I see that the shadow Chancellor is in some doubt as to whether he or I should speak first. Are you prepared to rule on who should speak first, Sir Alan? Perhaps you could also enlighten us on whether there are any amendments for us to discuss. The Opposition may already have decided that they will not oppose clause 1, or, indeed, the Bill as a whole.
I am at a loss. It is some time since I have served on a Committee of the whole House, but normally amendments are tabled—sometimes, in extremis, starred amendments. It is, in my experience, unique for us to find that there are no amendments for us to discuss. Should I move that the clause stand part of the Bill, Sir Alan, or do you recommend some other procedure?
This may be a first occasion for many of us. It is the first occasion on which I have chaired a debate on the Finance Bill, just as it is the first occasion on which the Paymaster General has opened such a debate. I have, however, already put the Question, so the debate will take place on clause stand part.
It is fairly unusual for a Minister almost to solicit amendments to one of his clauses. Having looked to see who had risen, I saw the Paymaster General and did him the courtesy of calling him first.
Clause 1 heads a group of provisions that together introduce the windfall tax, thus meeting the commitment that we made in our election manifesto to introduce a windfall levy on the excess profits of the privatised utilities. Those companies were sold too cheaply, so the taxpayer got a bad deal. Their initial regulation in the period immediately following privatisation was too lax, so the customer got a bad deal.
As a result, the companies were able to make profits that represented an excessive return on the value placed on them at the time of their flotation. We are now putting right the failures of the past by levying a one-off tax. The yield of around £5.2 billion will fund our welfare-to-work programme, and the new deal that we have announced for the young long-term unemployed and schools.
Clause 1 provides a one-off charge, set at a rate of 23 per cent. It also gives effect to schedule 1, which will be debated in Standing Committee. It may be helpful if I set the clause in context by explaining briefly how the windfall tax works.
Windfall tax is charged on the difference between the value of the company, calculated by reference to the profits made in the initial period after privatisation, and the value placed on the company at the time of privatisation. The value of the company is calculated by multiplying the average annual profit after tax for, normally, the first four financial years after flotation, by a price-to-earnings ratio of nine. That ratio approximates to the lowest average—
In one second. I shall just finish this point.
If the shadow Chancellor wants to intervene on the ratio, it may be helpful for him to know that the ratio approximates to the lowest average sectoral price-to-earnings ratio of the companies liable to the tax. The value placed on the company at flotation is calculated by multiplying the number of ordinary shares by the price at which shares were offered to financial institutions.
Tax will be charged on that amount at 23 per cent. The tax will be payable in two instalments, due on 1 December 1997 and 1 December 1998. The companies liable to the windfall tax are those that were privatised by flotation and subject to economic regulation. That links with the rationale of the tax; the companies were sold off too cheaply when their shares were offered under value on flotation, and were regulated too loosely in the initial period after privatisation.
We have wasted no time in introducing the legislation and in fulfilling our electoral pledge. I commend the clause to the Committee.
That was hardly a ringing endorsement of clause 1, and I can set the Minister's mind at rest: we have every intention of opposing this and subsequent clauses vigorously, both today and in Standing Committee. We have tabled amendments which, by definition, were in order because they are on the amendment paper. However, you have rightly decided, Sir Alan—all your decisions are right—not to select the amendments and that we can cover this ground under clause stand part, and that is what I intend to do.
Clause 1 introduces the only tax, out of the 17 tax increases imposed by the Budget, which does not breach promises in the Labour party's manifesto. If the House recalls, Labour promised that it had no need for any taxes over and above the windfall tax; it did tell the nation that there was to be a windfall tax, and it was in the manifesto. However, even that tax was based, essentially, on a deception: the pretence that it would not be paid by ordinary people. It was to be a sort of victimless crime, or rather a fine on the guilty—the so-called fat cats and the speculators—or on some abstract entity, the utility companies.
We have four major criticisms of the clause and the windfall tax that it initiates. First, the clause makes it clear that the tax will not be borne by the so-called fat cats and speculators, criticisms of whom justified its introduction. Secondly, it makes no meaningful attempt to define what is a windfall and should therefore bear the tax. Thirdly, it increases instead of reduces cost to customers; any improved profitability should be passed on to customers in the form of lower prices. Finally, it is retrospective, arbitrary and symptomatic of the Government's belief in arbitrary government, rather than in government by known and predictable rules.
The first issue, therefore, is who will pay the tax in the first instance. I should like the Minister to confirm that next to nothing will be paid by the people whom Labour spent many years vilifying—the so-called fat cats. How much of the tax will be paid by directors of privatised utilities? Next to nothing, I venture to suggest. How much will be paid by the notorious Cedric Brown? Not a penny, I suspect. Nor will it fall upon the so-called speculators, if the definition referred to in the clause is incorporated in the Bill. Virtually no one who subscribed early and sold immediately—who stagged the market—or sold within a brief period afterwards will pay any of this tax. Yet those who bought the shares after flotation, for long-term investment—on behalf, usually, of pensioners—will pay the tax in full; unless, of course, it is passed to their customers.
My recollection is that that resulted in £50 being knocked off every quarterly electricity bill in the country. The hon. Gentleman may think that that is obscene. We think that that is what privatisation is all about—reducing costs and prices and passing the benefits to consumers.
May I ask the shadow Chancellor a simple question? Has it dawned on him that one of the reasons why millions of people changed their vote at the election was that they believed that the Conservatives represented and condoned greed? Does not this debate derive in essence from that greed, which the Opposition failed to control when they were in government?
This may surprise the hon. Gentleman, but there is undoubtedly an element of truth in what he says. That is why I have no doubt that he will share my criticism of his Front-Bench colleagues for erecting a superstructure of criticism on the basis of the alleged greed of the directors of those companies, to justify the imposition of a tax which, according to the Bill, will not fall on those people of whom the hon. Gentleman and my right hon. Friend the Member for Huntingdon (Mr. Major), the former Prime Minister, were critical. The hon. Gentleman has highlighted the very weakness in the clause that I am seeking to highlight.
The clause says:
Every company which, on 2nd July 1997, was benefiting from a windfall from the flotation … shall be charged with a tax … on the amount of that windfall.
The company, of course, is the shareholders at any point in time, but the so-called windfall arose in many cases a decade or more ago. If there was a windfall, it may have been paid out in dividends to the shareholders who held the shares in the intervening period.
How can it be meaningful in the clause to describe shareholders on 2 July 1997 as "benefiting from a windfall", which may have arisen years before and which may have been paid out in dividends to a previous generation of shareholders? Will not the clause be open to legal challenge, as it is internally contradictory? Will the Paymaster General explain why he did not put that benefit in the past rather than the present tense, when clearly the definition in the schedule relates to alleged excess profits arising many years before?
That brings me to my second set of concerns. What do the Government mean by a windfall? No serious attempt is made to define anything that could be meaningfully defined as a windfall. Most people would assume that it referred to the rise in the share price soon after flotation. Previously, informed sources—who appeared to have the ear of the Labour party—made it clear that Labour intended at that time to relate the tax to movements in share prices after flotation.
Why did not the Labour party proceed down that route? Was it because the burden of tax would have fallen more heavily on the companies that were wooing the Labour party at that time? Or was it because that approach would have made it all the more obvious that it was essentially unjust to levy a tax on today's shareholders, which related to gains that accrued to a previous set of shareholders—a tax that would by definition not fall on those who realised those gains before the tax was introduced?
Instead, the Government have come along and defined excess profits arbitrarily. They have taken average profits over four years after flotation. If those profits exceed one ninth of the flotation value, the company will pay windfall tax on the excess. The factor of nine seems to have been plucked from the air. If I heard the Minister correctly, he said that it was related to the lowest price-to-earnings ratio.
The shadow Chancellor was kind enough to say that I had been clear with him. I apologise if I was not. I think that I was. It is the lowest sectoral price-to-earnings ratio, which was 9.2 for water. We have rounded that down to nine. Is the shadow Chancellor saying that we should take a higher price-to-earnings ratio in calculating the windfall tax? Many sectors and companies had much higher price-to-earnings ratios in the relevant period.
There are not many companies in Britain with which to make comparisons. Why does the Minister not compare more widely, say, with utility companies floated on the American stock exchange? From my recollection, which is hazy with the passage of time, the price-to earnings ratios of those utilities are more like six than nine. It seems odd to say that anything above the norm is an excess that should be taxed. There is in any marketplace a range around the norm, which reflects the different degrees of success of companies. It is odd not to allow for that fact.
Four years broadly corresponds with the first period of price regulation, when regulation was lax. It seemed appropriate to encapsulate the profit that arose in part from the undervalue at sale and in part from the lax regulation in the first period of price regulation.
I fear that I still have not made it clear to the right hon. Gentleman why we have taken the factor of nine. The windfall gain is not that in excess of nine, but that measured between the funds realised by the sale of shares on flotation day and the application of nine—which is the lowest—to the profits. We could not be fairer on any account.
I am not sure that everyone will agree with that. Most people would regard as fairer a number that reflected what was excessive rather than what was just above the normal.
Essentially, the windfall tax boils down to a tax on success. Companies that failed to improve their profitability over the said period will pay much less or even no windfall tax. Some companies are complaining that other companies in the same industry that were conspicuous failures in modernising, improving and increasing their profitability and efficiency will pay little tax, while those that have done most to invest, reform their working practices and diversify into other businesses will pay most.
I understand that companies that have diversified into new ventures, even if outside the regulated activities, will pay windfall tax on the benefits of diversification. I stand open to correction by the Minister if that is not the case. As he does not correct me, I assume that I am correct and that the Government will impose a windfall tax on profits made in areas other than those in which the company was operating at the time of privatisation and other than in directly regulated areas. That is an indication that the Labour party has not changed. The Labour party still believes that profit is a dirty word. The more profits people make, the dirtier they are and the bigger the tax they should have to pay. That is the essence of the proposal before us.
The Government simply do not understand what privatisation was for or how the regulatory system was intended to pass on the benefits to customers. The aim was to harness the profit motive, which was conspicuously lacking under nationalised ownership, to improve efficiency and reduce prices to the customer. Given the monopoly position of many of the industries involved, some regulatory system was essential to ensure that companies did not improve their profits simply by raising their prices.
We could have chosen a system of fixed profit margins. That has been tried in some countries, but it is grossly inefficient because it leads to cost-plus pricing: the more the company's costs increase, the higher its prices. It is automatically allowed to pass costs on by the regulator. We therefore did not choose that method. We could have gone for a rate-of-return system, which is often used in north America and elsewhere, but that, too, leads companies to wasteful, gold-plated investment. They automatically earn a higher return the more they invest, which leads to inefficient use of resources.
We initiated and developed—it has since been copied elsewhere—the so-called RPI minus X system, which requires companies to reduce their prices in real terms by fixing price increases at X points less than the rise in the retail prices index. That requires companies to reduce their prices. If a company cuts its costs even faster than it reduces its prices, it can improve its profits. However, after a fixed period—the Minister gave an average of four years—the RPI minus X system is revised in the light of performance, so that the benefit of past efficiency gains is passed on in lower prices in the next term.
There is a sharper spur for further gains in efficiency, as companies can make higher profits only by exceeding that even more demanding price reduction target. If the Government can convince the House that more than adequate profits are being earned by any of the industries concerned, they or the regulators should require at the next price review bigger reductions in prices, and faster falls in prices thereafter, to ensure that the benefits are passed on to the customer. It is the customer, not the tax man, who should benefit from the efficiency that privatisation has brought.
Exactly. The hon. Lady has hit it on both buttons. First, the regulator will automatically pass on efficiency gains, and, secondly, he will take the windfall tax into account. The reduction will be less than it would have been had it not been for the windfall tax. She has made for me my very next point. Because the Government are imposing an extra cost on these industries, the reduction in prices will not be as great, or will not occur at all.
We should not underestimate how effective privatisation has been in reducing costs to consumers, both domestic and industrial. Since privatisation, telecoms prices have fallen by 40 per cent. in real terms. As a result, calls are cheaper than in France, Germany or Italy. Gas prices have gone down 20 per cent. for domestic consumers and, for domestic consumers, are below those of Germany, France, Italy, the Netherlands and Belgium. The price of gas for industrial users has fallen by 48 per cent. There has been a reduction of 9 per cent. in the price of electricity for domestic consumers, and one of 10.5 per cent. for businesses. Generators have doubled their productivity since privatisation. That is an indictment of the failures of nationalisation and a recommendation of the success of privatisation since we introduced the policy.
The Government simply pretend that a tax can be levied on companies without any impact on the customers and users of their services. In last year's Budget debate, the then shadow Chancellor said that the windfall tax would not be paid by ordinary families. It is nonsense to pretend that there is any tax that is not ultimately paid by ordinary people. It is not just I who say that, but John Kay, the guru who advises the Chancellor and the Prime Minister. He made it clear in the definitive work on British taxation that there is no tax that is not ultimately paid by individuals.
If the £5 billion that is being levied on those industries by the tax is ultimately fed through to individuals, the average cost per household will be between £250 and £300.
The hon. Gentleman may think that it is an exaggeration when I divide £5.2 billion by 19 million households and get the answer of £270, but that is in accord with the normal laws of arithmetic that have applied in the House for some while.
The Government tried to change the actuarial rules in order to lessen the impact of the advance corporation tax charge on pension funds; now they want to change the ordinary rules of arithmetic, to pretend that a tax on those industries will not affect household bills. It will affect them to the tune of £270 on average, and pensioners will lose most because they spend disproportionately more of their incomes on household bills and typically have lower than average incomes.
On simple arithmetic, does the right hon. Gentleman accept that the £5.2 billion will not simply be put in a hole in a ground or burnt, but will be invested in jobs in our welfare-to-work scheme? Therefore, that money will come back to those same ordinary people through lower tax bills. The right hon. Gentleman's prediction about the future net effect is quite wrong. In the longer term, the whole point of the investment announced in the Budget is that people will pay less in bills and taxes.
All taxes are spent and therefore go back into the economy. On that basis, no tax costs anything and we could have 100 per cent. tax and be no worse off. Most people will see that there is a flaw in that argument somewhere, even if they cannot instantly tell where.
The burden of the tax will fall particularly on pensioner households, who will receive no special protection of the type introduced when the change in VAT rates on fuel was announced. We shall seek to introduce such protection as the Bill progresses in Committee. Why is no compensation to be offered? If the extra costs imposed on household bills exceed the impact of the 27p a week reduction in VAT on fuel, which the Chancellor will introduce in September, such compensation should be offered.
If the regulators prevent those companies from passing on the cost in higher household bills—the hon. Member for Rochdale (Lorna Fitzsimons) thought that the regulators would do so—by definition, the impact must fall on the value of the shares.
It is worth noting that approaching two thirds of those shares are held by and on behalf of pension funds. Therefore, instead of about 28 per cent. of the burden of the tax falling on pensioners, more than 60 per cent. of it will fall on present and future pensioners. That is in addition to the major, on-going attack on pension funds through the ACT charge which has been introduced in clause 19 and which we will attack with the greatest possible vigour in Committee.
Ultimately, the cost has to fall somewhere, and it will fall disproportionately on pensioners.
