Orders of the Day — Finance Bill

– in the House of Commons at 3:31 pm on 17th April 2000.

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[Relevant documents: The Fifth Report from the Treasury Committee, Session 1999–2000, on The 2000 Budget, HC 379.]

Order for Second Reading read.

Photo of Andrew Smith Andrew Smith The Chief Secretary to the Treasury 4:28 pm, 17th April 2000

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

This Finance Bill continues to deliver on Labour's promises, enacting Budget decisions to deliver opportunity and security for the hard-working families of Britain. Through measures for enterprise and fairness, it takes further action to achieve our long-term goals—including new measures to encourage work, to improve productivity and to protect the environment. We are working hard for a stronger and fairer Britain, releasing substantial new resources for health and education, and for tackling child poverty, supporting pensioners, improving transport and tackling crime.

That is possible only because we are delivering a platform of stability and steady growth, leaving behind the boom and bust of the past. Inflation is now—

Photo of Andrew Smith Andrew Smith The Chief Secretary to the Treasury

I give way to the hon. Gentleman on boom and bust.

Photo of Peter Tapsell Peter Tapsell Conservative, Louth and Horncastle

On stability, does the right hon. Gentleman recall that, when he was winding up the Budget debate, I put to him the fact that the greatly increased public expenditure under the Finance Bill would result in higher interest rates being imposed on us by the Bank of England, and that he denied that the Budget was expansionary? Indeed, he claimed, in effect, that it was a "contractionary" Budget. Has he noted that, since then, almost every economist has disagreed with him—including the International Monetary Fund?

Photo of Andrew Smith Andrew Smith The Chief Secretary to the Treasury

As I pointed out to the hon. Gentleman when I was winding up the Budget debate, the Budget locks in the fiscal tightening since last year to the tune of 0.3 per cent. of GDP and then 0.2 per cent. of GDP. Moreover, I point out, as I did when I responded to the hon. Gentleman in the Budget debate, that we are looking at a current surplus of £17 billion, followed by £14 billion, followed by £16 billion, followed by £13 billion, followed by £8 billion. That Budget and that fiscal position are prudent. They lock in the tightening—by, I think, some 5 per cent. of GDP since before the general election—which the Government have achieved on the basis of following our sound and prudent rules for fiscal policy, the sensible arrangements that we have set up for monetary policy, and our firm grip on public spending. Therefore, I do not accept that—

Photo of Andrew Smith Andrew Smith The Chief Secretary to the Treasury

I give way to my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon).

Photo of Mr Robert Sheldon Mr Robert Sheldon Chair, Liaison Committee (Commons), Chair, Standards and Privileges Committee, Chair, Liaison Committee (Commons), Chair, Standards and Privileges Committee

I did of course agree with my right hon. Friend generally on the Budget judgment that he made, but of course the Red Book omitted the amount paid for telephone licences, which I had estimated would be between £7 billion and £10 billion, but which is likely to be nearer £20 billion. That is obviously a very large increase in the revenue. Not all of it will come in this financial year, but it should have some impact on the expenditure or even, possibly, the revenue side. Will my right hon. Friend give us some idea of his thinking on these matters?

Photo of Andrew Smith Andrew Smith The Chief Secretary to the Treasury

The prudent thing to do with such a large income is to use it to reduce debt, and that is what we plan to do with it.

I was saying that inflation is now low and stable.

Photo of Andrew Smith Andrew Smith The Chief Secretary to the Treasury

I will give way to the hon. Gentleman when I have made a little more progress.

There are 800,000 more people in work than at the general election and, as I have said, the public finances are under control. It is worth reminding the House that we inherited from the Conservative party a public sector borrowing requirement of some £28 billion, and yet now, with our fiscal framework in place, we have the stream of current surpluses that I was just drawing to the attention of the hon. Member for Louth and Horncastle (Sir P. Tapsell).

Moreover, we inherited national debt that had doubled, and a debt to GDP ratio of 44 per cent. With our commitment to prudence, we have cut that ratio to 37 per cent. this year, and the Red Book shows it decreasing to 33 per cent. in the years ahead, cutting the millstone of debt that the Conservative party strung around the necks of the British people and saving £4 billion a year in debt interest.

Photo of Andrew Smith Andrew Smith The Chief Secretary to the Treasury

In a few moments.

The Bill maintains our commitment to sustainability and prudence, locking in the fiscal tightening to an even greater extent than projected in last year's Budget, ensuring that we remain on track to meet the fiscal rules and to deliver steady growth. This, as we have said, is prudence for a purpose. Through the Budget and the Bill, we are not only locking in fiscal tightening but releasing substantial new resources for our key public service priorities.

Photo of Quentin Davies Quentin Davies Conservative, Grantham and Stamford

The Chief Secretary keeps on saying—rather irrelevantly and, I am tempted to say, rather disingenuously—that the present Budget locks in last year's Budget's fiscal tightening. Does he agree that it represents a discretionary fiscal loosening from this year forward to 2003–04?

Photo of Andrew Smith Andrew Smith The Chief Secretary to the Treasury

I have already cited to the House the extent to which this is fiscal tightening—the 0.3 per cent. of GDP followed by the 0.2 per cent. of GDP. The hon. Member for Louth and Horncastle referred to what various commentators have said about the Budget. It is important to point out that the Monetary Policy Committee has twice had the opportunity to examine the assumptions and forecasts surrounding the Budget—Mervyn King himself has commented on this. Having examined them, the committee saw no reason to change its policy or to change interest rates. That is a matter for members of the committee, but I believe that the House will want to take that judgment very seriously.

Photo of Edward Davey Edward Davey Opposition Whip (Commons), Shadow Spokesperson (Treasury), Liberal Democrat Spokesperson (Treasury), Liberal Democrat Whip

On fiscal loosening, will the Chief Secretary confirm that the fiscal position has been tightened only in relation to what it was planned to be in the pre-Budget report of November 1999, but that it has been loosened with respect to fiscal policy as it was on 20 March 2000?

Photo of Andrew Smith Andrew Smith The Chief Secretary to the Treasury

I have already cited several figures on that point. If the hon. Gentleman is looking further ahead, I commend to him—I do not often do this—the words of Professor Patrick Minford. When he unwrapped the assumptions around the Budget, he described it as unprecedented fiscal tightening. The hon. Gentleman might like to consider that point.

As a consequence of the stability and prudence and the sound public finances that we have put in place, working families are able to see the benefit. Thanks to sound economic management, we can cut taxes for working families—not only introducing the working families tax credit and the new 10p rate but, in clause 31, cutting the basic rate of income tax to 22p, its lowest level for nearly 70 years. By April next year, personal tax and benefit changes in this and previous Budgets will mean that households will on average be £460 a year better off and that families with children will on average be £850 a year better off. The tax burden on a single-earner family on average earnings with two children will be at its lowest since 1972.

Coupled with low inflation and economic growth, that adds up to substantial increase in living standards which is what really matters to people. For a single-earner family on average earnings with two children, living standards will rise by more than 10 per cent. over this Parliament. For a single-earner family on half average earnings, living standards will rise by 30 per cent. this year—the biggest annual rise for more than 25 years. A single-earner family on half average earnings will be £2,600 a year better off over the Parliament.

Our measures will also help achieve our goal that every child should have the best possible start in life. As the Prime Minister has said, child poverty is a scar on the soul of Britain. That is why we set out in the Budget our ambition to halve child poverty by 2010 and end it altogether by 2020.

Photo of John Bercow John Bercow Shadow Minister (Education)

In the light of what the Chief Secretary has just said about the working families tax credit, will he tell me why Nicole Wanford, a low-earning, single parent constituent in Buckingham who has a salary of little more than £10,000 a year after tax, should pay an effective tax rate of 78 per cent. on a modest £600 bonus that her employer paid her? Does the right hon. Gentleman understand that her view of the Government's operation of the policy would not constitute parliamentary language?

Photo of Andrew Smith Andrew Smith The Chief Secretary to the Treasury

When Members raise individual cases in the House, the best thing that I can do is undertake to examine the circumstances of those cases. However, such a marginal rate of reduction should not arise from the working families tax credit. Indeed, one of the things that it and our other reforms do is reduce marginal rates of reduction, because our policy is all about helping and encouraging people to move from welfare to work. That is what it has done very successfully.

I referred to the issue of tackling child poverty and was about to point out that 1.2 million of Britain's children will be out of poverty as a consequence of measures already introduced in this Parliament and in the Budget. By April next year, personal tax and benefit changes alone in this and previous Budgets will mean that a single-earner family on average earnings with two children will be £370 a year better off. A family on half average earnings will be £2,600 a year better off and, for that matter, the poorest two-child family on income support will be £1,500 a year better off. What is more, the Bill will take further steps to increase support for children. An additional 50p a week will be added to the children's tax credit when it is introduced in April next year, so that it will be worth up to £442 a year—more than twice the value of the married couples allowance that it replaces. We are introducing a £4.35 a week increase in the child credit in the working families tax credit from June this year, and the same increase in child allowances in income support from October.

Photo of Michael Jack Michael Jack Conservative, Fylde

On the working families tax credit and while the Chief Secretary is in generous reviewing mode, will he take a look at the case of lone parents who work in, for example, the field of nursing care for what he and I would regard as unsocial hours? The child care arrangements available at those unsocial hours do not currently qualify for assistance under the working families tax credit. Will he examine the case of that small but important group and see whether some assistance can be provided?

Photo of Andrew Smith Andrew Smith The Chief Secretary to the Treasury

I shall certainly examine that case. I should point out that, through our national child care strategy, a huge expansion in child care provision is under way, stimulated not least by the provisions of the working families tax credit. However, as I said, I undertake to look at the point the right hon. Gentleman raises.

The improvements I have described and their impact on tackling child poverty and helping working families will be reinforced by further improvements to public services that will be made, thanks to our commitment to average real growth in health spending of more than 6 per cent. a year over the next four years—the longest period of sustained high growth in expenditure in the history of the national health service. The immediate boost of £2 billion for health this year is in part funded by the real increase in tobacco duties set out in clauses 12 to 15. The Conservatives' decision not to vote for the tobacco tax provides further confirmation that their sums do not add up and that they could not deliver on Labour's pledges on health and education.

Our additional boost of £1 billion for education this year is accompanied by the introduction in clause 57 of a new training relief for employees. It will make employers' contributions to education or training undertaken by holders of individual learning accounts exempt from tax and national insurance where they qualify for grant or discount and are available to all employees on similar terms.

Businesses and jobs will benefit from our commitment to enterprise. We have already cut main and small business rates of corporation tax to their lowest-ever levels—the lowest of any major industrialised country. The Bill contains several measures designed further to promote enterprise and help business. Those include the cuts in capital gains tax in clause 37; the research and development tax credits in clauses 67 and 68; the permanent 40 per cent. capital allowances for small and medium-sized enterprises in clause 69, which will help manufacturing businesses in particular; the new all-employee share ownership plan in clause 47; the enterprise management incentives in clause 61, which will help high-risk companies recruit key personnel; and the corporate venturing provisions in clause 62.

Those measures have been widely welcomed by business. Together with the introduction in the Budget of three-year, 100 per cent. capital allowances for investment in information and communications technology equipment and an extra £100 million for the new £1 billion target umbrella fund for regional enterprise growth, they comprise a huge commitment to business success on the part of a Government who believe that enterprise must go hand in hand with fairness.

Photo of Andrew Tyrie Andrew Tyrie Conservative, Chichester

The Chief Secretary makes great play of the tax breaks that have been given to business, but will he tell us what the overall burden on business of the changes in business taxation since 1997 has been?

Photo of Andrew Smith Andrew Smith The Chief Secretary to the Treasury

We have been helping businesses to invest, expand and create an enterprise culture in this country. Let me quote the Institute of Directors news release commenting on the Budget. It states: The Institute of Directors welcomes the pro-enterprise flavour of the Budget, coinciding with the Institute's own recommendations. The cut in capital gains tax on business assets, plus the moves to encourage wider employee shareholding, will be a welcome boost to enterprise. We are delighted to see businesses being encouraged to seize the opportunities offered by e-commerce, where moving quickly will have a big effect on our international competitiveness.

Photo of Mr Dafydd Wigley Mr Dafydd Wigley Plaid Cymru, Caernarfon

The right hon. Gentleman was referring to the regional dimension of creating new businesses. He will be aware that in the areas that are lucky enough to be getting objective 1 status—Cornwall, South Yorkshire, Merseyside and a good part of Wales—there is concern about the adequacy of finance during this financial year, whatever happens in the comprehensive spending review, to enable advantage to be taken of the opportunity to create development funds of the sort that have already been created on Merseyside. Is he able to give an assurance that if it is found in the areas to which I have referred—I am obviously concerned about Wales—that there is a need for more than the £25 million in our budget under the Barnett formula for meeting the European and match funding aspects of objective 1, he will be able to go to the contingency reserve, given that he has a good reserve, and help us out if need be?

Photo of Andrew Smith Andrew Smith The Chief Secretary to the Treasury

As the Government have said on a number of occasions, we fully appreciate the importance of objective 1 status for west Wales and the valleys and the regions within England, which are benefiting from it. The Administration in Wales have stated that the money this year is adequate to get the programme started. I have said many times that the future is properly a matter for the spending review. Anyone who has tangled with these issues will realise that they are of some complexity.

It is a mark of our recognition of the importance of objective 1 status for west Wales, the valleys and Wales as a whole that it is being dealt with in the spending review. Full consideration will be given to how the funds and the public expenditure cover can be provided to ensure that the programme goes ahead. We realise its importance for the regeneration of parts of Wales and for regions in England as well.

Photo of Dr Brian Mawhinney Dr Brian Mawhinney Conservative, North West Cambridgeshire

Bearing in mind the Bill's positive aspects for business, will the right hon. Gentleman tell us whether the tax burden on business has increased or decreased since the 1997 general election?

Photo of Andrew Smith Andrew Smith The Chief Secretary to the Treasury

I have recently pointed to a string of ways in which tax on business is falling. Moreover, there are measures in the Budget that will encourage business to invest further by extending reliefs, which have been widely welcomed throughout industry, by its representative organisations and by individual firms. We shall take no lectures on business from Opposition Members, who presided over the two deepest recessions since world war two, which resulted in the decimation of business, with hundreds of thousands of firms going bust and 1 million jobs lost, in manufacturing industry. That must be contrasted with the stability, sound finances and prospects of business growth that we now have.

I must make progress on the Bill itself. The new optional ring-fenced regime in clause 81 is another measure that will help business.

Photo of Geraint Davies Geraint Davies Labour, Croydon Central

Would my right hon. Friend be interested to know that when tax and borrowing are put together as a share of gross domestic product—in other words, what the Government are spending on behalf of the public—they were 38.2 per cent. in 1996–97, and are due to decrease to 36.4 per cent. in 2000–01? That is a difference of about £17 billion, or an extra 7p on income tax. As Baroness Thatcher has pointed out, at the end of the day all business tax is paid by individuals. Does my right hon. Friend agree that the burden of tax on business and everybody else is decreasing under the Government?

Photo of Andrew Smith Andrew Smith The Chief Secretary to the Treasury

I thank my hon. Friend for his helpful intervention. He always makes interesting observations on our proceedings. I welcome them, even when they involve quoting the baroness.

I was referring to clause 81, which will introduce the so-called tonnage tax regime, whereby shipping companies can opt to work out taxable profits on the basis of the tonnage of ships operated. This innovation, which I know a number of my hon. Friends and Opposition Members have called for, and which follows Lord Alexander's inquiry, is part of the Government's commitment to encourage the British shipbuilding industry and will, I am sure, be welcomed.

The Bill modernises the tax treatment of corporate groups and international operations. Clause 96 extends group relief to UK branches of non-resident companies. Clause 100 enables groups to bring together chargeable gains and allowable losses on asset disposals, without having to go through the rigmarole of transferring asset ownership within the group. Clause 103 improves the fairness and the effectiveness of anti-avoidance rules for controlled foreign companies.

I shall say a word about the Budget provisions in clause 102, which limit the use of so-called mixer companies to shelter low-taxed foreign profits from UK tax. It is important to understand that under the old rules, the UK taxpayer is currently underwriting the cost to business of investing in countries that have not reduced their tax to the UK level. In that sense, our changes promote international tax competition. Perhaps even more important, they level the playing field among groups that invest directly from the UK and those that adopt mixing structures.

Taken together, our measures align tax treatment with economic rationality, tackle avoidance, and help sustain the United Kingdom as a competitive base for international operations.

Photo of Oliver Letwin Oliver Letwin Conservative, West Dorset

Is that why the Inland Revenue consulted for a long period on enshrining the previous regime?

Photo of Andrew Smith Andrew Smith The Chief Secretary to the Treasury

There has been extensive consultation about the regime from which these changes result. The changes have been widely welcomed—there has been criticism but there has also been a substantial welcome—and they make the United Kingdom a more attractive base for international and multinational operations.

Photo of Owen Paterson Owen Paterson Conservative, North Shropshire

Can the right hon. Gentleman name three groups that have welcomed the measure?

Photo of Vernon Coaker Vernon Coaker Labour, Gedling

Labour Back Benchers, for one.

Photo of Andrew Smith Andrew Smith The Chief Secretary to the Treasury

Labour Back Benchers certainly welcome the measure. I was at a post-Budget breakfast where an array of luminaries commented on the Budget. The measures which, for example, avoid the need to transfer assets before pooling chargeable gains and losses were welcomed. I shall be happy to send the hon. Gentleman details.

Photo of Michael Jack Michael Jack Conservative, Fylde

If the measure is supposed to increase the competitiveness of UK companies in terms of their overseas investments, can he explain why I have received no representation from any UK overseas investor pointing out that his tax bill will be lower by virtue of the Government's proposals?

Photo of Andrew Smith Andrew Smith The Chief Secretary to the Treasury

The package of measures does make the UK more competitive. If people write to the right hon. Gentleman, they are far more likely to do so when they have something to complain about than when they have something to praise in the Budget.

Photo of Andrew Smith Andrew Smith The Chief Secretary to the Treasury

I have given way sufficiently.

