asked the Secretary of State for the Environment what are Her Majesty's Government's intentions in respect of funds which will be made available for urban programme projects.

Details of planned expenditure and priorities for the urban programme are given in "The Government's Expenditure Plans 1985–86 to 1987–88" (Cmnd. 9428-II pages 118–121). This year £338 million has been allocated to help foster enterprise, improve the environment and tackle social problems. These resources are used in accordance with ministerial guidelines, a restatement of which, together with details of my Department's initiative to strengthen the management of the urban programme, has been placed in the Library of the House.

The Minister is aware that many valuable urban programme projects and children's holiday and play schemes in my constituency, Leyton, have been rejected by his Department. Are not many self-help community groups suffering because the Government are not providing sufficient funds for the urban programme? In view of the effect upon voluntary organisations of the proposed abolition of the Greater London council, should not the Minister be entering into a positive commitment to a major expansion of the urban programme?

The urban programme is a popular programme which is always over-subscribed. Before the hon. Gentleman takes this Government to task for their attitude towards Waltham Forest, he may care to reflect that in 1984–85 we shall be making roughly £183,500 available under the traditional urban programme, compared with about £76,000 in 1979. There has, therefore, been a real increase in the resources that this Government have made available to Waltham Forest under the urban programme. As for abolition, the Government have made it quite clear that there is no reason why worthwhile projects should suffer after the abolition. of the GLC.

Does my hon. Friend not agree that perhaps the most valuable urban aid that is provided is for the clean-up programmes in areas of decline? Does he not agree that the programme that has been financed by the Government in my constituency, Leicestershire, North-West, is valuable and should be extended for another two years?

We are always pleased to learn that money spent under the urban programme has been gratefully received by the local hon. Member. Environmental improvement is one of the objectives of the urban programme and we hope to maintain the initiative that has recently been launched in Leicester.

Is the Minister aware that many local authorities would not have had impossible targets to meet or would not have had to be rate capped if they had not had to incorporate under their own expenditure headings time-expired schemes which were originally funded by the urban programme? Was that not the case last year with Liverpool, and is it not the case this year with many rate-capped authorities? Will the Minister refund many of these programmes?

The hon. Gentleman may unwittingly have led people to believe that Liverpool city council is rate-capped. It is not. It has always been a feature of the urban programme that it pump primes worthwhile projects on the basis that local authorities will take them over at the end of four or five yars. That has always been the basis upon which the urban programme has been planned.

My hon. Friend will agree that the previous Labour Government and this Government have reduced the rate support grant, but is it not also true that specific grants in the urban programme have given many cities more rather than less money than used to be the case under the old purely rate support grant system?

My hon. Friend is right to draw attention to the worthwhile increase in the value of the urban programme. In 1978–79 the urban programme spent £93 million and in the current year, £338 million. That is a worthwhile increase in resources to our inner cities.

What is the skeleton in the Government's cupboard that leads them to command an internal report on the future of the urban programme and then not publish it? What does that report say? Does it say that there will be a further cut in the urban programme, or does it say, as it should, that there should be a substantial extension and improvement? Can it be made public? That is really the question.

That was an internal review of the urban programme. It has been reviewed more often than almost any other item of Government expenditure, and it has always emerged from such reviews with credit. We plan to spend in cash terms this year roughly the same as the cash outturn for last year. The fact that we have managed to safeguard the urban programme over the past six years at a time when, for good reasons, reductions have been made in public expenditure, is a reflection of the priority that we attach to dealing with the problems of the inner cities.

In allocating funds to specific projects, to what degree has the Minister followed the order of priorities set by the local authority which put those projects before him?

Ministers usually honour the priorities that are set by local authorities. We recognise that they are in touch with the position to an extent that Ministers cannot be. Having said that, we have made our overall priorities for the urban programme clear in terms of the balance between economic, social and environmental projects, and in order to secure that national balance we occasionally have to re-order the priorities of individual local authorities.

When will my hon. Friend review the urban programme to embrace those void areas which are currently covered by the urban programme, not by the rural programme? Towns such as Lofthouse and Skelton in my constituency are in grave need of some urban or rural renewal, or renewal of whatever type my hon. Friend would like to give them, in order to improve the environment, yet they are excluded. When will the Government take action on that?

I understand my hon. Friend's concern that his constituency should have access to as much money as possible. In due course we shall be reviewing the designation of districts under the urban programme, and I have noted my hon. Friend's bid.

Will the Minister recognise the contradiction that out of nine partnership authorities last year, six were penalised, and in two authorities, for about every £2 paid in inner city partnership grants £3 was taken away in penalties? Will the Minister accede to the request of the Association of Metropolitan Authorities and disregard for penalty purposes the contribution that local authorities make towards inner city partnership programmes?

As the hon. Gentleman knows, the Government have to consider any application for disregard that is made by local authorities. If such an application is made, it will be considered, but there is no reason to exempt local authorities in the inner city areas from the search for economy and efficiency which the Government expect all local authorities to try to make.

asked the Secretary of State for the Environment if he will make it his policy to reject any planning appeals, involving the proposed high technology site in Bickenhill, until the Marston Green and Bickenhill district plan is determined.

No, Sir. The draft status of a local plan is not in itself a reason for the rejection of planning appeals. My right hon. Friend the Secretary of State will consider any such appeals on their merits.

Does my hon. Friend realise that his answer will give rise to great concern among my constituents, who consider the pace of applications for that small 140-acre site of green belt, if not illegal, certainly immoral? Is he aware of the legitimate interest of the national exhibition centre in considering development in the area—a most important asset for Birmingham? Will he consider waiting for the determination of the structure plan and the Marston Green and Bickenhill district plan before allowing those applications to proceed?

I note my hon. Friend's comments, and I am well aware of the strength of local feeling in his and neighbouring constituencies which are concerned about development. He has led delegations and has made his views well known on his constituents' behalf. There is a presumption against development in the green belts. Such development will be permitted only in exceptional circumstances. We have to take many steps over the next few weeks. I made it clear earlier this year that the proposal, with careful and sensitive planning, will be economically beneficial to the region as a whole, without being prejudicial to the objectives of green belt policy.

Is my hon. Friend aware of the wider anxiety in Solihull about the pace of change and scale of development? Is he aware of the suspicion that the inner urban areas might have a greater need for the resources involved?

I am well aware of that. All such issues are taken into account before my right hon. Friend reaches a decision.

Is the Minister aware that many of us cannot afford to turn down high technology parks? If the Minister has any trouble allocating such parks, why does he not just send them north, because we shall welcome them at any time? Is the Minister aware that my constituency has the space for a high technology park?

I note what the hon. Gentleman says.

asked the Secretary of State for the Environment what recent representations he has received advocating the abolition of the present rating system.

asked the Secretary of State for the Environment what recent representations he has received on the reform of the rating system.

asked the Secretary of State for the Environment what representations he has recently received on the reform of the rating system.

asked the Secretary of State for the Environment how many representations he has received on the reform of local government finance since 10 October 1984.

We continue to receive many representations advocating abolition or reform of the rating system.

Will the Secretary of State confirm that he has received representations from some highly placed persons in the Conservative party making the absurd suggestion that the present rating system should be replaced by a poll tax? Will he make it clear to those highly placed persons that, apart from the astronomical cost of collecting and policing a poll tax, the British people will decimate any political party that seeks to impose a tax on the right to vote?

I have read a number of imaginative press pieces about the studies that I announced last October. I can assure the hon. Gentleman that in our studies of the local government finance system we are examining alternative methods of raising revenue locally and that all options are open.

In view of the difficulty of finding a satisfactory alternative to the present rating system, is not the most sensible step to transfer the cost of teachers' salaries from the rates to central Government?

Many of the complaints which Ministers face at the Dispatch Box are about the increasing centralisation of control to Whitehall. It would be a major act of centralisation if the Department of Education and Science took over the payment of teachers' salaries or, indeed, any other part of the education budget which is currently borne by local authorities.

Will my right hon. Friend confirm that the Government, unlike the Liberal party, do not intend to impose the rates burden upon agricultural land, but that they intend to relieve the commercial and industrial ratepayer of the pernicious burden of vindictive and profligate Labour-controlled local authorities, by fixing the commercial rate centrally? Does my right hon. Friend agree that an element of a poll tax, without safeguards, is regressive in some respects and involves the practical difficulty of updating the electoral register twice a year?

I note carefully what my hon. Friend has said. Agriculture has been exempt from rating since the 1920s and we have no plans to bring it back into the rating system.

Does the Secretary of State accept that the injustices of the rating system are made worse because in Engand and Wales it is based on valuations that are 12 years out of date? Does the right hon. Gentleman recall that he made commitments to take urgent action on revaluation as long ago as August 1983? In view of the Government's unhappy experience in Scotland, do they still intend to continue with revaluation, or will they be looking for a much fairer system, such as local income tax?

