What discussions he has had with the Indian Government regarding the persecution of Christians in that country; and if he will make a statement. [86572]

India is widely respected for its commitment to religious diversity. We have made clear to the Indian Government our concern over attacks on religious minorities. My right hon. Friend the Foreign Secretary raised the issue with the Indian national security adviser and principal secretary to the Indian Prime Minister in January. The late Derek Fatchett urged the Indian Home Minister last year to take steps to restore the confidence of the Christian community. Officials here and, indeed, in India are in touch with representatives of those communities.

I thank the Minister for his reply. Is he aware that, on 13 January this year, more than 140 bishops in India wrote to the President saying:

"Christians are being maligned and persecuted and a wave of hatred is being spread against them"?

Is he also aware of reports in the press about the Vishwa Hindu Parishad, which is currently operating illegally in India and also collecting money in the United States and this country, and is alleged to be persecuting Christians on the back of the money that it is raising?

I am aware of the letter and, indeed, of the situation. That is why—as I said in answer to the hon. Gentleman's main question—we continue to urge India to respect the rights of minorities. We have, however, welcomed statements by the Indian President and Prime Minister condemning attacks on, in particular, Christian minorities. We will continue to urge them to preserve India's secularism and respect for religious minorities.

If he will make a statement on his policy in respect of implementing a common defence and foreign affairs policy for the European Union. [86573]

The Government believe that we are likely to have a bigger impact on what happens in the world if Europe speaks wherever possible with one voice and not with different voices. Britain has been in the lead, along with France, in promoting an initiative on European security. That will improve the ability of the European Union to draw on NATO's assets for crisis management and peacekeeping.

The initiative was warmly welcomed in Washington by all members of NATO, and in Cologne by all members of the European Union. It is a good example of the leadership that Britain now provides in Europe, which must be welcome to all hon. Members.

Not quite, Madam Speaker.

Why did the Government agree at Cologne to the merging of the functions of the Western European Union into those of the European Union, when that very move was described by the Prime Minister only two years ago as an ill-judged transplant? What has changed?

If Her Majesty's Government do not intend there to be a single European army, what can the right hon. Gentleman do to make Mr. Prodi desist from calling for one?

I am sorry that I have been unable to carry the hon. Gentleman with me—and, probably, the House—in welcoming the initiative.

There is not the slightest prospect of a single European army. No one in the Council of Minister is proposing one, and no one would support one. Let us leave aside Britain's view: there is no question of France or any of the other major military powers of Europe putting their armies under a single European control. Following our experience of the past 10 years in the Balkans, however, it surely makes sense for Europe to consider how it can improve its decision making on security, and provide a better capacity to enforce that. Surely all hon. Members recognise that as a legitimate objective.

Does my right hon. Friend see any continuing role for the Parliamentary Assembly of the Western European Union when the other institutions are absorbed into the second pillar? He must agree that there is a need for some continuing supervision of common foreign and defence policy. Can he give some hope to those who are currently delegates from the House of Commons to the Parliamentary Assembly of the WEU?

I fully understand my hon. Friend's concern, but I think it is premature to bury the WEU. Throughout this initiative, we have stressed that the important thing is to ensure that we get the decision making right in the European Union, and provide the right capacity for it to carry out its security decisions. Only when we have done that will the time be right for us to consider whether the WEU has fulfilled its purpose. I agree with my hon. Friend that, if we arrive at that point, it will be important for us to ensure that there is proper democratic scrutiny of security decisions.

Can the Foreign Secretary explain why what the Prime Minister vetoed at Amsterdam became acceptable at Cologne? What exactly happened to change the Government's mind?

What has happened since Amsterdam is that over the past year, along with the French and our other partners in Europe, we have proceeded on the basis of our St. Malo declaration. As a result, we have a new communiqué from NATO which expands on the Berlin declaration, carried by the last Government. That enhances our ability to call on NATO's assets for the purpose of European security decisions. We have also considered how we can improve security decision making within the European Union. In the light of all those changes, there is an obvious question mark over whether it is necessary to keep the Western European Union as a body existing to call meetings, but not necessarily existing to replicate what can be done better in the European Union.

I am grateful to the Foreign Secretary, but I did not ask him about the Western European Union. He does not seem to have a reason for the fundamental change of policy announced at Cologne. Although hon. Members know that two years is a very long time for this Government to believe in anything, it was a fundamental change of policy. Is not the real reason for that change the fact that we were not going to be in the first group joining the euro, and the Prime Minister was worried about his European adulation rating? He needed a Euro-friendly policy at short notice, and the policy change was the sacrifice.

Is it not true that the development of a military capability outside NATO, as envisaged at Cologne, will inevitably create a conflict between the EU and NATO, undermine the United States commitment to Europe, and give the EU a role for which it is totally unsuited—as the Prime Minister, quite rightly, said at Amsterdam?

I welcome the hon. Gentleman to his role, but have to say that the initiative goes back long before Cologne, to last autumn, when we met—[Interruption.] The hon. Gentleman shakes his head, but I was there at St. Malo. The initiative goes back to St. Malo and the Portschach decision of last autumn. As for NATO, I tell Opposition Members that not a single ally in NATO failed to welcome what we have done—[Interruption.] I was also at Washington, but do not think that the hon. Gentleman was. I have the Washington communiqué, which records the welcome for what the European Union has done to strengthen the initiative. I have had many discussions with Madeleine Albright—[Interruption.] The only countries at the Washington NATO summit were the countries inside NATO, and they all welcomed the initiative, which builds on the basis of the Berlin declaration. As I recall it, that declaration was negotiated and signed by one Michael Portillo. I honestly do not think that the hon. Member for Stratford-on-Avon (Mr. Maples) should try to outdo him in Euro-scepticism.

Does my right hon. Friend agree that, in developing a common foreign and security policy, it is important to consider the role and perspective of countries that are in Europe, but are not currently either in the European Union or in NATO? Specifically, does he agree that Ukraine could play an important role in Europe? Will he try to ensure that Brussels remembers that Ukraine is now an independent country, and no longer a subsidiary of Russia?

I absolutely agree with my hon. Friend's last point. My right hon. Friend the Secretary of State for Defence has just return from a visit to Ukraine, and carried that message on behalf of Britain to the Government of Ukraine. Of course, through NATO we work closely with our partners for peace. Through the European security initiative that we are launching, we shall want to ensure that we have the closest possible contacts with those NATO members that are not in the European Union. I have had bilateral discussions with a number of those countries.

Does the Foreign Secretary share my despair at the visceral and irrational anti-Europeanism that prompted the main question? Does he also agree that the lesson of the Balkans demonstrates that there should be a European defence capability, so that we may act when the United States is either unable or unwilling to do so? Does he also agree that no one in Europe can be satisfied when the European members of NATO have a defence budget that totals two thirds of the US defence budget, but produces only a fraction of the capability of the United States?

The right hon. and learned Gentleman makes a very valid point. Europe spends on defence the equivalent of 60 per cent. of that spent by the United States, yet Europe could field only 20 per cent. of the military aircraft involved in the recent conflict in Kosovo. There is something wrong in that mismatch of spending against output. It surely must make sense for Europe to co-operate more closely, and to ensure that we are better able to get value for our money. I echo the point made by the right hon. and learned Gentleman.

The issue is not one for NATO: it is not about territorial defence, but about peacekeeping and crisis management. Heaven knows, we have seen the need for that recently on our continent, and it is time that we were ready to respond to it.

If he will make a statement on the initiatives taken by his Department to assist in the middle east peace process. [86574]

What steps he plans to take to support the new Israeli Government in achieving a lasting peace settlement in the region. [86575]

When he expects the Palestinian authority to be accorded statehood by the new Government in Israel. [86576]

If he will make a statement on Her Majesty's Government's relations with the state of Israel. [86583]

When he next expects to meet representatives of the Israeli Government to discuss the middle east peace process; and if he will make a statement. [86586]

We welcomed the election of Mr. Barak as Prime Minister of Israel. It provides an opportunity to break the stalemate on the peace process. Mr. Barak has yet to form his new Government, but my right hon. Friend the Prime Minister has spoken twice with him and offered him an open invitation for an early visit to Britain.

We have called for full implementation of the Wye agreement as a first step back on the path to peace. We helped to draft the EU Berlin declaration and we fully support its call for final status talks to be completed within a year.

Britain is one of the largest bilateral donors in support of the peace process. The Foreign Office recently supported a highly successful visit by Palestinian and Israeli teachers to Northern Ireland to study reconciliation projects. That has led to student exchanges between the two communities.

Progress on the peace process is primarily a matter for the parties to it, but Britain will do everything that it can to help them reach an outcome that brings a lasting and just peace to the region.

My right hon. Friend will be aware that just two weeks ago the Israeli Government confiscated a very large tract of land between Mu'ale Adumim and east Jerusalem. If that land is developed it will cut off the north of the west bank from the south. In any negotiations with Mr. Barak, will my right hon. Friend try to dissuade him from developing the land, which is far more controversial even than Har Homa?

My hon. Friend touches on an important issue. In the Berlin declaration and in the declaration of the G8 summit at the weekend, we have called on the Government of Israel to cease settlement activity that unilaterally broke the peace agreement. I welcome the fact that Mr. Barak has said that he is not necessarily bound to develop all the settlements. I hope that there will be a return to the negotiating table rather than a unilateral attempt to change the situation on the ground.