The Bill will also help us meet our international commitments to the environment. Following last year's Budget, the Bill is an important part of the largest-ever package of environmental tax measures to be introduced in the United Kingdom. Clause 30 introduces the climate change levy. Clauses 20 to 23 reform vehicle excise duty for cars. Clause 58 fundamentally reforms company car taxation, providing an incentive for low CO2 emissions and removing the perverse incentive for drivers to clock up business mileage simply to reach more generous thresholds.

Clauses 136 and 137 increase the landfill tax rate and clarify liability. Moreover, the changes to the affordable warmth programme in clause 78 and the reduced rate of VAT on the installation of energy saving materials and on the grant-funded installation of heating systems for which clause 131 provides will help ensure that pensioners feel the benefit of warmer homes and cheaper fuel bills as well as that of the £150 winter allowance. The programme takes forward the Government's commitment to combating fuel poverty by supporting the installation of energy efficient central heating systems and insulation. It will benefit up to 1 million low-income homes.

The affordable warmth programme will be funded through a public-private partnership with commercial lessors. Capital allowances will reduce the cost of leasing and allow the scheme to reach many more households than would otherwise be possible. Those provisions, taken with the Budget announcements of an incentive for ultra low sulphur petrol, the aggregates levy and the consultation on stamp duty relief for brownfield developments, make this a Finance Bill for the environment as well as for working families and enterprise.

The Bill also backs charitable giving. Clauses 38 to 46 implement our radical package of measures to boost donations to charities and improve the operation of the tax system for charities. The Bill abolishes the minimum limit on tax relief for donations, boosts payroll giving through the three-year, 10 per cent. Government supplement and abolishes the maximum limit on donations.

Clause 40 cuts red tape on corporate donations. The Bill also introduces new income tax reliefs on gifts of shares and securities, frees charities from the need to set up subsidiaries for small trading and fundraising ventures, and broadens the VAT zero rate for the sale or hire of donated goods. It is a good package, which is widely welcomed by charities. Simon Hebditch of the Charities Aid Foundation described the provisions as radical. He estimated that they would mean £350 million extra a year in tax relief.

Together with our on-going consultation on the establishment of a network of children's funds, our measures on charities show how Britain can make the most of one of our greatest strengths: the readiness of our people to give so much of their time and money through voluntary and community activity for the benefit of all.

The Bill promotes enterprise and fairness. It looks to the future while the Conservative party remains locked in the past. It shows the Government keeping their promises, whereas the Conservative Government broke theirs. Labour stands for the many as we provide sound public finances, low inflation, higher living standards, help for working families and pensioners and employment opportunities for all. By contrast, today's increasingly extreme Conservative party makes reckless tax pledges for the few. Those policies would deny health and education investment for the many, and return Britain to the bad old days of boom and bust.

The Bill means more enterprise, opportunity and fairness in a Britain that is better off with Labour. I commend it to the House.

Photo of David Heathcoat-Amory David Heathcoat-Amory Conservative, Wells 4:59 pm, 17th April 2000

I beg to move, To leave out from 'That' to the end of the Question, and to add instead thereof: 'this House declines to give a Second Reading to the Finance Bill because its 558 pages impose more complex regulations, introduce further taxes and fail to reverse the increasing burdens of taxation on families, on homeowners, on motorists, on consumers, on savers and on businesses.'

The Chief Secretary to the Treasury omitted to mention one of the records that the Bill breaks: it is the longest Finance Bill that the House has had to consider. It runs to 558 pages in two volumes. It will cost any member of the public £27.40.

Photo of Barry Gardiner Barry Gardiner Labour, Brent North

Will the right hon. Gentleman give way?

Photo of David Heathcoat-Amory David Heathcoat-Amory Conservative, Wells

Not yet. The Bill begins encouragingly by stating that it conforms to the European convention on human rights.

Photo of Andrew Smith Andrew Smith The Chief Secretary to the Treasury

For the record, the right hon. Gentleman should accept that the Bill is 54 clauses shorter than that which the Conservatives introduced in 1996.

Photo of David Heathcoat-Amory David Heathcoat-Amory Conservative, Wells

That is a wholly bogus way in which to measure the length of the Bill because volume II and half of volume I are made up of schedules. It is not difficult to cut the number of clauses if the number of schedules is increased. This is easily the longest Bill so it is not surprising that the Institute of Chartered Accountants spokesman said: This is out of all proportion to anything we have seen before…I do not know how ordinary people have a hope of understanding their tax affairs. Even accountants are struggling. There is a democratic point: the public and taxpayers should at least understand the taxes that they are asked to pay, even if they do not approve of them. Apart from that, the Bill's sheer baffling complexity and length is bad for business because an arbitrary, illogical and complex tax and benefits system creates a national overhead of unavoidable costs that all businesses and taxpayers have to bear.

Instead of boasting about the temporary Budget surplus, which has largely been achieved through three tax-raising Budgets, the Chief Secretary should attend much more closely to the economy's long-term productive capacity, on which we shall have to rely to pay for our public services long after the Budget surplus has disappeared. That productive potential is being eroded and undermined by the Bill, which is particularly damaging when combined with the ever higher tax burden being levied on taxpayers and businesses of all sorts.

The Chief Secretary was coy when my right hon. Friend the Member for North-West Cambridgeshire (Sir B. Mawhinney) asked a straight question about the additional burden on business. The Confederation of British Industry Budget briefing refers to the increase in the business tax burden which we have estimated at over £20 billion over the five years of this parliament. It would be helpful if the Chief Secretary could confirm that that figure is correct.

The argument about whether the Government have broken their pre-election promises not to increase the tax burden has, in essence, been settled. Before the Budget, the Prime Minister's personal press officer, Mr. Campbell, let the cat out of the bag, or reaffirmed what the rest of the country knew: the tax burden has increased sharply since the election and, at the end of this Parliament, will be substantially higher than at the start.

Photo of Geraint Davies Geraint Davies Labour, Croydon Central

Following my intervention on my right hon. Friend the Chief Secretary about the combination of borrowing and tax, does the right hon. Gentleman accept that the global level of borrowing and tax has decreased? Will he support the right hon. Member for Haltemprice and Howden (Mr. Davis), the Chairman of the Public Accounts Committee, who has called for the Tories to introduce a borrowing guarantee, which would reveal the high borrowing and tax levels that the right hon. Gentleman oversaw?

Photo of David Heathcoat-Amory David Heathcoat-Amory Conservative, Wells

The hon. Gentleman has it all wrong again. I refer him to the Government's own Budget document, which clearly states on page 200 that the tax burden has risen, continues to rise and will be higher at the end of this Parliament. If he does not believe the Government's literature, no wonder he is in denial on the tax burden. The arithmetic is absolutely clear, but the Government have invented a new trick: a hypothetical average family that pays no indirect tax at all, spends no money and does not drive, smoke, drink, insure anything or move house. That family, supposedly, now has a lower tax burden. Perhaps he was referring to that.

Photo of Kali Mountford Kali Mountford Labour, Colne Valley

Will the right hon. Gentleman give way?

Photo of David Heathcoat-Amory David Heathcoat-Amory Conservative, Wells

I will finish the point first.

The worst of it is that the Government have put their claim about a lower tax burden on this "typical family" in a propagandist leaflet, printed and distributed at public expense, which gives an entirely misleading and one-sided view of the Budget. I am glad to say that the Select Committee on the Treasury—whose distinguished Chairman is present—has pointed out that that is in itself a misleading way of portraying what is happening in regard to taxation. The Committee rightly suggests that if the Government repeat that bit of propaganda at state expense, it should be independently audited by an outside body.

Photo of Michael Jack Michael Jack Conservative, Fylde

Will my right hon. Friend give way?

Photo of David Heathcoat-Amory David Heathcoat-Amory Conservative, Wells

I will give way first to the hon. Member for Colne Valley (Kali Mountford), as I promised.

Photo of Kali Mountford Kali Mountford Labour, Colne Valley

I hoped that the right hon. Gentleman would further develop his theme of productivity, which I thought made an interesting beginning to his speech. I agree with him that productivity is the best way forward. Does he agree with me that the families to whom he refers benefit most when they work, and does he not welcome the injection of 800,000 new jobs into the economy on which our success should be based?

Photo of David Heathcoat-Amory David Heathcoat-Amory Conservative, Wells

I shall return explicitly to that point. I shall also return to the way in which the Government are eroding the competitiveness that they inherited from their predecessor.

Photo of Michael Jack Michael Jack Conservative, Fylde

Before my right hon. Friend leaves the subject of disclosure, may I ask whether he has ever got to the bottom of the facts that lie behind the unwillingness of the present Treasury team to answer a question first tabled in 1981 by the now right hon. Member for Blackburn (Mr. Straw)? Each year, the right hon. Gentleman sought to put on record the full effect of the Government's tax proposals, both indirect and direct. Has my right hon. Friend ever been given a reason for the fact that that information is not now made available to us?

Photo of David Heathcoat-Amory David Heathcoat-Amory Conservative, Wells

It would be highly embarrassing. That is not a very good reason, but it is the real reason. As my right hon. Friend may know, the Treasury Committee drew attention to the deficiency and called for the Government to make the calculation again, as we always did—my right hon. Friend was part of our Treasury team—so that the public could know exactly what was happening to the tax burden on families of all sorts.

Photo of John Bercow John Bercow Shadow Minister (Education)

Is it not significant that the Bill will do nothing to change the fact that taxes are rising but, at one and the same time, class sizes are bigger, waiting lists are longer, police numbers are smaller, the plight of agriculture is more and not less severe, and the transport system is more and not less congested? Is that not proof positive that under the present Government we get rotten services at rip-off prices?

Photo of David Heathcoat-Amory David Heathcoat-Amory Conservative, Wells

My hon. Friend is absolutely right: we pay more taxes, and services are getting worse. What is happening to all the money is a complete mystery. It must be going into some black hole in the Treasury.

Photo of Chris Leslie Chris Leslie Labour, Shipley

Will the right hon. Gentleman give way?

Photo of David Heathcoat-Amory David Heathcoat-Amory Conservative, Wells

I will give way once more, but then I must move on.

Photo of Chris Leslie Chris Leslie Labour, Shipley

Why did the right hon. Gentleman say on Sky News on 22 March that the increases in health spending were "unwise and irresponsible"?

Photo of David Heathcoat-Amory David Heathcoat-Amory Conservative, Wells

The hon. Gentleman is entirely wrong. I did not say that the increases were unwise in any way; I said that the mechanism for taking the increase in public expenditure outside the comprehensive spending review mechanism was unwise.

It was the Chancellor himself who said, in last year's Budget statement, that in no circumstances would he unravel a three-year expenditure commitment until the end of that three year period. So why—I think I know the answer to this question; I think the reasons are entirely political—have the Government, in the middle of that period, lurched into an uncomprehensive spending review, doling out a bit of money here and a bit of money there before the spending review period ends in July this year? That is the question that I asked on the television programme, and I was right to ask it.

What we already see in the Bill is a picture of not just higher taxes but more taxes, and more complicated taxes. The best illustration is the new energy tax—the so-called climate change levy to which the Chief Secretary referred. As the more alert Government Back Benchers will know by now, the tax does a great deal of damage to manufacturing industries, especially those that are exposed to international competition. It is also completely unnecessary. The reductions in carbon dioxide emissions could be achieved at a fraction of the cost by many other means. Earlier this afternoon, we heard that the moratorium on gas-fired generation is to be removed. If that is the case, that will be a better, more efficient and cheaper way in which to achieve the reduction in greenhouse gas emissions.

It is an unnecessary tax in another sense. Only certain industries will be able to negotiate rebates; that privilege will be given only to certain sectors of British industry. What should concern the House is that the rebates will be agreed not by the House, or even by Ministers, but by civil servants, so we are, in effect, asked to delegate to civil servants the right to tax.

Photo of Nick Palmer Nick Palmer Labour, Broxtowe

Will the right hon. Gentleman give way?

Photo of David Heathcoat-Amory David Heathcoat-Amory Conservative, Wells

Will the hon. Gentleman forgive me? I shall make a little more progress.

The main point about the energy tax is its sheer complexity. I declare an interest. I am a company director and will be affected by that part of the Bill, but I am in good company. Every other business in the country, of whatever size, will have to pay the tax.

Schedule 6, which brings in the energy tax, runs to 83 pages, so every business in the country, from ICI to the corner shop, must somehow make sense of a schedule running to that length. It is not just the length of it, but the language. Almost at random, I picked out the following provision. I have mentioned electricity rebates. They are to be calculated by treatment of supply as a reduced-rate supply to the extent (if any) that the exempt renewable supplies made by the supplier in the averaging period would have been reduced-rate supplies if they had not been made on the basis that they were exempt. I defy anyone to make sense of such a provision. It is pure gobbledegook, but everyone will have to understand it. Everyone will have to calculate that ludicrous and unnecessary levy, and that example was pulled out at random.

The tax is complicated, unnecessary and damaging. There are many other examples.

Photo of Andrew Smith Andrew Smith The Chief Secretary to the Treasury

Is the Conservative party prepared to repeal it, then?

Photo of David Heathcoat-Amory David Heathcoat-Amory Conservative, Wells

We are absolutely committed to meeting the Kyoto target for carbon dioxide and greenhouse gas emissions. We will not support a tax that does it in an entirely unnecessary and damaging way. We will fight the tax to the Report stage, when it comes back to the House and beyond that. We are adamantly and completely against unnecessary and complex taxation on that scale.

Photo of Geraint Davies Geraint Davies Labour, Croydon Central

Will the right hon. Gentleman give way?

Photo of David Heathcoat-Amory David Heathcoat-Amory Conservative, Wells

No. I will not give way again.

What we get from the Government is all the waffle about working with business—all the talk of partnership. Partnership is the word of the moment, but their idea of partnership is similar to that of the black widow spider. Zoologists in the House will know that it gets what it wants and then the partner is dead—like the British motor industry, as it is discovering to its cost. I shall not discuss the goings-on at the Department of Trade and Industry—they are almost beyond parody—the farcical attempts at a competition policy, the substantial withdrawal of the Utilities Bill, or the goings-on over Rover, but the point is that the Treasury has adopted the same attitude towards business.

As the House will remember, last year, the Treasury smuggled out a proposed change to the self-employed status of those working in so-called service companies: IR35. Instead of announcing it on Budget day, or in the Budget speech, the change appeared in the 35th press release: that is why it is called IR35. It is highly and hugely damaging to the British high-tech labour market.

It is therefore not surprising that the British Chambers of Commerce has added the cost of IR35 to its burden barometer. It calculates—it gets its figures from the Government' s regulatory impact assessments—that the cumulative regulatory burden on British industry over this Parliament totals just over £10 billion. That is a terrifying indictment of the Government's attitude towards industry.

Photo of Nick Palmer Nick Palmer Labour, Broxtowe

In view of the right hon. Gentleman's strictures on IR35, will he explain why the Conservative party did not divide the House when the matter came up at the end of the Budget debate? Will he give a commitment that a Conservative Government would repeal it?

Photo of David Heathcoat-Amory David Heathcoat-Amory Conservative, Wells

Perhaps we took the Government at their word when they said that they were reviewing and consulting on IR35. In retrospect, we were wrong to do so. Not only have the employees concerned been let down; we have been betrayed by Government assurances that they wish to work with businesses. Yes, we shall be opposing the clauses that seek to implement IR35.

Photo of Kali Mountford Kali Mountford Labour, Colne Valley

Will the right hon. Gentleman give way?

Photo of David Heathcoat-Amory David Heathcoat-Amory Conservative, Wells

If the hon. Lady will forgive me, having given way to her already, I should like to make some progress.

Following IR35 last year, the Government are in this Finance Bill attacking controlled foreign companies and double-taxation relief, to which the Chief Secretary referred. The trouble is that, although that was cooked up in the Treasury, people in the accountancy profession know a great deal more about the matter and have shown that the cost to British industry will not be the £300 million in the Budget document but many billions of pounds.

As Governments all over the world are discovering, if a tax jurisdiction is run to the detriment of internationally mobile businesses, such businesses simply disappear. Perhaps that is how the Government square their arithmetic. Perhaps the small additional revenue is because the companies concerned will leave the country and not pay tax at all. Is that what the Government really understand by a partnership with British industry? I want confirmation from the Government this afternoon: will they proceed with such damaging proposals or will they withdraw them? We need an answer because the very uncertainty is damaging.

There is an important wider issue. The Government inherited from us three years ago a world-class economy. People came here to do business; we were a magnet to global business. That is not a permanent state of grace; it has to be worked at and kept in repair. The Government simply do not understand that one cannot run a taxation policy without regard to such wider global dimensions. The Government's little Englander approach on tax is unsustainable. I shall give the House another example.

Let us consider excise duties. The Government's endless increase in hydrocarbon fuel, alcohol and tobacco duties has at last, in one sense, been stopped. They have at last ended the fuel escalator of 6 per cent. in real terms, but the damage has already been done. Those of us on the Opposition Benches cannot be the only ones who receive letters from haulage firms that have been made uncompetitive—at least in European terms.

More than that, we are losing revenue. Instead of filling up in this country, vehicles do so in Calais. Not only are the Government undermining the British haulage industry, they are losing revenue. They have cheated on that, too. The Chancellor said in his Budget speech that he was going to increase road fuel duty only in line with inflation. He did not, however, say that he had changed the definition. Rather than increasing the duty in line with actual inflation, he is now predicting an inflation rate of 3.4 per cent. When we were in office, we always used an actual inflation rate. Now, the Government are using a predicted inflation rate, of 3.4 per cent. This year, that change will net the Treasury an extra £500 million.

Therefore, even when the Government come off the fuel escalator, as we have been demanding, they cannot resist pocketing an extra £500 million.

Photo of Dr Brian Mawhinney Dr Brian Mawhinney Conservative, North West Cambridgeshire

I have noticed that the Chancellor has been using that 3.4 per cent. inflation rate. However, I thought that the Government's policy was never to allow inflation to exceed 2.5 per cent.

Photo of David Heathcoat-Amory David Heathcoat-Amory Conservative, Wells

Exactly; I think that we are owed an explanation. The Chancellor said in his Budget speech that the duty will increase in line with inflation. He has an inflation target of 2.5 per cent. Why is the duty increasing by 3.4 per cent? My right hon. Friend has asked a good question, to which we need an answer.

