Returns and Self Assessment

Orders of the Day — Finance Bill – in the House of Commons at 4:15 pm on 25 January 1996.

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Photo of Mike O'Brien Mike O'Brien , North Warwickshire 4:15, 25 January 1996

I beg to move amendment No. 9, in page 76, line 37, at end add '(9) In subsection (2) of section 199 of the Finance Act 1994, for "1996–97" there shall be substituted "1997–98".(10) In subsection (3) of section 199 of the Finance Act 1994, for "1996" there shall be substituted "1997".'.

The Chairman:

With this we may discuss the following amendments: No. 10, in page 76, line 37, at end add—

'(9) After subsection (2) of section 178 of the Finance Act 1994, there shall be inserted the followig subsections—(3) For the year of assessment 1996–97, for the words `31st January' in his section there shall he substituted the words `30th April'; and(4) For the year of assessment 1996–97, for the words `31st October' in this section there shall be substituted the words '31st January'.".'. No. 11, in page 76, line 37, at end add— '(9) After section 194(1) of the Finance Act 1994, there shall be inserted the following subsection—(2) For the year of assessment 1996–97, for the words `5 per cent.' in this section there shall be substituted the words `2.5 per cent.'.".'.

Photo of Mike O'Brien Mike O'Brien , North Warwickshire

Self-assessment has been described by the leading tax advisers Ernst and Young as the biggest change there has ever been to the tax system of this country since the introduction of Income Tax in 1803". The firm adds that, by comparison, the introduction of PAYE in 1945 was simply tinkering around the edges". Let us be clear about it—Labour supports the concept of self-assessment. We want it to succeed, but we believe that it is being rushed in at an alarming pace. The Government appear to be more interested in cutting 3,000 Inland Revenue jobs to make short-term savings than in getting it right. The result will be a confused botch-up of an introduction that will cause unnecessary burdens on business and 9 million self-employed people and will undermine confidence in the whole concept of self-assessment. It is all so unnecessary, and it need not happen. If the amendment is accepted, we can phase in self-assessment in a balanced and measured way and help business to create confidence in the whole idea.

There is much in the Government's attitude that reminds me of the introduction of the Child Support Agency. A good idea in principle is rushed through because it might provide an added cost saving bonus, but goes horribly wrong in implementation. I predict that self-assessment will be a policy debacle for the Tories on the scale of the CSA. Today, we are merely serving warning that the buff envelopes containing the self-assessment forms that thud through the letter boxes of Conservative Members' constituents will have just same the effect as the CSA assessment forms that have arrived to the anger of fathers and voters in the constituencies of Conservative Members in recent years. Self-employed business people will come along to complain to Tory Members. It will happen just before the general election and it will lose the Tories votes. It will create anger and contempt at their policies. All we aim to do through the amendment—in a spirit of charity—is to save them from themselves.

Photo of Mr Nigel Forman Mr Nigel Forman , Carshalton and Wallington

The nub of the hon. Gentleman's policy on the matter and, indeed, that of his hon. Friend the Member for Oxford, East (Mr. Smith), who spoke on the subject on Second Reading, seems to be phasing in. That implies either that everyone moves towards self-assessment more slowly, or that some groups are moved towards it by law more quickly than others. Which is it and can he explain more?

Photo of Mike O'Brien Mike O'Brien , North Warwickshire

We want to ensure that the procedures are in place to enable the successful introduction of self-assessment. We want to ensure that the computer and electronic lodgement systems and the machinery of how the system will work are properly organised. There are some question marks over that. There is also the question of training Inland Revenue staff.

All those problems must be resolved and we are concerned that the system will be rushed in and that Conservative Members will pay the price. After all, Labour Members of Parliament will have an excuse. We can say that we voted for the amendment to enable the system to be introduced properly. Today, Tory Members are offered their opportunity of an alibi to protect them against the bungling of their Treasury Ministers. They should vote for the amendment. Self-assessment will still happen, but it can be done properly. That is our offer to the House and that is why we are telling Conservative Members to vote for the amendment and delay self-assessment, or at least to support the other amendments so that we can deal with some of the more difficult issues that self-assessment raises.

Photo of Mr Nigel Forman Mr Nigel Forman , Carshalton and Wallington

Is the hon. Gentleman aware that the date on which people must start to fill in the forms on the new basis has already been delayed by one year? What is the argument for delaying it further?

Photo of Mike O'Brien Mike O'Brien , North Warwickshire

I am about to set that out in more detail and if the hon. Gentleman—an old colleague from the Select Committee on Treasury and Civil Service—pays attention, he will learn that there are many reasons why the delay should be accepted. I invite him to conduct a survey among some of the companies in his constituency, as I did in mine recently. I asked them what they knew about self-assessment and whether they were happy with it.

Some were very happy, particularly the bigger companies with accountants who had been following the matter closely, but others were less sure. A leading company in Bayton road, Bedworth said that it felt, "badly informed" and did not yet understand what it might do, saying: There is a lack of clarity. Until more information is available we do not feel prepared". That company sought a more simple, straightforward explanation of the system.

A major manufacturer in Bedworth said, through its accounts clerk, that the introduction seemed rushed and sudden, which is not an uncommon response judging by the survey conducted by my office.

A wages clerk working for a business in Hartshill, who had an information pack, said: There was an awful lot of literature. She had had no time to look at it yet in detail but felt that it looked "very complicated". She also felt that there was "insufficient advice".

Photo of Mr Tim Smith Mr Tim Smith , Beaconsfield

I wonder what leads the hon. Gentleman to suppose that, if we delayed self-assessment for another year, people in business who are very busy trying to run their businesses would attend to the matter in the next 12 months. Inevitably, there will be people who, however much information the Revenue puts out—it has put out some good, simple information, including audio tapes on the subject—will not attend to it until the time comes. So, we would just be putting the problem back a year.

Photo of Mike O'Brien Mike O'Brien , North Warwickshire

We would also be giving those businesses more time to understand what is happening. That extra time is extremely important. As I said, this is a major change to our tax system. I do not think that Conservative Members have comprehended the enormity of what is proposed. We should do it, but we should do it properly. Conservative Members are not yet sure how they will carry it out. They will create a series of difficulties for themselves, which need not be created, and will undermine the project in the process—a project that we all want to succeed in the longer term.

I also spoke to a small manufacturing and hire company in Coleshill, which said that it knew nothing about self-assessment but hoped that its accountant did. Another Coleshill business said that it knew it was coming, but knew little else about it and complained of "insufficient information". A day had been arranged for companies to be advised on self-assessment, but there was too much to do to take the day off to attend.

A self-employed man who runs a business called Sign Language said: I do not have any opinion on SA because I have never heard of it. The managing director of a large manufacturing firm, who had a finance background, did not think that self-assessment would present any serious problems for him, but was concerned that some of the information that he had received needed to be much better and that a tape on the subject failed to say anything of substance.

5.15 pm

Those are the typical responses of small and medium-sized businesses on the subject. Conservative Members should talk to people in their areas and find out the response. Recently, I spoke to a meeting of small business men and women in Coventry, who expressed "trepidation" at the proposed changes.

It is not surprising that there is some concern among small businesses. They are right to be concerned. Hurried attempts at Government cost-cutting now are likely to cost small businesses and the self-employed dearly. Many will have to employ accountants to understand the forms and the complexities of the legislation.

Let us look at the Bill and the schedules to it. Just look at schedules 18 to 25, which I have here. They contain detailed and complex clauses and information, which will have to be understood and digested. They go on and on-54 pages of rules in close type.

Photo of Malcolm Bruce Malcolm Bruce Shadow Spokesperson (Treasury)

The hon. Gentleman is making a detailed and cogent point on the problems of both businesses and individuals. Given the fundamental scale of the change and the substantial reductions in staff, how does he think the Treasury and the Inland Revenue will cope? Has he done any surveys of internal morale and mood within the latter organisation and of its ability to handle all the queries?

Photo of Mike O'Brien Mike O'Brien , North Warwickshire

That is a good point. It would appear from the Inland Revenue staff association that there are problems of morale. There will be staff reductions-3,000 are to go as a result. It is my view that morale will be undermined because of those reductions at the very time that considerably greater demands will be placed on staff—while self-assessment is phased in. The staff simply will not be there to cope with the demand. So, the hon. Gentleman has a good point and it is not one that the Government have yet understood. They are so desperate to find money for tax cuts to win them the election that they do not understand the difficulties that they are creating for themselves.

How can one expect a self-employed person to be sure that he is obeying the law? Let us remember all the penalties that the new legislation will create. Following enactment of the Bill, self-assessment provisions will be found in the Taxes Management Act 1970, as amended by the Finance Act 1994, the Finance Act 1995, and now the Finance Bill in 1996. Those include amendments to amendments.

If I were self-employed and wanted to understand the law, I would need to read the 1970 Act, as amended by the 1994 Act, the 1995 Act and this Bill and I would have to understand which amendment applied to which amendment.

I shall give an example. If one wants to understand the complexities of self-assessment, one should look at clause 112, which is the first clause on the subject and amends section 8 of the 1970 Act, which was originally amended in the 1994 Act—that amendment was flawed, so section 8 was amended again in the 1995 Act. Does it really inspire confidence that the clause must be amended again in the Bill? This is the Government's second attempt to correct the clause.

I have glanced through the new section, as amended by the 1994 and 1995 Acts and the Bill. I must inform the Minister that the version that he is presenting to the House in clause 112, which amends section 8A(1) of the 1970 Act—on trustee's return—contains an obvious and stupid grammatical error. Line 4 refers to the amount payable by him", when it should read, "payable by them" or payable by any one of them". That is a small grammatical error. I make no more of it than that except to say that we are dealing with an amendment of an amendment of an amendment. That suggests a rushed, even slipshod approach. It is messy and it worries me that the Minister is cooking up a dog's dinner for business and the self-employed.

Photo of Denis MacShane Denis MacShane , Rotherham

On Government grammar, my hon. Friend may recall that in Prime Minister's Question Time earlier this afternoon, the Prime Minister said, in answer to a question about the CBI

The Chairman:

Order. The hon. Gentleman is trying hard but he is not in order.

