Oral Questions” and Unstarred Questions will be renamed “Questions for Short Debate”. We believe that that will be clearer to Members and to the public. Oral Questions will continue to be identified with a star on the Order Paper. None of the changes proposed has any effect on procedure. I beg to move.

Moved, That the fifth report from the Select Committee be agreed to.—(The Chairman of Committees.)

My Lords, while commending the committee for the decision to change Unstarred Questions into Questions for Short Debate, is there any reason why those short debates should not be tabled as Motions rather than Questions, because they are short debates? Furthermore, as those debates take place over one or one and a half hours, either in the dinner break or after other business, and as there is a long waiting list, would it be possible to consider having an occasional day set aside when we might have six or seven?

My Lords, if there is any spare time left at the end of the 30 minutes, could we give way to Members who wanted to speak on previous Questions?

My Lords, the suggestion made by my noble friend Lord Foulkes of Cumnock would be a matter for the Procedure Committee at some date way in the future.

On the question of the noble Viscount, Lord Montgomery, the proposal is merely to change the name of Unstarred Questions to Questions for Short Debate. As I said, an Unstarred Question is a fairly opaque term for some Members of the House and for those outside. Turning Unstarred Questions into “Motions for Debate” has many complications and implications: not only would a right of reply be given, but their place in the Order Paper would change, they would become amendable and divisible and their relationship to other forms of Motion would need to be considered. It would be possible for the Procedure Committee to consider those matters, but I would advise against it.

On Question, Motion agreed to.

My Lords, I understand that no amendments have been set down to this Bill and that no noble Lord has indicated a wish to move a manuscript amendment or to speak in Committee. Therefore, unless any noble Lord objects, I beg to move that the order of commitment be discharged.

Moved, That the order of commitment be discharged.—(Baroness Whitaker.)

On Question, Motion agreed to.

My Lords, I beg to move that the Commons amendments be now considered.

Moved accordingly, and, on Question, Motion agreed to.

commons amendments

[The page and line references are to Bill 115 as first printed for the Commons.]

1: Clause 5, page 3, line 1, leave out paragraph (c)

2: Clause 7, page 3, line 37, after “land” insert “to which this Part applies”

3: Page 3, line 39, after first “land” insert “to which this Part applies”

4: Clause 15, page 7, line 23, after “land” insert “to which this Part applies”

My Lords, I beg to move that this House do agree with the Commons in their Amendments Nos. 1 to 4. Amendment No. 1 is consequential because of amendments to Schedule 2, to which we shall turn later. It has no immediate effect on the exempted commons, but we shall ensure that exempted commons may be brought into the registers under Schedule 2 and so help to ensure that registers of what is and is not common land are comprehensive.

Amendments Nos. 2 to 4 and 13 are minor amendments to clarify references to “land” in Part 1. Amendment No. 14 is minor and technical. Amendment No. 15 enables registers to be updated to take account of natural variations in the boundary alongside rivers, lakes and tidal waters. Amendment No. 16 clarifies powers to correct mistakes in the register under Clause 19.

Amendment No. 18 clarifies applications under various provisions in Part 1. Amendment No. 20 relates to the power in Clause 24 to make regulations about applications under Part 1. Subsection (7)(a) already enables regulations to make provision for appointment of persons from a panel to deal with particular applications.

Moved, That the House do agree with the Commons in their Amendments Nos. 1 to 4.—(Lord Rooker.)

On Question, Motion agreed to.

5: Page 7, line 24, leave out “or (3)” and insert “, (3) or (3A)”

6: Page 7, line 26, leave out “local inhabitants” and insert “the inhabitants of any locality, or of any neighbourhood within a locality,”

7: Page 7, line 31, leave out “local inhabitants” and insert “the inhabitants of any locality, or of any neighbourhood within a locality,”

8: Page 7, line 33, after “application” insert “but after the commencement of this section”

9: Page 7, line 34, leave out “the relevant period” and insert “the period of two years beginning with the cessation referred to in paragraph (b)”

10: Page 7, line 34, at end insert-

“(3A) This subsection applies (subject to subsection (3B)) where-

(a) a significant number of the inhabitants of any locality, or of any neighbourhood within a locality, indulged as of right in lawful sports and pastimes on the land for a period of at least 20 years;

(b) they ceased to do so before the commencement of this section; and

(c) the application is made within the period of five years beginning with the cessation referred to in paragraph (b).

(3B) Subsection (3A) does not apply in relation to any land where-

(a) planning permission was granted before 23 June 2006 in respect of the land;

(b) construction works were commenced before that date in accordance with that planning permission on the land or any other land in respect of which the permission was granted; and

(c) the land-

(i) has by reason of any works carried out in accordance with that planning permission become permanently unusable by members of the public for the purposes of lawful sports and pastimes; or

(ii) will by reason of any works proposed to be carried out in accordance with that planning permission become permanently unusable by members of the public for those purposes.”

11: Page 7, line 35, leave out “and (3)(a)” and insert “, (3)(a) and (3A)(a)”

12: Page 8, line 3, leave out subsection (6)

My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 5 to 12. Amendments Nos. 5 and 8 to 12 respond to concerns raised by the noble Baroness, Lady Byford, at Third Reading that land on which houses had recently been built might nevertheless meet the criteria for registration as a green under Clause 15. The situation might arise if land had already been used by local inhabitants, as of right, for lawful sports and pastimes for at least 20 years but development then took place.

We amended the Bill in another place to deal with this point, but colleagues in another place then argued that it was also necessary to rule out registration of land that is still to be developed under a significant building project that has already begun. Again we listened, and although we have not been given any real-life examples these amendments deal with those concerns. If construction works had begun before the date in Amendment No. 10—23 June 2006, when we tabled it—it would not be possible to register any part of the land where works under the same planning permission would in due course make the land unusable for public recreation. We intend “construction works” to mean actual building works, not initial site-preparation works such as perimeter fencing, site clearance or levelling, waste removal or exploratory work. It will be for the authorities and courts to decide, based on the particular circumstances of each case.

The amendments are a substantial change from where we started. They are an even bigger departure from the old principles of customary law on which the greens registration law was based. They would more likely have made the development unlawful than protect it, so is a good example of flexibility to change the Bill to address practical difficulties.

Amendments Nos. 6 and 7 respond to a recent House of Lords judgment on the Trap Grounds case, which considered the effect of the words originally used in the Bill to describe the type of inhabitants whose use of land might warrant its registration as a green. The original words, taken directly from the current definition in the Commons Registration Act 1965, were,

“the inhabitants of any locality, or of any neighbourhood within a locality”.

The noble and learned Lord, Lord Hoffmann, spelt out in Trap Grounds that “within a locality” should be taken, if appropriate, to mean “within a locality or localities”, therefore resolving an earlier concern on this which had led to an amendment in this House to simplify the wording to refer instead just to “local inhabitants”. The doubts are now resolved about original formulation, so we need to revert to it to ensure that the intended meaning is clearly understood.

Moved, That the House do agree with the Commons in their Amendments Nos. 5 to 12.—(Lord Rooker.)

My Lords, I thank the Minister for introducing this batch of amendments. Taking them in reverse order, we had a long debate about “rural inhabitants”, which was the crux of the matter at that stage. I am happy to accept the wording before us today, which will include urban inhabitants locally as much as rural inhabitants. I am grateful for that.

In another place, my honourable friend Jim Paice raised the issue covered in Amendment No. 10, and the wording we have before us should cover his concerns. It would have been a shame not to have clarified how far a development must have gone to be established as a development. I am grateful to the Minister for his explanation of these amendments and we are happy to support them.

My Lords, we are also happy with these amendments, particularly those relating to the definition of local inhabitants and inserting,

“the inhabitants of any locality, or of any neighbourhood within a locality”.

We are satisfied with that wording and thank the Minister for bringing these amendments forward.

On Question, Motion agreed to.

My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 13 to 16.

Moved accordingly, and, on Question, Motion agreed to.

17: Clause 24, page 13, line 29, after “Schedule 1” insert-

“(ba) paragraph 1A or 1B of Schedule 2”

My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 17. In moving this Motion, I shall speak also to Amendments Nos. 19 and 119 to 131. Amendment No. 17 is essentially a consequential amendment to Amendment No. 119, which enables additions to the register of land which Parliament has recognised as common land or town or village greens, but which was not registered under the Commons Registration Act 1965. It responds to amendments tabled in Standing Committee in the other place. It also enables the registration of land which was statutorily allotted as recreation grounds under 19th-century enclosure awards.

Amendments Nos. 124 and 128 provide alternative mechanisms to enable the deregistration of buildings and the curtilage of buildings where those buildings were present before the land was registered under the 1965 Act. Amendments Nos. 19, 120 to 123, 125 to 127 and 129 to 131 enable changes to the register under Schedule 2 on initiative of the commons registration authority, rather than in response to an application.

Moved, That the House do agree with the Commons in their Amendment No. 17.—(Lord Rooker.)

On Question, Motion agreed to.

18: Page 13, line 32, at end insert-

“( ) An application made for the purposes of any of-

(a) sections 6, 7, 10, 11, 12, 13 and 15, and

(b) paragraph 1 or 3 of Schedule 1,

shall, subject to any provision made by or under this Part, be granted.”

19: Page 13, line 38, after “section 19” insert “, Schedule 2”

20: Page 14, line 14, leave out “particular” and insert “description of”

My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 18 to 20.

Moved accordingly, and, on Question, Motion agreed to.

21: Clause 26, page 15, line 5, leave out “association” and insert “council”

22: Page 15, line 6, leave out “association” and insert “council”

23: Page 15, line 7, leave out “association” and insert “council”

24: Page 15, line 8, leave out “association” and insert “council”

25: Page 15, line 9, leave out “association” and insert “council”

26: Clause 27, page 15, line 12, leave out “association” and insert “council”

My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 21 to 26. I shall speak to them and to Amendments Nos. 28 to 79, 100 and 101, 106, 108, 110 to 112, 114 and 132. These amendments change the name of commons associations to commons councils. There is widespread support from stakeholders for this change and there were calls for it from all parts of both Houses. There could not be a better reason.

Moved, That the House do agree with the Commons in their Amendments Nos. 21 to 26.—(Lord Rooker.)

My Lords, I am grateful to the Minister for coming back on this matter. We had long discussions on it at earlier stages of the Bill, but it was only at Third Reading that the difficulty of commons associations was raised in full, so I am very pleased to note the redefinition of the commons “association” to “council”. We welcome that change, as will my noble friend the Duke of Montrose, who raised the matter again at Third Reading.

This issue was originally drawn to our attention by Professor Ian Mercer from the Dartmoor Commoners Council, for which we are grateful. The difficulty was that if the body was an association then members could not be part of it. It is slightly technical and we are very pleased to see the amendment.

We too are very grateful. We brought forward an amendment on Third Reading with this in mind. The matter has been clarified by the description as councils. It is a considerable move forward and a tribute to the ministerial team and its advisers that they have seen the wisdom of such a move. Professor Mercer has had practical experience of this on Dartmoor Common, and its application is obviously very wide indeed. We are only slightly concerned that commons associations in accessing councils are able to exercise the powers to obtain, for example, agri-environment grants and so on, but we believe that these amendments ensure that they can. Perhaps the Minister can confirm that.

I can. I can also say that it was the former ministerial team who should be thanked for all this good work.

On Question, Motion agreed to.

27: Page 15, line 27, after “common” insert “(and in particular persons exercising rights of common)”

My Lords, I beg to move that the House does agree with the Commons in the said amendment. Amendment No. 27 addresses concerns that less weight might be given to representations from commoners actively exercising their rights where they are fewer than those who are not exercising their rights. That led to concern that opposition from inactive commoners might be enough to prevent a council being established.

The views of the people actively exercising rights of common are extremely important as they are able to influence the management of the common, and their livelihoods may be dependent on continued use of the common.

The amendment will require the national authority to attach more weight to the views of active commoners when considering representations from those with common rights. It does not alter the requirement for the national authority also to consider representations from landowners and other interests in the common, nor, indeed, the weighting to be attached to their views compared to commoners’ views. The views expressed by inactive commoners will still be considered during the establishment process; they will just be given less weight than active commoners.

Moved, That the House do agree with the Commons in their Amendment No. 27.—(Lord Rooker.)

My Lords, some members of the commons associations will be disappointed that this amendment is being rejected as there is cohesion among active commoners on how matters can be considered, especially in establishing new commons councils.

The noble Lord, Lord Williams of Elvel, is unable to be here this afternoon, but wishes to point out that the functions of the Welsh Assembly in this are important. I agree with him, particularly as regards the views of active commoners.

The Minister has given reasons for the decision. I hope that I have understood it correctly. I am slightly disappointed that the views of active commoners cannot be taken more into account.

My Lords, before I say more, perhaps the Minister could tell us what he said. I thought he said that we were disagreeing, not agreeing with the amendment.

My Lords, on Amendment No. 27, I said, “I beg to move that this House agrees with the Commons in the said amendment”.

My Lords, the Minister said “does agree” but it sounded like “disagree”.

Oh, it is my accent, my Lords. I am sorry.

No, no, my Lords, it is not the Minister’s accent, I just had not quite heard what he said. I think that the noble Lord and I both heard the same and were getting slightly alarmed, because we were going to thank the Government for what they are doing. That puts another emphasis on it.

We raised the issue in Committee and we are very pleased that it will make its way on to the statute book thanks to the efforts of Members in this House and another place. As the Minister told us, the amendment gives greater weight to the views of active commoners, while still taking into account those of inactive commoners. Having clarified that, we are very happy to support it.

My Lords, I thank the Minister very much for clarifying the situation. My ear is not quite attuned, but many people from the Midlands come to Wales in August, so by September I might have been able to interpret what he said. We entirely agree that this is an excellent amendment. I think that I have already described why.

On Question, Motion agreed to.

28: Clause 28, page 15, line 33, leave out “association” and insert “council”

29: Page 15, line 35, leave out “association” and insert “council”

30: Page 15, line 37, leave out “association” and insert “council”

31: Clause 29, page 16, line 3, leave out “associations” and insert “councils”

32: Page 16, line 5, leave out “association” and insert “council”

33: Page 16, line 8, leave out “association” and insert “council”

34: Page 16, line 13, leave out “association” and insert “council”

35: Clause 30, page 16, line 25, leave out “association” and insert “council”

36: Page 16, line 29, leave out “association” and insert “council”

37: Page 16, line 30, leave out “association” and insert “council”

38: Page 16, line 31, leave out “association” and insert “council”

39: Page 16, line 33, leave out “association” and insert “council”

40: Page 17, line 11, leave out “association” and insert “council”

41: Clause 31, page 17, line 14, leave out “association” and insert “council”

42: Page 17, line 17, leave out “association” and insert “council”

43: Page 17, line 20, leave out “an association” and insert “a commons council”

44: Page 17, line 22, leave out “association” and insert “council”

45: Page 17, line 23, leave out “association” and insert “council”

46: Page 17, line 27, leave out “association” and insert “council”

47: Page 17, line 36, leave out “association” and insert “council”

48: Page 17, line 37, leave out “association” and insert “council”

49: Page 17, line 40, leave out “association” and insert “council”

50: Page 18, line 1, leave out “association” and insert “council”

51: Clause 32, page 18, line 12, leave out “association” and insert “council”

52: Page 18, line 20, leave out “association” and insert “council”

53: Page 18, line 23, leave out “association” and insert “council”

54: Page 18, line 24, leave out “association” and insert “council”

55: Page 18, line 25, leave out “association” and insert “council”

56: Clause 33, page 18, line 28, leave out “association” and insert “council”

57: Page 18, line 31, leave out “association” and insert “council”

58: Page 18, line 34, leave out “association” and insert “council”

59: Page 18, line 38, leave out “association” and insert “council”

60: Page 18, line 39, leave out “association” and insert “council”

61: Page 18, line 42, leave out “association” and insert “council”

62: Page 19, line 7, leave out “association” and insert “council”

63: Page 19, line 10, leave out “association” and insert “council”

64: Clause 34, page 19, line 25, leave out “association” and insert “council”

65: Page 19, line 34, leave out “association” and insert “council”

66: Page 19, line 37, leave out “association” and insert “council”

67: Page 19, line 40, leave out “association” and insert “council”

68: Clause 35, page 20, line 4, leave out “association” and insert “council”

69: Page 20, line 5, leave out “association” and insert “council”

70: Page 20, line 11, leave out “association” and insert “council”

71: Page 20, line 16, leave out “association” and insert “council”

72: Clause 36, page 20, line 22, leave out “association” and insert “council”

73: Clause 37, page 21, line 3, leave out “association” and insert “council”

74: Page 21, line 5, leave out “association” and insert “council”

75: Page 21, line 6, leave out “association” and insert “council”

76: Page 21, line 8, leave out “association” and insert “council”

77: Page 21, line 13, leave out “association” and insert “council”

78: Page 21, line 15, leave out “association” and insert “council”

79: Page 21, line 18, leave out “association” and insert “council”

My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 28 to 79.

Moved, accordingly and, on Question, Motion agreed to.

80: Clause 38, page 22, line 7, leave out from “are” to end of line 8 and insert “carried out under a power conferred in relation to that particular land by or under any enactment;”

81: Page 22, line 9, leave out from “where” to end of line 11 and insert “the works are carried out under a power conferred by or under any enactment applying to common land;”

82: Page 22, line 13, leave out “the appropriate national authority” and insert “any person”

83: Page 22, line 17, leave out subsection (7) and insert-

“(7) In subsection (6)(a) the reference to an enactment does not include Part 2 of this Act.”

84: Page 22, line 29, leave out from “under” to end of line 31 and insert “subsection (1) of this section constitutes consent for the purposes of that subsection only.”

85: Clause 39, page 23, line 12, leave out “the person to whom the consent is given” and insert “any person carrying out or proposing to carry out works in accordance with the consent”

My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 80 to 85. I shall speak also Amendments Nos. 87 to 89, 95 and 96, 102 and 103.

On Amendments Nos. 80 to 84, normally, under Clause 38, proposed works that would impede access to or over common land need the prior consent of the national authority. Such works may for example include fencing, building, surfacing or earthworks.

Subsection (6)(a) and (b) automatically exempt a particular type of works from that requirement. Amendments Nos. 80 and 81 emphasise that to be exempt in this way, works must be carried out under a power conferred by or under an enactment—for example, those undertaken by a statutory board of conservators.

It was never intended that works achieve such exemption if they are carried out under a landowner’s ordinary powers at common law, just because they happen also to require statutory authority in particular circumstances—such as listed building consent or planning consent. The amendments make that position clear. Amendment No. 83 is consequential.

Amendment No. 82 relates to commons management schemes made under the Metropolitan Commons Act 1866 or the Commons Act 1899. Those schemes allow conservators or district councils to manage commons for public benefit. The amendment makes clear that works under such schemes are exempt from Part 3 consent only if the scheme does not require anyone’s approval for the works. Amendment No. 84 is a technical amendment.

Amendment No. 85 relates to Clause 39(3), which allows the national authority to consent to a works proposal with modifications or conditions. That is an important step forward, because in the past it has sometimes proved necessary for applicants to reapply to get an application into an acceptable form. Where the national authority imposes such modifications or conditions, subsection (5) as drafted would only have let the person to whom the consent is given apply to vary or revoke the modification or condition.

Amendment No. 85 is a technical amendment to make sure that whoever is carrying out or proposing to carry out works for which a consent has been given will be eligible to apply in that way, even if they are not the person to whom the consent was given. This might arise, for example, where the land changes hands after consent is applied for, or just after it is given.

My Lords, I thank the Minister for his explanation. I shall ask him about one part of it. I still have a concern about Clause 38(1) in that the amendments do not provide for the freedom of a landowner to carry out works on land with rights of common attached without the Secretary of State’s consent—I shall come to the issue of landowners and owners with rights of common in a minute. I fully acknowledge that both types of owner have a separate right of freehold that must be respected. My concern is that where a landowner wants to carry out reparation work on his land—that is, common land—but the rights of the common holders are inactive, he will be as good as prevented from doing that work unless he can get the Secretary of State to take time to assess his case, by which time it may be too late to undertake the remedial work. Can the Minister reassure me that, where this might happen, there is at the very least a quick and effective way of ensuring that landowners are not restricted from carrying out that necessary work where it does not conflict with the exercising of rights of common?

My Lords, I can confirm that. I shall put another couple of paragraphs on the record, which may help the noble Baroness. Amendment No. 81 amends Clause 38(6)(b), which provides that works do not need consent under Clause 38 if the works are carried out under a,

“power conferred by or under any enactment applying to common land”.

Several criteria need to be met. The works must be carried out under a power. It is not enough that they are merely authorised or approved under an enactment relating to common land, as the present drafting implies. The enactment must empower a person to carry out the works where that person would not otherwise have that power. Section 82 of the Highways Act 1980, for example, enables a highway authority to construct a cattle-grid on common land adjoining the highway, in which case the highway authority does not need consent for the cattle-grid under Clause 38. The power must be confirmed by or under an enactment. The Highways Act example clearly qualifies, but a power under common law would not.

The enactment must apply to common land. Again, the power to construct a cattle-grid on common land qualifies. However, by way of a contrary example, the power to widen a highway in Section 71 of the Highways Act, which makes no special mention of common land, could not be exercised over common land without seeking consent to the proposed works under Clause 38, or otherwise by powers of compulsory purchase.

This provision is intended to replicate the same exemption currently available under Section 194 of the Law of Property Act. The remedial works do not require consent if they are pure maintenance or do not interfere with access. I hope that that gives greater clarification to the amendments for the noble Baroness.

On Question, Motion agreed to.

86: Page 23, line 13, at end insert—

“(5A) Regulations may specify a time limit for the making of applications under subsection (5).”

My Lords, I beg to move that the House agrees with the Commons in the said amendment. As already discussed, Clause 39 allows the national authority to grant consent for works on common land, subject to specific modifications or conditions. As amended by Amendment No. 85, the clause allows the person carrying out the works to apply to vary or revoke any such modification or condition. The amendment would enable regulations to set a time limit for making such an application. We do not intend this clause to provide an indefinite opportunity for challenging the national authority’s determination. It is important to achieve clarity as soon as possible about the terms on which a consent is given. We plan to make regulations allowing six weeks for an application to be made, which is in line with statutory precedents in cases of this type. That will bring to an end promptly any uncertainty about the terms of a consent, so it is highly desirable. If the consent holder is unhappy about consent terms, he should challenge at the outset, not later on. If further works were proposed beyond the scope of the existing consent, a fresh application for consent would be needed.

I have notes on Amendment No. 86A which of course I will not move or speak to. However, I will have to resist it in due course.

Moved, That the House do agree with the Commons in their Amendment No. 86.—(Lord Rooker.)

moved, as an amendment to Commons Amendment No. 86, Amendment No. 86A:

86A: Clause 39, line 1, after “limit” insert “and timetable”

The noble Lord said: My Lords, the amendment would ensure that works do not occur at the last minute, although the Minister went some way to ensure that that does not happen. Those of us who have watched works commence, followed by inactivity for great lengths of time, have been extremely frustrated by that. If a timetable had to be submitted when the application for the original consent was made, perhaps that problem could be overcome. This is our only amendment to the entire Bill and it would ensure that the procedure would be a bit more businesslike. I beg to move.

My Lords, the amendment would change the formulation in Amendment No. 86 so that regulations would specify the timetable. We understand the aim of the amendment, which reflects points made by the noble Lord and others in Grand Committee, but I will simply reiterate what was said by my noble friend Lord Bach. Currently, there is no formal timetable for determining applications under Section 194 of the Law of Property Act 1925 which the new Part 3 consent regime will replace. A key determinant of actual time taken is the time third parties take to respond when we ask for information, such as details missing from the application. It is not simply a matter of how long it takes the national authority’s part of the process to be completed. Equally, an important part of each application is consultation with other parties, which does take time. We need to allow a reasonable period for comment. People with a potential interest may be busy—they could be commoners lambing or local residents busy at work, as well as other reasons.

However, we accept that at times the process can become unduly protracted. We will streamline it and ensure that it is proportionate to the potential impact of the proposed works to drive down the length of time it typically takes to secure consent. We will consult in detail about how best to achieve this. We are cautious about adopting fixed timetables, but if we decide that it is appropriate for regulations to use this approach, that is already possible under the provisions of Clause 40(2).

This response is meant to be reassuring to the noble Lord, while at the same time not being overly prescriptive.

My Lords, I thank the Minister for that response, although I anticipated that he would say that this can be sorted out in regulations. It is desirable that the process should be at least a degree more finite than it has been in the past. I think the Minister quoted an Act from 1922 or 1925. That is quite some time ago and the world has moved on. Perhaps he will take account of what I said in ensuring that this is taken care of in regulations. I therefore wish to withdraw the amendment.

Amendment, by leave, withdrawn.

On Question, Motion agreed to.

87: Clause 41, page 23, line 41, leave out from “order” to end of line 42

88: Page 23, line 43, leave out “to remove the works and restore” and insert “for removal of the works and restoration of”

89: Page 24, line 3, leave out “to carry out the works” and insert “for the works to be carried out”

My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 87 to 89.

Moved accordingly, and, on Question, Motion agreed to.

90: Clause 42, page 24, line 9, leave out “at the commencement of this section”

91: Page 24, line 11, after “Metropolitan Commons Act 1866 (c. 122)” insert “which is in force at the commencement of this section”

92: Page 24, line 12, at end insert “which is in force at the commencement of this section”

93: Page 24, line 20, at end insert “and of any owner of the land (if not the person carrying out the works)”

94: Page 24, line 20, at end insert -

“( ) Regulations may make provision as to the procedure to be followed in obtaining the consent of an owner under subsection (3) (and may include provision for the consent of an owner to be regarded as having been given where he has not objected within a period of time specified in the regulations).”