Photo of Barry Gardiner Barry Gardiner Labour, Brent North

Will the right hon. Gentleman give way?

Photo of Barry Gardiner Barry Gardiner Labour, Brent North

Does the right hon. Gentleman not know—if he does know, will he not accept—that different sectors of the economy have different inflation rates? Specifically, when he talks of inflation in the health service, he carefully does not use the same inflation rate that he uses when talking about the retail prices index.

Photo of David Heathcoat-Amory David Heathcoat-Amory Conservative, Wells

That is one of the feeblest explanations that I have heard. I think that we should all expect a slightly more convincing explanation from Ministers.

The point that I wish to raise now is the excise duty increases on beer and tobacco. Smuggling of those products has become an epidemic. The Government's own figures show that more than one in five of the cigarettes smoked in the United Kingdom are smuggled in, and that 80 per cent. of the hand-rolling tobacco smoked here is similarly illegally imported. The Government have said in their own review document that Smuggling is on a strong upward trend.

Last year, revenue from tobacco decreased by £2.5 billion. The Government say that they want to give some extra money from that source to the health service. It is just as well that they were not planning to do it last year. If they had, this year, there would be a cut in the allocation to the national health service budget.

The Revenue is being undermined, and so is the health strategy. Smoking is on the increase, particularly among young people. Moreover, the trade is now being taken over by criminal gangs, who are selling in uncontrolled outlets. The Government—or at least the Home Office—lectures the licensed trade about responsible drinking and tobacconist shops about not selling tobacco to minors, but, because of their own excise duty policy, they are undermining that legitimate trade.

We therefore have a failed tax policy, a failed health policy and a failed crime policy. What are the Government doing about it? They are increasing the duty on tobacco products by another 5 per cent. in real terms, making a bad situation worse. That is what we mean by saying that the Government are pursuing a little-Englander tax policy, in defiance of the logic of the single market in Europe.

Mr. Martin Taylor was commissioned by the Government to report on that very subject. His report has never been published. Why? It is leaked that the report has not been published because Mr. Taylor drew the obvious conclusion that, if we are to tackle the smuggling epidemic, we must tackle the cause—which is the wide and growing duty differential between the United Kingdom and the continent. The Government will never solve the smuggling problem until they recognise that fact and do something about it. However, Mr. Taylor's report—which is too embarrassing to publish—has simply been suppressed.

The Government, rather than tackling that cause of crime, will try to tackle the crime itself by deploying another 1,000 Customs and Excise officers. I tell the Government that that will simply not work unless and until the Treasury recognises the logic of the single market in Europe. We will not agree to the duty increases until the Government not just commission, but publish an independent study into the causes and consequences of the smuggling epidemic.

There are plenty of other examples of how the Government are defying the international tax facts of life, such as stamp duty on shares. We read that the London stock market may merge with the German stock market. That will be handicapped and undermined unless the Government take seriously the problem of us having stamp duty on share transactions and the Germans not having it. Equally, everyone knows that many people bet on horses through telephone or internet betting in a jurisdiction with no betting tax. The Government have refused to face up to the problem, or even to study it.

We created a low-tax jurisdiction in this country. That is part of the golden economic legacy that the Government are demolishing. They—or rather the country—will pay the price of lost revenue, lost business and, because of their efforts to shore up the tax system, increased regulations and complexity.

The Government's answer to everything is more officials, more rules and more civil servants. Maybe that helps to answer a question that one of my hon. Friends asked earlier: what is happening to all the extra tax money? It cannot be just Conservative Members who are asked that. When people are paying all those extra taxes, they want to know why public services are not only not getting better, but getting worse? Why do people now have to join a waiting list to get on a waiting list to see a consultant? We now have at least part of the answer. The cost of central Government has risen under this Government by £2 billion a year. In case the Government are inclined to dispute that, it is spelled out in the Budget documents.

Photo of David Heathcoat-Amory David Heathcoat-Amory Conservative, Wells

The hon. Gentleman need only go to the Vote Office, get out Command Paper 4601 and turn to page 60, where he will find helpfully laid out the gross administrative expenditure by Department. If he glances at the bottom line, he will see that the cost of central Government was flat in our last three years. Since then, it has risen by £2 billion a year. That is the cost of a Labour Government.

Photo of David Heathcoat-Amory David Heathcoat-Amory Conservative, Wells

The hon. Gentleman shakes his head. He is taking issue with a document produced by his own Government. It is all here in black and white—an extra £2 billion a year. There may be no more policemen in our constituencies, but there are more special advisers in Government Departments. There may not be enough nurses in the NHS, but there are plenty of politicians in it, and they are all being paid for out of that extra £2 billion a year.

We have got to the secret in the Bill. Among all the verbiage, all the extra schedules and all its 500 pages, the truth is that it is a summary—practically an embodiment—of the Government. It taxes more and delivers less. That is why we shall oppose it.

Photo of Mr Giles Radice Mr Giles Radice Chair, Treasury Committee, Chair, Treasury Committee 5:29 pm, 17th April 2000

The Treasury Select Committee report is tagged to this debate, so I hope that hon. Members will forgive me if I say something about it. In the Budget debate, I warmly welcomed the measures proposed, including the increases in health and education spending, the working families tax credit, child benefit and winter fuel allowances. I repeat that welcome this afternoon, particularly because the measures have strong support in my constituency, which, as hon. Members will know, is in Labour's heartlands.

I want to speak in my role as Chairman of the Treasury Committee.

Photo of Geraint Davies Geraint Davies Labour, Croydon Central

That is precisely why I wanted to intervene now: I do not want to throw the right hon. Gentleman off when he has got into his stride—not that it is easy to do that. As Chairman of the Treasury Committee, will he note that paragraph 25 of the Committee's report on the Budget explicitly confirms the point that I put to the Chief Secretary, which he refused to acknowledge and tried to run away from? It says: there will be a discretionary loosening of the fiscal stance in each financial year over the period 2000–01 to 2003–04 … Is it not extraordinary that a Labour Chief Secretary refuses to acknowledge the clear, explicit conclusion of a Treasury Committee with a majority of Labour members?

Photo of Mr Giles Radice Mr Giles Radice Chair, Treasury Committee, Chair, Treasury Committee

I shall come to that point in a moment. The role of the Treasury Committee is not to provide opposition to the Government—which many political commentators think that we should do, because the official Opposition are not making much of a fist of it—but to make Ministers and civil servants open, transparent and accountable. That is what we try to do.

This is our third report on the Budget in this Parliament, and our fifth report this Session. We congratulate the Government on the effectiveness of the pre-Budget report process as an aid to openness and consultation. The Government consulted on the 12 measures in the pre-Budget report, and all are in the Bill. Some changes have resulted from the consultation. That, I believe, is open government in action.

We also congratulate the Government on "Analysing UK Fiscal Policy". That document is a useful background paper on which both supporters and critics of Government policy have drawn heavily. The Government have been questioned on their fiscal stance precisely because people have been able to read that document and see how the calculations are done. We asked the Government to show the distributional effects of the Budget. There are gains for families, but we would have liked the Government to go further and display the impact on all households.

I want to return to that hoary annual—the tax burden. Table 5 in our report showed clearly that, taking into account the Budget, the pre-Budget and last year's Budget, taxes are falling. The figure for the tax burden—the tax take as a percentage of gross domestic product—depends on whether we count working families tax credit as a tax. If we do—and the Government's preferred measure, the net tax and social security contributions, does—the burden falls between 1998–99 and 2000–01. If we do not count the working families tax credit, and use the measure of current receipts, which are in the Red Book, the tax burden rises.

To put that in context, and bearing in mind the presence of the former Chancellor, the right hon. and learned Member for Rushcliffe (Mr. Clarke), his plan in the November 1996 Budget was for taxes to rise higher, on the measure of net taxes and social security contributions, in 1999–2000 and 2000–01, than is predicted in the most recent Budget.

Photo of Geraint Davies Geraint Davies Labour, Croydon Central

Did my right hon. Friend agree with the right hon. and learned Member for Rushcliffe (Mr. Clarke), the former Chancellor, when he described borrowing as deferred taxation in an earlier Budget debate? If we take borrowing and taxation together, that clearly shows that levels of taxation have gone down. If we were at the same level as in 1996–97, we would have had to raise income tax by 7p.

Photo of Mr Giles Radice Mr Giles Radice Chair, Treasury Committee, Chair, Treasury Committee

To put it more charitably, it is an interesting way of looking at the issue. It is also legitimate, and I have no objection to different ways of calculating the tax burden as long as they are laid out in the Red Book, as they are.

The working families tax credit is not counted as tax, according to present accounting conventions. However, as it is a new scheme and as the plan is to extend it to children and pensioners, in a move to what might be better termed a negative income tax, we say in our report that there is a strong case for reviewing accounting conventions and for considering whether it should be scored in as a tax.

We have not included my next point in our report, but to put the debate in context, the fact is that if one is going to bring down the public sector borrowing requirement, as the right hon. and learned Member for Rushcliffe did and as my right hon. Friend the Chancellor has, taxes are bound to go up, as they did under the right hon. and learned Gentleman and—in the case of indirect taxes—in the first two years of this Government. Following on from that, it is obvious that fiscal drag and economic growth put up the tax burden and the tax take as a percentage of GDP. So we should not make such an issue of that point and, in our report, we tried to put it into context. After all, our job as a Select Committee is to try to shed some light on the debate.

If one reads the background document that the Government produced, which analyses fiscal policy, one realises that there is a difference between a relative change and an absolute change. The relative change is the difference between the Budget stance this year and what was forecast in last year's Red Book. The absolute change is the difference between the Budget stance and last year's outturn. On the first measure, we will undoubtedly see fiscal tightening in 2000–01 and 2001–02, but on the second measure we will see what Kate Barker of the CBI, who gave evidence before our Committee, described as a "slight loosening" in 2000–01 compared with 1999–2000.

The question then arises of whether we can afford the increase in public spending that has taken place. My answer is yes, because since 1996–97 we have experienced a 4.2 per cent. tightening, which is the equivalent of £40 billion. The public finances are unquestionably in good shape. The further question arises of whether the fiscal stance is supporting the monetary policy. It is on that issue that some City economists and the IMF have raised some questions, although they have been a matter more of qualification than of outright criticism. If one accepts that some loosening has occurred, it has only been very marginal. Indeed, the Monetary Policy Committee did not change interest rates in March or April. As my right hon. Friend the Chief Secretary to the Treasury said, the deputy Governor of the Bank of England believed that the impact of the Budget on monetary policy was slight.

The debate was best summed up by Peter Riddell in The Times. Likening it to the question of whether a glass was half full or half empty, he pointed out that the relaxation was very small—much less than the tightening that happened each year since 1997, which the right hon. and learned Member for Rushcliffe, the former Chancellor, has described as too severe. That perhaps sets the matter in context.

Photo of Edward Davey Edward Davey Opposition Whip (Commons), Shadow Spokesperson (Treasury), Liberal Democrat Spokesperson (Treasury), Liberal Democrat Whip

Will the right hon. Gentleman confirm that the specialist advisers to the Select Committee said that fiscal policy was not supporting monetary policy and that it was going in the other direction?

Photo of Mr Giles Radice Mr Giles Radice Chair, Treasury Committee, Chair, Treasury Committee

Some did, some did not: like special advisers everywhere, their opinions were divided. A slight divergence between fiscal and monetary policies may not be that important, and I assume that that is why the deputy Governor said that the Budget's impact on monetary policy was slight. We should probably heed his voice even more than the voices of our advisers—but that may be unfair to everyone involved.

The Select Committee report shows that fast growth has been combined with low inflation, and that the public finances are still in good shape. It supports the idea of setting an inflation target for the Monetary Policy Committee of 2.5 per cent., which should be the MPC's prime objective. It is concerned about the strength of sterling and its impact on manufacturing—as anyone who studies the situation must be—but believes that most of that strength is due to the weakness of the euro, rather than to anything that the Government or the MPC have done, and that the problem may right itself over the next 18 months or so.

Photo of Geraint Davies Geraint Davies Labour, Croydon Central

Did the Select Committee support the Liberal Democrat party's alternative Budget, whose main proposal was that income tax should be raised by 1p, regardless of the level inherited?

Photo of Mr Giles Radice Mr Giles Radice Chair, Treasury Committee, Chair, Treasury Committee

I do not think that the Committee considered the proposal. No doubt we would have considered it if it had been brought to our attention.

The Select Committee's report found that the Bank of England's Monetary Policy Committee must take into account the exchange rate when coming to a decision about inflation. That is very sensible.

In conclusion, some commentators—usually in newspapers that are hostile to the Government—have said that the Select Committee report is critical of the Government. However, although Labour Members form the majority in the Committee and the rest of its membership comes from Opposition parties, it broadly supports the Government's economic policy.

Photo of Kenneth Clarke Kenneth Clarke Conservative, Rushcliffe 5:43 pm, 17th April 2000

I begin by declaring a personal interest to the House. Not only do I pay income tax, smoke, drive a car and occasionally have a drink, but I am also, as the Register of Members' Interests shows, a non-executive director of four limited companies in this country. Those companies are affected by various proposals in the Bill. I do not think that that marks me out particularly, as almost every company in this country is likely to be adversely affected by the Budget. The Budget statement and the Bill show that the Government's claims to be business friendly are looking very frayed indeed.

The Government took over a very good economic environment for the real economy—we had striven to enable British companies to make themselves competitive in global markets. At times, the Government's positively anti-business stance has steadily undermined that, as I think that this debate will make clear.

The Budgets and resulting Finance Bills produced by the Government are difficult to penetrate. I accept that the process has never been totally comprehensible to ordinary members of the public. However, we always answered embarrassing parliamentary questions. We acknowledged when we were increasing taxation and when we were reducing it. We produced the fiscal judgment in a clear and comprehensible form, and we exposed ourselves to criticism, sometimes on that account.

Budget speeches, as given by the Chancellor, are extremely uninformative and, quite often, misleading. They are short political speeches. The Red Book is completely obscure, and much parliamentary questioning is straightforwardly avoided if the result is to give an embarrassing answer. The Finance Bill itself is quite enormous. I remember how we struggled to move towards expressing a Bill in plain English, and to ensure that the drafting was such that it would eventually produce shorter Bills. The only thing that is clear from the front page of this Bill is that it apparently complies with the European convention on human rights—unless accountants have any claim, through being required to pick up heavy loads. The thing is utterly incomprehensible and impenetrable to ordinary members of the public, and it does not shed much light on what the Government will do.

I said that the climate for business was worsened by this. The overall effect of the Budget is to carry on the Government's policy of increasing the burden of taxation. The Government have increased the overall burden of taxation on most ordinary families, although I accept that families on low pay, probably with a single parent, have benefited. They have also increased the tax burden on business, and are continuing to do so. What is most alarming, when one looks at the judgment behind the Budget, is that the Government almost certainly intend to continue increasing the tax burden on both the public and business.

We have reached a stage where the economy is recovering from a near-recession at the end of 1998 and early 1999, and recovering quite strongly. The Government boast that there was no recession; they are extremely lucky to be able to make that boast. We had six months in which there was no growth at all, but we did not have the two successive quarters of negative growth that most people were anticipating.

Recovery is now quite strong, but business is facing substantial difficulties. One is the tax burden; another is the mounting pile of red tape and bureaucracy that all sectors of business face. Another difficulty, on which the Budget and Finance Bill have a bearing, is the excessive strength of the pound. We are plainly going to have a floating exchange rate for the next two or three years at least. The exchange rate has floated upwards to a quite unpredictable level, and no one expected to see that. When I was Chancellor, the pound was usually at DM2.50 against the German currency. Much of British manufacturing and agriculture and many British exporters find the present exchange rate of DM3.25 quite insupportable. It is no good the Chancellor lecturing us about the need to raise productivity to cope with the strength of the pound. I accept that a strong currency has a beneficial effect on encouraging people to raise productivity, but one cannot possibly raise productivity to cope with the extraordinary increase in the value of the pound. Therefore, we must consider what the Government's tax and fiscal policies are likely to do to the exchange rate.

I challenge the frightful hand-wringing about the exchange rate, sometimes from the Bank of England but equally strongly from the Government. It is no good saying that one understands how much many parts of the country and many sections of business are suffering because of the strong pound, if one implies in the next breath that, although one is aware of it, there is—sadly—nothing that can be done. I do not agree with that.

Photo of Mr Christopher Gill Mr Christopher Gill Conservative, Ludlow

I am most grateful to my right hon. and learned Friend for giving way. Does he consider that, as our trade with the European Union represents less than 12 per cent. of gross domestic product, it would be more appropriate and significant to consider the strength of the pound relative to the US dollar? For example, will he tell us what the exchange rate with the US dollar was, when he was Chancellor? Would he explain by how much, or—more significantly—by how little, it has changed since then?

Photo of Kenneth Clarke Kenneth Clarke Conservative, Rushcliffe

I am taken by surprise by my hon. Friend's figure. I suspect that its source lies in some remark made by the present Chancellor; it has the ring of some of his more popular slogans on the tax burden and other matters. Our major market is the EU; it is significant that we have a strong pound. I was steering away from the question of whether we shall continue to have a floating pound, but we should all agree that it is no good going into a state of denial about the damaging effect that that has on farming—in my hon. Friend's constituency and in mine—and on manufacturing across great swathes of the country.

Photo of Mr Roger Casale Mr Roger Casale Labour, Wimbledon

Will the right hon. and learned Gentleman give way?

Photo of Kenneth Clarke Kenneth Clarke Conservative, Rushcliffe

The hon. Gentleman has already made many interventions; I give way to the hon. Member for Wimbledon (Mr. Casale).

Photo of Mr Roger Casale Mr Roger Casale Labour, Wimbledon

I am grateful to the right hon. and learned Gentleman. Given his well-known pro-European views, what I am about to say does not apply to him. However, does he not despair at the incoherent voices of the Opposition, who berate the pound for being so high and for having a negative effect—supposedly—on manufacturing, while saying that they will never see Britain join the euro, whatever the economic costs?

Photo of Kenneth Clarke Kenneth Clarke Conservative, Rushcliffe

I am sure that the hon. Gentleman does not want to draw me into a dispute with any of my right hon. and hon. Friends. I merely point out that, as long as one has a floating pound, it is not sensible to maintain a policy of complete neglect as to its level. That matter must be borne in mind by a Chancellor, when he makes his Budget judgments—as it must be by the governor of the central bank and his colleagues when they make judgments on monetary policy.