Does my right hon. Friend agree that to achieve a lasting settlement throughout the region good relations between Israelis and Arabs are as important as good relations between Muslims and Jews? Will he urge the Iranian Government to release the Jewish people who were arrested in March this year? They have been subjected to spurious charges of spying and could face death. Does he agree that if any harm came to the Jewish people in Iran, it would be appropriate for us to reconsider whether our ambassador should remain in that country?

We have just sent an ambassador to Iran. President Khatami has made some welcome statements about his wish to ensure that all religious minorities in Iran are protected. We have made representations insisting on a fair judicial process for the 13 who have been arrested and for any charges against them to be publicised and brought to court. I welcome some of the balanced and favourable comments that have appeared recently in the Iranian press, criticising some of the people who have prejudged the guilt of those who have been arrested. It is important that they should have a fair and open trial.

As my hon. Friend the Member for Bolton, South?East (Dr. Iddon) has already said, there are serious problems in one part of the Palestinian area. The situation is incredibly difficult for the Palestinian authorities. What is the current state of discussions between our Government and the new Labour Government of Israel on illegal Israeli settlements?

As I have said, the new Government have not yet been formed, but I look forward to an early consultation with the Foreign Minister once he is appointed. We have already sought an early meeting with Mr. Barak. In the communications from our Government and from the European Union we have stressed the importance of making sure that settlement development does not proceed, because of the risk that it would make it difficult to bring both sides back to the negotiating table. The way forward on the peace process is through dialogue, not unilateral action.

I am sure that my right hon. Friend welcomes the commitment from Mr. Barak to withdraw all Israeli troops from Lebanon within the next 12 months. Of course, they were put there to stop the terrorist incursions and the missiles that were fired on to northern Israel. Will my right hon. Friend urge the Lebanese Government to ensure that when Israel withdraws—as it has from Jezzine—they take up their rightful role of policing the area to prevent the resumption of terrorist attacks on northern Israel?

My hon. Friend is quite right to say that, in the event of an Israeli withdrawal, there must be no security vacuum. I very much welcome, as I did last month following the election of Mr. Barak, the indication that he gave that he hoped to secure the withdrawal of Israeli forces from southern Lebanon within a year. I hope that that timetable will prove possible. Progress on the Lebanese and the associated Syrian track will help to prevent any security gaps.

My right hon. Friend's comment about Jewish communities throughout the middle east being part of the middle east peace process is welcome. Can he give me a little more reassurance on the plight of the 22 Iranian Jews arrested in Iran on trumped-up charges? While a commitment to free and fair trials is of course welcome, those people have had no visits in prison, they have no legal representation and their plight, and indeed that of the entire 25,000 Jewish population in Iran, must be a serious concern. What representations are we making?

We have made representations to the Government of Iran both on the need for legal representation and for due legal process. I can assure the House that we shall continue to do so. My hon. Friend touches on a wider issue also. It is a matter of concern that the Jewish population of Iran has fallen from about 100,000 to barely a quarter of that figure. That is testimony to the pressure that has been put on them. The Government condemn anti-Semitism wherever it occurs and we shall certainly remind the Government of President Khatami that we expect them to implement fully their commitment to protecting the rights of all religious minorities, including the Jewish community.

A cause of intense disagreement between Israel and Palestinian negotiators is the future of Jerusalem. Does the Foreign Secretary envisage Jerusalem becoming the capital of both Israel and an independent Palestinian state?

The hon. Gentleman is absolutely right. That is one of the most contentious elements within the peace process. That is why it was reserved to the final status talks. It would not be helpful for even the strongest well wisher of the peace process, such as the United Kingdom, to express a view on what should be the outcome of those final status talks, but we support—and helped to write—the Berlin declaration that called for the final status talks to begin as soon as possible. We believe that there is no reason why they could not be concluded with good will within a year. They would have to include an agreement on the future of Jerusalem.

Is the Foreign Secretary aware of the wide support in and outside the House for the sentiments expressed by the hon. Member for Salford (Ms Blears) regarding the members of the Jewish community arrested on trumped-up spying charges in Iran? They include a chief rabbi, teachers and other members of the religious community. Does the Foreign Secretary agree that this grisly spectacle does immense harm to Iran's standing in the world and that the elements in Iranian society that are responsible for it should bear that in mind?

As I have told the House, certain elements of Iranian society have expressed quite robust and strong views about those who have prejudged the guilt of the people who have been arrested. We insist that the Government of Iran should ensure proper observation and due legal process and proper legal rights for those arrested. The Iranian Government would rightly expect that for any of their citizens that we arrested, as indeed they would expect that from Israel. It is right that the international community should remind Iran that they must treat the Jewish members of their own society in the same way.

In reflecting upon the peace process, will the Foreign Secretary acknowledge that the early general election in Israel was precipitated by the inherent instability of that country's so-called proportional representation voting system? If the right hon. Gentleman can bring himself to acknowledge that simple and salient fact, will he also acknowledge that a strong Government with a clear mandate would be a better negotiating partner in the region for the simple reason that they will be able to focus on the policy agenda and not the grubby struggle for seats around the Cabinet table?

At two successive Question Times I have welcomed the result of that election, therefore I would be unwise to criticise the basis on which it was secured. I simply invite the hon. Gentleman to reflect on whether the past two years' history of the peace process would have been any better had Mr. Netanyahu had a strong majority.

Further to the question from the hon. Member for Putney (Mr. Colman) concerning the withdrawal of Israeli forces from southern Lebanon, is the Foreign Secretary aware of the generally held belief that President Assad is using Hezbollah as his proxy militia to fight the southern Lebanese army and Israeli forces in south Lebanon? To facilitate the withdrawal from southern Lebanon, will the Secretary of State endeavour to meet President Assad to try to impose on him some regulations, or at least to encourage him to withdraw his support for Hezbollah in Lebanon?

We retain strong dialogue with Syria. I have met President Assad, and I met the Syrian Foreign Minister recently. The Minister of State, my hon. Friend the Member for Ashfield (Mr. Hoon), is meeting the Syrian Foreign Minister tomorrow. We continue to press Damascus on these matters, but it will not be easy to secure the outcome that the hon. Gentleman seeks without progress on the Syrian track, on which Damascus, quite rightly, has its own legitimate views.

Everyone in this House would wish Prime Minister-elect Barak success in his coalition building, particularly as he seeks to include in the coalition those organisations that believe in the principle held by the previous Prime Minister of land for peace. If the new Government are to get off to a good start with the Palestinians, they must concentrate on freezing development of the settlements as a genuine sign that there is a determination to reach final status discussions on all outstanding matters. I welcome my right hon. Friend's comments, because unless there is a comprehensive peace that includes peace with Syria and Lebanon, there will be no peace in the region.

I reinforce my hon. Friend's point that if the peace process is to be successful, there must be progress on all its tracks, and not just on the Palestinian track. He is right that nothing could do more to jeopardise this unique opportunity to get the peace process back on track than a continuation of the unilateral breach of the peace agreement by settlement building. It is a matter of regret that during the interregnum before the new Government take over, some are taking advantage by continuing settlement building. I hope that Mr. Barak will stand by his pledge not to be committed to those changes that have taken place without any democratic mandate from the people of Israel.

What plans his Department has to assist progress towards democracy in Indonesia; and if he will make a statement. [86577]

The United Kingdom Government have contributed more than £2 million in bilateral support for preparations for Indonesia's first genuinely multi-party democratic elections since 1955, in addition to our share of the £5.5 million EU contributions. Our support included voter education, projects by the BBC for local radio and by the Westminster Foundation for Democracy as well as technical assistance for domestic election monitors. We welcome the fact that the elections ran smoothly. We are considering what further opportunities there are to assist in the consolidation of democracy in Indonesia.

Does my hon. Friend agree that Britain has done a lot more over the previous two years to encourage democracy in Indonesia—and, in particular, to advance human rights and the rights of the people of East Timor—than the Conservative party did during its 18 years of government, when all it could think about was flogging weapons to that country?

I am grateful to my hon. Friend for his observations. We welcome the prospect of consultation in East Timor in August. We hope that that will produce a proper and fair result for the people of that part of the world.

Has the United Kingdom offered troops as part of any possible multinational force to oversee any transfer of sovereignty for East Timor away from Indonesia?

It is important that the consultation should take place before there is any pre-judging of the result.

If he will make a statement on the United Kingdom's relations with the Federal Republic of Yugoslavia. [86580]

The last Serb tank left Kosovo on Sunday, ahead of the deadline, and 19,000 KFOR troops have now been deployed across the whole of Kosovo, to guarantee its security and to protect against violence all its residents, both Albanian and Serb. The whole House will want to record its deep regret at the loss of life of the two British soldiers who were killed making a school safe for the local people.

A civil administration has been authorised by the United Nations and is tasked with preparing a political settlement on the basis of the Rambouillet accords, which provide for an ambitious degree of democratic self-government, with a review of the future status of Kosovo after an interim period.

We are determined to make the defeat of ethnic cleansing in Kosovo a turning point for the whole region, and have launched a stability pact that offers its countries more open trade and faster integration with Europe. We hope that one day it will be possible for Serbia to join us as a partner in the modem Europe, but first its Government must abandon the policies of ethnic hatred that have brought poverty to the people of Serbia and a decade of violence to their neighbours.