As for the share prices and the link to the eventual value of pension funds, surely the right hon. Gentleman will be pleased to know that, as at 11 o'clock this morning, the average of those shares was up by 7 per cent. compared with the FTSE average of just 4 per cent. since 1 July this year.
It will not have escaped the hon. Gentleman's notice that the share markets in this country and in some other countries have been rising fairly rapidly and continuously for some time. That is almost certainly not the effect of imposing a tax on them. If he thinks that shares go up when one imposes a tax on them, one ends up with the absurd justification that the Government offer for almost everything—that taxing things is good for us. If the Minister really believes that the shares have risen because a tax has been imposed on the pension funds in question, he will believe almost anything.
We are against this tax because it is retrospective, and over a long period, too. The Institute for Fiscal Studies compared the tax with the tax on banks in 1981, to the great advantage of the latter; it was almost immediate, and it fell on profits that had been made just months before, not on profits made years before. The new alleged windfall profit, moreover, was identified only years after the event.
It is particularly strange that the Government should justify the tax as having been expected by everyone. The Labour party was invited to contribute to the Railtrack prospectus not long ago. I can find four pages in that 600-page document which were contributed by the Labour party and which describe its policies as they affect Railtrack. There is not a whisper about the possible imposition of a windfall tax on Railtrack. I should like the Minister to confirm that Railtrack will indeed fall within the general purview of the tax. The Bill certainly mentions railway companies, so we may legitimately assume that Railtrack will be included.
The Paymaster General has been a business man in the past. He must know that it is a serious matter to sign off a prospectus that is not a full and complete statement of the facts known to people at the time. Is he saying that, when Labour submitted its contribution to the prospectus, it did not know that it intended to introduce a windfall tax; in which case how could the market, the investors in these companies, or the rest of us, be supposed to know? Or did Labour keep it a secret, in defiance of company law? Who signed off the submission to the prospectus? Perhaps the Minister will tell us, so that we shall know whom to hold to account if ever legal proceedings are taken against the Government for the deceit inherent in the process.
When the previous Administration sold off the utilities, they undervalued them. Does the right hon. Gentleman agree that that was gross incompetence on the part of the Conservative Government, and that it justifies this tax? If there were any justice in the world, the Conservative Ministers involved would be facing a surcharge for losing such large amounts of taxpayers' money.
The difficulty that arises when selling off formerly nationalised industries is that it is hard to tell how successful they will be under privatised management compared with the appalling failures of nationalisation. If the Labour Government were proposing to levy an excess tax that related the price at sale to the profits in the four years before flotation, that might be reasonable. If they did so, they would have to hand back money to quite a few shareholders. But the profits made afterwards were unforeseen and unforeseeable; as it turned out, only the most bullish advocates of privatisation were right about them. It is a tribute to privatisation that it produced the improved profitability which, at the end of the price period, is then passed on to customers in the form of lower prices—if they are not siphoned off by extra taxation.
Is it not true that anyone who put his money into Railtrack doubled it in 12 months? Is that right? Does the right hon. Gentleman agree that there is a case for taxing some of it?
Capital gains tax is usually levied on gains that are realised. If it was so obvious that any windfall should be taxed, when invited to state its policies in the prospectus, why did not the Labour party think it worth telling the public about this great truth which the hon. Gentleman holds to be self-evident?
I assure the hon. Gentleman that I did not. As Ministers, we were never allowed to participate in the privatisation of those companies—or to hold millions of pounds' worth of shares in them, I might add.
During debates on clause 1 and subsequent clauses relating to the windfall tax, we shall want to focus on the Government's failure to understand how privatisation works. We shall want to concentrate on their failure to pass on the benefits of that privatisation in lower charges to customers and their desire to increase charges to customers and families by imposing the tax. We shall want to focus on the need for protection from that higher cost, just as we protected pensioners and others from other cost increases that were affecting their household bills. We shall want to focus on the importance of preventing the tax from becoming a permanent and continuing levy.
The Paymaster General justified the tax as a means of financing the welfare-to-work programme. We are not here to debate the merits of that programme. I previously said that I wish it well, but I doubt whether it will be successful. One thing we know from experience of such programmes around the world is that they continue to cost money for as long as they exist. How can the Government justify the existence of a temporary tax by a permanent programme that will need permanent taxation to finance it? Can the Government give an assurance to the House that the tax will not become a permanent burden on household bills?
During last week's oral questions, in an almost throwaway remark, the shadow Chancellor said that the programme was temporary. Does he not concede that good-quality skills and employability are transportable? Behind employability lies behaviour that many young people in this country have not learnt, such as getting up early in the morning, getting themselves to work on time, following the rules once they are there, supporting their colleagues and generally taking on responsibility that they have not had to bear in the past. Does not the right hon. Gentleman concede that such behaviour has an air of permanence about it?
I was saying that it is a permanent programme, but the tax is allegedly temporary. According to the hon. Lady's analysis, as each cohort of young people comes through, there will be a permanent need to fund the programme. We are not here to dispute the arguments that she has advanced—for the sake of argument, I shall accept them—but according to her analysis, the tax will have to be permanent.
We want an assurance from the Government that this will not be a permanent levy on the gas, electricity, water and telephone bills of every person in the country, particularly pensioners. I shall be urging my right hon. and hon. Friends to oppose the clause.
I, too, wish to probe and oppose the clause. Although many of the arguments have been rehearsed and the Government have a mandate to implement the tax—we all know that the measure will be voted through with a comfortable majority—it is important that genuine concerns are put on the record and that the measure is tested against practical experience.
Those of us who oppose the windfall tax readily acknowledge that the first problem is that it is superficially popular. It appears to have no victims; the money will be spent on many good causes; many people made a lot of money, so why should there not be some consequences? However, there are good examples to show that that is a superficial argument. The tax is superficially attractive, but it is basically dishonest.
It is dishonest, first, because it is a retrospective tax. Most of the people who made the excess profits have pocketed them and gone; they will not be paying the tax. If the Labour party had been as concerned about the matter as it claimed, it might have done something about the tax rates of high earners, such as those earning more than £100,000 a year. It would then have ensured that some of the people earning that sort of money made a slightly greater contribution to the general welfare. But that is not the central thrust of the debate on the clause.
I suspect that most people will think, "This is fine; I do not have to pay the tax and I shall receive benefits from it in training, employment and so on for my children or for me." The welfare-to-work programme is not part of this debate; whether we support it is a separate issue. We have expressed support for many of the Government's proposals, which we accept have some good features, and we have come up with some alternative proposals.
However, the way in which one spends the proceeds of a tax is separate from the merits of the tax; spending the proceeds of a tax on good causes does not in itself turn it into a good tax if its impact is fundamentally wrong. As has been said, it is not a victimless tax and it is not a tax that ordinary people will not pay; over time, they will pay it in one way or another.
The shadow Chancellor was right to say, in response to an intervention, that if, in calculating the price formula for a utility, a regulator takes into account the impact of the windfall tax, the regulator will basically be determining what prices should be after a significant amount of money has been taken out of the company's budget.
That proves a basic point—billions of pounds cannot be taken out of the utilities and have no impact on the basic economics of those organisations. If they do not have that money, they cannot invest it. If their investment programme is to be maintained without that money, they must borrow more than they would otherwise have borrowed. If they are forced to borrow, they have to pay a return on the money.
As was also said, consequently prices are likely to be higher than they would have been. If that happens against a background of falling prices, it may not be detected and the Government may eventually get away scot free, inasmuch as people will not appreciate that they have paid for the tax, but they will have paid for it just the same.
May I report to the hon. Gentleman a conversation which I had nearly two years ago with, I think, the managing director of Yorkshire Electricity? The managing director said to me, "Please pass on the thanks of our finance director to Gordon Brown, because never has a tax been so flagged up and so much notice given to enable us to make appropriate arrangements." Hon. Members are expressing synthetic indignation about the mistaken idea that the tax is a surprise and that companies have not prepared for it, discounted it and accommodated themselves for it.
I am grateful for that intervention, but it is beside the point. The tax may well have been well advertised and management may well have been able to make contingencies. Many of those fat cats may well have been delighted that there was hype about a tax that people thought would hit them, when in fact they were pocketing the money and salting it away in overseas accounts. On that basis, yes, they had plenty of notice to ensure that they did not pay a penny of what many people considered to be their ill-gotten gains.
The people who will ultimately pay are shareholders and consumers, because the regulator will take into account the arrangements that companies have made. People may not notice that they have had to pay the tax, but they will have paid it in the end.
The clause is open to interpretation, because it reads:
Every company which, on 2nd July 1997, was benefitting from a windfall".
Who decides, and how, that a company is benefiting on 2 July 1997? In fact, the formula does not refer to 2 July 1997; it goes back to the first four years post-privatisation.
Therein, I suggest, lies an inherent contradiction in the Bill. No doubt the Minister will respond on that point at the end of this short debate. On the basis of the wording, it seems that it would be perfectly possible for a company to say, "We may have done very well in the first four years, but circumstances have changed beyond recognition and we are no longer benefiting, so we should not be liable to the tax."
On Second Reading, my hon. Friend the Member for Twickenham (Dr. Cable) made the pertinent point that several companies behaved in a fairly profligate manner soon after they were privatised. They sought to diversify out of their original functions and became involved in relatively expensive and not especially profitable ventures, on which they lost money. They could write such money off, and therefore not make windfall gains of the size that would otherwise have been made, so they will pay less substantial taxes than other companies that prudently concentrated on their core business and on building up their strength there. Companies that did not waste the money will pay more tax, which seems to be a penalty for prudence and well-directed strategy. In a sense, it rewards those who have taken more risks.
I have said for a long while that I am concerned about certain aspects of the post-privatisation environment. The Liberal Democrat party argued not against the principle of privatisation but against the way in which it was done. We said that there was a need to ensure both effective regulation and effective competition in the post-privatisation phase. The Labour party criticised the previous Government for selling the family silver at knockdown prices. I accept the shadow Chancellor's comment that it is difficult to determine the value of a privatised asset, and it would have been extremely embarrassing if the flotations had been set at a level that discouraged full take-up. Almost by definition, therefore, the Government were driven to float those companies below their value to provide an incentive for people to invest in them and make the whole exercise appear more attractive.
Some people may say that it is typical of a Liberal Democrat to comment that those are the opposite sides of the Labour and Conservative coins: the Tories privatise at a discount to give people a windfall, which the Labour party then taxes to put the money back into schemes that meet its set of priorities. It is money moving around the same group of organisations, but there are more open and honest ways to raise money and fund programmes. The methods of doing so should be sustainable and understood.
The assurance which we all need is that this will not be the beginning of a continuing process. The Government have argued that they did not invent the windfall tax idea but that it was created by the Conservatives when they imposed a windfall tax on the banks. Two wrongs do not make a right, although it is arguable that the windfall tax on the banks was at least applied at the time the windfall was made, rather than a considerable time afterwards. However, the principle is just as wrong.
A range of privatised companies are now subjected to a windfall tax and continue to be subjected to regulation. The question then arises: at what point will it be determined that those companies are finally free of their history and able to operate in the marketplace, making their own commercial decisions within a realistic framework? Even at arm's length, regulation empowers the Government to influence those companies' policies substantially. I suspect that many of them will take the view that they would rather pay a windfall tax than have excessive regulation, which might interfere with the day-to-day management of their organisation.
It is interesting to note that the regulators' attitudes vary considerably. Regulation is a specific feature of the definition of a company liable to the windfall tax. I therefore distinguish between, for example, the electricity regulator and the gas regulator.
I remember an exchange that I had in the Trade and Industry Select Committee with Professor Littlechild—I am glad to say that his attitude changed a little afterwards—when he said that his job was to tell us what went wrong afterwards, not to interfere at the time, which was not why most of us thought he was appointed as regulator.
The current Director General of Gas Supply, on the other hand, said that she did not believe that it was the regulator's job to intervene to encourage gas companies to promote energy efficiency, despite all the agencies involved agreeing that it should be an effective part of the regulatory process. Because she has refused to intervene, that process has not happened.
I mention that to show that the impact of regulation on companies can differ substantially. As the Minister pointed out in interventions, regulation can modify abuses of both pricing and investment policy. There is potential for great argument about which company has been most affected by the impact of the regulator, and whether the assessment of the tax liability should be varied according to the degree of regulation and the conduct of the particular regulator.
I wonder whether the Government have given the companies any private assurances—if so, those should be made public—that, if they come quietly, there will be no further repercussions and in future there will be a reasonable climate for them to operate in. Management cannot be relaxed about the proposal unless assurances have been given that the tax will not be imposed again and that in future the companies will not be subjected to heavy-handed regulation, which could seriously affect their profitability.
Aspects of the tax are profoundly wrong in principle. It will ultimately fall on ordinary consumers, pensioners and shareholders to meet the cost, whether they are aware of it or not. The tax has implications for the continuing relationship between Government and the utilities. Some might argue that it could be a lever for a form of back-door nationalisation. It sets a precedent which would be extremely alarming if it were used by the Government to justify intervening in other sectors of the economy where they deemed that windfall earnings had accrued.
That is where the tax is most fundamentally wrong in principle. It is an irony that a new Labour Government have at the core of their manifesto commitment a very old Labour concept, which could set a bad precedent. I am grateful that Ministers have said that the tax is a one-off and will not be repeated. We will certainly hold them to that, because the precedent is wrong and should not be followed in future.
I had not intended to speak in the debate until about 10 minutes ago, when I noticed that there was a shortage of speakers. I intervene briefly to raise one or two points which, when I recollect what has happened over the years, may be significant.
I have never purchased—
No, I have not even started yet. Give me a chance.
I have never, at any stage of my life, purchased the stock of a privatised company, nor has any member of my immediate family. I have not done so—
On a point of order, Sir Alan. I must intervene, or the Hansard record of our proceedings might be falsified. The hon. Member for Workington (Mr. Campbell-Savours) said that he was rising to speak only because he had noticed that there was a shortage of speakers. Those outside the Chamber would be justified in concluding from that that no other hon. Member had indicated to you that he or she wished to speak, or had tried to catch your eye. At my own count, five or six hon. Members on both sides rose on the last occasion when Members could have been called.
I am sure that the hon. Gentleman is trying to be helpful, but I have a pair of eyes in my head that are not so far failing that I am unaware of the situation.
Following the landslide victory, there are 160-odd Conservative Members of Parliament, but only four or five of them have bothered to turn up to oppose a Bill that they have been telling us for weeks will do great damage to the former public utilities and to the privatised companies. Obviously, they do not feel strongly about those matters.
I was saying that I had never purchased a share in a privatised company. I have not done so on principle, because I believe that what happened in the 1980s and the early 1990s was fundamentally wrong.
As a member of the Public Accounts Committee, I saw several reports produced by the National Audit Office at that time that questioned the arrangements for the sale and flotation of shares. The Public Accounts Committee discussed those matters regularly, and—without breaching the confidentiality of the Committee—I must admit that the handling of those arrangements created divisions. I believe that we gave away large public utilities in the 1980s, and many greedy shareholders queued to purchase shares in the knowledge that they would make substantial windfall gains.