My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 90 to 94. I shall speak also to Amendments Nos. 103 to 105 and 134 to 135. Amendments Nos. 90 to 94 relate to Clause 42, which tackles the difficulty that some statutory management schemes on commons effectively prohibit certain works even if they are of a type that the national authority might otherwise consider authorising. Clause 42(3) removes such a prohibition if the national authority gives its consent to the works.

On reflection, we concluded that this change potentially disadvantages the landowner because such works, in theory at least, could still go ahead even if the owner is opposed to them. We think it only fair that the owner should have a right of veto on new works that are currently prohibited under a scheme. Government Amendments Nos. 93 and 94 give effect to this principle while allowing regulations to prescribe the deemed consent procedure. It is also worth saying that if the owner cannot be traced or raises no objections within the prescribed period, the council will be able to proceed on the basis of national authority consent for the works.

Government Amendments Nos. 90 to 92 also make it clear that Clause 42 has effect only where schemes were in force on the date of its commencement. Our intention is that any new schemes made after the clause comes into force should be freestanding and have effect according to their own terms.

Government Amendment No. 103 is a new clause amending the Commons Act 1899. That Act gives local authorities power to make schemes of management over particular commons. These amendments update this power, making it fit for purpose in the 21st century. The power of veto for the owner of the common and for persons representing at least one-third of the value of interests such as common rights remains in place. If one or both do not want a new scheme to go ahead, it cannot. I can go into more detail if required.

Amendment No. 104 repeals Section 68 of the Countryside and Rights of Way Act in line with the debate in the other place. Section 68 was enacted to deal with a problem that had arisen through case law for householders who access their homes by vehicles over areas such as commons or greens. Section 68 has now become redundant and repealing it will avoid any mistaken impression that the section has a residual role. We consulted publicly about this and we will publish a report in due course on our website about the findings of that consultation.

Amendments Nos. 134 and 135 are consequential on Amendments Nos. 103 and 104.

Moved, That the House do agree with the Commons in their Amendments Nos. 90 to 94.—(Lord Rooker.)

My Lords, perhaps I may take a little time to question the Minister further on Amendment No. 104, which deals with the repeal of Section 68. I have been contacted about this over the weekend and I shall try to explain in simple language—it is a very complex matter—where I think we stand.

I am sure that noble Lords will be aware that we spent a great deal of time debating Section 68 of CROW in 2000, when the issue was brought up late in the proceedings in your Lordships’ House and was included in the Bill. Section 68 provided for regulations to be passed to deal with the practical problems created by the judgment in the Hanning case. In effect, Section 68 gave householders the option to pay a fee for a statutory easement to the owner of the common land so that they would be legally entitled to a right of way to their home. If they did not pay the fee, they would not be granted the easement.

This position was consistently government policy between at least 2000 and 2002. On 11 October 2000, the noble Lord, Lord McIntosh of Haringey, stated that the Government had,

“been at pains to point out that it would not be right for the property owner to pay nothing to secure an undoubtedly valuable right”.—[Official Report, 11/10/00; col. 432.]

On 1 July 2002, the then Minister, the noble Lord, Lord Whitty, stated:

“It has therefore always been our intention that landowners should receive some compensation in return for rights coming into existence by statute over their land”.—[Official Report, 1/7/02; col. 75.]

However, since the enactment of CROW, the judgment of Bakewell Management Limited v Brandwood and others has driven a coach and horses through the policy expressed in Section 68. It has been brought to my attention that in the Bakewell case a judicial committee of the House of Lords may have approached the issue without due regard to the policy expressed in Section 68. The policy expressed in CROW clearly stated, as I have just quoted, that a criminal driving over a common was never to be rewarded by free easement. Therefore, as I understand it, our problem is rather one of the cart going before the horse.

So rather than setting itself the task of judgment based on government policy, the committee in Bakewell asked itself whether 20 years’ criminal driving should be rewarded by nothing at all, as in Hanning, or be a free easement. It has been suggested to me that it should have asked itself, given the Government’s policy, as agreed in Parliament, that 20 years’ criminal driving over a common is never to be rewarded by a free easement, whether it is open to the courts to effect a judicial repeal of that and hold that it is always to be rewarded by free easement.

I accept that this is a very complex issue. I have struggled with it over the weekend and should like to go a little further. I understand that the Judicial Committee of your Lordships' House has held that landowners who have driven criminally over the common for at least 20 years are entitled to a free easement in common law. Are those who have paid for the easements under the statutory provision in Section 68 and the 2002 regulations now entitled to a refund from the owner of that common? That could be a private individual or a charity. Where does that leave them?

If Section 68 is repealed, as we are suggesting, will those who have paid for an easement be entitled to a refund? What effect will that have on those who received payment and spent some or all of it in good faith? This stands to affect commons across the country, notably the Horsell common near Woking, which is vested in charity trustees.

Finally, it has come to my attention that the respondents to the consultation document to which the Minister referred had been given an assurance that his representations regarding these issues within Section 68 would be considered by parliamentary counsel. Yet in subsequent responses from Defra, there has been no confirmation that these representations were passed on to parliamentary counsel. That could have saved noble Lords much time this afternoon. I am looking to the Minister for clarification. If he is not able to provide it, because we are at the end of the Bill, perhaps he could write to me.

My Lords, not only are we at the end of the Bill, but I do not think I am in a position to query the judgment of the Judicial Committee of your Lordships' House and neither is any other court, as far as I am aware. However, I have some further comments that I hope will clarify the situation.

Until 1993, the legal assumption was that where people had driven to their homes over such areas as commons or greens for at least 20 years as of right, they had established by prescription a legal right to continue doing so. In 1993 the judgment of the Court of Appeal in Hanning v Top Deck Travel held that this was not so. It ruled that national statutory bans on driving across such areas without lawful authority, which were introduced in 1925 and 1930, meant that thereafter no such rights could be acquired by prescription. Suddenly, therefore, householders around the country were asked to pay large sums to continue to drive to their own property, as they had always done.

Faced with this completely unacceptable situation, Parliament enacted Section 68 very late in the passage of the Countryside and Rights of Way Bill, as it was then, to allow regulations to cap the payments that had to be made in this situation. However, what the courts can take away they can sometimes give back. As the noble Baroness said, the Judicial Committee of your Lordships' House came to the rescue of homeowners in 2004, when it overruled the Hanning judgment in the Bakewell Management case. This confirmed that in circumstances where it would have been lawful for the owner of land to grant permission for the vehicle access, there is no bar on householders relying on their actual use without such permission to show that a prescriptive right of access has been earned. That has removed the need for Section 68, which we would never have enacted in the first place but for the decision in Hanning.

The noble Baroness spoke about people who have paid fees to get access to their home. It is unfortunate that the error in case law has caused this to happen. The biggest losers were those who paid out before Section 68 imposed the ceiling on the payment that could be sought in return for the right. Those who paid out under Section 68 would have had to pay very much more to secure the same easement by non-statutory means. There is no proposal for a refund in this legislation.

The noble Baroness referred to my noble friend Lord McIntosh. What he said was based on the presumption, correct at that time, that no right to drive over a common could be acquired in common law. In the light of the Bakewell Management judgment, that presumption was mistaken and the noble Lord’s statement was therefore inoperative.

My Lords, I am not sure whether I am allowed simply to thank the Minister for explaining that. We were merely seeking clarification.

On Question, Motion agreed to.

95: Clause 43, page 25, line 4, at end insert-

“(4A) Where-

(a) any land was at any time before the commencement of this section land to which section 194 of the Law of Property Act 1925 (c. 20) applied, but

(b) at any such time that section ceased to apply to the land by virtue of subsection (3)(a) of that section,

the appropriate national authority may by order provide that section 38 is not to apply to the carrying out of works, or works of a description specified in the order, on that land.”

96: Page 25, line 10, leave out “subsection (1) or (5)” and insert “this section”

My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 95 and 96.

Moved accordingly, and, on Question, Motion agreed to.

97: Clause 44, page 25, line 17, leave out subsection (2) and insert-

“(2) A national authority may for any purpose specified in subsection (2A) by order amend-

(a) any local or personal Act passed before this Act which contains provision for that authority to consent to works on land which is common land; and

(b) any Act made under the Commons Act 1876 (c. 56) confirming a provisional order of the Inclosure Commissioners which contains provision for that authority to consent to works on land to which the Act applies.

(2A) The purposes referred to in subsection (2) are-

(a) that of securing that sections 39 and 40 apply to an application for the consent referred to in paragraph (a) or (b) of subsection (2) as they apply to an application for consent under section 38(1);

(b) that of securing that section 41 applies in relation to the carrying out of works in contravention of the provision referred to in paragraph (a) or (b) of subsection (2) as it applies to works carried out in contravention of section 38(1).”

98: Page 25, line 20, after “subsection (2)” insert-

““national authority” means-

(a) the Secretary of State; and

(b) the National Assembly for Wales;”

99: Page 25, line 25, leave out subsections (4) and (5)

My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 97 to 99.

Noble Lords will recall from earlier debates that the National Trust had some concerns about the impact of the Bill on its interests. We gave various assurances in both Houses, and directly to the trust, that substantially resolved its initial concerns. However, one particular issue was still troubling the National Trust while the Bill was in the other place, and Amendments Nos. 97 to 99 responded to that.

The trust argued that the power we were taking in Clause 44 to amend works provisions in local Acts was simply too broad, and could allow us to interfere unduly in the powers available to an organisation such as itself that had promoted its own legislation. On reflection, we agreed with this point and amended the Bill to limit the scope of the power. The amendments make it clear that apart from giving effect to Schedule 4, the sole purpose of Clause 44 is to enable any existing consent criteria or procedures for works done under local or personal legislation, or under provisional order confirmation Acts, to be made consistent with the criteria and procedures set out in Part 3. I understand that as a result of these amendments, the trust is content that its interests will not be prejudiced.

Moved, That the House do agree with the Commons in their Amendments Nos. 97 to 99.—(Lord Rooker.)

My Lords, I thank the Minister for explaining the amendments. I am glad to have them in the Bill, as I raised this matter on the second day in Committee. The National Trust had stated the real importance of ensuring that the powers under Clause 16 to alter local legislation did not affect the special National Trust Acts as they stood. I understand that the trust is assured that they will not. I am pleased that after the efforts on these Benches and in another place the Government have accepted the points that we were trying to raise. I understand that the National Trust is content with the reassurances given by the Government on the provisions and is pleased to note the inclusion of Amendment No. 97, which will ensure that Clause 44 cannot be used as a tool to amend the National Trust Acts to limit the powers to undertake works under their provisions.

My Lords, a number of points were made from these Benches on this matter, too. We welcome the explanation that the Minister has given and are well satisfied by it.

On Question, Motion agreed to.

100: Clause 46, page 26, line 40, leave out “association” and insert “council”

101: Page 27, line 5, leave out “association” and insert “council”

102: After Clause 48, insert the following new Clause—

“Notice of inclosure

(1) Section 31 of the Commons Act 1876 (c. 56) (three months’ notice of claim to inclose to be given in local papers) shall cease to have effect.

(2) In section 3 of the Metropolitan Commons Act 1878 (c. 71), for “Sections thirty and thirty-one” substitute “Section 30”.”

103: Before Clause 49, insert the following new Clause-

“Schemes under the Commons Act 1899

(1) The Commons Act 1899 (c. 30) is amended as follows.

(2) In section 1 (power of councils to make schemes for the regulation of commons)-

(a) in subsection (1), for the words from “their district” to the end substitute “in the public interest”;

(b) after that subsection insert-

“(1A) In subsection (1), the reference to the public interest includes the public interest in-

(a) nature conservation;

(b) the conservation of the landscape;

(c) the protection of public rights of access to any area of land; and

(d) the protection of archaeological remains and features of historic interest.”

(3) In that section, in subsection (3), omit the words from “, and for” to the end.

(4) In that section, after subsection (3) insert-

“(4) Regulations under subsection (3) may-

(a) prescribe alternative forms;

(b) permit exceptions or modifications to be made to any prescribed form.”

(5) In section 2 (procedure for making scheme)-

(a) for subsections (1) to (3) and the first paragraph of subsection (4) substitute-

“(1) A council is to make and approve a scheme under this Part of this Act in the prescribed manner.”;

(b) renumber the second paragraph of subsection (4) as subsection (2).

(6) For section 9 (power to amend scheme) substitute-

“9 Power to amend or revoke scheme

(1) A scheme under this Part of this Act for any common may, in prescribed circumstances, be amended in the prescribed manner.

(2) A scheme under this Part of this Act for any common may, where a new scheme is made under this Part of this Act for the whole of that common, be revoked in the prescribed manner.”

(7) For section 10 (byelaws) substitute-

“10 Byelaws

(1) A council which has made a scheme under this Part of this Act in relation to any common may make byelaws for the prevention of nuisances and the preservation of order on the common.

(2) Sections 236 to 238 of the Local Government Act 1972 (which relate to the procedure for making byelaws, authorise byelaws to impose fines not exceeding level 2 on the standard scale, and provide for the proof of byelaws in legal proceedings) apply to all byelaws under this section.””

104: Insert the following new Clause-

“Vehicular access

Section 68 of the Countryside and Rights of Way Act 2000 (c. 37) shall cease to have effect.”

105: Clause 55, page 30, line 15, leave out “1” and insert “1(4)”

106: Clause 58, page 31, line 6, leave out “association” in both places it occurs and insert “council”

My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 100 to 106.

Moved accordingly, and, on Question, Motion agreed to.

107: Clause 60, page 31, line 35, leave out subsection (2)

My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 107. This is the standard privilege amendment that was inserted in the Bill when it went to the other place.

Moved, That the House do agree with the Commons in their Amendment No. 107.—(Lord Rooker.)

On Question, Motion agreed to.

My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 108.

Moved accordingly, and, on Question, Motion agreed to.

109: Page 32, line 8, at end insert “over which the right is exercisable”

My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 109. I will speak also to Amendments Nos. 113 and 115 to 118.

Amendment No. 109 deals with a small flaw in the drafting of Schedule 1. Amendment No. 113 responds to a point raised by the noble Duke, the Duke of Montrose, and the noble Lord, Lord Tyler, at Third Reading. There was concern that Dartmoor Commoners Council, established under the Dartmoor Commons Act 1985, would have less power than a statutory commons council for the purposes of Schedule 1. We agreed with that view, and Amendment No. 113 will ensure that the national authority can prescribe in an order that a statutory body charged with the management of a common—such as the Dartmoor Commoners Council—is to have the same power as commons councils in two respects: to veto the severance of rights of common to Natural England or to the Countryside Council for Wales; and itself to acquire rights by severance.

Amendments Nos. 116 to 118 revisit the provision in Schedule 1(3) about the permanent severance of rights of common. Our starting position is that most grazing rights would never have been severable were it not for the unintended effect of registration under the Commons Registration Act 1965. Clause 9 reinstates the general prohibition on severance, but Schedule 1 gives effect to some exceptions. As the House will recall, at Third Reading we responded to calls from the noble Lord, Lord Inglewood, and others to introduce a power for the national authority to enable permanent severance on a designated common by order. In moving the amendment, the noble Lord, Lord Bach, said that the powers were,

“a reserve power only … That does not mean we intend to use them, and … we have no plans to do so”.—[Official Report, 18/1/06; col. 683.]

The amendment agreed on Third Reading included a provision requiring that any act of severance authorised under that amendment would require the consent of the owner of the common. That requirement was present to protect the interests of the common owner and to enable the owner to act in the best interests of the overall management of the common. But we accept the arguments that were put to us by James Paice MP in another place that an owner might exercise a veto for the wrong reasons; for example, to secure a financial inducement. Amendments Nos. 116 to 118 enable us to provide by order that consent must not be unreasonably withheld.

Amendment No. 115 goes further than that and gives the national authority discretion in whether to include a requirement for the owner’s consent in any particular order. This reflects our acceptance that severance of common rights in some areas, particularly parts of Cumbria, is not a recent innovation. Where, as is often the case in some parts, rights of common have always been quantified, the law has always recognised that those rights may be severed. If we were to make an order to permit continued severance in such areas, we would certainly want to have a discretion not to require the consent of the owner. That discretion is not available to us as the Bill stands, but would be conferred by Amendment No. 115.

Moved, That the House do agree with the Commons in their Amendment No. 109.—(Lord Rooker.)

My Lords, I hope that I may be allowed a few moments just to say a big thank you to the Minister, his predecessors and not least his officials, and to convey to them the appreciation of the Federation of Cumbria Commoners for having introduced in the other place a provision that permits but does not mandate transfer that I describe as “within the parish”.

Across England, the law of common land and the common law in its manorial aspect developed differently from place to place. In Cumbria the smaller owner-occupier farmer—known as a “statesman”—was well known for his independence and indeed his stubbornness, as some of those who may have been involved in this debate will appreciate. They separated their rights emphatically from those of the owner of the soil very early on. There are well documented 17th century examples of manorial courts fining the manorial lord. After all, it may have been the lord of the manor’s court, but the law that was being applied in it was the common law of England in its manorial manifestation. Equally, very early on, rights were quantified and became severable by agreement. In the 19th century, statutory provisions were introduced from time to time making this possible. Therefore, I believe that the Government were absolutely right not to introduce with this legislation a move back towards feudalism in the fells.

This provision runs with the grain of localism and subsidiarity. As the Minister has explained, while it is not currently the Government’s intention to utilise it, I predict that if the next Commons Bill is as long coming as this one is after its predecessor, it will be used quite a bit, but I do not suppose that any of us will be here to comment on it.

My Lords, I am sure that I speak for my noble friend Lord Tyler, who will be very pleased with Amendment No. 113, particularly as it relates to the situation on Dartmoor, about which he has made a number of telling points. We are very pleased that the Government have agreed with the gist of his argument.

We were concerned that the situation in Cumbria is very different from that in other parts of the United Kingdom. We were concerned that accepting what happens in Cumbria with regard to severance as a generality vis-à-vis other parts of the United Kingdom would cause considerable problems with severance. Now that subsidiarity is very much to the fore, as the noble Lord, Lord Inglewood, has said, it is clear that the situation in Cumbria can be accepted as a matter for Cumbria, and the situation in the rest of England and Wales can be treated slightly differently. We are very pleased that a clear statement was made at the beginning of the Bill that severance would be barred. We do not see that the exceptions made in these amendments will substantially alter the principles in the Bill. Therefore, we accept what is proposed.

My Lords, I will not repeat what my noble friend Lord Inglewood has said. I am grateful to the Minister and his team for responding to the concerns expressed by David Maclean, Jim Paice and others in another place. As noble Lords will realise, including “may” rather than “must” has overcome the problems, for which we are grateful.

My Lords, I am most grateful for noble Lords’ responses to the amendments. However, I know nothing whatever about the Bill, having come late to Defra and the Bill. The process seems very satisfactory in that we have a solution to the problems. This area of legislation has a language of its own. I will make sure that noble Lords’ thanks are passed on to my ministerial colleagues who dealt with the Bill in considerable detail before the reshuffle, and, needless to say, to officials, to whom I am most grateful for the help I have received this afternoon.

On Question, Motion agreed to.

110: Page 32, line 18, leave out “association” and insert “council”

111: Page 32, line 31, leave out “association” and insert “council”

112: Page 32, line 32, leave out “association” and insert “council”

113: Page 32, line 33, at end insert-

“(4A) In a case where there is no commons council established for the land over which a right of common to which section 9 applies is exercisable, the appropriate national authority may by order provide that a person with functions of management conferred by any enactment in relation to that land is to be regarded, for any or all purposes of this paragraph, as a commons council established for the land.”

114: Page 33, line 9, leave out “association” and insert “council”

115: Page 33, line 43, leave out “must” and insert “may”

116: Page 34, line 1, after “include” insert “(a)”

117: Page 34, line 3, leave out “consent obtained” and insert-

“(b) provision as to the circumstances in which consent may be regarded as having been obtained”

118: Page 34, line 3, at end insert-

“( ) Provision referred to in sub-paragraph (5)(b) may include-

(a) provision for consent to be regarded as having been obtained if it is withheld unreasonably;

(b) provision for the circumstances in which consent is to be regarded as withheld unreasonably;

(c) provision for the resolution of disputes.”

119: Schedule 2, page 34, line 25, at end insert-

“Non-registration of common land

1A (1) If a commons registration authority is satisfied that any land not registered as common land or as a town or village green is land to which this paragraph applies, the authority shall, subject to this paragraph, register the land as common land in its register of common land.

(2) This paragraph applies to any land which-

(a) was not at any time finally registered as common land or as a town or village green under the 1965 Act;

(b) is land which is-

(i) regulated by an Act made under the Commons Act 1876 (c. 56) confirming a provisional order of the Inclosure Commissioners;

(ii) subject to a scheme under the Metropolitan Commons Act 1866 (c. 122) or the Commons Act 1899 (c. 30);

(iii) regulated as common land under a local or personal Act; or

(iv) otherwise recognised or designated as common land by or under an enactment;

(c) is land to which this Part applies; and

(d) satisfies such other conditions as regulations may specify.

(3) A commons registration authority may only register land under sub-paragraph (1) acting on-

(a) the application of any person made before such date as regulations may specify; or

(b) a proposal made and published by the authority before such date as regulations may specify.’

Non-registration of town or village green

1B (1) If a commons registration authority is satisfied that any land not registered as a town or village green or as common land is land to which this paragraph applies, the authority shall, subject to this paragraph, register the land as a town or village green in its register of town or village greens.

(2) This paragraph applies to any land which-

(a) on 31 July 1970 was land allotted by or under any Act for the exercise or recreation of the inhabitants of any locality;

(b) was not at any time finally registered as a town or village green or as common land under the 1965 Act;

(c) continues to be land allotted as specified in sub-paragraph (a);

(d) is land to which this Part applies; and

(e) satisfies such other conditions as regulations may specify.

(3) A commons registration authority may only register land under sub-paragraph (1) acting on-

(a) the application of any person made before such date as regulations may specify; or

(b) a proposal made and published by the authority before such date as regulations may specify.”

120: Page 34, line 27, leave out sub-paragraph (1) and insert-

“(1) If a commons registration authority is satisfied that any land not registered as common land or as a town or village green is land to which this paragraph applies, the authority shall, subject to this paragraph, register the land as common land in its register of common land.”

121: Page 35, line 21, leave out sub-paragraph (6) and insert-

“(6) A commons registration authority may only register land under sub-paragraph (1) acting on-

(a) the application of any person made before such date as regulations may specify; or

(b) a proposal made and published by the authority before such date as regulations may specify.”

122: Page 35, line 26, leave out sub-paragraph (1) and insert-

“(1) If a commons registration authority is satisfied that any land registered as common land is land to which this paragraph applies, the authority shall, subject to this paragraph, remove the land from its register of common land and register it in its register of town or village greens.”

123: Page 35, line 39, leave out sub-paragraph (3) and insert-

“(3) A commons registration authority may only remove and register land under sub-paragraph (1) acting on-

(a) the application of any person made before such date as regulations may specify; or

(b) a proposal made and published by the authority before such date as regulations may specify.”

124: Page 35, line 42, at end insert-

“Buildings registered as common land

3A (1) If a commons registration authority is satisfied that any land registered as common land is land to which this paragraph applies, the authority shall, subject to this paragraph, remove that land from its register of common land.

(2) This paragraph applies to land where-

(a) the land was provisionally registered as common land under section 4 of the 1965 Act;

(b) on the date of the provisional registration the land was covered by a building or was within the curtilage of a building;

(c) the provisional registration became final; and

(d) since the date of the provisional registration the land has at all times been, and still is, covered by a building or within the curtilage of a building.

(3) A commons registration authority may only remove land under sub-paragraph (1) acting on-

(a) the application of any person made before such date as regulations may specify; or

(b) a proposal made and published by the authority before such date as regulations may specify.”

125: Page 35, line 44, leave out sub-paragraph (1) and insert-

“(1) If a commons registration authority is satisfied that any land registered as common land is land to which this paragraph applies, the authority shall, subject to this paragraph, remove the land from its register of common land.

126: Page 36, line 5, leave out from “was” to end of line 7 and insert “provisionally registered as common land under section 4 of the 1965 Act”

127: Page 36, line 20, leave out sub-paragraph (3) and insert-

“(3) A commons registration authority may only remove land under sub-paragraph (1) acting on-

(a) the application of any person made before such date as regulations may specify; or

(b) a proposal made and published by the authority before such date as regulations may specify.”

128: Page 36, line 23, at end insert-

“Buildings registered as town or village green

4A (1) If a commons registration authority is satisfied that any land registered as a town or village green is land to which this paragraph applies, the authority shall, subject to this paragraph, remove that land from its register of town or village greens.

(2) This paragraph applies to land where-

(a) the land was provisionally registered as a town or village green under section 4 of the 1965 Act;

(b) on the date of the provisional registration the land was covered by a building or was within the curtilage of a building;

(c) the provisional registration became final; and

(d) since the date of the provisional registration the land has at all times been, and still is, covered by a building or within the curtilage of a building.

(3) A commons registration authority may only remove land under sub-paragraph (1) acting on-

(a) the application of any person made before such date as regulations may specify; or

(b) a proposal made and published by the authority before such date as regulations may specify.”

129: Page 36, line 25, leave out sub-paragraph (1) and insert-

“(1) If a commons registration authority is satisfied that any land registered as a town or village green is land to which this paragraph applies, the authority shall, subject to this paragraph, remove the land from its register of town or village greens.”

130: Page 36, line 32, leave out from “was” to end of line 34 and insert “provisionally registered as a town or village green under section 4 of the 1965 Act”

131: Page 37, line 7, leave out sub-paragraph (4) and insert-

“(4) A commons registration authority may only remove land under sub-paragraph (1) acting on-

(a) the application of any person made before such date as regulations may specify; or

(b) a proposal made and published by the authority before such date as regulations may specify.”