I am aware of what the hon. Gentleman mentioned. The Government now take the view that there cannot be a revaluation in England and Wales without a reform of the system.

Are not the present problems with the rating system directly attributable to the massive cuts in rate support grant? Will we not find it impossible to come up with a fair system until the Government carry their responsibility and restore to local authorities the money that they have cut during the past six years and restore the level of support given by the last Labour Government in 1978–79?

It is interesting that the hon. Gentleman chose that date, because he knows perfectly well that the last Labour Government reduced the proportion of expenditure by central Government from the level that it reached in 1976.

There is no preordained right for local authorities to have certain parts of their expenditure met by central Government. At the heart of the studies being undertaken by my hon. Friends is the restoration of full accountability by local authorities to those who pay for them and elect them. We are currently engaged in doing that.

Does the Secretary of State recall that in 1982 the Select Committee on the Environment said that a poll tax should not be introduced under any circumstances? Therefore the right hon. Gentleman's reply to my hon. Friend the Member for St. Helens, North (Mr. Evans) was disappointing. Is it not clear that a poll tax is undemocratic because the flat rate could be set at a level which the poor and the unemployed could not afford, and that they therefore would not bother registering to vote? The people who support the right hon. Gentleman's party—the wealthy—could afford it and thus use their votes against the Labour party.

At every election which the Conservative party has won, it has had considerably more votes from those on the lower end of the scale than from those on the higher end——

There are more of them.

That is quite right.

On the question of raising revenue to finance local authority expenditure, the hon. Gentleman should recognise that it is an unsatisfactory system because in many parts of the country very few people pay towards the cost of local services, while so many enjoy them. It is that imbalance which seems wrong to us, and which any reform must right.

Is not the real problem with rates the fact that they are too high? Is that not at least partly because we are trying to finance too much public expenditure from rates? If that is so, rather than looking for alternative methods of raising local finance, would not the right answer be that suggested by my hon. Friend the Member for Staffordshire, Moorlands (Mr. Knox)—to consider transferring education expenditure, or at least expenditure on teachers' salaries, from local government to central Government?

I understand my right hon. and learned Friend's case, but what is wrong is that a tax that is property-based should now bear so much expenditure that is not property-related. There needs to be a wider tax base if local authorities are to be accountable to their local ratepayers. I do not believe that the answer to the problem is simply to centralise more spending in the Exchequer.

Are we to believe that local government finance is to suffer yet another fundamental change, decided in secret without proper public evidence and debate? Does the Secretary of State recall the recently published words of the Controller and Auditor General, who said that rates

"increases can therefore be attributed more to the reduction in the proportion of Government grant than to increases in local authority spending; and unless and until the level of central Government support is stabilised again it will be difficult for local electors to distinguish how far changes in rates should be attributed to the actions of the local authorities themselves."

Are we now to accept that the Government, having taxed water, energy and health, are about to tax votes also? Is that the prospect that the right hon. Gentleman is offering to the House? Does he not realise that the electors could fill a warehouse with broken Tory promises on rates?

The hon. Gentleman posed one serious query at the beginning of that supplementary question when he asked whether there was to be another fundamental review of local government finance.

In secret.

I shall come to that. There is widespread recognition of the need for a reform of local government finance. I hope the hon. Gentleman welcomes the fact that the studies that will lead to that are well under way. We shall publish our proposals in the form of a consultative paper and there will be ample opportunity for all those interested to put forward their views before there is any question of legislation being introduced.

asked the Secretary of State for the Environment when he now expects to be in a position to announce the outcome of the Government's review of the rating system.

I hope to be able to do so later this year.

Considering the present defects in the rating system, is it not clear that the imposition of a poll tax would make the system far worse and would, in particular, penalise those on average and small incomes? Is it really proposed to have a poll tax in addition to the rating system? We appreciate that the Secretary of State is under great pressure from the Prime Minister. Will he inform her that the last occasion when a poll tax was introduced in this country led to the uprising of 1381? Is that not a good enough warning?

I was not about then. The concern in the country is very widespread because in recent years, often for the best of motives, a considerable gap has opened up between those who pay, those who receive and those who vote. That gap lies at the heart of the lack of accountability of local authorities to those who pay the bills and is greatly colouring the studies that we have undertaken. I ask the hon. Gentleman to await the outcome of those studies before jumping to conclusions.

Before my right hon. Friend announces the outcome of the review, will he bear in mind the crucial importance of ensuring that the cost of providing local services falls on all local people and that there should be no exemptions from and rebates of what I hope will be a residents charge introduced to replace rates?

I take note of my hon. Friend's views.

Instead of undertaking another secretive review, why will the Government not just republish the Layfield report and make some conclusions based on that? Is it not a fact that a poll tax would need so many qualifications and exemptions that it would end up, as the Select Committee said in 1982, as a crude kind of local income tax, and that it would be far better to go fully down that road and introduce a properly worked out local income tax system?

The right hon. Gentleman's points are considerations which the Government are taking into account in the studies which we are undertaking. However, it must be recognised that there is widespread concern that many of those who benefit from local authority services contribute little or nothing towards them. That has undermined the principle of accountability in many areas, and we must address our minds to that.

In conducting the review, will my right hon. Friend give proper weight to the views of business and industry in Britain, because that is where much of the rating burden falls? Will he take on board the views of the Institute of Directors, as a recent sample by the institute revealed wide support for a poll tax?

Nationally, over 60 per cent. of the revenue raised by local authorities comes from non-domestic ratepayers, two thirds of it from industry and commerce. In some areas the figure is significantly higher. That is another point which leads to a weakness in the accountability of local authorities to their ratepayers. Part of the studies that we are undertaking will consider ways of dealing with that problem.

Given the controversial nature of any report that results from this review, can the Secretary of State say whether the Government intend to put the proposals of himself and his colleagues to the country in the next election manifesto or whether they intend to legislate before then on a reform of the rating system?

We leave both options open.

Although all options are still open, will my right hon. Friend be cautious about further raising public expectations about a poll tax, which is less attractive the closer it is studied? Although the system needs to be radically reformed, does my right hon. Friend agree that this would not be best done by inventing further forms of taxation?

If reform were easy and painless, it would have been done years ago. Because of the widespread feeling that doing nothing is no longer an option, we need to examine all the possibilities to maintain and improve the system of local government finance in order to strengthen the health of local government as a whole.

Has the Secretary of State studied the recommendations and conclusions of the Layfield report? Does he accept that the major change that has taken place since the Layfield report was published is that the share of local expenditure met by the Government has fallen dramatically? Does the right hon. Gentleman accept that this is the major cause of the widespread concern to which he referred?

I do not necessarily accept that, because many authorities have been able to cope with a reduction in the percentage of grant by imposing modest rate increases because they have been able to find economies and make savings. The Layfield inquiry was conducted eight years ago, and events have moved on substantially since then. I hope that the hon. Gentleman does not think it wrong for the Government to take a fresh look at the problem. The Layfield analysis is part of the evidence on which my hon. Friends are basing their studies.

I congratulate my right hon. Friend on achieving two out of three marks for discussions on public reports to date. Will he note that many of us support the transfer of non-domestic rate to the centre but recognise, as the Government appear to do, the need to create funding in addition to the present rating system? May I echo the point made by my hon. Friend the Member for Mid-Staffordshire (Mr. Heddle). The single central failing of a poll tax is that it cannot command the broad support which a fundamental reform of the rating system must have if it is to be introduced.

I note my hon. Friend's view. During our studies, all the options are being studied carefully. We shall come forward with our proposals in due course.

Is not the Secretary of State getting rather fed up with being dropped in it from a great height by the Prime Minister over rating and the abolition of the GLC? Perhaps the right hon. Gentleman would like to tell us something about what happened in the other place yesterday. If the right hon. Gentleman is considering levying a poll tax, is he also considering making registration compulsory?

What happened yesterday in another place is not a matter that arises from this question. Obviously, if there is to be a reform of taxation, there must inevitably be laws to ensure that those liable to pay taxation do so. I do not think that the hon. Gentleman would expect it to be otherwise.

May we take it that the Government are firmly committed to replacing not only domestic but commercial rates? Will my right hon. Friend confirm that an overriding principle of any alternative system would be the ability of those to be taxed to pay?

Our studies embrace the entire system of local government finance, not only revenue raising, but the relationships between central and local government. I am sure my hon. Friend will agree that it would be wrong at this stage of these studies to rule out any of the options.