I draw attention to an article that appeared in one of the more sensible press publications last year. It referred to a conversation about the windfall tax that allegedly took place in the former Conservative Cabinet. If I remember correctly—the article seemed very well informed—Cabinet members argued in favour of a windfall tax. Even the former Chancellor of the Exchequer allegedly expressed the view that a one-off dollop—if I may use that word—of cash from the privatised companies could help the then Government to secure their public expenditure targets. I shall say no more about that matter—perhaps the Opposition spokesman, the right hon. Member for Hitchin and Harpenden (Mr. Lilley), will refer to it during the debate.
I welcome the windfall tax. I think that it is a brilliant idea, and I congratulate those who were responsible for dreaming it up. I congratulate the researchers, academics and whoever else enunciated the principle that we are now transforming into legislation.
I believe that it will have a major impact in my constituency. Many of my constituents aged 18 to 25 or 25 years and over are long-term unemployed people, and their condition worries me. Many of them have grown up in families with no one in work. Lack of employment opportunities is creating a culture of unemployment in some parts of the country. Unless we tackle the problems today, that culture will undermine the social fabric of our society and have all sorts of social and economic consequences. The Government are trying to address those issues through this very important tax and the Finance Bill.
If all we do in the next few years is give young people hope, involve them in economic activity, give them a purpose in life and restore their faith—or induce some faith—in society by showing them that we are interested in their future, we will succeed. Through the gateway concept, as outlined in the new deal proposals, we hope to give young people education and employment opportunities that will stand them in good stead for the rest of their lives. We may not be thanked for our achievements, but that does not matter. We must take a decision today that will enable many hundreds of thousands of young people to enjoy the experience of stable work—which is a common experience for most people in my age group.
I turn now to the legislation and to the reasons why it is important. I readily confess that I have been converted to the principles of privatisation, which I opposed in the late 1970s and early 1980s. I voted in Divisions against privatisations—I am quite open about that; it is on the public record—in most areas, although I was discreetly in favour of selling council houses because I envisaged great social benefits.
In the same way, many Tories have been converted to the idea of the national health service. They voted against our proposals in the mid-1940s, believing that private health was the only solution. Today, many Conservative Members believe in the national health service. They may do things to which we object—a core of Tories would like to privatise the whole process—but the Conservatives were converts just like us.
Once converted, we were forced to address the question of how to achieve the objectives delivered by nationalisation through the privatisation process, so we became regulators. I think that the Labour debate in the next few years will be about the extent to which we can advance arguments about regulation without interfering in the workings of the market. We must strike a balance—and I believe that the previous Government got it wrong.
We have become greater regulators, and we are seeking to develop the principles of privatisation—we shall probably be more successful than the Tories ever dreamed. However, a residual issue remains: although we recognise that the changes will ultimately be beneficial, we must address the fact that many hundreds of thousands, if not millions, of people made huge windfall gains when they purchased shares in the privatised utilities. We should remember that many of those people still hold those shares today—as the former Government reminded us repeatedly when they published their figures on the state of share ownership in the United Kingdom.
I must correct the hon. Gentleman's perception of history. The national health service was suggested to the House in a White Paper that was produced by the coalition Government in 1944 and presented by a Conservative Minister of Health. The Conservative party supported the principle of the national health service from the outset. The only difference between the parties during debate on the 1948 legislation was whether hospitals should be nationalised or should remain independent, often charitable, foundations. The principle of free health care at the point of use was common to the major parties—including the Liberals—and, as such, it was enshrined in the 1944 White Paper.
I hope that the hon. Gentleman does not mind my correcting that point. It is not directly germane to this debate, but, as the hon. Gentleman raised it, it is important to ensure that an untruth does not gain credibility by being repeated without challenge in this place.
I do not intend to withdraw my remarks. The hon. Gentleman is rewriting history. When I came to this place in 1979, I met some very interesting old characters who had been Members of Parliament since 1945. We would sit in the Dining Room at night and they would tell us fascinating stories about parliamentary events in the 1940s. Their tales about Conservative Members' resistance to the socialisation of medicine in the 1940s were legion. They were very interesting stories, but I shall speak privately to the hon. Gentleman about them.
A residual issue remains: the huge gains made by many greedy people. We cannot turn back the clock and eliminate those gains. However, we can at least seek to redress the problems that have arisen as a result of the lost revenue that would have accrued to the taxpayers if the industries had remained publicly owned and begun to operate efficiently and effectively.
I listened with interest to the hon. Member for Workington (Mr. Campbell-Savours). The hon. Gentleman and others have the idea that those who invest in shares and make profits are greedy. They think that they should not receive profits and believe that they do not pay tax. Those who take that view are not living in the real world. We are told that those who have made profits should now pay tax, the implication being that they have not made any contribution from their profits. But they have: they have paid 40 per cent. capital gains tax. The hon. Member for Workington and others now want to levy a super-tax.
The hon. Gentleman says that he has been converted to privatisation. Could it be that one reason why privatised companies have been so profitable and successful is that, at the time of privatisation, no one realised the true level of the inefficiencies and bad management of the industries concerned? That is borne out by the fact that the hon. Gentleman says that he is now a convert to privatisation.
The windfall tax is not a fair tax, because it is a tax on success. I should like to hear the Minister's comments about two electricity companies, East Midlands Electricity and Yorkshire Electricity, which are of similar size. After the first year of privatisation, East Midlands Electricity made £109 million while Yorkshire Electricity made £100 million. East Midlands Electricity had a market capitalisation on flotation of £523 million while Yorkshire Electricity's was £497 million.
In the last of the first four years of privatisation, 1994–95, the two electricity companies were roughly the same size. East Midlands Electricity made a profit of —164 million and Yorkshire Electricity £161 million. One would think that they would pay roughly the same amount in windfall tax, but that is not so. Yorkshire Electricity is paying 40 per cent. more—£39 million-worth. One of the principal reasons is that, in 1993–94, East Midlands Electricity had a bad year. It made some bad investments, its management took its eye off the ball, and profits fell from £116 million to £27 million. As a result of that inefficiency, the company will pay less windfall tax than Yorkshire Electricity.
Yorkshire Electricity was more successful than East Midlands Electricity in its diversification. It made £18 million from an investment in Sweden. That has nothing to do, of course, with the price at which the privatised companies were put to the market, yet Yorkshire Electricity is having to pay windfall tax on its profit of £18 million. As I have said, we are not dealing with a fair tax. There are many anomalies, and the outcome is a tax on success. Those companies that have been successful will pay much more than those that have been failures.
The hon. Member for Workington told the Committee how pleased young people in his constituency would be about the windfall tax. I represent an area in which there is a high percentage of pensioners, and they are rapidly beginning to realise that the windfall tax is not a good tax for them.
It is significant that, during the Budget statement, the Chancellor of the Exchequer made it clear to the House of Commons that there would be no increases in prices. The regulator, however, has said that he is taking the windfall into account, so prices will be affected. We were told that there would be no decrease in investment and no decrease in service. So from where does the money come? There is only one place from which the money can come, and that is from the funds that are available for distribution in the form of dividends. Who are the largest shareholders in the utility companies? The large financial institutions, especially pension funds. That is one part of the triple whammy that the Budget has introduced against pension funds.
It is not the fat cats who will be taxed but future pensioners; they will probably be taxed more than today's pensioners. That is why we are dealing with an iniquitous tax. It is a means of taxing by stealth. The burden of the windfall tax will be felt not by the ordinary man in the street today but by future pensioners. It is a retrospective, unfair and bad tax, and I shall vote against it.
The Conservatives have opted for their usual scare tactics. I recall that the previous Prime Minister, the right hon. Member for Huntingdon (Mr. Major), sent out letters to perhaps millions of shareholders before the general election. Indeed, my father received one. As far as I know, he has never had a share in any of the utilities. That being so, I am not sure why he received the letter. However, it set out how much the windfall tax would cost the people of this country. The message was that they should not vote Labour. That approach did not work then and it will not work now. The Conservatives lost the mood of the country—that became clear on 1 May—and they have lost it again.
The windfall tax has been warmly welcomed in my constituency. When I was campaigning during the election campaign, many people said that they considered it to be a good idea. They were supportive because of the reasons for such a tax. They understood that it would create jobs and other opportunities for young people and the long-term unemployed.
Conservative Members have talked about the utilities—North West Water is an example. There is talk also about the utilities being sold off cheaply and the result being excessive profits, fat cats and price rises. All these issues come to mind. They were mentioned to me on the doorstep by those who are now my constituents. The shadow Chancellor of the Exchequer did not say that prices had doubled in the water industry. It is not all roses in the garden.
Basically, the windfall tax is seen as a fair tax.
My hon. Friend referred to North West Water, which came on the market at a knock-down price. People who live in the north-west—I am one of them—can be supplied with water by only one company. Similarly, sewage treatment can be undertaken by only one company. That being so, the company cannot fail to make a profit. That is why the windfall tax is fully justified.
I entirely agree with my hon. Friend. He will be aware that the number of complaints about North West Water has increased significantly over the past few years.
It is said that the windfall tax is a temporary measure but will result in permanent benefits, which will be important to my constituency. That is why the measure is so warmly welcomed. In my constituency, 44 per cent. of young people do not have a job and are not in training or at college. That is a major problem. The windfall tax will bring about improvements, and the problem in my constituency will become less severe.
There are social problems when young people have not been in employment since leaving school. They may have moved from one temporary job to another. In many families, two generations have not been employed. Young people were shabbily treated by the previous Government and the windfall tax is a means of addressing the problem.
The largest employer in my constituency is the chemical industry. The number of people employed in it has been drastically reduced during the past 10 or 15 years. Middle-aged men, especially, have lost jobs and are unable to find new ones. They are having a great struggle. They must acquire new skills, and that means retraining. Many people telephoned me to speak about these matters shortly before the election. They were keen to obtain more information, and keen for Labour, when in government, to take the issue forward.
The windfall tax is about bringing hope and benefits to people in constituencies such as Halton and, indeed, generally. The tax is warmly supported in my constituency and its introduction will be welcomed. The sooner it is implemented, the better.
The windfall tax, by its very definition—I do not think that Labour Members will be able to quibble with this—is arbitrary, discriminatory as only some companies will pay it, and retrospective. It is—[Interruption.] I shall happily give way to any Labour Member who wants to quarrel with the three simple propositions that I have put before the Committee. Does the hon. Member for Workington (Mr. Campbell-Savours) wish to take issue with me? He is shaking his head, but it is in the nature of a windfall tax that it should be retrospective, arbitrary and discriminatory. It is quite right that we should give the Government a hard time on this: it is scandalous. They should be made to face the essential aspects of the windfall tax they have introduced.
Irrespective of whether we lose the Division later this evening, it is right and important that the Committee should lay down a marker that the windfall tax cannot be got through the House with impunity; otherwise, Governments in the future—no doubt this Government, as I know they have four or five years to run—will regularly resort to discriminatory, arbitrary and retrospective taxes. A very worrying precedent will be created if the tax gets through the Committee this evening.
Why does it matter? I shall deal with the point about the tax being retrospective. When the public, individuals, little old ladies, business men with some money to put aside, people providing for their pensions, institutions that manage the pension funds of millions of people, and foreign investors, who, traditionally, take a favourable view about investing in this country—all sorts of institutions and individuals—applied for shares when the utilities were privatised, they read the prospectuses, which were thoroughly and professionally drafted and written. As far as I know, my old firm had nothing to do with the initial privatisation issues. I can say that without fear of any conflict of interest.
People who subscribed to the shares believed that the essential facts relating to their investment—so far as they could be predicted at the time—and above all the regulatory and political regime within which those companies would exist, had been fairly, adequately, indeed definitively, described in the prospectuses. We now find that that is not true, because another Government have been elected and have said, "No, we are going to change the framework of understanding against which people took the decision to invest in shares,"—whether it was a widow investing £200 or a pension fund investing tens of millions of pounds. "We are now going to change those rules."
This is a very serious matter. It is not something that can be done with impunity. It means that, the next time a Government, of whatever political complexion, offers shares to the public, or for that matter a debt issue, a gilt issue, which Governments do all the time—it is terribly important that the interests of the whole country, of every citizen and taxpayer, irrespective of his or her political views, are considered—the offer of shares or stock will be received by the market on the basis that the political risk attached to subscribing to shares is now much higher in Britain. That is regrettable, because this country always had a favourable, stable climate of investment. Traditionally, it had integrity in these matters because our Governments have had a reputation for straight dealing, not retrospective dealing. That reputation will be damaged today.
The country's interests will be seriously damaged if the windfall tax is passed by the House. For ever more it will be said that the British Government may come forward with a prospectus and say, "The following are the particular terms on which we are prepared to sell shares, and the following is the regulatory and tax climate in which companies will continue to operate in the United Kingdom," but, in practice, a year or two later, another Government may come into office and decide to change retrospectively the rules of the game.
That is happening now. Such an act leads to the de-rating of a country's credit rating. Every issue made by a Government who develop such a reputation, or by a country with Governments who act in such a way, suffers a discount. The price in the form of interest rate that they have to pay when they wish to raise debt is correspondingly higher; the price at which they can sell shares is correspondingly lower. The whole country pays a long-term price for the loss of that credibility and for investor confidence being damaged in that way.
There are hon. Members on both sides of the House with experience of development economics who have been involved with third-world countries, many of which are trying to extract themselves from appalling structural poverty. They will have looked at the various controversies in the academic and political worlds about what characteristics are right for a country to try to develop to help its way out of poverty and what framework is needed to generate wealth.
Everybody who has looked at these matters and at the experience of countries in the third world will recognise that there is an enormous premium to security of investment, to integrity, in generating investor confidence. There is an enormous discount for countries that have in some way damaged their credit standing, that have damaged investor confidence, that have damaged the propensity of overseas investors to invest because they have developed a reputation for retrospective taxation or for placing retrospective burdens on investors.
A retrospective tax is very damaging. It cannot be imposed with impunity. It will not be done with impunity in this country. It is deeply damaging to many of our principles of equity. It is also deeply damaging in a quantifiably economic sense. That is the first thing that I have against the windfall tax. It is the reason the Committee should think very carefully before we let it through. If we let it through, a precedent will be created and the Government will no doubt consider it an easy way to raise money.
Many of us feel, on the basis of two months' experience, that we have a very irresponsible Government—a Government who brought forward a Budget that directly contradicts the diagnosis of the country's economy in the Red Book. A country run by such a Government obviously has some difficult moments ahead, and there is no doubt whatever that the Government will run into severe budgetary and economic problems.
If the Government feel that they can get away with the easy way out, embarking on some retrospective, arbitrary new tax—they will if we let the tax through this afternoon without maximum protest—further damage will be done to this country, to the investment climate and to the propensity of domestic savers to place their money in privatisation issues, debt issues or any other issue of the British Government. Further damage will be done to the willingness and propensity of overseas investors to come to this country. It is a very serious matter indeed.
I can see that the hon. Member for Workington is trying to intervene. I would be delighted to give way to him.
I was not seeking to intervene, but the hon. Gentleman invites me.