132: Schedule 5, page 42, line 35, leave out “association” and insert “council”

133: Schedule 6, page 46, line 4, at end insert-

134: Page 46, line 16, at end insert-

“PART 4

REPEAL RELATING TO SCHEMES UNDER THE COMMONS ACT 1899

PART 5

REPEAL RELATING TO VEHICULAR ACCESS

135: In the Title, line 1, at end insert “; and for connected purposes”

My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 110 to 135.

Moved accordingly, and, on Question, Motion agreed to.

My Lords, I beg leave to repeat a Statement made in another place by my honourable friend Dr Kim Howells. The Statement is as follows:

“In these very difficult times for the Middle East, I welcome this chance to update the House on British activity and policy. The United Kingdom is gravely concerned by the escalating crisis in Lebanon. Not only does it pose a serious threat to the relationship between the Israeli and Lebanese Governments but it threatens the wider security of the region, and it is causing huge harm to the civilian populations, with casualties mounting on both sides. We offer our condolences to the Governments of Lebanon and Israel for the losses they have suffered, and to the families of all those affected.

“The United Kingdom is committed to helping to resolve this crisis. The Prime Minister has spoken to Lebanese Prime Minister, Fouad Siniora, and the Foreign Secretary has spoken to the Israeli Foreign Minister, Tzipi Livni. We appreciate the pressures that both Governments are under at this very difficult time, but both have a responsibility to help to end this crisis.

“Our priority must be to create conditions to allow a ceasefire and to explore quickly how the international community might facilitate a peaceful, diplomatic resolution, guaranteed perhaps by the deployment of an international force into the area. Ultimately, the only way to achieve a sustainable solution to the situations in both Gaza and Lebanon is to address the root causes. That means getting back to a state where negotiations can resume on the basis of the quartet road map. With that objective in mind, the Prime Minister is discussing the crisis with his G8 counterparts at the G8 summit in St Petersburg.

“The EU High Representative, Javier Solana, and a UN team representing Secretary-General Kofi Annan are in the region as we speak. We fully support their efforts to broker an end to this conflict, and we are offering both teams logistical assistance on the ground. We are urging all involved parties to do all that they can to address this crisis and to prevent the situation from worsening. We reiterate our call for the urgent release of the kidnapped Israeli soldiers and for an end to attacks on Israeli towns and cities. We urge all those countries with influence over Hezbollah to play their part.

“We are very concerned about the role of Syria and Iran. Through their support for Hezbollah, they are encouraging extremism, threatening the stability of the region and putting peace in the Middle East further out of reach. Israel has every right to act in self-defence, but we and the international community have urged it to act in proportionate and measured ways; conform to international law; avoid civilian death and suffering; and refrain from acts that destabilise the Lebanese Government. Disproportionate action only escalates an already dangerous situation.

“This crisis also underscores the need for the full and sustainable implementation of Security Council Resolution 1559, including the importance of the Government of Lebanon exercising its full authority throughout Lebanese territory. That means being able to control the area between Beirut and the Israeli border, an area cursed by militias such as Hezbollah, whose political masters reside in Damascus and Tehran.

“Our most pressing concern in this crisis is the welfare and safety of the thousands of British nationals in Lebanon. We are working day and night with our EU and other international partners towards a properly organised and, above all, safe arrangement to help British nationals and others for whom we have consular responsibility and who want to leave Lebanon.

“With the Ministry of Defence, we are working closely on how to help those British nationals who want to leave to do so safely. The House should not underestimate the scale of this task or the numbers involved. Royal Navy destroyers, “the York” and the Gloucester, are now offshore and others, including HMS “Illustrious” and HMS “Bulwark”, are heading towards the eastern Mediterranean. A rapid deployment team from the Foreign and Commonwealth Office has arrived in Beirut to assist British nationals, together with a military reconnaissance team that will carry out detailed planning for a possible evacuation.

“We judge that departure by sea is the safest and most practical option for British nationals wishing to leave. We are already using British helicopters to transport some of the more vulnerable British nationals to Cyprus. We were able to make use this morning, for example, of UK helicopters, which brought in the rapid deployment team and EU High Representative Solana to help about 40 of the most vulnerable British nationals to leave.

“For the moment, we are advising British nationals in Lebanon to stay put, exercise caution, keep in touch with the embassy and heed local advice. British nationals in Lebanon have been informed that they should listen to the BBC and other English-language broadcasts. Our embassy in Beirut is advising British nationals in Lebanon who want to leave to get ready for departure at short notice, including by having travel documents in order.

“We have deep concerns also about the situation in Gaza. The escalation in violence since the 25 June attack at the Kerem Shalom crossing has caused great suffering on both sides and mounting casualties.

“We reiterate our call for the immediate and unconditional release of Corporal Shalit. We also condemn the continued rocket attacks from Gaza on Israeli towns. We have called on the Palestinian Authority to prevent all terrorist attacks, including these rocket attacks, and to work for the release of Corporal Shalit. We welcome the work that President Abbas is doing to achieve this. Let me repeat that, while we recognise Israel’s right to defend itself and to secure the release of Corporal Shalit, we insist that its actions should be proportionate and in accordance with international law as we, the G8 and the EU have made clear.

“We continue to have serious concerns regarding the current humanitarian situation in Gaza. Israeli military actions have targeted key roads and bridges and damaged the Palestinian civilian infrastructure. We continue to urge Israel to take action to allow the full provision of basic services to the Palestinian people. We welcome the agreement to open the Rafah crossing on 18 July and hope that all those currently stuck on the Egyptian side of the crossing will be able to enter Gaza. Cases such as these should be resolved as quickly as possible through negotiations. The EU mission at Rafah has played a key role in bringing the sides together and continues to perform an important function under difficult circumstances. We have also made some humanitarian support available to those who have been stuck at the border.

“We continue to have concerns about the detention of members of the Palestinian Government and legislature on 29 June. Those detained should be accorded their full legal rights and be either charged or released.

“We fully support Egyptian efforts to mediate between Israel, the Palestinian Authority and the militants currently holding Corporal Shalit, and we have offered our assistance. Egypt plays a key role in the peace process and we will continue to work with it. We have also pressed Syria to use its influence on Hamas. I can assure the House that the United Kingdom will continue to work to resolve this crisis.

“We need an urgent end to the current crisis, although we know, of course, that real peace can only come through a lasting settlement. As the Prime Minister has made clear in St Petersburg, our priority must be to create the conditions for an early resumption of negotiations. The events that we have witnessed around Israel’s borders over the past few days have reaffirmed the great urgency of constructing a lasting settlement and the perils of assuming that, somehow, there is a military solution to this historic conflict. Negotiation is the only viable way to move the peace process forward.

“Our goal remains a negotiated two-state solution achieved through the road map. We must all find a way to work through the current crises to get back on that track”.

My Lords, that concludes the Statement.

My Lords, I am grateful to the Minister for repeating this important and somewhat gloomy Statement. This is a sombre moment, not just for the Middle East peace process and the road map but for the wider stability of the whole region and, indeed, of the world and for all of us. As the fighting expands, it can obviously have an impact far beyond either Lebanon or Gaza. It can have an impact on global stability, on oil prices—we remain far too dependent on oil—and on financial markets. Indeed, it is already doing so.

In the face of the immediate crisis, I am sure that the Minister will agree that there is little point in spending time finger-pointing about who started this particular round of horror and for what reason and so on, but there is every need to halt the spiralling cycle of killing, rocketing, bombing and kidnapping that has been going on.

We need to ask, first, about British nationals who want to leave. The Minister gave the position very fully in the Statement. Can British nationals get easy access with their travel documents to the authorities who can arrange departure by sea? Have the Israelis given a specific all-clear that there will be no molesting or interference? Are further helicopter airlifts possible, given the obvious danger of the Hezbollah operatives, who are all over Lebanon—not just in the south—and could inflict damage?

Is the Minister aware that Hezbollah has been planning this attack for five months, as confirmed by comment in Beirut, and that it has been shipping in huge volumes of weapons? I gather from the latest estimate from both sides and not just the Israeli side that those weapons include 12,000 Katyusha missiles, which have a range of about 20 to 25 kilometres, and other missiles which, in some cases, have a considerably longer range? In all this, Hezbollah is getting full personnel support from Iran’s Revolutionary Guard, who appear to be present in southern Lebanon in some numbers. The aim of this whole operation, planned many months ago, is to raise tension and kill Israel's citizens, which it is succeeding in doing.

Does the Minister also agree that, whether or not one says that it is provoked, the immediate Israeli response not only is inclined to be—indeed, is—disproportionate but can also be said to be flawed? It is very difficult to understand. Can the Minister explain how bombing the life out of Beirut, closing the airport, frightening the lives out of Lebanese citizens as they flee and, in some appalling cases, even gunning them down as they flee can possibly make it easier for the elected Lebanese Government—a young Government struggling to do their best—to grapple with Hezbollah, the serpent in Lebanon's midst? Those Lebanese citizens might be said to have been on the same side as Israel, or at least to have had the same enemy—namely, Hezbollah. Lebanon has been trying for a year to handle the state within a state, and the bombing will make that much harder. I hope that, in our discussions with the parties, we will point out that fact.

Is not one very serious conclusion from the past few days—it is an ominous conclusion for the very future of Israel—that, when it comes to weapons technology, the Israelis may have lost their famed and hitherto unchallengeable superiority? There has been a colossal miniaturisation of very powerful weapons, combined with vast cash resources from oil-rich Iran flowing into weapons and support for Hezbollah. If it has not already done so, that will have an equalising military impact, as the Israeli military is now finding out to its dismay. Does that not suggest that, in the end, the Israelis will have to talk and negotiate and perhaps discuss the release of prisoners and detainees, rather than fruitlessly bombing and shelling?

As to the Gaza situation—the other ugly pattern of development—here we have a major humanitarian crisis. As in all modern advanced societies, but in developing ones as well, the effect of cutting off electricity by bombing the generating stations is to cut off the water supplies, medical supplies, traffic controls and, indeed, the entire pattern on which an urban existence depends. What can we do to ensure that assistance continues to get through to the Palestinians and that the electricity supplies are further restored? I gather that there has been some restoration and I hope that there can be more.

Meanwhile, in St Petersburg, the G8 leaders are broadly saying—I do not want to reduce it to a cliché—that they hope that better counsel will prevail. They have talked about an international force returning to the Lebanon or expanding in the Lebanon/Israel border area. One has to ask: what on earth can that do while the fighting and the missile firing continues? The answer is, of course, very little. The time for that may come, but it is not the solution to the immediate killing and destruction.

Is the prime, direct task now for our Government and other Governments to tell the Israelis that overreaction will be counterproductive and that if they make enemies of Lebanon, their neighbour and the only other democracy in the region, that will lead nowhere, although it may already be too late for that? Should not we tell Damascus and Tehran that their aid to aggression will lead to their own destruction and must be halted? In the end, their people will suffer. Should we not also urge Israel and the whole international community, including Russia, which is a key player in this, to give maximum and continuing support to the lawful and elected Governments in Beirut and in Gaza and, through them, to the people? Should we not all also support the right of Israel to exist without constant, murderous attacks, which it finds now, even though it believed that they would cease when it withdrew from Gaza and the Lebanon? Of course, above all, Governments should support the right of Palestinians to have back their lands and country and to live there in peace. Perhaps we could have an early debate to mobilise the considerable knowledge and expertise in your Lordships' House and to analyse what is possibly the beginning of a far greater crisis.

My Lords, I endorse much of what the noble Lord, Lord Howell, has said. It is clear that we now face a potential for expansion of the Israel/Palestine conflict into a broader regional conflict. We on these Benches recognise that the Prime Minister has been expressing that view in Washington for some time. Indeed, the Prime Minister was right to argue, as he did to President Bush on many occasions, that any action in Iraq had to be taken in parallel with pursuing active negotiations on the road map for Israel and Palestine. It is a tragedy that the United States resisted that advice.

We have now lost five and a half years in the Israel/Palestine peace process. There is an underlying ambiguity about how far the Government of Israel or the Administration of the United States were committed to a two-state solution and how far they were prepared to accept that we were edging towards a greater Israel with settlement building continuing in the West Bank and with continued impoverishment of the Palestinians. Does the Minister accept that Israel can be secure in the long run only if it finds a way to live in peace with its neighbours and that the only way to secure peace with its neighbours is to have a two-state solution with a viable Palestine? We are now moving further away from that rather than towards it.

We on these Benches are particularly worried about the perceptions in Washington under the current Administration. Condoleezza Rice's remarks about the right of Israel to defend itself as a sovereign state do not seem to be helpful in the current situation. We are much concerned about those who see this as part of a general war on terror in which different terrorist groups—Hezbollah, Hamas, al-Qaeda, groups in Kashmir and Indonesia and heaven knows where else—are lumped together into a broad war on Islam, which one sometimes gets from some neoconservatives in the United States. Those who said three or four years ago that the road to Jerusalem lies through Baghdad now assume that it has to lie through regime change in Damascus and Tehran as well, although we make no excuses for the current regimes in Syria and Iran.

We recognise that the attempt to redraw the entire structure of the Middle East by the Project for the New American Century was flawed from the outset and unachievable. The disproportionate response from Israel is counterproductive. Every survey of strategic bombing and major bombing campaigns, from the US’s strategic survey of bombing in the Second World War through to post-Vietnam surveys, shows that bombing hardens resistance and increases bitterness. Hezbollah, after all, grew in influence and local prestige out of the Israeli occupation of Lebanon. Bombing it again is not the way to weaken Hezbollah’s position.

We must be concerned that the humanitarian situation in Gaza does not worsen. We must also be concerned to ensure that Israeli efforts to cripple the Palestinian state, administration and infrastructure are stopped. If we are to have some hope of a viable Palestinian partner, we must acknowledge that it was a crucial mistake to refuse at least to talk to Hamas when it was democratically elected as the Government of Palestine.

How closely are we liaising with other states on the evacuation of British citizens? Do we have enough helicopters? As my noble friend Lord Dholakia has just reminded me, what is the situation for British citizens of dual nationality? That is a common situation for people in the Lebanon. Are we actively engaged with it?

Will the Minister give some assurance that Britain is taking active steps towards securing what must be, given the difficulties that we have in persuading Washington to see the complex problems of the Middle East from our perspective, an EU initiative? The Prime Minister has on a number of occasions suggested that what we most need is a regional conference to deal with the problems of the Middle East as a whole. Does he intend to revive that?

My Lords, I thank both noble Lords for their observations. There is a global risk of instability in oil and finance markets. I also agree with the noble Lord, Lord Howell of Guildford, that tonight would not be the best occasion for a post mortem or finger pointing. That would not be useful at all.

I start with the noble Lords’ questions about the evacuation. The efforts of the Ministry of Defence and the Royal Navy have been quite exceptional. I pay tribute to them in this House this afternoon. My right honourable friend Adam Ingram has taken the role of overall military co-ordination, and Brigadier Jacko Page is on the ground ensuring that the arrangements work. I have mentioned that two destroyers are offshore; each can take about 350 people on deck. The aim would be to get people to Cyprus in a 12-hour crossing. HMS “Illustrious” and HMS “Bulwark” are, as I have said, going towards the eastern Mediterranean. Between them, they can lift many thousands of people; they are huge vessels. I hope noble Lords will allow me to say only that there are other ships on the way, not how many. We believe that the bulk of this force will be offshore by Wednesday evening.

We are trying to arrange for coaches to get people from designated points to the dockside. That should be a secure arrangement, which is one of the reasons a military team is scoping it all. We are in close touch with a large number of people. We cannot tell exactly how many British citizens were in the Lebanon when this started—that applies to those with dual nationality in exactly the same way as single nationality. The numbers could exceed 10,000. We do not know the numbers of other nationalities for which we have undertaken some responsibilities, such as the Australians and Canadians.

Briefly, a large number of vessels are queuing to get in. The port sides are damaged. In some cases, the vessels—aircraft carriers, for example—have extremely high sides. You cannot simply put up walkways. Getting people off the quayside and on to these ships will be a difficult logistical task, but work is going ahead rapidly. There is no panic; the Royal Navy being visible offshore has given a good deal of reassurance, including to people to whom I have been speaking in the past 24 hours. I hope I made the point that there is a lot of co-ordination with other nations.

To move on to some wider political issues, the Government, and the Governments of other countries, are aware of the rapid armament of Hezbollah. I say to the noble Lord, Lord Wallace, that Hezbollah and Hamas engage in terror: they are terrorist organisations that pursue policies of terror, which puts stability in the region at great risk. It would be foolish to think otherwise. However, despite the fact that they do so, it is vital that the Israeli Government respond in a way that is not disproportionate. The G8 called on Israel,

“to exercise utmost restraint, seeking to avoid casualties among innocent civilians and damage to civilian infrastructure and to refrain from acts that would destabilise the Lebanese Government”.

Plainly, any further destabilisation will make the whole process worse. One of the consequences of any further destabilisation will be that it will be more difficult to resume any kind of peace process. I agree with both noble Lords that the greater the instability created by that route, the less likely it is that Israel will live in security with its neighbours. I do not see that there can be any disagreement about that. However, it needs to be understood that rockets cannot be continually fired into a territory over long periods of time without people in that community saying that they expect their government to defend them, just as any government would defend them. I do not find appealing the argument about proportions on both sides. It is not a relativistic argument; people should stop killing civilians.

Both noble Lords asked about assistance to the Palestinians. We are working to provide money through a mechanism that we believe to be reliable. We have been contributing growing amounts through the temporary international mechanism since 17 June and another £12 million was pledged recently. We believe we must support the Palestinian people and help to provide for their basic needs. On 25 April, DfID announced a payment of £15 million through the UNRWA, and the United Kingdom has given £147 million to the Palestinian people since 2001. Our intention is to make sure that the aid continues and that the mechanism is used effectively.

It is also essential that the connection to the Israeli grid, which has now begun, continues. It supplies some power, but it is not enough. Damage to the power station has resulted in everything that was described by the noble Lord, Lord Howell. Pumping sewage and many other services are critical for ordinary, decent life and we look to see the repairs to that system completed as fast as possible. In the mean time, it is right that connections to the Israeli grid should be made to improve the input of power, which currently varies between three to 18 hours a day.

I do not accept that the G8 was just words. An unusual group of people came together and agreed on a forceful statement, which would not necessarily have happened in other circumstances. All these things suggest the desirability of an early debate, and it is for the business managers of the House to consider that. I am not averse to it, which I hope adds a word of encouragement without disrupting the work of the business managers. I believe that a good, open, frank debate on this matter would be extremely useful.

My Lords, my noble friend has expressed his gratitude to the British forces trying to help those British citizens who want to leave Beirut and Lebanon to do so. I hope he will be able also to express our gratitude to Her Majesty’s Ambassador in Beirut, James Watt, who, together with his very able staff, is struggling in difficult circumstances. I hope we can offer the diplomats there our support.

My noble friend mentioned the role of Egypt in the repeated Statement. He said that the British Government supported the mediation of Egypt between Israel, the Palestinian Authority and the militias holding Corporal Shalit. He went on to say that the British Government offered assistance. Will the Minister clarify that? He stated the view that it is not possible to talk directly with Hamas, but supported those who are doing so through this mediation process, and has offered further support from the British Government. Does that mean that there has been some modification to the British Government’s view on talking to Hamas, and, if so, would the same mediation be supported for the two Israeli soldiers held in Lebanon, who are widely believed to be held by Hezbollah? Many of us believe that it is not possible to have a successful resolution of this potentially appalling situation in the Middle East unless some talks go on with those who have hitherto been earmarked as beyond the pale for such discussions.

My Lords, I am very grateful to my noble friend Lady Symons for her congratulations, which I will readily convey to James Watt. I have spoken to him, as noble Lords can imagine. He and his team are doing exceptional work around the clock. The consular team manning the switchboards in London is taking about 700 calls an hour, and it, too, has been doing that in 24-hour shifts. Everybody is working exceptionally hard, as you would expect them to, but I thank and congratulate them.

On who is talking to whom, I do not think that there is a modification of view. The Government’s position remains that we do not seek to talk to organisations that have espoused terrorism and argued that Israel should be wiped off the face of the map. That is their position, which is why we will not talk to them. They can remedy that very easily, and should do so. It is obviously important through intermediaries to try to find ways of getting some sort of discussion going. It is likely that intermediaries will have a greater impact on them than we might, particularly the Egyptian Government, who seem to have those links. I say cautiously, because I say it out of partial ignorance, that I do not think they have the same links with Hezbollah as they do with Hamas, but, none the less, there are those who do. The organisation should release all the Israeli soldiers it holds. It should desist from violence and the Israelis should act proportionately.

My Lords, if the conflict escalates to the point where an attack on Iran is considered possible or even likely, what will be the British Government’s attitude?

My Lords, no attack on Iran is contemplated.

My Lords, does the Minister agree that it was disappointing that, because of American unwillingness, the G8 summit did not respond to the French proposal for a simultaneous ceasefire on all sides?

My Lords, I understand—I was not in St Petersburg—that a number of ideas were canvassed and a good deal of creative work was done before the final statement was produced. Those ideas were thought through by the Sherpa teams working in the background for the G8 leaders. The G8 statement was not just endorsed by the leaders, but endorsed with some enthusiasm. None of them felt that they had been knocked back or set back and it is worth noting that in their own press statements they expressed some enthusiasm for it.

One of the key reasons for that enthusiasm is that as regards Lebanon and Gaza it is possible to see in the statement specific requirements expressed by G8 leaders, which, in my view, touch all the bases needed to stabilise the position. I will not go through them all because of time and other questions that noble Lords may wish to ask, but I strongly recommend that noble Lords look at the set of requirements that the G8 as the leading economies in the world placed on all the parties. I believe that noble Lords will see that the requirements are as strict and as stringent on both sides of the dispute as they should be in these circumstances.

My Lords, does my noble friend agree that food, fuel, natural gas, medicines and electricity generators have passed from Israel to Gaza in recent days? Does he further agree that although evacuation from Lebanon has been mentioned, there should equally be evacuation plans—possibly not carried out immediately—of British nationals from Israel?

My Lords, some equipment, some food and some medicines have gone through. I heard an estimate of the number of lorries that have passed through Israel and into Gaza, but I do not want to speculate on the number because I am not 100 per cent certain how reliable it is. The situation in Gaza plainly requires much more food, medicines and materials. There are not enough. Unquestionably, there is a humanitarian problem of major dimensions in Gaza. Without anyone pointing fingers, I state that many civilians are under the kind of pressure that most of us would regard as intolerable. This morning, I was able to meet with Jan Egeland, the United Nations commissioner responsible for humanitarian issues. I am quite satisfied in my mind that the problems go well beyond the materials that have been delivered so far—although materials have been delivered.

Finally, I turn quickly to evacuation. At the moment, there has been no call for evacuation from Israel. We have evacuated a small number of British nationals across the northern border into Syria and we are bolstering our consular team in Syria on the grounds that we may have a need, not necessarily to evacuate people, but at least to assist them on their way home.

My Lords, does the noble Lord accept that the continuing colonisation of the West Bank, so that there are now nearly half a million Israelis living there—a colonisation that goes on month by month and year by year in complete disregard of the road map requirements—is a provocation for the Palestinians so intense that, frankly, one cannot be surprised that there was an increase in rocket firing from Gaza and the West Bank? Please will the Government accept that, unless something is done to stop building in the West Bank, which now is proposed virtually to encircle east Jerusalem, the last foothold of the Palestinians in Jerusalem, everything else is hot air and evasion?

As all of us are desperate for Israel to live behind secure borders, the Palestinians to live in a state of their own and the Middle East to cease to be the infection of the world's political bloodstream, I urge the Government to get beyond hand-wringing and, frankly, soft words and, if necessary, to break with the United States because, at present, the United States shows not the slightest inclination to accept that fundamental reality.

My Lords, I can hardly think of a prescription more likely to cause devastation to any prospects of peace than the quartet breaking up. It represents one of the most serious, united international forces to try to ensure that some form of negotiation continues. Before anyone says, “It all fails”, let me say that this antagonism has gone on for decades, across generations. With great respect, the idea that it will all be turned around by the quartet in a couple of years and without substantial work is unrealistic.

I have a good deal more sympathy with the points made about the West Bank. I would not use the words that have been used, but it is true that some of the building in the West Bank, certainly in those parts east of Jerusalem that would make a contiguous and viable Palestinian state entirely impossible, is contrary to international law, as is the route of the wall. I have said so from this Dispatch Box, to Israelis in the Israeli Government and to their diplomatic representatives, and I repeat it, if it needs to be repeated, here today. I do not know what is meant by “something should be done to stop building east of Jerusalem”, short of detailed persuasion and key arguments being deployed about the future of peace and the two-state solution, to which we remain 100 per cent committed. I do not know what else is being contemplated.

All the key forces, including the United States, must be brought to bear to secure a return to the road-map negotiations. Anyone, at the UN or elsewhere, who is not disposed to violence as the first tool for dealing with this, believes that those negotiations are the only route to securing a peaceful settlement.

My Lords, does my noble friend agree that, given the extremely dangerous situation and the danger of escalation, it does no good whatever to join in the blame game, as we have just heard, either of Israel or, as I would prefer, of Iran and Syria for financially supporting Hezbollah? I expressed my concern to the Iranian Foreign Minister at the weekend. It does not help to have the kind of academic discussions about the general situation that we have heard from some quarters. The G8 is now supporting the potentially viable solution of a ceasefire and an international stability force. What are the Government doing to get the support of other countries—we have the support of the Americans—and from other parties in this country for that solution, which is the only one for dealing with the immediate problem?