Photo of Mike O'Brien Mike O'Brien , North Warwickshire

The Bill is a bit complex, even for a lawyer like me. There needs to be a Consolidation Act to deal with the whole subject of legislation for self-assessment. There needs to be easy access to the legislation for those who will have to deal with it. A year's delay would enable the Treasury to bring forward a Consolidation Act that would bring all the legislation into clear sequence.

The Government are pushing self-assessment through even though they know that tax legislation across the board is getting much more complex each year. The hon. Member for Beaconsfield (Mr. Smith) knows that because he has advocated simplification. Let us allow time for it. We are talking about a significant cultural change for the taxpayer. The Government acknowledge that. We need to ensure that that change can occur and that sufficient time is given for it to occur.

Photo of Mr Gerry Bermingham Mr Gerry Bermingham , St Helens South

I have listened carefully to what has been said. I shall declare an interest later. Does it occur to my hon. Friend, as well as to Conservative Members, that the more complicated that we make the legislation and the more difficult it will be to make self-assessments, the more people will be disinclined to self-employment? Jobs will be lost and wealth creation will suffer.

Photo of Mike O'Brien Mike O'Brien , North Warwickshire

I hope that my hon. Friend is wrong but if things happen the way that we fear they will, what he fears may come to pass. That would be regrettable.

The Federation of Small Businesses is deeply concerned about self-assessment, as well it might be, and is asking for it to be postponed. I have also received a pertinent letter from the British Retail Consortium. It states: Dear Mr. O'Brien… As you will know, Self Assessment is programmed to come into effect in April this year, subject to passing of the relevant provisions in the Finance Bill. In view of your interest in this subject, we wish to apprise you of the following:—

  1. (i) the feedback from our members, as a substantial body of employers who employ 2.1 million people, is that the. Inland Revenue are not geared up to administering the new regime;
  2. (ii) considerable problems, such as uncertainties of interpretation, will arise from administering this radical new regime;
  3. (iii) the Revenue have not e.g. provided adequate relevant material for employers to brief employees;
  4. (iv) employees will be bound to look at their employers for help with self-assessment and it is unfair for employers to be put in the position of unofficial and unpaid tax advisers;
  5. (v) retailers, therefore, are urging the Inland Revenue to give urgent and fresh consideration to finding means to alleviate problems from self-assessment, whether by delaying implementation until 1997/98 or by some other means."
And so say all of us.

Tory Members should listen to the employers, heed the warnings and step back from the brink of political self-destruction. The self-employed and those who run small businesses have had a rough time of it already. Let me make new Labour's plea not to impose new burdens upon their shoulders. They have made the courageous decision to start an enterprise and create wealth for them selves and for Britain. They may have a bank or investors on their heels, hounding them for results. They have had to face a recession, late payments or, even worse, non-payment. The words "cash flow problems" are ones with which they are no doubt familiar.

I was self-employed for several years before I came to the House. People who have run their own businesses know what a chore it is to maintain accounts. Do not place upon such people the burden of the rushed and confused introduction of self-assessment. They are ill-informed about such a tax regime. Many of them are unprepared for it and it may impose penalties of which they are ignorant.

The legislation must be simplified to make self-assessment work. Simplification reduces complexity, cuts compliance costs and makes self-assessment possible, but it takes time. Our amendment would give the Government that time.

Photo of Mr Tim Smith Mr Tim Smith , Beaconsfield

Does the hon. Gentleman agree with the proposition in the letter that he read out that no obligation should be placed on employers to provide information to their employees to help them with self-assessment? He said, "And so say all of us," at the end of his quotation.

Photo of Mike O'Brien Mike O'Brien , North Warwickshire

We want to make sure that whatever system is decided upon works. We want the time to consider such issues. When I said, "And so say all of us", I was particularly referring to the final part of the letter. Employers are telling Conservative Members that they are going to have difficulties with the system. Give them the time to sort those difficulties out. That is all that we are asking and what Conservative Members are denying them.

To make self-assessment succeed—and I have said that we want it to—we need to create confidence in the system. We do not want headlines in The Sun about how the newspaper has uncovered someone who has said on a self-assessment form that he was liable for only a small amount of tax but who has not declared all sorts of things, only for it to turn out later that he had not understood the forms. That would bring the whole system into disrepute and undermine confidence. It is right that the Government should introduce the process cautiously.

We are right to be concerned about the risk factor. Only about one third of returns will be considered for inquiry, of which around two thirds will have some inquiry made about them. Only a small percentage will be given a full investigation. It is essential that the selection process is got right from the beginning. Rushing through the process will make it more likely that some fraud will get through. Once some people get the message that fraud can escape detection, confidence in the system will be undermined.

It is also necessary to be able to distinguish mistakes by taxpayers from fraud. That requires care, experienced staff and the setting of precedents about what will be regarded as fraud. In the big bang approach to self-assessment advocated by the Government, problems will be exacerbated and there will be greater potential for the self-assessment system to fail.

The Federation of Small Businesses says that 1.5 million self-employed people do not have an accountant. With this complex legislation, they may need to employ an accountant or tax adviser. The Government claim that that will not happen. As always, there are those who disagree.

In June, both the Chartered Institute of Taxation and the Institute of Chartered Accountants urged taxpayers to get help and advice from an accountant. Many accountancy firms, such as Cooper Lancaster Brewers, are hoping to cash in on the fears of the self-employed by offering special packages to deal with self-assessment. Some US firms, such as Hon. and R. Block, are keen to establish themselves on British high streets. They think that there will be greater demand for accountancy and advice after the introduction of self-assessment.

The annual fees paid to an accountant can often be offset against tax as part of a business's running costs. It may be that it will not be only the self-employed who line the pockets of accountants and advisers; money that the Revenue would otherwise have received will go to them. I am certain that the Government do not intend that self-assessment should provide a boom for accountants. I want to be sure that it does not.

Labour is not only concerned about the cost of compliance but at the growth of unqualified tax advisers. The Inland Revenue Staff Federation and Tax Aid have pointed out the need for regulation of such advisers. If self-assessment causes some people to go to unqualified tax advisers like Harry down the road to do their returns, they could incur penalties for delays or inaccuracies caused by Harry not being properly qualified. Those legitimate issues should not preclude self-assessment but urge caution in its implementation.

Penalties are an important concern.

Photo of Mr Gerry Bermingham Mr Gerry Bermingham , St Helens South

Will not my hon. Friend's argument also apply to the elderly widow or pensioner with a few shares in the business that her husband once worked for and who does not know where she has put the dividend slip and cannot justify tax deducted for the dividend? She will have to scrabble round her house. Is she going to be penalised for a mistake over a few pounds? It appears so from the legislation.

Photo of Mike O'Brien Mike O'Brien , North Warwickshire

That is worrying and makes the point that we need to ensure that self-assessment is phased in cautiously and carefully. Phased in it must be, but in the right way.

If taxpayers fail to file their forms by 1 January, they will incur a fine of £100 and a 5 per cent. surcharge on any tax after that which is due. Small businesses and the self-employed, overworked and perhaps understaffed may miss deadlines because they do not realise what the law is.

The Federation of Small Businesses has proposed that, even if the Minister will not delay the project by a year, the penalties should at least be adjusted and people should be given a warning note after 1 January 1998 saying that they may be fined the following year. If the Minister does not accept that there should be a one-year delay, he should reduce the impact of the interest for late payment for a period of time. Our other amendment is important because it deals with that issue and proposes that the 5 per cent. interest penalty be halved for one year.

Photo of Michael Jack Michael Jack , Fylde 5:30, 25 January 1996

So that I may follow the hon. Gentleman's argument, will he tell me at which point in the tax payment cycle the penalty to which he refers is payable?

Photo of Mike O'Brien Mike O'Brien , North Warwickshire

The penalty is payable just after the money is due. Interest starts to arise at that point.

Photo of Michael Jack Michael Jack , Fylde

Are we discussing payments on account or the final payment of a tax year's total requirement to be paid to the Revenue?

Photo of Mike O'Brien Mike O'Brien , North Warwickshire

He did not appear to know. So long as he is now clear on the facts, we can proceed.

Ernst and Young also say, first, that it is not clear what can be filed under the electronic lodgement system and, secondly, that the Inland Revenue will randomly select 5,000 to 10,000 cases a year to vet for accuracy. That will be a time-consuming distraction and an expensive exercise for those who are chosen. It is purely to validate the Inland Revenue's selection procedures. Ernst and Young want Parliament and the Government to consider who should pay for that if nothing material emerges from the inquiry into those who are randomly selected to be hassled. Those issues should be considered and we simply seek the time to do so.

Photo of Mr Tim Smith Mr Tim Smith , Beaconsfield

May we conclude that the hon. Gentleman advocates that compensation should be paid to small businesses that are investigated as a result of a random sample?

Photo of Mike O'Brien Mike O'Brien , North Warwickshire

The hon. Gentleman heard exactly what I said: that this House should understand the problems of businesses and the self-employed. I want the House not to commit itself now to spending money but to consider whether we should compensate those people. We should discuss it but we have not yet had an opportunity to do so, which is why we need the time proposed in our amendment.

We are also concerned about the absence of independent information on and evaluation of the new system. Taxation links between Parliament and the Government are part of the contract between the citizen and the state. The proposed new system of self-assessment will fundamentally alter the relationship between taxpayers and the state. However, the Government seem to have created no independent audit or source of information on the progress of implementing self-assessment, so neither taxpayers nor their representatives know how implementation is progressing. They do not know how the costs are worked out, how Inland Revenue staff are being prepared, what the form will be like, whether the new computer systems will be implemented successfully, or whether the project must meet certain performance targets if it is to operate successfully. Reports of difficulties are widespread. The only formal information available comes from the Inland Revenue, which is implementing the project, and its political masters, the Government.

Will the Minister say exactly what is happening with the electronic data systems? Are the reports that staff are being transferred from filing to self-assessment true? We need to know exactly what is happening because those are legitimate issues.

Forms are scheduled to arrive in spring 1997. If the whole self-assessment system fails, real problems could arise, putting considerable strain on the relationship between taxpayers and the Inland Revenue, and therefore between citizen and state. If the Minister will not accept one year's delay on the system's initiation, we propose to delay the filing arrangements in new section 8 of the Taxes Management Act 1970 by three months, from 31 January 1998 to 30 April 1998. The significant problems in operating the system merit further consideration. We simply ask for time to consider them.