If the right hon. Gentleman wants to reform local finance, why does he not begin by abandoning the iniquitous system of targets and penalties which he and his predecessors have so unfairly enforced? Can the right hon. Gentleman name one country with a plural democratic society which actually uses a poll tax to raise local government finance? Does the right hon. Gentleman not recognise that the whole idea of taxing registrations to vote is abhorrent in a democratic society? May I tell the right hon. Gentleman and the House unequivocally that, if any such system were introduced, it would be abolished by the next Labour Government.

It is, I fear, typical of the Labour party that it promises to abolish things before it knows what they are. When one thinks of all the other things that it has promised—abolishing tax relief on mortgage payments, and putting capital gains tax on those who sell council houses—I am not surprised that the hon. Gentleman is becoming confused.

asked the Secretary of State for the Environment how many representations he has so far received from citizens of Leicester concerning the rate capping of Leicester city council.

My right hon. Friend has received about 75 representations about the rate capping of Leicester city council from Leicester citizens.

Has the Minister also received this morning 26,000 further representations in a petition presented to his Department on behalf of the citizens of Leicester, most of whom helped to ensure that last week all Labour candidates in the city increased their majorities and votes? Does he not recognise that central Government interference in the affairs of the city is a direct denial of local democracy and is disliked by citizens, however they would normally vote?

It is highly unlikely that the citizens of Leicester dislike rate capping, because Leicester's rate has been cut by one third as a direct result. Last year Leicester received some £9·7 million of block grant. As a direct result of rate capping it will receive £12 million this year. In addition, its urban programme allocation, which I have approved, is £5·4 million this year.

Will my right hon. Friend take not the slightest notice of the petitions, which were phoney and deliberately whipped up by the scaremongering tactics and campaign of the Leicester Labour party, which spent £61,000 last year on an anti-rate capping campaign and which to date has allowed £150,000 for an anti-rate capping campaign? Does he accept that in Leicester people want to be rate capped and that the Conservative vote, in fact, held up?

I thank my hon. Friend for his support. I am sure that the citizens of Leicester object to the use of ratepayers' money for political propaganda because of the way that it has been manipulated. On rate capping in general, I was glad to see that last night Sheffield city council at last faced reality and, against the advice of its leader, set a rate within the limit set by the House—[HON. MEMBERS: "Order."]—and rejected a deficit budget. I only hope that the remaining——

Order. The question was about Leicester.

Hear, hear.

asked the Secretary of State for the Environment when he received the report of the Watts committee on domestic water metering; and if he will make a statement.

I hope to receive the report before the end of next month. Thereafter I will make a statement. I have read my hon. Friend's pamphlet "A fair deal for water" which is an excellent contribution to the debate.

Is my hon. Friend aware that the cause of metering will be greatly served by the privatisation of water authorities, and that there is widespread support for that move on the Conservative Benches? In the meantime, will he encourage water authorities to introduce more extensive metering trials?

On the second part of my hon. Friend's question, he will be aware that at present all water authorities offer the option of metering to all their customers. With regard to the first part of his question, he will be aware that the Government are examining the possibility of the privatisation of the water authorities and, under the lead of the Watts committee, the possibility of wider water metering.

Before the Minister makes any statement on the wholesale metering of water throughout the country, will he have regard to the fact that there are few democratically elected members on water authorities? Will he ensure that the water authorities are more democratic before he makes such a statement?

We have more streamlined and efficient water authorities today than ever before. On the issue of metering, I commend to the hon. Member the pamphlet of my hon. Friend the Member for Kettering (Mr. Freeman), which, priced at £1·25, is extremely good value and a great deal better than the pamphlet written by the hon. Member for Islington, South and Finsbury (Mr. Smith), who advocated that the gain someone makes on his house should be subject to tax.

Will my hon. Friend accept, since in the way that the system operates at present there is no advantage in going for metering if one is on an average sort of rate, that there is a great deal of resentment, especially among single householders and the elderly, who get no concession or recognition for the fact that they use the service very little and are charged precisely the same as those who use it a great deal? Will he ensure that that vice is taken out of the system?

My hon. Friend is right. There is a widespread view that the present system of charging on the basis of rateable value is not fair. This has been considered in the past, but we are looking at it again. We shall certainly bear in mind the point that my hon. Friend rightly makes.

The Minister applauds the pamphlet of his hon. Friend the Member for Kettering (Mr. Freeman). Does he agree with his hon. Friend when he rules out a poll tax on water? Does he further agree with his hon. Friend's assertion in the pamphlet that the price mechanism ought to be the overriding factor in consumer demand? Is this what the Prime Minister really means by a classless society, when there is a differential on the use of water according to ability to pay?

The hon. Gentleman is creating a certain amount of advance and synthetic indignation about this. I was commending to the House, and, indeed, Mr. Speaker, I commend to you, the excellent pamphlet written by my hon. Friend the Member for Kettering (Mr. Freeman). [HON. MEMBERS: "Has the hon. Gentleman read it?"] Of course I have read it. Courtesy among colleagues is something not widely understood by Opposition Members. My hon. Friend was kind enough to send me an advance copy, as he will confirm, and I am grateful to him. I hope that today's exchanges will mean that the pamphlet is read even more widely. I hope that the Conservative Political Centre, which published it, will receive some more funds for its needs in the future.

asked the Secretary of State for the Environment if he has received any recent application from United Kingdom cities wishing to host future Olympic Games.

No, Sir. It is for the British Olympic Association to consider applications from United Kingdom cities wishing to host the games.

While recognising that this is principally a matter for the British Olympic Association, but recognising equally that three cities are bidding for the 1992 Olympic Games, may I ask the hon. Gentleman to say that if the British Olympic Association considers one of those applicants worthy he will today commit not only moral but financial support to that city so that it can meet the high Olympic standards?

It is premature to anticipate any such argument. The British Olympic Association has many issues to consider over the next few months. Technically, it has until August to decide whether to sponsor a host city when it goes to the IOC later this summer.

Is it not a fact that when the Olympic Games were last held in the United Kingdom, at Wembley, they created many jobs, with the rebuilding of Wembley Park station, the railway bridge, Olympia Way to Wembley, and so on? Is it not right that, when we have a city such as Manchester, which has much open land and space left by declining industries such as the textile industry, we should replace those jobs by petitioning the British Olympic Association to place the Olympic Games in the United Kingdom in Manchester?

I am sure that the chairman of the British Olympic Association, by this time tomorrow, will be fully aware of the force of my hon. Friend's argument.

Is the Minister aware of the great success of the national railway museum at York and the national museum of photography at Bradford? Is it not a peculiar form of arrogance to believe that any national facility must be based in London? Will he support the application to stage the Olympic Games in the north of England rather than automatically assuming that a national facility be sited in London?

While I would be the first to applaud some of those centres, I certainly do not consider that the latter part of the hon. Gentleman's argument is an assumption which anybody else would follow.

Will my hon. Friend give an undertaking that, while the Government will do everything to encourage the Olympic Games to come to the United Kingdom, there will be no need for taxpayers' money to be used for this purpose, following the excellent example of the United States Los Angeles Games, which actually made a profit?

While applauding the latter part of my hon. Friend's philosophy, I must point out that it is up to the British Olympic Association to decide whether to put this forward to the next IOC.

Will the Minister not be so dismissive of the idea of attracting the 1992 Olympics to the United Kingdom? As taxpayers' money was required to attract the 1966 World Cup, does he accept that we shall certainly require some taxpayers' money to attract the 1992 Olympics? To avoid this inter-city competition, will the Minister learn from the experience of the Los Angeles Olympics, where some of the events were held 500 and 600 miles from the main centre, and choose a collection of cities, two of which should be in Scotland—Edinburgh and Glasgow—in which to stage the Olympics?

I must point out that I do not accept the opening part of the hon. Gentleman's philosophy. There are many ways in which funds can be raised. I do not accept that the Olympic Games should be held at the taxpayers' expense. In Los Angeles, the matches were staged not 500 or 600 miles apart, but no more than 200 miles from the centre of the city.

Does the Minister agree that if an application made by London for the 1992 Olympic Games were accepted, and if Government plans were carried out, London would be the only city contending for the Olympics which had no unitary local authority to respond to such a decision and to ensure that the games were properly administered and run?

The last time the games were held in this country they were held in London, and they were bid for by the Lord Mayor of London.

Will my hon. Friend suggest to the Olympic committee that it inaugurates a new competition and prize for hon. Members wanting the most taxpayers' money to take the games to their constituencies?

I take note of what my hon. Friend says. I am certain that the British Olympic Association will take note of all the points made today.

Does the Minister appreciate that the bid for the Olympics will be taken seriously only if it is proved to to be financially feasible? Therefore, when the choice is being made by the British Olympic Association, will the Minister please make an assessment of the cost involved—both the private cost for running the games and the public cost for the infrastructure? Does he understand that unless that is done, the entire matter will be regarded as a charade?