The hon. Gentleman used the term "precedent". Was not the precedent set in the early 1980s with the banks?
We had a very interesting debate yesterday about whether it is a good idea to try to railroad a Finance Bill through the House without giving people outside time to read and digest the text of the Bill, and without giving hon. Members time to consult outsiders—or, indeed, simply to think about the matter themselves and consult their research assistants. We debated whether that was a sensible way in which a modern, sophisticated democracy should allow complex and economically important legislation to be pushed through the House. (Interruption.] I am coming to the hon. Gentleman's point; I shall not forget him.
When Conservative Members discussed this matter yesterday, Labour spokesmen could not think of a way to address our serious criticisms on their merits. All they could say was that past Conservative Governments had sometimes guillotined Bills. As a result of yesterday's debate, it became quite clear that in fact there were no exact precedents, and no Conservative Government had railroaded a Finance Bill through the House so rapidly and with so little excuse.
Nevertheless, I accepted then, and do so again now, that it was unfortunate that some Conservative Governments, possibly without waiting to see what would happen when we got into detailed discussion of a complex Bill—for example, a Finance Bill—in Committee, had by way of anticipation introduced a timetable motion. I said that that was a mistake. It was a mistake in itself and it was a mistake because it created a bad precedent. Here we have the Government taking that bad precedent further.
I make no apology for the tax on banks to which the hon. Member for Workington referred. I was not in the House at the time. Had I been, I am not at all sure whether I would have supported it. As I was not, it would be hypocritical to say whether I would or would not because we do not know what I would have done. However, for years before I came into the House I have held to the strong belief that retrospective legislation is obnoxious and that retrospective taxation is particularly obnoxious and damaging.
It is an extraordinary indictment of the moral confidence of the new Labour Government, elected with this enormous majority, that the best way in which they can justify their actions is to say that the Tories did almost as badly, because none of the precedents is quite up to the measure of what they now propose.
If the Government were confident of their mission to bring some good to Britain which previous Administrations had failed to do, they would be the last to mention Conservative precedents, except, possibly, as an example of something on which they wished to improve. Instead, the Labour Government are incapable of justifying on their merits the serious measures that they are introducing—yesterday, guillotining the Finance Bill before it had even started, treating the House of Commons and its procedures with considerable contempt, and today introducing a windfall tax with all those elements of retrospectivity and arbitrariness to which I have already referred.
I am fascinated by the way in which the hon. Gentleman dissociates himself from Conservative history. Was not there a levy on the gas companies in the mid-1980s? Do not I remember some Budget measure to do with some levy being imposed on the gas industry?
I have no memory of any such thing, and I do not believe that any such thing took place during my time in the House. I know the hon. Gentleman well and I have a high regard for him as a parliamentarian, but I have much less regard for him as a historian as a result of the clanger that he dropped earlier, to which I drew attention at the time in an intervention which he graciously allowed me to make during his speech.
Therefore, I have little confidence that that suggested levy is anything other than a figment of his imagination—a hard-pressed imagination, I suspect, because I sense the embarrassment among Labour Members as I say, frankly, that it is not good enough to come before the House and justify otherwise unjustifiable measures on the basis that one's opponents did almost as badly in the past. A Government who had any kind of self-respect would wish to justify their measures on their merits, and that they have spectacularly failed to do.
I now return to some of the important aspects of clause 1 on which I touched earlier—its arbitrariness and unfairness. The windfall tax will impact on the current generation of shareholders, not on the generation of shareholders who supposedly—supposedly—enjoyed the putative windfall gains described in the Bill.
That point has been commented on already. It is clear that anyone who bought into the companies subsequently, without realising that the Labour party planned a windfall levy, will have suffered considerably, and those shareholders who sold out before the imposition of the windfall tax, or before the markets began to discount its likely imposition, will not have suffered at all.
Let us consider the specific human reality behind this. Who are the shareholders who, for the most part, have been the most loyal and longest-term shareholders? I should say straight away for the avoidance of any doubt that to a small degree I am one of them. I applied in my name and those of my children for a number of these privatisation issues. I thoroughly disagree with the hon. Member for Workington: the privatisation of those companies was a brilliant idea. The great success of those companies since privatisation and their emergence in many cases as multinationals with an international position in their sectors, thoroughly justifies that.
The statistics produced by the stock exchange bear out my experience that the shareholders who have been most loyal to those companies, the longest-term shareholders, have been the small shareholders, many on small and below average incomes, who applied for a few hundred pounds worth of shares way back in the late 1980s or early 1990s when the companies were privatised. They are the shareholders who tended to hold on to their shares and they will now suffer from the retrospective levy. They will be the losers from the windfall tax.
It is fair comment, on the basis of anyone's experience of the financial markets, that on the whole the smaller the holding, and probably the less sophisticated the investor, the lower the rate of turnover in the portfolio. In many cases, small shareholders do not have a portfolio. They have one or two shareholdings to which they stick. They do not churn their portfolios every week or month. They do not get up in the morning and look at their Reuters screen or their Topic screen and decide to buy or sell such and such a share, switch between deutschmark and yen or hedge their position by selling the index, or something of that kind. It is the sophisticated shareholders who do that. It is unlikely that they would have a single shareholding in their portfolios for six, seven or eight years. Such shareholders have most probably sold out. Few of them will have exactly the same shares that they bought at an initial flotation.
The extraordinary effect of this most unpleasant levy—unpleasant because it is retrospective and arbitrary—has been to impact on the small shareholder. We all have in our constituencies small shareholders, often people who have been investing for their retirement or retired people, pensioners with just a few hundred pounds in privatisation shares, who have held the shares from the beginning who now find that they are suffering. In contrast, the sophisticated professional investor got out a long time ago and can wave goodbye to the windfall tax. That is a pretty perverse and unpleasant consequence of the tax. It may not have occurred to the Labour Government, but if it has I hope that it is a consideration that will stick in their gullets.
My hon. Friend the Member for East Yorkshire (Mr. Townend) referred to another perverse aspect of the windfall tax: the discriminatory effect not just between one class of shareholder and another but between one company and another. I listened with great attention to my hon. Friend's speech. He had obviously done a lot of homework, because he quoted facts and figures about the sales and profits and market capitalisations of Yorkshire Electricity and East Midlands Electricity during the relevant period.
Anyone with even a passing acquaintance with those companies knows that there was a considerable contrast, in that East Midlands Electricity engaged in a diversification programme, going into activities that were not regulated, not in any sense monopolistic activities or activities which could possibly be justified as being targeted by a windfall levy, and it got it wrong, while Yorkshire Electricity on the whole got it right. That is an extraordinary state of affairs, because we now find that the tax will penalise those who got it right, and will let off, in relative terms, much more lightly those who got it wrong.
Here we are back to the old socialist principles that have been around ever since the Labour party existed—clobber success and reward failure. What kind of a principle is that? It is a principle, in the name of redistribution or in the name of God knows what, which can lead only to the progressive decline of the economy. People will be deterred from making a higher risk, higher reward investment, because if they get it right they will lose the proceeds through a discriminatory and retrospective tax—which the windfall levy undoubtedly is—and if they get it wrong they will lose their money anyway. So why invest, and why take any risk?
Any economy that applies that appalling principle will pay a high price. We paid a high price when the Labour party was previously in power. The Labour party in the 1970s ran the economy on the principle that the successful should be penalised and punished and the weak should subsidised. We recall those dreadful subsidies for loss-making nationalised industries. That formula produced, in aggregate, an increasingly weak British economy across the board. We paid a high price then, and that principle is again being applied in the proposed windfall tax. That tax will be a severe impediment to companies that have done an extraordinarily good job for the British economy. Its economic consequences are of considerable concern.
I make no apology for dealing with some of the human and philosophical aspects of this matter, including the precedent effect of the tax. I do not believe that man lives by bread alone: economics is not everything. It is right to consider first issues of principle and the impact on the lives of human beings. The impact on people's savings has an effect on their sense of independence and security, particularly in old age.
Nevertheless, we must consider the economic consequences. Here is another classic illusion in Labour thinking. They seem to believe that they have discovered two invisible taxes. They are taxes in that they raise revenue, but are not taxes in that they do not do any economic damage. The Labour party believes that they do not do any political damage either. Those two measures are the abolition of dividend tax credits and the imposition of a windfall tax.
No doubt the Government have congratulated themselves by saying, "Isn't this extremely clever of us? We have found the touchstone that turns everything to gold. We have found the holy grail. We have found a form of tax that does not damage the economy or our political standing." They are completely wrong about that. There is no such thing as a tax that does no damage to individuals or to the economy. Any Government proposing to levy any form of tax should consider carefully what damage it does and try to target it so that the damage is minimised.
We cannot accept this thoroughly dishonest attempt to pretend that some taxes do no economic damage and can be levied with impunity on the British public and on the British economy. The windfall tax will damage the British economy because it will damage the privatised utilities. They are now extremely successful companies, whereas when they were nationalised many of them had to be subsidised and almost all of them were under-invested and showed up badly in international league tables of productivity, profitability, environmental standards and consumer service.
Sir Alan, you and I are old enough to recall the days when utilities were nationalised and the tremendous difficulties we had getting a telephone or a gas pipe repaired. Their service was bad, but they are now astonishingly successful. British Telecom has become one of the leading telecommunications companies in the world. British Gas has become a major player in the world, and our electricity generators have become major players and investors in many parts of the world.
It is a proud record. The considerable price reductions—up to 40 per cent.—are an extraordinary example of productivity gains being passed to the consumer. That could happen only in a privatised system. In a producer-oriented, nationalised economy, productivity gains are not made available to the consumer.
Productivity gains have been passed to the consumer, and there have been enormous improvements in service. Many companies have made enormous international investments, so they have a stream of international earnings. That is a great advantage to them, because it reduces the volatility of their earnings, and to the country, because it contributes to our overseas earnings.
We are now singling out those companies for a windfall tax. If a company's after-tax profits are reduced, the propensity of that company to invest is also reduced. The Paymaster General, who was bold enough—perhaps thoughtless enough—to put his name to the tax and to come and defend it at the Dispatch Box, ran a distinguished British manufacturing company. He is looking askance, and does not want to look me in the eye. He knows perfectly well that, if the return from prospective investment is reduced, the propensity to invest is also reduced. If he wants to argue with that fundamental principle of economics and financial theory I should be delighted to give way to him. He is looking at his tie or at his feet. He is looking away from me, because he does not want to intervene. He knows that he cannot quarrel with that point.
The hon. Gentleman would have been failing in his fiduciary responsibility to his company, its shareholders and employees who depended on him if he had not fought like a cat against the imposition of such an arbitrary, obnoxious and unjustifiable levy.
Despite our provocation, the hon. Gentleman is looking into outer space and is determined not to respond to our comments. He feels guilty, so he will not take issue with us on the principles of economics or financial theory. He will not rewrite the textbooks, because he knows perfectly well that, if the prospective after-tax profit from any investment is reduced, the propensity to invest will be reduced. To justify any investment, the prospective yield will have to increase. Less investment will be undertaken, so there will be less growth and less employment generation in those companies in the future.
Those companies have risen like the phoenix from the ashes of the nationalised economy that we inherited in 1979. They have flown proudly like eagles around the world. They have made major strategic investments in North America, in the former Soviet Union and in the rest of the single market. That is an impressive record.
Sooner or later, any company that is successful under this socialist regime will be penalised. The privatised utilities are to be penalised for their pains because of their disproportionate contribution to the national wealth and their contribution to the technological, environmental and productivity gains in their own sector. Their contribution should justify some reward and recognition, but it is being met with an invidious penalty in the form of a windfall tax. They will have to reduce their investment plans and their potential growth prospects will be blighted. Their capacity to generate employment in those important industries will be significantly reduced.
We are told that the money will fund a welfare-to-work programme. Make no mistake about it: that shows that the concept of new Labour is a complete fallacy. There is no "new" about it; it is old Labour—old socialism. We had to fight it in the 1970s and, indeed, in the 1940s. We had to fight it in order to lay the basis of the successful economy that we now have, which has been so threatened by events on 1 May.
Money is being taken. In this instance it is being taken in a particularly invidious, discriminatory and retrospective fashion from successful companies. The levy will reduce job creation in those companies; it will reduce viable, sustainable, productive employment in internationally competitive firms. The money raised—after, no doubt, a good many administrative costs have been subtracted from it—will be used to try to generate artificial jobs through subsidies elsewhere. Viable, sustainable jobs will be removed and replaced by jobs that can survive only as long as the subsidies continue. A necessary mathematical consequence of such a policy—as surely as night follows day—will be a reduction in average productivity throughout the economy.
This is a sad day for the economy. We are not talking about small amounts of money. A significant precedent is being created—a precedent that will be regretted, not merely by those who work, aspire to work or might have hoped for attractive careers in the successful industries involved. Many of those industries are technology-intensive and many are at the frontiers of environmentally friendly business and therefore have much to offer similar sectors of activity around the world. Jobs and prospects will be removed and replaced by the prospect of subsidised jobs elsewhere in the economy. It is an extremely bad deal.
I happily give way to my hon. Friend.
I am sorry. I must have misunderstood my hon. Friend's hand gestures.
We have heard many interesting speeches from hon. Members on both sides of the Committee but, during my speech and those of other Conservative Members, what has been notable is the silence of Ministers. They just sit there and listen to Conservative Members making what would, if they were not telling the truth, be deeply shocking allegations. We are saying, "Here we have a Government who are arbitrary, unfair and devoid of any sense of justice, introducing retrospective legislation and taxes that will damage the British economy." We can say all that without the slightest fear of contradiction, because Ministers clearly have no arguments to advance.
I see a Labour Back Bencher gallantly rising to assist Ministers, but I think that my point has been made.
This is a bad day for the House of Commons, because a Finance Bill is being railroaded through. It is a bad day for tax law, because, if the Government carry the Division at 7 pm—as I fear they will—a sad precedent will be created: a retrospective levy will be imposed on taxpayers. It is an extremely bad day for some very successful industries, which, if we had a rational, responsible Government who cared about our economic future, would receive accolades for the success that they have achieved since privatisation. All that this socialist Government can do—I use the word "socialist" advisedly, because that is exactly the character that the Government's legislation displays—is say, "Ah, someone is successful, someone is making money, so we are going to grab it and take it away."
I am sorry that I was not present at the beginning of the debate, and especially sorry that I was not present when the shadow Chancellor opened for the Opposition. My hon. Friend the Member for Dudley, South (Mr. Pearson) and I were attending on our right hon. Friend the Home Secretary. One of my hon. Friend's constituents was presenting a petition to our right hon. Friend, who, as a result, has persuaded the West Midlands police to increase the number of policemen on the beat in Dudley. We are very thankful for that.
Let me begin by talking about the use to which the money raised from the tax will be put. It will be used primarily for the welfare-to-work programme. Some of my hon. Friends have eloquently described the justification for the tax—the new deal for young people—and the tragedy afflicting many of those young people, who have no hope and no jobs to go to. I was surprised when the hon. Member for Gordon (Mr. Bruce), opening for the Liberal Democrats, said that we should divorce the tax from the expenditure that might result from it. I had understood that the Liberal Democrats were keen on hypothecation, and I see an analogy between that and our attempt to use the windfall tax to give opportunities to young people.