Photo of Kenneth Clarke Kenneth Clarke Conservative, Rushcliffe

I shall make a little more progress; I know which subject I shall be drawn into if I give way.

In any view, the present situation is undoubtedly damaging. People are out of touch with farmers or manufacturers if they do not believe that. It is also quickly producing a deteriorating balance of payments position. Our balance of trade was positive in 1997, but it is now rapidly deteriorating. That, too, has a negative effect on growth and thus a negative effect on our ability to create wealth and to make jobs secure.

Photo of Kenneth Clarke Kenneth Clarke Conservative, Rushcliffe

No, I shall not give way.

Behind the Budget lies the question asked by the right hon. Member for North Durham (Mr. Radice), in his customary erudite fashion, as to whether the Budget is supporting monetary policy. The extremely tight monetary policy maintained by the Monetary Policy Committee of the Bank of England is one of the things that is keeping the pound so high. Our interest rates are almost double those that prevail on the continent. We can see how tight our monetary policy is in real terms when we consider the fact that we have the lowest inflation rate of any member state in the EU. Our real rates are extremely high; that is one reason why the pound is so very strong.

To use the right hon. Gentleman's phrase, does fiscal policy support monetary policy in the Budget? The two must have a relationship, so we would hope that the Chancellor would pursue a fiscal policy that discourages the MPC from making monetary policy any tighter and thus postponing even further the date at which the pound might return to a level that was nearer to trading realities.

The Chancellor can bring down the rate of exchange in two ways. The best way would be for him to stick to his former girl friend, Prudence, and to maintain a prudent fiscal policy—to keep fiscal policy tighter than it might otherwise be—in order to signal to the Bank that it does not need to tighten monetary policy and raise interest rates so fast to keep inflation down.

The worst way would be to have a lax fiscal policy, so that the signal to the markets was that control of the balance between spending and taxation was being lost, that borrowing in the medium to longer term is likely to start to soar and that the rate would be brought down in that way.

At least the Chancellor prefers to talk about the first option, and seems—just about—to be holding to it, in the judgment of the MPC. However, he uses rather meaningless phrases to describe what he has actually done. He overstated the point in the Budget speech. On Budget day—relying, as I did, on the Budget speech—when I heard his descriptions of how the fiscal position was even tighter than it had been in November, I was quite impressed.

However, as has already been revealed, in an intervention from the hon. Member for Kingston and Surbiton (Mr. Davey) and—if one listened carefully—in the speech of the right hon. Member for North Durham, that does not quite stack up when looks at the matter more closely and asks by what comparison the fiscal position is becoming tighter. All the talk of locking in fiscal tightening and prudence turns out to be fairly meaningless, because there is no doubt that, on balance, and especially in the medium to longer-term, the Budget represents a considerable loosening of policy.

The IMF warning was couched quite modestly; it should be taken seriously. It is no good for the Government to wave it away. I applauded what they did just before the Budget. They took a step further towards the policy that I had introduced, on behalf of the previous Conservative Government, of openness on the IMF report. We initiated the policy of exposing the article IV reports by the IMF on British economic management. Just before the Budget, the Chancellor did the same thing and, for the first time, published the complete statement. He was full of pride in that achievement. He stated: The publication of the IMF's report on the UK economy clearly demonstrates our commitment to open up the IMF's scrutiny process. Today marks an important step forward by the UK in economic policy making.

The IMF made an extremely sensible comment on the overall effect of the Budget. The IMF plainly believes that fiscal policy no longer wholly supports monetary policy; that also seems to be the conclusion of the Select Committee on the Treasury. Suddenly, the Chancellor is dismissive. He gave a radio interview during which he returned to that meaningless string of phrases—about locking in fiscal discipline and prudence—that he always employs whatever the question, but he has not done that.

To be fair, the immediate outlook is reasonable, if fiscal policy is fairly tight; we are at the stage in the cycle where we are running into a surplus. That was always predictable. The policy of the previous Conservative Government was, first, to reduce the then excessive borrowing and, then, to aim for a policy under which one balanced budgets over the cycle. That is a wholly desirable policy. The Government are running a surplus because they inherited the benefits of that policy. They have roughly maintained the course that was projected; indeed, they have speeded it up slightly—by raising taxation and by underestimating their tax revenues. It looks as though they will run a large surplus for the next year or two. However, the intervention made by the hon. Member for Kingston and Surbiton is unanswerable. Although we are entering that desirable surplus, there is absolutely no doubt that the Budget and the Bill make that surplus smaller and shorter than it would have been.

The right hon. Member for North Durham, on behalf of the Treasury Committee, offered us two ways of considering the matter. The first was the Chancellor's way, in which one made a comparison with his forecast in November. The second way, which the rest of us prefer, would be to compare the situation with what it would have been without the Budget.

The Chancellor fooled me on Budget day; it is true that, compared with his forecasts, the policy looks tighter, but that is because he got his forecast wrong. He had underestimated the revenues that he would produce. He found that revenue was pouring in on a greater scale and he used it—he spent it. The result of the Budget is that the Chancellor has actually loosened policy. The Bank should be looking two years ahead, so members of the Monetary Policy Committee may say, "For the time being, this does not cause us to think about raising interest rates any more than we previously would have done." They should be looking at a two-year time scale—I hope that they are, for the sake of British industry. However, there is absolutely no doubt that, looking further ahead, this is a loosening of policy, and a serious one, because the Government are losing control of public spending.

Under the influence of questioning on the David Frost programme, a well-known consultant who has become a Labour life peer admitted that the Government have abandoned their previous approach to public spending and are producing popular announcements—desirable announcements, which no one can be tempted into opposing—of future levels of expenditure on health, education and transport, with no indication of how they might accommodate those within an overall total of public spending that might make sense in two, three or four years' time.

The difficult question of, "How are you going to fit this in?", is no longer being addressed in the context of a three-year spending review; it is being addressed in the context of, "Do not ask that question. Let us think of answering that after the next general election, once we have got back. Meanwhile, let us hold out these goodies for the future and see what happens as we go along."

Photo of Kenneth Clarke Kenneth Clarke Conservative, Rushcliffe

I give way one more time, to the hon. Member for Truro and St. Austell (Mr. Taylor).

Photo of Matthew Taylor Matthew Taylor Liberal Democrat Spokesperson (Treasury)

I very much agree with what the right hon. and learned Gentleman says about fiscal loosening. In view of his kind comments about the Liberal Democrats, it feels unfair to ask the question, but is there not a problem for the Conservative Front-Bench team, given that it has now announced that it will adopt the Government's spending programme—which the right hon. and learned Gentleman has just described—and cut tax on top? Therefore, if there is a problem with fiscal loosening on the Government side, there is undoubtedly one on the Conservative side.

Photo of Kenneth Clarke Kenneth Clarke Conservative, Rushcliffe

I hope and believe that my party has addressed this subject in the context of a structured approach to public spending. Anyone who makes it one of their objectives to reduce the level of taxation during the life of a Parliament is placing on themselves some constraints when it comes to taking a proper, sensible approach to judging public spending priorities across the board. If one promises to do so, one may face some tight public spending rounds occasionally. If one commits oneself—as we always committed ourselves—to increased spending on health and education, one faces some difficult global choices in other areas, depending on how the economy goes. The Government have given that up entirely.

In July 1998, the Chancellor lectured the House about his structured approach to public spending. He announced the three-year comprehensive spending reviews—of which I, and I think the Liberals, always said, "He will never stick to it. It is not possible. It is all nonsense." However, the Chancellor addressed the subject on a serious basis. He assured us that two things were essential. As he moved, foolishly, from an annual cycle to a three-year cycle, he said, first, that he would stick to it and no new resources would be added during the three years; and secondly, that, when he reached the comprehensive spending review for next three years, any new resources would be conditional on reforms— money, but only in return for modernisation—[Official Report,14 July 1998; Vol. 316, c. 187.]. All that it required was the Frost programme and the Prime Minister in a panic, and both of those rules were abandoned.

Photo of Andrew Smith Andrew Smith The Chief Secretary to the Treasury

Does the right hon. and learned Gentleman accept that, even with the additions to expenditure for the last two years of the three-year spending period announced in this Budget, total managed expenditure, on comparable figures, is lower than the amount originally announced in the comprehensive spending review?

Photo of Kenneth Clarke Kenneth Clarke Conservative, Rushcliffe

I will study that delphic sentence because I suspect that, like many others, it disguises the facts. First, it disguises the fact, which was the basis on which the first announcement was made to the House, that substantial increases in public spending have already been made within the previous three-year period, despite the fact that no modernisation has been delivered—and with no policy on how to achieve any more reform, because the Prime Minister and the Cabinet Committee are working on that and will let us know by June.

The best forecast that I have seen for the three years thereafter, before the comprehensive spending review has started for most Departments, based on what has been announced, is the PricewaterhouseCoopers forecast that total managed spending will rise by 3.7 per cent. a year in real terms over the next four years. That figure is well in advance of any likely growth in the economy, and certainly well above the trend growth that the Government adhere to.

That is why the Chancellor is raising taxes and why, in my opinion, he will continue to do so, especially after the next general election, because, if he carries on like this, he will certainly need to raise taxes after the next election. And he raises the wrong taxes. My party has always called them stealth taxes. Anything that cannot be understood in the hundreds of pages of the Finance Bill is used to raise revenue. He raises taxes on fuel, which went far too high last year, and he has misled a lot of people this year into believing that he has not raised them again. He has made our haulage industry extremely uncompetitive and we are saddled with the highest taxes in Europe.

The taxes on business do particular harm. I shall not discuss the tax arrangements for foreign dividends at length because two companies with which I am involved undoubtedly have an interest, but there is no way in which that change could be described as anything other than unfriendly to British companies doing international business. It was not consulted on properly. No one anticipated that the arrangements for mixing foreign dividends would be re-opened. The Treasury grossly underestimated the impact of the change; it got the likely revenue all wrong. The change will actually raise substantial sums, and I have no doubt that it will emerge that that is having a marked effect on many British companies with an international business. It makes this country, in yet another way, a less attractive place than it was as a base for international companies, makes it less attractive to make overseas investments and places some companies at a competitive disadvantage to international companies based in other countries.

The climate change levy is a disgraceful way of raising revenue, using an environmental cloak. I am all in favour of environmental taxes. We introduced the landfill tax. We were contemplating more. We were so anxious to avoid increasing the burden on business that we always offset any increases by reducing the employer's national insurance contribution. We cut a tax on jobs to relieve a burden on business at the same time as we raised the landfill tax. That has now been abandoned. The climate change levy, the increases in the landfill tax, and the aggregates tax are good little earners for the Treasury. The Government are using them as revenue raisers. They know that they can dress up the revenue raisers with an environmental cloak. As a result, extraordinary damage is being done to industry.

Even the stamp duty changes, which were obviously popular with the Labour party because they seem likely to affect wealthier individuals, have an adverse economic effect. One of the things that we need in this country is more mobility. In the new economy, it may be necessary for people to move in and out of, let us say, the south-east of England. The effect of the stamp duty is extraordinary. All the changes to stamp duty on housing since the Government came to power have tripled the stamp duty on houses over £250,000 and quadrupled the stamp duty on house sales of over £500,000. That is just the taxation of envy, and it will have some adverse effects as well.

The likely effect of all this will come home over the next few years, and we shall see an end to prudence. Prudence has not been locked up; Prudence has been let out and is gone and, after the election, from 2002 onwards, the Government will face more difficulties because the Government's economic inheritance will be steadily dissipated.

Photo of Barry Gardiner Barry Gardiner Labour, Brent North

Will the right hon. and learned Gentleman give way?

Photo of Kenneth Clarke Kenneth Clarke Conservative, Rushcliffe

I am in my last few sentences, so I will not.

The Government are slowly losing control. They took over an improving situation—a good situation. They have not wrecked it, which has surprised the electorate because Labour Governments usually did wreck these things quite quickly, but it is steadily eroding.

The Government are turning into an old tax-and-spend Government after all. At first, they taxed a lot and did not spend very much. Now they are spending more and they will have to tax some more and, as they go along, they keep finding ever more ways of taxing that damage business, and therefore employment and wealth creation. It is tax now, promise to spend later—and perhaps they will sort out how to run a proper macro-economic policy when the time comes if they are still in office in 2002. That is the irresponsibility that lies behind the Budget and this Bill.

Photo of Mr Denzil Davies Mr Denzil Davies Labour, Llanelli 6:10 pm, 17th April 2000

I will not be tempted to follow the right hon. and learned Member for Rushcliffe (Mr. Clarke), the former Chancellor, in his rather rambling speech. Towards its end, he told us that he was rather worried that Prudence was going to be let out. Some Labour Members think that Prudence should occasionally have fun, but we are confident that my right hon. Friend the Chancellor of the Exchequer, being a good, solid son of a Scottish manse, will ensure that Prudence does not have too much fun. That perhaps sums up the Budget.

The right hon. and learned Gentleman was right to some extent about the strength of sterling, and it is not easy to know what to do about that. My right hon. Friend the Member for North Durham (Mr. Radice) made the good point that we must also consider the weakness of the euro, but I shall not pursue that point because I want to make a short and boring speech about a small provision in one of the Bill's schedules. However, the euro is in difficulty because of structural problems in Europe. Those problems are not related to inflexible labour markets, but the financial community and those who shift large sums of capital around the world have moved money out of Europe because they see structural problems in Europe and with the euro. They are probably one of the main reasons for money going into the dollar. The Japanese bought far too many euros and burned their fingers doing so. They are moving money out as well, so there are real problems. Of course, the counterpart of the strength of sterling is the weakness of the euro.

I shall be boring and brief as I consider a small provision in the Bill. It is foreshadowed by clause 102, but my point is not about controlled foreign companies so I do not want the Opposition to get excited about that. The clause foreshadows schedule 30, which is as long and rambling—and perhaps even more complex—than the speech of the right hon. and learned Member for Rushcliffe. It is certainly as long and rambling because it deals with a few provisions relating to double taxation relief in its various forms.

I refer briefly to paragraph 4 of schedule 30. I will not say much about it except to point out that the notes on clauses are very helpful. [Interruption.] The hon. Member for Kingston and Surbiton (Mr. Davey) guffaws, but paragraphs 8 and 9 of the notes on clause 102 are very helpful. Paragraph 8 states that paragraph 4 of schedule 30 amends two sections of the Taxes Act 1988 so as to provide for the allowance of credit relief for foreign tax to non-resident persons (companies and individuals) who have branches or agencies in the United Kingdom.

Paragraph 9 of the notes adds: In future, credit relief will be available to all non-resident taxpayers with United Kingdom branches or agencies, in respect of taxes paid other than in the taxpayer's home state.
Clause 102 is a consequence of a decision taken by the European Court of Justice. I am glad to see that my hon. Friend the Paymaster General accepts that point even though it is not made clear in the notes on clauses. On 21 September 1999, the court held that a French company that was not resident for tax purposes in Germany—it was resident in France even though it had a branch in Germany—could have the same rights to foreign tax relief as would be given to a German resident company. That sounds boring.
A case was brought by a French company against the German tax authorities, which the court held were acting contrary to European Union treaties because they were deemed to be discriminating against the French national company even though it was not resident in Germany but merely had a branch there. It decided that because the French company had a branch in Germany, it was entitled to have credit for all foreign taxes from all over the world in the same way that a German resident company would. The European Court of Justice considered that the provision upheld by the German tax authorities was discriminatory, so it struck it down.
Several points need to be made about that judgment. First, it gave the lie to the belief—if some people still held to it—that European Union treaties have no jurisdiction over direct taxation, by which I mean income tax and corporation tax. Before the court will act, there must be an infringement of what are described in the treaties as the four freedoms: the freedom of movement of labour, the freedom of capital, the freedom of establishment and the freedom to provide services. The French company was certainly well established in Germany and provided services. Because it operated within the four freedoms of the treaties, it fell within their remit and the court was then able to strike down a tax provision in a member state.
There was no question of the Councils of Ministers making a decision about jurisdiction on tax; no vetoes were used and no directives were made in Brussels. The case is a clear example of a member state's sovereignty on direct taxation being overridden—not just challenged—by the European Court of Justice. Consequently, the Government had to introduce this provision.
This is not an isolated case. I have examined the jurisprudence of all the cases that the court has considered since it examined its first case—one involving France—in 1987. In at least a dozen cases, taxpayers have challenged national tax authorities about their provisions for income tax and corporation tax, and in all but two cases those challenges have been successful. The cases divide more or less equally between those involving income tax and individuals on the one hand and those involving corporation tax and companies on the other. As I said, only two national tax authorities have won their case against a taxpayer.
I do not advise it, but I have read some of the judgments and the opinions of the Advocates General. Some of those opinions are Talmudic in their complexity, but it is clear—we should not be surprised by this—that a European court, the main purpose of which is to secure ever increasing union, has bent over backwards in most cases to try to strike down member states' legislation on direct taxation.

Photo of Kenneth Clarke Kenneth Clarke Conservative, Rushcliffe

I am sure that the right hon. Gentleman is explaining accurately that treaty obligations do not allow member states to discriminate in their tax laws between nationals or residents of different countries. Indeed, this Government and the previous one have spent much time on that, and the Paymaster General chairs a committee that we joined and that tries to set aside discriminatory tax arrangements for nationals and residents of different states. However, I am sure that the right hon. Gentleman would not join the more unscrupulous campaigners who claim that that means that the European Union has jurisdiction over levels of corporate tax or personal taxation.

Photo of Mr Denzil Davies Mr Denzil Davies Labour, Llanelli

I shall come to that point shortly. However, the right hon. and learned Gentleman should not assume that it is a side issue of discrimination that can be considered by the committee chaired by my hon. Friend the Paymaster General.

The European Court is not only challenging the sovereignty of the member state; the second consequence of those decisions is that it is challenging the basic cornerstone of income tax and corporation tax—the concept of residence. The court is saying to member states, "Your legislation is based on residence, but if it can be shown that you are discriminating against a non-resident, your law can be struck down." As the right hon. and learned Gentleman knows, residence is not some quaint little concept dreamed up by we Euro-sceptics to make life difficult for the Commission. The concept of residence lies at the heart of the taxation legislation of all the countries of western and eastern Europe and of the United States of America; more important still, it forms the basis of the hundreds of international double taxation treaties that have been signed since the end of the 1940s.