Unlike the right hon. Gentleman, I have every confidence in the BOC. It is perfectly capable of making feasibility studies in conjunction with the cities.

asked the Secretary of State for the Environment how much European regional development fund non-quota aid for textile closure areas available for infrastructure investment has been spent so far; and how much he anticipates will be spent in 1985–86.

The proposals for £60 million worth of aid during the next five years were approved by the Commission in January. My Department is responsible for £21 million of that, and we are still examining the applications made by various qualifying authorities.

Does my right hon. Friend agree that it would be a shocking waste if that £21 million were lost to the textile closure areas? Will he undertake to monitor the position in conjunction with the local authorities involved to ensure that that money is spent sensibly and fully within the four-year period?

I fully support what my hon. Friend has said, and I am sure that it meets with agreement on both sides of the House. It would be helpful for some textile areas where the textile industry is rundown to apply for this aid, which is primarily used for the conversion of old textile mills into smaller units for enterprise workshops and so on.

Is the Minister aware that almost a year of the time allotted by the European Community for spending this money has past fruitlessly? Where local authority schemes are produced in textile closure areas, will he undertake that the use of the EC money will hot be frustrated by his rate capping or other limitations on local authority spending?

In reply to the hon. Gentleman's first point, the Commission approved the money only in January 1985, and we saw the applications in February, March and April. I assure him that we are processing them as quickly as we can.

Will my right hon. Friend accept that some excellent schemes have been put forward in the north-west, not least by my city of Lancaster? Does he appreciate that it is extremely important to get the money on the ground as early as possible? We want to beat unemployment now.

I entirely agree with my hon. Friend. I cannot comment on individual schemes, as we are still assessing them in the Department. I accept the pressures from both sides of the House to get on with the matter and approve the schemes.

Is the Minister aware that the Silberston report has predicted that even if the multi-fibre arrangement is approved, a further 156,000 jobs could be lost in the textile areas during the next five years? Does he accept that, against that background, the expenditure of only £60 million to meet the social and economic consequences of closures is peanuts? What efforts is the Minister making to increase the resources available to those hard-pressed areas?

I cannot comment on the outcome of the MFA discussions and the possible continuation of the scheme, because that is the responsibility of another Department. However, I accept entirely what the hon. Gentleman said. There has been a rundown in the industry. This contribution will help. Other schemes in the urban programme help his constituency and others across the country, and, of course, the Department of Trade and Industry has some programmes.

asked the Secretary of State for the Environment whether he has any plans to extend the funding of the Nature Conservancy Council.

The NCC's grant-in-aid has been increased from £18–1 million in 1984–85 to £22–7 million in 1985–86. Requirements for future years will be considered in the light of the NCC's corporate plan.

Those increases are welcome so far as they go, but if it becomes clear that the NCC is unable to complete the renotification of sites of special scientific interest by the end of calendar year 1986, will the Minister consider providing extra funds for that? Does he accept that the new responsibilities visited on the council after 1 April this year, in terms of the farms structure and regulations that encourage farmers to leave intensive farming, have put an additional burden on the NCC? If that proves to be a problem, will he produce extra finance to enable that programme to proceed smoothly?

I am grateful for the hon. Gentleman's support. We increased the Nature Conservancy Council's funding by 36 per cent. between 1983–84 and 1984–85, and by 25 per cent. in the next year. I am happy to be able to tell him that the NCC recently confirmed that it could bring forward the substantial completion of the SSSI programme from 1987 to the end of 1986, which is a satisfactory outcome in response to the additional money that it has received.

Does my hon. Friend accept that the Government deserve credit for increasing the funds of the NCC so substantially? However, does he also accept that the NCC now has the capacity to deal with the vexed problem of marine nature reserves? Does he agree that we must set up the first marine nature reserve without delay, and that, if we wish the voluntary principle to survive, we have no excuse for failing to do so?

I entirely agree with my hon. Friend's remarks. During our debates on the Bill of the hon. Member for South Shields (Dr. Clark), I made it clear that if there is no measurable progress on marine nature reserves within the next 12 to 18 months the Government will wish to reconsider the matter.

What does the Minister mean by "measurable progress"?

If we have not achieved an agreement to have a marine nature reserve during the next 12 to 18 months, I would regard that as sufficient evidence to cause us to reconsider the law.

Will my hon. Friend do more to persuade the NCC to explain the excellent work that it does to a wider public? Is it not important that it has the support of the broader constituency?

That is right, and the support that the NCC is increasingly obtaining from the farming community is important in enabling it to achieve that end.

Would it not be a sound idea to establish strong funding so that emergency action could be taken if an area recommended as an SSSI were threatened by unnecessary and ill-thought-out commercial expansion? Does the Minister realise that such an area in the Orwell estuary is already threatened? Has the NCC made any recommendations to his Department, and, if so, what is his response?

I shall write to the hon. Gentleman about the Orwell estuary. With all-party support, the House moved to block the three-month loophole, and my right hon. Friend the Secretary of State showed himself ready to move quickly to make conservation orders where necessary.

Although we are all grateful for the increase in NCC funds, does my hon. Friend accept that there is an increasingly fine line between the establishment of SSSIs and other sites of special interest, which may be more archaeological than agricultural? Does he agree that additional funding may be necessary from other sources, for instance, to save some of the finest water meadows in Britain—an example of which is at Britford near Salisbury—some of which have already been ploughed up?

My hon. Friend is right to say that we must mot make the mistake of concentrating only on SSSIs. However, it is open to local authorities to make management agreements for sites of the sort to which my hon. Friend refers.

In order to publicise the work of the NCC, will the Minister consider making its papers available to hon. Members? In view of the suggestion made by the hon. Member for Salisbury (Mr. Key) about the draining of wetlands, is the hon. Gentleman aware that a soil survey has shown that pH has fallen to as low as 2·5? Will he therefore be prepared to increase the funding of the NCC and ask it to undertake a full comprehensive soil survey of the East Anglia area in particular?

I shall consider the hon. Gentleman's latter suggestion. A great deal of other work is going on into the sources of changing acidification in water. I shall certainly consider that suggestion as well as the other one that he made.

asked the Secretary of State for the Environment if he has yet made a decision on the applications from water authorities to seek exemption from the regulations limiting the content of nitrates in public water supplies; and if he will make a statement.

My right hon. Friend the Secretary of State will be announcing decisions soon.

In considering those applications, will the Minister make it clear that the Government are not giving up the battle to curb nitrate levels, which are regarded by many other Governments as a serious health hazard? Will his Department be willing to initiate action to curb the horrendous use of nitrates in intensive farming, which serves simply to produce more cereals which cannot be disposed of, and pollutes public water supplies throughout the country?

My hon. Friend is right to draw attention to what is potentially a serious problem. My right hon. Friend the Minister of Agriculture, Fisheries and Food has recently published a code of practice about the application of nitrogenous fertilisers. We hope that it will have the desired effect.

Is my hon. Friend aware of the valuable research into the effects of nitrates on the water supply conducted in particular by the Freshwater Biological Association in my constituency? Is he further aware that the cut in grant that that association now faces is likely to affect dramatically the salutary results that are being obtained from that study?

That is a matter for the Department of Education and Science and the research councils, but the general principle, that the National Environmental Research Council is trying to move more of its research into the universities, is one which most people support.

asked the Secretary of State for the Environment if he will estimate the number of pre-war council houses awaiting modernisation included in those designated difficult to let in local authorities' housing investment programme submissions for 1985–86.

The information is not available.

Is it not time that the Minister found out just how many thousands of houses in this country are urgently awaiting modernisation, and are difficult to let, including many in my constituency? The problem is that the Government give insufficient HIP allocation and have reduced the amount of capital receipts that councils can spend. Because the burden of improving council houses is forced on to rents or rates, or a combination of the two, does the Minister accept that all those facts show that the Government's housing financial policies are a disaster and that they should be prepared to make a change?

I would not accept that for one moment. The Department depends on the local authorities for the information that it gets on the housing stock. With regard to the hon. Gentleman's constituency, there is a problem with the stock that was built between the wars, not least because when restraints on public expenditure were less strict Burnley failed to take effective action to safeguard the condition of its stock. However, in the forthcoming allocation we shall take into account the problems facing housing in Burnley.

Does my hon. Friend agree that housing improvement, whether in the public or the private sector, is an activity that creates substantial employment opportunities at a relatively low net cost to the Treasury? Does my hon. Friend therefore agree that it would be extraordinary for us to reduce the funds available to support that activity to achieve gross savings regardless of the net effect on Government expenditure?

I am sure that my hon. Friend will be pleased to know that the amount of public money spent on improvement grants has gone up by some £90 million since we came into office, to about £700 million for the year that has just passed. Tomorrow we hope to publish a Green Paper on our proposals for improvement policy.

