Object.

To be considered on Wednesday 15 June.

London Local Authorities (Prohibition of Smoking in Places of Work) Bill [Lords]

Motion made,

That so much of the Lords Message [19th May] as relates to the London Local Authorities (Prohibition of Smoking in Places of Work) Bill [Lords] be now considered.

Object.

To be considered on Wednesday 15 June.

London Local Authorities Bill [Lords]

Motion made,

That so much of the Lords Message [19th May] as relates to the London Local Authorities Bill [Lords] be now considered.

Object.

To be considered on Tuesday 14 June.

On a point of order, Mr. Speaker. You will recall that I raised a point of order with you two weeks ago and subsequently wrote to you on the issue of the Minister replying to questions to the Advocate-General. We have lost the opportunity to have five special minutes of personal questioning of the Advocate-General, since such questions are now merged with those to the Secretary of State for Scotland. The Solicitor-General intimated to me informally that it would be her wish that a Law Officer of the Crown should reply to those questions. I wonder whether the Government have made intimations to you in that regard, and whether you would advise us as to the position.

I have fond memories of the Advocate-General taking five minutes to answer questions—which were usually put by the hon. Lady. Question 10 on the Order Paper, which we did not reach—perhaps because some Members are too long-winded and because Ministers can take some time to reply—was a question regarding the Advocate-General, so Ministers are answering these questions, albeit not the Advocate-General personally.

Further to that point of order, Mr. Speaker. The point is that while the Secretary of State for Scotland and I are non-practising, we are members of the Faculty of Advocates. The Advocate-General is now in another place, so we have lost the opportunity to have a response from a fully qualified Law Officer of the Crown.

I would say to the hon. Lady that she is here not as an advocate but as a Member of Parliament. I am glad that she has declared that interest, but the fact is that there is a Minister of the Crown answering those questions.

On a point of order of which I have given you notice, Mr. Speaker. You will be aware that Ministers in the Department for Constitutional Affairs—to whom I have given notice of this point of order; I am sorry that they are not here—have recently transferred to the Home Office a number of questions about alternatives to jury trial and changes to the jury system. Yet in its most recent document, the Department talks about a key issue being efficient and effective fraud trials, and goes on to say that there will be alternatives to jury trial. Can it be right for the Department to claim responsibility for an area such as trial by jury and to put out a document stating that it intends to end jury trial, but then, when the difficult questions come, to dodge them by transferring them to another Department? Should not there be consistency, Mr. Speaker? If a Government Department claims an issue, it should be prepared to answer on it.

The hon. Gentleman informed me in advance of his point of order, but I am afraid I cannot help him. "Erskine May" makes it clear that it is a long- standing, established principle that decisions on the transfer of questions rest with Ministers, not the occupant of the Chair.

Further to that point of order, Mr. Speaker. A question of mine, on the very issue that my hon. Friend the Member for North-East Hertfordshire (Mr. Heald) articulated, was accepted by the Table Office as Question 1 to the Department for Constitutional Affairs. I had checked the Cabinet Office register of Ministers' responsibilities, which showed that matters related to juries fell within the responsibility of the Minister of State at that Department, who is sadly no longer in her place. As my question was accepted by the Table Office and, according to the list of responsibilities provided for Members, fell within the responsibility of that Minister, is it not wrong, and discourteous not only to myself as a Member but to the House, that it was transferred at a later date to another Department?

That has happened to every hon. Member from time to time, including myself when I was a Back Bencher. The acceptance of a question in the Table Office does not mean that the matter ends there. A Minister is entitled to transfer that question. That is all I can say to the hon. Gentleman.

Further to that point of order, Mr. Speaker. You will have heard the exchanges earlier and the strong support for the early re-establishment of Select Committees. Is there anything that you can do to add to that pressure on the Leader of the House and others, because it would at least enable the Constitutional Affairs Committee to ensure that such questions are answered by Ministers from that Department?

I do not want to get drawn into that argument.

Further to that point of order, Mr. Speaker. Will you therefore use your influence on the Government to persuade them to bring out at an early stage a comprehensive list of ministerial responsibilities, at least to try to minimise the problem described? You cannot prevent Ministers from dodging questions and shuffling them off to someone else, but you can surely use your very considerable influence on the Government and oblige them to help Members of the House so that we know who is responsible—allegedly—for what.

The right hon. Gentleman is always good at solving problems for the Speaker. I undertake to do that and to use my influence.

Further to that point of order, Mr. Speaker. I was lucky enough, and rather chuffed, to have question 3 to the Department for Constitutional Affairs, on the same subject. Naturally, I accept what you said. However, the first I knew of the fact that my question would not be called today was when I saw the Order Paper on Monday. I had no correspondence whatever from the Minister or the Department, and I would have liked to know before I came into the House that my question was not to be called.

The Officers of the House will look into that matter. I thank the hon. Gentleman for raising it.

On a separate point of order, Mr. Speaker. Does there need to be no consistency at all? In other words, if a Minister decides one day, "Oh, I don't fancy that question on jury trial," he or she can simply transfer it for the Home Secretary to deal with, while on another day—as today—the Minister can decide, "That looks like a plum question. I'll answer that one."

That is why I welcomed the point of order raised by the right hon. Member for Bromley and Chislehurst (Mr. Forth). I will look into the matter and take up his suggestion.

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

As my right hon. Friend the Chancellor outlined in the Budget debate in March, we now have a foundation of fiscal strength, enabled by our decision in 1997 radically to reduce national debt. We have the lowest debt interest payments for a century, matched by the lowest unemployment costs for a generation. As the Chancellor pointed out, social security bills for unemployment have been halved since 1997, saving another £5 billion a year, and inflation has been 3 per cent. or less annually for the past eight years, making Britain's the least volatile and most stable of all major industrialised economies. We therefore have sound foundations on which to face up to global challenges and provide domestic success, and a record of macro-economic stability that lets us invest in the future.

The Bill and the measures contained therein reflect the Government's ongoing determination to ensure that our tax system is fair and competitive. Only last September, the World Bank ranked the UK first in Europe and seventh in the top 20 countries in which to conduct business. Before that, in January, the Organisation for Economic Co-operation and Development ranked our economic and administrative regulations as among the lowest in the OECD.

Looking forward, and faced with the accelerating pace of technological change and the rapid expansion of global competition, it is clear that our economic future cannot be founded on low-skilled, low-tech enterprises. That is why we must focus on establishing British leadership in skills, science and the knowledge economy, and on evolving a sensible, flexible fiscal framework that supports business as we face world competition.

It is against that backdrop that we introduce this Finance Bill containing the legislation announced in the last Budget statement which, owing to the election and following negotiations with the Opposition, was not enacted in the Finance Act 2005. Our aim is to support and encourage business as it tackles global economic challenges. Our underlying philosophy is both to produce fair taxation—thus reducing avoidance of taxation, which is not appropriate in a modern, fair economy—and to simplify the business environment to ensure clear, dependable and fair interaction with the state.

Before I discuss the individual elements of the Bill, let me inform the House that the committal motion on the Order Paper has been changed, at the request of the Opposition. The revised version is now available in the Vote Office.

Will the right hon. Lady confirm that we are to add 159 pages to the 203 pages of legislation that we passed only two months ago? Might there not be a better way of supporting business than passing one page of tax legislation for every day of the year?

I know that, as a distinguished member of the Treasury Committee—no doubt he is keen to be reappointed—the hon. Gentleman follows these matters closely. So he knows that the full Budget and the full Finance Bill were announced before the general election and that all the Budget resolutions were passed by the House—not one was opposed. In that Budget, the balance was struck between facilitating business and removing unnecessary regulation and acting on behalf of taxpayers who comply with their responsibilities. Our aim is to make sure that avoidance—with which a substantial part of the Bill before us deals—is prevented and that tax due is paid.

I agree that we have a strong economy, especially compared with those of the eurozone. Does my right hon. Friend agree that the main reason for that is that we have sustained good consumer demand by implementing appropriate fiscal and monetary policies, which would not be permitted inside the eurozone? Will she commit herself to continuing those strong policies to keep our economy going as it is?

My right hon. Friend the Chancellor will be delighted to hear that my hon. Friend supports his fiscal rules and stewardship of the economy, which does not surprise me given the success that these policies have produced in constituencies such as his and mine in achieving a massive reduction in unemployment.

Working on the principle that one ought to be grateful for small mercies, perhaps my hon. Friend the Member for Sevenoaks (Mr. Fallon) ought to be relieved that, this year, the Finance Bill does not amount to the 488 pages represented by a previous Finance Bill that the Chancellor introduced. Will the Paymaster General tell me whether the principle of reform of the regulatory process, on which the Chancellor has rightly spoken recently, has in any way informed the construction of this Bill?

I know that the hon. Gentleman follows these matters closely. Perhaps he will allow me to continue making my speech, so that I can illustrate which parts of the Bill he will be ecstatic about on the basis that they will reduce regulation and make changes within the tax system to assist the processes that businesses enable. He will be able to identify a number of clauses that will do that. If he has the time to sit on the Finance Bill Committee, I am sure that we will all benefit further from his incisive analysis of the matters before us.

Let me now turn to some of the individual components of the Bill. I shall begin with VAT avoidance. I know that hon. Members will agree that, for a tax system to be effective, everyone must pay their fair share of taxes and receive the reliefs to which they are entitled. We are fully committed to combating all forms of tax avoidance, including VAT avoidance. Indeed, we have introduced a compliance strategy specifically to target the VAT gap, which has been discussed in the House before.

There are concrete measures in the Bill that will help to combat VAT avoidance. They include legislation in clause 1 that will enable Her Majesty's Revenue and Customs to combat avoidance schemes that abuse UK customs warehousing rules. Clause 3 will extend the provisions dealing with "unjust enrichment" so that no business will unfairly benefit from charging too much VAT. The disclosure rules introduced in the 2004 Budget, which were debated in the House, require promoters and users of certain avoidance schemes and arrangements to provide information to the revenue Departments. Much of that information has been translated into this Finance Bill to close down active avoidance schemes. So, following the announcement made in the 2005 Budget, clause 6 and schedule 1 will extend the disclosure rules to encompass two new listed VAT schemes and a new hallmark.

Secondly, on gift aid, recent events have demonstrated the generosity of the British people in donating in times of need, and the use of gift aid by charities and donors has grown considerably. For example, £586 million of tax was repaid to charities on gift aid donations in 2003–04. That is why we have included clause 11, which will amend existing gift aid legislation in relation to admissions. The hon. Member for Buckingham (John Bercow) might wish to take note of that proposal, which will assist business and make the rules simpler. The measure will clarify the circumstances in which gift aid will apply when free admission is given in return for a donation. Crucially, this amendment will uphold the core principle of gift aid in generating new and additional giving, and it will broaden the types of charities that can benefit.

Thirdly, on scientific research organisations, the Government are committed to enabling Britain to achieve its full potential. However, as global restructuring continues, advanced industrial nations are moving away from low-skill, low-tech products and processes, and focusing closely on technology, science, research and development.

Britain will continue to enjoy its competitive edge only if we develop world leadership in the most technologically intensive and science-based industries and services. In last summer's spending review, the Chancellor set out our 10-year plan for science. That includes a new and stretching target to increase UK investment in both private and public sector research and development from 1.9 per cent. of national income to 2.5 per cent. in 10 years' time. Clauses 13 to 15 present measures to help foster the wider benefits that scientific research organisations can provide to our economy and business. They will update the exemptions for scientific research organisations, enabling them to widen their activities and undertake a broader range of research and development.