Just for the record, what I said was that spending the money raised from a tax on good services did not make it a good tax if it was a bad tax to start with.
The hon. Gentleman still does not appreciate that the use of moneys can sometimes justify the tax from which they are raised. I shall say more about that in a moment, but I want to concentrate on the details of the windfall tax itself rather than on the use to which the money will be put.
As the Bill makes clear, this is a one-off tax on the excessive profits of privatised utilities—although Opposition Members have raised the possibility of further one-off taxes. There is no doubt that the appalling behaviour of those at the top of some of those utilities bolstered our case for the tax, but there were three principal justifications for it.
First, there was the undervaluation of the assets at the time of privatisation: that is why the formula referred to in the Bill mentions the price placed on the utilities at the time of sale. Secondly, many of the companies continued, and continue, to be monopolistic suppliers of essential services. That is why the Bill identifies the industries that will be subject to the tax in terms of economic regulation.
Thirdly, the original price controls set by the Conservative party on privatisation were excessively generous. There is no doubt that the companies made excessive profits: nearly every privatisation on which the Public Accounts Committee reported was said by the PAC to have involved excessive profits—and those profits were, of course, at the expense of consumers. The Bill identifies those justifications, which provide the case for the windfall tax.
The formula in the schedule looks to the value placed on the companies at the time of sale and then to the average annual post-tax profits for four years following privatisation. Conservative Members have said a great deal about unfairness. We have heard about the retrospective nature of the tax. As my hon. Friend the Member for Workington (Mr. Campbell-Savours) correctly pointed out, the Conservative party imposed retrospective taxes. The best example is the 1981 windfall tax on the banks.
It is said that the windfall tax is arbitrary and discriminatory. As hon. Members know, taxes are often attacked on that basis. When progressive income tax was first introduced, it was said to be arbitrary and discriminatory. Some Conservative Members may still take that view—I do not know. I am prepared to allow them to intervene if they want to justify that approach. The same was said about inheritance tax.
The hon. Gentleman has missed the point. The point that I was making was about retrospective taxes, and there is an example of the Conservative party imposing such taxes.
Will the hon. Gentleman explain in what way the 1981 bank deposits legislation was retrospective, as my recollection is that it imposed a levy on the banks' very large profits at that time, based on changes that we had made to monetary policy? Perhaps the hon. Gentleman would like to elucidate and explain his comparisons and the retrospective nature of that legislation.
I apologise for misnaming the hon. Gentleman's constituency. The point is that that legislation was retrospective in effect.
Conservative Members have raised various points about the unfairness of the tax. They have said that it is unfair to some utilities rather than to others. The regional electricity company in my area has put that argument to me. It has pointed out that other such companies have engaged in expensive diversifications. Money was wasted, but the effect is that the company's profits are higher than those of the companies that diversified. The Institute for Fiscal Studies made the point, which was repeated by Conservative Members, that many of the people who gained immediately after the privatisation have moved on, and that is true, but Conservative Members have to take into account that, in imposing a tax, there is a need for simplicity.
In tax law, there is always a tension between simplicity and producing absolute fairness. The Government have rightly taken the approach of a simple formula, as set out in the schedule. Any other approach would open opportunities for avoidance. In this morning's Financial Times, the former tax adviser to the right hon. and learned Member for Rushcliffe (Mr. Clarke) makes this point:
Successively more complex sets of rules have been created. which in turn provide opportunities for exploitation. A simpler tax system, with fewer reliefs, exemptions and discontinuities would, in the long term, frustrate most of the tax avoiders' ploys.
The Government have taken the view that the simple formula is the right approach, and I agree.
Having listened to the contribution of the hon. Member for Grantham and Stamford (Mr. Davies) to the debate, one would think that the sky had fallen in. There is much hyperbole. He said that there had been a decline in the economy. I am not sure that anyone else has seen that. The fact is that the windfall tax is water under the bridge. It is a popular tax. Its imposition has been legitimised by the country as a whole. The movement in utility share prices demonstrates that the utilities accept the tax as a fact of life. Frankly, it is not as high as was expected. Most important, uncertainty—inasmuch as there was uncertainty—about its impact has been removed. As we predicted, balance sheets are strong enough to cope with the tax. Informed commentary is that it will generally not have an impact on future dividend plans.
My right hon. Friend the Chancellor of the Exchequer has said that the tax should not have an impact on prices, and that must be the case: consumers must not suffer twice round. I made that point on Second Reading and I reiterate it. I hope that the steps taken by my right hon. Friend the President of the Board of Trade will ensure that the tax does not lead to price increases for consumers.
Conservative Members have generated much hot air. There is much hyperbole. The tax is legitimate, and I support its introduction.
I am delighted to be given the opportunity to contribute to the debate. Like the hon. Member for Workington (Mr. Campbell-Savours), who has unfortunately left the Chamber, I had not intended to speak, but I was prompted to do so by some of the things that he said, particularly in relation to the way in which the windfall tax would be spent. I hope to devote some time, as he did, to the benefits that Labour says people in all the constituencies of the United Kingdom will enjoy from the windfall tax.
My hon. Friend the Member for Gordon (Mr. Bruce) spelled out the issues concerning the tax itself and why we do not support it. The way in which the tax has unleashed expectations that will never be fully realised is another issue. Over the past couple of years, I have looked on at debates in this place. Once the Labour party had confirmed the policy that it would go for a windfall tax, I was surprised by two or three major things.
First, I was surprised that the then Conservative Chancellor of the Exchequer did not grab the money with both hands in his last Budget and attempt to use it, as Tories have traditionally done, in local government at least, to buy the Tories out of a political hole just before an election. In the past, they have raided whatever balances they have had and used whatever money was at their disposal to buy votes, but he chose not to do that. That other thing that surprised me and, I am sure, many of the people I represent in Portsmouth, South, was that the money was still there. Companies had not made greater efforts to dispose of it, as most reasonable people would have imagined they would. It was there to reinvest and reduce the high charges for their services.
The overwhelming majority of people have embraced the tax because most think that they were ripped off in the first place when the companies were sold. The companies were sold at hopelessly undervalued prices at a time when most people felt that the companies were better and safer in the hands of the public sector. The legitimacy of the tax among the general public is that they feel that they are getting back what they should have had in the first place. But most people are not privy to the debate about who is to pay.
I am intrigued by the hon. Gentleman's point, because the whole point of our opposition to the tax is that there is no pot of gold in these companies. Having spoken to my local utility company, I can say that the result of the tax will not be the company writing a big cheque from its surplus cash, but that it will borrow an increasingly large amount of money. That will have an impact on the regulatory formula, which will determine the pricing for consumers and comes up in 2000. Is the hon. Gentleman making the same mistake as Labour Members in believing that there is a pot of gold from past excess profits in the utilities, when in fact the money has been reinvested? Does he accept that companies will have to increase their borrowings to pay this large and discriminatory tax?
The squeal of anguish from the privatised utility companies has been about as loud as the engine purr of a Jaguar when it is switched on for the first time—very muted indeed. There was a ready acceptance on the part of the privatised companies that the tax would be introduced and that they were able to afford it. But that does not make it right, and that is why my hon. Friend the Member for Gordon made his telling point.
There will be claims that manifestations of great goodness will come from this tax, and that the welfare-to-work programme will deliver measures which will be welcomed by a lot of people. That relates to my point about creating expectations which cannot be achieved. I represented Portsmouth, South 10 years ago at the height of the Thatcher Government. I lost count of the number of times that the young people of Portsmouth, South and the country were offered golden opportunities to get retraining, a longer stay in education or a chance to get back to work.
The programmes changed virtually monthly, yet few people succeeded in getting back into long-term employment. The regularity of the changes bewildered the young people concerned, and the depression which many of them felt deepened as they struggled to find a job. That depression is there today. Very few of us will not have experienced the pain and anger of a generation of young people who have left school, or are about to do so, and face a bleak future.
Many young people have grasped enthusiastically what was said before and during the election—and in the months since—as something that will offer them salvation, and the welfare-to-work programme might, in the short term, solve the problems of that group. Some, if not all, may get the job they desperately need. But the windfall tax is not a visionary tax to fund a programme to deliver opportunities for the length of this Parliament. Such a system would mean that those young people coming on-stream in five years' time would be the beneficiaries of some of the measures.
Most reasonable people do not believe the Chancellor's comments about where the on-going money will materialise from, and one would have to be a super-optimist to believe him. He believes that people who are currently unemployed will be retrained, gain employment, generate tax and come off benefits to clear a path for the next generation. But the figures do not add up. The rhetoric is similar to that of the 1980s about promises of good things to come.
I was heartened by the contribution of the hon. Member for Bolsover (Mr. Skinner) to yesterday's debate, and I am disappointed that he is not here now. He made a gallant attempt to put the socialist view. It was like "The Agony and The Ecstasy". The shadow Leader of the House said how outraged she was and how nervous her Tory colleagues were at the thought that there would be a guillotine. The hon. Member for Bolsover rightly said that we had had guillotine after guillotine for 18 years. He reminded me of the Lone Ranger, firing silver bullets of socialism, but unfortunately none of the braves in his tribe was ready to jump up and be his faithful Indian partner, Tonto. He made enough offers, but they distanced themselves from him.
The hon. Member for Bolsover referred to people's expectations, and what had happened in the past. We must be careful not to believe that the windfall tax is the solution to the problems of many people, particularly young people. In their hearts of hearts, most young people do not believe that. They have an in-built cynicism, created by years and years of broken promises by successive Tory Ministers. I hope that they are proved wrong in that respect and that there is long-term substance to the proposal.
I support welfare to work enthusiastically and wholeheartedly in the hope that hon. Members who vote for it for one year will share my conviction that it should be a five, 10 or 15-year programme. Welfare to work must have the consistency that far exceeds the expectations of the windfall tax. It must be deliverable to the next generation of young people, but, sadly, that does not seem to be the case.
I wish to talk briefly about the companies themselves. I feel that people will be paying twice. They paid first when the public assets were undersold, when people were deprived of a public asset on the cheap. The tax is seen to be a way of getting back at those who got rich quick on the back of privatisation. But my hon. Friend the Member for Gordon and others have explained that it will not be the fat cats earning £350,000 a year who will pay, but those who pay for the services provided by the companies and the pension funds which derive their incomes and their ability to pay enhanced pensions from the companies. The people we represent will pay twice.
There is a suggestion that everything in the private companies is wonderful and that there is no complaint about them. That is not right. Most of us receive complaints weekly, if not daily, about the various companies which make up the group to be taxed—gas, electricity, telephone and water companies. All of them materialise in reality for the people we represent as major obstacles to a decent life. They have problems with all of them. Many of the problems are associated with paying the high cost of using the service. The cost could and should have been greatly reduced if the amounts of money that are being talked about were genuinely available.
The windfall tax is a gimmick.
It is a very nice gimmick. If one is going to introduce a gimmick, one may as well introduce one that brings in £5 billion and use the money, rightly, for things that will do some good. However, we believe that the Government should have taxed in a way that offered opportunity for the long term rather than grasping something that would provide short-term gain and hoodwinking people into believing that a long-term solution was being offered.
Like the hon. Member for Portsmouth, South (Mr. Hancock), I did not intend to speak in this debate. I have been goaded into speaking by a speech from the do-nothing Liberals. I heard justification of the windfall tax, and, from the hon. Member for Portsmouth, South, references to benefits and to the failures of previous training and work schemes. We all share the criticisms of such schemes, but I did not hear anything positive from the hon. Gentleman as to what we should do.
It is perfectly legitimate for any right hon. or hon. Member to disagree with another, but to criticise the windfall tax simply out of concern about the previous Government's schemes and to say that, by some magical formula, it is unfair, is to miss the point altogether.
I asked the Library to do some research on the difference between the proceeds from privatisation of the utilities, not including the railways, and their stock market share price the minute they were floated. I asked the Library to tot up the difference. It was almost £6 billion at the outset of privatisation and it has increased over the years. So the snapshot figure of £6 billion by which the Government undersold public assets, and therefore robbed the public, is a conservative estimate.
The proposals of my right hon. Friend the Chancellor for a windfall tax are justified by what the Government intend to do with the money, which is to put young people back to work and spend £1.3 billion extra on education. What is interesting, in view of the way in which the Liberal Democrats approached the election, is that, although I listened carefully to what the hon. Gentleman had to say, I did not hear any reference to the extra £1.3 billion for education.
The claims of the Labour party on education leave a sour taste in the mouth of my constituents in Somerset, who face this week capping proposals which will rob them of 90 teachers and increase class sizes across the county. Is that what the Labour party means by making education its priority?
I am certain that the hon. Gentleman will reflect on the speech of the hon. Member for Portsmouth, South and say to his constituents, who may have a sour taste in their mouths, that the do-nothing option suggested by his hon. Friend will make that sour taste even worse. That is the kernel of the argument.
The public purse was robbed of at least £6 billion. That figure can be multiplied for the years since privatisation. I am sure that the hon. Member for Gordon (Mr. Bruce), for whom I have the greatest respect, knows that that is the case. The figure of £6 billion is a conservative estimate of what was lost to the general public and the infrastructure of the country as a result of the obscene privatisation policy of the Conservative party. The question is, what does one do about that loss?
I find it remarkable that the Liberals oppose the windfall tax, but that is their decision. Apparently the Conservatives and the Liberals believe that the answer is that one should do nothing. We should just let the thing go along and let the privatised utilities continue to do what they want. South Western Electricity is alleged to have transferred some of its money to the United States so that it will not have to take account of the measure. I find such a policy, and I believe that the country will find it, a policy of despair.
We know full well why the Conservatives oppose the windfall tax. They are ideologically opposed to it. They believe that the market should determine everything. They have swallowed hook, line and sinker the policy that says that public is bad and private is good so everything in the private sector should be maintained, even if the public at large are swindled of billions of pounds, as they have been in the past 10 years or so.
When the hon. Gentleman asked the Library to make a detailed analysis on the basis that the public had been robbed and swindled, did he also ask for an analysis of the compensating figures in terms of the reduction in the price of services provided by utilities that every using member of the public has enjoyed as a result of the privatisations about which the hon. Gentleman is now rather upset?
That is a fair question. There have been significant price increases in many utilities, especially water. I am interested, as I am sure the hon. Gentleman is, in the criticism that has at last come from Ofwat of the water industry for failing to meet its commitments on investment.
We need to consider the principle. There is no doubt that billions of pounds of public assets have been transferred to the private sector at a very knock-down price.
I shall give way again later, but let me make some further points. The windfall tax is perfectly justified, and I shall discuss what the Government intend to do with the money from that tax.
The Conservatives' arguments about the windfall tax are more to do with protecting the companies that have benefited from privatisation. They place little emphasis on the Government's objective of using the money to begin to put people back to work. I accept that there are risks and unknowns, but I believe that they are worth taking on if we can provide an opportunity for a quarter of a million young people under 25 years of age.