That is not merely an issue to be examined by a committee. A basic challenge has been thrown down by the court—albeit within the scope of the four freedoms, I concede. With more trade, more people moving around, more establishments in different countries and more provision of services, such cases will arise more often. The court is challenging the whole concept of residence, which lies at the heart of each member state's system of taxation. Let me cite a Dutch professor writing in the 1994 edition—things have moved on since then—of a publication called The Common Market Law Review. He went so far as to suggest—I do not subscribe to everything he suggests—that the court's actions could easily result in the disintegration of national tax systems.

That is the argument that has been advanced by many member states—not by Britain, which has been involved in only two such cases, but by France, Germany and Belgium, between which there is a great deal of cross-border trade and movement. The argument has been advanced, not by Euro-sceptics and little Englanders but by the national tax authorities of several European countries, that the court is arrogating the concept of nationality above that of residency by telling member states that they can have their residency rules, but if the court finds that one country is discriminating against a national of another country, nationality becomes more important than residence for the purposes of direct taxation. That is a real clash—not a minor matter, as the right hon. and learned Gentleman attempted to imply in his intervention. A challenge has been made to the very concept of residency and many people are extremely concerned about it.

Photo of Kenneth Clarke Kenneth Clarke Conservative, Rushcliffe

Is the right hon. Gentleman arguing that within a single market a British Government should be able to discriminate in the treatment under British tax law between companies domiciled in this country and companies domiciled elsewhere in the European Union? We set our rates of corporate and personal taxation, but the European treaties have always ruled out discriminatory provisions which are contrary to the four freedoms. That is not a sensational new discovery. I repeat: the Government whom the right hon. Gentleman supports continue to work within a committee, to which the Government of whom I was a member also contributed, trying to get rid of discriminatory tax provisions—

Photo of Michael Martin Michael Martin Deputy Speaker (First Deputy Chairman of Ways and Means)

Order. I remind the right hon. and learned Gentleman that interventions must be brief.

Photo of Mr Denzil Davies Mr Denzil Davies Labour, Llanelli

With respect, the right hon. and learned Gentleman misses the point. It is a question not of discrimination but of a nation state being unable to provide different tax treatments for residents and non-residents. It has always been accepted in international taxation law and beyond western Europe that countries will provide different tax regimes for residents and non-residents. That has always happened and it still happens, but the European Court says that that is discrimination because the treaties are concerned with nationality, not residence.

Let me return to paragraph 4 of schedule 30. It is not retrospective—it does not apply to previous tax years. Except in that it applies to accounting periods ending on or after Budget day, it is not retrospective for six years. Will an EU-resident individual or company be able to claim six years back from the passage of the Bill for relief against foreign taxes, based on the way in which the European Court has decided previous cases? From my reading of the professional journals, I understand that the Inland Revenue has said that if an individual or a company is resident in the EU, that individual or person can claim relief six years back from this legislation—even though the clause itself does not allow a six-years-backdated claim. If EU residents are entitled to make such a claim, what about non-EU residents? What about companies in the United States that are not resident in the United Kingdom but that trade through a branch or agency in this country? Presumably, such companies will not be entitled to claim the six-years-backdated relief.

I see that the members of the European movement are engaged in a serious confab on the Conservative Benches. The right hon. and learned Member for Rushcliffe talks about discrimination, but the discrimination in the case I have described is against the non-EU resident. Let us take our major partner, the United States of America. Does it follow from my analysis—I am sure that the Paymaster General's officials will provide an answer by 9 o'clock tonight—that a United States resident would be denied a six-years-backdated relief, despite the fact that an EU resident would be granted the relief, albeit not under the Bill?

I do not want to prolong the debate but I have to ask, what about the cases that are in the pipeline? There is a case in which a large German multinational company is challenging the entire imputation system of corporation tax. That system has now been abolished, or at least changed to a substantial extent. The imputation system provided different rates of tax relief or tax credit in respect of underlying corporation tax to residents and non-residents: usually, non-residents received half the relief that residents received. That case is now going through the courts, and my reading of the jurisprudence is that the European Court might strike down our imputation system. In fact, it has been struck down already, so that fox has been shot. I do not know why the Chancellor did away with, or at least changed substantially, the old imputation system of corporation tax. I am sure that there were many good reasons. However, I and others cannot help thinking that he had better shoot the fox once and for all, before the European Court does it for him.

Finally, let me deal with the point raised by the right hon. and learned Member for Rushcliffe about different tax rates. I forget the name of the case, but one of the arguments advanced by the taxpayer—I forget whether it is a Belgian, French or German taxpayer—in one of the cases that came before the court was that that taxpayer had been denied the same tax rates in Germany as applied to a resident in Germany because that taxpayer was resident in France. I believe that the taxpayer lived in France and taught in Germany. The challenge was based on the fact that German tax rates differ from French tax rates, which was, in itself, discrimination.

The court was a bit wary of taking that approach and, in the end, it did not do so. The Advocate General, in rabbinical guise, managed to find a way not to challenge the nation state on the issue of tax rates. However, the right hon. and learned Gentleman is a lawyer and he knows how cases are built up; he knows that there will be another case—another challenge to differential tax rates. It may well be that, in a few years' time and in a different climate, and once it has developed its jurisprudence, the court will feel more confident and will decide that the very fact of a French tax rate of 30 per cent. and a German tax rate of 35 per cent. discriminates against the person who has to pay the 35 per cent.

At that point we shall have moved into a harmonised system of direct taxation laid down by the European Court of Justice. The Council of Ministers will not be able to do anything about it. There will be no point in trundling out the veto. The court will have introduced the system of its own accord as it has the power to do. The Council of Ministers will be outflanked, and we may find ourselves with a harmonised system of income tax before we realise it.

Photo of Edward Davey Edward Davey Opposition Whip (Commons), Shadow Spokesperson (Treasury), Liberal Democrat Spokesperson (Treasury), Liberal Democrat Whip 6:30 pm, 17th April 2000

I think I am not the only Member who is not entirely convinced by the argument advanced by the right hon. Member for Llanelli (Mr. Davies). In the United States, the Supreme Court examines various decisions made by the various states: jurisprudence in the United States has not gone down the route that the right hon. Gentleman suggests. There are various rates and systems of taxation in the different states. I favour the arguments of the right hon. and learned Member for Rushcliffe (Mr. Clarke) over those of the right hon. Gentleman.

Photo of Mr Denzil Davies Mr Denzil Davies Labour, Llanelli

The hon. Gentleman falls into a fallacy. Residency in one state or another does not make any difference to United States income tax and corporation tax. It is residence in the United States that counts. In Europe, we have residence for tax purposes in different states—that is the difference.

Photo of Edward Davey Edward Davey Opposition Whip (Commons), Shadow Spokesperson (Treasury), Liberal Democrat Spokesperson (Treasury), Liberal Democrat Whip

The right hon. Gentleman has failed to deal with the point that there is variability of rates between the states of the United States—and that will remain the position within Europe. Again, he fails to make his point.

I pay tribute to the right hon. Member for North Durham (Mr. Radice) for his chairmanship of the Select Committee on the Treasury, on which I have the privilege to serve. He gave the House a fair representation of the Committee's report. However, he failed to mention that it was not unanimous because Conservative Members were split. I regret that as, I know, he does.

The right hon. Gentleman talked about openness and accountability, which we discussed in the sittings of the Select Committee and in producing the report in regard to presentation. Some members of the Committee, including me, felt that the Chancellor could have been far more open in dealing with our questions. On many occasions, he failed to answer direct questions directly. That limited the scope of the Committee's inquiries rather too much.

It is difficult to welcome a Finance Bill of such length and complexity. Rather than prudence with purpose, we have prudence with pages—558 of them. The Chief Secretary, in exchanges with the right hon. Member for Wells (Mr. Heathcoat-Amory), said that there are only 152 clauses. Perhaps there are, but there are 40 schedules. The Bill comes before us in two volumes—and that is before the Government have started amending it in Committee as they undoubtedly will. It is a very long and complex Bill.

Ministers are right to say that the present Government are not the first Government to introduce such Bills. Unfortunately, the Conservative Government, when the Treasury was under the chancellorship of the right hon. and learned Member for Rushcliffe, introduced very long Finance Bills. Indeed, in 1996 the Finance Act ran to 618 pages—even more pages than that of the Bill that preceded it. That has sadly become a trend, and it is an unwelcome one. In 1955, the Finance Act contained 24 pages; in 1965, it had increased to 270; in 1985, it contained 241 pages; and in 1995 it had reached 511. As I have said, the current Bill has 558 pages. Such growth is unwelcome not only because it increases complexity but because it increases compliance costs for business.

We are having to consider longer and more complex legislation. The proposed capital gains tax legislation is incredibly complex. There are five schedules dealing with CGT changes alone—and that from a Government who introduced CGT changes two years ago which were supposed to be about promoting long-termism.

Two years ago, long-termism meant taper relief of 10 years. In the pre-Budget report in November 1999, the Government proposed taper relief of five years. Moving on from a CGT regime to promote long-termism, they are now saying that there should be taper relief for only four years. As a result of these changes we have inconsistency and complexity. That is bad tax legislation.

The number of tax rates in the personal and corporate tax systems since the Government came to power has ballooned. With more than 50 tax rates, there are now three times the number that applied in 1997. The Bill does nothing to reduce their number. Increased complexity means increased costs on business.

Photo of Barry Gardiner Barry Gardiner Labour, Brent North

The hon. Gentleman complains of the complexity of the five capital gains tax schedules, but does he not accept that their effect will be dramatically to reduce the complexity of CGT? As he has said, we are changing from a 10-year taper moving the rate down to 20 per cent, to a four-year taper moving it down to 10 per cent—the lowest ever rate. The move has been widely welcomed throughout the accountancy world and by business.

Photo of Edward Davey Edward Davey Opposition Whip (Commons), Shadow Spokesperson (Treasury), Liberal Democrat Spokesperson (Treasury), Liberal Democrat Whip

The hon. Gentleman would have a point if the Government had not introduced 10-year taper relief in the first place. The change has meant that the accountancy profession and businesses are having to deal with two sets of legislation, the interaction of which is incredibly complicated. We welcome the fact that the Government are at last seeing sense, but if they had done so in the Finance Act 1998, we would not have the present complexity and the time-wasting and expensive procedures for business.

Photo of Mr Howard Flight Mr Howard Flight Conservative, Arundel and South Downs

May I draw to the hon. Gentleman's attention the example of an individual who might have bought some shares in the business for which he worked in 1995, who will now face three different CGT calculations? There will be the earlier one with indexation; followed by one on the 10-year taper; and, following this year's Budget, one for a four-year taper to bring the rate down to 10 per cent.

That is a ludicrously complex calculation for someone to face simply for being virtuous enough to have some shares in the company for which they work.

Photo of Edward Davey Edward Davey Opposition Whip (Commons), Shadow Spokesperson (Treasury), Liberal Democrat Spokesperson (Treasury), Liberal Democrat Whip

The hon. Gentleman is exactly right. There are three starting dates for the different CGT regimes. As I have said, the proposal has increased complexity and costs for business. It is a serious matter.

The Government talk about wanting to remove the regulatory burden on business: they cannot try to meet that objective if, within the tax system, a key part of the regulations with which business has to comply is becoming increasingly complex because the Government are increasing the amount of tax legislation. The process diverts resources from the job of business, which should be to promote the prosperity and growth of business. Increased legislation means that there is more work for accountants and more work within business as it focuses on various tax schemes and various possible tax avoidance schemes. That is not good tax legislation.

It is time for reform. We could start by separating the finance legislation that comes before the House. The tax measures that are needed to raise significant sums to keep the Government's finances running could be set out in a short Bill, which could come before the House shortly after the Budget to ensure that the Government had statutory cover for their tax-raising powers.

There could then be a second Bill called, for example, the Tax Technicalities Bill, which would be published in draft form. There would be wide consultation, and an effort would be made to adhere to various codes of simplicity so as to reduce complexity. An effort would also be made to ensure that tax changes were not for ever happening—there could then be continuity within the tax system. With such a Bill, we could begin to change the culture of the Treasury and the way in which successive Chancellors of all persuasions have gone about introducing their tax legislation.

I suggest that Treasury Ministers refer themselves to a very good report produced by the tax faculty of the Institute of Chartered Accountants in England and Wales, entitled "Towards a Better Tax System". It refers to 10 tenets that a Government should adopt to try to ensure that they reduce the regulatory burden of the tax system on business. I commend the report to Ministers and Back-Bench Members alike.

Let me move on to the terms of the fiscal policy that the Bill will put in place for the forthcoming year. There are some real problems.

There are always two questions that one can ask about fiscal policy for the forthcoming year—first, does it leave the Government with enough money to fund their programmes without excessive borrowing, and secondly, does it complement monetary policy by keeping the economy growing in a sustainable way, without having knock-on effects for interest rates and the exchange rate?

On the funding aspect of fiscal policy, there can be no doubt that the Government can fund their programme. They have an incredibly strong fiscal position. Here I part company from the right hon. and learned Member for Rushcliffe. I do not believe that the Government are losing control of public spending. Yes, there has been a loosening of fiscal policy, with which I will deal shortly, but to say that they are losing control is an exaggeration.

The Government have huge fiscal surpluses, continuing into the future. No objective analyst could fail to conclude that it is one of the strongest fiscal positions that any Government have had in living memory. The Liberal Democrats unreservedly welcome that development.

The question is why it has taken the Government so long to realise that. The Liberal Democrats have been speaking about the Chancellor's war chest and the healthy state of the public finances since the start of the Parliament. The right hon. and learned Member for Rushcliffe referred to that. It is no surprise that the Government finances are in such a good state. They should have used the healthy public finances early in the Parliament to invest in our public services, to make sure that our schools and hospitals had the money that they so desperately needed.

Those of us who serve on the Select Committee on the Treasury heard City economists telling us that. Geoffrey Dicks said: With the benefit of hindsight, I would have spent the money on health and education two years ago. Those were his words. [HON. MEMBERS: "With the benefit of hindsight."] The Government had the benefit of Liberal Democrat foresight. We gave them that advice, and Ministers failed to take it. That is why there was the crisis in the NHS this winter.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

Is the hon. Gentleman telling us that his middle name is Mystic Meg?

Photo of Edward Davey Edward Davey Opposition Whip (Commons), Shadow Spokesperson (Treasury), Liberal Democrat Spokesperson (Treasury), Liberal Democrat Whip

No. One did not have to be Mystic Meg to realise that the public finances were in a good state two years ago. After the 22 tax rises introduced by the Conservatives and the tax rises announced early on in the present Parliament, it was clear that the public finances were in an extremely good state.

The Conservative Opposition may have predicted recession a year or two ago, but the Liberal Democrats did not. We believed that the economy was healthy and that the public finances would remain healthy. We were responsible in arguing for targeted, sensible and early investment in the public services.

Photo of Barry Gardiner Barry Gardiner Labour, Brent North

I am grateful to the hon. Gentleman for giving way once again. Does he accept that at that stage, the sensible thing to do was to pay off the £28 billion of public sector debt? That means that the revenues into the Exchequer are now that much greater. Does he also accept that at every stage, what he was calling for in public sector expenditure has been trumped by a multiple of approximately six in the steps that the Government have taken?

Photo of Edward Davey Edward Davey Opposition Whip (Commons), Shadow Spokesperson (Treasury), Liberal Democrat Spokesperson (Treasury), Liberal Democrat Whip

I do not accept that. No one is suggesting that in the early years of this Parliament, the Liberal Democrats were arguing for £28 billion in public expenditure. Of course some of that surplus should have been used to pay back the debt, but other moneys were available to the Government early in the Parliament, which they should have invested. Because they failed to do so, people died as a result of lack of treatment by the NHS. People did not get the service that they needed. It was open to the Government to make those decisions and they failed.

The political problem facing the Government is evident to everyone. We saw this Christmas a huge crisis in the national health service. The Government had to react. That is why, at long last, they went against what they had set out in the comprehensive spending review and put extra money into the NHS for the forthcoming year. We unreservedly welcome that. It should have come earlier.

Photo of Bill Rammell Bill Rammell Labour, Harlow

Will the hon. Gentleman give way?

Photo of Edward Davey Edward Davey Opposition Whip (Commons), Shadow Spokesperson (Treasury), Liberal Democrat Spokesperson (Treasury), Liberal Democrat Whip

No. I want to explain to the House what is happening at the coal face. Last Friday, I visited my local hospital, Kingston Hospital NHS Trust, and spoke to the chief executive about the extra money that was found for the coming financial year. He welcomed it, as we have, but he said that because of the underfunding in the previous years of this Parliament, it will go to pay for the deficits. It will not pay for expansion of services; it will pay for the deficits. That was not needed. The Government could have chosen a different path, and I regret that they failed to do so.

There is a profound issue relating to the fiscal surpluses that have built up and how that changes the nature of economic and policy debate in this country. I hope the Chancellor will take this on board as he approaches the comprehensive spending review.

We have left behind the years of high unemployment under the Tories. With high employment and a growing economy, the public finances are in a much better state than they have been for decades. We are back to the era of the 1950s and 1960s, when the problem for a Chancellor is how he spends the money, rather than how he affords the programmes. That is a welcome development. It is time that we started focusing on that argument.

As other hon. Members have said, the Budget must be judged by whether the way in which the money is to be spent is affordable for the macro-economy, or whether it has the potential to destabilise the macro-economy. The Select Committee was clear that if the fiscal stance is judged in absolute terms, the Chancellor has undoubtedly loosened fiscal policy.

In our alternative Budget, the Liberal Democrats clearly and openly advocated extra spending, but we covered much of that by extra taxation, believing that this was not an appropriate time to loosen fiscal policy because of the high level of real interest rates and the high level of the pound. That is where we believe the Government are going seriously wrong in their management of the macro-economy. They have loosened fiscal policy for 2000–01, but they are not getting the balance right. That is a shame.