Fourthly—and turning to financial measures—I am sure that the House will be happy to join me in recognising the vital role played by the City and the financial sector across Britain in driving forward our economy. Professionally managed, well communicated and diverse financial services support our economic growth and are key to our continued prosperity. That is why we have been keen to tackle issues from improved financial inclusion to the workings of the investment chain. As part of the package of reforms of the tax system for authorised investment funds, this Finance Bill includes powers to rationalise the legislation that applies to those funds. Clause 16 specifies a reduced rate of corporation tax of 20 per cent. that will apply to open- ended investment companies, ensuring that they are subject to the same treatment as authorised unit trusts. In addition, clauses 17 to 19 introduce powers to change regulations and are designed to facilitate a more flexible approach to investment strategies.

Has the Minister had the opportunity to reflect on Government proposals to extend self-invested personal pensions to residential properties from April next year? Is she aware of the tidal wave of interest in moving money in that direction and of the impact that that will have on tax avoidance and the availability of affordable housing in constituencies such as mine, which already have high levels of second and holiday homes?

I am certainly aware of the press speculation pointing to the sort of trends that the hon. Gentleman identifies, but the pension schemes that use property as part of a pension fund are very tightly controlled. Only 50 per cent. of the current value of the pension fund can be raised as a loan to fund a property purchase. The property becomes an asset of the pension fund, and there is a requirement to put all rental income into the pension fund and to lock it away. Any currently owned property that is placed in the pension fund is subject to the normal constraints. On maturity, when the pension fund needs to be drawn on, that property is deemed part of the pension fund and not the individual's. Therefore, much of the press speculation is based on a misunderstanding of how the clauses work. If the hon. Gentleman serves on the Committee, I am sure that by probing the clauses he will be able to assure himself and the House that that is so. However, I am following carefully the speculation and ensuring wherever I can that it is speculation and not the actual result of the proposals.

Has the Treasury come up with its own estimate of the tax revenue that will be forgone as a result of these new measures? Standard Life has suggested something in the order of £4 billion. Can we take it from the Paymaster General's remarks that the Government have no plans to introduce any amendments on this matter during the later stages of the Bill?

I can tell the hon. Gentleman that there are no plans for the Government to make changes to these particular provisions. I have seen the speculation about the amount that a particular organisation is suggesting. There has been correspondence with that organisation to explain to it why we believe that that figure is totally incorrect. Given the very tight controls that will exist on property transferring into a pension fund, and what happens when that property comes out of it, I do not recognise the points that are being made by that organisation. We need to be clear that this is part of—the property of—a pension fund, and the pension fund decides how it is used. Much as I pay a great deal of attention to any suggestions that this will be used as an avoidance vehicle, such suggestions are at present unfounded.

Does my right hon. Friend agree that the fact that in Britain we now have a 10 per cent. rate of capital gains tax for long-term investments means that Britain now has one of the most attractive tax regimes for small businesses to invest and grow? Does she recall that, when that measure was first introduced in this House, Opposition Members of all parties attacked it on the ground that it would lead to tax avoidance and does she agree that, had we taken their advice, we would have denied British business and small business the real benefits that have flowed from that reform?

I well remember that, during the debates on the capital gains tax reforms introduced by this Government, Opposition Members forecast that it would be a disaster and would not assist in the rebalancing of the economy, particularly in relation to investment rules. They are in danger of confusing the rules on capital gains, and the very fair tax regime that exists in that regard, with the specific proposals on putting together a pension fund that enables investment to produce an income for individuals in retirement. The continual rationalisation and equalisation of those investment choices led to the changes in the pension fund.

Let me return to the specific measures on avoidance in this Bill. As I said, the Government have always made clear our determination to ensure that the tax system is fair and is seen to be fair. We have taken a series of concrete steps to prevent abuse of the tax system, and we will continue to close tax avoidance schemes as we become aware of them. Indeed, that was also the policy pursued by the previous Government. Any Government who acted fairly on behalf of the vast majority of taxpayers would pursue a policy to prevent a small number of taxpayers from receiving tax payments to which they were not entitled.

Such avoidance schemes create economic distortion, provide commercial advantage over compliant taxpayers, and redistribute tax revenues in an unfair and arbitrary manner. Therefore, in addition to the VAT measures and extension of the disclosure rules I mentioned earlier, this Finance Bill will introduce legislation to counter various forms of exploitation. That includes clauses 24 to 31 and schedule 3, which will close down schemes where companies seek to gain a UK tax advantage by exploiting differences within and between tax codes; clauses 32 to 34 and schedule 4, which prevent arrangements that enable individuals and trustees completely to avoid tax on capital gains; and clause 39 and schedule 7, which will prevent avoidance by companies and individuals using financial product-based schemes.

As announced in December 2004, this Finance Bill will also introduce legislation to close arrangements that seek to avoid or reduce income tax. Clause 12 and schedule 2 will tackle that specifically with regard to remuneration using employment-related securities—a matter to which the House, the Government and previous Governments have had to return repeatedly, to prevent this abuse. Clause 40 and schedule 8 will update the transfer pricing rules introduced by the Finance Act 1998. Those prevent parties who have a control relationship over a company from entering into transactions on a non-arm's-length basis to obtain a tax advantage. A further change ensures that the rules cannot be avoided by putting financial arrangements in place up to six months before a control relationship exists. To counter a number of stamp duty land tax avoidance schemes, clause 49 and schedule 10 will close known loopholes: for instance, limiting artificial group relationships which have been set up purely to avoid clawback of group relief. The definition of "undertaking" will also be restricted in relation to acquisition relief to trades other than property trading, so that only genuine businesses can benefit.

The clause that I have just mentioned has been subject to some amendment, which I want to draw to the House's attention, as compared with the legislation originally presented to the House in the first Finance Bill back in March. We have listened, and amendments have been made to ensure that stamp duty land tax measures work as intended for home reversion plans, loans or deposit schemes and to ensure that group relief clawback cannot be avoided by the use of leases. There are a small number of other amendments to clauses in the Bill, which include ensuring that legislation introduced by clause 39 and schedule 7 does not affect routine arrangements concerning preference shares—another matter on which we received representations. They will ensure that other common corporate structures not set up for the purpose of avoidance are not affected. We have also extended the period of transitional protection to some companies allowed by clauses 24 to 31 and schedule 3, and we have time-limited the regulation-making power to amend a number of life assurance company tax provisions granted by clause 42 and schedule 9.

In addition to those and other minor technical changes, the Bill includes a new clause and schedule—clause 37 and schedule 6—which were not included in the previous Bill. Those make amendments to the international accounting standards legislation in the most recent Finance Act, again responding to representations: in this case, that legislation would inhibit commercial restructuring.

To conclude this summary of the Bill, let me mention the further international measures introduced by clauses 51 to 65. Those make changes to legislation that will give certainty regarding the tax treatment of some transactions involving new European companies, particularly when they are formed by merger. They will also enable UK businesses to take advantage of this new type of corporate vehicle, if they so wish.

The Budget laid down measures that enable our country to respond to and meet the challenges of a changing society facing a competitive global economy. This second Finance Bill will enact legislation that ensures fair taxation by reducing avoidance, simplifying regulation and supporting important actions such as gift aid. I commend the Bill—

Will my right hon. Friend give way?

Will the Paymaster General give way?

I was on my last sentence, but I will give way to my hon. Friend.

The measures mentioned by my right hon. Friend will be very much welcomed by Labour Members. On the tax credit system, however—which has benefited many people and could only have been introduced by a Labour Government—in view of the constant mistakes and overpayments that cause difficulties to many constituents, and certainly mine, will she promise that she will examine the workings of the Preston office and see what can be done to improve administrative arrangements and minimise those difficulties?

Tax credits are not the subject of this debate, but there was an excellent debate about them in Westminster Hall this morning to which Members from all parts of the House contributed. If, after reading the transcript of that debate, my hon. Friend feels that my attention needs to be drawn to any further issues, I shall be more than happy to listen to him.

Will the Paymaster General give way just once more?

I think I will end my speech now. I commend the Bill to the House.

I draw the House's attention my entry in the Register of Members' Interests.

I congratulate the Paymaster General on her presentation of the Bill. This is the first time since Labour came to power that a Finance Bill has not been presented by the Chief Secretary. He is presumably in Luxembourg trying to save the rebate, something of rather more significance to the Exchequer than the measures that we are discussing.

As the Paymaster General acknowledged, the Bill consists largely of anti-avoidance clauses that were excluded from the truncated pre-election Finance Bill on grounds of complexity and the need for more detailed scrutiny. Since then, the Government have made a number of minor changes, which we welcome as far as they go and which vindicate our decision not to allow such complex legislation to go through on the nod. On key issues, however, major concerns remain.

Let me say at the outset that Conservative Members recognise the need for the Government continually to address tax avoidance and the racier forms of tax planning in order to protect the Exchequer, although it would probably help if the Treasury started with a bit of housekeeping at home and tried to avoid giving away £2 billion of overpaid tax credits. Many of the tax avoidance opportunities themselves arise from the increasing complexity of tax legislation. Since 1997, the volume of tax statute in force has almost doubled, creating a bonanza for lawyers and tax accountants.

This is a practical issue. Tax planning is a fact of life for international business, as is tax competition between Governments. Governments everywhere face the same challenge: to reduce the loss of revenue from tax avoidance and tax planning, while ensuring that they do not weaken their international competitiveness. The right balance must be maintained between those competing objectives.

We understand the Chancellor's predicament. He faces a fiscal black hole, with independent commentators—including the Institute for Fiscal Studies, the International Monetary Fund, the Organisation for Economic Co-operation and Development and the Item Club—all predicting that tax receipts will need to rise sharply if the golden rule is to be observed. He is in any case already projecting a hefty additional contribution from United Kingdom corporations. The Budget projections show corporation tax takes soaring from £34 billion this year to £43 billion next year—a 28 per cent. projected increase in the corporation tax burden, on the back of a growth forecast of 3 per cent. for the economy, at a time when our competitors are increasingly lowering their corporation tax rates.

We have two overarching concerns. The first is practical—we fear that the Treasury's collective judgment may have faltered under the pressure to find additional sources of revenue and the temptation to address all the avoidance schemes disclosed under the Finance Act 2004. Complex legislation is being proposed to produce additional revenues in the short term. Consultation has been limited, and the Treasury's response to some of the concerns raised has been, to say the least, rather high-handed. Assurances that wide powers will be used only narrowly in practice are no substitute for tightly drafted legislation. There remains a real possibility of inflicting damage on some of the UK's most dynamic business sectors in the medium term, and thus of damaging the UK economy's international competitiveness in the long term.

A successful anti-avoidance measure must increase the tax take while neither adversely affecting transactions not primarily designed for tax-avoidance purposes nor imposing on business a burden of compliance disproportionate to the additional revenue generated. Not all the measures in the Bill will pass those tests, and in Committee we will offer suggestions for achieving its anti-avoidance objectives without the collateral damage that the current drafting risks.

Our second overarching concern is the direction in which the Government are taking the tax code. Certainty and transparency are the hallmarks of a fair, effective and competitive tax system. A taxpayer is entitled to know with certainty—be it an individual or a multinational corporation—what he may or may not do in planning his tax affairs. He is entitled to expect that his treatment be laid down in statute, not determined by administrative fiat; he is entitled to expect that another taxpayer in similar circumstances will receive treatment similar to his; and he is entitled to be protected from retrospective or retroactive legislation.

There can be no doubt that this Bill carries us further down the path away from that ideal in several key respects: by giving powers that ought to be exercised by Parliament to officials, so that Revenue guidance will determine how much of the complex corporate anti-avoidance legislation works in practice, and by the use of retroaction not just back to the date of a press release—it is bad enough, but perhaps fitting, that a Government who govern by spin have determined to legislate by press release—but back even further, fundamentally altering the future commercial outcome of arrangements entered into perfectly legally, and sometimes, as in the case of the venture capital industry, with the active endorsement of the Treasury. In so doing, the Bill introduces an arbitrariness that undermines the fairness and predictability that are essential elements of an effective tax system.