I am going to Pristina and the surrounding area on Friday with aid workers from the Scottish charities Kosovo appeal. Will my right hon. Friend ensure that the Government of Yugoslavia co-operate fully in the aid effort to rebuild in Kosovo and elsewhere and abandon their disgraceful policy of ethnic cleansing, which has made the state a pariah?

I am happy to reassure my hon. Friend that the Government in Belgrade are now in no position either to pursue ethnic cleansing in Kosovo or to hinder the vital work of the relief agencies. Relief has already been supplied to those who were made homeless in Kosovo and the refugees have returned from their camps in very large numbers. That has been made possible only by the deployment of the international military force led by NATO. All hon. Members will have been moved by the pictures of Kosovo Albanians greeting the arrival of the soldiers with flowers and a spontaneous warm welcome that underlines the depth of the horrors from which they have been liberated.

I, too, pay tribute to the sacrifice of the two Gurkha soldiers who were so tragically killed.

May I press on the Foreign Secretary the need to move to a civil administration for Kosovo at the earliest possible date, so that the Kosovars themselves may be responsible for their democratic self-government and for the policing of their country, as it would be wrong for us to impose structures and a way of life on the country?

I am grateful to the hon. Gentleman for his tribute to the soldiers who gave their lives making Kosovo safe.

We have to be realistic about the civil administration: in the immediate future, the international community must accept an obligation to provide public administration, economic reconstruction and humanitarian relief to Kosovo, but the Security Council resolution clearly states that, over a period of time, that UN administration is expected to transfer its powers to Kosovars of all nationalities—Albanian and Serb alike—and ensure that Kosovo has a democratic Government. That is important for Kosovo and will send a strong message to Serbia, where the people have been denied proper democracy and freedom of expression; they may find the model of a free society that we can create in Kosovo more attractive than what is offered by President Milosevic.

My right hon. Friend has correctly paid tribute to the Gurkhas who were tragically killed yesterday.

Are the British KFOR troops being encouraged to record what they witness and take statements from victims so that the information can be drawn together? Will he confirm that those records and eyewitness accounts will be admissible in any future war crimes hearings? If that is so, British troops will go down in history not only for securing a peace to protect the innocent but for securing the convictions of the guilty.

My hon. Friend touches on an important priority for our troops in Kosovo. As KFOR has moved forward, it has recorded and identified all sites of atrocities and mass graves. It has passed the information to the International War Crimes Tribunal and is fully co-operating with it in the investigation. Britain was the first nation to provide a police team to carry out that investigation. The team has been working for the past three days exhuming corpses from a mass grave at Veluka Krusa, which is a priority site because it is named in the indictment of President Milosevic as one of the atrocities for which he was ultimately responsible.

I spoke at the weekend to Judge Arbour, the special prosecutor for the International War Crimes Tribunal, and I am pleased to report to the House that she much appreciated the assistance that Britain is giving and the full co-operation of KFOR.

We should like to be associated with the remarks that the Foreign Secretary has made about the two Gurkhas—Royal Engineers—who lost their lives, and would add to the tributes that have already been rightly paid to them. We also wish to send our congratulations to Lieutenant-General Mike Jackson on the signing of the demilitarisation agreement.

Can the Foreign Secretary confirm that the demilitarisation agreement included a pledge by NATO to consider the formation of an army in Kosovo modelled on the US National Guard; that it permits the KLA to continue to wear uniforms and insignia for the next 90 days; and that it did not deny the KLA the right to self-defence, which is a sign of the on-going volatility in Kosovo? Under those circumstances, is the Foreign Secretary confident that the difficulties being caused by armed KLA patrols will cease immediately?

It would be a brave person who claimed that all violence in Kosovo will halt immediately, given the enormous disruption and the great violence and high emotions that have been visited on that province in the past three months. That said, we believe that the agreement that has been signed fully meets our objective of demilitarisation of the KLA; indeed, it proposes to do so in a shorter time scale than was envisaged in the Rambouillet accords, which gave the KLA 120 days in which to demilitarise.

The 90 days is not the point at which everything happens: it is the point at which everything is to be completed. For most of the intervening period, the KLA will not be allowed to take weapons outside their designated camps. That is a sensible way forward which has provided for an understanding between both sides. It will also enable NATO to ensure that it knows where the KLA is, and that is helpful. Within the three-month period, the agreement will provide for full demilitarisation. It is our objective to ensure that the ceasefire is observed not just by one side but by both sides, and that the future of Kosovo will be brought about through the ballot box, not the barrel of the gun.

What assessment his Department has made of relations between India and Pakistan; and if he will make a statement. [86581]

We remain deeply concerned by the fighting in the Kargil area of Jammu and Kashmir following armed infiltration across the line of control. We have called on Pakistan and India to respect the line of control. We have urged both countries to calm the situation, reduce tensions between them and ensure that the conflict does not escalate further. We welcomed the talks between the Indian and Pakistani Foreign Ministers on 12 June. We hope that the dialogue will continue and that early progress will be made to end the fighting.

Will the Government exert all possible influence to try to reduce the risks of a nuclear conflict that could devastate the subcontinent and beyond?

That is precisely why we have urged both countries to implement United Nations Security Council resolution 1172 and, in particular, to sign the comprehensive test ban treaty, cease the production of fissile material and refrain from deploying nuclear weapons and delivery systems.

What discussions he has had with the South African Government about the outcome of the recent elections there. [86582]

My right hon. Friend the Prime Minister telephoned Thabo Mbeki on 7 June to congratulate him on the ANC's victory and on the peaceful conduct of the elections. Those elections have been a resounding success. The high voter turn-out and generally efficient conduct of these elections have further strengthened the democratic process in South Africa.

I thank my hon. Friend for that reply. Does he agree that the continued success of democracy in South Africa will largely depend on how able its Government are to deal with the monstrous problems they face, including massively increased crime, the spread of AIDS and endemic poverty and unemployment? Will he confirm that this Government have as foreign policy priorities an increase in trade, the continued sharing of technology, continued private investment and—most importantly—the strengthening of civil society in South Africa?

My hon. Friend is absolutely right. The priorities that he has set out are those adopted by the South African Government. From the Government's point of view, the increase in bilateral trade and in trade between the European Union and South Africa was fundamental. That is why we were at the forefront of ensuring that the EU moved forward on a free trade agreement with South Africa.

My hon. Friend raised the very important issue of HIV/AIDS. About 3 million South Africans are HIV positive. When he was in South Africa earlier this year, my right hon. Friend the Prime Minister announced an assistance package of £100 million, targeted on that problem. However, in all our dealings with South Africa we shall continue to give support to the democratically elected Government, who are committed to tackling the major priorities involved in improving the economic and social structure for all South Africans. That is a welcome change from previous South African Governments.

What assessment he has made of the current situation in Sierra Leone. [86584]

We welcome the recent signing of a ceasefire agreement and the negotiations currently taking place in Lomé. We urge all those involved to seize this opportunity to secure a sustainable peace and to end Sierra Leone's appalling cycle of violence.

The Minister might have been forgiven if he had suggested that interest in Sierra Leone had diminished a little in this House since last year, but it remains a very important matter. Has the Minister had any discussions with President Obasanjo of Nigeria to secure assurances that Nigeria will maintain stability over the next crucial few months while the peace process is worked out?

Given the tragic humanitarian disaster that has overtaken Sierra Leone, which has 400,000 refugees and 1 million displaced persons within its borders, will the Minister say whether any further progress has been made on the EU's projected $30 million aid programme?

The hon. Gentleman is right to say that, sadly, the House's interest in Sierra Leone seems to have diminished, but the tragic reality of the country was never reflected in the rather partisan, party-political debate here in Westminster.

It is important to pay tribute to the role of ECOMOG—and to Nigeria's role within it—in stabilising the situation in Sierra Leone. Nigeria has worked enormously hard, and its nationals have died in the stabilisation struggle. We have worked closely with Nigeria and ECOMOG, and President Obasanjo has maintained his commitment to ensuring that Nigeria will finish the job that it started and that ECOMOG will play its part.

I cannot tell the hon. Gentleman the exact state of progress on the EU's projected aid programme, although I shall respond in due course with that information. However, the Government retain their dual commitment to ensuring that we win in this period of conflict by maintaining progress towards peace, and to ensuring that we win the peace, too. That will involve investment after the conflict has ended.

Will the Minister expand on the matter of the humanitarian aid that we are providing to Sierra Leone, and on the aid that we are providing to help rebuild civil society there? It is not enough to provide foodstuffs and materials; civil society must be reconstructed. What are the Government doing in that regard?

My hon. Friend asks a very important question. A real effort has been put into giving humanitarian aid. We have given some £3.5 million since the beginning of this year, when the most recent rebel incursion into Freetown occurred. Nevertheless, the bulk of the assistance made available—in the order of £20 million—is for different forms of reconstruction assistance. The aim in part is to demobilise those engaged in combat, and also to reconstruct civil society and ensure that there is an economic base on which peace can be founded. That is the most profound and important commitment that we can make.

If he will make a statement concerning the Government's policy towards Mongolia. [86585]

Britain enjoys a very warm relationship with Mongolia. We have fully supported Mongolia's transition to democracy, and we commend the Mongolian Government's commitment to achieving a market economy. Our educational and cultural links are strong, and bilateral trade, though modest, has real potential to increase. We hope that the relationship will continue to develop in all areas.