If the Government succeed, as I believe they will, in their endeavour, it will be one of the most tremendous acts implemented by a Government for a generation; but we must be conscious of the risks. My right hon. and hon. Friends are conscious of them and determined to overcome them. They therefore deserve the Committee's support. I hope that they will get it, because of two principles: first, the tax is fair when considered overall; secondly, it will be put to a purpose that I defy any hon. Member to argue against.
Clause 1, like much of the Budget, is iniquitous, inefficient and—I am afraid that I cannot agree with the hon. Member for Stoke-on-Trent, South (Mr. Stevenson)—anything but fair. The only certainty is that it will create uncertainty. It proves, first and foremost, that Labour's first instinct is always to tax, and to raise taxes again and again.
The Government believe that the tax will be palatable to the electorate because it will hit fat-cat companies. I agree that it is an advance on Labour's former tactics of directly soaking the rich, although at least under old Labour, we could all see what they were up to. Then, there was transparency and their policy was economically coherent even though it was wrong; now, it is still wrong but it is totally incoherent. Have no doubt, this tax will hit consumers, especially the most vulnerable, and all householders will pay for it in their bills. Some people will pay for it with their jobs when they are laid off. Undoubtedly, it will reduce the capacity of companies for investment.
Hon. Members may wish to refer to the propaganda booklet called "The Pocket Budget" that Labour handed out with its Budget last week. It is a nice little booklet with a couple of pictures on the front. It is glossy, terribly well produced—the sort of thing that one would expect to have been produced by Walworth road, although I understand that Walworth road did not fund it. The booklet's pages are not numbered, but towards the back there is a section called, "Moving Towards a Fairer Tax System", which states:
We need taxes to pay for our public services. The Government believes the tax system should:
encourage work … promote savings and investment … be fair … be seen to be fair.
How does all that motherhood and apple pie rhetoric sit with the reality of the windfall tax? The tax will not encourage work or promote savings and investment. It is not fair and, with time, it will be seen not to be fair. The whole windfall idea is another clever piece of rhetoric from Labour's spin doctors. There is no such thing as a windfall tax or a free tax; this is a tax, pure and simple. It is a tax on success, on profits, on incentives to create wealth and, ultimately, on jobs.
I would like to remind hon. Members of what Adam Smith had to say about taxation. [HON. MEMBERS: "Oh!"] Labour Members may enjoy it. They may have to consider for the first time the consequences of taxation. Adam Smith thought that taxation should be efficient, equitable, certain and convenient. The only thing that we can be sure of with Labour Members is that it will be convenient, or more appropriately, opportunist.
If a tax is to be efficient, its goal must be to raise revenue with as little distortion of economic behaviour as possible. Labour Members may not like listening to economic literacy, which is a bit of a problem for them. I invite them to consider that proposition, because it presupposes that the windfall tax is a one-off tax. Is such a claim credible? What certainty is there that these, or other, companies will not find themselves on the end of yet another Labour windfall tax? Companies that may be privatised have cause to fear that a future Labour Government—God forbid that there should be one—may decide that the best way to raise yet more money for them to spend would be through yet another windfall tax.
I am sorry that the Financial Secretary is not here, but yesterday she made much of the importance of certainty. She said:
I am sure that the right hon. Gentleman will agree that what is important is certainty, and that the taxpayer knows what the tax legislation is."—[Official Report, 14 July 1997; Vol. 298, c. 26.]
Any one-off tax increases uncertainty about the tax system. If she were here, it would interesting to hear from her what certainty there can be for companies that are privatised in future. I submit that there can be none.
Is the tax fair and equitable? No, because it falls on current shareholders, many of whom did not make excess profits having bought their shares more recently. Those who made so-called excess profits have sold their shares and so will escape Labour's punitive tax plans.
What of certainty? For the taxpayer, certainty involves carrying out economic activity under a predictable tax regime. The only people who were able to work with certainty were the Financial Times journalists who were given information about the advance corporation tax changes the night before the Budget. The Government behave in the most arbitrary, high-handed and arrogant way. Acting arbitrarily is the hallmark of this Government and of the Labour party.
The Financial Secretary is still not here, but I ask her to confirm what the Chancellor said on 2 July, when he stated:
the tax can be paid without any impact on prices, investment, or the quality of service to customers; or, in my view, on employment."—[Official Report, 2 July 1997; Vol. 297, c. 314.]
Can she guarantee that there will be no change to quality of service and no impact on prices, investment or jobs? If there is, would she be happy to accept responsibility for those changes and the implications for her job?
The motive behind the tax is based on an old Labour instinct: the desire to tax any way that it can. When we came to power in 1979, the first question that we asked was how we could create wealth. The first question that Labour asked, which is why it is the first clause, was how it could tax wealth. Conservatives create real jobs from real wealth; Labour creates phoney jobs from taxing wealth.
Back in 1993, Labour spotted the opportunity of the windfall tax. The Chancellor gave a speech at the Institute of Chartered Engineers proposing that privatised utilities be charged what he then called a one-off public dividend on their "excess recession profits". What a thought. It is worth noting that the electricity industry alone in the past two years has raised £4 billion in taxes. The day after his speech, The Times reported:
The amount raised by the windfall tax would be negotiated with the regulators and the utility companies, but would be expected to raise at least £1 billion.
The opportunity to raise £1 billion of lucre was irresistible to a Labour Government, and so it has grown: not £1 billion, £2 billion, £3 billion or £4 billion, but £5 billion. What a bonanza, what a prize. Did the Government consider how those profits had been earned, or the efficiency gains made by the companies since privatisation? No. Did they examine the disastrous way in which the companies had been run before privatisation? No. Is it not interesting that the Labour party does not much like talking about the times when those companies were in state ownership? Who put them into state ownership?
This Labour Government are careless, tax-driven and opportunistic, but the opportunism is highly dangerous. Those companies were privatised in good faith, yet Labour has broken that faith. Shareholders invested on the basis of market rules, but the new Labour Government are riding roughshod through any of those rules.
The state should be party to contracts with business and individuals. As the Financial Times reported in September 1995, in a leader appropriately entitled, "Windfall tax deception":
The windfall tax introduces uncertainty into that contract and as such abuses the power of the state.
How right it was to predict that a future Labour Government would abuse the power of the state.
Let us clear up some of the doubts expressed by Labour Members, who have justified the windfall tax by stating that we did the same in 1981 when we imposed the special bank tax on bank deposits. Our tight monetary policy of that time caused high interest rates, and deposits held on current accounts in 1981 with banks did not pay any interest. The banks made very high profits, as a result of the specific monetary policy then followed.
That is why we raised a levy of 2.5 per cent. on non-interest bearing sterling deposits. That tax applied to a well-defined set of firms, according to a tax base coherently related to the reasons given for its introduction. It was introduced at the same time as when the banks were making those profits, and not years later.
In summary, the windfall tax introduced in clause 1 is wholly iniquitous. It has no foundation and no proper precedent; it is inefficient; and it is motivated by Labour's old desire to tax rather than to create any wealth.
I would be more than happy to comment on that. One must look at the successes of the water companies since privatisation. [Interruption.] It is interesting to note that Labour Members are not interested in the opportunities created by privatisation. What is really interesting about those hon. Members is that they cannot bear to hear about success. The only thing they want to hear about is how they can tax, how they can screw money out of companies until the pips squeak. In the past, they went for individuals; now they are going for companies.
Those hon. Members will sadly discover in the years to come that, at the end of the day, there is no such thing as hitting companies with tax. It is individuals who will be caught by that, and it is those people who will come back in a few years time to haunt the Labour Government.
I find it absolutely amazing to hear the hon. Member for Witney (Mr. Woodward) try to give us a basic lesson in economics and economic literacy. That makes me think about some young people I have spoken to about the potential offered to them by the windfall tax. The words used so passionately by the hon. Gentleman about that tax being not fair sound like those of the playground.
The hon. Gentleman may talk about equity and sustainability, but consider the economic literacy espoused by your Government in past 18 years and the human wastage of unemployment. In my constituency, 34 per cent. of under-25-year-olds are unemployed and a hefty number of them, more than 600, are long-term unemployed. I challenge the hon. Gentleman to come to Rochdale to give those young people a lecture about economic literacy.
You have talked yet again very eloquently about taxation.
I beg your pardon, Mr. Martin. As a new Member, I sometimes get carried away.
On taxation, surely the hon. Gentleman's memory is not so short-term, that he has forgotten his Government's record. In their final five years of office, they raised taxes 22 times, despite all their pledges about VAT. Therefore, I hope that the hon. Gentleman will forgive me if I or my constituents take no lectures from Conservatives about taxation.
As for the windfall tax, the shadow Chancellor's concern for pensioners would mean a lot more to the pensioners of Rochdale if he had not been a member of the Government who back-tracked on the imposition of VAT on fuel. If that Government cared so much about pensioners—
Is the hon. Lady therefore arguing that her Government should give the same extra support to pensioners to cover the cost of the windfall tax when it is fed through to their bills as we gave to help pensioners when VAT was imposed on fuel? Does she agree with the Economic Secretary that the net effect of that extra help to pensioners was to make them—and I use her words—"better off' than if there had been no VAT increase?
I worked in the utility sector before my election to the House. I refute utterly what the right hon. Gentleman says about the impact of the windfall tax being passed directly to consumers. Anyone who has worked in the utilities is aware of the difference between the rhetoric of the election campaign and the reality. The regulators have already made it clear in their pricing reviews that that cost will not be passed on to consumers. That pledge has been echoed by the company chairmen and their boards. Our proposal was well-trailed policy, which we advertised. We were honest about it before the general election and allowed the markets to equate our policy with the studies conducted by analysts. We eventually put that proposal to the people.
I refute utterly the claim that the cost of the windfall tax will be passed on to the consumers. The Opposition have since professed, after the election, that they care greatly for the people, but one of the principal reasons for their defeat was that, after 18 years, the people of this country realised that the Conservatives cared not a jot for them.
I would not dream of giving the hon. Lady a lecture on tax. Does she agree that the people who did the best out of the years of Conservative Government were those who earned the most? Would it not be slightly more equitable for her Government to agree with our policy that those who earn the most, perhaps more than £100,000 a year, should pay a little more to help those who need the most support?
I accept that that intervention was meant well, but I do not think that the effect of Liberal Democrats' proposal would have been as the hon. Member has described. The flat rate on the expandable penny would have been imposed across the board, albeit on income tax. The point about the windfall tax is that it is a tax on the excess profits of the utilities. It will redistribute that money to the people to whom the hon. Gentleman referred. After 18 years, and after studying the books, we should take every opportunity possible to provide young people—the very people the Conservative Government ignored and denied such opportunity—with a lifetime's chance.
I am fascinated by the obvious conflict between the views of Conservatives, and possibly the Liberals, and Labour Members. If the windfall tax will be so damaging, can my hon. Friend help me by explaining why American electricity companies and French utility companies are queuing up to buy British utility companies?
If the windfall tax were going to be as damaging as the hon. Member for Grantham and Stamford (Mr. Davies) suggested, people would have divested themselves of the shares and there would have been a downturn in the market. Conservative Members like to think that they are economically literate, but this pantomime debate means nothing to the people in our communities, in the City or in the companies which Conservative Members profess to care about.
It is even more amusing to see Conservatives claiming the people we now represent for their own. The fact is that they had 18 years in which to prove that they cared about pensioners and young people; Conservatives cannot now blame the Labour party for the fact that they squandered all the receipts from oil and gas and from the privatisations.
The Conservatives, who lay claim to economic literacy and competence, were responsible for the two worst recessions this country has ever known, yet they lecture us on the subject of economics, and they make speeches full of parliamentary gimmicks. If the windfall tax, on the other hand, were merely a gimmick, all the agencies and people at grass roots level who are so enthusiastic about it would not be so energised by the possibilities that it opens up to them—possibilities of enacting policies for which they have been lobbying and about which they have been dreaming for the past 18 years. As a result of this initiative, people are coming together in partnerships for action.
The challenge is to create sustainable opportunities for young people. I understand the Liberal Democrats' concern to ensure that that is a sustainable opportunity, and I shall take at face value their worries about short-termism. We Members of Parliament must act as ambassadors in our constituencies, ensuring that the money is used to best effect. This one-off injection of resources for much-needed programmes must be used in a way that makes it sustainable.
There is a lot of rhetoric about the transfer of skills; with the much-needed revenue from the windfall tax, we are in a position to give it meaning. We can prepare young people and lone mothers for the world of work. Whereas they used not to benefit from training opportunities, they will now be given skills matched to the needs of manufacturing industry. Many manufacturers in Rochdale say that they have a skills gap, not at the bottom but in the middle posts, for which they cannot recruit the right people. The jobs exist; now we need to give young people the skills to take up those jobs and make them lasting.
I have welcomed the windfall tax and I continue to welcome it. It is one reason why 1 May was so historic a victory. The shareholders and pensioners whom Conservative Members claim will be so damaged by the tax voted in a Labour Government, knowing full well that the windfall tax, our advertised policy, would follow. Those people want fairness, equity and sustainability in our economy. They want opportunities for the young. Pensioners feel great sorrow about the lack of opportunities for the young people of today. People with pension plans or shares in those companies can see the benefits of the windfall tax, and they welcome it.
There is no division between pensioners and young people over this matter. Many young people have no work at all—they can hardly afford to hold shares. In constituencies like mine, there is no division over the windfall tax. On the contrary, there is a unity of aspiration. People voted for a Government who would look for solutions. Sometimes those solutions involve imaginative but hard decisions.
I ask hon. Members of all parties to join us, after this pantomime debate is over, in the work that is to be done. [Interruption.] I call this a pantomime debate because some of the speeches made today have been pure pantomime—
Well, the Chamber has certainly resembled an amateur dramatics workshop at times.
No matter which party we belong to, we all have a moral responsibility to make sure that young people are given good working opportunities. Regardless of the rhetoric used by Conservative Members in the debate, I encourage them all to go as ambassadors to their communities and to ensure that the programmes resulting from the windfall tax are sustainable and practical. Given this one-off golden chance, we are all duty bound to put it to good use in the service of those 250,000 young people.
This has been a brief but genuinely educational debate—educational for the Labour party, which has been informed of a few principles of economic literacy and of the real argument against this tax. It has been educational for us, too, as we have heard revealed the true motives behind the tax: Labour's desire to wreak delayed vengeance on the privatisation process and to attack success.
Three main issues have cropped up today. The first concerns who will ultimately pay for the tax. The second concerns whether the tax is right in principle: does it set a bad precedent, and is it not wholly irrational? Thirdly, the fact remains that it constitutes a rearguard attack on privatisation.
It has been said that to tax and be loved is given to no man, but the Chancellor clearly thought that he had found a way of doing both. Someone will have to pay in the end, though. It is deceitful to pretend otherwise. It is our—initially not terribly popular—duty to point out that truth, and to ask again: who will pay? It was Lenin who said that the whole essence of politics concerns who will pay and who will gain. The same applies here. We expect from the Minister an explanation of who he thinks will ultimately pay. Will it be some mythical, non-existent entity? No; we know from the Minister's own advisers that individuals have to pay in the end—so he must tell us who they are. We know that, if the tax is passed on to households, the average cost will approach £300. If it hits pension funds—because it is not allowed to be passed on in higher costs—it is the pensioners of today and tomorrow who will have to pay.