You, Mr. Morris, may think that you have heard a thorough indictment of the Government's self-assessment policy, but you ain't heard nothing yet. At the same time as introducing self-assessment, the Government are imposing another expensive burden on business. I know that you will find it difficult to believe, Mr. Morris, having heard all that windy rhetoric on deregulation, but what about the £850 million burden on business—the little extra Government windfall exposed on page 112 of the 1996–97 Red Book? In the same year as introducing self-assessment, the Government have decided to change taxation of the self-employed from a previous-year to a current-year basis.

Such a change alone would have had a massive impact; the two changes together will have an enormous impact. For one year, the self-employed will face a £850 million tax bombshell. It is a massive move with an enormous impact, which will come at a time when the self-employed will feel that they are being taxed twice, albeit they are not.

Photo of Michael Jack Michael Jack , Fylde

indicated dissent.

Photo of Mike O'Brien Mike O'Brien , North Warwickshire

The assessment comes from the House of Commons Library so I am sure that the Minister will accept it. First, taxable profits will be assessed on a current rather than previous-year basis, so personal allowances will be set against the current rather than the previous year's profits, giving a normal uprating of allowances. If there is any doubt about that, hon. Members should look at page 112 of the Red Book and the Minister's explanation to The Independent, where he effectively confirmed that that would happen.

Photo of Mrs Helen Jackson Mrs Helen Jackson , Sheffield, Hillsborough

A constituent who runs a small ladies' dressmaking business, which has worked with other small businesses in my constituency, told me that she had thought that self-assessment was a good idea if one was good at arithmetic and knew what one was doing. She had thought that it might save her money by making her less dependent on her accountant, who costs her £200 a year. But the more she looked into the matter, the more she saw that she would depend more on her accountant because of the complexity of the change and the extra rules being introduced.

Photo of Mike O'Brien Mike O'Brien , North Warwickshire

Like my hon. Friend's constituent, many people will be afraid of what is happening, and their fear will be fully justified. We have studied the legislation and seen its complexities and how it will operate. My hon. Friend's intervention confirms our argument. We should give the process an extra year in which people may begin to understand what it is about, and give the Government an opportunity to begin to come to terms with the process, ensure that staff are properly trained, computer systems are running properly and all the software has been properly tested, all of which takes a considerable time. It is dangerous to rush into the process. If we are to deal with the problems that my hon. Friend's constituent fears, we need time to do it properly. It will be time well spent and it will pay dividends in the long term.

There seemed to be some doubt about the £850 million, so let us discuss it. It is made clear in the Red Book. My hon. Friend the Member for Oxford, East (Mr. Smith) exposed the issue. It was confirmed by the Inland Revenue to the House of Commons Library. The Independent highlighted it in an editorial. The Financial Secretary to the Treasury compounded the problem for the Government when he admitted in a letter to that newspaper that extra money would come to the Government because of bringing forward the moment when the tax bill has to be paid"— his own words.

There will be a period of double taxation of profits, which will be relieved only in future years. As Ernst and Young has put it: The Government is effectively obtaining an interest free loan during the currency of the business". It will mean that self-employed people will end up paying more in a specific year than they planned. Coupled with increased administration costs, possible penalties and confusion, that may be the final straw for many businesses.

Self-assessment is an important opportunity for a radical rethink of tax collection. It is too good an opportunity to waste in this way. We support the principle of self-assessment. The Government appear unable to accept the dangers of the haste. The amendment gives time to stop and think and get it right.

Let me finish by warning the Government of the consequences of not accepting the amendment. Using the words of the great Scottish poet whose bicentennial we recall today—Rabbie Burns's words, which will apply at the next general election if self-assessment fails, and if the self-assessment forms in their buff envelopes thud on to the mats of Conservative Members' constituents:

  • "Still o'er the field the combat burns;
  • The Tories—Whigs—give way by turns
  • But fate-the word has spoken;
  • For woman's wit and strength of man,
  • Alas! can do but what they can
  • The Tory ranks were broken."
I ask the House to support the initial amendment and those that are grouped with it.

Photo of Mr Nigel Forman Mr Nigel Forman , Carshalton and Wallington

I begin by declaring the interest that is recorded in the Register of Members' Interests—my role as parliamentary adviser to the Institute of Chartered Accountants in England and Wales. I hasten to add that I do not speak to any brief from that organisation today, because that would be inappropriate under the new rules that the House has adopted. I merely speak against the background of extra information that I have gathered during my time in that capacity.

I listened carefully to the speech of the hon. Member for North Warwickshire (Mr. O'Brien). I am familiar with the hon. Gentleman because, until recently, he and I served on the Treasury Select Committee together, and I could see that he was enjoying himself and making a meal of a small set of points, if I may say so.

If I may distil the hon. Gentleman's argument, it was that there should be a further delay of one year in the implementation of that significant change for all taxpayers, whether individual or corporate, whether large firms or small firms, and that for a temporary period of one year—if I understood him correctly—the temporary penalties should be reduced from the 5 per cent. that the Bill specifies to 2.5 per cent.

The hon. Gentleman was making heavy weather of his arguments, probably because he did not give sufficient weight to some straightforward considerations. As I understand it, the first consultative document, giving interested parties and the general public a hint that self-assessment was in the offing, was published as long ago as 1991, and the information that is the equivalent of a dummy run, in the sense of providing more hard signs of the way in which the scheme will work for taxpayers, has been available since 1994.

The hon. Gentleman based his argument on examples, which he described, of people being unaware of the changes and not being fully up to speed. As my hon. Friend the Member for Beaconsfield (Mr. Smith) said in his intervention, taxation is an unpleasant necessity in any society and individuals or corporations have a natural tendency, when they are busy, to place examination of those matters on the back burner until they absolutely have to do it. That is a human characteristic, an aspect of psychology; it applies to almost any deadline in human affairs. Taxation is no different; indeed, because taxation is unpleasant, there is obviously a natural tendency for people to put off thinking about it until the last minute. In all charity, to use the hon. Gentleman's word to him, all disagreeable deadlines tend to attract some responses of the type that he reported in his speech, and he should not make too much of that.

I happen to know, from contacts in my constituency, that most of my constituents are aware of many of the implications of self-assessment and are gearing up, with the help of accountants, or on individual initiative by investing in a tape recording or a videotape. In some ways, they look forward to the challenge of getting over the hurdle of the first year. That first year will obviously cause problems, but there are such things as photocopiers, and when one has got it right in the first year, that provides a model on which to base one's subsequent returns in later years.

To summarise, I am saying to the hon. Gentleman, first, that he has underrated the time that useful information that bears on the change has been in the public domain and available to taxpayers.

Photo of Mike O'Brien Mike O'Brien , North Warwickshire 5:45, 25 January 1996

Does the hon. Gentleman accept that, at the moment, no one can say that he knows exactly how the system will work? The Bill may be substantially amended in progress in Committee, and that could result in enormous changes. The hon. Gentleman need only consider the length, in the schedules in the Bill, of the amendments on amendments that have been made. No one yet knows what the rules are, no one can be prepared now for self-assessment, and I doubt that we shall be able to place people in the position in which they can be fully prepared for very many months—even those people who are working hard at preparing themselves.

Photo of Mr Nigel Forman Mr Nigel Forman , Carshalton and Wallington

Hitherto, only a fairly small percentage of taxpayers have had complicated tax positions. That minority, on whom the change might bear hardest, is composed of people who are frequently in fairly regular contact with their advisers, whether they be chartered accountants or others.

The hon. Gentleman underestimates the extent to which, in the process of being in contact with those professional advisers, and in the process of the paper moving back and forth, not only between the taxpayer and the Inland Revenue but between the taxpayer and his or her adviser, the ordinary taxpayer learns and, as it were, comes to appreciate, not only the advice that he or she receives from advisers, but the position of the Inland Revenue.

I can assure the hon. Gentleman, even if he does not know it from experience, that, even as a layman, a person who has been in business or has had complicated tax affairs for some time learns about those matters, complicated though they may be. It is even easier when professional advisers are there to help out on difficult or contentious points.

To summarise, first, the hon. Gentleman underestimates the length of time for which useful information has been available to taxpayers and their advisers. Secondly, there is always a tendency for everyone to put disagreeable prospects in the drawer for a while and not pay attention to those things until nearer to deadlines. That would be true whether we adopted the deadline that the hon. Gentleman suggests of 12 months later, or stuck to our deadline, which I strongly recommend the Minister to do.

Thirdly, the hon. Gentleman did not mention the fact that, under the proposals, if corporate or individual taxpayers have considerable difficulties, they retain the option to ask the Revenue to help them or to provide what it judges to be the accurate figures for the taxpayer. In extremis, it is possible for a person who feels overcome by the burden and the complexity of the exercise to say, or write, to his inspector, "Please do it for me."

In those circumstances, the taxpayer always has the option, if he happens not to trust the inspector—which is unwise because in my experience, inspectors usually see to it that the people working for them treat those matters with accuracy and care, and mistakes are rarely made—to ask the Revenue to take on that task and to act, even slightly paternalistically, to help him through the transition period.

If things go wrong, there is an excellent person who may well be known to the hon. Gentleman and from whom I have had the benefit of a tax briefing: Elizabeth Filkin, the tax adjudicator. She can be brought in in extreme cases where the matter cannot be settled sensibly by discussions and correspondence between the Revenue and the taxpayer.

For all those reasons, I say to the hon. Gentleman, in a spirit of good will, that he exaggerates his case. He fans fears that have been expressed—to me, as well as to him—by the small business community. He would do a better service to his taxpaying constituents if he ensured that they received all the relevant information—if he acted as a conduit for the information, explanatory and otherwise, which is now being provided by the Revenue, and helped through the change. I believe that we must change. The net effect of the change, when implemented, will be beneficial to the country. It is a useful deregulatory measure that will simplify matters.

Photo of Malcolm Bruce Malcolm Bruce Shadow Spokesperson (Treasury)

The hon. Member for North Warwickshire (Mr. O'Brien) has, at least, asked some important questions to which the Minister must respond. I accept that the hon. Member for Carshalton and Wallington (Mr. Forman) can readily find many sources, in his constituency and elsewhere, who are prepared for self-assessment and who would regard a further delay for another year as a frustration and possibly even the cause of wasted expense.