My hon. Friend will recall, probably very accurately, the many racy and intoxicating debates that took place on the Floor of this Chamber in each of the last two Parliaments—to name but two—on the tax simplification rewrite project. He will also recall that the Paymaster General has never accepted a link, in theory or in practice, between the project and the potential implications for the composition of Finance Bills. Does he think it time that the Paymaster General accepted that there should be a link between the two, and that unless and until we reduce the size of Finance Bills we will be effectively ensuring that wealth is redistributed in favour of large businesses that can pay for specialist tax advice, and against small businesses that cannot?

I suspect that the actual outcome is that wealth is redistributed in favour of specialist lawyers and accountants, who benefit in proportion to the tax code's size and complexity. The Paymaster General will have heard what my hon. Friend said. I rather suspect that I am intruding into a long-running private debate between the two of them. I am sure that she will respond in due course, or perhaps the Financial Secretary will do so.

The hon. Gentleman is espousing some principles and arguing that, in a sense, the Bill offends them. Can he put some flesh on the bones and give actual examples that we can get our teeth into concerning the need for certainty and the use of excessive regulatory powers?

If the hon. Gentleman, who will perhaps be a member of the Standing Committee scrutinising this Bill, will bear with me, I am about to come to some of the Bill's specific provisions.

Part 1 deals with VAT and, as far as it goes, is largely uncontroversial. I say as far as it goes, because one of the surprises is that the Bill does not contain more VAT anti-avoidance legislation. More than 700 VAT-avoidance schemes have been disclosed under the regime introduced last year, but the Government seem unwilling or unable to address them, presumably because of the involvement of EU institutions, particularly the European Court of Justice, in the interpretation of VAT rules. If the Government have lost the ability to take measures against VAT avoidance and, depending on the outcome of the Marks and Spencer case, which is currently before the European Court of Justice, against the loss of supposedly red-lined direct tax, where intra-EU losses are involved, that is grim news for domestic direct taxpayers, who will find that the Government's hunger for revenue is focused upon them.

The disclosure regime, which is being extended by part 1, is a significant burden on business and will increase with the proposals. We will seek an assurance from the Paymaster General during the Committee stage that there is a point to the extension of the disclosure regime and, indeed, to the continuation of the VAT disclosure regime. If business has to incur the cost and burden of disclosing, we must know that the Government have the will and the ability to deal with what is disclosed.

It is about deterrence.

The Paymaster General has been notified of more than 700 avoidance schemes that are in use, yet nothing in the Bill shuts down any of them.

While I am on the subject of the ECJ, experts are sceptical whether a number of other provisions in the Bill comply with the United Kingdom's treaty obligations. Perhaps the Financial Secretary will, in his winding-up speech, confirm that the Government have clear legal advice that clause 32, relating to chargeable gains of temporary non-residents, the anti-avoidance provisions of clauses 43 and 44, relating to double taxation relief, and the provisions of part 4 implementing the European company statute are all compatible with our treaty obligations and cannot be struck down by the European Court of Justice. The consensus of expert opinion outside the Treasury is not confident on that point, just as the consensus of expert opinion outside the Treasury seems to believe, unlike the Treasury, that the Revenue is likely to lose the Marks and Spencer case.

I want to touch briefly on clause 11, the gift aid clause, if only because it acts as a timely reminder that tax planning opportunities are open to all taxpayers, not only corporate giants and city whiz kids. The clause addresses the loophole in the gift aid scheme that has allowed many charities charging admission to museums or heritage sites to dress up those charges as gift aid donations. I readily accept that that was not the original intention of the gift aid scheme. However, the House will recognise that the proposed changes will impact on a significant number of charities, some of which are competing on a very uneven playing field against Government grant-aided museums that are able to offer free admission. What is the Government's estimate of the net revenue effect of that measure? The concern remains that some charities may be significantly affected and even that some small museums may have to close as a result of the loss of revenue resulting from the closure of that tax loophole.

Clause 12 deals with employment-related securities and provides us with an example of the risk of unintended consequences. The Government are rightly determined to close tax planning that reduces PAYE and NIC charges on salaries. There is no doubt that employment-related securities have been used to avoid tax and national insurance contributions, particularly on bonus payments. However, I hope that the Paymaster General will acknowledge that employment-related securities are also an important tool in seeking to align managers and staff in a business with the interests of the shareholders.

Let us not throw the baby out with the bath water. The proposed regime gives such wide discretion to the Revenue that, although the Government have said that this widely drafted legislation will be applied only to blatant avoidance schemes, employers may shy away from issuing securities to employees where there is any risk that they could be held liable for failing to account for PAYE and national insurance contributions that the Revenue determines, at a later date, should have been paid. That would be a great pity and a potential loss of competitive advantage to Britain.

Clauses 16 to 23 deal with the taxation of authorised investment funds and introduce a series of minor but burdensome changes, as well as paving the way for future changes to legislation affecting the taxation of authorised investment trusts to be done by regulation rather than by primary legislation. Will the Financial Secretary tell the House whether it is now envisaged that the proposed major reform of the taxation of authorised investment funds will be implemented by regulations? Fund management is a major UK industry and one in which we enjoy considerable competitive advantage. Changes affecting such a significant and tax-sensitive industry should be made by primary legislation, not by regulations. I hope that the Financial Secretary will reassure the House on that matter later this evening.

Chapter 4, which deals with tax arbitrage, remains one of the most controversial and complex areas of the Bill. While attacking tax avoidance, this group of clauses raises significant concerns because of its wide scope and the substantial new Inland Revenue discretions that it introduces, with consequent substantial uncertainty for both UK multinationals investing abroad and inward investors. So-called hybrids, which are at the root of the tax arbitrage targeted by these provisions, are extensively used in international financing arrangements. Experts tell us that much of the interest paid on many billions of pounds of debt, funding US corporate investment in the UK—almost all of which is arranged through some kind of hybrid entity—is vulnerable to being disallowed by a notice issued by the Revenue under clause 28.

It is far from clear to us that the Government have made any assessment of the longer-term effects of that measure. Multinational corporations will reorganise their affairs in response. Will the UK, seeking to act as the world's policeman on hybrid entities, actually bring about revenue gains for the UK Exchequer in the long term through this measure, or will multinational corporations simply rearrange their affairs so that tax authorities in other jurisdictions benefit at the expense of UK investors?

These provisions are not simply anti-avoidance measures: they introduce wide-ranging and arbitrary new Revenue powers to determine tax liability by the issuing of a notice, even when the Revenue believes only that avoidance "may" be occurring. The Government will be aware of the extent to which the draft legislation unsettled US investors in Britain. The operation of this chapter will have significant consequences for competitiveness, both through revenue raising and through the uncertainty that it will create. If it is not to damage British business, it will require a detailed review in Committee and a tightening of its scope and of the proposed enforcement procedure.

My hon. Friend is raising an important point. If this degree of discretion is to be granted to the tax authorities, is it not essential that the Government guarantee that any taxpayers seeking clearance of any set of proposals before they are introduced will gain tax certainty by securing such a clearance from the tax authorities? They will then know precisely what the tax consequences of any measures will be before they are introduced.

My right hon. Friend is absolutely right. As he knows, many jurisdictions already have general anti-avoidance regimes—some of the provisions in the Bill are so widely drawn that it looks as though we are moving in that direction—but they typically have strong pre-clearance regimes, which allow taxpayers to establish their position precisely and with a statutorily protected degree of certainty. That is certainly one of the issues that we shall want to explore in Committee. If taxpayers are to be subject to the wide discretionary powers that are proposed not only in relation to tax arbitrage but in other parts of the Bill, the provisions will have to be matched with a strong pre-clearance regime to give taxpayers real certainty over a defined period of time that is not left to the Revenue's discretion.

I come now to clause 39, which introduces schedule 7. It is an anti-avoidance measure, as the Paymaster General said, aimed at complex financial instruments, and it is largely a response to schemes that have come to the Revenue's attention through the disclosure rules introduced by the Finance Act 2004, which often involve attempts to convert income receipts into capital form to exploit the wide difference between capital gains tax rates and corporate income tax rates. Although some changes have been made since March, experts remain concerned that the Bill is still too wide in scope, that it is poorly and widely drafted and that it will still catch too many innocent commercial activities that it is not intended to catch.

We accept the need to address that type of sophisticated tax avoidance, but in Committee we shall want to look closely at the provisions' retroactive effect and at the powers granted to the Revenue under this schedule. We shall also seek concrete assurances that rapid action will be taken if any of the provisions, once in operation, impose additional tax liabilities on innocent commercial transactions.

I am listening to the hon. Gentleman with care, but I am somewhat confused. On the one hand, he says that the Opposition understand what the Government are about in respect of tax avoidance, but on the other, he lists a raft of measures to which he takes exception. Will he say whether the Opposition will agree later tonight to the Bill getting a Second Reading?

I can tell the hon. Gentleman that I shall not ask my hon. Friends to vote against the Bill this evening. We accept the principle that the Government must constantly maintain their armoury against the evolution of tax avoidance and tax planning practices. However, as I said earlier, it is a question of balancing the desire to protect the revenue with the need to maintain our international business competitiveness. Our contention is that although the principles on which the Bill is based are sound, the Government have got the balance wrong in the drafting. The arbitrariness of the powers to be given to the Revenue and the wide scope of many of the provisions in the Bill have created a climate of business uncertainty. Ultimately, that damages the UK economy.

Schedule 7 is a long, detailed and incredibly complex catalogue of measures. Ten minutes with it is worth about half a dozen Mogadon tablets, so I shall not go into the detail now. However, I advise the House that we shall go into great detail when we consider the Bill in Standing Committee.

Will my hon. Friend give way?

If my hon. Friend will allow me, I want to make a little more progress.

Clause 40 and schedule 8 are designed to prevent businesses owned by private equity and venture capital organisations from obtaining what the Revenue regards as excessive tax deductions for loans made from overseas. Typically, in the venture capital and private equity model, the UK acquisition vehicle is funded with debt, and the tax deduction for interest on that debt shelters the corporation tax liability arising in the business acquired. There are real concerns in the City about whether the measures are based on a proper understanding of the private equity business. Moreover, there is strong resentment about how the changes have been badged as anti-avoidance, when private equity financing traditionally has followed a model agreed with the Revenue.

As drafted, the Bill will catch a wider range of transactions than the Treasury appears to have envisaged. For example, bank debt raised by acquired companies will be caught, which will increase uncertainty and inevitably affect the pricing of transactions. The provision could also catch financing structures under the private finance initiative, so I hope that the Financial Secretary will say how the proposals in clause 40 and schedule 8 are expected to affect the Government's PFI funding programme.

As a result of the proposed measures, the UK will become less attractive at a time when our European competitors are attempting to expand their share of inward private equity investment and to promote themselves as bases for private equity houses. As the British Venture Capital Association has urged the Chancellor, there is a need to reconsider the proposals in their entirety if we are not to damage an important sector of the UK economy.

Clause 42 and schedule 9 deal with life assurance companies. They have retroactive effect and have caused at least two companies to issue profit warnings. However, I am sure that the House will be more concerned about the possible impact on policyholders, including pension fundholders, who are already being clobbered by the Government's annual tax raid of £5 billion.

Disconcertingly, paragraph 3 of schedule 9 would allow a fundamental change in the way that life assurance companies are taxed, to be introduced by means of statutory instrument. This area of specialist taxation is highly complex and the agenda is being driven by one or two senior Revenue officials who, no doubt, are committed to increasing revenue yield. Perhaps they are on performance-related pay. However, they are not in the best position to balance the revenue- raising imperative against the wider issues raised by the pensions crisis. In such a specialist area, it is difficult to be confident of effective peer review within the Revenue or, dare I say, of adequate ministerial oversight of the policy agenda.