Does my hon. Friend recognise the tremendous achievement of the people of Mongolia, whose national hero is, incidentally, Ghengis Khan? The country borders China but has established a flourishing multi-party democracy in under a decade. The Foreign Office is represented at a donor conference taking place in Ulan Bator; but will my hon. Friend do all he can to support bilateral links between the UK and Mongolia and to encourage our European Union partners to support Mongolia?

I know that my hon. Friend is something of an expert on Mongolia, which, unlike me, he has visited. I hope to visit that part of the world as part of my responsibilities. The Government hope to foster and develop the existing good relationship between the UK and Mongolia.

I am sure that the House, which is highly knowledgeable about Mongolia, is aware that the western-oriented Government of Mongolia are not keen to become to close to China—except geographically. When the Minister visits Mongolia, will he attempt to improve our trade and investment links? Given his previous responsibility for the internet, will he explore the ease with which all members of the Mongolian Government can be contacted. It is considerably easier to reach them on the internet than it is to contact UK Foreign Office Ministers.

The hon. Gentleman is certainly right that there is a good relationship between the two countries, not least because the UK was the first western country to establish diplomatic relations with Mongolia, setting up an embassy in 1963. Mongolians have not forgotten that signal of support, and the UK has a consequently advantageous position. I have not recently surfed the internet in an effort to contact my counterparts in Mongolia.

If he will make a statement on the readmission of Nigeria to the Commonwealth. [86588]

I visited President Obasanjo after his election to congratulate him on Nigeria's return to democracy. I pledged Britain's support for the return of Nigeria to the Commonwealth, and I am delighted that we were able to secure that in time for his inauguration last month.

An immense task remains to be done in repairing the damage done to Nigeria's economy and society in the dark days of General Abacha, a tragic case from which time affects one of my hon. Friend's constituents. However, the new Government have made a good start, and they will have a firm ally in Britain.

I thank my right hon. Friend for that answer. Does he consider it acceptable that a Commonwealth country should continue to fail to communicate properly with the UK high commission? My constituent was murdered in Nigeria more than a year ago. Despite requests at the highest level for the release of the police report and promises by the Nigerian authorities that that would be done by a certain date, the report, which exists—I saw it on the police commissioner's desk when I visited Nigeria—remains unforthcoming. Will my right hon. Friend make it clear that Nigeria should observe the basic consular decencies expected of a Commonwealth country in this case and in others?

I congratulate my hon. Friend on his resolve and determination in pursuing his constituent's case, even to the extent of visiting Nigeria. I do not believe it acceptable that any country should fail to respond, whether or not it is in the Commonwealth. President Obasanjo faces the major task of reforming and modernising the Nigerian police. He has begun by appointing a new inspector-general, on whom our consul called last Wednesday to raise my hon. Friend's constituent's case. I hope that we may soon receive the response that we have been seeking for some time.

I welcome the Secretary of State's positive endorsement of the new Government in Nigeria. We wish them well because we understand their difficulties. At the same time, I believe that they already have support right across the community, which I trust will develop strongly so as to restore Nigeria to its proper place in the Commonwealth.

When I discussed his plans for the future with President Obasanjo, when he was elected but not yet in office, I was impressed by the stress that he placed on reconciliation among the many communities that make up the state of Nigeria. Since then, he has carried that forward, particularly by his work in the Delta region, meeting community leaders and seeking a positive understanding. That is an alternative to the random violence in the Delta, and he will have our full support in his efforts, which will also enable us to welcome Nigeria to its rightful place as a leading African nation in the international community.

While welcoming the progress in Nigeria, will the Foreign Secretary when he next talks to the Nigerian Government mention our great concern about the amount of financial fraud involving our countries? I have two constituents who have been terribly defrauded—one of them bankrupted—by major Nigerian fraud for which there is no recourse and no possibility of ever recovering the money. Will he ask the Nigerians what they can do to tighten the regulations that allow such fraud to be so commonplace?

I am pleased to assure the hon. Gentleman that we have already raised that issue with the Government of Nigeria and will continue to work them. I am well aware of the scale of the problem. It is a striking example of how after a break-down in a country's law and order and a failure to have a functioning central Government, as happened under General Abacha, the ripple effects spread around the international community. We hope that we can work with the new Government at least to reduce, and perhaps eliminate, the problem.

What action he has taken since the publication of his White Paper on overseas territories to prepare for the introduction of the legislation. [86590]

Action to prepare a brief for an overseas territories Bill is under way. It is proposed that the legislation will cover three areas: changes to relevant legislation to reflect the new title of United Kingdom overseas territories; the offer of British citizenship to British dependent territories citizens; and minor constitutional changes. We intend to place legislation before Parliament at the earliest opportunity possible.

So far, so good. Does the Minister accept that the sense of betrayal in the overseas territories is the same today as it was 18 years ago when full British citizenship was withdrawn by the Conservative Government? While I welcome his proposals, he did not mention the time scale. Does he accept that unless the Government introduce early legislation, the sense of betrayal will continue?

I do not accept that the sense of betrayal is still there. In fact, throughout the overseas territories there has been a warm welcome for the Government's positive tone. I pay tribute to the hon. Gentleman, who has valiantly fought this case over more than a few months. There is no doubt that the people of the overseas territories know that the injustice that they felt is in the process of being lifted. They welcome that, and our commitment is that it will happen.

On the British Indian Ocean territory, can something be done to help those wretched people who were shoved off their archipelago to make way on Diego Garcia for the biggest American base outside the continental United States? With the welcome seminar on reefs to be held at the Foreign Office next week, can something be done to protect their fishing grounds?

As my hon. Friend knows, there is a long and complex history to the position of the former residents of Diego Garcia. It is not a straightforward question. The issue has been resolved, returned to and re-resolved. While we have considerable sympathy for the plight of individuals, in every case the families of those moved from Diego Garcia received a compensation package. The overwhelming majority are citizens of Mauritius and are therefore not in the same position as residents of the overseas territories, who will now benefit by being given full British citizenship.

As I am chairman of the Falkland Islands group and an active member of the Gibraltar group, the Minister will appreciate my interest in the answer that he gave the hon. Member for Colchester (Mr. Russell). Will he assure me and the House that the people of the Falklands, Gibraltar and the other overseas territories will be treated fairly? Will the Minister assure me that the people of Gibraltar will be given the same rights as the people of the overseas territories of France, who are able to vote in the European elections?

The fundamental guarantee that the people of Gibraltar, the Falklands and all the overseas territories seek and have received is that sovereignty will not be transferred without their express and declared approval. The hon. Gentleman raises the question of the right of the citizens of Gibraltar to take part in the European elections. I think he knows that the British Government have worked and will continue to work hard to guarantee that they obtain precisely that right.

If he will make a statement on the plans to reform the decision-making process of the European Union. [86591]

The Cologne European Council decided that an intergovernmental conference should begin early next year to prepare the Union's institutions for enlargement.

The conference will cover three main subjects—the size and composition of the Commission, the weighting of votes in the Council and the possible extension of qualified majority voting. The Government welcome this timetable. We want European institutions that are effective, efficient and able to face up to the challenges that enlargement will bring.

I thank the Minister for that answer. We should never forget that it was the previous Government who allowed the culture of mismanagement to fester in the European Commission. I welcome this Government's commitment to reform it. May I urge the Minister to focus not only on a clear agenda but on the speed of its implementation, which is equally vital in view of the imminent enlargement?

I agree with my hon. Friend that speed is important in this exercise and that we must apply ourselves to it assiduously. It is 10 years now since the Berlin wall came down and countries in central and eastern Europe have made a great deal of progress. We want to be able to welcome them into membership or closer association with the European Union. It is very important to us to keep that role firmly in mind.

rose—

Hear, hear.

Thank you, Madam Speaker. Does the Minister agree that the principle of subsidiarity in European decision making can be safeguarded only if national Parliaments have adequate time to scrutinise legislation? Is she aware of the real disquiet around the fact that in the past year on no fewer than 23 occasions the six-week time window agreed under the Amsterdam treaty for scrutiny of legislation has not been observed to the full? Will she undertake with her European counterparts to ensure that in future the time window is more precisely defined and that it is properly observed for all European legislation?

I congratulate the hon. Gentleman on his appointment. Like me, he was perhaps wondering whether he would be able to get to the Dispatch Box this afternoon. We are pleased with the arrangements that we have introduced for scrutiny, which are recent. We hope and expect that they will work well. We know that sometimes the pace of European business means that decisions get speeded up, but the Government have in all cases provided full explanation. Far from being aware of disquiet, I am very much aware of the widespread welcome in both Houses for the way the Government are approaching the issue.

What representations have been made to him by Caribbean states over the proposed shipment of MOX fuel to Japan. [86592]

I am aware of the interest of the Caribbean states in this issue. While no specific representations have been made to me by Caribbean states over the proposed shipment of MOX fuel to Japan, I have received a letter from the high commissioner of the Bahamas on behalf of his Commonwealth Caribbean colleagues requesting a meeting to discuss the more general issue of the movement of nuclear material through the Caribbean sea. Arrangements are in hand to hold such a meeting.