I therefore agree that the hon. Member for Carshalton and Wallington has an argument, but, by the same token, other people are less prepared and they will face the problem of not knowing what is going on. They will run the risk of incurring penalties through lack of proper support and advice. Others may feel that they will have to incur for professional advice costs that they did not previously incur. It may ultimately benefit those people if they obtain the right sort of professional advice at the right sort of price. The accounting industry is no doubt in favour of the change as it is likely to create a substantial amount of business for it—after all, that is what it is there for.

Photo of Mr Nigel Forman Mr Nigel Forman , Carshalton and Wallington

Contrary to what the hon. Gentleman says, if, after the transitional period, people can master the new tax demands placed on them and fully understand what is expected of them, their tax bills could be reduced. My point about the photocopier was meant to show that, once people have created the right model, they can use it as the basis on which to go ahead and fill in their tax returns fairly confidently.

Photo of Malcolm Bruce Malcolm Bruce Shadow Spokesperson (Treasury)

I wholly accept the hon. Gentleman's point. In the past I have filled in my tax forms—I currently use an accountant, but only because I am too busy. I pay my accountant a fee; it suits him and he claims, now and again, to get me a better deal than I would have done. He is probably right to say that—not because I could not have got the deal for myself, but because I did not have the time to do so—but I am merely one individual.

My serious concern does not involve individuals, who will—particularly those on a routine income—easily find a formula to suit them, although the transitional period may be painful and difficult, and they may not be properly prepared. Some business men with smaller businesses, who have slightly more complicated matters to determine, may find, as the hon. Member for North Warwickshire said, that the measure creates considerable additional stress for them, on top of everything else.

The Conservative party prides itself on having good connections with, and an understanding of, small businesses. Having run small businesses myself, I know how difficult it is to run the business and to deal with the practicalities of processing orders and invoices, handling inquiries, ensuring that everything comes together and dealing with value added tax. Another administrative burden will mean that there is less time for producing and selling, and securing cash flow. None of those arguments is against self-assessment per se—our debate is about the timing of it. I accept that, whenever the policy is introduced, it will have its disadvantages and there comes a point when one has to bite the bullet and get on with it.

Another concern, which I raised in my earlier intervention, is that the measure is being introduced at a time when the Treasury and the Inland Revenue have undertaken dramatic reductions in their staff. I am not merely point scoring; the Minister may well be able to explain how the matter will be resolved. The headline in an article in Accountancy Age states: Revenue cutbacks threaten chaos for self-assessment". Such articles suggest that, within the accountancy profession, there is genuine concern that the Revenue will not be geared up for the volume of queries, complaints and requests for help and information that will flood in, particularly at a time when staff numbers have been substantially cut—by 3,000.

I shall give one or two quotes from the article at random. It states: Ernst and Young's self-assessment specialist Philip Davis, said the Revenue would ensure the system would be implemented `come hell or high water', but warned the whole thing was being rushed through unnecessarily and too many problems remained.He said: `If you look at the Finance Bill"'— which is what we are here to do— '''for instance, there are 16 pages of amendments in the 80 pages of self-assessment legislation covering areas which they didn't get right before'. I hope that the Minister will. accept that I am simply raising the concerns of people working in the industry, who clearly believe that there is potentially a serious problem.

To some extent, I have an open mind on the amendment. I can see both sides of the argument. I am not in favour of pushing back proposals to which one is committed unless there is a good reason. If there are problems, such as cuts in staff and a belief that the issue's complexity has not been fully addressed, I would echo the argument of the hon. Member for North Warwickshire that the Government must recognise that, in an election year, this may not be the sort of chaos over which they want to preside.

I hope that there is clear good faith on the part of Labour Members that, if there is a change of Government in the next year, the principle of self-assessment will not be abandoned, its proposal to postpone the measure will be honoured and the measure will ultimately be implemented. I am not sure about—the hon. Member for North Warwickshire did not give it—the Labour party's policy on the delivery of self-assessment. It would be helpful to know whether the Labour party was in favour of it, against it or genuinely concerned about its timing. Having said that, I think that the hon. Gentleman made some important points and advanced his arguments very well.

Photo of Mike O'Brien Mike O'Brien , North Warwickshire

The hon. Gentleman asked for our view. If, having heard some of the arguments, the Government agree with us, the law will be changed. We may win the vote on the amendment even if the Minister does not support us. Perhaps some Conservative Back Benchers will defect—we have seen that happen. If the amendment is passed, the law will be changed and implementation of the measure will be delayed by a year, as we wish. That would also happen if and when we come into office. What happens will depend entirely on when we come into office and the circumstances at the time. If the process is in train, we shall have to evaluate the situation. We wish to ensure that the measure is implemented properly. We have to decide how that can best be achieved when we take control.

Photo of Malcolm Bruce Malcolm Bruce Shadow Spokesperson (Treasury)

I am grateful for that intervention, although I am not entirely sure what it means. I may well be prepared to take the balance of argument in the hon. Gentleman's favour and suggest that we postpone the measure for one year. If I thought that that would lead to a further postponement, I would favour the argument of the hon. Member for Carshalton and Wallington that, ultimately, we must bite the bullet. The question is whether we go ahead now, knowing that there will be problems, but confident that we can overcome them and create a workable system, or whether we acknowledge that the problems of staff cuts and the lack of information justify postponing the measure to ensure that we can overcome the problems.

I quoted from the article from Accountancy Age to show that there are clearly people involved in the business who know much more about the subject than me and who believe that the policy could become an unmitigated shambles. The hon. Member for North Warwickshire mentioned the problems that we have all had to face over the Child Support Agency. Hon. Members on both sides of the House supported the proposal for the CSA and believed that it would work, but we all agree that it has been unsatisfactory. I was talking to a High Court judge last night. When I said that the CSA was an administrative shambles, he said—as only a High Court judge could—"No, no. You can't get away with that. Parliament got it wrong. You brought the consequence upon yourselves." We are talking about a parliamentary decision now, and we should not be partisan about it. One's attitude to the issue should not depend on one's political views.

The question is how we shall implement effectively the biggest reform in tax collection in British history since the introduction of pay-as-you-earn, with a minimum amount of disruption. It would be impossible to make such a change without disruption, but it should be minimal.

The Minister should tell us how he would respond to the critics in the profession. He should also tell us how the Revenue will be able to handle the change, given the dramatic reduction in staff and its lowered morale. Of course, people in the Inland Revenue Staff Federation have a vested interest in maintaining the numbers, but that is not a good enough reason to dismiss the fact that it is odd to introduce the biggest change ever against the background of the biggest single reduction in staffing ever in the relevant department. It is difficult to believe that the reduction will not aggravate the problems.

6 pm

Photo of Mr Tim Smith Mr Tim Smith , Beaconsfield

I wonder, Mr. Morris, what the most boring thing is that you have to do every year. You may tell us that it is listening to debates on taxation in the Finance Bill Committee. I suspect that many people, if asked that question, would say that it was completing their tax return. People do not give a high priority to their tax returns. They eventually get round to doing them when they know that if they did not do it, they would be in trouble with the Inland Revenue. It is not the most exciting task, and it is difficult to persuade people to take an interest in the measure, although it will be a major change.

The timing of the change does not matter. Some people will not face up to it until it happens and the form arrives on their doormat. That is what happened with financial services regulation in the Financial Services Act 1988. Some people simply shut their eyes to it until the very day the Act came into force, when they woke up and discovered for the first time that they were going to be regulated.

Let me remind you, Mr. Morris, what small businesses have to do now. From the debate so far, anybody would think that small businesses have no problems, but every small business and every schedule D taxpayer has to complete a tax return. They often send their tax returns in late. Frequently, by the time a business sends its form in, it has already received an alarming estimated assessment from the Inland Revenue, which inevitably—in 90 per cent. of cases—is pitched at a level higher than the business's profits, to protect the Revenue's position. The arrival of that estimated assessment is often one of the spurs to completing the tax returns. When the tax returns have been submitted, there may be queries on them or they may be accepted by the Revenue, but more paper comes back to the small business because the estimated assessment has to be amended to a final assessment.

Lots of paper is generated by present system. One of the great advantages of self-assessment, for those who choose to complete the form in its entirety, will be that they can work out how much tax they have to pay and send a cheque with their return. If they get it right—and there is no reason why people should not get it right, either on their own, because it is designed to be done unaided, or with help from an accountant—they can send the money in and that will be the end of the process. That will be a considerable improvement and simplification.

The change to self-assessment was announced in principle, as my hon. Friend the Member for Carshalton and Wallington (Mr. Forman) said, in 1991 before the general election. The decision to proceed with it was announced in the 1993 Budget. We debated it in some detail in the Finance Bill debates in 1994 and 1995. I know that the hon. Member for North Warwickshire (Mr. O'Brien) has come rather late to the subject, but this is not the first time that Parliament has debated it.

More importantly, it is not true that the Inland Revenue has no experience of dealing with self-assessment. It has bent over backwards to consult on that issue. For example, in Leicester, 5,000 taxpayers volunteered to take part in an experiment. That is remarkable and we should pay tribute to any taxpayers who volunteer to take part in such an experiment, because they have done all other taxpayers a great service.

Photo of Andrew Smith Andrew Smith Shadow Chief Secretary to the Treasury, Shadow Spokesperson (Treasury)

Does the hon. Gentleman agree—as he implied by his use of the word "remarkable"—that those taxpayers who volunteered to fill in an extra tax return might not be entirely representative of taxpayers as a whole?

Photo of Mr Tim Smith Mr Tim Smith , Beaconsfield

That is very true, and I agree. The hon. Gentleman should recognise that one of the reasons for the changes is to ensure that those who are not among the best taxpayers—who are, as he implied, those who would volunteer—get equal treatment. That will cause difficulty.

The system of automatic penalties will cause difficulty and we have experienced that before. The Government introduced automatic penalties for VAT in the mid-1980s, which ran a predictable course. The new system was introduced and most taxpayers coped with it reasonably adequately. A minority made a fantastic noise, said that they had heard nothing about it and considered the whole system desperately unfair. A few minor changes were made at the margin and we heard very little more about it. I wonder how many hon. Members now receive letters from constituents complaining about the VAT regime, with its harsh penalties, which was introduced in the mid-1980s. Very few, I suspect.