The intention, as I understand it, is to change the treatment of income arising on certain assets within the life assurance companies' funds which, on the basis of current actuarial assessments, are deemed to be surplus to what is required for the protection of policyholders. Life assurance companies face a complex regime that taxes policyholders at 20 per cent. on the funds invested to support their life and general annuity policies and 0 per cent. on funds invested to support their pensions, and taxes profits made by shareholders of the company, quite properly, at the full corporation tax rate of 30 per cent. The Government's proposal is to insist that surplus funds are treated as shareholders' funds so that income on them is taxed at the higher rate. As we understand it at the moment, that proposal will apply, absurdly, even to mutual insurers that have no shareholders, but will still be taxed at the shareholder rate.

We accept that there is scope for tax avoidance where genuinely surplus funds are allowed to roll up at a lower rate of deduction and then potentially transferred out to the benefit of shareholders at a later date. However, the recent history of pension funds and life assurance companies in this country should lead us to be very careful about taking any short-term view as to what constitutes surplus assets that may be required to support future liabilities, and thus can be treated as shareholders' funds subject to the higher rate of tax. I hope that the Financial Secretary will acknowledge the extraordinary complexity of this area and the special dangers that arise when very few people genuinely understand the issues. I hope that he will agree that in such circumstances it is all the more important that in Committee we scrutinise the proposals in schedule 9 very carefully.

Finally, can Ministers explain why, at a time when all building societies, most banks and most investment product providers fall under the compulsory jurisdiction of the financial ombudsman service, with rules set by the Financial Services Authority, the Government propose, in clause 69, that the statutory adjudicator for national savings should be abolished in favour of the voluntary jurisdiction of the financial ombudsman service? At a time when the Chancellor's fiscal deficit means a greater role for national savings and the consequent need to enhance consumer confidence in national savings products, and at a time when other providers are increasingly subject to compulsory regimes, that seems to us like a case of, "Do as I say, not as I do" by the Government.

It will be clear to the House that the Bill deals with complex matters. There is a very real concern that a substantial share of the burden of this legislation will fall on some of the most dynamic sectors of the UK corporate economy—UK headquartered multinational groups, fast-growing venture capital and private-equity-backed businesses and UK-based investment houses. As a result of its very wide drafting, UK multinationals potentially face higher costs of investment in overseas markets than their competitors; growing UK businesses will potentially find it more difficult to attract investment by international, and particularly US-based, venture capital and private equity funds; London will potentially become a less attractive base for international investment business; and the UK will become a more expensive location for internationally mobile investment.

We recognise the anti-avoidance driver behind much of this legislation, but in Committee we must ensure that the correct balance is restored between drafting anti-avoidance legislation widely enough to ensure that it is not circumvented and maintaining a regime that is sufficiently clear, certain and fair not to deter investment in the UK or by UK businesses abroad. We cannot act as the world's policeman. If the UK Government do not like international tax practices, they must address them by negotiation and by treaty. To try to tackle them unilaterally will not solve the problem—it will simply disadvantage British business to the benefit of our competitors. However tempting the shortcut, we must maintain the distinction between Parliament making our tax laws and the Revenue enforcing them.

Since 1999, Britain's position in the international competitiveness league has fallen from fourth to 11th place. Our trade has gone from a surplus to a record deficit and a million manufacturing jobs have been lost. Productivity growth is down by a third, as is the savings ratio, and average take-home incomes for families have fallen for the first time in 15 years. At the same time, the burden of corporate tax is growing faster than the growth rate of the economy.

Back in 2001, in response to those emerging trends, the Chancellor announced his intention to make the UK tax regime more modern, more competitive and fairer, and to remove tax distortions that impact on commercial decisions. What he has delivered is a projected huge increase in the corporate tax burden in the coming year and, on top of that, a raft of widely drafted new anti-avoidance legislation which, if we are not careful, will further erode the long-term competitiveness of British business in the short-term pursuit of extra revenue to fill his fiscal black hole.

We accept the principle that there is a need constantly to update anti-avoidance legislation, but the Government do not have the balance right in the Bill. As I said to the hon. Member for Wirral, West (Stephen Hesford), I shall not ask my hon. Friends to vote against the Bill tonight, but I can tell the Paymaster General that in Committee we shall seek further to limit the scope of some of the measures, to reduce the potential for collateral damage and unintended consequences and to increase certainty for taxpayers. We shall seek to reduce the scope for arbitrary decision making by officials and, as my right hon. Friend the Member for Charnwood (Mr. Dorrell) suggested, increase the opportunity for taxpayers to achieve certainty through rigorous pre-clearance processes.

The Bill before us today is better than the one published in March, thanks to our insistence on an opportunity for further scrutiny. With a constructive engagement on both sides of the House to digest and analyse the huge volume of input from outside experts and interested parties, I hope that the Bill will be still further improved by the time it completes its parliamentary passage, to the benefit of British business as a whole.

First, I draw the attention of the House to my entry in the Register of Members' Interests.

While the hon. Member for Runnymede and Weybridge (Mr. Hammond) was making his straightforward and fairly analytical contribution I thought that he would avoid mentioning the macro-economic background that his party articulates. I was somewhat surprised by that, as I cannot recall a debate on a Finance Bill where the official Opposition spokesperson managed to speak for 25 or 30 minutes without mentioning macro-economic policy. However, the hon. Gentleman let me down, because in the last two or three minutes of his speech he could not resist the chance to make a point about the macro-economic background, which gives me the opportunity to refer to those issues, too.

As my right hon. Friend the Paymaster General mentioned in her introduction, it is always difficult to deal with a Finance Bill after a general election. When part of a Bill is taken before the election and part afterwards, most of us forget which part has already been dealt with and which part remains, so we are indebted to the guidance notes for keeping us right on those points. But when people voted at the general election they knew what was in the first Bill.

People recognised the importance of measures that would improve the economic situation, especially the economic well-being of poorer families. After the tax changes in the first Bill, a family on £400 a week with two children was £25 a month better off. That was a telling statistic, which people understood during the general election. They also understood the provisions in that Bill about council tax assistance for pensioners. There were many other aspects, including some of the changes to the industrial context in which our manufacturers and service providers operate.

We are debating the second Bill today. Those on both Front Benches have said that it deals with a lot of complex, technical issues, but some important principles are involved, and we will consider them further in Committee. A section of part 2 that is of interest to me is formed by clauses 7 to 10, which raise the important principle of having a flexible approach to taxation on pensions. That will become an ever more important issue, which the House will have to face as the years go by. Choice and flexibility will be more important in pensions, and our tax law must reflect that, so it is right to include those clauses.

Clause 13 deals with the important principle of providing assistance to those who will invest in research and development. I have always believed that continually pressing home technical know-how and continuing to invest in future science and technology are what the core of this country's manufacturing and service industries are based on. Although small, such changes are important in establishing that principle. That is also the right thing to do.

Clauses 16 to 23 deal with the regulatory reform of various forms of investment vehicle, and it is right that the tax system should respond to changes in their structure. There is a lot of detail on which, no doubt, those who are fortunate enough—or unfortunate enough—to serve on the Standing Committee will receive many submissions from industry. Those are important clauses.

Clauses 24 to 31, in chapter 4, are also of particular interest to me, as they deal with tax arbitrage—something that has bedevilled Governments for many years in trying to achieve a fair taxation system, so that an institution or individual pays tax fairly in at least one country's tax regime. Again, it is important to deal with that issue not only to improve fairness and justice in the taxation system, but, quite frankly, as a matter of revenue raising. It is important that we get our share of revenue from economic activity that has been based in this country or has been generated by the people of this country. Those clauses are important—that is the right thing to do—and, taken together, they will have the effect of helping us to maintain high revenue, which allows us to do the things that we want to do as a nation.

As I have said, the people of this country have clearly supported the macro-economic background on which the first Bill was based. They have recognised that stable economic policies, which have led to the lowest unemployment for 30 or 40 years and the lowest interest rates, have been not only socially desirable—they have given jobs to people who previously did not have jobs—but economically essential to raise the revenue that was necessary to invest in health and education, which all hon. Members believe are important aspects of expenditure. That macro-economic context was the background to the first Bill, on which the public have already had the opportunity to express their views.

When the public know of our deliberations on the second Bill and when we have simplified, if we possibly can, some of the complexities, they will again show their support for the provisions that have been included. The public of this country want a fair and just taxation system in both the private and the corporate sectors. They want to ensure that what the law says people should pay is actually paid, and it is incumbent on all of us who deal with the Bill to ensure that that happens.

Although the hon. Gentleman was wary of entering into macro-economic policy until the last few minutes of his speech, the same wariness has not been as notable from many of his colleagues, who have argued that the Government's revenue expectations in their financial plans will not be met for several reasons, such as getting the sums wrong. I believe that the Government have taken the right approach. Governments can never be perfect in this regard because things happen that cannot be predicted at the time when plans are drawn up. However, for the past eight years the Government have tried to achieve stability in economic policy, fiscal expectation and monetary policy. They continue to do that, which will be absolutely crucial if we are to be able to continue on the course of raising revenue so that we can achieve the expenditure patterns that we all want. I was pleased that that approach was continued in the Budget and that it has been carried through into both this year's Finance Bills.

My right hon. Friend the Paymaster General would not expect me to go the whole way with her all the time—[Laughter.] If I thought that it would help me to rephrase that comment, I would. My right hon. Friend would expect me to raise a cautionary note. Although plans and designs are drawn up to bring about economic stability, we all recognise that things can be blown off course. The situation in the middle east is a problem that faces that whole world. If there is political instability, it usually follows that there is economic instability, so if we do not maintain political stability throughout the middle east and Iraq, there is the danger that economic instability could flow through across the world, the effects of which one economy of 60 million would not be able to avoid. I thus urge the Government to continue to press for political solutions in the middle east and Iraq.

My second cautionary note relates to what is happening in the European Union. Political instability has been created due to the events in France and the Netherlands, so I fear that that will bounce over into economic instability. I said in the House yesterday that I welcomed my right hon. Friend the Foreign Secretary's statement because he realised that we should not rush into anything premature on either the political or the economic agenda to deal with the situation facing us in the European Union. I am pleased that he intends to try to get as much agreement as possible to build political stability at the Council of Ministers next week, rather than trying to exploit matters on which there might be disagreement among members of the European Union.

A great onus will be laid on this nation from 1 July when we take over the European presidency. I cannot remember a more difficult time at which any country has taken over the presidency—certainly in the past 25 or 30 years. The challenge will be maintaining political stability. Many economic arguments will be put that could affect the European economy and thus our economy.

There must be some change. People in France were not really voting on the detail of the constitution, but the political situation in which that constitution was put before them. They were worried about the apparent failure of the European Union to respond to the country's 10 per cent. unemployment. We will have to tackle such issues during our presidency so that we can help to contribute towards greater stability. Other EU members can probably learn from this country's success on supply-side issues and they might be prepared to consider changes, but other macro-economic issues cannot be avoided. The stability pact has not brought about success throughout the European Union. The pact has led to recession in Germany and France, and in some of the other nations. Before the votes on the constitution last week, the Germans and French recognised this point and minor changes were made to the stability pact in March this year. I believe that there is a responsibility on our Government to take forward those discussions during the presidency and to look at how changes might be made to the pact so that it brings greater stability to the other economies in Europe. Without that, I fear that there could be serious repercussions for our economy.

I have said what I intended to say. There are many technical issues in the Bill and those who serve on the Committee will attend to them. There will be many submissions from interested parties. We can be thankful that the Opposition have recognised that these important changes need to be made and are demonstrating that by not voting against Second Reading this evening.

We have had a salutary reminder from the hon. Member for Newcastle upon Tyne, North (Mr. Henderson) that the great thing about economics and finance is that everything affects everything else. I will try to be a little more focused on the Finance Bill itself but, since he has given us the invitation to talk about macro-economics, I should pay tribute to the Government, as there is no doubt that their track record on macro-economic stability is a very good one. We are all in favour of macro-economic stability, which has been the happy result of the Chancellor's granting of independence to the Bank of England and of the framework for fiscal policy that has been pursued, including the golden rule.