I thank my hon. Friend for that reply. Does he accept that there is continuing concern about the safety, security and proliferation implications of the international transport of MOX fuel? Does he accept that that is partly because for many years the nuclear industry insisted that MOX fuel could not be chemically separated into its constituent element of uranium and plutonium, whereas many scientists challenged that view and pointed out that it was a fairly routine scientific process for any terrorist group that had access to a university chemistry laboratory?

Is my hon. Friend aware that in documents published within the past few days by the Department of the Environment, Transport and the Regions and relating to the Department's latest round of consultation on the Sellafield MOX plant, the possibility of separating plutonium from MOX fuel has been confirmed? Will he assure the House that he will keep the safety, security and proliferation aspects of the transport of MOX fuel under the closest scrutiny?

I can give my hon. Friend that assurance. I realise that there is concern about safety. I assure him that the solid nature of MOX itself, the integrity of the cask in which it is transported and the safety features of the ships mean that there is no credible accident scenario in which radioactivity could be released. With the benefit of my general science grade 5 O-level, I shall not argue with him as to the technicalities of the extraction of plutonium. I accept that that is theoretically possible, but I assure him that I am instructed that it would require a complex and highly specialised piece of equipment, and plant and skills, to achieve it. A considerable degree of nuclear sophistication would need to be available before what my hon. Friend describes could happen.

I draw the House's attention to the fact that privilege is involved in Lords amendment No. 4. If the House agrees with that Lords amendment, I shall ensure that the appropriate entry is made in the Journal.

I beg to move, That this House disagrees with the Lords in the said amendment.

With this, it will be convenient to discuss Lords amendment No. 3.

The amendments together would allow employers with fewer than 10 employees to elect that any tax credit payable to their employees should be paid by the Inland Revenue board. The amendments would also enable regulations to be made governing the making and revoking of such elections.

The amendments were introduced in Committee in another place. This House has, of course, debated and firmly rejected similar amendments seeking to exempt various categories of employers from paying tax credits through the payroll to their employees. I shall ask the House to reject amendments Nos. 1 and 3, because they are ill thought out, would be disastrous for the tax credit policy as a whole and would be an administrative nightmare.

There are two important points to make on the policy implications of the amendments. First, as their lordships are well aware, payment via the employer is central to our tax credit policy. It will be vital in showing unambiguously that work really does pay. Not only will the tax credits be much more generous than the benefits that they replace, but they will also be inextricably linked to the rewards of work because they will be shown on the employee's pay slip as an addition to the net take-home pay. Embedding the tax credits in the tax system will help to break the perceived link with benefits and will reduce the stigma which is often attached to claiming in-work support.

For those reasons, we should not be looking for ways of taking large numbers of employers out of the scheme, thereby depriving many thousands of employees of their right to receive their tax credit through the payroll. Payment through the pay packet will be the predominant method of payment from April 2000, and we want that to apply in every case where it is appropriate and practical.

How many employees, not firms, would be taken out of payment through the pay packet by the amendments?

I shall answer the hon. Gentleman's point when I explain why I am asking the House to reject the amendments.

The second, more general, point of policy is that amendments Nos. 1 and 3 would give employers the right—

Will the hon. Lady give way?

I am happy to give way, but will the hon. Gentleman confirm that the Opposition's policy is still as stated by the hon. Member for Chingford and Woodford Green (Mr. Duncan Smith)—that a Conservative Government would abolish the working families tax credit and deprive millions of children of the benefits of that?

The hon. Lady is most courteous, but I seek only to help her out. Can she confirm that the amendments would take out only 13 per cent. of people, and that 87 per cent. would still be able to receive the working families tax credit through the wage packet?

I am coming to my second point which deals specifically with the hon. Gentleman's question, and with the removal of so many employers from their responsibilities within the tax system.

Amendments Nos. 1 and 3 would give employers the right to opt out of their tax obligations. That is a novel idea. If it were a feature of the tax system generally, I wonder how many employers would, for example, voluntarily operate the pay-as-you-earn scheme.

To remove employers in such large numbers from their tax obligations—70 per cent. of all employers—is clearly unacceptable. Tax credits are part of the tax system, and it is completely unacceptable to say that employers can elect not to fulfil their tax administration responsibilities.

By accepting the amendments, the House would give in the region of 825,000 employers—70 per cent. of all employers—the ability to elect not to carry out their duties in relation to tax credits. That is not acceptable.

The hon. Lady will know that the Government have said that the smallest firms, those that do not have a PAYE or national insurance liability at present, do not have to deliver the tax credits directly through the payroll, and that they can be paid directly to the recipient. Those small firms are not giving up on their duties—rather, the Government have recognised that they are a burden on them, so why is the argument different?

If the hon. Gentleman will be a little more patient, I shall address those points, which were a feature of our debates in this House and in the other place.

I was making the point about the number of employers who would be removed from the scheme. In his first intervention, the hon. Gentleman asked about the number of employees involved. The figure is in the region of 100,000, which is a substantial number to remove from the scheme. His second intervention was about employer burdens and what will happen to those employers who are not required to be in the PAYE scheme. If I may go on to the next section of my remarks, I shall be able to deal with that point.

The main criticism of employer payment of the tax credit concerns the method of payment imposed and unacceptable burdens, although I note that today's Confederation of British Industry press release welcomes and

"supports the Working Families Tax Credit which should play a key role in raising incentives to work by targeting additional resources on those people who are most likely to suffer from the poverty and unemployment traps".

I am sure that we all have a copy of the press release, which points out that

"the CBI welcomes the government's recognition"

of the issues in respect of the cost of compliance and

"looks forward to working with the government to develop proposals to meet the needs of smaller firms."

I should say that I will deal with that point during my speech, in case any hon. Members think that I might miss it out.

rose—

I am always pleased to give way to the hon. Gentleman, but I should be grateful if, in return, he would answer my question: does his party support the working families tax credit—yes or no?

I am sure that it was for the sake of brevity that the hon. Lady missed out the paragraph of the CBI press release that states:

"We would have preferred smaller firms to have been exempt from administering the credit".

Does she believe that Lord Haskins, who has been asked to look into this matter by the Prime Minister, is wrong when he says that the Government have underestimated the impact of the working families tax credit on small businesses?

Shall I take the hon. Gentleman's answer as yes—his party intends to repeal the working families tax credit, denying millions of children and families the support that it gives? He is quite right; I do not deny that the CBI would have preferred different action, but it is saying that, despite its concerns about employer compliance, it accepts that the Government recognise that something will need to be done in that area and that we will respond. It is not opposing the Bill; it welcomes the Bill. If employer compliance is such an overwhelming problem, one would have expected the CBI to feel unable to support the Bill.

Will the hon. Lady give way?

As always, I am happy to give way to the hon. Gentleman, but then I must try to make progress, if he will permit me.

I am exceptionally grateful to the Paymaster General for giving way. On the subject of opponents of Government policy in this area, is she aware that the National Farmers Union is resolutely opposed to the current position because the great majority of agricultural businesses would be adversely affected? Given that she is flagging up her willingness to consider means by which to alleviate the burden on small businesses, is she prepared sympathetically to consider the NFU request that the new measure should be delayed for two years to allow agricultural businesses adequately to prepare themselves for it?

The Government are not prepared to delay the implementation of that policy because we are not prepared to stand by and watch as millions of children who could be assisted by the measure continue to be trapped in poverty. We have made it clear—and the CBI recognises this—that tackling compliance cost is being addressed; on that basis, it supports and welcomes the Bill.

The Government have recognised from the outset that employers will incur some extra costs in paying tax credits through the payroll, and we are doing everything possible to keep those extra costs to a minimum. Since May 1998, we have been consulting representatives of employers and payroll software suppliers on the details of the scheme, and significant changes have been made to meet their concerns.

We have also recognised that, whatever the advantages of employer payment of tax credits, that method of delivery may not be appropriate in all cases. As the hon. Member for Northavon (Mr. Webb) pointed out, some employers are so small that they are not required to comply with PAYE arrangements. We have already announced an exemption for certain very small employers, in whose case the advantages to employees of receiving their tax credit with pay would clearly be outweighed by the practical difficulties. A line must be drawn somewhere, and the Government have drawn it at that point, given that those employers will not be participating in the PAYE scheme.

Employers will normally offset tax credit payments against PAYE tax payments, national insurance contributions and student loan repayments that they are due to make to the Inland Revenue. If their liability to the Revenue is not enough to cover the tax credit payments that they are required to make, they will be able to apply to the Revenue in advance for funding. That was discussed extensively during earlier stages of the Bill's passage.

What are we to do about employers who do not operate a PAYE scheme, because they do not have to deduct tax or national insurance contributions from the pay of their employees? Employers in that category would include people who employ a cleaner or gardener for a few hours a week. They currently have no dealings with the Revenue in their role as employers. For those employers, the burden of paying tax credits with pay would be disproportionate, because they would be brought on to the Revenue's employer database simply through once having had tax credit recipients on their payroll. They would have to apply to the Revenue for funds on that basis, because they would not be able to make deductions from the payments that they were collecting on behalf of the Revenue.

In Committee, we announced that we had decided to exempt employers from paying tax credits through the payroll if they did not operate a PAYE scheme. That was an entirely reasonable move, and was welcomed as such. It is a targeted exemption, which will take about 80,000 employers out of the scheme. I am anticipating a possible further intervention from the hon. Member for Northavon. The exemption will be relatively easy to operate, because the Revenue's PAYE database will quickly confirm whether a particular employer qualifies for it. In the vast majority of cases, employers will not need to be troubled in the first place.