Of course there will be difficulties, because some taxpayers will not wake up to the changes when they are introduced. I recognise that they will not be the taxpayers who volunteered to take part in the Leicester experiment, but it was a valuable exercise. Ministers and the Revenue are to be commended on the extent to which they consulted. My hon. Friend the Minister wrote to all right hon. and hon. Members as recently as 20 November 1995, explaining the changes that have been made to the new tax return. He also explained that, as a result of consultation, the number of schedules attached to the tax return have been halved and that other improvements have been made to try to make the whole system more user-friendly.

I do not believe that delaying the introduction of self-assessment by another year would result in more taxpayers listening to the audio tape or reading the guidance. Those taxpayers who want to do that will do it now, because they run their businesses efficiently. There will always be those who say that they are too busy to do it now—they will be too busy to do it in a year's time. We should reject the amendment.

Photo of Mr Gerry Bermingham Mr Gerry Bermingham , St Helens South

Two features worry me about self-assessment. I declare an interest as a practising lawyer and one of those who will have to self-assess. First, not all tax is paid on invoice. Paying on invoice means that if one delivers an invoice, one is deemed to earn the money in the year that the invoice is sent. Some of us are taxed on what is called a cash basis. For those, the problem has become a nightmare.

The problem affects practising lawyers, some accountants in smaller firms—who have been taxed on a cash basis historically—and many solicitors. The Inland Revenue has tried to wean people off being taxed on a cash basis over the years. It is a rare gift from the Revenue that it has allowed those who are taxed on a cash basis—for example, most members of the Bar—to cling on to that for what life is worth. Why do we cling on to it? Every time I render a bill on a legal aid matter, I do not know when I shall be paid. At the moment, on major cases, if a bill has not been paid after six months, one is entitled to 40 per cent. of it.

Photo of Mr Gerry Bermingham Mr Gerry Bermingham , St Helens South

The hon. Gentleman should come down and ask the lawyers what is happening.

Photo of Mr Gerry Bermingham Mr Gerry Bermingham , St Helens South

It is not only crazy, but to put it bluntly, it is a disgrace. The other day, I got a cheque for a case that I had finished six months before. I got 40 per cent. of my bill. That bill will now be taxed at some time in the next three to four months. I did a case last year that took a year to get paid. It was a small and simple matter, but there were no taxing masters in that area and everything was held up. How can I and many other lawyers actually project what we shall earn in a year, because that will depend on when we get paid? If we are on a cash basis, there is no way in which we can be accurate. We can have a good year or a bad year. A bill can be paid after the end of the tax year because someone is sick and the cheques are not sent out. That happened the other day at the Old Bailey, when 500 cheques were held up because someone was sick. On that basis, there is no way in which we can project our earnings.

Lawyers are not the only ones who will suffer; others will have the same problem for a different reason. For example, those who do not operate on a cash basis will be taxed on the bills that they send out. Small companies—there are a number in my constituency—complain that they send their bills to large companies and they are lucky if they receive payment within three to six months. One hopes that they will be able to project what their tax liability might be in the current year, but it is an enormous guessing game. For many of the self-employed who are not big earners, the game will not be worth it any more. They will run the risk of penalty year in, year out and their cash flow problems will be a nightmare.

The Red Book also states that in one year taxpayers will pay two years' tax. That year will prove a nightmare for self-employed people, whether they are lawyers or plumbers. We must examine the situation realistically. In 1997–98, the self-employed must pay tax on the previous year. They will be able to calculate the amount accurately because they have their books, invoices and receipts. People will know exactly how much they have to pay. However, they are then supposed to self-assess for the current year. They might have a pretty shrewd idea about the amount based on historical profit figures or intake or gross receipt figures. However, in many professions, it will be difficult to calculate. People do not know who will walk through their office doors the next day. Lawyers do not know whether they will have big or small cases, or whether cases will collapse. They will have no way of estimating, although they will do their best.

I shall give the House an example. Mr. X is a plumber who lives somewhere in the mid-shires. He has reckoned that each year he earns about £40,000 gross. After he has deducted his expenses, his earnings amount to £20,000 a year. On a medium tax figure of 25 per cent. after various expenses, he may pay tax of £3,000 or £4,000 per year. In the year in question when he does his guesstimate for the year ahead, he must pay last year's tax as well as this year's tax. In that year, he must pay £8,000 in tax on his income of £20,000 when he would usually pay perhaps £3,000 or £4,000. But Mr. X must still pay his mortgage and feed his children.

Unless the Government do something about that problem, an awful lot of people—perhaps millions—will suffer hardship in that changeover year. The original proposal said that we should take an average over a number of years and then proceed, but that has now been amended. What will the self-employed do in that problem year? They play an important part in our economy—in fact, they are far more important than most people realise.

The self-employed do not work alone: they may employ two or three other people. People are classified as "self-employed" because they own their businesses; they are not a limited company. When presented with a cash flow problem, they have two choices: they can lay off employees—which is not a good idea if our economy is to recover—or they can simply say, "I've had enough; I shall go and work for someone else."

It is very easy for Treasury officials—I mean them no disrespect—to think up a wonderful way of ensuring that everyone is on the same system, without considering the implications. The measure will not affect them as they are pay-as-you-earn, just like Members of Parliament. However, many people in my constituency are not PAYE. Every year they calculate their tax honourably and honestly and pay it on 1 July and 1 January. In the year that the measure is introduced, they will be faced with not only the bill for the year for which they have received the income, but the bill for the year upon which they are being assessed. Those who operate on a cash basis or those who have not been paid by large companies that have delayed payment will face an exaggerated cash flow problem.

I have already given the example of the young barrister, solicitor or accountant who estimates the income that he will receive in a year. However, he may find that, instead of several small cases, he has one large case. He then faces a central taxing unit problem and he may not be paid for a year or more—often he will receive no payments for at least nine months. He may then find that there is an enormous cash flow problem and, unless his bank manager is kind, there is no way that he will come through it.

6.15 pm

The Government should realise, in all fairness, that many of those in the professions and many of the self-employed borrow money from their banks in order to keep going, in the hope that the money will be forthcoming. Meanwhile, they continue to pay interest on their borrowings. There is a similar problem for those who are paid by large companies or Government bodies, such as the Lord Chancellor's Department—I do not wish to be personal in my remarks—or other Departments of State, which often make people wait three to six months for their money. While those Departments are earning interest, people are paying interest.

I know that part of one's overdraft interest is allowable against taxation, particularly on a business account, but it never quite makes up for the loss. By delaying payment to the self-employed who are working for them, the Government are making money while they are costing the self-employed money. In such circumstances, there should be a time limit for payment—two to three months seems fair, but six to nine months seems grossly unfair. I have made that point publicly on behalf of the professions and that is why I declared my interest at the beginning of my speech.

I outline two problems to the Minister. Those who operate on a cash basis will face a difficult guessing game. We are professionals and we shall cope with it somehow, but we need more time to get our advisers into position to deal with it. That is why I support the amendment. I say very earnestly, on behalf of millions of people, that the new change, which will effectively mean a year of double taxation—

Photo of Mr Gerry Bermingham Mr Gerry Bermingham , St Helens South

The hon. Gentleman denies it. I invite him to reassure me and millions of others like me, because that is how it reads in the Red Book.

Photo of Andrew Smith Andrew Smith Shadow Chief Secretary to the Treasury, Shadow Spokesperson (Treasury)

As I understand it, during the transitional period we shall take two years' profits, add them together, divide by two and we shall be taxed on that amount. Effectively, one year is left out, so there can be no question whatever of double taxation.

Photo of Mr Gerry Bermingham Mr Gerry Bermingham , St Helens South

I am grateful to the hon. Gentleman. He is an accountant and I respect his knowledge of accountancy. However, that is not how my advisers and their accountants or the professions' advisers have said that it would work. We are very concerned about the interpretation of the Red Book. If the Minister will come to the Dispatch Box and tell me that I, and millions of others, will not be doubly taxed and that we shall pay about the same rate of tax in that year as in the year before and the year after, I shall sit back and say, "One of my worries has gone." At least I shall have that concession.

Photo of Mr Nigel Forman Mr Nigel Forman , Carshalton and Wallington

The hon. Gentleman should come here more often.

Photo of Mr Gerry Bermingham Mr Gerry Bermingham , St Helens South

Mr. Morris, he is a very rude man; but academics are always rude because they are always ignorant.

I conclude with this simple cri de coeur. I have met many tax inspectors and employers, and they have always been extremely helpful and kind. However, many ordinary people will need a lot of help during the transition period. Therefore, I believe that training should take place and that the period must be extended. I seek the Minister's assurance on the second part of my great worry. If I receive it, I shall go home—notwithstanding the odd crack from the hon. Member for Carshalton and Wallington (Mr. Forman)—a much happier man. But, then again, I was always a simple person at heart.

Photo of Michael Jack Michael Jack , Fylde

Opposition Members know that, from time to time, I have been known to be combative on particular subjects for debate, but on this occasion I shall put aside my sword and shield and deal rationally with some of the important points that have been raised. Light and enlightenment is what I shall deal supply this evening.

I thank all hon. Members who contributed to the debate, because if there is one thing that self-assessment still requires, it is discussion. The more we discuss it, the more knowledge we shall gain about it. I do not want to stand at the Dispatch Box and make outrageous claims that there will not be problems between now and the introduction of self-assessment, as it is a big change, and it is complex, but it is being managed by the most professional people with whom I have had the very great pleasure to deal—the Inland Revenue.

I shall put on record precisely what we are dealing with in self-assessment. We are dealing with the collection of information, albeit in a new way, to determine people's liability and the ultimate payment of taxes, which will not change as a result of self-assessment. People will know about their tax liability, in the sense that they have a tax on their income, on their investment, on the profit that they receive from rent, or on the profits that they receive from their business. That area will be familiar.