The International Monetary Fund was right to criticise the Government. It stated: In this regard— that is, in respect of fiscal policy— the recently announced budget for 2000/2001 appears to be regrettably pro-cyclical. That means, in short, that there will be higher interest rates as a result.

It was interesting that in the Red Book, the Chancellor tried to hide his largesse, but we uncovered it in the Treasury Committee. On Budget day, the Chancellor announced £3.1 billion for 2001–02 for the NHS, but he failed to tell the House that there is another £5.9 billion in the Red Book to be allocated to other public services. He did not announce that because he is worried about scaring the markets. He knew that he had loosened fiscal policy; he just did not want to admit it.

Photo of Mr Giles Radice Mr Giles Radice Chair, Treasury Committee, Chair, Treasury Committee

I remind the hon. Gentleman, who has been fair in his description of what the Treasury Committee said, that we also said that Monetary Policy Committee had met twice and had not put up rates. We could have added—it has just happened—that the deputy Governor said that the impact of the Budget on monetary policy was slight. In fairness, the hon. Gentleman should say that as well.

Photo of Edward Davey Edward Davey Opposition Whip (Commons), Shadow Spokesperson (Treasury), Liberal Democrat Spokesperson (Treasury), Liberal Democrat Whip

What the right hon. Gentleman says is true. The impact may be slight, but it is certainly positive. That means that interest rates are likely to be higher than they would otherwise have been. For a struggling exporter or farmer, that slight change and the fact that the exchange rate and interest rates will be higher, are significant. It is no use Ministers wringing their hands when manufacturers and farmers come to them. The Government failed to make the right decisions in the Budget.

Photo of Liz Blackman Liz Blackman Labour, Erewash

Will the hon. Gentleman give way?

Photo of Edward Davey Edward Davey Opposition Whip (Commons), Shadow Spokesperson (Treasury), Liberal Democrat Spokesperson (Treasury), Liberal Democrat Whip

No. I need to make progress.

The problem is that fiscal policy has been loosened not just in 2000–01. It will be loosened significantly up to 2004. The Treasury official, Mr. Gus O'Donnell, gave that away when he gave evidence to the Treasury Committee. He said that we need to get back to current balance as the golden rule dictates, but that the Treasury had decided to go back slightly more slowly than the rule would suggest. He admitted that there was significant loosening in prospect.

Although we welcome the extra public spending, we must not take risks with the stability of the macro-economy. If that means funding extra public spending through taxation, the Government should not shy away from that. They must be prepared to make tough decisions to ensure that we do not return to boom and bust.

When deciding priorities for public spending in the next few years, Ministers should consider pensioners. The national insurance fund has a huge surplus of billions of pounds, yet some pensioners are in serious need. Yesterday's Sunday Times reported that Ministers now admit that they made a mistake. A senior Minister was quoted as saying that it was a mistake to grant an increase in the state pension of a mere 75p this year and that the Government would suffer a backlash. That is deserved, especially when they send hon. Members glossy, laminated propaganda about their achievements for older people. They should acknowledge that 75p is an insult, apologise to the House and pensioners throughout the country and start to put matters right.

Photo of Bill Rammell Bill Rammell Labour, Harlow

Will the hon. Gentleman give way?

Photo of Edward Davey Edward Davey Opposition Whip (Commons), Shadow Spokesperson (Treasury), Liberal Democrat Spokesperson (Treasury), Liberal Democrat Whip

No, I will not.

I want to examine one or two provisions. First, let us consider the climate change levy, which is a new tax. Many people have pointed out that the tax will not achieve its objective. It taxes energy, not carbon. We are faced with a global environmental catastrophe because of greenhouse gases and global warming, and should not try to suggest that the new tax will help tackle that problem. We need a proper phased carbon tax, which ensures that industry adjusts and makes the changes necessary to reduce greenhouse gases. The climate change levy will not achieve that.

Many details in the climate change levy are wrong. For example, combined heat and power schemes have only a partial exemption. Some good CHP schemes will not go ahead because of the way in which the climate change levy is designed. Earlier today, I spoke to representatives of a large United Kingdom public limited company, which had planned to introduce a CHP scheme, but will not do that because of the description of the climate change levy in the Bill.

The Bill is a missed opportunity for the environment; it fails to develop the green tax agenda. Chart 6.2 in the Red Book shows the effect of that failure. Greenhouse gas emissions will increase in the next few years. The Government have reneged on their pre-election target of a 20 per cent. cut in greenhouse gas emissions. If chart 6.2 provides a true picture, they may miss even the Kyoto target. That would be a disgrace.

There is great anger in the information technology, engineering and offshore oil industries about the way in which IR35 will hit many people, especially single-person contractors. The Government may be right to tackle avoidance, but they are using a sledgehammer to crack a nut. We will argue that vigorously in Committee because we believe that the Government should withdraw the provisions on IR35 and consult widely again to get it right.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

Why do the Liberal Democrats advocate an increase of 1 p in everyone's taxation rate while defending a position whereby some people avoid paying the proper rate of tax or national insurance?

Photo of Edward Davey Edward Davey Opposition Whip (Commons), Shadow Spokesperson (Treasury), Liberal Democrat Spokesperson (Treasury), Liberal Democrat Whip

The Paymaster General could not have been listening. I argued against tax avoidance. The hon. Lady should consult officials and the industry and try to devise more targeted provisions which tackle the avoidance problem but do not create genuine difficulties for important sectors of British industry. When we debate the matter fully in Committee, I shall ask the Paymaster General how she will monitor the impact of IR35 to ensure that key people do not leave these shores and work elsewhere.

I shall also ask the Paymaster General to ensure that the IR35 provisions are implemented flexibly, especially in the early years, to ensure that tax officials give the benefit of the doubt to businesses that make legitimate mistakes in interpreting unclear provisions, and help them to comply. We shall argue that if Ministers stick to the IR35 provisions, the Government should provide for more generous allowances, especially for administration and training.

Liberal Democrats cannot support the Conservative amendment because it is irresponsible. It proposes reducing taxes when the economy is growing fairly fast and when, to quote the right hon. and learned Member for Rushcliffe, a loosening of fiscal policy is planned. It would therefore be irresponsible to agree to the Conservative suggestion of reducing taxes all round. That would lead to higher inflation, a higher exchange rate, higher interest rates and a catastrophe for the United Kingdom economy. Indeed, it would mean a return to boom and bust. We shall therefore not support the Conservative party in the Lobby tonight.

We shall oppose the Bill because it is too long, creates too many complexities, provides for a fiscal policy that is too loose and is far too niggardly to pensioners, the health service and schools.

Photo of Mr Roger Casale Mr Roger Casale Labour, Wimbledon 6:56 pm, 17th April 2000

I am pleased to speak in support of the Finance Bill and against the amendments tabled by the Liberal Democrats and by the Conservative party.

The Bill builds on the work of previous Budgets. It establishes a new and stronger framework, which will safeguard the future prospects of the British economy. It builds further a platform of stability, locks it in place, extends employment opportunities for all and lifts millions of hard-working families out of poverty. The Bill sets out strong but realisable ambitions for the British economy; we should accept nothing less. However, they were unthinkable under the boom-and-bust policies of the Tory Governments of the past.

Step by step, the Government are constructing a platform of economic stability. The platform is an effective metaphor: it has sound and solid foundations, which are based on the independence of the Bank of England and the new fiscal rules. The Bill will rightly lock the new stability into place. We reject the boom-and-bust economics of the past for the simple reason that Britain cannot afford to repeat the mistakes of the previous Tory Government. Reckless borrowing led to swingeing cuts in public services; scarce resources had to be siphoned off to pay the interest burden on the public debt.

It would not be right to accept the Liberal Democrats' suggestion and abandon prudent management of the economy for the sake of short-term gain. That would also take us back to the boom-and-bust economics of the past that the hon. Member for Kingston and Surbiton (Mr. Davey) and his party rightly reject.

Boom-and-bust economics took Britain through two of the most damaging recessions of the post-war era; it led to millions of men and women losing their jobs and their livelihoods; it destroyed hundreds of thousands of businesses and broke the dreams and aspirations of a generation.

It is right to remind the House of the economic legacy of the recent past, not least because the right hon. Member for Kensington and Chelsea (Mr. Portillo) said that specific groups of people in Britain would be under attack because of the Budget. What about the damage that the Tory years of boom and bust did to Britain? We can celebrate only one victim of boom and bust: the Tory party's reputation for economic credibility and competence.

Is it a surprise that the man who argued in the House for the privatisation of the health service one week was appointed shadow Chancellor the next? Is it a surprise that we heard soon after of reckless proposed tax cuts for the privileged few, packaged as a tax guarantee? Those are reckless promises because the country will remember broken Tory tax promises and 22 Tory tax rises in the previous Parliament alone. That appointment is no surprise because the Tories are still in the business of making rash policy gestures based on a horizon that stretches no further than the next general election. Apart from its record in government and the posturing that has gone on since, the Conservative party should examine the economic figures that it suggests, which simply do not add up.

I welcome the fiscal tightening represented by the Budget. Putting to one side the debate about whether there is tightening or loosening, tax revenues are increasing because of the Government's policy, opposed by the Conservative party, of increasing employment and participation in the labour market. That is boosting tax revenues. As a result, we are able to spend more on much needed public services such as education and health. Contrast that with the previous Government's record: the generation of mass unemployment, the huge social costs of carrying it and public services starved of the resources that they needed.

The Budget locks in place the platform of stability that we need to build a new economic framework to safeguard Britain's future. On that platform the Government seek to build three lasting and interrelated elements of the new economy.

Photo of Geraint Davies Geraint Davies Labour, Croydon Central

On stability, does my hon. Friend agree that the comments of the right hon. and learned Member for Rushcliffe (Mr. Clarke) were ridiculous? He said that there would be no independence for the Bank of England, interest rates would be lowered unilaterally and inflation would rip. Perhaps he should be known as the Chancellor ripper. Does my hon. Friend agree that stability has been the key to our success—800,000 jobs—and that the Opposition would jeopardise that?

Photo of Mr Roger Casale Mr Roger Casale Labour, Wimbledon

I have some respect for the right hon. and learned Gentleman and for his views on Europe in particular, which are out of kilter with those of his party. However, in 1996 he had to strip hundreds of thousands of pounds of much-needed investment due for London Underground out of the last Tory Budget—with deepest regret, I am sure—and public services in my constituency, especially the Northern line, have been run down ever since. As a result, South Wimbledon station's refurbishment, which was due in 1997, has been carried out only this year. He is as much to blame as the others, but whether he wants to learn from those mistakes is an open question. The Conservative Front-Bench team seem to want nothing more than the opportunity to repeat them.

The first and foremost of the three elements is modernisation of the public services. We rightly want to provide a massive injection of new funds, especially into the health service, and to achieve far-reaching reforms to deliver best value and raise productivity. We want extra money for schools and for other public services such as transport and the fight against crime. However, we can contemplate such reforms only against the backdrop of economic stability.

The second element is welfare reforms that focus on reconnecting the lives of many people who have become completely disengaged from the labour market. However, the reforms will also provide security and dignity for all those for whom that is not an option and encourage people to save and to make more provision for retirement.

The third related element is labour market reform based on putting a floor under wages through the national minimum wage and making resources available for training and for lifelong learning. That will not only enable us to bring people back into the labour market, but allow them to contribute more productively once they are back in. Their work will be of greater value and they will be able to move up the labour market value chain and raise productivity for the whole country.

These reforms are closely interrelated; we cannot reform welfare without reforming the labour market to make it more flexible. If we can get people off welfare and into work, there will be greater resources for the public services. They could be invested in education, which would increase skills. That would raise productivity, which would help people to become more productive in the labour market later on.

In contrast to the vicious Tory cycle of boom and bust and neglect and decline, and built on that platform of economic stability, we are starting to see a virtuous circle of increased productivity and increased long-term productive capacity in the British economy.

In office, the Tories made the mistake of believing that the economy could grow and Britain could succeed while millions were left out and forgotten. Their Government thought that it did not matter in economic terms if thousands of young people left school without a job and no immediate prospect of getting one and were given no chance in life. Promoting fairness and bringing individuals back into the labour market is precisely how we build the foundations for long-term prosperity, which is why the steps in the Budget aimed at creating a fairer Britain are also part and parcel of building a stronger economy.

The Budget is lifting children out of poverty—it aims to halve child poverty in 10 years and eliminate it in 20—and delivers extra support for pensioners. More than 15,000 in my constituency of Wimbledon will benefit from the increase in the winter fuel allowance. It also rewards working families through the tax system with the working families tax credit. Step by step, a broader vision of how Britain could be in future is emerging. Contrast that with the narrow attack on individual Budget measures or the Liberal Democrat position that this visionary Budget is simply too long.

In that vision, Britain's long-term economic prospects are more secure. All who want to work are able to, which is perhaps a modern definition of full employment. In that Britain, child poverty will be halved, hard-working families will be lifted out of poverty and public services will be modernised, reinvigorated and working for the good of all rather than a rump serving those who cannot afford private provision.

Contrast the Bill's strength and vision with the pathetic spectre of a Tory party that has lost its reputation for economic competence and hides behind criticising the proposals as too complicated—the Tories' proposed simplicity would result from privatising public services, borrowing against future revenues and reckless tax cuts—and a Liberal party that has again become entangled in the complexities of its own contradictions. Once again, the Liberals have failed to see the wood for the trees.

The Bill is substantial. Taken together, its measures represent an important new step in the creation of a framework for a fairer and more prosperous Britain. I commend it to the House.

Photo of Michael Jack Michael Jack Conservative, Fylde 7:09 pm, 17th April 2000

I have listened carefully to the hon. Member for Wimbledon (Mr. Casale) and hope that he will volunteer to serve on the Finance Bill Committee. Once he has had the opportunity to wade through 588 pages and examine some of the more Byzantine and complex ways in which the Chancellor seeks to translate his proposals into law, he will be less enthusiastic about condemning simplicity and more on the side of Conservative Members, who speak with the voice of experience and reality.

I strongly support the Conservative amendment, which asks the House to decline to give the Bill a Second Reading, because of its 558 pages and its content—the extra taxes that it imposes on the citizens of Wimbledon and the rest of the United Kingdom, on the businesses of Wimbledon and the rest of the United Kingdom, and, importantly, on home owners in Wimbledon. I intend to say something about business taxation later. I remind the House that I have properly declared my declarable interests—principally, my interest as a non-executive director of a quoted public company.

Before we talk about the size of the Bill, we must reflect on how a Finance Bill is put together. It is always interesting to observe the creative tension, and the battle that takes place between Inland Revenue officials, Treasury officials and Ministers as they decide just how big a Bill they think they can cope with—and, more importantly, what measures need to go into it. I think that this Bill is so long—its length has already been mentioned—and so complex for two reasons.

This is likely to be the last full-length Finance Bill before the next general election. All the evidence suggests that certain people are sweeping every possible bit of legislation into a large pile, on the basis that next year they will not be so lucky. As for the Bill's complexity, I think it reflects the fact that this Chancellor likes to fiddle with the tax system. The Red Book contains a series of measures—small measures—dealing with small and medium-sized enterprises. It continues a trend that the Chancellor has followed ever since taking office: the introduction of a series of small measures that are not terribly well thought out, and are certainly not crafted with care in the sense of evaluating the real effect on the economy—measures whose whole purpose is to give the impression of an active Chancellor who is doing all kinds of things, probably to very little effect. That is the sort of trend that leads to a long Finance Bill.

Another reason for the fact that our Finance Bills have become longer is that the financial community has become more adept at finding ways around the drafting of legislation. I warmed to the theme of the hon. Member for Kingston and Surbiton (Mr. Davey), the Liberal spokesman, who spoke of the need to separate the parts of the Bill that deal with the Taxes Management Act 1970 and the parts that deal with the more contentious elements of the Budget. I made that point last year, and I make it again this year. If we are to have any meaningful reform of our tax laws, it is important to make that separation in the legislation and the concurrent consultation.

If I am selected as a member of the Standing Committee, I hope to table an amendment asking the Treasury to go one step further than the tax law rewrite exercise. I have been on the steering committee dealing with that exercise. It is interesting not only to observe the results of the rewrite of our tax law in plain English, but to note the frustration of those who have been involved. They are frustrated by the dearth of resources to support the exercise; but more interestingly, they are frustrated by the fact that, although measures to smooth the operation of our existing law are already emerging, they cannot be enacted because of the inevitable strictures of the rewrite exercise. I do not apologise for that, because I was partly responsible, but I think it fair to say that the exercise is doing a good job in showing better ways in which the existing tax law could be developed.

If we are talking about reform, we must be certain about whether we want better, clearer legislation of the current type, or less tax legislation in total. If we want to reform the tax system fundamentally, how would we do that? I do not think that question has been properly answered, but practitioners cry out for an answer. I hope that the Treasury will look kindly on the idea of a report showing how the tax law rewrite could be taken into territory allowing a real reform of the system. That might take a decade, but we need to think about it. We should ensure that size does not necessarily determine whether a Finance Bill is good or bad, and that quality and clarity become the benchmarks.

Some of the proposals feature niggling complexities. We have already heard today about changes in the Government's energy policy. I was interested to note that the Secretary of State for Trade and Industry chose today to announce some easing of the moratorium on gas-fired power stations. Having tabled parliamentary questions, I learned from the Government that there was no need for the climate change levy as currently proposed. While I entirely support the idea of saving 2 million tonnes of carbon dioxide as a contribution to our Kyoto target and to a reduction in global warming, the proposed method is unnecessarily complex.

Horticulture, in which I earned my living before coming to the House, has survived because it has saved energy over the years, but the best that that industry—which has a superb record on energy saving, and which is carbon-neutral in terms of the job that it performs—can get out of the Government is a 50 per cent. rebate. If the Paymaster General considers the implications of an end to the moratorium on gas-fired power stations, and also reads the parliamentary answers that I have secured from my colleagues so far, she will find that a 13 per cent. reduction in coal-fired electricity generation, coupled with a 14 per cent. increase in generation from gas, will save 2 million tonnes of carbon dioxide a year. The climate change levy, as such, is thus not needed.