It is no good saying that the share prices have risen somewhat since the Budget. The simple fact is that share prices and dividends would be higher without the tax than they are with it.
Secondly, there is the issue of principle. Retrospection is wrong in principle, as my hon. Friend the Member for Grantham and Stamford (Mr. Davies) eloquently argued. The reason is that retrospective taxes cannot be planned for. If Governments come along after the event and take away money that has been earned and deployed without the knowledge that a tax was going to be imposed, planning becomes impossible.
The only possible exception is when an unanticipated tax is applied to unanticipated profits. That, in effect, is what happened in 1981, when a tax was applied to a profit arising at that time out of the actions of the Government, before people had time to spend or deploy the profit in another way.
Clearly, the longer the Government go back, the more damaging retrospective taxes are. The windfall tax goes back more than a decade; it is frighteningly bad in principle, and sets a dangerous precedent. The windfall tax will undoubtedly reduce the revenues from future privatisations. Anyone buying shares in future issues will think that the Government may well impose a high tax if the company from which he is buying does well, as he hopes it will.
The process is irrational: it is a temporary tax to finance a permanent need. There will therefore be a temptation to make the tax permanent. If, as the Chancellor says, the tax will genuinely not affect customers, investment, jobs and pension funds, why are the Government proposing that it should be temporary? Why are they not proposing that it should permanently meet the costs of their continuing programmes to help young people into work, for which—as everyone who has contributed to the debate has accepted—there is bound to be a continuing need?
Today's debate has helped to reveal the real motivation of many Labour Members: to carry out a rearguard attack on the privatisation process. The hon. Member for Workington (Mr. Campbell-Savours), who is not currently in the Chamber, admitted that he was wrong about the benefits of privatisation, but said that he wanted to tax those who were right about them. He wanted to tax those who had invested in privatised companies in the expectation—which turned out to be correct—that privatisation would bring about a large increase in the efficiency and profitability of those companies.
One benefit of privatisation has been the generation of extra tax revenues. Before the privatisation programme started, the nationalised companies were losing £50 million a week of taxpayers' money. Since privatisation, those companies have been paying £60 million a week in corporation tax. The taxpayer has rightly and properly benefited from that success, and we should all welcome that. It seems irrational to suppose that they should pay a double dose of tax for that success.
The principal argument for the tax has been that the shares were undervalued at the time of issue. I was a humble and junior Minister at the time, but I can say from my experience in the Treasury that we wanted and needed every penny that we could get of the revenues from the privatisations of those companies. We certainly did not deliberately let them go at a price significantly below their market value. We took professional advice from officials within the Treasury and we took the best professional advice that money—a lot of money—can buy in the City. There was a range of opinions: in the only privatisation in which I was involved, I argued for a higher share price than the officials advised. But to suggest that there was a difference of 100 per cent. between the real value and the price set is nonsense.
The value could be set only on the basis of past experience. We did not know the future; we did not have perfect foresight, but had to relate the price to past profits. It would be logical to relate the relative undervaluation—if there is one—of the price at issue to some multiple of past profits, but not future profits. It is the very success of the privatisations—the fact that they exceeded our expectations—that created bigger profits.
What about Jaguar? I cannot remember whether the Paymaster General was around at the time of its flotation. Was he around at that time? Was he involved in it? Was that flotation underpriced? Did it sell at a premium? Did the Paymaster General benefit? Should he pay us a sort of voluntary windfall? Was the price a sign that the management had deliberately undervalued the company for some extraordinary reason?
BP was the first privatisation; it was started by the previous Labour Government at the behest of the International Monetary Fund. A majority of the shares were held by the Government, who sold some. A profit was made and the shares are now at a much higher price than they were when they were sold off by the previous Labour Government. Indeed, some Labour Ministers have holdings in the company. Based on the principle that present holdings should be taxed for the gains previously made by people who now have nothing to do with the company, presumably a large tax should be paid on those holdings. It is lucky that we know about those holdings—although we nearly did not.
The debate has been extremely helpful in revealing that the tax is without logic or foundation. It sets a dangerous precedent, and is an appallingly long retrospective tax. We urge the Government to think again about it.
Today's debate is not about the merits or otherwise of the welfare-to-work programme, which does not appear in the clause. We have debated the merits of that programme on previous occasions. If the programme is valid, it should be financed by proper, not retrospective taxation; it should be financed by continuing, not one-off taxes that threaten gradually to become permanent; and it should be financed by taxes that allow everyone to see who ultimately pays. We know who will pay: households and pensioners will pay the cost of Labour's windfall tax.
This debate has been about anything but clause 1. The shadow Chancellor, the right hon. Member for Hitchin and Harpenden (Mr. Lilley), must realise that he has not mentioned any aspects of clause 1. The debate has been illuminating for the right hon. Gentleman, as we have been able to explain to him the tax profit base, how it is calculated, the price-to-earnings ratio, and why we have taken the first four years. The right hon. Gentleman did not express a view on any of those matters, although he can see the logic of the tax.
The tax is logical. We are able to define the criteria that determine which companies will be affected. We have been able to use a ratio that is well established in the financial markets. The right hon. Gentleman and other Conservative Members know from their experience in previous occupations that it is clearly not an arbitrary tax. It consistently taxes all the companies that fall under the definition and treats them consistently in every respect.
The tax is not arbitrary, because we have focused on a period of four years and measured the excess profits over that period. That is why, throughout the debate, Conservative Members have had to re-hash the arguments that they advanced on Second Reading. We have not heard any discussion among Conservative Members about the basis of the tax. They have not attacked it on a technical, legal, or even financial level. All we hear are the same old adjectives trotted out.
It is interesting that the hon. Gentleman is trying to intervene now, when just 14 minutes remain and I have many hon. Members to respond to. He was given an opportunity to contribute by you, Mr. Martin, as the last Labour Member finished speaking, but he was so hesitant and tentative that he was overlooked. I shall give him an opportunity to contribute now.
As the windfall tax is unlikely to be a creditable tax for United States double tax relief purposes because it is a tax on capital rather than income, and as the US is such a large investor in the United Kingdom, particularly in the utilities sector, will the Paymaster General tell us what discussions the Government have had with the US Government to ensure that the US Government do not impose a retaliatory tax on UK investors in the US?
As the hon. Gentleman well knows, that question is one for the US authorities; it is not for us to intervene in any decision that they reach on that matter. As the hon. Gentleman is so concerned about the attitude of American companies to our utilities—a point raised by the hon. Member for Grantham and Stamford (Mr. Davies), who has just returned to the Chamber—he will be interested to know that, far from uncertainty being created in the marketplace, shares have risen, as the shadow Chancellor readily conceded. In fact, the American PacifiCorp bid for the Energy Group, which includes Eastern Electricity, has been tabled and still remains active at £3.6 billion.
That is another sign of the markets' confidence in the Labour Government. We have taken steps across the board to ensure that, unlike the previous Government, we are not side-tracked by short-termism. Everything that we have done since taking office—
I shall in a moment, but I am speaking about some of the points that the hon. Gentleman made. That bid is there. There could be no better sign of a continuing confident commitment by American companies to the British utilities market than that. Perhaps—
I shall give way in a moment. When the hon. Gentleman intervenes, perhaps he will tell us how that betrays a lack of confidence.
What we have done with the Bank of England, what we have done to set up a single regulatory authority, our moves on corporation tax and our action on ACT were all carried out with one aim in mind—to create a medium to long-term climate for growth and success.
Does not the hon. Gentleman realise that, had it not been for the windfall tax, utility companies would be worth more, so the size of the investment that would have been made in that takeover would have been correspondingly higher?
The hon. Gentleman may have set his sights very high. A 7 per cent. increase in share values since 2 July is good enough for me, and long may it continue. I know that all the companies that find themselves subject to the tax are anxious to get the tax behind them, so that they may get on with running their business.
In the months leading up the Budget, the Government took ready credit for the fact that the markets were discounting the effect of the tax, and now they take credit for the fact that the markets have risen since the tax was announced. Is it reasonable to take credit for both?
I can assure the right hon. Gentleman that we shall take credit wherever we can—and do our best to take it even if we should not.
I have long ago given up trying to read markets with any reliability. They are irrational—much more irrational than this tax. However, we were told by many market commentators, and by Conservative Members, that share prices would collapse after the Budget: that they would collapse in the utilities sector because of the windfall tax and that they would collapse in the entire market because of the decisions taken on tax dividends and ACT. Neither happened, and I am sure that all hon. Members are pleased at the continuing vote of confidence in the Government and the future by the stock market and the financial institutions.
When the hon. Member for Gordon (Mr. Bruce) reflects on the date problem, he will realise that it is not really a problem. One must select a point at which the benefits are defined and use that as a cut-off. That is a pure piece of parliamentary draftsmanship. I assure him that there is no substantive point there.
The hon. Gentleman also sought two assurances, which I am pleased to give him. One concerns the age-old point, which we have heard at every Question Time and throughout the Second Reading debate and which we continue to hear, presumably because Opposition Members have nothing else to say. Yes, it is a one-off tax, as has been said repeatedly.
The hon. Gentleman was also anxious that we might have given any of the companies that might be subject to the tax assurances that have not been made public. That could not have arisen, because Ministers did not meet the companies. I personally met the regulators and that subject did not come into our discussions, although, as I shall repeat shortly, they were very clear in their minds about what they had to say, and it was on their advice that my right hon. Friend the Chancellor made the statements he did, which I reiterate today. Ministers had no meetings with the companies, so that point does not arise. Representatives of the companies were seen by officials, and I assure the hon. Gentleman that no such commitment would have been made by any official, either.
Many other Labour Members contributed to the debate very effectively, but the Opposition said nothing new. My hon. Friend the Member for Workington (Mr. Campbell-Savours) spoke movingly about the prospects for his constituency. We know that in Workington there is an especially severe problem of second and perhaps third-generation households without a wage earner, so we have the prospect of successive generations of unemployment in single families. My hon. Friend had the honesty to say that he had been converted to the principles of privatisation, but—I share this with him—he said that he had not been convinced of, or converted to, the principles of undervaluing and underselling our national assets.
If we are to restore people's respect for privatisation, it is essential that the tax proceeds. It was clearly stated in our manifesto that we would introduce such a tax; indeed, it was clearly stated four years ago. Shareholders have had every opportunity since then to decide whether to keep the shares. In that time, the profile of independent investing companies will have changed, as a result of their decision to sell, as a result of takeovers or for any other reason. We are well aware that today's shareholders are different from the shareholders soon after privatisation, but that fact does not enter the argument.
The hon. Member for East Yorkshire (Mr. Townend), who is not with us now, referred to East Midlands Electricity and Yorkshire Electricity. We are not trying to favour one company against another. It is not a question of trying to be fair to some and unfair to others. Profits that were made in those four years and profits that were made against the price at which the companies were floated, represent what we judge to be excess profit, and if that is higher for East Midlands than for Yorkshire, I am afraid that that is how it is. The shareholders of the company that has done better will have shared in that success. We are now rightly trying to get back some of that success for all taxpayers, who have not benefited from it.
My hon. Friend the Member for Dudley, North (Mr. Cranston) concisely and accurately described how the tax is intended to work and why it will work on that basis. The problem with the Liberal Democrats, on the other hand—this applies as much to the hon. Member for Gordon as to the hon. Member for Portsmouth, South (Mr. Hancock)—is that they cannot make up their minds. They will the end, but they cannot bring themselves to will the means. That is the problem. Nothing in their manifesto would come near to raising sums of the magnitude of those that this tax—presented to and voted for by the electorate—will raise. The Liberal Democrats cannot say yes to the programmes but no to the tax. That is their usual position—standing on their heads.
My hon. Friend the Member for Stoke-on-Trent, South (Mr. Stevenson) accurately calculated the likely excess profits to be about £6 billion, which he said had been calculated on a modest basis. I have already explained to the Committee that the basis of the tax—setting the price-to-earnings ratio at nine, slightly below the lowest sectoral average—shows a Government who are trying to be reasonable and fair in all respects.
The question of unfairness and uncertainty was brought up again by the hon. Member for Witney (Mr. Woodward), and it seems ironic that unfairness and uncertainty can be brought to bear when the clearest possible criteria and the clearest possible objective basis for the tax have been established, have been unchallenged by the Opposition and have been applied impartially to the companies that meet the criteria that we have established.
I regret to say that, as the first debate in a massive assault on our flagship programme, this debate has been a weak re-hash of arguments previously made by the Opposition. There have been no reasoned amendments. Opposition Members have said nothing today that they have not said to even less effect previously.
In the Government's view, this is a major piece of legislation. It is a major tax, it is a one-off tax and we have a mandate for it. It was in our manifesto and the electorate voted for it.
This Government will keep their promise to the young and the long-term unemployed. We shall keep our promise to rebuild schools. Unlike the previous Government, we shall not break our promises. I therefore urge the Committee to accept clause 1.