My Lords, I hope that, broadly speaking, people across the political spectrum in the United Kingdom believe in the two-state solution and the viability of both states as an international outcome. I wholly agree with my noble friend that the blame game is seldom profitable and that, at a time like this, it is most likely to be disruptive. I can see very little merit in it. We need stability, underpinned by an international force if necessary—you cannot simply intercede between warring parties. I understand that Javier Solana and the Secretary-General of the UN are discussing what kind of force that may be. Such a force may greatly encourage the parties to cease shooting at each other if it is believed to be capable of stopping rocket fire in one direction and the bombings in the other direction, in which case it would be well worth having such a disposition on the ground. Those seem to be the lines along which the G8 conducted its discussion. I believe that such a force has potential, and no doubt further discussion and reports to the House would be very important as that proceeds.

My Lords, there are a number of Christian and other groups in Israel and Palestine at the moment. What is the advice to them, and can that advice be given to the thousands of people who are planning in the next month or so to be on pilgrimage or other holiday business in Israel?

My Lords, as the Minister responsible for consular matters, my advice to everyone, whether they are Christian, Islamic or Jewish visitors, is to behave with the greatest caution and to read the travel advice, which, as people can understand, is changing more or less day by day right across the region. We believe that most places in Israel are relatively—I repeat, relatively—safe, but that is changing all the time. I do not want anything that I have said today to be taken to be advice for people over the next couple of months. That would be foolish, and I will not do that. Our advice in respect of Lebanon is also extremely important. There are now more or less no secure places and no clear routes in or out of the country, although of course we are trying to establish routes out.

My Lords, does my noble friend agree that there are clear points of leverage in respect of Hamas—be it Egypt or the European Union—but it is difficult to find equivalent points of leverage in respect of Hezbollah, which, it is asserted, has been preparing for this for six months or so? Hezbollah is well supplied with sophisticated weaponry and the countries that lean on it—Syria and Iran—have every interest in maintaining the problem. Where does my noble friend see any areas in which pressure could be applied on Hezbollah for restraint?

My Lords, I entirely accept my noble friend’s point that it is easier to identify where there might be some influence on Hamas; it is not easy to see where the influences on Hezbollah are other than among those who would prefer it to continue to fight than not. However, we are trying hard to persuade even those countries that their best interests and security will also, in the long term, be better provided for if they try to assist in ending the violence of Hezbollah across from Lebanon and into Israel.

The Lebanese Government are entitled to survive. One of the great difficulties in this phase of events is the risk to the Lebanese Government, who have, as a result of United Nations decisions—resolution 1559, in particular—had a responsibility to disarm Hezbollah. The other countries in the region, in as much as they have any regard for the survival of the Lebanese Government, should be assisting in that project.

My Lords, the Minister has mentioned the possibility of a UN monitoring capability. Does he recognise that the UN’s experience in the Lebanon up to now has been fairly disastrous? UNIFIL has been there for many years in large numbers and quite a lot of people have been killed in the process. It has not managed to achieve very much because it has not had the backing of the international community against two forces that have treated it with contempt—the first being Hezbollah and the second being the Government of Israel, both of which have treated UNIFIL with no respect whatever. If UNIFIL, or another UN force, is to be asked to operate in southern Lebanon, will the Government give serious consideration to the sort of backing that will be required from all the major powers with respect to those two forces that have hitherto not respected UNIFIL?

My Lords, the simple answer is yes. I do not know whether such a force would be a bolstering of UNIFIL or another force. This is an early phase of what will be a complicated discussion, but there is no doubt that any military presence on the ground would have to respect UNIFIL, or any other force, or that approach could not conceivably work.

My Lords, will the Minister make representations to the Israeli Government to ask them to desist from what I regard to be their unacceptable practice of creating sonic booms across the Palestinian territories? I speak as a member of the Liberal Democrat Friends of Israel, which is very conscious of Israel’s right to take action against threats to its security. I was disappointed because I wrote to the Israeli ambassador in December about this and I have not received a response. I cannot see the military utility of creating sonic booms which are intimidating and harassing the population.

My Lords, that is unquestionably a fair point. We are asking that no disproportionate action should take place. Things that cause terror to civilian populations most certainly count in that list.

The noble Lord, Lord Triesman, rightly declared that the Israeli response to Hezbollah should be proportionate. Can he explain why the Israelis bombed Tripoli, killing a number of people, given that Tripoli is in the north of Lebanon, about as far from the Israeli border as can be imagined? Its population is largely Sunni Muslim, with a small Christian minority, and extremely few Shias who might be supporters of Hezbollah.

My Lords, very briefly, I am not party to the thinking of Israeli military strategists, but I understand the point that is being made. For what it is worth, it appears to me that there is an attempt to create a degree of isolation, which probably means that port installations more generally have been hit. We want to see this stopped and a peaceful outcome, and we expect everyone to behave in a way that gives peace a chance.

My Lords, I beg to move that this Bill be now read a second time.

Moved, That the Bill be now read a second time.—(Lord McKenzie of Luton.)

On Question, Bill read a second time; Committee negatived.

Then, Standing Order 47 having been dispensed with, Bill read a third time, and passed.

My Lords, I beg to move that this Bill be now read a second time. In addition to covering the substance and main clauses of the Bill, I will address some of the issues raised by the report of the Economic Affairs Committee on the Finance Bill 2006. I also look forward to the maiden speech of the noble Lord, Lord Burnett; this is a good debate in which to start.

Let me first set the scene. In March, my right honourable friend the Chancellor outlined in the Budget the Government’s vision for Britain. The Government believe in a modern and fair tax system which keeps pace with the changing world, encourages work and saving, and ensures that everybody pays their fair share in delivering world-class public services. The long-term decisions taken by the Government—giving independence to the Bank of England, new fiscal rules and a reduction in debt—have created a strong platform of economic stability. The international economy has in recent years been affected by geopolitical uncertainty, rising oil prices, large current-account imbalances and shifting exchange rates between the US, Asia and Europe. Despite this, the UK has low and stable inflation and its economy is experiencing its longest unbroken expansion since quarterly records began, with 55 consecutive quarters of GDP growth. In fact, in the nine years since the Government came to office in 1997, UK GDP growth has risen by around 26 per cent. By contrast, in the nine years to 1997 the economy grew by 15 per cent. Based on internationally recognised measures of economic stability, the UK has moved from being last for stability of inflation among G7 competitors before 1997 to now being described by the OECD as a “paragon of stability”. The IMF has emphasised that the UK’s macroeconomic stability remains remarkable, being supported by,

“sound policies implemented by strong institutions and underpinned by monetary, fiscal and structural policy frameworks that have increasingly instilled confidence in the authorities’ conduct of macroeconomic policies”.

Alongside that economic record, this Finance Bill delivers measures which enhance productivity, enterprise and competition; help the environment; ensure that the tax system is fair and targeted; tackle tax fraud and avoidance and prevent market distortions; and ensure that the tax system can respond to the challenges of globalisation.

I should like to say a little about the debate on the perceived complexity in this Bill. These measures are designed to be as simple as possible while protecting revenue, encouraging growth and enterprise, and addressing market failures. Complexity is an issue that the Government take seriously. Tax systems in the modern world are inherently complicated, reflecting the complex economic and social realities in which we live. Recent research carried out by KPMG found that the UK tax system imposes administrative burdens of only around 0.41 per cent of GDP, comparing favourably with other countries. However, HMRC has been set challenging targets to reduce even further this burden. It will reduce the time spent dealing with forms by 10 per cent and with inspections by at least 15 per cent over the next five years. The Government have a strong record of engaging with business and intend to continue this dialogue. Large proportions of the Bill follow extensive consultations with business to ensure that the legislation is modernised to reflect the changing business environment. The—

My Lords, I apologise for interrupting the Minister but could he tell the House what percentage of the clauses and how many of the pages in this 500-page Bill were debated in the House of Commons?

My Lords, I do not have those data to hand, but, as I can, the noble Lord can look up the record and read the debates. I am sure that he has.

The Bill includes measures responding to those consultations: for example, we are expanding R&D tax credits, establishing a new film tax credit and creating real estate investment trusts. Stability in the tax system is key to economic security and we have undertaken a number of tax reforms to improve productivity, promote sustainable development and tackle market failures in the economy. This Finance Bill contains further measures to support the sustainability of the tax system. It allows business to plan for the long term on the basis of low and stable tax rates.

I turn now to the main areas covered within the recently published Economic Affairs Committee report. The Government are committed to maintaining a fair tax system that clamps down on tax avoidance. Clause 92 of the Bill amends Section 420 of the Income Tax (Earnings and Pensions) Act 2003 and is designed to counter arrangements which use options over shares and securities to deliver employment reward with the purpose of avoiding tax and national insurance contributions. The Government are also intent on tackling marketing tax avoidance schemes to ensure that everyone pays their fair share. Clause 76 goes a long way towards securing that objective in closing down a number of avoidance arrangements involving financial products.

I was pleased to see in the committee’s report that there is broad consensus in the private sector that the tax avoidance disclosure rules are working well, and that the private sector has a positive view of the consultation process in this area. I am aware that concerns have been raised over the scope of some of these provisions and their possible impact on genuine employee share schemes and the consequent uncertainty for business. Let me confirm that those using genuine employee share schemes that are either tax-advantaged as sanctioned by Parliament or fully taxed as value passes to the employee have nothing to fear from the changes made by Clause 92. Outside the Government’s special tax advantage schemes they should be expecting the full benefit delivered to the employee to be properly subject to income tax and national insurance contributions. Indeed, the evidence from annual employer returns since 2003 is that genuine taxed employee share plans continue to increase in numbers.

This is a proportionate response to continued avoidance in this area and I was glad to see the Economic Affairs Committee report recognise that the operation of the tax avoidance disclosure regime has served to create a behavioural shift against wide-scale adoption of more aggressive and sophisticated tax avoidance schemes. Neither the Government nor the Opposition want to see attacks on the tax system by criminals, and I know that noble Lords will lend their support to measures which prevent such attacks.

Clause 19 enables a change in the VAT accounting provisions for sale of certain goods to tackle missing trader intra-Community fraud. This fraud is an organised criminal attack on the VAT system which in 2004-05 is estimated to have cost up to £1.9 billion in stolen VAT. The fraud relies on contrived movements of high-value goods—typically mobile phones and computer chips—which are often moved in a series of carousel circuits between the UK and other EU member states. The tax loss occurs when the VAT charged on the initial sale of the goods in the UK is not paid to HMRC but can still be reclaimed by the purchaser. Clauses 20 and 21 clarify the scope of the existing power for HM Revenue and Customs officers to inspect goods and directions to keep records for VAT purposes. I welcome the positive remarks in the Economic Affairs Committee’s report on the Government’s efforts to tackle missing trader intra-Community fraud.

The Government want to see a continuation of a fair and targeted inheritance tax system and are committed to providing certainty for families in this area. The Bill proposes increases in the inheritance tax threshold to £312,000 for transfers of value on or after 6 April 2008, and to £325,000 for transfers of value on or after 6 April 2009. The increased tax-free threshold of £285,000 for 2006-07 means that the number of taxpaying estates will be about 37,000 in the current tax year. Despite concerns about the number of people affected by inheritance tax, it remains the case that only around 6 per cent of the estates of those who die in 2006-07 will pay any inheritance tax.

The Budget announced new rules for two types of trust—known as “accumulation and maintenance” and “interest in possession”—that are currently exempt from the inheritance tax charges that already apply to other types of trust. It has become clear that some wealthy individuals are using these types of trust primarily as a way to shelter their wealth from inheritance tax. The Government believe that it is unfair for people to gain a tax advantage by using trusts in this manner.

It has been said that there should be no difference between the inheritance tax due on setting up a trust and giving assets away. I disagree. People who set up trusts continue to control how the money is used. That is not the same as an outright gift and there is no reason why they should be taxed in the same way. Therefore, we have taken action to ensure that the exemptions from IHT trust charges apply only where trusts are set up to cater for certain prescribed circumstances—that is, broadly, where they provide for the disabled or are set up on death, including for spouses and bereaved minor children. In all other cases, the normal charges for trusts will apply, preventing them being used to shelter wealth from inheritance tax.

There has been a lot of speculation in the media about this measure and the Economic Affairs Committee raised several concerns. For the avoidance of doubt, I can confirm a number of things. Where someone dies without having made a will, their bereaved spouse or civil partner will continue to get spouse relief, and spouse relief will continue to be due when an “interest in possession” trust is set up under a will giving a life interest to a bereaved spouse or civil partner.

Where a trust is set up by a parent on their death for a bereaved minor, the trust charges will begin to accrue only from the child’s 18th birthday. People will still be able to set up trusts that run on past a child’s 18th birthday if they wish to do so. Most trusts that come within the new rules will not have any inheritance tax to pay. Inheritance tax will be due only from trusts that have amounts in excess of the threshold of £285,000, rising to £325,000 by 2009. This allowance can be in addition to the inheritance tax threshold that applies to a person’s estate when they die. I reject statements that these changes will affect millions of people.

I read with interest the Economic Affairs Committee report’s comments on the absence of consultation. The Government always consider the benefits of undertaking consultation and try to make as much room as possible for advance preparation ahead of changes to the tax regime. However, this will not always be possible—for example, in cases like this, where there is a significant risk of large-scale forestalling.

The Government recognise that trusts have an important role to play in helping people to manage their affairs, but we believe that the tax system for trusts should not provide artificial incentives for setting them up. Over the past few years, we have made a number of changes to close loopholes in the inheritance tax regime and the tax regime for trusts to ensure that people pay their fair share of tax. Alongside this work, we have also undertaken a programme of modernisation of the tax system for trusts, making changes to protect vulnerable people while ensuring that trusts are not used to achieve an unfair tax advantage.

Let me talk briefly about some other important areas in the Bill that are not covered in the Economic Affairs Committee’s report. The research and development tax credit is a key part of the Government’s strategy to raise business research and development, as part of our wider aim to boost science and innovation in the economy and help secure the UK’s long-term prosperity. The scheme was introduced for small and medium-sized enterprises in 2000 and extended to all companies in 2002. To date, there have been nearly 22,000 claims for R&D tax credits. Support claimed under the scheme amounts to just under £1 billion for SMEs and almost £1.8 billion of support overall. The Government want to maintain a prosperous and world-class UK film industry, so we have designed a new and more modern tax treatment for films, one that closely reflects contemporary film-making practice. It is a more generous incentive for film producers and better targeted at the makers of culturally British films.

Real estate investment trusts are a new tax regime for the UK, designed to remove inefficiencies, which currently persist in both the commercial and residential property investment markets. Property companies are taxed at the corporate level on their rental income, but for many investors, such as those in pension funds, the overall tax effect of investing indirectly through a property company is higher than if they owned the property directly. It is this tax distortion that the Government seek to address, which will in turn help to improve the efficiency of the property investment market in the UK.

In summary, the Government are striking a balance between encouraging enterprise and discouraging avoidance, and between building a favourable climate for business and ensuring that the tax system is fair and seen to be fair. This Bill demonstrates the Government’s commitment to the continuing development of a modern and fair tax system, and I commend it to the House.

Moved, That the Bill be now read a second time.—(Lord McKenzie of Luton.)

My Lords, I am not sure what is happening in the test match but in this debate, for the second year running, the batting order has been altered by general agreement. It may be helpful if I say what I have to say at this stage, as I have the honour to be chairman of the Economic Affairs Committee and the sub-committee that has looked at the Finance Bill. This is the fourth annual inquiry into the Finance Bill that the Economic Affairs Committee has carried out. I am privileged to have been associated with all four—in the case of the last two, as chairman of the sub-committee. I am also looking forward to hearing the maiden speech of the noble Lord, Lord Burnett, in due course.

The response from your Lordships' House and another place has been generally supportive of our work, which has been recognised as significantly assisting informed debate in Parliament. I thank the members of the sub-committee, who had to work extremely hard over a relatively short period. There were lots of meetings—several a week—and a lot of briefing, and I am very grateful to them for taking on that burden. I also thank our Clerk, Robert Preston, who is moving on to other duties, and our special advisers, Leonard Beighton and Brian Shepherd, who gave us very good service and worked extremely hard.

Of late, however, the Government have expressed concerns about our report. These concerns are based on a misunderstanding not only of what the sub-committee has been doing but, perhaps more important, of the distribution of powers between your Lordships' House and another place. So I should begin by discussing those powers and laying those concerns to rest.

The Government have stated in evidence to the Joint Committee on Conventions that the existence of the Finance Bill sub-committee risks your Lordships’ House intruding on Commons financial privilege. Indeed, the Leader of the Commons went further in giving oral evidence to the Joint Committee, suggesting that,

“the establishment of a Finance Bill Sub-Committee … by this House seems to me to be a quite deliberate claim to additional powers over a Bill in respect of which this House is not supposed to have any power at all”.

He added:

“I am wholly opposed, and so is the Government as a whole, to the Lords transgressing into areas of taxation”.

Let me set the record straight. Erskine May is clear that, although this House may not amend supply Bills, such as the Finance Bill, it is perfectly entitled to debate them, as we are doing today, and to refer them to Select Committees for examination. That is made clear on page 918 of Erskine May, if anybody has any doubts about it.

It is difficult to see what we are doing that the Government consider to be so wrong. Indeed, when the initiative was taken four years ago to set up the sub-committee, your Lordships’ House undertook a self-imposed restraint that the sub-committee’s inquiries should steer clear of the rates or incidence of taxes and limit themselves solely to matters of tax administration, clarification and simplification. I should add that both the Clerk of the Parliaments and the Clerk of the House of Commons were consulted at the time, and gave their views that the establishment of annual sub-committees along these lines to inquire into Finance Bills would not disturb the distribution of power between the two Houses. So I have to say, and I have said so in evidence to the Joint Committee, that I reject completely the notion that we have been in any way acting improperly in inquiring into these Bills. We have been exercising with considerable restraint the rights of your Lordships’ House going back for a very considerable length of time.

In four years, here has not been a single occasion on which party bias has played a part in our sub-committee’s deliberations. We have commended the Treasury and Her Majesty’s Revenue and Customs and endorsed their explanations or proposed changes of tax at least as often as we have felt it necessary to criticise what they have done. Indeed, it is fair to say that we have provided a platform in some instances for the Government to clarify their proposals to Parliament and to the public at large. I accept that the Government may occasionally not feel too comfortable with our probing, but that is part of the role of Parliament—to hold the Executive to account. However, they cannot fairly accuse us of exceeding our powers.

Let me move on to the Finance Bill and my committee’s report on it. The Bill is substantial, so it was necessary for us to be selective. We chose to look at two areas of taxation that we had considered before and to which new measures were being added; namely, measures to counter the avoidance of direct tax and measures to crack down on VAT fraud. We also chose one new measure: proposals to change the inheritance tax treatment of trusts. We were generally happy with the strategy that the Government are pursuing to follow up their measures to counter tax avoidance. We were told both by tax professionals and by officials that they felt that there had been something of a behavioural shift as a result of earlier measures in this direction and that consequently there was less widespread adoption of the more aggressive and sophisticated tax avoidance schemes. The Minister referred to that in his speech and I entirely agree with what he said. Our one concern was about the need to achieve greater certainty for taxpayers so that normal and innocent commercial activities do not become inadvertently caught.

Similarly, we welcomed Clauses 19 to 21, which were designed to strengthen the powers of Customs to deal with the missing trader intra-Community fraud—the “carousel fraud”. It appeared to us that the measures introduced in the Finance Act 2003 had gone some way towards stamping out this phenomenon, but they simply had not done the trick. We very much hope that the latest measures will be successful. It is very important that progress should be made in this area. The scale of losses at the moment is substantial and could well be increasing. Though newspaper reports have claimed that they could be as much as £5 billion a year, the Treasury’s estimate of between £1 billion and £2 billion—which it is to be hoped is more accurate, and I accept that it is—still represents a substantial amount of money that could be put to good use if collected.

The proposals regarding the inheritance tax treatment of trusts are to be found in Clause 157 and Schedule 20. We noted first that, while consultations had been going on around modernisation of the taxation of trusts generally for income tax and capital gains purposes, there had not been consultation on the Government’s specific proposals to change the inheritance tax rules. The argument deployed by the Treasury was that, had there been consultation on these proposals—the Minister made these points— there would have been forestalling action. We believe that this was a pity. Consultation usually leads to better-crafted legislation.

While we accept that there might be circumstances in which the need to avoid forestalling precludes normal consultations, we did not hear convincing evidence to show why in this case counter-forestalling action could not have been taken that would have allowed consultation to take place. For example, as one of our witnesses suggested, the Government could have announced what they proposed last December or January on the basis that consultation would take place but that the legislation, when enacted, would be effective from the date of the announcement. Indeed, I see that in another place the Paymaster General quoted this witness as stating to us that there would have been forestalling if there had been consultation. For the record, the witness actually said, and I quote from the record of evidence:

“I do think forestalling would have been a problem but there are ways in which it could have been tackled”.

We received different estimates from officials and private sector professionals about the number of people likely to be affected by these proposals. Some professional bodies from which we took evidence believed that at least a million—probably more—wills would be affected and would need to be reviewed, and perhaps amended, at a cost of between £400 and £700 per will. Officials took a different view. They told us that 94 per cent of estates were not in any case subject to inheritance tax and that, while some people might need to review their wills, the number would be nothing like those that had been suggested. It was impossible for us to say who was right, but we remain concerned at the extent of the disagreement on the impact of these measures. The amendments made to the Bill during its passage should have reduced the need to review wills, but we remain without an agreed estimate of the size of the burden.

We accept that there may have been tax avoidance through the use of trusts and that the Government are fully entitled to tackle this, but we are less sure whether the route adopted was the right one. There was a lack of clarity about the purpose of the changes. Were they primarily about preventing avoidance, as Ministers suggested, or were they simply part of an alignment and modernisation process, as the papers published on Budget day implied? We did not receive a clear answer. As the Government have not made clear what they were trying to achieve, we remain uncertain whether the policy of neutrality towards trusts has been altered. The measures in the Bill will impact on a wide range of trusts, which are used not necessarily for tax avoidance but as part of the responsible stewardship of family assets. The measures could make such stewardship less certain and more complex.

Overall, we did not feel that the introduction of measures to change the inheritance tax treatment of trusts had been handled well. We felt that they could have been handled much better. The Government are right about the avoidance of direct tax and about the VAT problem, which is very serious, but we are very critical of the way in which they have handled the changes to the inheritance tax treatment of trusts.

My Lords, I thank the Minister for introducing the debate and I look forward to hearing the maiden speech of the noble Lord, Lord Burnett. I also thank my noble friend Lord Wakeham for introducing the report of the House’s Economic Affairs Finance Bill Sub-Committee. These reports have now become a firmly established feature of the work of your Lordships’ House and nicely demonstrate the expertise that our House possesses. I do not believe that anyone who has read the reports can doubt that this House can make a major contribution to the framing of effective tax legislation. I completely support what my noble friend said on the subject of the work of our sub-committee and the propriety of that work.

The report tackles the difficult subject of carousel fraud, which involves significant losses to the Exchequer and completely messes up our trade statistics. The weapons crafted in the Bill, especially the powers of inspection of goods in Clause 20 and of record keeping in Clause 21, have the potential to impose further burdens on businesses, and not only those that are suspected of being involved in fraud. I hope that my noble friend will forgive me for saying that his sub-committee’s report bends a little too far in favour of HMRC in accepting the imposition of further regulatory burdens. It is sometimes easy to justify the individual burden, but the important thing is the overall picture. The CBI estimates that the costs of new regulations introduced under this Government now exceeds £50 billion, and this Bill has just tightened the regulatory noose around the neck of British business a little further.

The report deals with inheritance tax and trusts. My noble friend Lord Howard of Rising will deal with that area in detail when he winds up the debate for these Benches. We deplore the underhand way in which the changes were revealed, with not a word in the Budget and, as we heard, absolutely no consultation. It also shows HMRC and the Treasury in a pretty unflattering light. There can be no real explanation for the 50 amendments that the Government introduced when the folly of their initial clauses was unmasked by the various professional bodies, who were appalled by the proposals as drafted.

This debate traditionally offers your Lordships’ House the opportunity to debate not only the Finance Bill, which we have no power to amend, but the Budget from which it derives. I would like to say a bit about that. The Budget is nearly four months old and to that extent it is old news, but the content of the Budget is of continuing interest, so I will spend a little time on it before returning to the Finance Bill. The Budget sets out for all to see the weaknesses that must be addressed if the UK is to prosper in the long term. We tax a lot; we borrow a lot; and we spend the proceeds inefficiently. Taxation is set to rise to nearly 39 per cent of GDP. Hard-working families have already noticed that their pockets have been picked by the Chancellor, which is why consumer spending has been subdued. I think that we will notice that even more over the coming years. The tax burden is also a serious issue for corporate Britain and is now a major factor contributing to our slide in all the competitiveness league tables. All our G7 competitors cut taxes between 1996 and 2004, whereas we increased ours. The Chancellor needs to grasp that he is not only harming UK businesses, but erecting a large “Keep Out” sign for internationally mobile capital.

The Budget shows that government borrowing as a percentage of GDP will rise to 38.4 per cent, which is close to the Chancellor’s sustainable investment rule of 40 per cent. The declared borrowing excludes anything for PFI debts, let alone pension liabilities or Network Rail debts. We expect the Office for National Statistics to do something about PFI debts this year. Will the sustainable investment rule remain unchanged at 40 per cent whatever the ONS produces on the scoring of PFI liabilities? Or will we see another bit of creative accounting to massage away any problem?

As the Minister is aware, the Chancellor is a past master of dodgy accounting; he has revised the calculations of the golden rule so many times that no one now believes that it has any meaning. For the record, the Chancellor says, on the revised, revised, revised rules, that he has £16 billion of headroom to the end of 2008-09. That £16 billion includes £6 billion contingency, and he has already spent some of that. That leaves £10 billion, which is roughly the size of the normal range of estimation error. The Institute for Fiscal Studies calculates that the Chancellor has a 55 per cent to 60 per cent chance of meeting the golden rule in the absence of other policy changes. Does the Minister admit that there is any possibility that the golden rule will not be met?