If the hon. Lady would like an even more environmentally friendly example, I can refer her to a letter placed in the Library by the Minister of State, Ministry of Agriculture, Fisheries and Food. In the England rural development plan, the Ministry was able to point out the benefits of carbon absorption by the planting of miscanthus grass or short rotational coppice—energy crops. I asked the Ministry what would happen if the horticulture industry increased its plantings: could it absorb its own carbon dioxide output? I was told that if 41,000 hectares were planted, that could be done; but much more tellingly, that the planting in the United Kingdom of 108,000 hectares of short rotational coppice would take away all the 2 million tonnes of carbon dioxide. That complies with Government policy.

I estimate that the cost would be £150 million. If burning that short rotational coppice required, as it would, the construction of more appropriate power stations, the cost could be recovered through the cost of the energy itself. If necessary, the Government could recoup any upfront moneys that they had to invest to encourage that form of activity.

We have 18.6 million hectares under cultivation; the 108,000 hectares that I mentioned represent about 0.5 per cent. of our cultivatable land area. In a simple, straightforward, environmentally friendly, job-creating way, we could do away with the levy, and provide a solution to the complexities in the Bill. It is time that the Government looked for some energy-saving carrots, instead of always looking for sticks with which to beat people, and imposing additional costs on UK industry that will not be imposed on our continental and world-based competitors.

Just as the Government refuse to consider such simple ways of dealing with climate change, they reveal themselves as the authors of complexity on page 147 of Red Book, in the Financial Statement and Budget Report, which deals with the parts of the Bill that introduce variable rates of vehicle excise duty on new cars. There is nothing in the Bill or the Budget praising motor manufacturers for their technical ingenuity in reducing noxious emissions, nor anything that recognises the fact that Europe's car makers have already voluntarily agreed to exceed Government emission standards by means of their own technology and agreements throughout Europe.

I do not know what the table in page 147 is supposed to say about future emissions because there has been no environmental impact study. There are four VED bands and three levels of taxation: for cars using cleaner fuels, for petrol cars and for diesel cars. We are supposed to find that all sorts of magic things will occur because of a spread in VED—it will be between £90 and £160. In terms of influencing people's car purchase, it is for the birds. To be introduced, such a system requires complex legislation, but it is against a background of no measurable environmental benefit because no study has been done. It is about time the Government looked more carefully at the way they introduce legislation, because it is complex indeed.

In the Budget, attempts are made to bring the same environmental schemes to the field of company car taxation. The Government have seen fit to amend the previous arrangement, which may have induced people to drive unnecessarily long distances to try to get over the 18,000-mile barrier to pay a discounted rate of company car tax, rather than the full rate. However, the Government seem to have introduced a full, head-on charge for the man who takes home the company van, the genuine company car user, the person for whom the company car is a proper tool of the trade.

That person has in no way been assisted by the proposal. Again, there is no effort to try to work out whether company car purchase schemes will be influenced by that mechanism, yet in its own way, it adds complexity to the Bill.

One thing confuses me above all else. If, through those two measures on motor vehicles, the Government are trying to encourage a reduction in carbon dioxide emissions, why are they penalising the most carbon dioxide-efficient type of engine: the diesel? They seem to have imposed a penalty on such cars. They say that they will consult and do something about it later, but why wait until later? Why not do something about it now and back companies such as BP Amoco, which are introducing their own very clean fuels? One of the benefits of the fuel will be to take away sulphur dioxide emissions. It will be burned by the most energy-efficient engine.

I do not see the logic in what the Government are doing, introducing unnecessary complexity in that whole area. There is very little to encourage the take-up of liquified petroleum gas, which in terms of non-carbon dioxide emissions is one of the cleanest fuels in the country. The Government's policies in that area are confused.

I comment next on the Government's arrangements for non-controlled foreign companies, so-called company mixer schemes, and the tax arrangements for companies trading abroad. I well understand why companies have become concerned about that form of taxation. It is true that there was consultation with business on double taxation over the two years before the Budget, but nowhere in that consultation exercise was there any indication of the proposal to change the nature of those companies and their tax position—that was not part of the consultation exercise. All of a sudden, the competitive position of United Kingdom companies trading on a world basis has been put at risk by the proposal.

I held a conversation with one such company last Thursday to establish beyond peradventure whether it would be trading at a disadvantage. The answer is very clearly that it would. In a tax sense, it will be treated worse, for example, than its German counterparts.

The company has a subsidiary. The mixing of revenues under different tax regimes takes place in Luxembourg. It can maintain its competitive position, for example, compared with German companies, by mixing streams of incomes, which have borne a different rate of taxation. As a result, it can maintain a competitive tax regime compared with its continental counterparts and sustain a regular flow of investment to new enterprise in Europe.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

Will the right hon. Gentleman explain why he believes that multinationals should be able to use offshore structures to mix foreign tax and thus deny the Exchequer the right level of tax in the UK?

Photo of Michael Jack Michael Jack Conservative, Fylde

Perhaps the hon. Lady would like to explain what she means exactly by "the right level of tax." If UK companies are using legitimate methods of safeguarding their tax position, whatever income is eventually remitted to the UK can be taxed appropriately. That seems the right way in which to tax.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

Will the right hon. Gentleman accept that that is precisely the point? Some multinationals are bringing their profits back to the UK to be taxed at the tax rate in the UK and others are using offshore arrangements not to do that and to mix. Does he think that fair to the multinationals that are bringing back their profits to be taxed here at our rate?

Photo of Michael Jack Michael Jack Conservative, Fylde

If we talk to companies that are active in business, they will point out that, sometimes, because of their investment strategy abroad, they need to maintain investment income on a world basis to carry on investing, particularly if that investment was originally funded by seedcorn capital from the UK. Once that capital starts to generate interest and dividends, which can then be returned to the UK, there is a stream of income which could be taxable. Every other major G7 member of the Organisation for Economic Co-operation and Development has the ability to mix tax. What the hon. Lady has put forward clearly leaves UK companies at a competitive disadvantage compared with their G7 counterparts.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

I am looking forward to discussing the matter in Committee with the right hon. Gentleman; I hope that he gets on to the Committee. Does he accept that, when we compare how we tax our multinationals and, in particular, the use of our controlled foreign company legislation, with the practice of our European partners, we find that the Government's proposals are to bring us into line with the competitive practice of other countries, not the reverse?

Photo of Michael Jack Michael Jack Conservative, Fylde

I find that very difficult to accept, particularly in the light of the letter that was sent to the Chancellor by Dame Sheila Master. Perhaps the hon. Lady will, in her winding-up speech, comment on Dame Sheila's points, some of which I have drawn on. It is always a mark of the sensitivity that those on the Treasury Bench feel about remarks by Conservative Members when the Paymaster General chooses to intervene on the remarks of a humble Back Bencher on three separate occasions. I can only assume that my comments are hitting home.

The Government's proposals will effectively change the regime on the qualifying arrangements for non-controlled foreign companies, which currently enable them to take advantage of the different taxation regimes throughout the world in mixing their incomes. The proposals will make it more difficult for them to remain competitive. The hon. Lady should concentrate on addressing business's concerns about international competitiveness, rather than take swipes at me because I choose to raise what business experts are saying.

Photo of Barry Gardiner Barry Gardiner Labour, Brent North

May a humble Back Bencher intervene on a humble ex-Minister? The right hon. Gentleman talked of companies that were taking the opportunity to safeguard their tax position. Can he clarify precisely what he meant by the word "safeguard"? Does that simply mean, in common parlance, paying minimal taxes in this country?

Photo of Michael Jack Michael Jack Conservative, Fylde

No, that is not what the type of company to which I am referring is about. The company to which I have referred is in direct competition with European rivals in a retail business. In order to maintain its competitiveness, it must use the same mechanisms as are available to its European competitors. I am referring to its safeguarding its relative competitive position. It is a pity that the Paymaster General did not offer the possibility of onshore tax mixing in order that she might have more direct jurisdiction over such flows of income, and at the same time, maintain British companies' ability to take advantage of differing rates of taxation that are levied on their earnings in different parts of the world. It is clear that companies feel an injustice, a subject to which I hope we shall return.

I should like briefly to raise two other points before I conclude. The question of IR35 has been raised. People from all over the country who are affected by IR35 came to a meeting in my constituency. Subsequently, I have contacted some companies that provide the Government with information technology practitioners. They confirm that, because of IR35, they envisage problems retaining staff and staff going abroad to practise their skills; and that, in spite of changes to the employment test that the Paymaster General and the Inland Revenue have introduced, the provision bears unfairly on such workers.

Photo of Kali Mountford Kali Mountford Labour, Colne Valley

The right hon. Gentleman says that there is a risk of people going abroad to avoid tax. He is talking about tax avoidance. Will he name countries to which he thinks people are likely to go, because he will find that most countries levy such tax?

Photo of Michael Jack Michael Jack Conservative, Fylde

I did not use the words "tax avoidance". The Treasury and the Inland Revenue became twitchy on the matter because the Government created a tax regime in which small-scale companies could legitimately take advantage of UK laws. People are so concerned about IR35 because as a group of, effectively, self-employed practitioners, they are unfairly penalised compared with other enterprises.

A corner shopkeeper may pay himself in dividends and take advantage of the Government's changes to corporation tax law, but an individual who supplies services in IT or other industries will not receive the same tax treatment. We are talking not about avoiding tax but about people who want to pay tax. We are talking about the self-employed person who takes risks—the very entrepreneurs whom I thought the hon. Lady's party was supposed to support. With respect, her question shows her ignorance of the matters.

I thank the Chief Secretary for his kindness in agreeing to consider the effects of the working families tax credit on lone parents who work unsocial hours in, for example, the health service and social care and find it difficult to secure appropriate registered child care to enable them to work. That is a small failing in legislation. I hope that Treasury Ministers will make representations to the Department for Education and Employment and perhaps table an amendment to ensure that parents who want to work 24 hours around the clock and are in need of child care may benefit from the working families tax credit.

Photo of Eric Illsley Eric Illsley Labour, Barnsley Central 7:33 pm, 17th April 2000

I will not detain the House long; I seek only to make a few comments on issues that affect my constituency and constituents. I declare at the outset that I am a paid adviser to the Caravan Club. I make that declaration because one of my comments will relate to motor car taxation, which has many affects on caravaners.

I welcome the Budget and the Finance Bill, especially measures on relieving child poverty. I welcome the working families tax credit and the extra money that has been allocated to the national health service. Like other hon. Members, I cannot understand the Opposition's amendment, which simply complains about the Bill's length and complexity.

The first area that I will raise briefly relates to our treatment of pensioners. As hon. Members, we have all been lobbied by pensioners who are somewhat unhappy with the increase in their retirement pension. I am aware of the Government's letter, which has been circulated in the past few days, setting out the help that the Government have given pensioners. I very much welcome the minimum income guarantee and relaxation of the limits on savings, from which more people will benefit.

I also welcome the £150 winter fuel payment—but, so far, that has not been paid. I receive many complaints from pensioners who want to know, bearing in mind the small increase in their retirement pension, when that money will be made available. As they constantly point out, their council tax, council house rents and various other household costs have risen, but benefits have not increased to meet that.

Another example, to which I have referred before, relates to the provision of free television licences for all those over the age of 75. Quite a lot of housing association tenants will not qualify because their television licences are included in their rent. I have seen nothing yet from any housing association suggesting that they will pay pensioners the equivalent of the licence fee. Therefore, the Government could have done a little more with the money available to them to provide for the welfare of pensioners.

I also want to make a point about tax allowances. I fully appreciate the reasons behind the Chancellor's moves to cut the married couples allowance and to introduce a children's allowance in order to target the cost of bringing up a family. I have been heavily lobbied by my constituents on tax allowances, especially by one person who, two years ago, suffered an accident which left him paralysed. He is wheelchair-bound, living on the occupational pension from his previous employment—he was a qualified engineer on a considerable salary—and incapacity benefit. Over the past week, his tax bill has increased by about £11 a week. I find it strange that we are targeting tax increases on people who live in such unfortunate circumstances.

I turn to one of my old favourites: tobacco taxation and smuggling. I have raised this issue on a number of occasions and my hon. Friend the Paymaster General knows my views. She is aware that my area has suffered greatly from smugglers—people who operate on an organised basis, bringing contraband tobacco, alcohol or whatever into the country on a huge scale.

I fully support increases in tobacco tax to discourage smoking, which results in a huge cost to the NHS and society. We should do as much as we can to decrease smoking, which, as has been pointed out, is sadly on the increase, especially among young women. I agree that we must take measures to combat smoking, but my worry is that such measures are defeated by smuggling.

In my constituency, it is very easy to buy cheap cigarettes; they are on sale all over the area. I have been lobbied constantly by tobacconists and newsagents, who inform me that it is not worth their while even trying to sell tobacco products because they cannot compete with smugglers. When I talk of smuggling, I mean the arrival of contraband goods in articulated lorries so many times a week. A smuggler will sell to his runners at a £1 profit cartons of cigarettes that he has bought for £12 or £13. They, in turn, will sell them at £1 profit, and that is how the stuff is distributed throughout the constituency.

The issue is whether we continue to increase tax on tobacco products without addressing smuggling. Regardless of the difference in taxation rates, whenever there is a financial incentive for people to smuggle tobacco into the United Kingdom, they will do so. We have to determine how to deal with smuggling. I welcome the action that the Government have already taken and the extra money that they have provided to prevent smuggling, but it seems that that action is not yet working and that we shall have to re-double our efforts. The same arguments apply to alcohol. However, although the dangers of alcohol are real, they are not as bad as those of tobacco.

I am a member of the Caravan Club and, as I said, represent it in the House. Increased motoring costs are a major concern for the club's 300,000 members, who usually have to use a larger car, with a larger engine, to tow their caravan. In a recent survey, the Caravan Club established that 11 per cent. of its members had a company car. Club members are therefore being targeted by the Budget and Finance Bill's measures to increase company car taxation. That increase is having an affect on the leisure industry, as people are having to decide whether they should continue with that leisure pursuit.

Increased taxes on diesel fuel also are affecting caravaners, who often choose to use diesel cars because of their better fuel consumption and performance. Caravaners, the Caravan Club and the tourism and leisure industry feel that they are being unfairly discriminated against by increased diesel fuel duty.

I have often raised the issue of the climate change levy with Ministers, both in private meetings and in the House. I feel that the levy is not the correct way of meeting our Kyoto emissions targets. I accept that we have to deal with CO2 emissions. I was also a member of the Select Committee on Energy that, in 1990, produced a report on greenhouse gases. As I have often said in the House, that report is still on the shelf, and its recommendations on greenhouse gases and emissions have been ignored.

The climate change levy will be a tax on high-energy users. Consequently, it will be a tax on manufacturing. It will also be a tax on jobs in my constituency, particularly in the glass industry and in another industry that I shall deal with later. The glass industry uses a great deal of energy. As my constituency has one of western Europe's largest glass bottle producers, the industry is a major employer in my constituency.

Luckily, the glass industry can take advantage of the agreements made by energy users under the integrated pollution prevention and control regulations, and will therefore qualify for the discounts available to industries entering energy saving agreements. However, some industries and companies—particularly the British Oxygen Company, which has a distribution centre in my constituency—will not qualify for the discounts.

In his statement today, my right hon. Friend the Secretary of State for Trade and Industry promised about £100 million in the next four years for the coal industry, and said that he will lift the stricter gas consents policy. The decision to end the current consents policy will result in the removal of our coal industry from Britain in the next two years. Because of the gas consents that have already been approved, and those that will be allowed in October 2000, there is no way that our industry will be able to compete with gas. Our coal industry will be eclipsed, and we will have ever more gas-fired power stations.

Consequently, even without a climate change levy, we will be able easily to meet the Kyoto targets. I agree with the right hon. Member for Fylde (Mr. Jack) that we really do not need the climate change levy, which will be a tax on jobs in my area. If it is imposed, money will go out of my constituency and jobs will be cut. National insurance rebates will not compensate for those losses.

Recently, the BOC Group—which, as I said, has a distribution centre in my constituency—wrote to me, as I presume it did to many other hon. Members, on the climate change levy. Each year, BOC spends £60 million—which is 78 per cent. of its production costs—on electricity at its largest sites. Although it cannot qualify for any of the exemptions from the climate change levy, it uses more electricity than do some of the industries that can qualify.

BOC is involved in the process of air separation, but that process is not covered by the integrated pollution prevention and control regulations. BOC therefore cannot qualify for the 80 per cent. rebates provided to the glass industry, for example. Similarly, processes that do not melt, but bend glass—such as those used by Pilkingtons in the manufacture of car windscreens—do not qualify for the 80 per cent rebate. The regulations therefore have different effects in different sectors of the glass industry. Although some are able to qualify for the rebates, some cannot. As the automobile components market is very competitive, Pilkingtons vehicle windscreen division will suffer greatly from uneven application of the regulations.

In most of the letters that I have received on the climate change levy, companies make the point that, as they are burning so much energy and their energy costs are so high, they pay very close attention to energy consumption, which they try to reduce by installing the most energy-efficient plant that they can afford.

The aggregates tax is another environmental tax. Although it is not dealt with in the Finance Bill, it has already been mentioned in the debate.

Photo of Michael Jack Michael Jack Conservative, Fylde

Before the hon. Gentleman moves on to the aggregates tax, could he summarise his precise personal position on the climate change levy? Does he think that, as currently formulated, it should be dropped?

Photo of Eric Illsley Eric Illsley Labour, Barnsley Central

Yes, I do. As I said after today's announcement on the British coal industry, there is no need for the climate change levy. It now takes about two years to build a gas-fired power station. We are providing assistance to the coal industry to compete with gas-fired power stations. However, since 1912, gas production has been increasing and coal production has been decreasing. The time has just about come when the gas industry will simply do away with coal. Removal of the stricter consents policy will achieve whatever emissions level we need. I am sad to say that, as my area's industry will be hit, first, by the climate change levy and, secondly, by the loss of our coal industry.

Sand, silicates and other aggregates are used in the glass industry, much of which is located in my constituency. My glass producers will be hit both by the climate change levy and by the aggregates tax. Their raw materials costs will increase.

Recently, the Quarry Products Association wrote to me, and presumably to other hon. Members, to point out that it was dismayed that its request for a voluntary agreement to deal with the Government's environmental concerns was rejected in favour of the tax.