When the informatin becomes available, will the Minister assure the House that he sees a relationship between the lack of response to the scheme for the modernisation of pre-war houses and the large number of bankruptcies among small firms perfectly capable of doing that work? Is it not the case that the inadequacies of Government finance have added workers to the dole queues?

The hon. Member must try to keep this in perspective. For every £1 of public money that goes into the improvement and conversion of houses, £20 comes from the private sector. Therefore, it is important to pursue policies to ensure that the £20 is available rather than concentrating on the £1.

asked the Secretary of State for the Environment if he will make a statement on the Audit Commission's report on captial spending.

I welcome the report. The commission has drawn attention to flaws in the present system which the Government had already identified and which led us to review the system in consultation with local government. The report will make a useful contribution to this work.

Does the report not substantiate and amplify in the most authoritative and independent way the criticisms by the Select Committee on the Treasury and Civil Service in each of the last four years, of the Government's persistent mismanagement of public capital expenditure? Does the Secretary of State not realise the urgency of this matter, when skilled people are idle, plant is underused and people are suffering from the inadequacies of the built environment?

I recognise the urgency to which the hon. Gentleman refers. I have had a series of meetings with local authority associations and officials and I hope to write shortly to the associations or to have a meeting at member level to discuss the options that the investigations have shown up. We shall then have to reach decisions as soon as possible.

Is it not clear that the present system does not work? As my hon. Friend the Minister for Housing and Construction announced that this would be reviewed when he introduced the capital receipts reduction orders in the House, will my right hon. Friend assure us that a new system will be in place by the next financial year?

Nobody knows better than my hon. Friend the great complexity of trying to reconcile the two objectives that have been shared by all Governments: first, the Treasury's reasonable measure of control over total public expenditure, including local authority capital expenditure and secondly, giving local authorities time horizons and certainty and flexibility so that they can plan their programmes sensibly. These are complex matters, but I hope that we shall reach decisions soon.

I beg to move amendment No. 12, in page 59, line 26, leave out 'indexation allowance' and insert 'chargeable gain'.

My hon. Friend the Member for Croydon, South (Sir W. Clark) is unable to be here today, and in the absence of any more alluring invitations I have agreed to become his PPS for this debate. As we see eye to eye on these matters, I thought that I should say what he would have said had he been here.

Last year my right hon. Friend the Chancellor of the Exchequer promised to reform capital taxation, especially capital gains tax, in the 1985 Finance Bill. The indexation provisions that we are debating today appear to represent the full extent of that reform, and, of course, the reliefs given are most welcome.

One widely recognised anomaly—which I believe Treasury Ministers also recognise—is that the system of capital gains tax as it now applies has ceased to be a capital gains tax in the general sense and has become a 17-year inflation tax covering the years 1965 to 1982. That results from the indexation provision introduced by my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) when he was Chancellor.

Confusion surrounds the tax, and that makes it an inefficient and ineffective tax. It is also an unjust tax, especially for the long-term investors who acquired their assets during the 17-year period or who held assets when the tax was introduced. It was introduced as a short-term tax, but, in effect, we have removed that element of the tax and made it bite hardest against those who have held assets for a significant period. That will become worse as the years go by and as the number of those investors diminishes.

There will also be considerable administrative difficulties. The new rules, especially those allowing indexation losses—which I welcome—are complex. Schedule 16 adds an additional eight pages to the statute book, which I regret because that means more work for accountants and lawyers. I do not complain so much about that as about the additional work for business men, especially those involved in small and family businesses.

Those who remember the administrative difficulties surrounding valuation when the tax was introduced in 1965, hardly relish the problems and the administrative and accountancy costs of now determining the March 1982 values, especially for land and unquoted family companies.

A simple solution to those difficulties is contained in the amendment. Far from seeking to extend the indexation provisions, which would be cumbersome and complex, the amendment seeks the simple solution of treating property as having been acquired in 1982.

This change would incur a cost, I do not deny, but in terms of its rationality, there is much to be said for it. For example, the complicated 1965 transitional provisions would cease to be important and it would no longer be necessary to delve into history to calculate, for example, allowable expenditure. Valuations, in particular, would relate to a period much more within the practical experience of practitioners and valuers.

Furthermore, fewer valuations would be required. At present, it is possible that before computing the chargeable gain, the land or other asset concerned must be valued both for a 1965 and a 1982 value. The amendment seeks a simplification in that the 1965 or other valuation would no longer have to take place.

The amendment would be particularly helpful to those family businesses that have been carried on through long-established companies where the double charge to capital gains tax on liquidation inhibits the sensible reorganisation of the business. Those are valuable reforms that we might make in this complicated tax as it now stands, a tax which will bring in a diminishing revenue year on year as real gains only are taxed and not the inflationary gains that we have had since the tax was introduced.

If my right hon. and learned Friend the Chief Secretary is not minded to accept the amendment, he might care to consider another way in which this part of the Bill could be simplified. It comes in the form of a simple suggestion that has been put forward by the Institute of Directors. The institute proposes that after an asset has been held for seven years, it should drop out of the charge to tax and should not be available for a loss to be acquired for the purposes of computing one's capital gains tax liability. That alternative also merits consideration.

Consider, for example, an asset which has maintained its real value throughut the period up to 1982. We find an extraordinary situation. By April 1982, the asset would have accumulated an inflationary taxable gain—which will still be taxable after the Bill has become an Act unless an amendment is accepted—of 85 per cent. of its real value if it were originally acquired in April 1965; of 75 per cent. if acquired in April 1975; and of 42 per cent. if acquired in April 1978. That is not acceptable.

Is the hon. Gentleman aware that at a time when Ministers repeatedly ask the British public to take in the waste and cut out excess, to accept cuts in social services and education spending and to accept increases in bus fares, it sticks in the throat to have him move an amendment which would effectively reduce the amount raised by way of capital gains tax, a tax that is paid by few people in society and invariably by those with great wealth? Is he aware that he is not serving the national interest by moving this amendment, particularly when in Manchester, which is close to his constituency, hundreds of thousands of people are living in poverty and deprived circumstances? Why does he favour the few at the cost of the many?

I do not accept the premise on which the hon. Gentleman makes that intervention. The simplification which this tax change would bring about would mean that many people who are now engaged in activities which can hardly be regarded as productive would turn their energies elsewhere, which in turn would produce more real jobs in the economy and thus contribute towards the creation of that enterprise culture which we have done so much to achieve in the past six years. Priorities in expenditure are, of course, for the Government to determine, and I have not denied that a cost would be incurred in making this change. I am pleading for a more rational tax system, which I hope Opposition Members will support.

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There is an injustice involved in this tax, which is a clog on free markets because there is—to the extent that it taxes inflationary and not real gains—a considerable disincentive to disposing of assets to reinvest the money, at least in certain types of company. To that extent it prevents individuals from making investments which are likely to be most productive.

There are many reasons to support the amendment and other forms of reform that are proposed in the area about which I am speaking. I will not go further into the detail of the argument. I seek only to invite the Government to take two steps. The first is to admit that there is no justification for not giving relief in some appropriate form, not necessarily by means of indexation, for pre-1982 inflation, except in terms of the cost to the Exchequer, which will diminish year by year. Secondly, I want my right hon. and learned Friend to promise action in future, so long as Exchequer costs can be justified, to remedy the injustice.

I support the amendment, which was tabled in the first instance by my hon. Friend the Member for Croydon, South (Sir W. Clark). I must at the outset declare a distinct personal interest, having just agreed to sell an asset in my ownership; and if the Committee agreed to the amendment, I should not be liable to a substantial payment by way of capital gains tax to which I shall otherwise be liable.

The hon. Gentleman is at least honest.

Having spoken for myself, I know that I am speaking for thousands of my constituents and hundreds of thousands of other citizens who are obliged to pay what I consider to be an unfair form of capital gains tax.

I do not disagree with the idea of a capital gains tax being levied in cases where people make a regular income—and I am not saying that it is wrong that they should do so—by achieving small capital gains in the course of their work, such as those who work in the commodity markets. It is right that where they are using capital gains as a form of income, something equivalent to income tax should be levied.

It seems absolutely wrong, however, for us to retain this survival from the great inflation of the 1970s. It is the wrong way to raise a capital gains tax. It is, in fact, a capital levy rather than a respectable tax and it should not be continued in the Bill.

The Government are obviously ashamed of this form of taxation because they have started nibbling away at it again. Their right course, however, would have been to have got rid of the tax altogether in so far as it refers simply to inflationary gains. There are many reasons for that. For example, it is a random levy. It is not raised on everyone who owns capital but on those who manage their assets competently and who decide to change their portfolios so as to invest in the future rather than to hold on to the investments of the past. It does not touch people who are content to hold on to yesterday's investments.