All of this tax and debt has been funding the Chancellor’s public spending spree, which has simply not produced commensurate benefit. Last week, the Treasury issued a paper on the 2007 spending review, which shows that the Chancellor is in complete denial. He still has not grasped that genuine reform of public services is essential. He has not understood that the reason why the NHS produced record financial deficits despite high funding was that he blocked the kind of reforms that might have made a difference. The reality is that he has built the Treasury into an empire that watches helplessly as spending turns into negative productivity.

The arithmetic is getting ever harder for the Chancellor’s next spending review, which is why he has conjured up another 2.5 per cent of efficiency savings to add to the 5 per cent already announced and Gershon’s smoke and mirrors. Our calculations show that even if all those efficiency promises are delivered—and there is absolutely no track record on that—many departments other than those for health and education will be struggling to get any extra cash. I am sure that the Minister will put a brave face on it and say that we must wait until next year, but I am also sure that he knows what the sums look like.

I do not have time to talk about the economy more widely—trade deficits widening, unemployment rising, poor productivity growth, economic growth below our competitors and business investment the lowest since records began. The bottom line is not that we have a failing economy; let me be clear that I do not allege that. I am saying that we have an economy that is being managed on a seriously sub-optimal basis.

Let me turn back to the Finance Bill. We have become so used to massive Finance Bills that it is something of a relief that we have only 180 clauses and 26 schedules in a two-volume Finance Bill. The Bill creates further complexity on top of that created over the past nine years. It is a pity that my noble and learned friend Lord Howe of Aberavon is not able to be with us this afternoon, because I know that he would have wanted to repeat his message of simplifying the tax system. I was very disappointed to hear the Minister defend complexity rather than reach out towards simplicity, which requires different approaches and different structures. I hope that one day the Treasury will have a Damascene conversion.

The Bill, at long last, introduces real estate investment trusts, which have been welcomed on all sides. However, the Government have failed to maximise their potential by refusing to allow the possibility of AIM-listed REITs. The Bill also features a now familiar Treasury practice of creating reliefs, promoting them and then, when they are successful, declaring them to be tax avoidance. First, the 0 per cent rate of corporation tax for small companies is abolished in the Bill. Secondly, the home computing initiative, which the Government have only recently been promoting, has been axed. Home computer users and small businesses now join all other tax-avoiding ogres in the Chancellor’s imagination.

The last element of the Finance Bill that I shall mention is the 14 pages of barely comprehensible group relief rules in Schedule 1 in response to the European Court of Justice decision in the Marks & Spencer case. This makes plain the shameful truth that our sovereignty over direct taxation matters has been ceded to Europe. Direct tax is not a matter of Community competence and the ECJ has twisted the treaty provisions to assert its jurisdiction. The Minister knows that there are plenty more cases in the pipeline. Will the Minister tell the House why the Government have so meekly accepted this? Why have the Government not mounted a campaign to defend our tax autonomy?

My honourable friends in another place voted against this Finance Bill two weeks ago. It is a great pity that we cannot do the same in your Lordships’ House.

My Lords, it is a great honour for me to make my maiden speech today. I should first like to put on record my thanks to your Lordships and the staff of the House for all the kindness and help that you and they have extended to me. Having had the privilege of serving as Member of Parliament for Torridge and West Devon for eight years, I am pleased to say that I have now participated in votes where the result was not a foregone conclusion.

In my chequered career, I have been a new boy on a number of occasions, and each time there have been new and important lessons to learn. I started my working life in January 1964 as a rather spoilt young man, arriving at Exton station, between Exeter and Exmouth, on a very cold winter’s evening. That is the station nearest to what is now known as the Commando Training Centre Royal Marines. I had had an ambition to join the Royal Marines for many years. A three-tonne lorry arrived and out of the passenger door jumped a tall, imposing figure in full blues. I thought to myself, “How awfully kind of the general to come and meet me”. It was, in fact, the legendary colour sergeant, Jan Crook, who had the Herculean task of taking through our initial training the eleven of us who joined in my year. I looked at my suitcases and looked at the back of the lorry. The colour sergeant whispered in my ear, “I think sir will be carrying his own cases”.

Before I lead on to the Finance Bill, I should declare that I am landlord of agricultural and residential property and also that I am a consultant at a West Country law firm. I am also a member of a tax committee of the Law Society.

I seem to have chosen to make my maiden speech on the hottest day for years and the Finance Bill, despite everyone’s best efforts, is not the most gripping subject. However, there was much debate in the other place and in the country about the inheritance tax changes proposed in this year’s Finance Bill. There certainly was some avoidance with older interest in possession trusts, circumventing the gifts with reservation anti-avoidance provisions. It was right to close this loophole. However, rather more than that was proposed.

Professional bodies and others had discussions with officials and progress seemed slow. I wish to put on record my gratitude to the Paymaster General for finding nearly two hours in May during the progress of the Finance Bill to discuss the issue with me. She was, as always, courteous, conscientious and prepared to listen to the points I raised on behalf of the hundreds of thousands, if not millions, of taxpayers, of clients of members of the Law Society, the Society of Trust and Estate Practitioners and the Association of British Insurers, for whom I was speaking.

The Bill was greatly improved by the amendments made to Schedule 20, but further work remains to be done. It will not now be necessary for many hundreds of thousands of wills to be changed to ensure that the normal inheritance tax exemption applies to a life interest left to a spouse or civil partner. As the Bill was originally drawn, the new Section 49A of the Inheritance Tax Act 1984 would not have applied to life interests that might have ended in the beneficiary’s lifetime or where children would not inherit after the beneficiary’s death until they reached the age of 25. It is standard practice for wills to be drawn up in terms which enable a life interest to be ended in the life tenant’s lifetime and which require property left to children to be held in trust for them until they reach the age of 25.

Helpful changes were also made where property is left by parents to their children and is conditional on those with children reaching the age of 25. It is a pity that no reliefs are given where grandparents leave property to minor grandchildren who have lost their parents.

However, the new inheritance tax rules still impact very harshly where lifetime settlements are made. Trusts have traditionally been used for settling property disputes in divorce proceedings, in arranging for family property to be held after a second marriage and in providing for disabled beneficiaries. The requirement to treat their lifetime settlement of property as a chargeable transfer will mean an extra cost being imposed on what would otherwise be a sensible and economic arrangement—for example, where the family home is owned by the former spouse, but must remain unsold while the children are growing up.

Trusts created during a settlor's lifetime giving a life interest to a husband, wife or civil partner are now treated much more harshly than trusts in favour of other beneficiaries. That is a particularly perverse outcome. Trusts of this type are particularly useful where there has been a second marriage and it is intended that the children of the first marriage will inherit property after providing for the second husband or wife. If there is a family home or other property and a spouse wishes to give it to his or her spouse for life, and then to the children of the first marriage, there are real tax problems. Under the new rules, the gift will be a chargeable transfer leading to an immediate inheritance tax charge, in spite of the beneficiary being the spouse. The gift will also be a capital gains tax disposal, but, because the spouse benefits, there will be no holdover relief for the gain, since the trust will be “a settlor interested settlement”. Incidentally, this would not be a problem if the life interest was given to a mistress instead of a wife.

If the gift creates a life interest over the family home or an interest in it, it will be a gift with reservation of benefit. When the settlor spouse dies, inheritance tax will be charged again on top of the inheritance tax already charged when the settlement was made. The reason for that is that the lack of exemption when the settlement was made prevents Section 102(5)(a) of the Finance Act 1986 applying.

Special rules for gifts held in trust for disabled beneficiaries are far too restrictive, and that point has been made by many bodies representing the interests of the disabled. In addition, when the Government reconsider this legislation, as I sincerely hope they will, I hope that they will ease the inheritance tax burden on life protection policies.

Finally, I would emphasise again that such interest in possession trusts are not used for tax avoidance. The life tenant is treated for inheritance tax purposes as if she or he owned all the trust’s assets absolutely. The reasons for the creation of these trusts are many, including the fragility of marriage and the protection of the vulnerable.

I hope that we shall have an opportunity to debate these matters again. I am delighted that this House has in recent years been doing more and more extremely valuable work on economic and tax matters. It is a pleasure to have the opportunity to debate these matters here today.

My Lords, I am delighted to have the opportunity of congratulating the noble Lord on his excellent maiden speech. Obviously, there are not too many Members of your Lordships’ House who are as expert as he is on trusts, but certainly the Finance Bill sub-committee would be delighted to see him participating both in our committee and in our debates. I would say that even if he did not have a name that is so similar to my own—there is only one letter that is different. The noble Lord’s excellent maiden speech dealt precisely with the issue that we are debating, which is not always the case with maiden speeches. As a solicitor practising in taxation, he will be a valuable Member of your Lordships’ House and of our Select Committees. I am delighted to welcome him, and again I congratulate him on an excellent maiden speech.

I want to follow a few of the points made by the noble Lord, Lord Wakeham—the excellent chairman of the Economic Affairs Select Committee and the sub-committee in which I was fortunate to participate. He referred to the criticism by members of the Government of our work as a sub-committee. I want to add a few words on that because I strongly support what the noble Lord, Lord Wakeham, said. I refer, in particular, to evidence given to the Joint Committee by my right honourable friend Jack Straw. What he said was so wrong that I feel I must mention it briefly. The noble Lord, Lord Wakeham, quoted some of it but it is worth quoting again. He said:

“I am concerned, and I have to say Treasury Ministers still more so, that the establishment of the Finance Bill Sub-Committee of the Lords Economic Affairs Committee seeks to circumvent the financial privilege of the Commons. It is seeking to insinuate a function for the Lords which was never envisaged before by the passage of the Parliament Act 1911 or during the rest of the 20th century. It is our judgment that the existence of the Finance Bill Sub-Committee is incompatible with the conventions which over the running of matters are dealt with by the Commons”.

Personally, I can forgive my right honourable friend because he should not be doing that job; he should still be Foreign Secretary. He was wrong on many accounts but I want to refer specifically to two of them.

The first concerns the existence of the sub-committee. I understand that it was set up with the agreement of the Cabinet. The Leader of your Lordships’ House at that time—the excellent and unfortunately too-early-deceased Lord Williams—spoke in the Cabinet and got agreement for such a sub-committee to be set up.

The second point is more important as it relates to circumventing financial privilege. I hate to say this about my right honourable friend but what he said was nonsense. Clearly, he has not had time to read any of our sub-committee reports, otherwise he would not have dreamt of making such a statement. As the noble Lord, Lord Wakeham, said, we successfully avoid circumventing the Commons in every conceivable way. However, if my right honourable friend had spoken to any senior officials at the Treasury or HMRC, he would have been told how much they recognise the importance of our sub-committee’s work.

In a way, that was brought out by the intervention of the noble Lord, Lord Forsyth, who I am sorry to see is not in his place. He asked the Minister how long the Commons had debated the Finance Bill, which is more than 500 pages long. He should be aware, as should any of us who have had a little experience of matters in the other place, that Oppositions of all political parties never debate Finance Bills properly. That is precisely why these Bills get bigger and bigger—they are never properly amended. That is true not only under this Government but, as the noble Lord, Lord Wakeham, will be aware, under all Governments. Oppositions tend to choose for debate the sexy party-political issues and they virtually ignore the rest. That is where the value of our sub-committee lies. We do constructive work, as anyone would know if they read our reports and the evidence that we take. They would recognise, as officials do, how important our work is. I know that the Chancellor does not like interference from anyone and certainly not from the House of Lords, but if he would only recognise the value of our sub-committee’s work, that would be of great benefit to the Treasury and Ministers and it would aid the better drafting of legislation.

Having said that, the media in this country are even worse. I leave aside what might be called the serial partisan, party-political press; I am talking about the so-called serious press. When we issued our report, the newspapers carried headlines along the lines of “The Lords slam the Treasury”. As the noble Lord, Lord Wakeham, pointed out, we chose three issues to debate. On one, we disagreed, rightly, not with Ministers or even the Treasury but with Revenue officials who did not consult as they should have done. If they had, they would not have needed to amend the Bill right at the end of their deliberations in the way that they did, as they would not have included certain things in the Bill in the first place.

That was one part of the three issues that we looked at and, even there, we broadly agreed with the Revenue on anti-avoidance measures, and we certainly agreed with it on the other two issues. It will not be known to the media or to anyone else outside that our committee also spoke about the way in which the professions exaggerate in these matters. Plainly, they were wildly excessive in talking about the number of people who would be affected by inheritance tax through the use of trusts, although, as the noble Lord, Lord Wakeham, will know, at the time I was a little alarmed that we might inadvertently have set up trusts in our wills, even if we had not intended to do so. However, we were generally constructive, as we always are in our reports, and I am sorry that the Government and Ministers do not recognise the value of the sub-committee’s work.

We rightly criticised the lack of consultation, but I recognise that officials—I am not talking about Ministers now—did not want to consult because of the fear of forestalling that could have allowed excessive tax avoidance, which our sub-committee does not want to see. But the plain fact is that, if anyone cares to read it, all the evidence that we had indicated that the dangers of forestalling in this respect were very small.

Although I do not want to dwell on this, in other cases we agreed with the Government’s desire to cut out some of the rather exotic tax avoidance schemes. But we know that one area, which has been mentioned already, is growing in terms of loss of revenue—the MTIC, or missing trader intra-Community, fraud. We know from the evidence that we took that it is a very serious matter and one that is growing rather than declining. It is growing because criminals are using this sophisticated fraud to take more and more money out of Revenue and Customs. The ONS is also having to change its statistics because it recognises that, if it does not do so, it will show billions of pounds in the statistics which are simply being duplicated through frauds.

Unfortunately, much as we supported it, I fear that the Government’s new legislation is not getting anywhere near meeting that problem. I know that the Chancellor—indeed, any Chancellor in any Government—would not want to see the European Union become involved in our tax laws, but it seems to me that in this instance that is the only way that we are going to get across the problem. It applies not only to the UK; it is an intra-Community fraud which applies right across the Community. I believe that the only way to deal with it will not be in the kind of legislation, or even more sophisticated legislation, in our Finance Bills, but on an intra-Community basis. We should be pressing the 25 member states. It is never easy to get agreement, but on this I would have thought there was a better chance because they are also suffering. I hope that the Government and the Opposition will support changes that will allow us to have serious discussions to stop this very serious fraud before it gets even worse, as it seems to be doing.

I turn briefly to the economy. Of course, there are problems—it would be incredible if there were none—because of what is happening in the global economy and events elsewhere, including what we have just been discussing in your Lordships' House, the problems in the Middle East and the effect that is likely to have on the global economy and on our own economy—events over which any Chancellor of the Exchequer would have no control. I can safely leave it to the Minister to tell us all about the wonderful things that the Government are doing and I can safely leave it to the noble Baroness, Lady Noakes, to tell us how terrible the Government are. To talk about the economy as a failing economy, even for her, is a bit much. After nearly 10 years of an economy growing—

My Lords, I did not say it was a failing economy. I made it plain that I did not say that.

My Lords, I was surprised and delighted with how brief the noble Baroness was in her opening remarks. She obviously could not find enough to criticise the Government for. I shall leave that aside. Normally I can rely on her being very critical of everything to do with Finance Bills and the economy. I look forward to hearing some constructive proposals about how she would amend the Bill.

I recognise that everything is not always brilliant in our economy, but at the moment it is difficult not to accept that in the past nearly 10 years we have had economic growth, which is unusual. I do not want to quote the Minister but he will tell us how great it all is. I have a problem with inflation. We know that the Opposition initially opposed the setting up of the Monetary Policy Committee of the Bank of England. I am sure that the noble Lord, Lord Forsyth, did not do so because he is too intelligent to oppose such a sensible proposition. I am sorry he was not in his place a few moments ago because I referred to something he said. We have a very low rate of inflation—around 2 per cent—and the Governor of the Bank of England has forecast, as has the Monetary Policy Committee, that it will stay broadly at that level for the next two years.

Despite that, the Governor is constantly speaking around the country about the serious dangers of inflation. Frankly, if he has to increase interest rates by a couple of quarter percentage points over the next few years to keep inflation at the figure that he has forecast of around 2 per cent, would that be disastrous? I am beginning to worry that the Governor of the Bank of England does not have enough to do. If he is going around the country spreading gloom about the rate of inflation when it is only around 2 per cent, and he forecasts that it will stay there for two years, I wonder what on earth he is talking about. I could have understood it coming from the noble Baroness, but not from the Governor of the Bank of England. Perhaps I could suggest to the noble Lord, Lord Wakeham, that the Economic Affairs Select Committee could call the Governor before it to ask a simple question: what on earth is he on about?

I am obliged to my noble friend for pointing out that I have spoken for too long, but I shall take another minute or two.

The golden rule has been raised again. The Economic Affairs Select Committee, under the chairmanship of the predecessor of the noble Lord, Lord Wakeham, said that it was a better system than any other that has been devised in the European Union. For my part, if it is slightly overreached, it would not be a terrible disaster. Other than that, I leave the defence of the Finance Bill and the economy to my noble friend who I know will manage very well.

My Lords, I cannot resist making a comment on the maiden speech of the noble Lord, Lord Burnett. I shall do so in the context of suggestions about certain people paying to come here. Having heard the speech, in my opinion the House of Commons deserves a footballer’s transfer fee for releasing him to be a Member of your Lordships’ team.

First, I want to make some remarks about the Chancellor's Budget and the Finance Bill, and then I shall discuss Britain's economic situation in the context of the EU and world outlook, as reflected in the Chancellor’s speech. I believe that as a consequence of his decision three years ago to abandon his reputation for caution, Mr Brown is facing serious dangers in keeping to his cherished two golden rules. As my noble friend has said, he has changed the definition of the economic cycle so frequently it is hard to hold him to account. He now depends on nothing unexpected happening and, of course, plenty is going wrong. It will be very hard to rein back on spending. The military commitments overseas are huge and growing rapidly and the provision made is quite inadequate. Then tax revenues, at a time when the world economy slowdown is starting, are likely to be much less buoyant than expected.

More serious is the threat to the Chancellor’s sustainable investment rule, which means net debt has to be below 40 per cent of GDP. It is already some 37 per cent and is expected to exceed 38 per cent in each of the next three years. But let us look at the accuracy of the Treasury forecasts for the current year and last year. In his 2002 Budget the Chancellor predicted a net debt at £18 billion for the current year, 2006-07. He is now predicting that debt at £36 billion, double the earlier figure. In his 2001 Budget the prediction was even worse. He predicted net debt for 2005-06 at £12 billion and it has turned out to be three times larger at £37 billion. For the probable last year of this Government, 2008-09, he is predicting £25 billion of net debt, a figure which could on past form be anything between £50 billion and £75 billion—and by my reckoning he has only £25 billion to play with.

My last point on the Budget is to say how foolish it was for the Chancellor to allow the Paymaster General—the right honourable Dawn Primarolo, who has been lurking in the depths of the Treasury ever since 1997—to attempt to make those drastic changes to inheritance tax which have caused such great concern to much of middle England. The proposals were not even in the Budget speech, and I have been told that the Inland Revenue officials were kept in the dark about them until a couple of weeks before they were put in the press release. I am glad to note that the Select Committee was robust in its condemnation of,

“the clumsy handling of this issue”.

Thank goodness most of the worst of Dawn Primarolo’s proposals have been abandoned.

Changes are needed to IHT. Many of the minor rules seem quite absurd. For example, there is an annual small gift limit exemption, intended for Christmas and birthday presents, which is still only £250 per donee. That level is both unjustifiable in today's money and prosperity, and unenforceable. It should at least be quadrupled. That is a small point.

The lesson is that there must be consultation on nearly all tax changes. I remember the very detailed consultation on Mr Healey's 1976 proposal for an annual wealth tax. The potential damage was so well demonstrated by the House of Commons Select Committee that the tax was abandoned. The unfortunate French are still stuck with a wealth tax, and it has proved a severe constraint on entrepreneurial activity and the readiness of successful French entrepreneurs to retire in France.

The Chancellor is to be congratulated on sticking, for all these years, to the 40 per cent top tax rate introduced by my noble friend Lord Lawson 18 years ago in his 1988 Budget. That was, incidentally, the only Budget speech when the House of Commons had to be suspended in disorder, with Dawn Primarolo being one of only 14 MPs who voted against the Speaker's motion on that occasion. I looked it up in Hansard.

My Lords, surely my noble friend is wrong in saying that the Chancellor has stopped at a top rate of 40 per cent. By introducing the 1 per cent national insurance charge, he has effectively raised the top rate to 41 per cent.

My Lords, some people have top rate plus 1 per cent, but many still have an ultimate top rate of 40 per cent. Let us never forget that when my noble friend Lady Thatcher was elected in 1979, the top tax rate was 98 per cent, which applied in today’s money at an income threshold of about £76,000 a year. Think of that: 98 per cent at £76,000 income.

I turn to the macroeconomic outlook. Britain’s economic growth fell to a rather poor 1.7 per cent in 2005, not that much better than the eurozone’s 1.3 per cent. This year it looks like 2.4 per cent, sadly altogether lower than the US’s 3.5 per cent. These figures are nothing compared with China and India, which are growing at 10 per cent and 9 per cent respectively—and China has no inflation at any rate. These countries are rapidly replacing the manufacturers of the western world.

Britain has a big advantage in having already moved its economy away from manufacturing. In 1979, manufacturing made up 27 per cent of UK GDP and 28 per cent of employment. In 2004, manufacturing was down to 15 per cent of output and, last year, to 12 per cent of employment. Service industries now account for some 73 per cent of the economy. We must remember that there is still scope for growth in productivity and manufacturing, especially as we focus on high value and higher technology products. In 2004, output per head grew by over 6 per cent in manufacturing, the best for 15 years. Last year, however, I am afraid that it was down to 2.5 per cent.

France and Germany, on the other hand, have retained a considerable manufacturing base which they seek to protect by every means possible. That is not necessarily in their national interest. The thesis of invasion of industries by new technologies is 40 years old, and was sponsored by the Americans at the time of the formation of Route 128 in Massachusetts and the subsequent various science parks. There have been so many examples since that time: IBM mainframe computers losing out to laptops, telex being replaced by fax and then e-mail, photographic film by digital cameras, Hoovers by the Dyson cleaner; the list is endless. The important thing is that government economic policy should encourage this process.

Another way forward is through the so-called platform company, which organises the production of its products throughout the world, sourcing wherever materials, components, manufacture and assembly is cheapest. A good example is the Dell computer company: flat screens are made in Taiwan; the chip and software are American but the chip is made in Taiwan; the mechanics and box are manufactured and everything assembled in China. That enables national participation where appropriate. Profits and risks are spread between countries, as are jobs. The net effect tends to be broadly contra-cyclical—another plus. We have enjoyed an element of this with British participation in the Airbus.

A word on monetary policy: I am a firm believer in its value, both to cool and to stimulate the economy. But to be able to use it in both directions means that there must be real interest rates to vary. Japan is an example of where the zero interest rate was a disaster, from which the Bank of Japan is only now freeing itself. The Fed got rates down to a dangerous 1 per cent level but, since June 2004, it has wisely raised rates to the present 5.25 per cent. Our own 4.5 per cent rate probably needs to go higher.

The European Central Bank has bravely resisted French and German government pressure for loosening to help those countries avoid the necessary structural change. Indeed, the ECB has taken a first step to tighten. There comes the question of what is the right rate of interest. Two possibilities are: either a figure which gives some return to savers—I suggest 3 per cent real is the minimum—or a real rate roughly equal to long-term growth. In the West, that should also be about 3 per cent plus.

Protectionism looms—the easy way out for politicians seeking re-election. How can Peter Mandelson agree to the ban on imports of New Zealand butter announced last week? Did he not learn a little lesson from his defeat over the bra wars with China? If this is the attitude of the EU Trade Commissioner, what hope has the Doha round got? Both Hong Kong in December and Geneva this month failed. In the absence of a Doha succession, the way forward for freer trade is almost certainly through bilateral deals.

Four other factors are important. First, there is a need to deregulate. That applies at both EU and national level. It is much easier said than done. Governments are constantly trying to do it and the EU Commission is trying to do it. Some months ago, a commissioner told one of the committees I am on that, when he was trying to deregulate, he had discovered that many in the Commission thought their main job was to keep the chauffage—their jobs—going.

Secondly, there is a need to face up to the demographics of retirement. It is frankly absurd and totally feeble that the British Government are still hiring public sector employees with a retirement age of 60. The present demographics suggest that, for a sustainable balance between the working and retired populations, the average retirement age should be over 70. Obviously there will be those in tough manual occupations for whom this would be inappropriate, but it is the average that matters. I would like to have seen more courage from the Government in tackling what will be a fundamental problem for our successors.

Thirdly, there is a need to give state aid to those who need it rather than those who do not. One example: it is indefensible that benefits such as the winter fuel payment and free travel for pensioners should be untaxed. I recognise that those are rather hot political potatoes.

Fourthly, I congratulate the Government on opening the door to nuclear power. I particularly congratulate the noble Lord, Lord Sainsbury, on his bold recognition that nuclear power is a renewable. The world urgently needs a massive nuclear power programme to combat global warming, to ensure that world supplies of hydrocarbons are kept for what only they can be used for and, not least, to reduce the cash flow and power of jihadist terrorism.

We must all recognise that world economic prospects are dominated by politics, both national and international. In 1933, President Roosevelt, at the height of the depression, when Keynesian policies were about to rescue the world economy, reassured his fellow countrymen,

“the only thing we have to fear is fear itself”.

If only that were true today.

My Lords, would the noble Lord not agree that the party to which he belongs did nothing whatever to raise the small gifts exemption, or the exemption for gifts in consideration of marriage, in line with inflation in the 18 years they were in power from 1979—or during the Heath Administration, when inflation was rampant?