Let me now deal with the practical implications of Lords amendments Nos. 1 and 3, which, by contrast, would be anything but easy to operate. As I said earlier, they would be an administrative nightmare. The central practical problem is how the Revenue will know which employers qualify for the opt-out. Inland Revenue information about the number of people employed by a particular employer is based on employers' end-of-year returns, so it could be up to a year out of date. A possible source of information could be the employees themselves, but employees filling in their tax credit application forms will, in many cases, not know how many other employees work for the same employer. They may send in the form without the information, make a guess, which may or may not be correct, or ask the employer for the information—thus adding a further element of employer involvement and possible delay in the application. Moreover, in all cases of doubt, the Revenue would have to investigate. The proposals would, therefore, increase compliance burdens on employers, to establish whether they should be able to opt out. The Government think that such a proposition is ridiculous.

Further problems would arise with employers who have about 10 employees, as they might be eligible to elect to opt out in one year, but not be eligible to do so the next. Some employers could move from the exempt to the non-exempt category several times in one year. Do hon. Members really think that employers should be relied on to opt back into the employer payment scheme if they take on additional staff? Again, the proposal would only add another unnecessary complication to the system.

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I think that it will be clear to the House that the type of arrangements needed to make an employer opt-out work cannot possibly be in the best interests of employees entitled to tax credits. The award of tax credits could not be finalised until the Revenue and the employer had agreed who would make the payments. Therefore, needy families would be kept waiting for vital income to which they were entitled—and that would not be acceptable to the Government. Employees of employers who move in and out of the fewer-than-10-employees category would be thoroughly confused and would not know where they were from one award to the next.

I am sure that the Lords amendments were prompted by a concern to protect small businesses from damaging administrative burdens. However, the Opposition are not alone in wanting small businesses to flourish. The Government are committed to creating a climate in which small and medium-sized enterprises are able to thrive, and we are proud of the measures that we have introduced in the past two years to make that happen.

Since March 1997, we have lowered the small companies tax rate twice: the rate is now 20 per cent. Moreover, as the Chancellor announced in his March Budget, from April 2000, there will be a new 10p rate—which is the lowest rate of corporation tax for small companies among major industrialised countries. The new small business service, which was also announced in the Budget, will provide better and more targeted support and assistance to small businesses. There will also be a new business guide, business tax starter pack and guidance for new employers, and a new helpline service for new employers, offering fast-track support. The Government are committed to assisting small employers and to ensuring that their compliance costs are reduced.

The Budget also raised the threshold for quarterly payment of PAYE tax from £600 to £1,000 per month, thus extending the quarterly scheme to an additional 130,000 employers—who could each save up to £100 annually. Since 1997, we have abolished advance corporation tax, bringing a £1 billion cash-flow advantage to business and benefiting many small businesses. We have also enhanced capital allowances for small companies, which have been in place since July 1997.

As part of the service for all new small businesses, we shall, from April 2000, be providing assistance with their payroll operation. The Department of Trade and Industry is consulting on the method of delivery of that service. We intend that the service should be delivered by means of a voucher scheme, whereby all eligible businesses will be able to redeem a voucher with any commercial provider on a list held by the small business service. The scheme should do much to ease the burdens on small businesses of running their payroll.

Specifically, in the coming months, and after April 2000, all employers will be given guidance to enable them to pay tax credits smoothly and with the least possible extra work. There will be a targeted publicity campaign involving all the media and there will be seminars across the country which will be of particular interest to small businesses.

Small employers have nothing to fear from paying tax credits through the payroll. Many of them will gain from the more satisfied and motivated work force who will result.

I have listened with interest to the hon. Lady's explanation of why she does not believe that the Government's proposals would be unfair on small businesses, but she knows that the working families tax credit cannot be paid through the tax code because of the distortions that would ensue. It will have to be a separate item, which means that the benefits that she is claiming for small businesses will not be so great. If she is serious about helping small businesses, why not compensate them for the administration of the scheme in line with the existing precedent of the payment of statutory maternity pay? That would be a welcome way forward for small businesses.

The hon. Lady cannot have been listening to the points that I have just made about the DTI's consultation on the voucher scheme and our services to small business. That point is addressed by the proposals. I do not intend to go back over the debate on tax credits that we have had in this and another House. If the hon. Lady informs herself, she will see that the requirements on business are no more onerous than under the family credit system.

Does my hon. Friend agree that the amendments are not sincere, but are wrecking amendments? There is no logic to choosing 10 employees as a threshold. Companies will vary between nine, 10 and 11 employees during a year. There is no linkage with turnover. The amendments are an incentive to small companies not to grow larger than 10 employees. The Opposition are using the amendments to hide the fact that they want to scrap the working families tax credit and give away the billions of pounds that they have been promising willy-nilly to smokers and others in debates on the Finance Bill.

I have made it clear that the amendments are wrecking amendments which would break the tax credits principle. The arrangements that the Government have made across many areas to support small businesses show that we are determined to deal with compliance costs while assisting small businesses to discharge their obligations in the tax system. The hon. Member for Chingford and Woodford Green made it clear when he was Opposition spokesman on social security that the Conservatives opposed the introduction of the working families tax credit. They are trying to use the issue of employers to conceal that opposition, which would be rejected by the electorate. The millions of families who will benefit will be horrified to hear that, for all the Conservatives' words about supporting families, they oppose a policy that will help families in poverty.

I hope that I have convinced the House that the amendments would involve red tape which would not be in the interests of tax credit recipients. The system would be time consuming and costly. Conservative Members claim to be concerned about compliance costs for small business, but the amendments would impose more compliance costs and burdens. The Government are already addressing the needs and concerns of all employers, large and small, through consultation on the detailed schemes that I have set out. The CBI has made clear its welcome for our policy. I urge the House to reject the amendments and support the Government's policy on the introduction of tax credits.

I am most grateful to the hon. Lady. The Opposition will long remember her closing remark—that the CBI agrees with the measure so we must support it. I am not entirely sure what Mr. Monks and Lord Hattersley would have to say about that, but at least we know that, in the great debate within the Labour party, the hon. Lady is on the side of the toffs.

I hate to spoil the development of the hon. Gentleman's speech as he warms to his theme, but I am sure that he does not need reminding that the TUC also supports our policy, as do a large number of organisations, including the National Council for One Parent Families. Perhaps the hon. Gentleman could broaden his theme somewhat.

At the moment I am trying not to broaden myself.

The hon. Lady is quite right, but she chose to refer to what she thought was most important—the praise of the CBI. I recognise that she is a creature of the current Labour party and wish her every success in the forthcoming reshuffle.

What about the hon. Gentleman?

We have had our reshuffle.

It seems to me that the hon. Lady was attempting to create a paper tiger in order to destroy it. Lords amendment No. 1 is not, by any stretch of the imagination, a wrecking amendment: it is a very narrow amendment that would help the general development of the Bill. The hon. Lady said that it would be disastrous to the Government's policy, as payments through the wage packet were central to the Government's scheme. Payments through the wage packet would remain central to the Government's scheme even if the amendment were accepted. The amendment would not affect that. Essentially, the Government have painted themselves into a corner.

Will the hon. Gentleman answer the question that the Minister has asked him at least twice? If his party got back into government, would they scrap the working families tax credit and therefore take away money from 5.75 million children—yes or no?

I am grateful for the opportunity to answer the hon. Gentleman, who has not participated in our proceedings so far and therefore cannot be blamed for relying too heavily on the briefing from the Government Whips. However, I am afraid that the Whips have let him down. I shall give the hon. Gentleman a full answer, as he deserves one.

My hon. Friend the Member for Chingford and Woodford Green (Mr. Duncan Smith) said that we would not have introduced such a scheme. Frankly, the credit is very similar to family credit and it does not improve on it. As the right hon. Member for Birkenhead (Mr. Field) said, the working families tax credit will take money away from children. It will effectively transfer money from men to women. It will increase stigma. It will do little to help people at the lower end of the income scale—and it will significantly increase fraud.

My hon. Friend the Member for Chingford and Woodford Green said that we will probably have to follow Canada's example. Canada introduced a similar system a number of years ago and has effectively had to reverse it. If the hon. Member for Halton (Mr. Twigg) thinks that the party that introduced family credit would not provide some in-work benefit, I have to disabuse him. There is no question about that. However, the hon. Gentleman supports a more expensive mechanism for delivering in-work benefit. I am sorry to have shot the hon. Gentleman's fox, if he will forgive me the hunting metaphor, but this is a further example of the Government's creating a paper tiger in order to destroy it.

The Government apparently have two contradictory aims: to reduce the burden on business and to change people's attitude to in-work benefit. However, their chosen method in respect of the latter involves imposing burdens on business. The amendment seeks to square the circle that the Government have created.

4.15 pm

If only the Government—who are desperate to appear tough on this measure after their battering by recent rebellions and their drubbings at the polls—would see reason. However, to give ground here might be portrayed as a U-turn, or as giving way to the middle-class values that the Paymaster General clearly embraces but about which some in her party have doubts. If the Government gave way today, they might make this dreadful Bill work. The amendment would not only exempt those small firms who so elected but ensure that the overwhelming majority of workers were still paid the working families tax credit through their pay packets.