The hon. Member for Gordon (Mr. Bruce), who made a balanced and helpful contribution, asked about the enormity of the introduction of self-assessment. Indeed, the hon. Member for North Warwickshire (Mr. O'Brien) asked whether it would be the equivalent of the Child Support Agency. I was relatively new to self-assessment when I took over my present appointment, and I can remember some of the difficulties. Let me try to put their minds at rest.

The CSA was doing two things: first, it was introducing a brand new policy; and, secondly, it was putting in place a brand new information technology system to deal with it. With self-assessment, the Inland Revenue is wholly familiar with the taxes, the way in which collection has to be carried out, and, most importantly, the volume of business that it will have to deal with. It was meticulous in the specification of the system that it requires to deal with that volume. I hope that hon. Members will be reassured by that.

Photo of Andrew Smith Andrew Smith Shadow Chief Secretary to the Treasury, Shadow Spokesperson (Treasury)

Has not the Financial Secretary dug the hole deeper for himself by saying that the CSA's problems arose because it did two things at once? Are not the Government doing the same by changing to self-assessment and changing the basis for assessment from the previous year to the current year? They may be separate exercises, but they will greatly complicate procedures for the self-employed, and the experience will not be dissimilar from that of the CSA.

Photo of Michael Jack Michael Jack , Fylde

I shall deal with that in a moment. The hon. Gentleman will be aware that there is already confusion in the way in which the current tax system operates. For example, for a business that has trading profits and an income from, say, renting accommodation, the accommodation is dealt with on a current year basis, and the trading profit is dealt with on a previous year basis. Self-assessment is about bringing them on to the same timetable. Surely that is a recipe for clarity, not confusion.

My hon. Friends the Members for Beaconsfield (Mr. Smith) and for Carshalton and Wallington (Mr. Forman) shone an important light on the reality of what we are dealing with, in their sage, short, but very important interventions. My hon. Friend the Member for Carshalton and Wallington helped to tease out the fact that self-assessment will not affect some 20 million taxpayers. For them, the world will not change. Their only instruction, if one likes, at this stage is to ensure that they keep hold of their records, because their circumstances might change in future, and they could become the subject of self-assessment. For those who do not receive a tax return, the basic message is that nothing will alter. We are discussing the situation for the 9 million taxpayers who receive a tax return. My hon. Friend the Member for Beaconsfield was right when he pointed out that the matter has been thoroughly debated in the House. It was unworthy of the Opposition to worry people unnecessarily by picking up in the press at the beginning of the year a number of factors on self-assessment, for what I deem to be rather cheap party political advantage, when we are striving to reassure and educate people.

We have been working very hard on information for the taxpayer. None of this has been the invention of minds in the Inland Revenue or the Treasury. We consulted very thoroughly indeed in all the preparations. We have the self-assessment consultative committee. It is representative of individual taxpayers, all sections of business, whether large or small, and it has contributed fulsomely to ensure that we refine the system to a state where it will work.

My hon. Friend the Member for Beaconsfield touched on the trial in Leicester. I am not certain whether the hon. Member for North Warwickshire has been to one of our presentations in the House.

Photo of Michael Jack Michael Jack , Fylde

I am delighted to see that he has. He will know how thorough we are on self-assessment. I wanted to know whether it would work, because I had rehearsed in my mind some worries, which hon. Members put before me this evening.

I was advised that a real-life trial was under way in Leicester, with 5,000 real taxpayers, who had been recruited by the Inland Revenue, which had written to employers, including local authorities and individual taxpayers, some with advisers and some without. The trial was proceeding successfully. The tax office was dealing with the forms. I said that I did not want to go on a glossy trip or just to see the computer screens. I wanted to meet some of the real taxpayers who were taking part.

Six people were selected. They included representatives, agents, self-employed people, a consultant—a whole range of individuals, even PAYE. They gave me quite a hard time. They gave a candid assessment of what it was like. It was interesting. Some had difficulty—those who, like me, take the video recorder out of the box, plug it in, press the buttons and wonder why it does not work. But those who read the carefully tailored instructions and went through them completed the form successfully. They made points to me about revising and refining the questions, and, as my hon. Friend the Member for Beaconsfield said, we have substantially cut the paperwork involved. We learned from the practical trial.

6.30 pm

I must tell the hon. Member for North Warwickshire that we are planning to go to Southampton this year with a trial of 13,000 real taxpayers. That makes this exercise fundamentally different from other major changes involving new information technology systems. We are trying the system out. We are not dealing with the untried and the unknown. We are making certain that we proceed on the basis of fact. It is a great pity that the hon. Member for North Warwickshire, who has teased out everybody's concern to form a speech in the debate, had not reflected on what we are doing.

The hon. Member for Gordon asked important questions. He posed an interesting point when he asked whether the Opposition had truthfully considered their position on this matter. He was right to ask that, because it strikes me that there are some consequences that they have not considered.

I wondered why, for example, the hon. Member for North Warwickshire did not take us through all the consequences of his amendment. He invites the House to support three amendments—two on delay and one on penalties—but he did not take us through the knock-on consequences. That is just shoddy. The hon. Member for Gordon might like to know that the Opposition did not propose any alternative mechanism for the Inland Revenue to collect taxes and make assessments in 1996–97.

The opposition did not tell us precisely which parts of the self-assessment reform package they propose to defer. I wonder if they have given any thought to what is involved in delay. Cost savings will result, so has the hon. Member for North Warwickshire the express permission of the shadow Chancellor to say that he will underscore the extra cost involved in dishing out a further 4.5 million assessments, which result from delaying the system for another year? The hon. Gentleman seeks to delay the benefit that will accrue to the self-employed and those who are required to fill in a tax assessment.

I could go on, but it is clear that the hon. Gentleman, who gave the impression of having looked meticulously at every detail, has not considered the matter in detail. He is advocating that the House tonight should support a recipe for chaos. If the amendments were agreed to tonight, they would result in a complete muddle. The hon. Member for Gordon is right. He has teased out an omission in the Opposition's case.

The hon. Member for Gordon also rightly asked about resources. The Inland Revenue is appropriately staffed to meet the requirements. I can assure the hon. Gentleman that the Inland Revenue is adequately resourced. The resulting staff reduction will be achieved by natural wastage. The very fact that we have invited EDS, one of the world leaders, to help to develop the IT system, shows our determination to ensure that the project is properly managed.

This week, I had the pleasure of going to the central point in the Revenue which is monitoring the implementation of the project. I can assure the hon. Gentleman that each and every aspect is being meticulously managed—from the point of view of IT, personnel and training. It is one of the most remarkable project management exercises. When it is done—I believe that it will be done successfully—people will admire the Inland Revenue for its professionalism and thoroughness. However, it is realistic. It knows that there will be problems. It does not shy away from that. But the hon. Gentleman was right to ask about that.

A moment ago, I centred on the facts of the matter. Why are we having self-assessment? I am grateful for the acknowledgement of the hon. Member for North Warwickshire that his party accepts self-assessment in principle. It has supported it in principle for two years. But all of a sudden, we hear various disparaging comments.

What we are seeing is the introduction of the Keith committee's recommendations. That process has been on the go since 1983. The current system of tax assessment is time-consuming, confrontational and, I think all would agree, unsatisfactory.

At present, the Inland Revenue will issue an estimated assessment to a self-employed taxpayer and, perhaps because of a delay in drawing up accounts or filing returns, there may be problems. If the assessment is not agreed, an appeal will have to be lodged and an application made to postpone tax payments. Every year, about 1.5 million such processes have to be considered by the special commissioners. If the taxpayer concerned has a source of income other than that from his business, he must go through the same process all over again.

Under self-assessment, self-employed taxpayers—of whom there are about 4 million, so we have an interest in them, to which the hon. Member for St. Helens, South (Mr. Bermingham) adverted—will find that their self-employment income is taxed on the same basis as other income, as I said a moment ago. They will pay tax only on profits earned—no more, no less. That deals with the Opposition's attempt to run the scare story that there would be some double tax hit.

Let me take the hon. Member for St. Helens, South and his hon. Friends through a little exercise that I undertook. I wanted to be certain that I did not stand at the Dispatch Box and mislead people about the averaging process. My hon. Friend the Member for Beaconsfield put his finger on the important point that that process of averaging and catching up has now begun. If we were to support the Opposition's request for a delay, we would have an even more muddled situation on our hands.

I asked for an example of what would happen to a business earning a constant stream of taxable profit, which would mean that the tax demand would not change. The analysis was that neither would the payments. They would be the same in January and in July, throughout the years of introduction.

Photo of Andrew Smith Andrew Smith Shadow Chief Secretary to the Treasury, Shadow Spokesperson (Treasury)

The Minister is right to say that, if there is a constant level of the same profits, the payments will be the same, but if there are rising profits, will there not be a higher burden in any given year? The Minister, in his letter to The Independent, put the £850 million extra tax yield in the Red Book down to business profitability and bringing forward the moment when the tax bill has to be paid. How much of that £850 million is due to rising business profitability, and how much is due to bringing forward the date of payment?

Photo of Michael Jack Michael Jack , Fylde

The hon. Gentleman has practically answered his own question. A rising trend of profits means that there will be more profits to tax. That is why, against a rising trend of profits, the Red Book shows an increase. If the hon. Gentleman had read the fine print, he would have seen that it was against original baseline figures. Therefore, we are acknowledging that there is a change.

It is a bit like putting the clocks forward. There is the same amount of taxable profit, but we get at it a bit earlier. Do not forget that those are profits that business has already earned. The money is in the bank. Businesses on any given level of profit will not pay any more or any less tax than is necessary.

Other factors affect the figure in the Red Book. I have already said that other forms of income are subject to the change in the tax—we believe that it amounts to about £713 million in terms of rising profit trends. I should have thought that the hon. Gentleman would have been rather pleased about the fact that we are projecting rising business profitability. Perhaps it embarrasses him because it is a sign of the growing strength that we anticipate in the British economy.

I think that I heard the hon. Gentleman accept that, if we had a constant level of profit, there would be no double hit.

Photo of Michael Jack Michael Jack , Fylde

I am delighted to see that the hon. Gentleman agrees. If he agrees with that, he must agree that there can be no double tax on business. I am glad that we have settled that across the Dispatch Box.