My Lords, in any discussion of the economic situation, an attack on the Chancellor of the Exchequer is hardly justifiable. I do not defend him on everything that he has done, but it is clear that the standing of the Chancellor of the Exchequer in his control of the economy should be increasing year by year. However, in the 10th year of success people are talking about the ending of the great advance we have had in the past. There has been no crisis, but the noble Baroness, Lady Noakes, referred to a failing economy. If it is a failing economy, I am happy to deal with it now.

My Lords, I must have expressed myself badly because I have been misheard twice by the Benches opposite. I did not say that this is a failing economy; I was clear about that. I said that the economy is being managed sub-optimally.

My Lords, I am sorry if I did not hear the noble Baroness correctly, but that is what I thought I heard. The important thing is that the criticism seems to be increasing as the years of success increase, which I find rather strange. Every year of success should be applauded, not condemned. But let us turn to the Finance Bill.

There is some unease about the role of the House of Lords, but it does not look at rates of tax or at political issues of taxation. That is not our job. The Economic Affairs Committee looks at technical aspects of the Finance Bill, as do tax experts, business companies and the press. It has a useful level of experience and expertise and has among its members two ex-Chancellors, three ex-Treasury Ministers and an ex-governor of the Bank of England, who are the core of the success of the committee. Its role is to present its views on technical aspects of the Finance Bill with no party-political involvement. It has been very successful in that, and the way that we limit the kind of discussions we have and the recommendations that we make should be welcomed widely.

Despite the reduction in the rates of income tax over the years, the level of tax avoidance and evasion has not fallen as much as many had expected. There have been a number of complex and contrived schemes and, despite the close watch by Her Majesty’s Revenue and Customs, new ones have emerged to circumvent the control of the Government. The perennial problem is the need to counter tax avoidance. The Government rightly continue to stress the high priority that they put on dealing with tax avoidance, which undermines the fairness of the system and causes market distortions. They have to deal with ever more complex and contrived schemes designed to avoid income tax. People who undertake those schemes are very well paid and remunerated for the work they do. We all realise the difficulty in dealing with the highly paid innovators of such schemes which put the Government at a disadvantage, given the time required to deal with them. Quite rightly, the Government have decided to close down a number of schemes with effect from December 2004. They also have disclosure rules that deal with targeted anti-avoidance measures. I welcome those actions and support the considerable increase in staff that has been provided to deal with such problems, and I understand the difficulty of keeping up with new schemes that wealthy individuals are able to acquire. One of the major problems is that very wealthy people get information about how things are developing and deal with them in advance of any actions that the Treasury can take.

A serious aspect of tax fraud is the missing trader intra-Community fraud. There have been few occasions in our financial past where such damage to the Revenue has occurred. Small but expensive goods—mobile telephones are the most prominent examples—are imported by a trader who pays no tax when importing them. He sells the goods with the VAT added, which is not sent to HMRC. After a number of such deals, the trader absconds with the money. The goods are exported, the VAT is then reclaimed, the same goods are reimported and the carousel continues. Major criminals are now getting in on the act, and European countries are incurring losses that some estimates say amount to about €50 billion a year. When Mr Curwen from the Treasury appeared before the committee on 22 May, he said that missing trader intra-Community fraud is considered to be a,

“criminal attack on the UK tax system”.

He said that losses were estimated as £2.5 billion in 2001-02 and under £2 billion in 2004. The Treasury accepts that the level of fraud is increasing and believes that more than 1,000 companies are involved. It agreed that about £1 of every £11 of exports represents fraudulent activity. I find that astonishing.

It is the underlying problem of the VAT system. According to the Association of Chartered Certified Accountants, a solution was possible in the 1990s by initiating a single VAT system within the European Union, but there was a lack of trust between Governments about how the pot would be shared out, so no solution was implemented. Eventually a solution might come about, but an awful lot of money will be lost before it does. To get all the countries to agree will be a major undertaking. We must accept that and try to find some way of dealing with the problem in the interim.

HMRC considers that carousel imports and exports were worth more than £7 billion in the first three months of this year, which is a rise of 35 per cent in one year. Year by year, the Treasury could lose enormous amounts. Some estimates have been extraordinarily high, and they show no evidence that the amount of fraud will not rise, let alone be contained.

A more recent development is that the goods on the roundabout are not physically moved and the fraud is conducted with paperwork. European Community involvement is needed, which is not easy to achieve with all 25 countries, many of which have trade arrangements that will be difficult to amalgamate because they have different systems. Not only may all 25 countries not agree on what needs to be done, but the VAT system might need to be amended, which involves long-term negotiation.

I shall answer the question asked by my noble friend Lord Barnett. The Treasury said that it was in discussion with the European Commission on a proposal for derogation and HMRC pointed to some successful prosecutions. I hope that when the Minister replies he will put these matters in perspective so that we can see the scale of the actions in the context of the increasing problems being faced, and that he will say how derogation will happen and how these matters will be dealt with.

My Lords, we are once again here on a hot July day to discuss the Finance Bill and the report on it produced by the committee chaired by my noble friend Lord Wakeham. As usual, the committee has done a fine job and deserves our congratulations on an excellent and impartial document. I very much regret that the Government do not respond to it officially in writing. Why does that remain the case, despite the report’s non-party-political tone?

I declare an interest as an investment fund manager. I can support certain aspects of this Finance Bill. I welcome the broad thrust of the Government’s attempt to prevent the abuse of charitable reliefs, and their attempts in Clauses 95 to 98 to provide a legal and tax framework to accommodate the Sharia-compliant finance arrangements of wakala and diminishing musharaka. That is important, not only to make us more competitive in an increasingly global market in Islamic finance but also for tackling financial exclusion in Britain’s Muslim community.

Like other speakers, I welcome the Government’s long-awaited framework for real estate investment trusts. Reform here has long been overdue as such structures have been in place in other developed countries for many years. I feel that more could be done to encourage residential properties into REITs. Like my noble friend Lady Noakes, I ask the Minister why REITs are not allowed to be quoted on the AIM. I cannot see the objection, as they are permitted on the main market. Without this concession, smaller companies without the benefits of REIT status could be taken over and the UK property market increasingly dominated by a relatively few large REIT companies.

Secondly, what is the progress of discussions between the Treasury and the property industry referred to in last Saturday’s Financial Times? On new real estate investment trusts not listed on the stock market, as I understand it, there is an opportunity to entice the £40 billion offshore property fund management industry back onshore, although at present it does not pay the 20 per cent tax on its income.

Like many other speakers, I welcome Clauses 19 to 21, which crack down on missing trader intra-Community fraud. My noble friend Lord Wakeham’s sub-committee’s report made an excellent study of this area of the Budget in a level of detail that I do not have time to debate today. I reiterate the sub-committee’s concern set out in paragraph 100(d), on whether the safeguard to protect the innocent trader is sufficient. Also some commentators, according to the accountants Smith and Williamson, have criticised the clause for appearing to transfer the responsibility for policing or controlling fraud from the state to the taxpayer rather than dealing with the fraud itself.

My criticisms of the Budget focus on two main areas: first, the Chancellor’s habit of altering existing relief, which makes life so uncertain for companies, which are thus unable to plan with certainty; and, secondly, trusts. Since 1997, I have thought that the Government were going to have a go at trusts, as they seem automatically to consider them tax-avoidance vehicles, whereas the truth is often very different. Where some avoidance clearly has occurred, as my noble friend Lord Wakeham states in his report, this is far from the sole reason for setting them up.

The problematic change to existing allowances this year comes in four areas: small companies corporation tax, film industry taxation, capital allowances and the home computer initiative. The Finance Bill clauses will remove a non-corporate distribution rate, a 0 per cent rate of tax on corporate profits and effectively take corporation tax for small businesses back to the situation in 2000. The Institute of Chartered Accountants in England and Wales stated in its parliamentary briefing note on the Budget:

“The changes in the Finance Bill will hopefully bring to an end the long run of uncertainty and complexity for the taxation of small business profits”.

Effectively all the Chancellor has done is to abolish the small companies tax relief he introduced. Will the Minister justify that action?

The pattern of volatility recurs in Clauses 31 to 47, introducing a new regime for the film industry. The Chancellor introduced major changes to film tax in the Finance Acts 2000, 2002 and 2004-05, yet the relief still haemorrhaged a staggering £560 million from the Exchequer in the last financial year. I hope that his latest attempt to focus tax breaks more accurately on people making films will provide better value for money than these reliefs have provided to date. I am not sorry to see the back of Section 42 and Section 48 relief, but hope that we will not be faced with more changes to the film tax regime in the Finance Bill 2007. The continual cycle of change has produced huge uncertainty in the film industry and has jeopardised some important projects. For instance, I understand that the filming of the latest James Bond film has moved to the Czech Republic, so even the Government’s most famous civil servant has moved offshore, partly as a result of the instability caused by changes in the film tax regime.

Two more detailed but no less important areas are the changes to capital allowances and the home computer initiative. The Finance Bill announced an increase for one year only in the rate of first-year capital allowances for smaller businesses. This continues a pattern of small and temporary changes which the Institute of Chartered Accountants in England and Wales says have been,

“ineffectual in encouraging business investment”.

The ICAEW states that incentives for businesses to invest need to be provided by large changes to capital allowances announced well in advance. It also says that when capital allowance rates are changed, such changes should hold for a significant time. Does the Minister agree with the institute on those recommendations?

The home computer initiative was announced with a great fanfare in 1999. It was repackaged in 2004 because not enough people were taking it up and was suddenly shut down in 2006 because too many people were using it. The HCI was supported by the home computer initiative alliance, the CBI and the TUC. The HCIA stated:

“HCI is a cornerstone of the Government’s digital strategy which sets out to make computing more universally accessible”.

So, why abolish the scheme? This is another example of the Government confusing business, making it impossible to make long-term plans when tax breaks keep changing.

The Minister’s description of the trust tax changes conveniently ignores the hullabaloo that first greeted the proposals, together with a subsequent battle to amend them. My noble friend Lord Wakeham’s sub-committee, to its credit, covered this in detail, but had to go to print before the story was complete. From the Economic Affairs Select Committee’s report the following picture emerges: first, there was no detail in the Budget speech itself and detail only emerged in the Budget notes issued by HMRC. Secondly, the major IHT changes then announced provided that accumulation and maintenance trusts and IIP trusts would be charged in the same way as discretionary trusts unless they met much tighter conditions, with a 20 per cent entry charge and a 6 per cent periodic charge every 10 years, and an exit charge proportionate to the time elapsed since the last periodic charge.

My noble friend Lord Wakeham’s report continues:

“This announcement gave rise to a storm of protest in the newspapers from a wide range of representative bodies. The main points made related to the lack of consultation on IHT within the framework of the on-going consultations on the modernisation of the taxation of trusts; the impact which the changes would have on ordinary families who used trusts for social reasons and not for avoidance; and the large number of people who would … have to review, and if appropriate alter, their will at a compliance cost which, it was said, would in total amount to very considerably more than the estimated Exchequer yield of the changes”.

Those changes were estimated at £15 million.

The accountants Smith and Williamson stated in their Budget commentary that these,

“significant changes … will broadly affect many families who have held assets in such trusts”

This will require much restructuring and seems to hit hardest on those planning for the future—for instance paying towards children’s education, protecting assets for young children and planning post a divorce.

With apologies to the House for going over the ground covered by the noble Lord, Lord Burnett, in his excellent maiden speech, the major additional change proposed originally by the Budget to accumulation and maintenance trusts was to effectively force them to distribute capital to children at 18 rather than 25. Another particularly sneaky change involved life-interest trusts where assets are left on a life interest for the deceased’s spouse. They would not be deemed to be comprised in the deceased spouse’s estate, which meant the spouse exemption would not be due.

Another serious issue that remains with regard to trusts is that if an individual takes out a life assurance policy in A&M or life interest form after the Budget deadline, I understand that, for the first time, the policyholder will have to pay inheritance tax at a rate of 6 per cent on the excess above the IHT threshold. Following Budget day, the accountancy and legal industries formed a coalition to argue for the changes to be reviewed. As a result of that pressure, the Government, without issuing a press release, published amendments in June and further changes in early July. Without boring the House on the detail, I will justsay that they introduced a concession for those trusts wishing to carry on until the beneficiary reaches the age of 25, although still imposing a maximum IHT tax of 4.2 per cent of relevant assets.

Despite the government climbdown, concerns remain. The Law Society has stated:

“We are concerned that existing trusts will still be adversely affected by the proposals—as will lifetime trusts such as those established on divorce; those set up by individuals facing diminishing capacity to deal with their affairs, such as people with early stage dementia; and grandparents wishing to help their grand-children”.

Accordingly, our party tabled a large number of amendments on Report to address those concerns, all of which the Government ignored.

I will leave the last word on the subject to the report of the sub-committee chaired by my noble friend Lord Wakeham. It states:

“As regards the IHT treatment of trusts, we are firmly in favour of consultation, which we believe to be necessary if clarity, certainty and simplicity are to be achieved, but there was none in respect of the IHT trust provisions. We did not hear evidence to show why measures to counter forestalling could not have been taken which would have enabled consultation to have taken place. The measures were announced in a low key way and lacked clarity about the Government's objectives. This led to considerable uncertainty about the impact of the provisions and to an exceptionally wide range of estimates of the numbers of people likely to be affected and the costs of having to review their wills.

We accept that, to the extent that there has been significant avoidance using A&M and IIP trusts, the Government is fully entitled to tackle it. But the measures proposed in the Finance Bill also impact on a wide range of trusts which are used as part of the responsible stewardship of family assets without an avoidance motive, making them less certain and more complex and costly. As the Government did not make clear what it was trying to achieve, we remain uncertain whether the policy of neutrality towards trusts has been altered or whether the impact of these changes on ordinary family business needs further consideration and the remedies used to counter avoidance need to be more closely targeted ... We believe that the way in which this whole matter has been handled is not the way in which tax changes should be made”.

In conclusion, that once again shows the Government altering a perfectly good structure, in the form of accumulation and maintenance trusts, which a Labour Government introduced. As paragraph 180 of the report reminds us, and as the noble Lord, Lord Barnett, will remember, they were first introduced in 1975. I am sure that he will agree: by all means clamp down on avoidance, but not at the expense of innocent victims who have set up trusts for bona fide reasons.

My Lords, I shall speak about the Finance Bill less from the point of view of tax or economic affairs—I was not a member of the sub-committee, but I join the noble Lord, Lord Northbrook, in congratulating it on its report—and more from that of business, which is where the Bill affects most people—at work.

I support the Bill because it continues the Labour management of the economy which, as my noble friends Lord Barnett and Lord Sheldon, said, has been so right for business over recent years. For me, perhaps the most important element of that is the Government's attitude towards private enterprise—no, not the difference between public and private. The difference is that, during the past few years, we have seen that a Labour Government support private enterprise, whereas Tories try to protect it. We are now able to judge the difference.

Let me explain. Private enterprise creates income and wealth. It creates jobs. It offers choice to consumers and workers and drives innovation and growth. It creates the opportunity for people to better themselves and their families through effort and enterprise. It creates new routes for social mobility and rewards initiative, contribution and hard work.

On that, I think that we all agree. The Tory way was to protect private enterprise from interference—interference from imports, from competition, from regulation and from Europe. Those who pay for that are the consumers, in higher prices. Society pays through lack of opportunity and businesses themselves suffer because there is less need to change. Yet to be profitable and successful, companies need economic stability. In his opening remarks, my noble friend explained how we delivered low interest rates and low inflation. Business needs access to skilled and flexible personnel, so the Government delivered skills training and tripled the number of apprenticeships. Business needs new technology, so the Government doubled investment in basic science and prepared a 10-year plan. My noble friend told us about the research and development credit scheme, which contributes to that.

So we broke down the protective trade barriers and, instead of walking away from Europe, we engaged with our European Union partners. This is one reason why the City of London is so successful in the European Union. That openness provided the City with the scale, scope and challenge for it to be efficient and innovative. Yet the Conservative Party is still looking for alliances with anti-European conservatives in the mistaken belief that that will protect our economy.

The fact is that all that was achieved in the face of strong opposition from noble Lords opposite in the name of not interfering with wealth generation—and, according to the noble Baroness, Lady Noakes, because there is too much regulation. Much new regulation happens not because of a wish to interfere but because, as the noble Lord, Lord Marlesford, implied, we are becoming aware of more and more things about work and society. We are becoming more aware of how health and other hazards prevent people from being more productive. Good businesses are rarely poor employers because they are concerned about health and safety and workers' rights. They are becoming more aware of the importance of the environment and sustainability. Indeed, we now know that a healthy and sustainable environment and a healthy economy go together.

For most businesses, the ultimate goal is to create long-term value for shareholders. That is not achieved by behaving in a way which is socially or environmentally unacceptable or unethical. Indeed, the best-run companies find areas where shareholders’ long-term interests overlap with those of society.

But what about regulation of markets? Some say that it kills free enterprise. Does it? We now know that business can operate successfully only within the accepted norms of the society in which it works. Those norms vary from market to market. There are much tighter rules for selling pensions and banking services than there are for selling clothing. Instead of condemning regulation of markets wholesale, as some tend to do, our careful regulation of each individual market has helped private enterprise by dealing with market failure and encouraging more variety. That has helped business to grow. Indeed, environmental regulation has created a whole new market for environmental products. Amazingly, that is an area where we now see business and the environmental non-governmental organisations working together.

Yes, our policies of supporting private enterprise instead of protecting it have produced one or two surprises. The absence of economic volatility has enabled private enterprise to take on higher levels of debt. As a result of credit being available in greater quantities and on better terms than ever before, sooner or later some borrowers will get into trouble. The noble Lord, Lord Marlesford, reminded us that much low-tech manufacturing has gone elsewhere. He spoke also of higher tech manufacturing, which is staying here and growing. That is very much service-based, and the Treasury must review the way that it labels some activities as manufacturing and others as services. The output of the part of a manufacturing company engaged in research, consultancy or technical assistance is often categorised as a service. Yet without offering these services, modern manufacturing companies would lose their customers. This is how they stay at the leading edge.

The noble Baroness, Lady Noakes, pointed out that unemployment is growing, but the number of people in work is at its highest point for 10 years. At the moment, the number of people entering the labour market is slightly larger than the number of jobs being created. This may be due to immigration or to people coming off invalidity benefit, but private enterprise is helped by keeping the growth in balance, as the Government are doing. My point is that it is this engagement with business, support for private enterprise and the acknowledgment that society has moved on that has created the economic dynamism in this country, rather than the so-called free-market paradise which the Tories seek to protect. This is what has created our economy.

The noble Baroness spoke of economic decline. I agree with my noble friends Lord Barnett and Lord Sheldon that, in recent years, thanks to private enterprise, Britain has been growing faster for longer than any of the G7 leading industrial nations—the Minister gave us the numbers in his opening remarks. This is largely because Britain is an attractive place in which to do business because of the support that business gets from Government. Protection by the Government would not make it nearly as attractive. The Finance Bill expands and continues this support, which is why I support the Bill.

Much has been said this evening about the Chancellor of the Exchequer. Perhaps we would all like to unite in congratulating him on the birth of a son this morning.

My Lords, I, too, thank the Minister for giving us this opportunity to debate the Finance Bill today. I look forward to hearing his comments on those who think that the existence of the House of Lords Economic Affairs Committee somehow trespasses on the territory of another place.

The Bill is, as usual, much too long and does nothing to simplify the complexity of our tax system after 10 Budget speeches by the present Chancellor of the Exchequer. There is little to help the country to develop the productivity and competitiveness required to operate successfully in the international economy today, still less to compete effectively with powerful new global players such as India and China. As my noble friend Lady Noakes has stated, we welcome the overdue introduction of a framework for real estate investment trusts. However, I ask the Minister to tell your Lordships why those trusts cannot be listed on the alternative investment market, which would seem to be well suited to provide liquidity for investors in such an instrument. I agree with my noble friend Lord Northbrook on this issue. I, too, congratulate the noble Lord, Lord Burnett, on his excellent maiden speech. I hesitate to talk about interests in possession trusts and accumulation in maintenance trusts, about which the noble Lord clearly knows a great deal more.

The Minister referred to the criticism by the respected and generally measured Economic Affairs Committee that the Government completely failed to consult or to issue any detailed statement of their intention retrospectively to tax such trusts—I agree with my noble friend Lord Wakeham that that was a pity—and said that it had been impossible to consult because of the risk of forestalling. However, the Government have had to introduce 50 amendments to Schedule 20. If they had known that they would have to do so, would they really still not have consulted in advance? In any event, they have given a grace period of two years to make changes to the terms of certain trusts to mitigate unforeseen tax liabilities.

As the result of a successful campaign by my right honourable and honourable friends in another place and by the Law Society and a number of other professional bodies, the Government have been forced to abandon many of the more aggressive retrospective proposals originally included in the Bill. However, the other provisions affecting the creation of new lifetime trusts and the disqualification of grandparents as creators of new trusts remain. The Chancellor has, by these provisions, created a new wealth tax. Even after his climbdown, he has created a system whereby there is an incentive imprudently to distribute trust assets to beneficiaries at 18 rather than at the more sensible age of 25. The Minister’s explanation implied that the Government believe that all trusts are set up purely to avoid tax, but I agree with my noble friends Lord Wakeham and Lord Northbrook and other noble Lords that very many trusts are set up to provide the prudent management and stewardship of family assets, often to the benefit of all those involved in the associated businesses. Perhaps the Chancellor hopes that encouraging the distribution of trust assets to 18 year-olds will lead to the profligate dissipation of inherited assets, thus making a major contribution to the levelling-down and socialist redistribution of wealth that it appears remains his not-so-hidden agenda. It is surprising that the Chancellor is still considered the favourite candidate to succeed the Prime Minister, given that he has presided over a period of material deterioration in the competitiveness of the British economy and that his stealth taxes have wrought so much harm on the lives of millions of pensioners who work or have worked in the private sector.

As my noble friend Lady Noakes stated, the UK’s position has declined from the fourth most competitive country in the world in 1997 to the 13th today. If UK plc were properly accountable to its shareholders, the Government would surely have had to resign by now. The Chancellor has inexorably raised both corporate and individual taxes, repeatedly breaking his false promises not to do so. We have lost most of the comparatively competitive and attractive corporation tax position that we enjoyed when this Government came to power. The Government have massively increased public sector spending but to little beneficial effect, as much of the new investment has been wasted on the creation of unnecessary administrative posts and ill fated, expensive projects such as the disastrous new IT system for the National Health Service.

London is now regarded as a very expensive and relatively less attractive centre for major international companies to maintain their European headquarters. The capital’s infrastructure remains very poor despite the massive revenues from the congestion charge and the sky-high Underground fares already accruing to the Greater London Authority, which clearly sees itself as a kind of second Exchequer. It is shameful that London Underground announces to the world that a good service is running on all, or certain, lines as if it expects approbation merely for providing the very expensive service that it is contracted to provide. It costs £3 in London to travel within one zone on the London Underground for a one-trip cash ticket, compared with the equivalent of 80p in Tokyo and £1 in Brussels to travel anywhere by underground railway or bus for up to an hour. In Tokyo last week, I heard that NHK—the Japan Broadcasting Corporation—has decided to relocate its European headquarters from London to Paris, despite London’s unrivalled position as by far the most important news and information centre in the European time zone. The reason for such a surprising move is that London has become too expensive. In her excellent maiden speech in the debate on the importance of London as a financial centre, the noble Baroness, Lady Valentine, said:

“While we remain broadly competitive with the rest of Europe on taxation, the gap with the euro-zone is closing. In 1993, the tax burden as a percentage of GDP was 8 per cent lower than Europe, whereas by last year that advantage had fallen to 3 per cent”.—[Official Report, 8/6/06; col. 1402.]

This Budget has done nothing to alleviate the rising costs of locating businesses in this country. The British Chambers of Commerce has shown that the total cost of regulation has risen by nearly a half since 1998, and this excludes the cost of the national minimum wage. As for the public finances that devour an ever-increasing proportion of GDP, the Chancellor argues that we continue to meet his golden rule. But he has lost all credibility because of his repeated retrospective reclassification of what expenditure counts as investment and his convenient revision of the start date of the current economic cycle in order to include the years 1997 to 1999, during which he had to follow the previous Conservative Government’s financial plans.

These reclassifications and revisions have enabled the Chancellor to manipulate the figures so as to be able to claim that he has met his golden rule. His record of accurate prediction of the Government’s borrowing needs is, to put it mildly, unimpressive. In 2001, he predicted that he would have to borrow just £12 billion in 2005-06. In the event, he has borrowed £112 billion. A CBI study shows that government consumption is rising as business investment falls. The tax take has risen from 34.7 per cent of GDP in 1996 to a projected level of 38.5 per cent for 2008, whereas every one of our G7 competitors cut taxes between 1996 and 2004.

Besides the damaging increases in personal and corporate taxation, and the crippling accretion of new regulatory burdens, the Government will stand condemned by history for the damage that they have done to our once excellent occupational pension schemes, which were the envy of the world when Mr Brown moved into No. 11 Downing Street. I make no apology for returning to the Government’s early misguided and bad decision to abolish the dividend tax credits previously and logically received by pension funds and charities. Although the Government still refuse to admit that they made a serious and damaging mistake with the introduction of that measure in 1997—its first and worst stealth tax—the effects of that catastrophic decision continue to become clearer.

Noble Lords will be aware that the Government have lodged an appeal against the recent ruling of the Information Commissioner that the public have a right to know what forecasts the Treasury used when it decided on its pensions tax raid. As is now universally acknowledged, the tax raid’s effects took money out of pension schemes and damaged the stock market. I estimated a year ago that the cumulative effects of the Government’s action had cost our pension schemes £166 billion. It is very right that the thinking behind the Government’s decision should be made public. A year ago, on 19 July 2005, the Minister told your Lordships’ House that claims about the cost to pension funds of the abolition of tax credits were overstated because they did not take account of the benefits of the reduced corporation tax. It is true that the corporation tax rate has been reduced from 52 per cent to 30 per cent since 1979. However, only 3 percentage points of the total 22 percentage points reduction was carried out by this Government—none of that has been since 2000—during which time we have slipped by 10 places to 20th out of 30 among major OECD countries in terms of corporation tax rates.