As for the economic record, it is worth pointing out, before Ministers allow hyperbole to get the better of them, that their record is good but not as stellar as is usually claimed. In fact, no fewer than six of the other old European Union countries have grown on average more rapidly since 1997. Embarrassingly for the Conservative party, perhaps, five of those countries are in the euro area—Finland, Ireland, Spain Greece and Luxembourg.

Unemployment is far too high across the continent and particularly in the big three economies of Germany, France and Italy. However, unemployment is primarily the result of national labour market policies, which is why its pattern varies so much from one country to another. Those countries such as our own that have embarked on the process of structural reform and have made their economies more flexible have been rewarded with a good growth record and a good fall in unemployment; a third in the case of Spain, a quarter in the case of Finland and a half in the case of Ireland since 1997.

If a little more modesty is in order on macro-economics, a good deal more modesty on micro-economics is in order. In the period since I started looking at the British economy, the boom and bust in the housing market has repeatedly been the ghost at the feast. Yet what have the Government done on the housing market? Ministers disparaged my hon. Friend the Member for Twickenham (Dr. Cable) when he first warned of the consequences of another house price ramp at the end of 2002. I hope that the unwinding of that boom will be less painful than the unwinding of the last one under the previous Conservative Administration, as it should be given the more stable macro-economic environment.

However, our household liabilities are now exceptionally high both by our own standards and by those of other countries; we are a nation in hock to our homes. That is lovely and warming when house prices are rising, because the effect of making tax-free capital gains with other people's money is highly gratifying. However, it is much less comforting when prices stagnate or fall, as they are now doing. That may be one explanation for the sluggishness of retail sales that has been widely reported and which may begin to have an impact on the underlying finances that we are addressing in this Bill.

Perhaps concern about the end of the feel-good boom in house prices and on the high street is one reason why the Finance Bill signally fails to correct a taxation error that will come into effect on 6 April 2006 and on which the Paymaster General has provided a partial defence to criticisms. Under the provisions of self-invested personal pensions, anybody can invest their personal pension pot in a buy-to-let home and benefit from full tax relief on the money put in, up to a limit of £215,000 a year. Indeed, people can benefit from full tax relief on assets such as vintage cars, wine collections, flats purchased so that children may live in them while at university, and even what my noble Friend Lord Oakeshott of Seagrove Bay pithily described in another place as the occasional jet-to-let property in St. Jean Cap Ferrat.

Let us take the example of a successful professional person who decides to buy a £215,000 flat as part of his or her SIPP for a child to live in while at university. No less than £86,000 of the purchase price will be paid by all other taxpayers. The purchasers will be able to sell the flat on in three or four years and pay no capital gains tax because the property is held within a tax-free fund. Those provisions are a serious and imminent threat to the public finances. We will argue in Committee that there must be an amendment if there is not to be an important loss of revenue. I hear what the Paymaster General said—indeed, we should bear in mind the invitation extended by the hon. Member for Normanton (Ed Balls)—that that will not necessarily happen because of other examples of capital gains tax taper relief not coming home to roost.

The hon. Gentleman criticises an important element of the Bill. Is he against the tax break for people who invest in real estate in their pension funds, as introduced in the last Finance Bill? Presumably it is retained in this Bill, which is why we are discussing it, and I think that the provision comes into force next year. Is he against tax breaks for pension investment altogether, or does he think that there should be no tax incentive if the asset acquired in the pension fund happens to be real estate rather than some other investment?

Let me come to that. The hon. Gentleman anticipates the obvious solution that I was going to suggest at the end of my remarks on this section. Although the Paymaster General reassured us on the matter, I remind her that when my party raised similar concerns about the disadvantaged areas provision, the Treasury rapidly decided to close the loophole.

Does my hon. Friend share the view that a further worrying aspect of SIPPs is the likely increase in demand for a second home, particularly in rural areas, thereby fuelling the rapidly rising house prices in areas such as my constituency and pricing houses beyond the means of people on local average wages?

That will be a problem and I am not reassured by the Paymaster General's response that the Inland Revenue will make substantial checks to ensure that that does not happen. Under existing provisions, people could buy a second home—I see the hon. Member for Grantham and Stamford (Mr. Davies) perk up at this prospect—on the Côte d'Azur or somewhere in Croatia, for example. It beggars belief to imagine that Inland Revenue inspectors are going to be hopping on easyJet to check out whether people have used those homes themselves or are letting them out properly, which is the purpose of the exemption.

The obvious solution is not to undermine the principle of a SIPP, but to exclude the more exotic assets and to postpone the inclusion of residential property until properly constituted and regulated real estate investment trusts are available. That would allow pension funds to continue to invest in residential property, but on a similar basis to the way in which most institutional investors invest in residential property, which it is rare for them to do directly because of management issues. That is a way to close the loophole.

The hon. Gentleman is wrong about institutional investors: sometimes they decide to take a direct stake in a property. By denying them the right to do so, he will both distort the market and ensure that, to get the benefit of the pension investment, people have to pass through intermediaries, who will presumably deduct fees, commission, management charges and so on. Does he really believe that it is a good idea to distort the investment market in that fashion and to tell people that, if they want a tax break, they will have to give up some of the benefit to an intermediary? We have been through that before and found it foolish, since it diverts resources from the taxpayer to financial intermediaries, rather than encouraging the taxpayer to save more, which is what we want.

I know of no institutional investors who directly manage residential property: they may own it directly, but they have an intermediary managing the property for them. However, I shall enter into correspondence with the hon. Gentleman on the subject. My understanding is that relatively little, if any, investment goes into residential property directly, as opposed to via other investment funds, so I doubt that a distortion such as he describes would be created.

I understood the Paymaster General to say that the assets would be owned by the pension fund, rather than by the individual. Therefore, in the example the hon. Gentleman gives of a person who invests in a property for children at university, to fulfil their statutory obligations, the trustees of that SIPP fund would have to set the rent at the market rate. There would be no gain for the family, because the children at university would not be getting a cheap rent, but would have to pay a market rent. Where is the gain?

To be frank, the real potential is in abuse. I am not persuaded that the Inland Revenue is in a position to check, in particular because, as I understand it, the provision is open to investments in property both inside the UK and outside it, certainly throughout the European Union.

On other occasions, the Treasury's desire to tackle tax avoidance proves altogether too blunt, as seen in the provisions on authorised investment funds. The fund management industry is a small jewel in the crown of British financial services, with some £2 trillion in assets under management in this country, third only to the United States and Japan. Moreover, it is a branch of the industry that does not need to cluster in the great financial centres, which is why there are thriving asset managements in Edinburgh as well as in London and other centres across the UK. In Committee, we will voice detailed concerns about the possible reintroduction of double taxation for some types of qualifying investor scheme, which might prove unhelpful to the objective of ensuring that Britain remains a highly competitive centre of fund management.

Wider principles are raised in the provisions on authorised investment funds. In general, it might be sensible to delegate the technical regulatory powers to the Treasury, as clause 17. At present, the AIF tax code details are mainly in primary legislation, which can be changed only annually, as the hon. Member for Runnymede and Weybridge (Mr. Hammond) said. The delegation of those enabling powers seems as sensible for us in the UK as the similar delegation of enabling powers at European level under the Lamfalussy proposals, which all the parties welcomed. However, we find in the Government's proposals none of the safeguards that became normal in European financial services legislation. There is no obligation on officials to proceed with openness and through drafts for consultation, nor any mechanism whereby Parliament can satisfy itself that such commitments to openness and consultation have been honoured.

In all European financial services legislation since the Lamfalussy report, the European Liberal Democrats have proposed—with the support of all the other parties represented in this place—a sunset clause on delegated powers, which removes them after four years. I hope that Treasury Ministers, if not their officials, can see the value of inserting such a provision in respect of the newly delegated powers. At present, there is a simple approval of new regulations by the House when they are first introduced; thereafter, revisions are subject only to the negative resolution procedure. There is no trigger point at which a general assessment of the operation of delegated powers can be undertaken, but it seems to us that there should be.

Another issue that is always a matter of concern in any Bill, and certainly in any Finance Bill, is the inclusion of retrospective provisions such as those in clause 12. I recognise that there is a hue and cry about retrospection every year, and also that retrospective tax provisions are less of an intrusion into the personal freedom of the individual than, say, retrospective criminal offences. However, retrospection is surely a sign of failure of foresight. It is representative of Treasury officials recognising that a particular tax avoidance scheme is so serious that it must be dealt with retrospectively. Surely it is better to anticipate problems than to tackle them after they have occurred. It is also surprising, given the Treasury's new powers to insist on the disclosure of schemes marketed to clients for tax avoidance, that these retrospective measures are still deemed necessary. Perhaps the Paymaster General will give some thought to encouraging her officials to keep their ears to the ground.

The hon. Gentleman has referred to quite a bit of stuff that is not actually in the Bill, so he will have difficulty referring to it in Committee. On his point on clause 12, the measures are not retrospective. If he cares to look at the history of the previous Conservative Government and this Government in dealing with this particular kind of avoidance, he will see that measures targeted at tackling such avoidance did not work. So the Government have made a clear statement that said: "This is subject to tax, and it will be paid." This has nothing to do with retrospection.

I thank the Paymaster General for that clarification, but we hope that the retrospective elements in the Bill will prove less necessary over time, as the Treasury's new powers come into greater use. It now has far fewer excuses for retrospective measures, and I hope that she will point that out to her officials.

These provisions are also typical of the Government's obsession with complexity—often, it seems, for the sake of it. When it comes to macro-economic policy, the Treasury team has constructed an edifice that is simple and strong, with clear Palladian lines. However, it seems to compensate when it comes to micro-economic matters by indulging in a wild taste for the baroque. There is scarcely a tax provision unadorned in successive Finance Bills, to such an extent that the Government must now surely be the pride and joy of the professional advisers, whose fees grow fatter every year as a result of the expense of interpreting the Treasury's latest provisions. KPMG has pointed out that, over the past eight years, the annual Finance Bill has grown in length by 35 per cent. compared with the previous eight-year period. It is not obvious, however, that outcomes are so much better for the undoubted increase in inputs.

In sum, we support the macro-economic stability that has been a feature of this Government's record to date, although we note that the international comparisons are not quite as favourable to the Government as those on their Front Bench would have us believe. However, we have serious reservations about the omission from the Bill of measures on tax avoidance, particularly concerning self-invested pensions, that we shall seek to address. We also have reservations about the provisions on asset management, and about the checks and balances necessary to delegate powers to the Treasury in that respect. Finally, in approaching these measures, we shall attempt to ensure that simplicity is the watchword.

Thank you, Mr. Deputy Speaker, for giving me the opportunity to make my maiden speech in this debate. I represent with great pride the constituency of Newport, East, and I would like to express my thanks to the people of the constituency who have sent me here. I have heard rumours that hon. Members sometimes have difficulty in paying tribute to their predecessors. I am sure that that is not true, but I have no such problem. Despite the fact that my immediate predecessor originally came to the House as a Tory, I know Alan Howarth very well and I know of his diligence and his ability. During the election campaign, the people of Newport, East told me time and again of his determination and effectiveness in tackling their problems. He was also, of course, a splendid Minister in several Departments who left a lasting legacy in the shape of his contribution to widening access to higher education, to the arts, to developing disabled people's rights and to building a national child care strategy.

I mentioned that Alan started out as a Tory—as the Conservative Member for Stratford-on-Avon. Political parties do not always react well to Floor-crossers, but it was a sense of duty and conviction that led Alan to cross the Floor in 1995. He was welcomed very warmly by the Labour party in Newport, East—no mean feat for a Conservative in south Wales. I assure hon. Members and my constituents that, although I aspire to be as good a constituency Member and parliamentarian as he, I can categorically state that I will never cross the Floor. I am so pleased that Parliament will not be losing his talent, and that I will not be losing his sage advice and experience.