It is wrong also on the Treasury's part in that it is continuing to use this tax as something which, as the Minister said on Second Reading, is regarded as a source of revenue. If the Government were to use the proceeds from this capital levy as capital, that might be more respectable, although it would still be wrong. As he admitted, the Treasury simply raises this money as a capital levy and then applies it as revenue. This is yet another insight into the muddled thinking of the Treasury which does not distinguish properly between the capital account and the revenue account. This tax also distorts the capital market.

The hon. Gentleman has made a point about regarding a capital gain as revenue. How does the hon. Gentleman think the Treasury regards the sale of British Gas? Does it regard the sale as revenue or not?

The hon. Lady has put her finger on an extremely serious point. The Government need capital and revenue. They should differentiate between the sources of the money that they take from society, and have a properly stated capital account and revenue account. Until we have that, we shall never be able to penetrate into what the Government are doing with regard to the economy.

This tax distorts the capital market because it prevents the adjustment of share prices which would benefit rising companies seeking new funds. It helps to sustain the price of shares in companies which are suspected by investors but because of the tax they do not sell, because they are not prepared to suffer the loss involved in changing their holding. This is a drag on the stock market's efficiency.

The tax also has the effect of diminishing the private sector of the stock market. In past years it has been decided that unit and investment trusts and the like are not required to pay this tax when they change their portfolios, but private sector investors must continue to do so. The diminishing private sector faces a particular penalty because of the way in which the Government continue to raise this capital gains tax.

The stock market in London is being weakened because there is a diminishing number of people to make up their minds on a particular issue. The herd of institutional investors tend to move in the same way at the same time. The London market is becoming dangerously unstable. It is wrong that we should diminish the number of people who are willing from time to time, because of their personal knowledge, judgment and ability, to draw on other sources of advice, to take a contrary view to that of the market.

The Government are acting against their own best principles in continuing this tax. It is the opposite of the ideal of private thrift and self-provision. Lately we have heard my right hon. Friend the Prime Minister—I think that all Conservative Members agree—say that she wants to initiate an era in which everyone can be a capitalist. Yet the Treasury is continuing with this unfair form of capital gains tax. It is particularly inapposite at a time when we want to place more emphasis on the need for people to provide for their own retirement through personal pension schemes. People who obtain a pension through one of the established institutions will be able to rely on a body that is exempt from taxation, including capital gains tax. People who try to provide for their old age through their own earnings will remain in the category of those who are hit by this tax.

The Government have done a great deal with regard to indexation and have taken away much of the stigma of this tax for people making their first investment choices; but it is still wrong to impose a retrospective tax on inflation. If we want capitalism to succeed, we must take off the brakes. I understand the sincerity of the hon. Member for Workington (Mr. Campbell-Savours)—he is not in the Chamber now—who is concerned about the burden of taxation and the way in which the Government plan their expenditure within a limited budget; but it is wrong to raise money from the capital market by confiscation. If the Government want to raise money from the capital market, they should pay for it on market terms, and not by relying on obsolete legislation, which imposes a partial and unfair capital levy. It is the role of the House to watch what the Executive is doing when levying taxation on our people. Unfortunately, all too often, hon. Members fall down on that role because the major Opposition party regards itself as the party of high taxation and welcomes increases in taxes. It is not prepared to stand up for the people who are unfairly taxed.

The Government want to increase taxes.

I have heard hon. Members, from the same party as the hon. Gentleman, who revel in the idea of increasing taxation, making the rich squeak, and so on. I do not say that there should not be taxation, but it must be proved to be necessary and shown to be fair. This tax is neither, and that is why the Committee should accept the suggestion made by my hon. Friend the Member for Tatton (Mr. Hamilton).

Although we are sorry that my hon. Friend the Member for Croydon, South (Sir W. Clark) has not been here to move his interesting amendment, I am sure that we are all glad that my hon. Friend the Member for Tatton (Mr. Hamilton) resisted more alluring invitations. How could there be a more alluring invitation than one to participate in a debate in Standing Committee on capital taxation, especially in relation to the Finance Bill? I congratulate my hon. Friend the Member for Tatton on his discrimination and the sensitivity with which he moved the amendment. I am sure that hon. Members welcome also the contribution of my hon. Friend the Member for Kensington (Sir B. Rhys Williams) who has thought long and deeply about this and other matters relating to the operation of our capital markets.

The amendment is not restricted to the elimination of the inflationary element of gains accrued before 1982. In fact, it moves the whole base line forward, taking the matter a good deal further. There may be a case, although it was not developed in full, for moving the base line forward—my hon. Friends the Members for Tatton and for Kensington touched on the matter of simplicity—but that is a slightly broader case than that based on inflation between 1965 and 1982.

A short-term gains tax was introduced in case VII of schedule D which was set up in the Finance Act 1962. It was limited to the disposal of most assets within a year, but disposal of real property within three years. Such was the appetite of the Labour party, for a period from 1965 the short-term gains tax was run in double harness with the longer-term capital gains tax with which we are still saddled. We abolished that short-term gains tax. We are left purely with what might be called a long-term gains tax.

I take the point made by my hon. Friend the Member for Tatton about the ravages of inflation. No doubt we shall have a chance to consider the general principles underlying this aspect when we consider the motion that the clause stand part of the Bill. I have no doubt that that occasion will be admirably utilised by the hon. Member for Thurrock (Dr. McDonald).

We can consider how equitable it is to have something which is described as a capital gains tax but which, to a degree, impinges on inflationary and not real gains. I point out one practical reason for suggesting to the Committee that it should resist the blandishments of my hon. Friend the Member for Tatton. The cost will be £550 million. My hon. Friend would say that that demonstrates the extent of the damage. The amendment, however, goes wider than inflationary gains—it brings the base line forward. The cost would be considerable.

The amendment would be slightly capricious in its effects. For example, between 1965 and 1982 agricultural land increased in value, on average, by about 750 per cent. while voting shares increased by 250 per cent. In both cases, there were dramatic increases. Moving the base line forward for all assets, regardless of their quality, would have a capricious impact.

My hon. Friend the Member for Tatton rested his case on the ground of rationality, which I think, on closer investigation, meant simplification. I would be the first to commend any amendment that was designed to simplify this extraordinarily arcane and complex field of law. I suspect that many of the complex provisions with which capital gains tax is presently encrusted would survive. I doubt whether real simplification would be achieved. The logic of my hon. Friend's case is that the tax should be abolished. That raises an interesting area of debate, but it is not one that my hon. Friend has chosen to employ on this occasion.

When an original base line was introduced at the time the first capital gains tax was levied in 1965, the taxpayer was given the option of adopting a time apportionment method to arrive at his capital gain or of taking the 1965 base line. I notice that, perhaps in the interests of simplicity, my hon. Friend the Member for Croydon, South chose not to introduce that concept in the amendment. Not all taxpayers will feel that the suggested solution was as equitable as my hon. Friend the Member for Kensington has suggested. My hon. Friend widened the debate. He reflected on the impact of such capital taxation on the operation of capital markets. I take his point. May I be bold enough to advance the general proposition that few forms of direct taxation do not distort the operation of the markets to a degree? Regrettably, few civilised states have been able to dispense with direct taxation.

We could have an interesting debate on the relative merits of direct and indirect taxation and how they impinge upon the markets, but I suspect that I should be travelling a little wide and that even your indulgence, Sir Paul, might be strained to the limit. I merely leave my hon. Friend and the Committee with that thought.

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The hon. Member for Thurrock mentioned the composition of Government accounts and asked whether the yield of capital taxation should be allocated solely to capital expenditure. I should be the last to claim perfection for the public expenditure White Paper although, in a constitutional and perhaps in a personal sense, I have to accept responsibility for it. I was happy to do so in our debates before Easter.

The Committee will, however, recall that one of the innovations and improvements introduced was table 112 which sets out capital expenditure. If my hon. Friends study that table, they will see that the Government's capital expenditure is running at £22 billion per annum—considerably more than the yield of capital taxes and privatisation. I hope that the Government meet the point acceptably made by my hon. Friend the Member for Kensington. I am not claiming perfection for Government accounts and if we can set out that point with greater clarity, we shall endeavour to do so.

We have had an interesting debate. My hon. Friend the Member for Tatton has conceded that the amendment goes a little wider than he wished. The general principles have been well deployed. I hope that my hon. Friends will feel that they have had a sufficient airing. I hope that my hon. Friend the Member for Tatton will recognise that for many reasons, in particular the practical ground of cost, I cannot commend the amendment to the House. I hope that I shall not tax the patience of the House too much if I ask it to accept that capital gains tax is now on an acceptable and sustainable basis.