Is not the real reason why the Tories want to scrap the working families tax credit that they want to take billions of pounds from young children to pay for the promises made by Opposition Members in Committee; for instance, not to increase tax on cigarettes and fuel and not to abolish the married couples allowance for older people? Is not the Conservatives' policy to take money and food from poor children to subsidise cigarette smokers? Is that the basic strategy of the Opposition?

The short answer to that is no.

The Government's own advisers have doubts about the working families tax credit. The Paymaster General was most careful not to answer my question about Lord Haskins. I know that Lord Haskins is on the Euro-enthusiast wing of the Labour party and that the hon. Lady may wish to distance herself from him. However, she will recall that Lord Haskins is the chairman of the better regulation task force, which was set up by the Prime Minister to cut red tape on business. It may be an embarrassment to the Government that the first thing that the noble Lord has picked on has been the Tax Credits Bill.

We know that the noble Lord has received a number of complaints about the Bill. The Financial Times on 29 May reported that the Treasury had seriously underestimated the burden that the working families tax credit would impose on small businesses. If the noble Lord has been seen to be kicking over the traces a little, he is in good company. The Minister of Agriculture, Fisheries and Food and the Secretary of State for Trade and Industry—as reported in The Sunday Telegraph on 25 February—have expressed worries about the effect of the policy on small businesses, and particularly on agriculture.

According to the same article, the Prime Minister is worried about the effect on middle England—again, something that the Paymaster General has embraced: she is clearly in favour of warm beer, and matrons cycling happily through the countryside. Were it not for the European elections, the Government might have accepted our proposals. Perhaps our victory has had the detrimental effect of preventing this sensible measure from proceeding.

I have been trying to follow the hon. Gentleman's argument. Why does his party always seem to be against alleviating poverty? The Bill, along with the national minimum wage and certain other reforms, will lift 1.25 million people out of poverty, including 700,000 children. Why does his party oppose those measures?

I cannot take credit for this point, because the hon. Member for Northavon (Mr. Webb) made it both on Second Reading and in Committee, but the working families tax credit does absolutely nothing for those in the lower income deciles: it only helps people at the other extreme, earning up to £38,000. I am sure that it will come as a great surprise and disappointment to the hon. Lady, but the Government are not giving a penny piece extra to those on lower incomes but are supporting those higher up the income scale. She is clearly mystified and I am sure that she feels badly let down by the Government.

Will the hon. Gentleman give way?

First I must make a little progress, as I do not feel that I have done full justice to Lord Haskins and his views.

We want to hear more.

I am here to please the Whips, and if they want to hear more about Lord Haskins, they will. I know how the system works.

Lord Haskins is understood to have concluded that payroll issues are one of the main regulatory problems facing small businesses. In reporting to the Treasury on competitiveness—I understand that the report is on the Chancellor's desk as we speak and will be published in July—he concluded that, in respect of companies employing fewer than 10 people, the working families tax credit should be processed by the Inland Revenue for at least two years. That is the very point that the Paymaster General has just rejected. Companies need time to prepare and, according to Lord Haskins, owner-managers may require Government help if they are not to be swamped by the regulatory burden.

What is the regulatory burden? The Paymaster General said that it was no different from that arising from family credit, but family credit claimants only have to produce a certificate of work, after which they can rely on the pay slip. The conduit for small businesses is not as simple as the Government seek to suggest. The overworked, over-stressed small businesses have to complete a series of steps.

First, the employer must calculate the amount of WFTC or disabled persons tax credit to be paid by multiplying the specified daily rate—to be supplied by the Inland Revenue—by the number of days in the payment period. Then the employee's net pay after the deduction of PAYE and national insurance must be added. Then the employer must enter the figure on the employee's pay slip and record it as an item entitled "tax credit".

Then the total must be calculated and a separate tax credit figure recorded on another form. Total tax credits must be recorded on Inland Revenue forms P14 and P60. At the end of the year, a further form, the P35, is needed for each employee, including the total amount of any Inland Revenue funding for the year. Employers must also produce certificates of payment for leavers. That strikes me as reasonably onerous.

In Committee, the Financial Secretary, whom we all respect for her fairness and honesty, characteristically admitted that there would be some extra costs. In characteristic fashion, she said:

"I do not deny that employers will face some extra work in connection with paying tax credits through the pay packet, and of course that will involve some costs".—[Official Report, Standing Committee D, 9 February 1999; c. 136.]

Will the hon. Gentleman accept that on application the requirements are no more onerous for the employer? Does he accept what I have said this afternoon about all the measures that the Government have taken to reduce compliance costs for small businesses? I explicitly recognised the increased requirements in the operation of the working families tax credit and pointed out that the consultation that the DTI is now undertaking, in particular on the voucher scheme, would also address the issue. The hon. Gentleman's argument that we have not recognised and are not dealing with the increase in costs is simply not accurate.

The hon. Lady has recognised the problem but she is not doing anything about it. It does not help that the regulatory assessment is so woefully inadequate. The hon. Lady will recall that, on Report, my hon. Friend the Member for Bognor Regis and Littlehampton (Mr. Gibb) referred to the work of Mr. Roger Cockfield, Reader in taxation at De Montfort university, in which he demonstrated that the yearly impact on employers with fewer than five employees was not £35, as the Government suggest, but £342. The hon. Lady, who will have read the report of proceedings in the other place, will have seen that that issue was further explored by their lordships, who arrived at a similar figure. Neither the hon. Lady nor her hon. Friends have been able to knock down Mr. Cockfield's figures.

The burden will fall disproportionately on small businesses. It will affect their cash flow. The Social Security Committee recommended that, to ease the problem, advance payments should be made to employers with cash flow problems and that reimbursements of administrative costs should be paid to smaller firms. The Government have rejected both suggestions.

With regard to the question of reimbursement of employers, I made it clear that, if employers could not meet the costs of paying the tax credit because they could not deduct it from PAYE or NICs that they had collected on our behalf, they could apply for a grant from the Inland Revenue to cover those costs. That point has been specifically dealt with, and now that I have jogged the hon. Gentleman's memory, I am sure that he will acknowledge that.

Of course I acknowledge the point. I would not wish to accuse the hon. Lady of feeling smug, but before she starts feeling too happy with herself she should bear in mind the views of the National Farmers Union, which said:

"We are also fearful that in a significant number of cases involving agricultural workers, tax credits are likely to exceed liabilities for PAYE and National Insurance Contributions which could cause cash flow problems for employers."

The Minister in the other place put that point more simply when he said:

"There will be a reduction in the positive cash flow benefits of the employer's relationship with the Inland Revenue."—[Official Report, House of Lords, 26 April 1999; Vol. 600, c. 126.]

The Government expect small firms not only to be their agent for paying benefits but to pay for the privilege. It is therefore surprising that the only help that the Minister in the other place offered was a potential reduction in software costs which might help to ease the burden on small employers. The Government want to change employees' attitude to in-work payments, but not the attitude of employers.

4.30 pm

At present, there are 1.17 million employers, of whom 825,000 are covered by the amendment. There are potentially 730,000 claimants of working families tax credit, of whom—according to the Minister's figures—100,000 are covered by the amendment. The amendment would thus affect 70 per cent. of firms, but 87 per cent. of those entitled to receive working families tax credit would continue to do so through their wage packet.

The amendment would preserve the principle of payment through the pay packet, and ensure that small firms did not have to go through an elaborate opt-out mechanism, as they could elect to opt out. I do not believe that payment directly from the Inland Revenue would in any way exclude the change of culture that the Government seek to achieve.

Today's CBI press release has been much quoted. It is only fair for me to refer to the only sentence that neither I nor the Minister have yet read out. It states that

"direct payment by the Revenue would reinforce the new status of the tax credit. Direct payment by the Revenue would not involve a significant additional burden on the Revenue as it will already be making direct payments to some employees."

The Government can retain the principle behind the Bill while still exempting small businesses. We are in a strange position, in that the Opposition want to strengthen the Bill, while the Government seek to weaken it. This is a modest amendment, and deserves consideration.

It is a pleasure to follow the hon. Member for Brentwood and Ongar (Mr. Pickles), as I have done on a number of occasions. Our styles are rather different, but we are of one mind about the amendments, which were tabled by my noble Friend Lord Goodhart in another place and which received the support of Conservative peers.

I listened with interest to the Minister. I started with a blank sheet of paper as I tried to list the possible arguments against the amendments. I made notes about the defences that she presented, and shall take this opportunity to reflect on them.

The Minister argued that payment through the pay packet would reduce stigma, and that allowing small employers to opt out and their employees to receive payment from the Inland Revenue would somehow be a stigmatising experience. My noble Friend Earl Russell in another place said:

"From time to time, I have the pleasure of receiving refunds from the Inland Revenue. They have been known to come direct to me and not through my pay packet. When those refunds reach me, I do not suppose that they are social security benefits."—[Official Report, House of Lords, 4 May 1999; Vol. 600, c. 586.]

In other words, people can distinguish between benefit payments and tax refunds. The difference is clear, regardless of whether such payments come through the pay packet or the post. The Government are patronising the prospective recipients of the tax credits. They assume that people cannot tell the difference between a social security payment and a tax credit, and that they cannot add up two numbers—the amount in the pay packet and the tax credit amount—if the tax credit is paid direct to their bank accounts. I do not feel able to support such patronising arguments.