Photo of Andrew Smith Andrew Smith Shadow Chief Secretary to the Treasury, Shadow Spokesperson (Treasury)

Is there or is there not an extra £850 million tax yield in the year shown in the Red Book?

Photo of Michael Jack Michael Jack , Fylde

If the hon. Gentleman reads the fine print, he will clearly see that, against the index level, more tax is coming in because more taxable profit is available. That is a most important point.

Photo of Michael Jack Michael Jack , Fylde

Time is against me. The hon. Gentleman has had his say, and I need mine.

I pray in aid some supporters of not slowing down the process of introduction of self-assessment. Colin Sharman, a senior partner of KPMG, said: Recent calls for delay in its implementation and re-examination of its scope are misplaced. He went on: The project has been well managed by the Revenue with a thorough communication process. Fundamental change of this nature is never easy, but it is well overdue. That is an important supporting point.

Mr. Brodie of Taxaid said: This really is a major improvement. Those and the many others who have spoken in favour of self-assessment should be heeded.

Mr. Grant Thornton of the East Anglian Daily Times said that he believed that self-assessment represented a significant simplification of the old system and that once the new rules were in place it would be much easier for everybody to understand.

The Inland Revenue is well prepared. It is carrying out a massive information exercise. Many thousands of people have already come to our seminars. Much information will be given during the course of the year. I assure the House that no stone will be left unturned to ensure that all concerned understand self-assessment. But if we were to follow the Opposition's line on delay, it would be a recipe for disaster and problems. As for their point about the penalty, it only applies to the penalty on the final payment. I do not think that they would want laxity to creep into the arrangements for the necessary regulation to ensure that people pay their taxes on time.

For all those reasons, I urge the House to reject the amendments.

Photo of Andrew Smith Andrew Smith Shadow Chief Secretary to the Treasury, Shadow Spokesperson (Treasury)

The Minister, and Conservative Members generally, will come to rue the day that they turned down the opportunity to defer self-assessment to enable it to be introduced more efficiently. In this context as in so many others, one word screams out from the Conservative Benches: complacency. Conservative Members are complacent about the scale of the problems posed by the introduction of self-assessment, and they are complacent about the effects on millions of self-employed people and small businesses, and the other costs that business will incur.

The hon. Member for Beaconsfield (Mr. Smith) said that the proposal had been announced in 1993, and had been in the Finance Acts 1994 and 1995. Given that we have been through the process so often, why does the current Bill contain all these clauses? Why have the Government not managed to get it right in all that time?

The Minister assured us that, following the Leicester trials, further trials are now to take place in Southampton. How will the errors be corrected if those trials show up matters that will require further change? The Government are not allowing the time that is needed. A stream of accountants, commentators and representatives of small businesses—cited by my hon. Friend the Member for North Warwickshire (Mr. O'Brien)—are alarmed by the way in which the Government are rushing ahead.

The hon. Member for Carshalton and Wallington (Mr. Forman) seemed to place considerable reliance on the assistance provided by photocopiers. Valuable though such devices are, if the hon. Gentleman thinks that he will get away with simply photocopying last year's tax return and sending it in for the following year, he will come a cropper. The hon. Member for Gordon (Mr. Bruce)—who has left the Chamber—recognised the problems, but did not seem sure whether he and his hon. Friends would join us in the Division Lobby. We shall note how they vote, and we shall remind the electorate if they do not support this opportunity to provide time to get the self-assessment regime right.

My hon. Friend the Member for St Helens, South (Mr. Bermingham) drew attention to the problems facing professions involving variable cash flow, and to what he rightly described as the guessing game that would confront them in the event of a gap between the sending of an invoice and the receipt of cash. He spoke of the devastating effect that the bungled introduction of the regime could have on prospects of self-employment, and on people's confidence not only in the tax regime but in enterprise and self-employment as a way of earning a living.

The Minister has not given us the assurances that self-employed people and small businesses would want to hear. He has not dealt satisfactorily with the issues that we have raised in relation to the £850 million extra tax imposition. We had an interesting discussion about cash flow and the fact that people might be affected differently in different circumstances, but the Minister cannot deny the existence of the extra £850 million tax yield, which is in the Red Book. Someone will be paying that extra money, and it will not be the Minister; it will be the 9 million self-employed people and small businesses.

Photo of Andrew Smith Andrew Smith Shadow Chief Secretary to the Treasury, Shadow Spokesperson (Treasury)

It seems that the Minister is about to volunteer to pay the £850 million.

Photo of Michael Jack Michael Jack , Fylde

I thought that the hon. Gentleman had followed the argument. The answer is that there will be no extra tax hit on businesses. There is no double taxation. As I told the hon. Gentleman, the extra sum against indexation was a result of the rising profit trend. He agreed with me a moment ago; this shows how confused he is.

Photo of Andrew Smith Andrew Smith Shadow Chief Secretary to the Treasury, Shadow Spokesperson (Treasury)

The Minister does not deny—he cannot, because his own Red Book shows it—that there will be an extra tax yield of £850 million. However much they may wriggle and squirm, it is small businesses and the self-employed who will pay that extra money. I promise the Minister and his hon. Friends that we shall remind the electorate, and the small businesses and self-employed people who suffer the consequences of that imposition, who is responsible for the way in which it has been landed on them.

The Minister also did not deal with all the problems of complexity, and the difficulties that the Revenue is experiencing—not withstanding its professionalism, to which I pay tribute—in completing the final version of the tax form. He did not deal with the recurrent costs to the self-employed. He did not deal with the point made by my hon. Friend the Member for North Warwickshire about the danger of a different and more confrontational relationship between taxpayers and tax authorities; and he did not deal with the additional burdens on employers of all kinds, who will face more demands for extra information from both tax authorities and their employees.

There can be no doubt that self-assessment, as introduced by the present Government, has enormous and damaging potential to turn an important change into a formidable crisis for small businesses and the self-employed. Opposition Members urge the Government, even now, to start listening, and to provide the time that will allow us to get the position right. It is clear from everything that the Minister has said that it is not right yet.

Question put, That the amendment be made:—

The Committee divided:Ayes 213,Noes 268.