I accept what my right hon. and learned Friend says about the case made for the amendment. I said at the end of my remarks that I was looking for an indication from him that it was only cost that was preventing the Government from accepting a measure of indexation for the period 1965–82, that the Government would keep the matter under review and that when we could afford to introduce such a reform, the Government intended to do so.

I should like to be able to succumb to my hon. Friend's blandishments, which are so moderate and charming. It is natural that cost oppresses the Chief Secretary. One must be interested in the brutal facts of public finance. However, I ventured to deploy one or two other points which oppressed me. I should hate to say that my mind or those of my right hon. and hon. Friends were ever closed to the possibility of improving our tax system, for many parts of which I could not claim perfection.

The considerable reforms will be tested in the clause stand part debate. There may be criticisms from the Opposition. There may be unanimity on that aspect of our fiscal affairs, but somehow I doubt it.

I hope that my hon. Friends will support me in feeling that if clause 64 and the schedule attached to it commend themselves to the Committee, the tax will, at any rate for all present purposes, be regarded as acceptable and sustainable. I hope on that basis that my hon. Friend the Member for Tatton will not feel disposed to press the amendment to a Division.

I was going to say that my arguments had been overcome by the suavity, knowledge and skill of my right hon. and learned Friend which make him such an asset to the Treasury team; but I find it necessary to contradict one point—his suggestion that capital gains tax is now on an acceptable and sustainable basis. I cannot agree with that. I hope that this is a matter that the Treasury will bear in mind when planning the taxation changes to which we look forward during the Government's term of office, if not during the course of the Bill.

My right hon. and learned Friend said that the amendment goes wider than the inflationary issue. It therefore goes wider than the intention for which I was arguing, and I shall not seek to divide the Committee on the issue, although that had been my intention when I first rose.

I ask my right hon. and learned Friend to realise that many people in this country sincerely believe that this form of taxation is wrong. The Government should not indulge in practices which are unfair and damaging to the capital market and which are contrary to the Prime Minister's principles.

The Opposition felt that the debate on amendment No. 12 was a matter for the Conservative Benches, but I must commend the hon. Member for Kensington (Sir B. Rhys Williams) for the refreshing honesty with which he put his arguments. He referred to the fact that he had a strong and immediate personal interest in the outcome of the matter. That is refreshing and, as we have heard this afternoon, it was a better performance than that of some other hon. Members.

The theme of the hon. Member's argument on the amendment is relevant to clause 64. Clause 64 and the amendment aim to inflation-proof capital gains. We should pause on that issue for a moment because the underlying principles will require justification by the Chief Secretary.

Clause 64 represents the Government's determination to protect a section of the community against the ravages of inflation. We can perhaps understand that, but we cannot understand the fact that the Government set a stony face against the request of others in the community—teachers, nurses, civil servants and others—to have their income inflation-proofed. Last night, the Chief Secretary was asked to justify the unequal treatment given to one section of the community compared with another, and he manifestly failed to do so. An important issue is at stake here which affects many poor people, and he should explain why the Government are prepared at some cost to inflation-proof the gains made by a tiny proportion of society and to do nothing for teachers, nurses, civil servants and many other public servants. Not only does the clause require a general justification of that kind, but it needs rather a special justification these days. After all, it could better be argued in the past that the main source of capital gains was inflation but now, and perhaps only recently, returns on investment might be regarded as real returns rather than inflationary gains. Therefore, one could say that the Government, in introducing a clause such as this which has as part of its purpose to protect capital against inflation, are doing it at just the wrong time. They are doing it when people are making real returns rather than merely inflationary gains.

The Government cannot have it both ways, of course. They cannot say on the one hand that they have conquered inflation and on the other that they need to protect capital gains from the ravages of inflation. They have to go for one line or the other. They cannot have both at the same time.

The Government might well argue that they are out to promote wider share ownership and therefore they must protect such shareholders from an overbearing tax burden. They want direct investment in equities by individual shareholders in their own right and as a substitute for investment through financial institutions. The Government might argue that reductions in capital gains would stimulate growth in the number of small shareholders which, of course, the Government have stated as their purpose. However, since no tax is payable on gains in any one year of up to £5,900 after the Budget, and exemptions are available for unit and investment trusts, the prospects of any small shareholder being liable for capital gains tax directly or indirectly are very remote. Therefore, small shareholders will not gain particularly from the clause because they are unlikely to be liable for capital gains tax anyway.

The hon. Member for Kensington, in an honest and open speech, made the important point that the Government are nibbling away at capital gains tax. I think that some members of the Government would very much like to abolish capital gains tax at one fell stroke, but instead the Government, perhaps because that would be too obviously a favour to the better off in society, have decided gradually to reduce the impact with the various changes that they have made, including clause 64. Indeed, there are—although the Chief Secretary, I am not surprised to notice, did not outline them—good arguments for having capital gains taxation, and it is worth while mentioning one or two of them. It is important to keep the general principles in mind before we get lost in the details of a complicated clause such as this.

Many would say that there is nothing wrong with stock market speculation and that it provides a valuable financial function in a free market. They might go on to say that, although it has that kind of function, there is no need to give speculators what amounts to a substantial tax incentive to play their chosen role. One might continue the argument by saying that if investors are allowed to make capital gains tax some kind of optional tax and to accumulate a tax credit by establishing short-term losses—which, indeed, is the sort of thing that can be done under the indexation rules in clause 64—then the whole of capital gains tax would become a farce, yielding no revenue. If that were the end product, it might be cheaper and more sensible to have no tax.

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A capital gains tax does not discourage investment. The right way to encourage investment is not to be soft on capital gains but instead to have a sensible and effective regime of capital gains tax. Such arguments will be put forward for having a capital gains tax. Indeed, they were put forward by the Chancellor in The Sunday Telegraph in 1962. I wish that he had stuck to the principles that he there set out clearly and rather well instead of abandoning them and taking up some of the options which he so clearly decried in that article, especially the one about establishing short-term losses, thus making the whole tax a farce. It is a pity that he did not stick to his earlier principles because then we would have a fairer tax regime than we shall have after the passage of the Bill.

The changes in capital gains tax are designed to benefit the better off. Some of them already find a capital gains tax useful—and I am aware, of course, that the Government have eliminated one of those with the bond-washing measures that have been introduced—because it is convenient to take returns in the form of capital gains taxed at 30 per cent. with a threshold of £5,900 a year and indexation rather than taking returns as income taxed in full at up to 60 per cent. Therefore, the structure of capital gains tax already gives a clear incentive to seek capital gain rather than income, and to choose equity investments rather than deposits or gilts. But incentive already existed before the changes in the Budget and, apart from the bond-washing proposals, the Budget has done little to alter that.

The kind of people who benefit from the changes proposed in the clause are not the small shareholders or the people on average or below average incomes; they are portfolio investors, wealthy individuals with a share portfolio. The changes will also benefit corporations with liquid resources which would themselves take out portfolios as investments. The indexation will reduce chargeable gains generally and will reduce the tax base for such companies. Those who will benefit from the changes in the clause are therefore a fairly small minority of the population and certainly to be numbered among the better off. To them the Government propose to give more money, and to do so at great expense.

Although I do not agree with the amendment, I think that the hon. Member for Kensington rightly made the point that the measures are complicated, and they will certainly be complicated to administer. Not only will they lead to a growth in the activities of accountants and others, but they will also increase the activities of the Inland Revenue staff. Extra staff will probably be required to be taken on by the Inland Revenue as a result of the clause. I suggest the following figures, and it will be interesting to know whether the Chief Secretary agrees with them. The increases in staff will probably begin not before April 1987. They will lead to an increase of 190 in that year, 360 in the following year and 455 in the year following that. Thereafter, the figures of extra staff required will probably begin to decline somewhat.

It is difficult to estimate the costs of the extra staff, but undoubtedly they would have to be staff at a fairly high level—tax officers or inspectors. It would not be cheap. At the current salaries, they would probably cost the Revenue about £10,000 in salary plus the additional expenses of employment. The tax change is expensive to administer. The Opposition would not necessarily object to the employment of more staff, and we would certainly not object to the employment of higher grade staff, but we object to the fact that the Government are introducing a measure which will cause more staff to be employed by the Inland Revenue to give money to those who do not need it—the better off.

The changes follow the watering down of capital gains tax, which took place under the previous Chancellor of the Exchequer. In 1980, there was a big increase in the gains exemption, from £1,000 to £3,000. The benefit was extended by no longer withdrawing the exemption from those whose gains were obtained at above that level. The allowance was bumped up again in 1982 to £5,000, and increased each year thereafter in line with the retail price index. In 1982, the previous Chancellor began indexing the CGT base, but the changes that he proposed and that were passed pleased nobody. They were complicated and difficult to administer. All the changes have, at least in the long term, reduced the amount of revenue which can be expected from CGT to a quarter or less of what it would otherwise have been. Therefore, this nibbling away at CGT has reduced the amount of revenue that the Government can expect from it.