The noble Lord subsequently wrote to me on 5 August last year—I was grateful to him for that—saying:

“If, in one year, companies paid zero dividends and reinvested all their profits in the business, then presumably this would increase the future returns to existing shareholders, thereby increasing share prices”.

We must look forward to the Government’s belated explanation for their action when, as it certainly should, the Information Tribunal overrules the Treasury’s appeal, although I can understand the Government’s reluctance to admit their astonishing failure to understand the relationship between dividend levels and share prices.

It is the Government’s fault that Britain’s 100 leading companies have a pensions black hole of £150 billion, as revealed by a study for the actuarial profession’s pensions board. The Budget does nothing to restore incentives to save. It does nothing to alleviate the growing perception of the UK as a difficult place in which to do business and one with a massively complex taxation system. The Chancellor claims that he has brought stability to the economy, but the evidence is that he has brought uncertainty and volatility. Examples of that include his introduction and abolition of the home computer initiative and his introduction and abolition of the 0 per cent band of corporation tax.

My honourable friend Mrs Theresa Villiers has said in another place that she strongly opposes the Government’s hare-brained proposal to bring forward the filing dates for tax returns to September. I hope that the Minister will confirm that this does not mean that the Government intend now or in the future to accelerate the payment dates for income tax: four months’ acceleration would represent a further significant increase in tax. The Government’s projections predict that income tax will raise £144.7 billion during the 2006-07 tax year, representing an increase of 109 per cent on the £69 billion raised in 1996-97. This huge increase in income tax is mirrored by the 125 per cent rise in inheritance tax paid since 1997. The number of people caught by the higher tax rate of 40 per cent has increased from 2.1 million in 1997 to 3.4 million last year. Forty per cent may not be as high a top tax rate as many other countries have, but it bites at a much lower level. It may not be all bad, but the Government cannot deny that we are slipping badly against our international competitors by many measures.

My Lords, I will not go down the road travelled by the noble Baroness, Lady Noakes, in commenting on the Budget, except to say that we continue to have low interest rates, low inflation and near record numbers in employment, on top of the longest uninterrupted period of growth on record, as my noble friend Lord McKenzie said. However, it is always a pleasure to listen to those who gave us high interest rates, high unemployment, high house repossessions and run down public services telling us how bad things are today.

I wish to comment on two aspects of the Select Committee’s report on the Finance Bill 2006; namely, tax avoidance and missing trader intra-Community fraud, which is sometimes known as carousel fraud. New tax avoidance disclosure rules were introduced in 2004 to check the growth in complex and contrived tax avoidance schemes. As has been said, the rules appear to have had some effect, although tax avoidance schemes using employment-related securities and financial products have continued to be an issue requiring attention.

The Association of Chartered Certified Accountants told the Select Committee that:

“now firms have a much higher moral code when it comes to tax issues and tax planning and they seek not to indulge in certain types of tax planning areas where they perhaps otherwise would have done in the past”.

Another witness from Revenue and Customs told of a banker who had said that his bank had been wrong-footed for the third time as a result of schemes being blocked following disclosure under the disclosure rules. Consequently, his board was likely to decide not to get involved in aggressive tax avoidance any more. It seems that integrity can be enhanced by legislation and Treasury rules, even if for some it is integrity through gritted teeth.

The anticipated revenue yield from anti-avoidance measures alone from all the disclosures made since 2004 is expected to be more than £1.5 billion in the current financial year and more than £2 billion in the next financial year. However, the disclosure rules are also intended to protect revenue, and Revenue and Customs stopped a scheme which would have exploited tax statutes to the tune of up to £4 billion and would have wiped out substantially the tax liability of banks and other financial institutions using it.

Further evidence to the committee revealed the existence of a tax avoidance scheme referred to as platinum sponge. Platinum sponge is platinum in suspension, which is normally volatile and thus might be regarded as something not normally tradable. The intention was that platinum sponge would get round the tax rules which tax assets awarded in place of cash only if those assets are tradable. Thanks to the work of the Select Committee, we now know that a lot of platinum sponge is held in bank vaults in Jersey, and huge amounts are held at Schipol airport. Platinum sponge is one example of a form of remuneration designed to defer payment of PAYE and relieve employers of the obligation to account for national insurance contributions. As regards deferment, some of the schemes provide for deferment of tax or national insurance liability for 50 years, which as one witness said, feels like tax avoidance on a pretty grand scale.

Another section of the report refers to missing trader intra-Community fraud, or carousel fraud. As has been said, it is the largest single source of fraudulent VAT losses for the UK Exchequer. Losses for 2004-05 from VAT carousel fraud have been estimated at up £1.9 billion, but it is widely accepted that fraudulent trading has grown dramatically in the past year or so, and one newspaper suggested just over two months ago that losses are probably running at up to £5 billion a year and rising fast. However, according to an article published the day before yesterday in the same newspaper, Revenue and Customs now thinks that carousel fraudsters carried out a record £7.4 billion of imports and exports in the first quarter of the year, up from its original estimate of £5.5 billion. That figure represents attempted fraud as opposed to the actual successful theft of VAT, but nevertheless could mean, according to the newspaper’s estimates, losses to the Exchequer of over £10 billion this year, or £20,000 a minute.

There are provisions in the Finance Bill that seek to address this problem, which is theft on a grand scale. According to the Select Committee, the projected yield from these provisions is £100 million in the current financial year and £500 million in 2007-08. Whether they will be effective remains to be seen, and that assumes they can be introduced quickly. While in respect of the intended change in accounting procedure, the reverse charge—a temporary derogation from the European Union to cover those goods most frequently used in this fraud—could be agreed fairly soon, a permanent change in the EU’s VAT system to address the problem fully, and requiring the agreement of all the member states of the Council, would take some time to achieve. It would be helpful if, when he replies, my noble friend could say what the current projected yield is from the provisions in the Bill directed against carousel fraud in view of the very recent dramatic increase in such fraudulent trading, which apparently does not even have to involve physically moving goods. In view of the billions of pounds’ worth of theft from the Exchequer seemingly now involved, the figure of a £500 million yield set out in the Select Committee report hardly indicates that the provisions will address the problem.

It would be helpful if my noble friend could say what the Government regard as the permanent solution to this problem and whether it would or would not involve harmonisation of VAT rates across the European Union. Perhaps my noble friend could also explain why the fraudsters would not simply switch to other commodities if a temporary derogation to introduce reverse charging for transactions involving goods such as phones and computer chips was agreed by the European Commission. Do we have sufficient staff engaged in combating this fraud? I appreciate that there has been an increase, but if we are still at the stage that each further additional member of staff would recoup more from reducing carousel fraud than their own total employment costs, surely that would be money well spent.

No one can accuse the Select Committee of ignoring the serious issues of tax avoidance and VAT theft, and the report is supportive of both the Treasury and Revenue and Customs in their efforts to clamp down on the perpetrators. There is of course a key difference between the two activities since VAT theft is a criminal offence. However, both activities are similar in that they are designed to reduce the amount of money that should be available to the Government of the day to provide the level of public services our society demands and expects. The shortfall resulting from these activities is made up either by other less-well-off citizens paying more in tax or through a lower level of service provision than should have been possible. VAT theft through carousel fraud is a criminal activity, while tax avoidance—certainly on a large and planned scale—is morally wrong since it also has a direct adverse effect on weaker members of the community.

Yet we see little attempt to draw attention to what is going on and who is doing it. We have headlines, quite fairly, about levels of benefit fraud and adverse reports about some in receipt of benefits. However, when it comes to white collar fraud or the activities of those who operate in the grey area of tax avoidance, by comparison we hear very little, even though the sums of money involved are often huge. Perhaps the reality is that for too many of those who own and decide what will and will not be reported prominently in our newspapers and on our radio and television stations, cheating or beating Revenue and Customs on a big scale, and thus society as a whole, is not really regarded as a serious crime or morally unacceptable, but rather a clever game played by people with similar lifestyles and income levels to themselves.

Occasionally the guard slips and a revealing article appears tucked away in the financial columns. A few days ago the financial editor of the London Evening Standard produced one of his articles knocking the Government. However, within the article he made these comments about investment bankers; the words are his, not mine:

“They are grossly overpaid and often so arrogant they think they are worth the money. They don’t offer much to society and far less than they pretend to the economy because much of what they do adds little or no value—transferring wealth rather than creating it. Their talent for inventing new financial products and structures consists for the most part of devising ways for companies and professional investors to do things which would probably be illegal, and certainly outside their permitted competences, if the companies sought to do them directly”.

The financial services and commercial sectors are of course a major asset and source of strength and prosperity to Britain, but they do have their less acceptable face. Those with wealth, influence and standing in whatever walk of life play a key role in setting the standards and markers for society as a whole, and an overwhelming majority of them are worthy role models. However, the Select Committee’s report shows that serious tax avoidance is still alive and kicking, and seems to be regarded by too many as an acceptable way of carrying on. Average increases and overall remuneration packages for those at the top in finance and commerce have for some years far exceeded both inflation and the level of pay increases for those below, and too often the increases seem to be unrelated to achieving challenging performance targets or size of company. At least 650 directors of British companies give their current address as Monaco, no doubt to avoid the Inland Revenue rather than the British weather. While we are told that VAT carousel fraud involves people in the organised criminal fraternity, it is still unclear whether it involves them alone.

A message from a minority of greed and avoiding obligations to the society in which they live and work at the expense of the rest of the community is hardly one of leadership or standard setting. The role of Revenue and Customs in helping to check and contain at least some of the excesses of the minority concerned is one I hope my noble friend endorses and encourages, since the work of HMRC also has an impact on the kind of society in which we live and the values it upholds.

My Lords, I thought that sentiments of the kind expressed by the noble Lord had died out long ago with new Labour. It is refreshing to hear the politics of envy alive in this House of all places. I thought his attempt to link VAT fraud with tax avoidance was quite disgraceful. Company directors are under a duty to maximise revenues for their shareholders for investment in the future of the company and it is perfectly sensible for a finance director to structure his tax affairs in such a way as to pay the minimum of tax within the law. However, where I did have some sympathy with the noble Lord was in his clear frustration at the range of new schemes emerging on the back of attempts by the Chancellor to restrict tax avoidance. Surely the lesson is obvious: we do not need complexity upon complexity; we need a fairer and more broadly based tax system, a simpler one which cannot be exploited so that people pay what is clearly due within the law.

I took the trouble to have a look at the Finance Bill. I am not sure whether the Minister has read all of it, but I suspect probably not. I also suspect that his officials in the Box will have read only those sections that relate to them. It is 506 pages long in two volumes. I asked him earlier how much of the Bill had been discussed and debated in the other place, and he told me that I could look at Hansard like everyone else. I hope that he might be able to answer that question when winding-up the debate because I know that his officials have been following the Bill throughout the course of its parliamentary progress and should know the answer. I have done a similar exercise for last year’s Finance Bill and I can tell him what the numbers are for that. It was much shorter—only 481 pages. That compares to Finance Bills when the Conservatives were in office which were about 157 pages. So Finance Bills are now three times as long. In the case of last year’s Finance Bill, less than 5 per cent of the clauses were debated and only 1.5 per cent of the pages were discussed in the other place.

The most important measure in the Finance Bill 2005 was the Chancellor’s raid on North Sea oil taxes. That was not done through the Finance Bill at all but through a statutory instrument which was not even debated in the House of Commons. It strikes me as quite extraordinary that we have this vastly complex new legislation being brought forward and it is not even discussed. Add to that the points that have been made by noble Lords earlier in the debate about the failure to consult on measures—or even to mention some of the most important ones in the Budget speech—and we have a catastrophic failure on the part of the Executive and Parliament properly to administer tax law. The House of Commons is simply not doing its job.

In the days when the noble Lord, Lord Barnett, was Treasury Secretary the Finance Bill was taken on the Floor of the House of Commons and given much greater scrutiny and consideration, but now we have a Finance Bill which is immensely complicated. Indeed, even if the House of Commons was prepared to do its job, and even if it had the expertise to do the job, the timetable imposed by the myth that income tax has got to be renewed annually and is not permanent means that there is no time for proper scrutiny.

My Lords, unfortunately the noble Lord was not in his place when I answered his point about the 500 pages. I pointed out that under all Governments and all Oppositions, Finance Bills are never properly debated; only the sexy party-political bits. That is why they are constantly getting bigger.

My Lords, I am most grateful to the noble Lord. I apologise. I had a guest and I had to leave the Chamber. I missed his speech but I look forward to reading it tomorrow. I have apologised to my noble friend Lady Noakes for the same thing.

I am sorry, but that will simply not wash. In the 1980s, the Finance Bill was 157 pages; it is now nearly 600 pages. I do not know whether the noble Lord has looked at this Bill but, for example, there are pages and pages which are all about trying to close the loopholes on film partnerships. Part of the answer might be not to have special schemes for making films at all, but to broaden the tax base and lower the rates. Then we would not need all this complexity in the system and we would not have all these highly paid people in the City going around telling people that they really want to invest in the next issue of “Coronation Street” in order to avoid tax. The problem arises from the complexity of the system.

We have a Chancellor who is a meddler; he is a controller who wishes to do everything from No. 11 Downing Street. Not only is he not content with interfering with the tax system but he has now decided to become part of the welfare system, so we have the Chancellor of the Exchequer and the Treasury now involved in disbursing benefits. That is something which the noble Lord, Lord Barnett, would never have countenanced; he would have had the Treasury there to police expenditure, not to be involved in the business of doling out the expenditure.

The Chancellor has added to the complexity and that is why I very much welcome the establishment of the Select Committee on Economic Affairs and the excellent report produced by the noble Lord, Lord Wakeham. Far from saying this House should have less of a role in these matters, it needs to have more of a role because—although it is perhaps not evident to some Members of the House of Commons—there is a good deal of expertise in this House which could perhaps help to avoid some of the difficulties.

I think the noble Lord, Lord Barnett, argued that the Bills are bigger now because there are more non-sexy bits, but Tolly’s tax manual has also doubled in size since 1997; it is now 9,000 pages as opposed to 4,500 pages. It is not only both Houses of Parliament which are struggling with this but also the Inland Revenue. The Inland Revenue’s administration costs have gone up from £1.6 billion in 1997 to £2.8 billion today. That is an increase of £1.2 billion. The total cost of administering all this is nearly one penny on income tax.

Complexity matters because it adds to the compliance costs for business and individuals. Uncertainty also matters. When noble Lords make speeches such as the one made by the noble Lord, Lord Rosser, people start to wonder where the line lies. What is going to happen tomorrow? Can we rely on this Government not to use administrative means to extract tax which is not due? If people think that this country has become that kind of place to do business, they will go to Holland or other countries which have learnt the lessons. That is the real damage. It is vital to competitiveness that the tax burden is low and that the system is transparent, stable and has simplicity.

A number of references have been made to the Chancellor removing rates and creating new ones and adding to the complexity. He has increased the burden of tax from 38.9 per cent of GDP in 1996 to 42.2 per cent in 2006. That is an extra £40 billion; that is £1,600 per household. This extra burden of taxation has to be paid for, and it is paid for in a reduction of growth in the economy. Every pound that the Chancellor takes costs more than a pound to obtain. Therefore, if a pound is not taken in tax, more than a pound’s value is added to the economy overall. Only the Chancellor thinks that he can pay the administrative costs of taking the money out of the pockets of people and then spend it more efficiently than they can in the market place. He should reread Gladstone on the benefits of allowing money to fructify in the pockets of the people.

The sadness of all this is that other countries have learnt from our experience. When my noble friend Lord Wakeham was in the Treasury and my noble friend Lord Lawson was busily dismantling the high barriers to competitiveness and reducing taxation, other EU countries saw that it worked and they have reduced the burden of tax. My noble friend Lord Trenchard has explained what that has meant in terms of numbers and impact. In 2000, there were only two EU countries with lower tax rates than the UK; today there are seven. On corporate tax, there are 14 compared to seven in 2000. As my noble friend Lady Noakes said, according to the World Economic Forum we have slid down the table of world competitiveness.

Does the noble Lord, Lord Prosser, realise that the top 5 per cent of earners account for 51 per cent of income tax receipts? Were we to reduce the top rate of tax—heigh-ho—the revenues would go up. How do I know that? Because it happens in every other country of the world where they do this, including ourselves in the 1980s. The lowest 50 per cent account for 11 per cent of receipts. The experience is clear: why is it that we have a Treasury which is so insistent on maintaining a fixed-model view of the economy? We need a dynamic model of the economy so that the Treasury can forecast the real impact of tax changes. If the Treasury is not prepared to do it, someone should follow the excellent advice from the TaxPayers’ Alliance and set up a unit so that we can have an analysis of the effects of tax in a dynamic way. People do not understand that reducing tax will increase revenues for the reasons I have indicated.

So we have too much tax, too much law and too little scrutiny. We need reform. Someone said earlier in the debate that they were worried that this House was getting involved in matters which should be the exclusive preserve of the House of Commons—which only managed to look at 1 per cent of the Bill—but why should the Chancellor, uniquely, unlike any other Secretary of State, have the right to as much legislative time as he wishes? Why should the Finance Bill provide him with a free ride to run every scheme or eye-catching initiative or idea that he thought of in his bath that morning? The reduction in the small companies’ corporation tax to 0 per cent has been referred to already. It was followed by more complexity to deal with the avoidance problems that were created, and we have ended up back where we started.

There has been a huge cost and huge uncertainty, and all because no one was able to stop the Chancellor introducing these measures without proper consideration. Why should he, uniquely, not be required to publish an economic impact statement of the effects of his proposed changes in taxation? For example, tax credits are heading towards a cost of £13 billion. We are not being told the extent of the fraud, but it is certainly more than £2 billion, and a large slice of that money goes to the top rate taxpayers about whom the noble Lord, Lord Rosser, is concerned. The Chancellor is dishing out money to people on £62,000 a year if they have a child under the age of one and taxing them at 41 per cent in the pound. Somewhere, a load of officials are responsible for churning this money. That cannot make sense.

Should we not consider how scrutiny could be improved? Perhaps the committee we have already established could be given stronger powers. Perhaps we need a joint committee of both Houses to look at the simplification of our tax system and the hobby horses that the Chancellor rides.

I entirely agree with the noble Lord that we should congratulate the Chancellor on the birth of a son. That is very good news. I hope that he takes a very long period of paternity leave; if he is not in 11 Downing Street, that is very good news for British business and the economy, because he will not be thinking up new schemes and tweaks to add to next year’s Finance Bill.

My Lords, that is rather a cheap insult, if I may say so.

My Lords, it was not intended as an insult. I have the highest regard for the Chancellor; I have known him more than 25 years, but I think he is an interfering, meddling Chancellor who has taken to 11 Downing Street a whole range of activities that should not be there. He has undermined the Treasury’s traditional function of ensuring value for money. He has raised taxation by nearly 5 per cent of GDP and has damaged our economy. I do not share the noble Lord’s rather glowing assessment of what the Chancellor has achieved. He inherited a very strong economy; he has squandered that legacy and, even using his own numbers, we now face great difficulties by 2008, when public expenditure growth will be slowed and demands in the public sector will not be met.

On trust funds, which are included in the Finance Bill, we have another example of ill-thought-out meddling. SIPPS is another. Neither was even mentioned in the Budget speech. The Chancellor was warned about the provisions on SIPPS to allow domestic property to be included, but he persisted, and then a few months before it was supposed to happen, he changed the scheme. That creates uncertainty and undermines confidence.

If the experience of my noble friend Lord Wakeham is anything to go by, and given the committee’s excellent report, much would be gained by having proper consultation about tax proposals and more provision for scrutiny by people who understand the implications of these policies.

The truth is that capital and business are highly mobile. If we do not create a country in which people feel that business will be supported and encouraged, business will go elsewhere, and with it will go the jobs and prosperity which our people are entitled to expect not to be undermined by ill-thought-out policies and by the centralisation and control which have become the hallmark of this Government.

My Lords, this has been the most extraordinarily wide-ranging debate. We have had a very erudite discussion of technical tax issues; we have also discussed the state of the economies of India and China, the demographics of retirement, nuclear power, environmental regulation, the Underground and the need for a dynamic model of the economy. I was so confused that I thought at one stage that the noble Lord, Lord Forsyth, was calling for a dynamic model of the Underground.

I congratulate my noble friend Lord Burnett on his extremely impressive maiden speech, which the noble Lord, Lord Barnett, suggested might be an application to join the sub-committee of the Economic Affairs Committee dealing with the Finance Bill. I took it as an application to join the Lib Dem Treasury team and, as far as I am concerned, without consulting the Whip, I accept.

On the overall balance of tax and expenditure and the stability of the economy, the Minister repeated some of the Government’s past achievements, including the independence of the Bank of England, which took place some considerable time ago. Unfortunately, he said nothing about the one thing of substance that has happened since the Finance Bill was introduced in the Budget—the fundamental savings review. If the Prime Minister was to be taken at his word last autumn, this was to be a far-reaching assessment of the country’s spending priorities. I suspect that the document was rather a damp squib, but it contained, among other things, a rather extraordinary proposal for a four-year real-term freeze on Civil Service salaries. The Chancellor, for all his reputation for stability, has adopted in this respect, as in others, what might be called a stop-go-stop approach to public sector pay. That does not seem a sensible basis on which to proceed. I am sorry that we have not had a chance in this Session to debate that and the rest of the proposals in the fundamental savings review.

On the Finance Bill, I start with the report and status of the sub-committee of the Economic Affairs Committee and the extraordinary attack made on it by the Government in general and the Leader of the Commons in particular. They referred to the risks of intrusion on Commons financial privilege. Indeed, the Leader of the Commons referred to the sub-committee seeking to,

“circumvent the financial privilege of the Commons”.

As the noble Lord, Lord Wakeham, straightforwardly set out, that is not the basis on which the sub-committee was established. Having served on it, I know that it is not the basis on which it operates. It is a shame that the Government cannot accept that here are people doing their best to improve the quality of legislation in a non-partisan way. Surely that should be the function of an upper Chamber, if it has one at all. It would not be so bad if we all felt that Finance Bills in general, particularly this one and the four previous ones, were documents of such perfection that they did not need further scrutiny.

The principal theme of the sub-committee over the four years of its life and of today’s debate has been the lack of adequate consultation on tax measures, which leads to unworkable proposals and unintended consequences. That, in turn, often leads to provisions being amended or withdrawn. The classic example last year was SIPPs. This year there has been the unsatisfactory treatment of trusts covered by inheritance tax. During the Bill’s passage through the Commons, what were widely seen by people who knew something about this as unworkable proposals led to such a spate of amendments that those who were trying to scrutinise it found it virtually impossible to do so because of the time between government amendments coming forward on extremely technical issues and debate in the Commons.

As a former Customs and Excise man, what I found particularly irritating about the Government’s justification of the way in which they dealt with these provisions was the idea that an element of forestalling might prevent consultation from taking place. This is not like provisions relating to excise duty, where, if you know that the duty is going up, you can take a lot out of bond and avoid taxation; it is not the same type of provision at all. It seems to me that the excuse, for that is what it was, of forestalling is a bit like those in trouble—including sometimes the Government—using the phrase “sub judice” to avoid discussing an issue that is vaguely in the legal machinery somewhere but is not actually sub judice at all.

I am sorry to raise a new subject so late in the day, but there is another area in which there has been inadequate scrutiny of this year’s Finance Bill and which is leading to unintended consequences. I refer to how the Government have tried to prevent the exploitation of tax relief by charities, or those who make donations to charities, in Clauses 54, 56 and 58. Clause 54, for example, limits the range of substantial donations to charity that benefit from tax exemption or relief. Charities are rightly worried that this clause could inadvertently catch unexceptional transactions when there has been no intention to evade or avoid tax. I welcome the Government’s view on what the charity bodies have proposed. As with tax avoidance issues, under their proposals the Government would provide advance clearance for proposed transactions or investments by charities. That would save a lot of difficulty and might mitigate some of the potential damage that could be caused.

Another aspect of this is in Clause 58, which limits the benefit that a donor gets from his donation to charity to £250. If a company gave £500,000 to a charity, the charity would say, “Thank you very much, you can come to our annual dinner and take a table”—which would cost significantly more than £250. Under the Bill, the tax benefit of the donation would be negated by what is virtually a minimal benefit. Having been involved personally in getting for a charity a significant corporate donation, I know how much senior executives expect, rightly, that minimal trade-off—if a charity has high-profile events that they and some of their colleagues might wish to attend, they expect to be invited. That is how it works. If the Government are too prescriptive in limiting that benefit, as they appear to be in the Bill, they run the risk of reducing the level of corporate charitable donations. I raise that at some length as an example of the unintended consequences of the Government’s proposals that has not been adequately dealt with in the Commons.

A third area of the Bill that had to be amended because it was unacceptable when subject to scrutiny was the announcement in the Budget of the shortening of the deadline for submitting online and paper tax returns, following a review by the noble Lord, Lord Carter. These proposals were criticised as impractical and, as a result, the noble Lord, Lord Carter, has revised his view, and the provisions will allegedly be changed so that the deadlines remain as they are, in the short term at least. Again, adequate consultation would have avoided the need for a U-turn. Can the Minister indicate when the Government will be able to announce their final decision on those new deadlines?

This all demonstrates that there are systemic problems in how we make tax legislation. Most noble Lords have referred to that in one sense or another. I have two suggestions. The first issue is dealt with in the Economic Affairs Committee report. We need to look in much more detail at the general anti-avoidance rule option, which would cut hundreds of pages from tax legislation and make things harder for the professional tax avoiders. There is discussion in the report of the need for pre-clearance procedure, which I agree would be necessary. However, I do not believe that it is impossible to devise a pre-transaction clearance system. I hope that HM Revenue and Customs will, as the report suggests, continue to give serious consideration to that.