Division No. 36][6.45 pm
Abbott, Ms DianeClelland, David
Adams, Mrs IreneClwyd, Mrs Ann
Ainsworth, Robert (Cov'try NE)Coffey, Ann
Allen, GrahamCohen, Harry
Anderson, Donald (Swansea E)Connarty, Michael
Anderson, Ms Janet (Ros'dale)Cook, Frank (Stockton N)
Armstrong, HilaryCook, Robin (Livingston)
Ashton, JoeCorbett, Robin
Austin-Walker, JohnCorbyn, Jeremy
Barnes, HarryCorston, Jean
Battle, JohnCousins, Jim
Benn, Rt Hon TonyCunningham, Jim (Covy SE)
Bennett, Andrew FCunningham, Roseanna
Benton, JoeDafis, Cynog
Bermingham, GeraldDalyell, Tam
Berry, RogerDarling, Alistair
Betts, CliveDavidson, Ian
Blair, Rt Hon TonyDavies, Bryan (Oldham C'tral)
Bray, Dr JeremyDavies, Rt Hon Denzil (Llanelli)
Brown, Gordon (Dunfermline E)Davies, Ron (Caerphilly)
Brown, N (N'c'tle upon Tyne E)Denham, John
Burden, RichardDixon, Don
Byers, StephenDobson, Frank
Caborn, RichardDowd, Jim
Callaghan, JimEagle, Ms Angela
Campbell. Ronnie (Blyth V)Eastham, Ken
Campbell-Savours, D NEtherington, Bill
Canavan, DennisEvans, John (St Helens N)
Cann, JamieFatchett, Derek
Chisholm, MalcolmField, Frank (Birkenhead)
Church, JudithFisher, Mark
Clapham, MichaelFlynn, Paul
Clark, Dr David (South Shields)Foster, Rt Hon Derek
Foulkes, GeorgeMoonie, Dr Lewis
Fyfe, MariaMorgan, Rhodri
Galbraith, SamMorley, Elliot
Galloway, GeorgeMorris, Estelle (B'ham Yardley)
Gapes, MikeMorris, Rt Hon John (Aberavon)
Garrett, JohnMowlam, Marjorie
George, BruceMudie, George
Gerrard, NeilMullin, Chris
Gilbert, Rt Hon Dr JohnMurphy, Paul
Godman, Dr Norman AO'Brien, Mike (N W'kshire)
Godsiff, RogerOlner, Bill
Golding, Mrs LlinOrme, Rt Hon Stanley
Gordon, MildredPearson, Ian
Grant, Bernie (Tottenham)Pendry, Tom
Griffiths, Win (Bridgend)Pickthall, Colin
Grocott, BrucePike, Peter L
Gunnell, JohnPowell, Ray (Ogmore)
Hain, PeterPrentice, Bridget (Lew'm E)
Hall, MikePrentice, Gordon (Pendle)
Hattersley, Rt Hon RoyPrescott, Rt Hon John
Henderson, DougPrimarolo, Dawn
Heppell, JohnPurchase, Ken
Hinchliffe, DavidQuin, Ms Joyce
Hoey, KateRadice, Giles
Home Robertson, JohnRandall, Stuart
Hoon, GeoffreyRaynsford, Nick
Howarth, Alan (Strat'rd-on-A)Reid, Dr John
Howarth, George (Knowsley North)Robertson, George (Hamilton)
Howells, Dr Kim (Pontypridd)Robinson, Geoffrey (Co'try NW)
Hoyle, DougRogers, Allan
Hughes, Robert (Aberdeen N)Rocker, Jeff
Hughes, Simon (Southwark)Ross, Ernie (Dundee W)
Hume, JohnRowlands, Ted
Hutton, JohnRuddock, Joan
Illsley, EricSalmond, Alex
Jackson, Glenda (H'stead)Sedgemore, Brian
Jackson, Helen (Shef'ld, H)Sheerman, Barry
Jamieson, DavidSheldon, Rt Hon Robert
Jones, leuan Wyn (Ynys Môn)Shore, Rt Hon Peter
Jones, Jon Owen (Cardiff C)Simpson, Alan
Jones, Lynne (B'ham S O)Skinner, Dennis
Kaufman, Rt Hon GeraldSmith, Andrew (Oxford E)
Keen, AlanSmith, Chris (Isl'ton S & F'sbury)
Kennedy, Jane (L'pool Br'dg'n)Smith, Llew (Blaenau Gwent)
Khabra, Piara SSnape, Peter
Kilfoyle, PeterSoley, Clive
Lestor, Joan (Eccles)Spearing, Nigel
Litherland, RobertSpeller, John
Livingstone, KenSquire, Rachel (Dunfermline W)
Llwyd, ElfynSteinberg, Gerry
McAllion, JohnStevenson George
McAvoy, ThomasStott, Roger
McCartney, IanStrang, Dr Gavin
McCartney, RobertTaylor, Mrs Ann (Dewsbury)
Macdonald, CalumTimms, Stephen
McFall, JohnTouhig, Don
McKelvey, WilliamTurner, Dennis
McLeish, HenryVaz, Keith
McNamara, KevinWalker, Rt Hon Sir Harold
MacShane, DenisWalley, Joan
McWilliam, JohnWareing, Robert N
Madden, MaxWatson, Mike
Mahon, AliceWelsh, Andrew
Mendelson, PeterWicks, Malcolm
Marek, Dr JohnWigley, Dafydd
Marshall, David (Shettleston)Williams, Rt Hon Alan (Sw'n W)
Martin, Michael J (Springburn)Williams, Alan W (Carmarthen)
Martlew, EricWise, Audrey
Maxton, JohnWorthington, Tony
Meacher, MichaelWright, Dr Tony
Meale, AlanYoung, David (Bolton SE)
Michael, Alun
Michie, Bill (Sheffield Heeley)Tellers for the Ayes:
Milburn, AlanMr. Eric Clarke and
Miller, AndrewMr. Greg Pope.
Mitchell, Austin (Gt Grimsby)
Ainsworth, Peter (East Surrey)Emery, Rt Hon Sir Peter
Aitken, Rt Hon JonathanEvans, David (Welwyn Hatfield)
Alison, Rt Hon Michael (Selby)Evans, Jonathan (Brecon)
Allason, Rupert (Torbay)Evans, Nigel (Ribble Valley)
Alton, DavidEvans, Roger (Monmouth)
Amess, DavidEvennett, David
Ancram, MichaelFaber, David
Arbuthnot, JamesFabricant, Michael
Arnold, Jacques (Gravesham)Field, Barry (Isle of Wight)
Arnold, Sir Thomas (Hazel Grv)Fishburn, Dudley
Ashby, DavidForman, Nigel
Atkinson, Peter (Hexham)Forsyth, Rt Hon Michael (Stirling)
Baker, Rt Hon Kenneth (Mole V)Fox, Dr Liam (Woodspring)
Baker, Nicholas (North Dorset)Fox, Sir Marcus (Shipley)
Baldry, TonyFrench, Douglas
Banks, Robert (Harrogate)Gale, Roger
Bates, MichaelGallie, Phil
Batiste, SpencerGardiner, Sir George
Beggs, RoyGill, Christopher
Berth, Rt Hon A JGillen, Cheryl
Bellingham, HenryGoodlad, Rt Hon Alastair
Bendall, VivianGoodson-Wickes, Dr Charles
Beresford, Sir PaulGorman, Mrs Teresa
Biffen, Rt Hon JohnGorst, Sir John
Bonsor, Sir NicholasGrant, Sir A (SW Cambs)
Booth, HartleyGreenway, Harry (Ealing N)
Boswell, TimGreenway, John (Ryedale)
Bottomley, Peter (Eltham)Griffiths, Peter (Portsmouth, N)
Bowis, JohnGummer, Rt Hon John Selwyn
Boyson, Rt Hon Sir RhodesHamilton, Rt Hon Sir Archibald
Brandreth, GylesHampson, Dr Keith
Brazier, JulianHanley, Rt Hon Jeremy
Bright, Sir GrahamHannam, Sir John
Brooke, Rt Hon PeterHargreaves, Andrew
Brown, M (Brigg & Cl'thorpes)Harris, David
Browning, Mrs AngelaHawksley, Warren
Bruce, Malcolm (Gordon)Hayes, Jerry
Butcher, JohnHeald, Oliver
Butler, PeterHeathcoat-Amory, David
Butterfill, JohnHendry, Charles
Carlisle, John (Luton North)Heseltine, Rt Hon Michael
Carlisle, Sir Kenneth (Lincoln)Higgins, Rt Hon Sir Terence
Carrington, MatthewHogg, Fit Hon Douglas (G'tham)
Carttiss, MichaelHoram, John
Cash, WilliamHordern, Rt Hon Sir Peter
Chapman, Sir SydneyHoward, Rt Hon Michael
Clappison, JamesHughes, Robert G (Harrow W)
Clark, Dr Michael (Rochford)Hughes, Simon (Southwark)
Clarke, Rt Hon Kenneth (Ru'clif)Hunt, Rt Hon David (Wirral W)
Clifton-Brown, GeoffreyHunter, Andrew
Coe, SebastianJack, Michael
Colvin, MichaelJenkin, Bernard
Congdon, DavidJessel, Toby
Coombs, Simon (Swindon)Johnson Smith, Sir Geoffrey
Cormack, Sir PatrickJones, Gwilym (Cardiff N)
Couchman, JamesJones, Robert B (W Hertfdshr)
Cran, JamesKellett-Bowman, Dame Elaine
Currie, Mrs Edwina (S D'by'ire)Key, Robert
Davies, Chris (L'Boro & S'worth)King, Rt Hon Tom
Davies, Quentin (Stamford)Kirkhope, Timothy
Davis, David (Boothferry)Kirkwood, Archy
Day, StephenKnapman, Roger
Deva, Nirj JosephKnight, Mrs Angela (Erewash)
Devlin, TimKnight Rt Hon Greg (Derby N)
Dorrell, Rt Hon StephenKnight, Dame Jill (Bir'm E'st'n)
Douglas-Hamilton, Lord JamesKnox, Sir David
Dover, DenKynoch, George (Kincardine)
Duncan, AlanLait, Mrs Jacqui
Duncan-Smith, IainLamont, Rt Hon Norman
Durant, Sir AnthonyLang, Rt Hon Ian
Eggar, Rt Hon TimLawrence, Sir Ivan
Elletson, HaroldLegg, Barry
Leigh, EdwardShepherd, Richard (Aldridge)
Lennox-Boyd, Sir MarkShersby, Sir Michael
Lester, Sir James (Broxtowe)Sims, Roger
Lidington, DavidSkeet, Sir Trevor
Lilley, Rt Hon PeterSmith, Tim (Beaconsfield)
Lloyd, Rt Hon Sir Peter (Fareham)Smyth, The Reverend Martin
Lyell, Rt Hon Sir NicholasSoames, Nicholas
MacKay, AndrewSpencer, Sir Derek
McLoughlin, PatrickSpicer, Sir James (W Dorset)
McNair-Wilson, Sir PatrickSpicer, Sir Michael (S Worcs)
Madel, Sir DavidSpink, Dr Robert
Maginnis, KenSpring, Richard
Maitland, Lady OlgaSproat, Iain
Malone, GeraldSquire, Robin (Hornchurch)
Mans, KeithStanley, Rt Hon Sir John
Marlow, TonySteen, Anthony
Marshall, John (Hendon S)Stephen, Michael
Marshall, Sir Michael (Arundel)Stern, Michael
Martin, David (Portsmouth S)Stewart, Allan
Mawhinney, Rt Hon Dr BrianStreeter, Gary
Merchant, PiersSumberg, David
Mills, IainSweeney, Walter
Mitchell, Andrew (Gedling)Sykes, John
Mitchell, Sir David (NW Hants)Tapsell, Sir Peter
Molyneaux, Rt Hon Sir JamesTaylor, John M (Solihull)
Monro, Rt Hon Sir HectorTaylor, Sir Teddy (Southend, E)
Montgomery, Sir FergusTemple-Morris, Peter
Needham, Rt Hon RichardThomason, Roy
Nelson, AnthonyThompson, Sir Donald (C'er V)
Neubert, Sir MichaelThompson, Patrick (Norwich N)
Newton, Rt Hon TonyThurnham, Peter
Nicholls, PatrickTownsend, Cyril D (Baxl'yh'th)
Nicholson, David (Taunton)Tracey, Richard
Norris, SteveTredinnick, David
Onslow, Rt Hon Sir CranleyTrend, Michael
Oppenheim, PhillipTrotter, Neville
Ottaway, RichardTwinn, Dr Ian
Page, RichardVaughan, Sir Gerard
Paice, JamesViggers, Peter
Pattie, Rt Hon Sir GeoffreyWakiegrave, Rt Hon William
Pawsey, JamesWalden, George
Peacock, Mrs ElizabethWalker, Bill (N Tayside)
Porter, David (Waveney)Waller, Gary
Portillo, Rt Hon MichaelWard, John
Powell, William (Corby)Wardle, Charles (Bexhill)
Redwood, Rt Hon JohnWaterson, Nigel
Rendel, DavidWatts, John
Renton, Rt Hon TimWells, Bowen
Richards, RodWhitney, Ray
Riddick, GrahamWhittingdale, John
Rifkind, Rt Hon MalcolmWiggin, Sir Jerry
Robathan, AndrewWilkinson, John
Roberts, Rt Hon Sir WynWilletts, David
Robertson, Raymond (Ab'd'n S)Wilshire, David
Robinson, Mark (Somerton)Winterton, Mrs Ann (Congleton)
Roe, Mrs Marion (Broxbourne)Winterton, Nicholas (Macc'f'ld)
Ross, William (E Londonderry)Wood, Timothy
Rowe, Andrew (Mid Kent)Yeo, Tim
Rumbold, Rt Hon Dame AngelaYoung, Rt Hon Sir George
Sackville, Tom
Sainsbury, Rt Hon Sir TimothyTellers for the Noes:
Scott, Rt Hon Sir NicholasMr. Derek Conway and
Shaw, David (Dover)Mr. Simon Burns.
Shaw, Sir Giles (Pudsey)
Shephard, Rt Hon Gillian

Question accordingly negatived.

Clause 112 ordered to stand part of the Bill.

Bill (Clause 36, 105, 112 and 139 and schedule 15), as amended, to be reported.

To lie upon the Table.