The Chancellor in his 1985 Budget continued that process with the indexation provision and with the introduction of the pooling of assets provisions. There is no need for me to go into detail because those provisions are spelt out in the clause and schedule.

The Chief Secretary said that the Chancellor had now reached an acceptable form of CGT, and that it would be unlikely that any further changes in the form of capital gains tax would take place. He may be right. Few further changes are needed if the Financial Times was correct in saying:

"Very few private investors will ever again have to pay capital gains tax, as a result of the changes announced on Tuesday."

The Investors Chronicle, which was more anxious in welcoming the changes, said of them:

"Most significantly they mean that CGT for all investments made after March 1982 is now a tax on real net gains, an important step forward."

I can understand the qualified welcome that the Investors Chronicle gave to the changes. Its comments show the extent of the Government's changes.

The pooling provisions mean that, as more shares are bought, the latest pool increases in size and value, and eventually investors will have only one pool—the post-1982 pool. Given that the overall upward trend in share prices—that has been true for the past two years—is averaged out, the CGT payable on the disposal of shares is less than it would have been if the pooling arrangements had not been introduced. In other words, both the indexation of changes and the reintroduction of pooling contained in clause 64 mean that the amount of revenue that the Government can obtain in future from CGT will be far less than it might otherwise have been. For that reason, it is easy to see why the Chancellor says that the tax is now on a broadly acceptable and sustainable basis, and why the Government have delighted all but their greediest critics.

Amendment No. 12 was designed not to iron out anomalies, as its proponents said, but to allow the March 1982 costs to be used in place of the historical cost so that the entire gain accruing before March 1982 would become tax free. It is easy to see the benefits that would follow from such a change, and why the Chief Secretary suggested that the cost of that would be immense. Obviously, the benefits from such a change would have particularly favoured property companies, for example. The Government have certainly pleased many of the better off, but it is plain that they can never give enough to keep some of them happy.

One or two features of the changes that the Government have made in clause 64 may mean that they will be more generous than they had intended. Perhaps the Chief Secretary would comment on that. Compound indexation is now possible under the rules.

Let us suppose that one has a holding in securities in a company called Blacks, and one bed and breakfasts one's shares each year. Every time one sells, one receives the benefit of that year's indexation because one buys back at a higher price—inflation plus any growth in the value of Blacks' shares. The following year's indexation allowance is based on a percentage of the new acquisition costs, not the real costs to the owner of the shares. No real extra costs are incurred in the buying and selling that takes place. At present, nothing in the clause or schedule prevents a benefit from compound indexation of that type.

I ask the Chief Secretary to consider a further case. Let us suppose that a portfolio now worth £50,000 was bought in 1984 when the Financial Times all-share index, which I am using, was 102 points below its present level. The indexation allowance based on the March retail price index figures gives a real gain in one year of 70 points. The portfolio is now worth £50,000 and was valued in May 1984 at £41,892. That is a difference of just over £8,000. The indexation allowance amounts to £2,549 and the exemption level is £5,559. The capital gains tax indexation allowance in clause 64 and the annual allowance will allow a £50,000 portfolio to be bed and breakfasted every year without CGT liability.

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I am not sure whether the Government intended the changes to produce such an effect. If they did, the changes will benefit the better off alone in the community. Not many of my constituents have portfolios of £50,000 that could be treated in such a way. If they intend the change to have that effect, they are being wrongly over-generous in these apparently straitened times by allowing the better off to pay no tax. If they did not intend such generosity, they should introduce amendments to tidy up the provisions of clause 64 and schedule 16, because at present they contain nothing to prevent that from happening.

The Chief Secretary will be aware that as soon as the Government introduce such a measure, and the other anti-tax avoidance measures contained in the schedule, the tax-planning industry goes to work to find other loopholes. I draw his attention to "Gremlin Corner"—it is aptly named—in the 4 May 1985 edition of Taxation, which states on page 87:

"Another tax planning point is that it will be possible to create … an artificial allowable loss by purchasing a high-coupon gilt and selling it within the year (but after 27 February 1986). Even if the purchase and sale prices are the same, indexation allowance will create a capital gains tax loss. This stratagem is likely to appeal to institutional investors and individuals paying income tax at 40 per cent. or less."

They are not the most well off in society, but they are among the better off. What action will the Government take to prevent that tax avoidance? We wish to hear the Chief Secretary's views on that point.

By introducing the changes in capital gains tax, the Government are helping exactly the same people as they helped last year when they abolished investment income surcharge. That benefited people with investments of £75,000 or more—again, not many of my constituents have £70,000 tucked away in investments. We were told that the full-year cost of that would be £360 million. Immediately after that Budget, The Times described the abolition of investment incomes surcharge as

"A tremendous bonus for the rich, and especially the idle rich."

The cost of that change, together with the £155 million that it will cost to introduce the changes in clause 64, would be just enough to cover the payment of long-term supplementary benefit this year to those who have been unemployed for more than a year. That would cost the Government £500 million, but I bet that if we asked the Chief Secretary now whether the Government would be willing to benefit the long-term unemployed in that way, he would say, "We do not have the money to do that. We cannot possibly make such a change, because we do not have £500 million in the kitty." Yet the abolition of the investment income surcharge and the changes in capital gains tax could easily cover the payment of much-needed benefits to people who are not among the idle rich, but who have been forced by the Government to be idle. For that reason, we oppose the presence of the clause in the Bill.

Unlike the hon. Member for Thurrock (Dr. McDonald), I welcome the presence of clause 64 as a necessary relieving provision. I shall address my remarks to subsection (5).

I especially welcome subsection (5) because, without it, the clause would have provided for the creation of a new Doomsday Book at March 1982. It would have been necessary, on any future capital gain, to agree with the Inland Revenue a value at March 1982. I welcome the inclusion of the provision that the taxpayer must make a claim before the new provisions can operate. Such a provision will ensure that many taxpayers will not have to bear the expense of establishing a value at 1982 to claim what may, especially as a result of the Government's partial success in reducing inflation, be fairly limited relief.

The fact that the new provisions will operate only following a claim by a taxpayer will ensure that the compliance costs inherent in the clause will be limited. At the same time, the benefit of the relieving provision will go where it is most needed.

May I ask my right hon. and learned Friend to clarify the status of a claim under subsection (5)? Is it irrevocable, or can it he withdrawn at any time? I have a special reason for asking that question, because I must contrast the relieving provision in clause 64 with what was admitted to be a relieving provision in the 1965 legislation that introduced capital gains tax. The then Labour Government saw clearly that the operation of capital gains tax would be grossly unfair—it was grossly unfair anyway, given the inflation that they later created—to those who had old assets that fluctuated markedly in value. Therefore, they introduced a provision for valuation at April 1965, but it was introduced only on the basis of an irrevocable election by the taxpayer.

The result was that a taxpayer who owned an asset such as jewellery, a painting or land, which was a chargeable asset that he had sold and which fluctuated in value over the years, was given, not a relieving provision but a ticket in a lottery. The result of the lottery was that he entered, and could end up paying substantially more tax as a result of entry, or he did not enter and wondered what would have happened had he entered.

If the claim under subsection (5) is irrevocable, in some circumstances exactly the same effect could occur. The taxpayer could elect for the indexation provisions to apply and could then discover that, as a result of the opinion of the district valuer, which could be upheld by the courts, the value of his asset at March 1982 was considerably lower than it originally cost.

I take it that the intention of clause 64 is not to penalise the taxpayer, but to compensate him for inflation. Therefore, it would seem rather unfair if, as a result of the provision, the taxpayer ended up paying more tax, particularly when such additional tax liability would be based solely on the opinion of one or more valuers.

The evil that I have outlined could have been dealt with already in the clause. If my right hon. and learned Friend the Chief Secretary can assure me that a claim made under subsection (5) can be withdrawn at any time prior to determination of the capital gains tax assessment for the year, even my slightest doubts about the clause will be immediately withdrawn. If, on the other hand, it is intended that a claim under the clause should be irrevocable, I should like to draw my right hon. and learned Friend's attention to the possibility of bolstering the relieving provision by introducing what is known in the Department of the Environment as a cost floor. As a result, the valuation arrived at after a claim under subsection (5) could be no less than the actual cost of the asset. In that way, my right hon. and learned Friend would ensure that the clause achieved what I understood it originally set out to do, which was to provide a measure of tax relief where it was needed rather than an arbitrary tax charge in certain cases.