The Minister said that we cannot have a system in which small firms opt out of their tax administration responsibilities, as though that were some grand, sweeping point of principle, then listed the exceptions. She said that the very smallest firms with no PAYE employees will not be so burdened. However, she noted that a line has to be drawn somewhere, which suggests that it is a matter of pragmatism rather than principle.

The Minister explained that the smallest firms would be exempted from the requirement because, on the balance of benefits, it was more beneficial to allow them to opt out. The reason that she gave was that the burden would be so great that it would outweigh the benefit gained by getting the money to the employee through the pay packet. On the balance of arguments about costs and benefits, it was accepted that certain categories of firm should be exempted. The amendments merely seek to exempt a broader category.

In contrast to similar amendments that we have considered, the present amendments do not exempt all small firms—merely those that opt for exemption because they would find compliance particularly burdensome. Those with sophisticated payroll systems or who are at home with personal computers are not forced to opt out. The Minister mentioned 100,000 employees—one in seven of those covered by the tax credit—but that figure is a maximum. Many small firms that do not find the change a burden might not opt out, making the number of employees withdrawn even smaller. It is almost impossible to argue that amendment No. 1 is a wrecking amendment as it would remove from the scheme only a fraction of those covered by it.

The Minister said that the amendments would cause an administrative problem because information on the size of firms might be a year out of date. That is no great problem. Most small firms clearly and consistently fall within the threshold employing fewer than 10 people. Off the top of my head, I believe that more than 90 per cent. of small firms are always small, perhaps with one or two employees, and it is irrelevant that information on them is a year old.

Of course, some firms will move above and below the threshold, and that would create problems. The Minister said that the smallest firms—those without pay-as-you-earn liability—would be exempted, but the same problems would apply if such a firm went over the line one year and back under it the next. The Minister seems to believe that the problem can be satisfactorily resolved for those firms, so why is the same not true of firms with fewer than 10 employees? Discrimination and workplace legislation applies only to firms with specified numbers of employees; if that legislation can be implemented, why cannot the amendments?

The Minister said that recipients would face uncertainty about whether the employer would deliver the tax credit. There might be delays in payment. But the tax credit is paid directly to the employee, and the money will reach the employee while the question of who pays is being resolved. There will be no delay. Even under the Government's proposals, the money will be paid direct at the beginning of a claim and employers will not be involved at that stage.

The problems that the Minister raised are fig leaves intended to cover the fact that the Government are taking an ideological position. Many of their arguments about practicality simply do not stand up. The Minister reassured us that employers would be able to attend seminars. Is she saying that hard-pressed business people, possibly sole traders with one employee, will be able to spend an afternoon at the local Inland Revenue office learning how to administer the system. The Minister cannot say that that is no burden on business. Small businesses should not have that obligation imposed on them.

The hon. Member for Brentwood and Ongar referred to the Minister's throwaway suggestion that the Bill's proposals are no more onerous than family credit. She may wish to set the record straight if that was not what she meant. It is certainly what we heard her say.

I am grateful to the hon. Gentleman for his seeking to assist me, but if he reads the record, he will find that I said specifically that the proposals would be no more onerous at the point at which an application is made. I referred clearly to compliance requirements on business, and I set out all the Government's points. The hon. Gentleman suggests—as did the hon. Member for Brentwood and Ongar (Mr. Pickles)—that we do not recognise the burdens. Let me remind of him of one item in the Budget. We moved quarterly PAYE payments from 600 to 1,000—

Order. The Minister is making an intervention, which should be brief.

Thank you, Mr. Deputy Speaker. I am happy to accept the Minister's clarification. If she was merely making the point that earnings information must be verified in both cases, I am happy to accept that that is so. However, the regulatory impact assessment makes it clear that business will face costs of an aggregate £100 million or more, recurring every year. The Minister has failed to convince me that will not be onerous for small firms.

Will the hon. Gentleman confirm that what the Minister has just said appears to admit that the method of paying the new working families tax credit is more onerous than the old method of family credit? Her defence was that she was referring only to the method of calculating entitlement to the benefit.

The hon. Gentleman is right that the regulatory impact assessment shows that the additional cost of more than £100 million relates to the cost of delivering the benefit, which does not feature in family credit.

There has been some discussion of what the burden of the tax credit on a small firm will be. Figures of £37 and £342 have been cited, but I suspect that the Minister would accept the figures advanced by Baroness Hollis in another place. In response to my noble Friend Lord Goodhart, she gave a figure for small firms and said:

"Where a small employer has a WFTC member of staff … it will typically cost £135 per year for an employer with up to five staff'.—[Official Report, House of Lords, 4 May 1999; Vol. 600, c. 560.]

Those are Government figures. The hon. Member for Brentwood and Ongar gave some larger figures, which may or may not be correct, but even the Government admit to £135 every year for a small firm. The Minister calls it the worst case scenario: £135 a year for a small business with one WFTC employee, using a manual payroll system, as must be the case with most such small firms. While £135 may not be much to the Minister, it is to small firms struggling to get by.

There is an inconsistency in the Government's approach. They argue that the burden on business and small business is so negligible that we should not allow small firms to opt out. However, schedule 3 provides protection for jobseekers turned down by employers who do not want to take on potential recipients of the WFTC. The Bill anticipates that employers may want to discriminate against such people. Why could that possibly be? It is because of the burden of administering their payroll.

The Lords amendments would reduce bureaucracy because one of the key bureaucratic elements of the scheme is that the Inland Revenue will have to pay small firms up-front so that they can pay the tax credit. The Minister would accept that it is small firms that will need to avail themselves of the facility. If the smallest firms could opt out, that central category of firms would no longer need to claim the money up-front, so a whole bureaucracy of advance payment to allow firms to pass the money on to their employees and reconcile the figures at the end would be done away with. All the difficult firms would be taken out of the system.

These are far from being wrecking amendments. They are helpful and constructive. They would leave 87 per cent. of employees in the existing regime but take the problem cases out of it. The CBI, in the full, unexpurgated version of its press release, expresses its concern. The Federation of Small Businesses, which includes a greater number of small firms, opposes the Government's proposals.

I disagree with the Conservatives in that I am clear that the principle of the tax credit and the extra resources are welcome, but the Liberal Democrats are concerned about the way in which they are being delivered. We are united in believing that small firms should not have to meet the cost of this piece of Government ideology.

The Paymaster General has the House against her on this one, and I am not here to help her. The amendments are modest and, as the hon. Member for Northavon (Mr. Webb) rightly said, apply only to the very smallest businesses, and even they can opt out if they wish. I cannot see more than several thousand businesses taking advantage of that, but they are precisely the ones that the Government should be helping rather than imposing an extra burden on them.

We are dealing with the tiniest businesses in our economy but we are heaping more and more roles upon them and turning them into Government agencies. They are expected to be tax collectors, one-man benefit offices and the fraud squad. The Paymaster General told us of a new role: they are expected to be social engineers and to help the Government reduce stigma. I think she said that they would help advertise and promote the scheme. They are supposed to be part of the Government's public relations machine. That is not the function of a small business in our economy.

4.45 pm

Let me deal briefly with the main arguments that the Paymaster General made in opposing the amendments. First, she said that they would encourage businesses generally to opt out of their responsibilities. That completely misses the point. The amendments would allow the very smallest businesses to opt out of the extra responsibilities that have been placed on them. No one suggests that this is a kind of a thin end of the wedge for a wider attack on PAYE.

Secondly, the Paymaster General suggested that such an exemption would result in an administrative nightmare. She still does not understand that the administrative nightmare is this tax credit itself. It is coming and she ought to look at ways of minimising, not maximising, its impact. Thirdly, she suggested—the hon. Member for Northavon got there before me in pointing this out—that there would be lots of guidance and seminars. No small business man with three or four employees has time to travel across the country to some regional seminar. The Paymaster General ought to understand, from the experience of the working time directive and other regulations that have been introduced in the past two years, that the guidance itself is as much a burden as the original regulations. Will she undertake to make that guidance as simple and effective as possible when she replies to this or later debates?

Fourthly, the Paymaster General suggested that somehow the CBI, the TUC and the National Council for One Parent Families were all in favour of the proposal and would no doubt oppose the amendments. Those organisations do not represent small business. The CBI certainly does not. There cannot be an employer with fewer than 10 employees in the country who can afford to belong to the CBI dinner—[Laughter] I mean the CBI organisation; I was going to say that they cannot afford to attend the CBI dinner. The organisations mentioned are not small business organisations, and for the Paymaster General to pray them in aid does her cause a great disservice.

The Bill is discriminatory. It discriminates against the very businesses that we ought to be helping. I declare an interest as a director of a small business. Such businesses do not have big personnel or human resources departments to sort out all this stuff. The entrepreneur himself or herself will have to take time off to wade through the paperwork.

The Bill discriminates, as the hon. Member for Northavon correctly said, against employees. My fear is that, faced with the choice of employing someone who would qualify for the tax credit and someone who would not, and who therefore would not come with that extra burden of paperwork, small businesses will discriminate against those who come to them and are in receipt of the working families tax credit. That is recognised by the Government themselves elsewhere in the Bill.

In this House, we debate enterprise; we praise small businesses. Then, at the first opportunity, we chuck out an amendment that is designed to help them. The Government talk deregulation, yet here again, faced with a real example of how we might deregulate just for the very smallest of small businesses, they impose more regulation on them. I hope that even at this late hour the Paymaster General will think again.