There is a sentence in the report that is very Delphically and subtly drafted, and which sums up an aspiration in which I have no faith. It says:

“HMRC's vision that a decline in the growth of complex legislation might come about at some point as a result of the tax avoidance industry going into a decline following behavioural change on the part of taxpayers is attractive”.

It is attractive but not wholly plausible—nor, I must say to the noble Lord, Lord Forsyth, do I believe that a fairer and simpler tax structure would in itself lead to a withering of the tax avoidance business. That is wishful thinking. So a general anti-avoidance rule should be looked at more seriously.

The second change that I would suggest is to split the Finance Bill into a Bill that looks at tax rates, thresholds and incidence and a tax reform Bill that deals with everything else. This is not a new idea, and the Treasury always objects to it on the basis that you cannot split tax raising and other measures. But there have been plenty of examples given this evening of sections of the current Finance Bill that clearly have nothing to do with tax rates at all. All those issues and provisions dealing with the management of the tax system need careful pre-legislative scrutiny if they are not to run into the kind of risks that noble Lords across the House have described in respect of specific areas in which the Government have run into difficulties. Unless we do something like that, in my view we shall not get a significant improvement.

The Economic Affairs Committee report shows what can be achieved by careful consideration and, in effect, post-publication scrutiny of aspects of tax administration. That principle should now be extended to all aspects of the management and administration of our tax system.

My Lords, I congratulate the noble Lord, Lord Burnett, on his very good and entertaining maiden speech. I congratulate the noble Lord, Lord Wakeham, on his committee’s excellent report and his robust comments, along with those of the noble Lords, Lord Barnett and Lord Newby, on the role of the committee.

I thank the noble Lord, Lord McKenzie, for introducing the Bill, to which my noble friend Lady Noakes responded in her customary impeccable style. As usual, she focused on the essential points. In spite of what the noble Lord, Lord Barnett, said, I think that my noble friend was, as she always is, extremely constructive. Her comments reflect the Government’s wish to appropriate an ever greater portion of the national wealth, which is then spent without, unfortunately, introducing the reforms that are so badly needed and to which she referred.

The more Government impose taxes, the more people will try to avoid them, either by adjusting their affairs or by moving to a different tax jurisdiction, as my noble friend Lord Trenchard pointed out in his excellent speech. Business individuals nowadays are international and will move to the most friendly tax environment. As our economy evolves from manufacturing to service industries, it is ever easier to cross frontiers. It is no accident that Google and many other major companies have recently located to Ireland. For Britain to stay prosperous, it must continue to attract and keep the creators of wealth, both corporate and individual. The noble Lord, Lord Marlesford, made some most relevant comments on this subject.

The various anti-avoidance measures to which my noble friend Lady Noakes referred and which take up so much of this year’s finance Bill tackle the symptoms and not the cause of the problem. There is an increasing weight of evidence that avoidance is a result of higher and ever more complex taxes, which are a massive stimulus to the avoidance industry. I urge the Government to look at this, together with the evidence available from other countries such as Ireland, the United States of America, Australia and others, which demonstrate a considerable improvement in revenues from lower taxes, as my noble friend Lord Forsyth pointed out so ably.

A singularly important point which my noble friend Lady Noakes raised was to expose the shame of ceding sovereignty on tax matters to Europe. As she said, tax is not a matter of Community competence. I would welcome hearing what the Minister has to say about that.

I turn to the matter of trusts, about which there has been so much discussion in recent weeks, and to which some of your Lordships have referred this afternoon. I must declare an interest as a beneficiary, trustee and settlor of trusts. Many of the points I wish to raise today have already been mentioned by your Lordships, so I will try not to waste time by repeating the same things. The first question is, as my noble friend Lord Wakeham mentioned earlier, why have the Government introduced this measure? I am not alone in finding it difficult to understand or fathom the reason. There has been much discussion and speculation, but no real conclusion. It has become apparent that the original statement, repeated by the Minister, on the impact of the changes—that only 6 per cent would be affected—was wrong. The Government had no real idea of the huge number of people who would be affected. I have a great respect for the Minister, but there is such a weight of evidence that on this occasion I am unconvinced by his statement.

As my noble friend Lord Trenchard and others have pointed out, the new regime was brought in without consultation, even though consultation on minor changes to the income tax and capital gains tax treatment had been going on for two years. The excuse explained by the Minister was a fear of forestalling. For a set of changes that, per the Red Book, are planned to raise £15 million a year, this is a weak excuse. My noble friend Lord Wakeham also made some most pertinent comments on that. It is always possible to announce new rules that will apply from a date and to consult properly on the detail—for example, the considerable tranche of capital loss anti-avoidance measures in the Bill. Had the professional bodies been consulted, they would have pointed out, despite what the Minister said, that trusts, particularly “interest in possession” trusts, are used principally to protect assets and people, and not for tax avoidance. The noble Lord, Lord Northbrook, spoke eloquently on that.

There are many who will suffer—for example, those getting divorced. Where this is concerned, trusts are used as practical management devices and are nothing to do with tax avoidance. Trusts are used to ensure that funds are properly protected. They are normally directed to keep the ex-spouse and then the children of the marriage, rather than going to the ex-spouse’s new family. That will now be subject to tax. The noble Lord, Lord Burnett, gave us an excellent example of why that is wrong. Are the Government saying that all divorces are to be on a “clean break” basis, or else the family faces a double penalty—the divorce and the inheritance tax hits on the property in trust?

The Government propose to keep privileged tax treatment for trusts for the disabled. Unfortunately, the definition of “disabled” for these purposes is too restrictive. It does not include many people who would want to set up trusts for themselves; for example, those who suffer from gambling, drug addiction or alcohol addiction. New trusts set up by those who do not fall within the definition of disabled will suffer the tax charges. Why is this necessary? What avoidance are the Government seeking to tackle, when such trust property would in any event remain in the estate of the self-settlor and be subject to inheritance tax when he or she dies?

In future, unless they fall within the narrow definition of disabled, people who recover damages as a result of claims for personal injury, criminal injuries compensation and so on, where the sums of money are placed in trust for their benefit, will suffer a tax. The amount of damages received will have been calculated to take into account the recipient’s living expenses, care and medical needs, but not the tax charge that may now arise. If a tax charge now results, it will deplete funds set aside for the person’s care. That may increase the need to resort to the state for additional support.

What is clear is that even the amended proposals will do the most harm not to the rich minority referred to, but to many people of relatively modest means whose wealth has been increased by the inflation in the monetary value of their houses to a level where these proposed taxes will bite. They will have few, if any, other assets. They do not have great wealth; they have a home. That means that they will be unfairly penalised if, for any number of perfectly good reasons, they wish their main asset to be held in a trust. It is a perfectly valid wish to preserve the family home, or indeed any other form of family wealth, by passing it to another generation. That is quite possible without a tax penalty, providing that it is an outright gift and the donor survives for seven years. Why should there be a tax penalty for passing the same wealth via a trust, where the difference is that there is provision to prevent foolish dissipation of wealth? Even the very ordinary use of insurance policies written in trust is now penalised. The Government might well have stopped what they see as tax avoidance, but only at a price borne by ordinary, prudent families who try to ensure that their dependants do not have to submit themselves to means-tested benefits. Are the Government prepared to talk to the insurance industry about changes in a future finance Bill which would permit prudent family provision?

In the other place, the Paymaster General explained why trusts should be taxed, as can be seen in the Official Report of Commons Standing Committee A of 13 June at cols. 606-07. She set out a series of steps by which inheritance tax could be avoided by the use of trusts and explained that therefore trusts should be taxed. But these same steps could be taken by the use of outright gifts, and there would be no tax penalty, provided that the donor lived seven years. The justification given for taxing trusts was that the original donor—the grandparents, in the example—could, from the grave, still retain control over the assets. That would not be so in the case of an outright gift.

That is an amazing statement. In the overwhelming majority of cases, these trusts will have been created not for tax purposes, but for the sake of good and sensible money management. Are the Government really saying that prudence is an undesirable objective and should be taxed, but that if money is given outright with no provision for future good management—so that it can easily be frittered away—it is a better way to do things? The idea is so extraordinary that one wonders if there is an ulterior motive. Is this the first of a two-pronged attack, and the next move will be against potentially exempt transfers, as outright gifts are known? Will the Minister confirm that there is no plan to tax potentially exempt transfers or to extend the length of time the donor has to survive? It is important and fair that people in this country, as well as the businesses to which the Minister referred, have a stable tax environment in which to plan and conduct their affairs.

Finally, I urge the Government to react promptly to unforeseen anomalies which crop up and cause suffering. There have already been 50 amendments to the trusts section of the finance Bill and doubtless further problems will arise. It would be comforting to know that prompt action would be taken to prevent hardship.

Before finishing, I ask the Minister to pay attention to the wise comments in the brilliant speech of my noble friend Lord Forsyth.

My Lords, I thank all who have spoken in today’s debate. I congratulate the noble Lord, Lord Burnett, on a truly impressive maiden speech. He spoke with authority, and I am sure he will enliven many of our future debates on not only finance but other matters. I note that he has already received a better offer from my noble friend Lord Barnett than has come my way to date. As we are congratulating people, I join my noble friend Lord Haskel in congratulating the Chancellor on the birth of his new son.

I have decided to scrap my prepared speech to try to get through as many of the points raised as I can in the 20 minutes allotted to me. I note the position that the noble Lord, Lord Wakeham, has outlined as regards the Joint Committee. He is aware of the Government’s stated position on that, but doubtless the Joint Committee will take account of his views. I acknowledge that the sub-committee has gone about its affairs constructively and on a non-partisan basis. It has not been about amending Finance Bills, although it has struggled to keep separate administration and the incidence of tax. Those are inevitably intertwined. The noble Lord’s position was supported by the noble Lords, Lord Barnett, Lord Sheldon, Lord Forsyth and Lord Newby. The noble Lord, Lord Northbrook, asked why he did not receive a formal written response. I believe that the tradition has been to deal with the matter in this debate. I am simply carrying on with that tradition.

The noble Lord, Lord Wakeham, and others, particularly the noble Lord, Lord Howard, talked about consultation and mentioned concerns over the lack of it on the inheritance tax proposals for trusts. The Government always consider the benefit of undertaking consultation and try to make as much room as possible for preparation ahead of changes to the tax regime. But it was not possible in this case because of the possibility of large-scale forestalling. I could go through the forestalling that was envisaged. Those with lots of spare capital could make very large-scale lifetime transfers into flexible interest in possession and A&M trusts. People who did not have a lot of spare capital could put substantial resources into trusts using insurance-based schemes, usually called discounted gift schemes. There were opportunities for large-scale forestalling, which is why the Government proceeded as they did. I pray in aid the consultation that has taken place on a whole range of tax issues: the new IHT applications to the new pension regime, particularly ASPs; the changes on the structured finance anti-avoidance rules; the rewrite on options in tax provision; and matters such as the new film industry release. Consultation is not always possible, but where it is, the Government seek to do it.

The noble Baroness, Lady Noakes, and the noble Lords, Lord Wakeham and Lord Forsyth, commented on the growing complexity of the system and anti-avoidance provisions. I agree with the noble Lord, Lord Newby, that having a simple system will not necessarily stop avoidance. I can think of plenty of examples of low-tax regimes around the world, for example Hong Kong, where plenty of tax avoidance goes on. Constantly introducing anti-avoidance legislation is said to be harmful because it produces complexity in the tax system. It does, but modern business is becoming increasingly complex. It is inevitable that the tax system will reflect some of that complexity. The vast majority of businesses and taxpayers can easily recognise whether they are affected by any changes. The recent legislation dealing with structured finance is clear. Nobody could think that it was the intention of the tax system to gain tax relief for loan repayments as well as interest on those loans. Matters such as three-legged repos do not just happen to businesses, you have to focus on them, plan to do them and get advice to do them. Therefore, people who want to risk that can live with the complexity involved. I refer to the reverse charge, and inspection and record-keeping measures—people should be able to cope with those—charities issues; restrictions on companies’ allowable capital losses; restrictions on buying losses and other avoidance schemes using capital losses.

To address those issues will inevitably involve complexity, unless we allow that avoidance to continue. Businesses that want to engage in that avoidance have to run the risks of dealing with that complexity. The large majority of taxpayers who are not in that game are not affected by that complexity. I stress again that the Government have signalled their willingness to explore different approaches to tackling avoidance. For example, the capital loss targeted anti-avoidance rules announced in the PBR were welcomed by business and the professions for the approach of setting out broad principles and then consulting on the detail.

Noble Lords commented on effective tax rates and the position of the economy generally. The noble Baroness, Lady Noakes, mentioned the impact of regulation. The Government have undertaken the most radical and serious systematic reform of Britain’s regulatory system in recent history. It will deliver genuine reductions in the burden upon business without compromising necessary regulatory outcomes. The House will be aware that we published the draft Hampton code of practice which will entrench the Hampton enforcement principles in UK law. The code will require regulators to have regard to the Hampton enforcement principles when exercising their regulatory functions. That is what the Legislative and Regulatory Reform Bill, which is before your Lordships’ House, is all about. I identified HMRC’s progress towards tackling administrative burdens. The Government are undertaking the administrative burdens project, which will identify all regulations that impose an administrative burden on business, charities and the voluntary sector, and will calculate the cost of these. Targets to reduce them will be set later this year.

Noble Lords referred to the competitiveness of the tax system and the economy, particularly in the light of the regulation which I have just dealt with. The noble Lord, Lord Howard of Rising, addressed this, as did the noble Viscount, Lord Trenchard, and the noble Baroness, Lady Noakes. The UK’s total tax-to-GDP ratio in 2003 was below the OECD average and below the EU15 average. The UK standard VAT rate is 17.5 per cent, making it the fifth lowest in the EU25. In every year since 1997, and in every year of the forecasts set down in the Budget, the tax burden is below the peaks reached in 1984-85. The higher tax burdens that have arisen in recent years partly reflect economic success and increased prosperity. There are more people in work—some 2.4 million extra people in work since 1997—profits are higher and consumption is buoyant. Households on average are £950 a year better off compared with 1997, and households with children and pensioner households are, on average, £1,500 and £1,400 better off per year respectively. Four in 10 families with children now pay no net tax after tax credits and child benefit.

I think that noble Lords settled on describing the economy as sub-optimal. I reject that. On GDP per capita we are now ranked second in the G7, rising from fifth in 1997, overtaking our European competitors Germany and France. From 1997 to 2005, UK GDP expanded by about 25 per cent; this compares with 8 per cent in Japan, 13 per cent in Germany, 13 per cent in Italy and 22 per cent in France. There are encouraging signs that the economy has gained momentum in recent months. GDP rose at its fastest level since mid-2004 in the first quarter of 2006. Business investment rose at its strongest since the third quarter of 2004, and manufacturing output is rising, up 1 per cent in the three months to May. Retail service growth has picked up, and business surveys suggest further gains in activity. The UK is enjoying its longest period of sustained low inflation since 1960, and employment is close to record levels, with 28.9 million people in work.

If we live in an environment where companies are queuing up to move out of the UK, and a burden of regulation and tax is bearing down on business in an unacceptable way, why do a number of surveys point to exactly the opposite? The Word Economic Forum global competitiveness report of 2005 ranked the UK higher than any other European country. In October 2005, London was named the best European city to locate a business for the 16th successive year. The UNCTAD world investment report put the UK among the top three recipients of foreign direct investment for seven of the past 11 years. Between 1997 and 2004, the UK has seen $519 billion of inward investment flows, and it was the highest recipient of inward foreign direct investment in 2005. The World Bank study Doing Business in 2006 ranked the UK business conditions as the best in the EU and ninth in the world. The Heritage Foundation 2006 index of economic freedom placed the UK fifth out of 161 countries in terms of economic freedom and described the UK as the best place in Europe to open a business. Those are other people’s views of how this economy is based and what this Government have achieved.

The noble Baroness raised detailed points on some specific issues. She rightly said that PFI is being looked at. She again referred to the Network Rail situation. I repeat that the ONS made a judgment of whether that was on the public balance sheet. It was made independently, and it has been confirmed by the Statistics Commission. If people wish to challenge that, they really ought to put forward a rationale, data or extra intellectual rigour to justify that view.

The sustainable investment rule has been complied with to date, and I am not aware that the Chancellor is seeking to amend it. As in so many instances, it has been suggested that the golden rule and the sustainable investment rule are about to be broken, and that has not happened. In so far as changing the economic cycle is concerned, you must follow the data. If the ONS revises the statistics, what do you do? Do you ignore that, when they have been independently revised? Issues of growth are perpetually revised for a whole raft of reasons; that happens in every sophisticated country, and we have just followed that route.

The noble Baroness, Lady Noakes, the noble Lord, Lord Northbrook, and maybe others, asked about real estate investment trusts and in particular about why listing on AIM is not permitted under the new rules. A company whose shares are trading on AIM is subject to a lighter regulatory touch with lower minimum standards of corporate governance and transparency than companies with shares on the official list of the London Stock Exchange. One of the Government’s main objectives is to create investment opportunities open to small investors, who deserve the levels of regulation, transparency and corporate governance created by a recognised stock exchange.

My Lords, is the Minister saying that small investors should not invest via AIM at all? Is that the Government’s view?

No, my Lords, I am not saying that. AIM has been successful. We are saying that, for real estate investment trusts, the degree of transparency and regulation in governance is not sufficient for what we are seeking to achieve at this stage.

A number of noble Lords mentioned the withdrawal of the exemption on computer equipment that was introduced in 1999. The Government made clear that the exemption would be kept under review to ensure that it met its objectives. Evidence suggests that, while it has provided greater access for many employees, it has also been misused. Employees have been able to buy computers out of their pre-tax income, but in some instances have been offered games consoles and MP3 players as part of the package.

So far as the Marks & Spencer judgment and group relief are concerned, the Government welcome the ECJ judgment, which takes into account the concerns expressed by the UK and several other member states. The judgment means that the UK’s existing system of group relief can be preserved. The European court’s role is to interpret the European treaty, not to set national rules on tax. We, like all member states, have a veto on European legislative proposals relating to tax, which the Government have taken care to propose.

The noble Lord, Lord Burnett, raised a number of issues about trusts. I will try to deal with some of them, and we will follow up those that I am not able to cover in the time available. I think he said that it should be possible for those who are not parents to put assets into trusts for minors, irrespective of their relationship. People can still put money into trusts for children; this will just fall in the mainstream IHT rules for trusts.

A number of noble Lords suggested that the definition of a disabled person is too narrow. The definition in the Bill is in line with that adopted for trust modernisation. It caters for mental and physical incapacity and is deliberately focused on cases where the disabled person faces very substantial difficulties in handling their financial affairs. It is not intended as a relief for disability as such, so we do not think that a broader definition is appropriate. It was suggested that life insurance protection policies should be outside the regime. Protection policies can be valuable property, and it would be wrong in principle to disregard them for inheritance tax purposes.

My noble friend Lord Barnett focused on MTIC fraud, which, as all noble Lords have identified, is extremely serious. He asked about the measures being put in place and how effective they would be. The goods subject to the reverse charge, which we have sought to get subject to the derogation, should apply to over 90 per cent of the goods affected by MTIC fraud at the moment—chips, mobile phones and so on. The UK plays an active role in collaborating with European partners in improving the EU’s ability to counter fraud.

The noble Lord, Lord Marlesford, raised issues about the sustainable investment rule. Again, the Government have met that to date. In 11 of the 18 years of Conservative Government, net debt was above 40 per cent. This Government’s record is very good in comparison.

It was suggested that there was no mention of the IHT proposals. Noble Lords will see a reference to them at page 118 of the Red Book, paragraph 5.102.

Interest rates were mentioned, but the Government do not comment on that; it is the job of the MPC. One thing that the noble Lord said that sent shivers down my spine concerned whether the winter fuel allowance should be taxed. Given that I received a letter the week before last suggesting that I might be eligible later this year, I was greatly concerned.

The noble Lord, Lord Marlesford, talked about productivity and economic growth. The UK is making progress in boosting productivity compared to past performance. Over the first half of the current economic cycle, actual trend productivity growth was 2.59 per cent a year, compared to 2.04 per cent over the previous economic cycle. Latest data suggest that the output-per-worker gap with Germany has closed and the UK now leads Japan by over 11 percentage points. The gap with France has approximately been halved since 1995.

It was suggested that forecasts were subject to major errors, but the record shows that errors since 1997 have been fewer and smaller than in the previous period.

The noble Lord, Lord Sheldon, asked about the process of derogation, for which we have applied. The commissioner has to agree, after which a process involving other member states eventually goes to ECOFIN—because all member states need to give their approval. We are hopeful of speedy progress, given that our European partners are aware of how seriously we view the issue, which has an impact on them, too.

That is not the only matter that we are looking at. In addition to the 2003 provisions there are risk-based controls designed to identify and prevent bogus businesses from registering for VAT, fast-track deregistration for those who enter the VAT system and trade fraudulently, international co-operation and frontier activity, including the use of scanning technology to better identify goods involved in fraud, and others.

My noble friend Lord Haskel spoke with conviction and experience about how the Government have supported private enterprise. We have done that, not least by creating economic stability under which businesses can flourish. But we have been discussing specific measures in the Bill regarding qualifying costs for R&D tax credits, the temporary increase in personal allowances for small enterprises—the fact that that is temporary does not necessarily mean that it will not have an impact—the new film tax credit and others.

The noble Lord, Lord Northbrook, mentioned real estate investment trusts. I have dealt with AIMs. No reference was made to the trust changes in the Budget, as can be seen in the Red Book.

The new film tax reliefs represent a well targeted replacement for the old system that deliver generous levels of support, targeted directly at film-makers, representing better value for money for UK taxpayers.

The noble Viscount, Lord Trenchard, mentioned AIMs. The Government do not believe that all trusts are set up to avoid tax. We recognise that they are used to deal with a range of family circumstances. But that is a separate question from the tax regime that should apply to them. Trust assets for 18 year-olds do not prevent accumulation to the age of 25. I am bound to say that we have rather more faith in young people than perhaps the noble Viscount has. I looked at our debates on the Company Law Reform Bill and there was a debate about whether directors must be aged 16 or 18. Noble Lords on the opposition Front Bench argued that the age of 18 was entirely appropriate.

I was astonished at the challenge to the position of London, given that over recent years it has advanced its position as one of the two truly global financial centres. I have dealt with the issue of reclassification of the golden rule.

I do not have time to go over the position of occupational pension schemes, except to say that the withdrawal credit was part of a process started by the Conservative Government, who reduced the ACT credit. That was much to do with holidays taken on unrealistic expectations of long-term growth in the stock market, as well as changes in the understanding of demographics and longevity. If the noble Lord looks back, he will see that the reduction of the tax rate from 52 per cent was associated with the withdrawal of 100 per cent first-year allowances and was meant to be revenue-neutral at the time.

My noble friend Lord Rosser again raised issues about MTIC and whether £500 million was the appropriate provision for the impact of the changes. That was a prudent basis on which we have made provision. That revenue will be gained by fraud reduction, but clearly we need to ensure that we keep abreast of future changes. Would other goods be substituted? It is possible that they will. It remains to be seen whether there are sufficient goods of high value and low volume that make those frauds particularly possible. Do we have enough staff? We increased staff and the Government are intent on keeping that under review. We should see this as serious crime. It may be seen as white-collar but it is crime.

The noble Lord, Lord Forsyth, gave us an interesting view of the tax system and of where it was heading. I was surprised at the way in which he referred to avoidance. He said, without any qualification, that it was perfectly acceptable, however artificial the scheme might be. I was surprised that he did not qualify what he said and I wonder whether that is the official position of the Conservative Party.

We have dealt with issues of economic growth.

I was asked why the Finance Bill is larger than it has been in previous years. In the four years to 1997, the average length of the Bill per year was 412 pages and 210 clauses. Since 1997, the average length has been 466 pages and 178 clauses per year. So I do not think that there is a significant difference from one year to the next.

I shall write to the noble Lord, Lord Newby, about the advance clearance of tax relief for charities and also about when a decision is due on tax deadlines for online returns. He will forgive me if I am not able to deal with that more extensively.

I hope that I have already picked up a number of the points raised by the noble Lord, Lord Howard. I touched on the figure of 6 per cent. Historically, the percentage of estates that have paid IHT has been 6 per cent of the total, and that figure has been broadly consistent over quite a long period. The Government have brought forward no plans to change the rules on potentially exempt transfers or to extend the length of time.

I must close the debate now as I have run over the time available to me. Again, I thank noble Lords for their insightful and wide-ranging contributions. The Government are focused on developing the macro-economic stability essential for our future productivity, growth and stability. The Bill will support business while ensuring fairness, and it will enable the country to sustain and build on a competitive, enterprise-based economy, allowing for security and opportunity for all to benefit from growing prosperity.

On Question, Bill read a second time; Committee negatived.

Then, Standing Order 47 having been dispensed with, Bill read a third time, and passed.

My Lords, I beg to move the Motion standing in my name on the Order Paper.

Moved, That this House takes note of the report of the Economic Affairs Committee on the Finance Bill 2006 (6th Report, HL Paper 204).—(Lord Wakeham.)

On Question, Motion agreed to.

moved Amendment No. 1:

My Lords, the noble Lord, Lord Lester, knows well our approach and attitude to the Bill. I am most grateful to him for having listened to what we said at an earlier stage of the Bill’s passage. We are more than content to accept these four amendments because they tidy up provisions in Clause 18. The noble Lord has gone over each of the amendments carefully and I disagree with nothing that he has said. I am most grateful to him for bringing these amendments forward in the courteous and precise manner in which he always addresses your Lordships' House.

On Question, amendment agreed to.