I also pay tribute to Alan's predecessor, the late Lord Islwyn, who like me and Alan Howarth, made his maiden speech on Second Reading of the Finance Bill. He represented Newport for more than 30 years and, sadly, passed away in the last Parliament. I note in passing that that makes two Members for Newport, East in a row who have been elevated to the other place.

My constituency of Newport, East stands at the gateway to England and Wales—or the other way around, depending on how one looks at it. It stretches from the eastern banks of the mouth of the River Usk to the communities of Roggiett, Undy, Magor and Caldicot.

Newport has a very proud political history. It was the cradle of the Chartists and later home of the Chartist riots in 1839. The demands made by the Chartists are the principles that we now take for granted and, indeed, formed the basis of modern parliamentary democracy: universal suffrage, secret ballots, the abolition of the property qualification for Members and, of course, wages for MPs so that not only the wealthy could represent the people.

Born—surprisingly enough—as a port, Newport became in the 19th century one of the most important places in the country for coal export. Later, the steel industry made its home in Newport, at Llanwern in the Corus plant. In light of recent experience, Lord Islwyn spoke prophetically when he said in his maiden speech in 1966:

"it would . . . be tempting fate to rely so exclusively on this one form of trade."—[Official Report, 25 May 1966; Vol. 729, c. 503.]

When, in 2001, Corus announced the end of steel making and serious job losses at the Llanwern steelworks, many thought that the town would be devastated. Newport, East has fought back, though, because of the enduring quality of its greatest asset—the people of Newport, East, who have always shown their ability to bounce back from setbacks and difficulties, adapting and responding to changes in industry and society.

Four years is a very long time in politics and so much has changed. My constituency is now enjoying a renaissance. The word "renaissance" is easy to use; nearly every local government strategy document proclaims a local renaissance, and it might seem overly grandiose, suggesting a perfect image of 15th century Italy—a combination of economic and cultural revival—but in Newport's case, it is true. There is certainly an economic renaissance. Despite losing part of its core industries, the city is proving that it can re- establish itself as a centre of modern industry and commerce. New industry in the high-tech and financial services sector is being attracted to the constituency. That includes companies such as EADS Defence and Security Systems, which I visited during the campaign, and which is bidding for the new UK fire and rescue services communications system.

Thanks to the good relations and teamwork between the work force, management and unions, Corus reported record profits this year. Thanks to Labour teamwork in Westminster, the Assembly and on the excellent Newport council, the city is home to Wales's first regeneration company—Newport Unlimited, which is redeveloping the city centre with £30 million for jobs and development.

The renaissance is built on the strong foundation of a better skilled work force. The University of Wales in Newport, in neighbouring Newport, West, has had the largest increase in full-time undergraduate applications of any university in the United Kingdom and is one of the top UK universities for widening access to higher education for students from the state school sector. That is a signpost of bright things to come for Newport, East, but the future development that Newport needs must be as a result of commercial decisions dependent on the Government continuing to create the conditions to ensure a strong and vibrant economy in Wales. The measures in the Finance Bill, however complex and technical, will enable us to do that.

I am very proud that we have the best economic background in Wales for decades, helping a huge cross-section of people to share in the prosperity that a stable economy is providing. There are now more people in Wales in work than ever before, and unemployment in Newport, East has been halved. It is vital that we continue that growth.

Some might say that the renaissance in Newport is due to the popularity of the GLC—not the Greater London council but the Goldie Lookin' Chain, Newport's rap stars whose spiritual leader is my hon. Friend the Member for Newport, West (Paul Flynn). What is certainly true is that Newport's renaissance is intimately associated with its cultural life. Thanks to the legendary club, TJ's, Newport is a cultural Mecca for the alternative music scene. It is a city with its own cultural and sporting heroes—Caldicot male voice choir, Newport Dragons rugby team, Newport County FC, the Welsh national velodrome and the sports village. Although it is just outside my patch, I am sure that my colleague in Newport, West will not mind my mentioning that I look forward to hosting the 2010 Ryder cup at the Celtic Manor. Newport was awarded city status in 2002. Some wag even suggested that with such a renaissance we should start to call Newport "new Newport", but that might be a little bit too new Labour for some.

I want to ensure that all my constituents get to share in Newport's growth. I am proud to represent a party that has done so much over the years to unlock human talent and to deliver social justice, but there is still much to do to improve people's day-to-day lives for the better. Child poverty still blights too many lives; too few people leave school without the skills and qualifications that they need to make their way in the world; there is too much antisocial behaviour, meaning that people cannot live in peace; and too many people rely on income replacement benefits. Working with my colleagues in this place and in Newport, that is what I want to help to change.

The hon. Member for Newport, East (Jessica Morden) gave an extremely attractive maiden speech that was very competently delivered. We learned a lot about Newport—or I certainly did, as I did not know much about it before. Many Members on both sides of the House will appreciate the hon. Lady's kind words of tribute to her predecessor, Alan Howarth. It was a model of a maiden speech that augurs well for a new parliamentary career, and I know that we would all want to welcome her to that.

My hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond) made an extremely well informed speech about the Bill that made me feel that I should try once again to get on to the Finance Bill Committee, because it sounds as though we will have some interesting subjects to discuss. Clearly, he could not give such a thorough account of the Bill's strengths and weaknesses and at the same time say much about macro-economics. However, that does not mean that there is not a lot that needs to be said about macro-economics, not least because the Government—I am afraid that the Paymaster General is very much in the model of her boss in this matter—continue to take a consistently self-righteous, self-congratulatory and complacent tone in everything that they say on the subject.

That is disgracefully reflected in the way in which the Red Book is drafted. The Red Book used to be regarded as something that was drafted as dispassionately as possible from a party political point of view by Treasury officials, but—I said this last year but I shall say it again as it remains true—it has increasingly become a work of political propaganda in which everything that happened before 1997 was terrible and everything that has happened since is absolutely brilliant. It is extremely difficult to find some of the essential facts that one needs because those facts, which are not flattering to the Government's performance, and any problems are skated over.

Against that background, it is important to use this debate to redress the balance—albeit slightly, because that is all that one can do in a very short space of time.

My recollection, having been a Treasury civil servant throughout the Tory years, is that Tory Ministers were greatly interested in the drafting of the Red Book. Does not the hon. Gentleman recall that when Nigel Lawson was Chancellor of the Exchequer he personally decided that we should introduce into it the medium-term financial strategy? That was a direct ministerial intervention that was not in any way initiated by officials.

No, the hon. Lady must be quite wrong about that. I remember Lord Lawson, as he now is, was Chancellor of the Exchequer when I entered the House, and the medium-term financial strategy, which he had devised as a junior Treasury Minister long before I entered the House, was the framework for economic policy at that time—a very successful framework. It would therefore have been extraordinary to have drafted the Red Book without making reference to the medium-term strategy—rather like drafting the Red Book now without reference to the golden rule or the sustainable investment rule, and I certainly do not protest that those two things are dealt with in the Red Book.

I do not recall Lord Lawson double and treble-counting the figures for the first two or three years when he was Chancellor of the Exchequer, unlike the present incumbent.

I think that standards in these matters have slipped and eroded, which is unfortunate. Were we to go back to the time of Sir Stafford Cripps, we would find that he adopted a more severe approach—not a more successful approach to the management of the economy—to the presentation of the facts in the documents produced in the Treasury.

A lot is right about the economy: of course, it has been doing well, although not so well since 1997, in terms of growth, as between 1992 and 1997—one would not learn that from reading the Red Book, but it is a fact. Nevertheless, the British economy has some favourable aspects currently, but also some worrying features, which also need to be discussed and addressed. I want the Government to be reminded of them and forced from time to time to address them.

First, the Chancellor is showing increasing signs of losing control of public expenditure. Those are strong words, but let us examine public expenditure as a proportion of GDP. In 1997, when this Government took office, public expenditure stood at 39 per cent. of GDP. It then fell, because, as we all know, the Chancellor continued with Conservative projections for the growth of public spending in the first two years, to 37.3 per cent. of GDP in 1999–2000. That was a favourable fall. It has now risen to 41 per cent. of GDP, and is projected to rise to 42 per cent. next year. That is a rise of five percentage points in five years, which is quite worrying. What will he do for an encore? Will it rise another five per cent. in another five years, which will be a rise of 10 per cent. over 10 years? It cannot continue rising indefinitely or we will have a major economic headache. The Government should address that sort of issue, and not try to bury it. Incidentally, I did not get those figures from the Red Book; I had to find them elsewhere, as they are not in it—I wonder why.

May I refer the hon. Gentleman to the table on page 275 of the Red Book, which gives those figures? It also shows that in 1982–83, the figure was 42.7 per cent., in 1983–84, 42.3 per cent., in 1984–85, 42.6 per cent., in 1985–86, 41 per cent., and in 1986–87, 40 per cent. Need I go on?

The hon. Gentleman is partially correct, but I repeat my point: curiously, those figures do not go up to last year. Therefore, he will look in vain in the Red Book for the figures that I quoted for the previous year, 2004–05, and the estimate for next year, 2005–06, of 41 per cent. or 42 per cent. They are not there, and I wonder why, as the House of Commons Library was able to find them for me based on the Treasury's figures.

Will the hon. Gentleman give way?

I will proceed for a little longer before I give way again. I will no doubt do so later, but I do not want the whole of my speech to be taken up by the hon. Gentleman, who, I am sure, Mr. Deputy Speaker, will be able to catch your eye in due time.

Secondly, the Government are losing control over the current budget deficit, about which the Government's projections have been proved wrong successively. I will quote from the Red Book, for those who do not want to read it, to give the flavour of the complacent and potentially deceptive way in which it is sometimes drafted. Paragraph 2.39, on page 27, states

"The estimated 2004–05 outturn for public sector net borrowing is £34.4 billion, compared with £34.2 billion projected in the 2004 Pre-Budget Report"

—six months ago—

"and £32.9 billion projected in Budget 2004"

—a year ago.

Those figures seem very close. Anyone reading that would say "It is fine. Everything is under control. The outcome is almost exactly what was predicted six months ago and a year ago." Let me read on, however.

"For the public sector current budget, the estimated 2004–05 outturn shows a deficit of £16.1 billion compared with projected deficits of £12.5 billion and £10.5 billion in the 2004 Pre-Budget Report and Budget 2004 respectively."

In other words, over the last six months the Treasury's prediction of the current deficit has risen from £12.5 billion to £16.1 billion, and over a year it has risen from £10.5 billion to £16.1 billion. That means that in six months there has been an increase of a third in the estimated outturn for the deficit, and over the last year an increase of a good deal more than 50 per cent.

All well-run businesses make forecasts. If a business's forecast was found to be out by a factor of 50 per cent. every year, questions would be asked and answers required. There is no doubt that there is a series of instances of the Treasury's missing its forecast.

Will the hon. Gentleman give way?

I will not give way to the hon. Gentleman again immediately. He will have to be patient. I will develop my argument, if I may.

The other curious aspect is this. How is it possible, within the general figure for the Government's deficit—which is roughly the same as that predicted a year ago and in November—for the current deficit to have increased so much? The answer must be that investment spending has been cut. The Government have said "My goodness, it will be terribly embarrassing if we breach our forecasts, and the budget deficit is much greater than was anticipated only six months ago. Since the current element of the budget is out of control, we will have to compensate by cutting investment spending." I think that that is confirmed in the table on page 30 of the Red Book:

"Forecasting changes to net investment . . . -3.4".