|Division No. 56]||[6.58 pm|
|Abbott, Ms Diane||Austin, John|
|Adams, Mrs Irene (Paisley N)||Banks, Tony|
|Ainger, Nick||Barnes, Harry|
|Ainsworth, Robert (Cov'try NE)||Barron, Kevin|
|Allen, Graham (Nottingham N)||Battle, John|
|Anderson, Donald (Swansea E)||Bayley, Hugh|
|Anderson, Janet (Rossendale)||Beard, Nigel|
|Armstrong, Ms Hilary||Beckett, Rt Hon Mrs Margaret|
|Ashton, Joe||Bell, Stuart (Middlesbrough)|
|Atkins, Charlotte||Benn, Rt Hon Tony|
|Bennett, Andrew F||Drew, David|
|Benton, Joe||Drown, Ms Julia|
|Best, Harold||Dunwoody, Mrs Gwyneth|
|Blackman, Liz||Eagle, Angela (Wallasey)|
|Blears, Ms Hazel||Efford, Clive|
|Boateng, Paul||Ellman, Ms Louise|
|Borrow, David||Ennis, Jeff|
|Bradley, Keith (Withington)||Etherington, Bill|
|Bradshaw, Ben||Fatchett, Derek|
|Brinton, Mrs Helen||Fisher, Mark|
|Brown, Rt Hon Nick (Newcastle E)||Fitzpatrick, Jim|
|Brown, Russell (Dumfries)||Fitzsimons, Lorna|
|Browne, Desmond (Kilmarnock)||Flynn, Paul|
|Buck, Ms Karen||Follett, Barbara|
|Burden, Richard||Foster, Rt Hon Derek|
|Burgon, Colin||Foster, Michael Jabez (Hastings)|
|Butler, Christine||Foster, Michael John (Worcester)|
|Byers, Stephen||Foulkes, George|
|Caborn, Richard||Fyfe, Maria|
|Campbell, Alan (Tynemouth)||Galbraith, Sam|
|Campbell, Mrs Anne (C'bridge)||Galloway, George|
|Campbell, Ronnie (Blyth V)||Gapes, Mike|
|Campbell-Savours, Dale||Gardiner, Barry|
|Canavan, Dennis||George, Bruce (Walsall S)|
|Cann, Jamie||Gerrard, Neil|
|Caplin, Ivor||Gibson, Dr Ian|
|Casale, Roger||Gilroy, Mrs Linda|
|Caton, Martin||Godman, Dr Norman A|
|Cawsey, Ian||Godsiff, Roger|
|Chapman, Ben (Wirral S)||Goggins, Paul|
|Chaytor, David||Golding, Mrs Llin|
|Chisholm, Malcolm||Gordon, Mrs Eileen|
|Clapham, Michael||Graham, Thomas|
|Clark, Dr Lynda (Edinburgh Pentlands)||Griffiths, Jane (Reading E)|
|Griffiths, Nigel (Edinburgh S)|
|Clark, Paul (Gillingham)||Griffiths, Win (Bridgend)|
|Clarke, Charles (Norwich S)||Grocott, Bruce|
|Clarke, Eric (Midlothian)||Grogan, John|
|Clarke, Rt Hon Tom (Coatbridge)||Gunnell, John|
|Clarke, Tony (Northampton S)||Hain, Peter|
|Clelland, David||Hall, Mike (Weaver Vale)|
|Clwyd, Ann||Hall, Patrick (Bedford)|
|Coaker, Vernon||Hamilton, Fabian (Leeds NE)|
|Cohen, Harry||Hanson, David|
|Colman, Tony (Putney)||Heal, Mrs Sylvia|
|Cook, Frank (Stockton N)||Healey, John|
|Cooper, Yvette||Henderson, Ivan (Harwich)|
|Corbett, Robin||Heppell, John|
|Corbyn, Jeremy||Hesford, Stephen|
|Corston, Ms Jean||Hewitt, Ms Patricia|
|Cousins, Jim||Hill, Keith|
|Cox, Tom||Hinchliffe, David|
|Cranston, Ross||Hoey, Kate|
|Crausby, David||Hood, Jimmy|
|Cryer, Mrs Ann (Keighley)||Hoon, Geoffrey|
|Cryer, John (Hornchurch)||Hope, Phil|
|Cunningham, Jim (Cov'try S)||Hopkins, Kelvin|
|Dafis, Cynog||Howarth, Alan (Newport E)|
|Dalyell, Tarn||Howarth, George (Knowsley N)|
|Darling, Rt Hon Alistair||Hoyle, Lindsay|
|Darvill, Keith||Hughes, Kevin (Doncaster N)|
|Davey, Valerie (Bristol W)||Hurst, Alan|
|Davidson, Ian||Hutton, John|
|Davies, Rt Hon Denzil (Llanelli)||Iddon, Dr Brian|
|Davies, Geraint (Croydon C)||Illsley, Eric|
|Davies, Rt Hon Ron (Caerphilly)||Ingram, Adam|
|Davis, Terry (B'ham Hodge H)||Jackson, Ms Glenda (Hampstead)|
|Dawson, Hilton||Jackson, Helen (Hillsborough)|
|Dean, Mrs Janet||Jamieson, David|
|Denham, John||Jenkins, Brian (Tamworth)|
|Dewar, Rt Hon Donald||Jones, Barry (Alyn & Deeside)|
|Dismore, Andrew||Jones, Ms Fiona (Newark)|
|Dobson, Rt Hon Frank||Jones, Helen (Warrington N)|
|Donohoe, Brian H||Jones, leuan Wyn (Ynys Môn)|
|Doran, Frank||Jones, Ms Jenny (Wolverh'ton SW)|
|Jones, Dr Lynne (Selly Oak)||Plaskitt, James|
|Kaufman, Rt Hon Gerald||Pollard, Kerry|
|Keeble, Ms Sally||Pond, Chris|
|Keen, Alan (Feltham &Heston)||Pope, Greg|
|Keen, Mrs Ann (Brentford)||Pound, Stephen|
|Kennedy, Jane (Wavertree)||Powell, Sir Raymond|
|Khabra, Piara S||Prentice, Ms Bridget (Lewisham E)|
|Kidney, David||Prentice, Gordon (Pendle)|
|Kilfoyle, Peter||Primarolo, Dawn|
|King, Andy (Rugby & Kenilworth)||Purchase, Ken|
|King, Ms Oona (Bethnal Green)||Quin, Ms Joyce|
|Ladyman, Dr Stephen||Quinn, Lawrie (Scarborough)|
|Lawrence, Ms Jackie||Radice, Giles|
|Laxton, Bob||Rapson, Syd|
|Lepper, David||Raynsford, Nick|
|Leslie, Christopher||Reed, Andrew (Loughborough)|
|Levitt, Tom||Robinson, Geoffrey (Cov'try NW)|
|Lewis, Ivan (Bury S)||Roche, Mrs Barbara|
|Liddell, Mrs Helen||Rogers, Allan|
|Linton, Martin||Rooker, Jeff|
|Livingstone, Ken||Rooney, Terry|
|Lloyd, Tony (Manchester C)||Ross, Ernie (Dundee W)|
|Lock, David||Rowlands, Ted|
|Love, Andrew||Roy, Frank|
|McAllion, John||Ruddock, Ms Joan|
|McAvoy, Thomas||Russell, Ms Christine (Chester)|
|McCafferty, Ms Chris||Ryan, Ms Joan|
|McCartney, Ian (Makerfield)||Savidge, Malcolm|
|McDonagh, Siobhain||Sawford, Phil|
|Macdonald, Calum||Sedgemore, Brian|
|McDonnell, John||Shaw, Jonathan|
|McIsaac, Shona||Sheerman, Barry|
|Mackinlay, Andrew||Sheldon, Rt Hon Robert|
|McNamara, Kevin||Shipley, Ms Debra|
|McNulty, Tony||Short, Rt Hon Clare|
|MacShane, Denis||Simpson, Alan (Nottingham S)|
|Mactaggart, Fiona||Singh, Marsha|
|McWalter, Tony||Skinner, Dennis|
|Mahon, Mrs Alice||Smith, Rt Hon Andrew (Oxford E)|
|Mallaber, Judy||Smith, Angela (Basildon)|
|Mandelson, Peter||Smith, Rt Hon Chris (Islington S)|
|Marek, Dr John||Smith, Miss Geraldine (Morecambe & Lunesdale)|
|Marsden, Gordon (Blackpool S)|
|Marshall, Jim (Leicester S)||Smith, Jacqui (Redditch)|
|Maxton, John||Smith, John (Glamorgan)|
|Meacher, Rt Hon Michael||Smith, Llew (Blaenau Gwent)|
|Meale, Alan||Snape, Peter|
|Michael, Alun||Soley, Clive|
|Michie, Bill (Shef'ld Heeley)||Starkey, Dr Phyllis|
|Milburn, Alan||Steinberg, Gerry|
|Miller, Andrew||Stevenson, George|
|Mitchell, Austin||Stewart, David (Inverness E)|
|Moffatt, Laura||Stewart, Ian (Eccles)|
|Moonie, Dr Lewis||Stoate, Dr Howard|
|Morgan, Ms Julie (Cardiff N)||Stott, Roger|
|Morgan, Rhodri (Cardiff W)||Strang, Rt Hon Dr Gavin|
|Morley, Elliot||Stringer, Graham|
|Morris, Ms Estelle (B'ham Yardley)||Stuart, Ms Gisela (Edgbaston)|
|Mountford, Kali||Sutcliffe, Gerry|
|Mudie, George||Taylor, Rt Hon Mrs Ann (Dewsbury)|
|Murphy, Jim (Eastwood)||Taylor, Ms Dari (Stockton S)|
|Naysmith, Dr Doug||Thomas, Gareth (Clwyd W)|
|Norris, Dan||Thomas, Gareth R (Harrow W)|
|O'Brien, Bill (Normanton)||Timms, Stephen|
|O'Brien, Mike (N Warks)||Tipping, Paddy|
|O'Hara, Edward||Todd, Mark|
|Olner, Bill||Touhig, Don|
|O'Neill, Martin||Trickett, Jon|
|Organ, Mrs Diana||Truswell, Paul|
|Osborne, Mrs Sandra||Turner, Dennis (Wolverh'ton SE)|
|Pearson, Ian||Turner, Desmond (Kemptown)|
|Pendry, Tom||Twigg, Derek (Halton)|
|Perham, Ms Linda||Twigg, Stephen (Enfield)|
|Pickthall, Colin||Vaz, Keith|
|Pike, Peter L||Vis, Dr Rudi|
|Walley, Ms Joan||Wilson, Brian|
|Ward, Ms Claire||Winnick, David|
|Watts, David||Winterton, Ms Rosie (Doncaster C)|
|White, Brian||Wise, Audrey|
|Whitehead, Dr Alan||Wray James|
|Wicks, Malcolm||Wright, Dr Tony (Cannock)|
|Williams, Rt Hon Alan (Swansea W)||Wright, Tony D (Gt Yamouth)|
|Williams, Alan W (E Carmarthen)||Tellers for the Ayes:|
|Williams, Mrs Betty (Conwy)||Mr. Jon Owen Jones and|
|Wills, Michael||Mr. Clive Betts.|
|Ainsworth, Peter (E Surrey)||Fowler, Rt Hon Sir Norman|
|Allan, Richard (Shef'ld Hallam)||Fox, Dr Liam|
|Amess, David||Fraser, Christopher|
|Ancram, Rt Hon Michael||Gale, Roger|
|Arbuthnot, James||Garnier, Edward|
|Ashdown, Rt Hon Paddy||George, Andrew (St Ives)|
|Atkinson, Peter (Hexham)||Gibb, Nick|
|Baker, Norman||Gill, Christopher|
|Baldry, Tony||Gillan, Mrs Cheryl|
|Ballard, Mrs Jackie||Goodlad, Rt Hon Alastair|
|Beggs, Roy (E Antrim)||Gorman, Mrs Teresa|
|Bercow, John||Gorrie, Donald|
|Beresford, Sir Paul||Gray, James|
|Blunt, Crispin||Green, Damian|
|Body, Sir Richard||Greenway, John|
|Boswell, Tim||Grieve, Dominic|
|Bottomley, Peter (Worthing W)||Hague, Rt Hon William|
|Bottomley, Rt Hon Mrs Virginia||Hamilton, Rt Hon Sir Archie|
|Brady, Graham||Hancock, Mike|
|Brand, Dr Peter||Harris, Dr Evan|
|Brazier, Julian||Harvey, Nick|
|Breed, Colin||Hawkins, Nick|
|Brooke, Rt Hon Peter||Heald, Oliver|
|Browning, Mrs Angela||Heath, David (Somerton &Frome)|
|Bruce, Ian (S Dorset)||Heathcoat-Amory, Rt Hon David|
|Bruce, Malcolm (Gordon)||Heseltine, Rt Hon Michael|
|Burns, Simon||Hogg, Rt Hon Douglas|
|Butterfill, John||Horam, John|
|Cable, Dr Vincent||Howarth, Gerald (Aldershot)|
|Campbell, Menzies (NE Fife)||Hunter, Andrew|
|Cash, William||Jack, Rt Hon Michael|
|Chapman, Sir Sydney (Chipping Barnet)||Jackson, Robert (Wantage)|
|Jenkin, Bernard (N Essex)|
|Chidgey, David||Johnson Smith, Rt Hon Sir Geoffrey|
|Clappison, James||Jones, Nigel (Cheltenham)|
|Clark, Rt Hon Alan (Kensington)||Keetch, Paul|
|Clark, Dr Michael (Rayleigh)||Key, Robert|
|Clarke, Rt Hon Kenneth (Rushcliffe)||King, Rt Hon Tom (Bridgwater)|
|Kirkbride, Miss Julie|
|Clifton-Brown, Geoffrey||Kirkwood, Archy|
|Collins, Tim||Laing, Mrs Eleanor|
|Colvin, Michael||Leigh, Edward|
|Cormack, Sir Patrick||Letwin, Oliver|
|Cotter, Brian||Lewis, Dr Julian (New Forest E)|
|Cran, James||Lidington, David|
|Curry, Rt Hon David||Lilley, Rt Hon Peter|
|Davey, Edward (Kingston)||Livsey, Richard|
|Davies, Quentin (Grantham)||Lloyd, Rt Hon Sir Peter (Fareham)|
|Day, Stephen||Loughton, Tim|
|Dorrell, Rt Hon Stephen||Luff, Peter|
|Duncan, Alan||Lyell, Rt Hon Sir Nicholas|
|Duncan Smith, Iain||MacGregor, Rt Hon John|
|Emery, Rt Hon Sir Peter||MacKay, Andrew|
|Evans, Nigel||Maclean, Rt Hon David|
|Faber, David||McLoughlin, Patrick|
|Fabricant, Michael||Madel, Sir David|
|Fallon, Michael||Major, Rt Hon John|
|Fearn, Ronnie||Malins, Humfrey|
|Flight, Howard||Maples, John|
|Forth, Rt Hon Eric||Maude, Rt Hon Francis|
|Foster, Don (Bath)||Mawhinney, Rt Hon Dr Brian|
|May, Mrs Theresa||Stunell, Andrew|
|Merchant, Piers||Swayne, Desmond|
|Michie, Mrs Ray (Argyll & Bute)||Syms, Robert|
|Moore, Michael||Tapsell, Sir Peter|
|Moss, Malcolm||Taylor, Ian (Esher & Walton)|
|Nicholls, Patrick||Taylor, John M (Solihull)|
|Norman, Archie||Taylor, Matthew (Truro)|
|Oaten, Mark||Taylor, Sir Teddy|
|Öpik, Lembit||Temple-Morris, Peter|
|Page, Richard||Tonge, Dr Jenny|
|Paice, James||Townend, John|
|Paterson, Owen||Tredinnick, David|
|Prior, David||Trend, Michael|
|Redwood, Rt Hon John||Tyler, Paul|
|Rendel, David||Tyrie, Andrew|
|Robathan, Andrew||Viggers, Peter|
|Robertson, Laurence (Tewk'b'ry)||Wallace, James|
|Roe, Mrs Marion (Broxbourne)||Walter, Robert|
|Ross, William (E Lond'y)||Wardle, Charles|
|Rowe, Andrew (Faversham)||Waterson, Nigel|
|Ruffley, David||Webb, Professor Steve|
|Russell, Bob (Colchester)||Wells, Bowen|
|St Aubyn, Nick||Whitney, Sir Raymond|
|Sanders, Adrian||Whittingdale, John|
|Sayeed, Jonathan||Widdecombe, Rt Hon Miss Ann|
|Shephard, Rt Hon Mrs Gillian||Willetts, David|
|Shepherd, Richard (Aldridge)||Wilshire, David|
|Simpson, Keith (Mid-Norfolk)||Winterton, Nicholas (Macclesfield)|
|Smith, Sir Robert (WAb'd'ns)||Woodward, Shaun|
|Spelman, Mrs Caroline||Yeo, Tim|
|Spicer, Sir Michael||Young, Rt Hon Sir George|
|Stanley, Rt Hon Sir John||Tellers for the Noes:|
|Steen, Anthony||Mr. Richard Ottaway and|
|Streeter, Gary||Sir David Madel.|