The Chancellor is doing something that he always said he would never do. He is doing something that he accuses previous Governments, Labour and Conservative, of doing: playing around with investment spending, and using it as a cushion to absorb mistakes made in the management of current spending. Again, I fear that the full story is not clear. It is certainly not clear from the Red Book. If the Paymaster General wishes to intervene, I shall certainly give way. I hope that she will have an explanation for the House in due course. [Interruption.] The Paymaster General's sedentary intervention may have been very significant, and the House would probably like to know what it was, but I did not hear it.

I recommend the hon. Gentleman to read the Red Book before speaking in debates such as this.

The Paymaster General will have to be more specific, and say which of the figures relating to the current budget or the total budget was quoted wrongly. She will be able to compare Hansard with the Red Book, and she will find that I quoted the Red Book precisely. What is more, she has not explained why the Government missed their forecast. We should be extremely interested to know the explanation. Some modesty or humility on the Government's part—some explanation when things go wrong, rather than an attempt to brush under the carpet everything that is not entirely favourable—would be very welcome.

The hon. Gentleman might find some explanation on page 27 of the Red Book. I shall read out the second part of the quotation that he gave us, and then continue with the rest of the paragraph. This is what the hon. Gentleman quoted:

"For the public sector current budget, the estimated 2004–05 outturn shows a deficit of £16.1 billion compared with projected deficits of £12.5 billion and £10.5 billion in the 2004 Pre-Budget Report and Budget 2004 respectively."

The hon. Gentleman ended the quotation there, but the passage continues

"This is significantly lower than the deficit on the public sector current budget of £20.4 billion in 2003–04 as the impact of the strengthening economy has fed through to receipts. On the basis of cautious, audited assumptions, the Government is meeting its strict fiscal rules over the economic cycle."

Offering selective quotations is not helpful, and nor is comparing apples with oranges—comparing projected out-turns with actual ones—and not specifying the difference.

The hon. Gentleman has just read out a completely irrelevant quotation. I asked why the Government missed so badly the forecast for this year's deficit, and the hon. Gentleman proceeded to read out a passage about the deficit for the financial year 2003–04 having been greater than that for 2004–05. I shall not make the mistake of giving way to him again, because that has not advanced the argument at all. He was clearly engaged in an exercise of obfuscation, perhaps in order to defend his right hon. Friend the Paymaster General.

There is a third big question-mark over the direction in which the Government's management of the country's finances is going; indeed, it has been discussed quite a lot recently. Is the Chancellor about to face the dilemma of breaching his golden rule? Will he have to put up taxes or cut spending? The jury is still out on this issue, and I shall not go into it in detail as it has been well aired in recent public debate. All independent forecasters are considerably pessimistic about the Government's chances of meeting the golden rule and balancing the current budget through the cycle, given that it is supposed to finish at the end of next year without recourse to further taxes.

This is an important issue not so much because of the potentially severe economic impact of breaching the golden rule or of increasing taxes—we would all very much regret such increases—but because the damage to the Government's credibility would be enormous. We would realise not only that the Chancellor had missed a whole series of forecasts, but that at the end of the cycle, he had failed to observe his own rule. He started out with the immensely ambitious plan of more than meeting the golden rule—of having a surplus over the whole cycle of more than £100 billion.

indicated assent.

I see that the hon. Gentleman is nodding. To move from a £100 billion surplus to the current break-even situation, with the possibility of going below the waterline and missing the golden rule altogether, is a significant turnaround.

Something more profound needs to be said about the Government's golden rule and sustainable investment rule, which I welcome in theory. They are right in principle and conceptually, but the question is whether they are being applied effectively, or so loosely that they do not represent the rigorous economic discipline that they purport to represent. If the latter is so, that is very dangerous for the long-term performance of the British economy and—once the cat is out of the bag—for the credibility of its management.

The golden rule says that the current budget must be balanced through the cycle. That involves a number of assumptions in deciding what the cycle is, which I shall not go into, but one's immediate reaction is that under such a rule, if the economy is growing above trend, the Government will be running a surplus, and if it is growing below trend, they will be running a deficit. So reduction in demand during a downturn is compensated by greater Government spending, and vice versa. That is the classic use of fiscal policy for stabilisation, but one need only look at what has happened since 1997 to see that it is not the golden rule on which this Chancellor bases his economic management.

When the economy was growing above trend in the late 1990s, public spending was growing at slightly less than the trend rate of the growth of the economy, which was 2.5 per cent. Then, when an election was about to be held in 2000, the Government suddenly took off the brakes, having been very fiscally prudent until then, and projected annual rates of expenditure growth of 3.2 to 3.5 per cent.—way above the economy's trend growth rate of 2.5 per cent.

Last year, the year before and this year, growth in the economy was significantly above the trend rate: 3.1 per cent., 3 per cent. and 3 to 3.5 per cent.—that is the projection for the current financial year in the Red Book. Nevertheless, there were substantial deficits. That must be contrary to any normal understanding of the golden rule. However, the Chancellor does not have a normal understanding of the golden rule. His definition of it is different: if we have had surpluses earlier on within the cycle, we can draw on those later and run up whatever deficits we like. As long as, when we get to the end of the cycle—whatever we decide is the end of the cycle—we have not drawn down all those surpluses, we balance the current budget through the cycle.

That is simply not good enough for several reasons. The first is that we never know when the end of the cycle is, so it is a pretty irresponsible way to manage the economy. We do not know over how many years to come we will still have, in practice, those accumulated surpluses to spend. We may think that the cycle will come back to the trend rate of growth at the end of 2005, but we may be wrong about that. No one knows, so that is not a responsible policy.

The Government have not properly focused on the other big problem with that approach to the golden rule. If the golden rule is taken to be—I am sorry, Mr. Deputy Speaker, I am not feeling very well this afternoon. I think I may have to interrupt my speech. I am so sorry.

Thank you, Mr. Deputy Speaker, for giving me the opportunity to speak for the first time in the House and to follow my hon. Friend the Member for Newport, East (Jessica Morden). The first thing that I would like to do in the House is to thank the people of North Ayrshire and Arran, who have given me the privilege of coming here and speaking on their behalf in the Chamber.

I represent a diverse and beautiful constituency. It is almost a mini-Scotland. I have two islands in my constituency—Arran and Cumbrae—which face unique issues. I have more prosperous areas such as Largs but I also have other areas that represent the old industrial part of Scotland: Kilwinning, the three towns of Stevenston, Ardrossan and Saltcoats, and the Garnock valley. Therefore, it is a mixed constituency with proud Labour and parliamentary traditions: Keir Hardie was the miners' agent in North Ayrshire.

Like the others in Scotland, mine is a new constituency with new boundaries, so I have more than one immediate predecessor. I am lucky enough to be here today because of the retirement of Brian Wilson, who originally came from the north of Scotland. He was a radical journalist who founded the West Highland Free Press, but came to Ayrshire and used his skills on behalf of the people of Cunninghame, North, where he is well respected. He held ministerial office in this place and was a high-calibre politician.

I have other predecessors, given that Cunningham, South was also part of the new constituency. One of the people whom I must thank for the support that they have provided me over recent months is my hon. Friend the Member for Central Ayrshire (Mr. Donohoe). Another previous Member for Cunninghame, South, David Lambie—he represented that constituency for many years—has also provided me with huge support on a personal level over the previous few months. David Lambie is a pacifist, a person of strong views and someone who I know will provide me with good advice over the coming years. He continues to be involved in my constituency Labour party and the wider community in North Ayrshire and Arran.

However, perhaps the previous Labour candidate in my constituency who means most to me is my great-great grandfather, who stood twice as Labour's candidate in what was then North Ayrshire and Bute. He increased Labour's vote there twice before becoming the hon. Member for South Ayrshire. It is fair to say from everything that I have heard about my great-great grandfather that he was very much a rebel, a pacifist and a socialist. He went on to become general secretary of the Scottish National Union of Mineworkers and came to the House as a miners' MP. He always stood up for what he believed in.

My great-great grandfather was brought up in Dalry, which is in the constituency that I now represent, but when the mine there closed, he and his family walked to south Ayrshire where the mine owners were opening up a new pit. I understand that their possessions were transported by railway and that when they reached south Ayrshire, a village had been built with pit houses identical to those from which they had come. The mine owners tried to keep control over as many aspects of miners' lives as possible. It was hearing about people like Sanny Sloan, my great-great grandfather, that really brought me into politics. He was part of the landslide 1945 Labour Government, for which all hon. Members have a huge amount to be thankful in respect of the creation of the welfare state and the national health service.

As I said, my great-great grandfather was a miner, but the mines have long gone in my constituency, and in their place came many other forms of heavy industry. However, through 18 years of Tory rule, we saw industry after industry closing and my constituency has still not properly recovered from that experience.

Since 1997, as my hon. Friend the Member for Newcastle upon Tyne, North (Mr. Henderson) said, much has been done to improve Scotland's and Britain's economies and much has been done to get rid of unemployment. My constituency has seen a 25 per cent. increase in employment since 1997, but the reality is that a huge amount more needs to be done. Unemployment is still too high, as is poverty, deprivation and the social problems that come with that.

From the point of view of my constituents, the most important Labour manifesto commitments in the coming years will be the commitment to full employment so that everyone has access to a job, and the commitment to eradicate child poverty, backed up with targets to eradicate that and all forms of poverty. I view my job as MP as doing all that I can on the Labour Benches to ensure that Labour implements the policies that will deliver on behalf of my constituents.

I am proud to be in my place on the Labour Benches and particularly pleased, as we move towards the G8 summit, that we have a Labour Chancellor who is leading the way in pushing the policies internationally to make poverty history. We all have an obligation to do all that we can to ensure that poverty is dealt with throughout the world. It is in none of our interests that so many people in so many countries live in such dire poverty.

I am involved in politics because I came out of a socialist tradition and because I still believe that it is possible to change the world. During my time in Parliament I intend to work as effectively as possible to represent my constituents and to put forward policies to ensure that in future the gap between rich and poor in this country is reduced. The reality is that we live in one of the richest countries in the world. Britain is the fourth richest in the world, but the gap between rich and poor remains wide. Similarly, the gap in respect of power and wealth in society is still far too great.

In representing the people of North Ayrshire and Arran, I hope to advocate policies that will ensure that future generations inherit a world that is fair and gives all of us a better chance in life. I thank the House for listening to me so courteously today.

I begin by congratulating the hon. Member for North Ayrshire and Arran (Ms Clark). Her constituency looks 20 miles across the Irish sea at another very good constituency—mine. Her maiden speech was very interesting, as was the one made earlier by the hon. Member for Newport, East (Jessica Morden). However, the hon. Lady has more faith than I, as she said that she would never cross the House. That was what I thought when I sat over there, but then the Government changed and I had to cross the Floor. Of course, I understand that she meant something different.

It is nice to hear about the background of new hon. Members and to see the fruition of seeds sown earlier in their family history. Speaking from the Unionist Benches, I wish the hon. Member for North Ayrshire and Arran well. Ulster and Scotland have much in common, and that applies to me more than most as my mother came from the city of Edinburgh. That means that I have a good Scots streak in me—as I am often told when things get hot in Ulster politics. Anyway, I congratulate the hon. Lady and wish her well.

I am not an expert on tax, but I welcome the Bill even though I find many of its paragraphs hard to understand. I shall not go into detail, lest my ignorance be seen. However, it is important for us to strike the right balance and achieve desirable outcomes without endangering other objectives. In tax matters, one needs to consider the policy issues that lie behind proposed changes, and whether the changes will deliver the stated objectives. As the Bill makes its way through the House, I hope that hon. Members of all parties will have a full understanding of the consequences of what is proposed. The parliamentary process can struggle with such technical matters, in which very few hon. Members are expert. We must ensure that our debates have the best possible outcomes and that we listen carefully to what is said.

I am concerned that some provisions in the Bill might harm British industry. In addition, I ask the Paymaster General to confirm that she is absolutely satisfied that the proposed anti-avoidance measures are not so broad that innocent people will fall foul of them.

As always, however, my primary concern is Northern Ireland, and I was surprised when I read clause 67 on page 56 of the Bill. It deals with the reorganisation of Northern Ireland's water and sewerage services—the hottest political potato of the moment. Over the past 30 years, we have had Conservative and Labour Governments and direct rule, but nothing has been done in that period to ensure that people have acceptable water quality at a reasonable price. In fact, officials at the Northern Ireland Office were very quick to say that some people in Northern Ireland did not pay anything for their water, but that is not so. The fact that there is not a separate tax for water does not mean that that cost is not considered when the level of rates is decided. We have an inferior water service and putting it right will need a big input of finance. However, to ask the people of Northern Ireland to pay for putting it right and then to pay for the water would be totally unfair. It is evident from the Bill, however, that that is what the Government intend to do—and that will come as a surprise to most people in Northern Ireland. The Bill will enable the Government to get rid of their responsibility and hand to others the terrible job of repairing the water machinery and supplying water at a reasonable price.

It is hard on the people of Northern Ireland to stick that suggestion in this Bill when it has not been properly debated. The issue is a hot potato and it unites all the political parties in Northern Ireland, which all believe that we need a proper water service. It angers me that the Shaftesbury estate, which owns Lough Neagh—the largest landlocked lough in the British Isles and an immense mass of water—offered the water from the lough to the Government free of charge, but they refused the offer. Now the water suppliers for Northern Ireland will have to buy the water of Lough Neagh for many millions of pounds and the cost will be passed on to the people.

Does my hon. Friend agree that the setting up of this company will be the first step towards privatisation of our water services? This Government's policies have certainly strayed far from socialism—not only new Labour, but new clothes.

My hon. Friend makes a vital point. It disturbs me that the proposal will cause more misery in Northern Ireland. Surely it would have been possible to make the arrangements separately so that the people of Northern Ireland and their representatives in this House could have had a full debate on them. The Bill will go into Committee where the debate will concentrate on its substance, and Northern Ireland matters will be forgotten as appendices to the main debate. The Government owe the people of Northern Ireland an explanation of the haste behind this measure. The Government claim that they have not yet made up their minds, but the Bill contains the structure for handing over the water system in Northern Ireland. They failed to grasp the opportunity offered to them by the Shaftesbury estate to take over the supply of water in Northern Ireland, and I hope that the Paymaster General will be able to tell us how far they will take these proposals. Will the Government move quickly or will we be able to have a proper debate and find a way to give the people of Northern Ireland their water at a price similar to those charged in other parts of the United Kingdom?

I am grateful for the opportunity to make my maiden speech today and it is a privilege to follow my hon. Friends the Members for North Ayrshire and Arran (Ms Clark) and for Newport, East (Jessica Morden). I congratulate them on their excellent speeches.

I begin, as is customary, by paying tribute to Jean Corston, my predecessor. Jean served the people of Bristol, East for 13 years and was a dedicated and tireless constituency MP. As Chair of the Joint Select Committee on Human Rights she monitored the implementation of the Human Rights Act 1998, one of the most important pieces of legislation of this Government. As the first woman to chair the parliamentary Labour party—I know that Jean regarded that as an immense honour—she handled relations between the Government and Labour Back Benchers not only with the discretion required of the role, but with great integrity.

Bristol, East has a proud tradition of political activity. Ben Tillett, the dockers' leader and co-founder of the National Transport Workers Federation, was born in Easton in my constituency, and Ernest Bevin, the first general secretary of the Transport and General Workers Union, started his political career there. He went on, of course, to become Foreign Secretary in a Labour Government.

The constituency was previously represented by Tony Benn and Sir Stafford Cripps, both towering figures in the Labour Party in their time. The two men had much in common. They both came from wealthy, privileged backgrounds. They were both the sons of MPs—one the son of a Conservative MP who in later life had the good sense to join the Labour Party and the other the son of a Liberal MP who showed equally good sense in doing the same. Both men embarked on political journeys that at times put them severely at odds with the leadership of their party.

I cannot claim such a distinguished background, and who knows where my political journey in this House will lead me, but I do share at least two traits with both men, in that they were both vegetarians and both teetotal—the hon. Member for North Antrim (Rev. Ian Paisley) may be happy to hear the latter. Indeed, Churchill said of Cripps, in disgust:

"He has all of the virtues I dislike and none of the vices I admire."

My constituency office is above the St. George labour club, a building bought for the local party by Cripps on the strict condition that no alcohol was to be served there. I am afraid that I must report that his legacy is now more honoured in the breach than in the observance. I would, I suspect, make myself extremely unpopular with my constituents should I ever try to enforce his wishes.

Sir Stafford Cripps was of course Chancellor of the Exchequer from 1947 to 1950, and it is therefore fitting that I make this, my first speech to the House, in the Finance Bill debate. Cripps became Chancellor after Hugh Dalton was forced to resign, having leaked Budget secrets to a journalist on his way to the House. I am sure that no modern-day Chancellor would dream of doing such a thing. Cripps was said to have been responsible for Labour's dramatically reduced majority in the 1950 election, by insisting it be held in February as he thought it morally wrong to hold an election just after a Budget, in case he should be accused of bribing the voters. Times have changed.

Having mentioned Hugh Dalton, I want to take this opportunity to pay tribute to his biographer, Professor Ben Pimlott, who, until his sad and untimely death last year, was my PhD supervisor. He was a kind and inspirational tutor. Although I suspect that now I have been elected to this place, my thesis will go the way of other great unfinished masterpieces, I am sure that many hon. Members will continue to enjoy Ben's works of political biography for many years to come.

I am, if not unique, certainly unusual on this side of the House in having spent much of my professional life working in the City, in the world of banking and the financial markets. I worked there throughout most of the 1990s, a time when the Tories' economic credibility plunged faster than the sterling exchange rate on Black Wednesday, and a period during which Labour began to nurture the reputation for sound stewardship of our economy that it boasts to this day.

The Chancellor's nine Budgets are the bedrock—the foundation—of all that we have achieved in government. The benefits can be seen across my constituency, in the increased prosperity in the suburbs of St. George, Eastville, Brislington and Stockwood, and in the regeneration of the inner-city wards of Easton and Lawrence Hill. I pay tribute to the community activists, the voluntary sector workers and the public sector workers who have done so much to help Labour deliver its programme of social justice and economic renewal in Bristol, East.

Unfortunately time allows me to cite only one example. I was fortunate enough the other week to visit our new city academy. In the heart of the most deprived area of Bristol, what would have been dubbed a failing school has been turned round because the head teacher, Ray Priest, had the vision and the dedication to lobby for city academy status, even though it meant putting his own job on the line. The school was successful in its bid to become a specialist sports academy and with the support of its sponsors, Bristol City football club, the university of the West of England, Bristol chamber of commerce and, in particular, its chair of governors, John Laycock, it has become the biggest employer in my constituency, employing 600 people.

The school reflects the diversity of that part of Bristol; more than 60 per cent. of the pupils come from a visible ethnic minority community and 31 languages are spoken there. Some of the pupils came to the UK as asylum seekers and in some cases their right to remain still hangs in the balance, but I have no doubt that each child is capable of making a real contribution to this country if only they are given the opportunity and life chances to do so.

I was privileged to spend some time talking to a handful of sixth-form students who are benefiting from the Government's £30 a week education maintenance allowance. With continued Government support and with teachers who are dedicated to the task of lifting the aspirations and nurturing the ambitions of children from humble backgrounds, I am sure that the academy will go on to produce a generation of winners, both on the playing field and off.

It is important that the school does not simply benefit the pupils who are lucky enough to be enrolled there. The capital investment has brought a deprived inner- city area truly first-class sports facilities, a theatre, a professionally equipped kitchen for catering students and computer suites that would certainly be the envy of the new Members who have spent the past few weeks fighting over the one PC in our room on the Upper Committee Corridor. The school wants to open its door to the community and indeed is obliged by its funding agreement to do so, and I shall be speaking to Ministers about what I can do to assist it in achieving that objective.

I am proud to become an MP at a time when the issues of trade justice, debt cancellation and overseas aid have come to the political forefront as never before. The people of Bristol have shown overwhelming support for the Make Poverty History campaign, and on Saturday I shall be joining them as they form a giant human white band around College Green in the city centre.

It is particularly poignant that the city of Bristol has taken that cause to its heart. Bristol's wealth was built on the 18th-century slave trade. More than 2,100 ships set sail from Bristol on slaving voyages, carrying about 500,000 Africans to slavery in the Americas. Bristol's wealth was built on trade in Africans and in slave-produced commodities such as sugar, chocolate, coffee, cotton and tobacco. Too few people questioned the moral legitimacy of that trade at the time. It was reported that, when William Wilberforce's Bill to abolish the slave trade was defeated in the House in 1791, the bells of St. Mary Redcliffe church in my constituency were rung amid general civic celebrations.

The city has put its past behind it. Today, Bristol is home to many Africans and African Caribbeans, who along with Asians and other ethnic minorities play an important role in the civic and cultural life of the city.

Bristol also has a growing reputation as a centre for environmentally and ethically sound trading, and I am proud to say that in March it achieved fair trade city status. It would be fitting if we could celebrate the bicentenary of the abolition of the slave trade in 2007 by genuinely embracing the fair trade ethos, not just in Bristol and not just across Britain but by using our presidencies of the G8 and the European Union to instil such values on an international scale. From the slave trade to fair trade—that would be a legacy of which we could be truly proud.

I am most grateful for this opportunity to address the House for the first time. I congratulate the hon. Members for Newport, East (Jessica Morden), for North Ayrshire and Arran (Ms Clark) and for Bristol, East (Ms McCarthy) on their excellent contributions to the debate in their maiden speeches.

I would like to begin by paying a personal tribute to my predecessor, Alan Hurst. He served our constituency well for eight years, was an individual of the utmost integrity and was highly regarded in all our communities. Alan was particularly active in supporting a number of local campaigns, he served our farmers well on the Select Committee on Agriculture and he stood up for the need for pensioners to have dignity and security in their retirement. Above all, Alan was a gentleman and I wish him all the best for the future.

As I will be the last Member of Parliament to represent the Braintree constituency as it currently exists, I would be remiss if I did not also pay tribute to Alan's predecessor, Tony Newton, the first Member of Parliament for Braintree. Tony represented the constituency for 23 years and rose to become Leader of the House. The respect Tony earned here was mirrored in my constituency. Indeed, I can hardly go to a household or meet a constituent that Tony did not at some time or another help out. On a personal level, I thank Tony for his guidance and support over the past six years. Braintree has been well represented and well served by my two predecessors and I hope to live up to the standard of serving our community that they have set.

I understand that it is traditional in maiden speeches not to make controversial remarks, but I see nothing controversial in saying without hesitation that I am honoured and privileged to represent not only one of the most beautiful areas in Essex but also one of the loveliest parts of our country. The constituency is a mix of old and new, with some exquisite examples of mediaeval architecture and some attractive modern developments.

The constituency is dominated by two market towns, Braintree and Witham, which in turn are surrounded by more than 40 villages and hamlets. While Witham traces its origins to the Saxons, one can see in the town both post-war and modern developments, almost side by side with 16th and 17th-century dwellings. Further up the road is the village of Silver End, a model village built in the early 20th century by the Critall family, who did so much to bring employment to the area at that time, and whose name is synonymous with the creation of metal window frames.

We also have some extraordinarily beautiful mediaeval villages, such as Bocking, Coggeshall, the Colnes, Feering, Finchingfield, Gosfield, Great Bardfield, Kelvedon and Wethersfield, many of which have won the Essex county village of the year award. Perhaps the most notable mediaeval structures are the Cressing Temple barns, built in the early 13th century, which are the largest and most complete set of mediaeval barns in Britain.