Photo of David Heath David Heath Shadow Spokesperson (Environment, Food and Rural Affairs)

I am glad that the hon. Gentleman is dealing with the aggregates tax. Does he agree that the tax, because of its bad design, will not promote recycling materials rather than using virgin stone, and that it will attack the very companies that are installing the infrastructure necessary to improve the environment? Will they not be worse off for taking that action?

Photo of Eric Illsley Eric Illsley Labour, Barnsley Central

The hon. Gentleman anticipates my point. The tax will not promote good practice in the aggregates industry. The good operator and the bad operator will be equally affected.

Although the glass industry can recycle waste glass, it cannot use recycled quarry materials, as the Government would like it to do. I fully support the protection of national parks and the sites of quarries and minimising the use of raw materials through voluntary agreements, but the proposals will be a tax on jobs in my constituency. We talk a lot about the north-south divide. Here are two examples of a northern heavy industry manufacturing constituency being affected by Government policy.

I welcome the thrust of the Bill and the Budget. I very much welcome the extra money for the national health service and other services and the fact that our economy is strong and our public finances are in good shape. I just wish that the Government would look again at the climate change levy; the aggregates tax; what we are doing for our pensioners; and smuggling.

Photo of Mr Christopher Gill Mr Christopher Gill Conservative, Ludlow 7:51 pm, 17th April 2000

It is a great pleasure to follow the hon. Member for Barnsley, Central (Mr. Illsley). I should like to say across the party divide how much I agreed with his comments on bootlegging, the climate change levy and the aggregates tax. I have the same experiences in my constituency.

The Government speak of working for a stronger and fairer Britain. That is an admirable aspiration, but after that I part company with them. I imagine that many Conservative Members agree that a stronger economy cannot be built through the imposition of additional taxes on the wealth-creating sector. We have listened to Government rhetoric. Ministers have said that businesses and jobs will benefit from the Budget. A reasonable test of the Bill is to examine how it will impact on businesses in my constituency, just as the hon. Member for Barnsley, Central assessed its effects on his constituency.

As the hon. Gentleman rightly said, the aggregates tax will be a tax on jobs. There are many jobs in quarries in my constituency, including those operated by Aggregate Industries at Much Wenlock, the Bromfield sand and gravel company at Ludlow, Hanson at Clee hill and Lafarge Redland at Bridgnorth. The Quarry Products Association is not best pleased that, having spent the best part of 18 months working up a partnership agreement and hoping to persuade the Government to accept a package of 30 regulatory and voluntary proposals that it maintains would have guaranteed a much better deal for the environment, its proposals have been rejected in favour of a tax.

It seemed rather unprincipled of the Government to encourage the Quarry Products Association to believe that if it came up with satisfactory answers that addressed the Government's objectives, no tax would be imposed. The other disappointment is that the tax will undoubtedly have serious ramifications throughout the economy. The tax will not differentiate between good and bad operators and provides no incentive to improve environmental performance.

I say that with some feeling, because the quarry on Clee hill last year won the civic trust award and a national quarry reclamation award for doing a very good job restoring quarry workings after they have been worked out. It is a slap in the face for the operators of that quarry and others who have worked hard to do the right thing by the environment to find that the proposals that they spent a lot of time, money and effort on have been rejected. They were given no reason to suspect that, like many other interest groups, they were being taken for a ride by the Government, who eventually imposed an aggregates tax on Budget day of £1.60 per tonne. The Quarry Products Association points out that many small operators working on a small profit margin will be at serious risk of closure, which would lead to job losses. I am concerned about that, because those jobs are very important in my constituency.

Where is the sense in the tax? Henceforth, every construction project in the land will cost more. Every new factory, every new house and every new Government building will cost more. Every mile of farm track or forestry access road will cost more. Maintaining and improving the permanent way on our railways will cost more. If they had one, the Government's roads programme would also cost more. Once again, the Government demonstrate their failure to understand that increased taxes and other cost and regulatory burdens imposed on the wealth-creating sector have consequences for the whole economy. I am sad that the Government have failed to recognise that imposing increased taxes on industry puts up costs and makes British companies less competitive.

The Clee hill quarry produces a category of stone that is shipped to south Wales, where it is converted into rockwool. As many hon. Members know, that is an insulating material. There seems to be a contradiction. The Government are imposing a tax on the quarrying industry, but at the same time they are intent on reducing VAT on energy-saving materials. The left hand does not know what the right hand is doing. That is an example of the law of unintended consequences.

Photo of David Heath David Heath Shadow Spokesperson (Environment, Food and Rural Affairs)

The hon. Gentleman is putting a powerful case that is shared by many of us who represent quarrying constituencies. Does he agree that his point could have been foreseen, because the Environmental Audit Committee drew attention to such perverse environmental consequences when we looked at the design of the tax?

Photo of Mr Christopher Gill Mr Christopher Gill Conservative, Ludlow

I have a lot of sympathy with that point. As we get into the detail of the Bill, it becomes clear that the imperative is to raise more revenue. I shall give an example in a moment of another industry that has argued a sound case for several years and thought that it was going to persuade the Government to see sense, but fell at the last hurdle.

The biggest employer in my constituency is the Lawson Marden Star aluminium factory at Bridgnorth. It will be subject to the full climate change levy, whereas the smelters in the aluminium industry will get a rebate. That is very much like the situation that the hon. Member for Barnsley, Central described in the glass industry, where the makers will get rebates but the benders will not.

It will be very difficult to draw hard and fast lines in the sand for individual industries that will be meaningful and, more to the point, fair and that, even more to the point, will not prejudice the jobs that the hon. Gentleman and I value so much in our respective constituencies. Very few businesses indeed will find that the reduction in employers national insurance comes anywhere near compensating them for the amount that they will have to pay out for the climate change levy. It is a bad tax and should be withdrawn.

I want to say a word about small independent brewers—including pub breweries—of which I have not a few in my constituency, such as the Three Tuns and the Six Bells at Bishop's Castle, the Sun at Corfton, the Crown at Munslow, Hobson's brewery at Cleobury Mortimer and the Wood brewery at Wistanstow. They might all have expected that the case for progressive beer duty put by the Society of Independent Brewers was so powerful and reasonable and such sheer common sense that the Government would accept it.

A letter from the general secretary of the Society of Independent Brewers shortly after the Budget said: We have overcome all the objections from government departments as to why PBD progressive beer duty— should not be introduced… Just like the quarrying industry, the brewing industry found at the final hurdle that it could not persuade the Government to recognise the sound common sense of its case.

The Government are not friendly towards small businesses, as further evidenced by their obdurate refusal to listen to the voice of the Brewers and Licensed Retailers Association, which made the case that bootlegging of alcoholic drinks and tobacco is putting its members out of business. That was another point eloquently made by the hon. Member for Barnsley, Central.

Let us face facts. Six rural pubs per week are closing. They are not going out of business because of market forces but are being driven out of business by a Government obsessed with political correctness and spin, who have a cynical disregard for the bona fide traders who are entitled to believe that the law of the land—the criminal, civil and fiscal law—is on their side. There is a dawning realisation that, under this Government, it is not. I trust that that will be reflected in the ballot box at the next general election.

The quarry owners, the small brewers, the publicans, the newsagents and tobacconists and the sub-postmasters and mistresses are not the only ones to have been sidelined by the Chancellor. In his Budget speech, there was not a mention of farming, Britain's second biggest industry and one that is crucial in my constituency. After three years of Labour dither and delay, that industry is in desperate straits.

The Chancellor might have seen the good sense of reducing the duty on beer, to encourage its production and consumption in this country, as against all the alcoholic drinks that we import. Let us consider the spin-off to the farming industry. If it was required to produce more hops and malting barley, that would be a win-win situation for the brewers, the farmers and the consumers—it would be a virtuous circle—but instead we have the opposite and the Labour party is returning to tax and spend, and the devil take the hindmost.

The inexorable hike in road fuel duty does nothing to improve the rural economy. The Bill contains nothing for people in rural areas. The Chancellor may bluster that corporation tax and the standard rate of income tax have been reduced, and I applaud him for that, but that is no consolation to the road hauliers whose profits have evaporated, to the farmers who are driven to claim income support, or to the retailers who are forced to put up the shutters for the last time because the Government, far from running the bootlegger out of town, are driving the bona fide trader out of business.

I have deliberately concentrated on the effects on business, because there is no escaping the fact that without business there is no wealth creation, without wealth creation there are no jobs, and without jobs and wealth creation there is no money for the public sector.

Photo of Liz Blackman Liz Blackman Labour, Erewash 8:05 pm, 17th April 2000

I commend the Bill to the House. The Budget cannot be viewed in isolation from earlier Budgets. There is an interaction between this Finance Bill and those that have gone before it. Each Bill is a building block. Building blocks need firm foundations, and I want to hammer home the point that although when we took office in 1997 a frustrated electorate had tremendous aspirations and expectations that the Government would deliver all kinds of policies, it would have been very foolish to set off on a course that we could not deliver because of the weak footings that we inherited.

I was very interested to hear the speech of the right hon. and learned Member for Rushcliffe (Mr. Clarke). I fear that he was suffering from selective amnesia. When we took office in 1997, debt as a share of gross domestic product was far too high, at 44 per cent. He had made an attempt to bring the deficit down, but it was still £28 billion: inflation was rising, and he should have put up interest rates before the general election in May, but the issue was very politically sensitive at the time. I see a Conservative Member nodding in agreement.

Photo of Liz Blackman Liz Blackman Labour, Erewash

Not just yet.

Inflation was rising when we took office, and we had to follow a more painful track in interest rates as a result. The House will recall that rates had been bobbing up and down furiously over many years leading up to 1997 and had reached the heady height of 15 per cent. How could businesses have operated in that climate? The fact is that they did not operate very successfully.

Photo of Tim Loughton Tim Loughton Conservative, East Worthing and Shoreham

As the hon. Lady would not give way to my hon. Friend the Member for Chichester (Mr. Tyrie), who was nodding, can she point to a single speech made by her Labour colleagues before the general election suggesting that interest rates should go up? Will she acknowledge that interest rates have changed about 15 times over the past three years? What stability does that offer for business?

Photo of Liz Blackman Liz Blackman Labour, Erewash

First, at the time to which the hon. Gentleman refers, we were not in government. On his second point, although interest rates have bobbed up and down recently, they have done so by quarter points within a very narrow band; at no point have they got anywhere near the 15 per cent. that we endured during the late 1980s and early 1990s. We will take no lessons from him.

Photo of Liz Blackman Liz Blackman Labour, Erewash

I want to make a little progress before I give way.

Before we could move forward on our priorities, we had to put the house in order. In three years, we have reduced debt as a proportion of GDP to 35 per cent. and what was then a deficit is now a surplus of £14 billion. We have substantially locked in those surpluses, and rightly so, given the strength of the economy.

Photo of Liz Blackman Liz Blackman Labour, Erewash

No. The hon. Gentleman can make his own speech shortly.

In tandem, the Monetary Policy Committee, which was appointed early in the Government's life, has kept inflation bang on target at an average of 2.5 per cent. and has also kept interest rates within a narrow band. The shape of the economy is good—and that despite the fact that in 1998 we faced a severe contraction in economic activity in Asia, which is something that Opposition Members forget. The Opposition predicted recession, but it did not happen. That was not an accident: it was because the economy, and our fiscal and monetary policies, were working properly to ensure that we stayed on course.

Several hon. Members:

rose—

Photo of Liz Blackman Liz Blackman Labour, Erewash

I shall not give way, because I would like to make some progress. [Interruption.] I seem to be getting under the Opposition's skin, so I judge myself to be succeeding.

We are now three years down the line and into our third Finance Bill, and we have flagged up our priorities. The priority that is nearest and dearest to my heart is education. The state of education resourcing in Derbyshire in 1997 was diabolical. The reason for that was the vicious spending restrictions placed on the local authority by the then Government. Class sizes were at a record high and were some of the worst in the country. Buildings were falling apart and the situation was at rock bottom.

In recognition of Derbyshire's dire straits, it was the only authority that this Government allowed to breach its spending cap in the first year of this Parliament. It has since had generous slabs of ring-fenced funding: classrooms have been built; we have more teachers; roofs have been mended; the majority of schools in my constituency now have indoor toilets; and the literacy and numeracy strategies are working well.

The differential in funding between Derbyshire and other authorities is still of concern, because we are still at the bottom of the league. However, I congratulate the Government on re-examining the issue and on their commitment to try to get greater parity between authorities. That is not only an issue for me as a Derbyshire MP, but for other hon. Friends and Opposition Members.

Photo of John Bercow John Bercow Shadow Minister (Education)

If the Government are doing as well on education expenditure as the hon. Lady claims, why is it that they have reduced the proportion of GDP spent on education from 5 per cent., as it was under the previous Government, to 4.7 per cent?

Photo of Liz Blackman Liz Blackman Labour, Erewash

All I can say is that when I go round my constituency I see real and tangible results from spending, for the first time in many years. I see new classrooms, more teachers, new and renovated buildings. What is more, I see children following curriculums that are making progress for them so they will not reach secondary schools with poor reading and writing skills, as they were allowed to by the previous Government. That is the difference, and I can see it working in my constituency.

I also welcome the money that is to be given to the NHS. Again, my local health authority has done well out of the settlement in capital and in revenue. My constituency has two hospitals, and both are beneficiaries of the private finance initiative. That would never have happened under the previous Government, because not one hospital contract had been signed when we came to power in 1997.

The other NHS funding that I especially welcome is the money that is going direct to primary care groups, for which I have much sympathy because they are being asked to deliver the lion's share of the Government's agenda. The PCGs in my constituency have certainly welcomed the extra funding that will allow them to do that.

We have heard much about industry today, and of course it is the engine of a successful economy. The Treasury Committee has taken a lot of evidence about productivity, because it is strongly linked to business success. All our witnesses came to the same conclusion—the reason for the existence of such a wide productivity gap between this country and some of our European competitors and the United States was a structural lack of investment over many years. The policies in the current Finance Bill and in our previous Finance Bills, as welcomed by the Institute of Directors, will help to reverse that lack of investment. That is at the heart of raising productivity. I welcome the lowering of corporation tax, the permanence of the capital allowances, the reforms to the capital gains tax system, the research and development credits and the regional venture capital fund, of which the east midlands will now receive its share.

Underpinning all those factors is a stable economy. Businesses will not invest in an economy in which they have no confidence. Businesses have not invested structurally in the past because Government policies did not encourage them to do so and also because they had no certainty about what the economy would be doing from one year to the next. That certainty now exists, so business investment has increased significantly since 1997. It is up 16.5 per cent. and inward investment is up 45 per cent.

Much has been said tonight about the manufacturing sector and the hard time that it is having exporting because of the level of the pound. However, Opposition Members cannot explain why when interest rates went down last year the level of the pound stayed the same. Neither the right hon. and learned Member for Rushcliffe nor the hon. Member for Kingston and Surbiton (Mr. Davey) could explain that. According to their argument, the pound should have fallen when interest rates were that bit lower last year, but it did not. The fact is that the euro is weak, but euro economies are recovering, especially France and Germany.

Photo of Liz Blackman Liz Blackman Labour, Erewash

If any hon. Member can explain why the pound stayed at exactly the same level when interest rates went down last year, we might be able to have something of a debate, but the movement of the pound in relation to the euro is inexplicable not only to all the experts who have appeared before the Treasury Committee but to the Governor himself. If monetary policy had been relaxed with a significant impact on the level of the pound, we could argue some kind of cause and effect, but that has not been demonstrated.

Photo of Liz Blackman Liz Blackman Labour, Erewash

No, I will not. The hon. Gentlemen can make their own speeches.

I turn now to the supply side and to the skills that are vital to improved output and productivity. The game is a long one, and I have talked already about investment and the effects that our policies and resourcing strategies are having. However, I also welcome the significant training programmes that the Government are putting in place, and the policy on lifelong learning.

My constituency has a skills shortage that was identified many years ago. I am delighted with the Government's new deal policies, under which youth unemployment and long-term unemployment have each been cut by 65 per cent. My right hon. Friend the Chief Secretary visited my constituency not so long ago and met a new dealer who was 58 years of age. Between the ages of 50 and 57, he was out of work and he never thought that he would work again. However, he got on the pilot new deal 50-plus scheme, and is now a really valued employee of the firm for which he works. I welcome the additional proposals to roll out the new deal 50-plus scheme across the country. It should be recognised that every section of society has a contribution to make, and my constituent has certainly made his.

All the measures that I have mentioned, together with the enhanced working families tax credit and the lower marginal rates of tax and national insurance, help to ensure that people are supported back into work. The 800,000 new jobs that have been created are testimony to that.

Photo of Liz Blackman Liz Blackman Labour, Erewash

Finally, I want to say a few words about pensioners. My hon. Friend the Member for Barnsley, Central (Mr. Illsley) congratulated the Government and welcomed the measures in the Bill that are targeted at pensioners. Some are aimed at poorer pensioners but others—such as the winter fuel allowance—are more universal. I have had discussions with pensioners in my constituency, and a couple of other points arise out of the representations that they made. I believe that the measures that we have taken are absolutely right, but even with the new savings thresholds that have been introduced, those pensioners just above the minimum income guarantee who have modest savings will not get the same benefits as those on the minimum income guarantee. I want more to be done for them, but the Government recognise that and I know that they are consulting on introducing more pensioner credits for that particular group. That is absolutely right.

Finally, when the Government flagged up the priorities of education and health, the Opposition said that our proposed investment in public spending was reckless. They were wrong. They foretold recession during the Asian crisis, and they were wrong. Some Opposition Members now endorse an investment strategy in public services, but they also urge the minimum tax guarantee—exactly the combination that will take the country back to the dire recession of the late 1980s: it would lead to the same disaster.

A well-managed economy allows us to pursue economic success, productivity, better public services, and fairness. All those objectives are inextricably linked.

Photo of Mr Dafydd Wigley Mr Dafydd Wigley Plaid Cymru, Caernarfon 8:24 pm, 17th April 2000

I shall not pick up the speech from the hon. Member for Erewash (Liz Blackman) in detail, but I agree with what she said about the Government's treatment of pensioners. That story was told very dramatically by the hon. Member for Barnsley, Central (Mr. Illsley), who is not in his place now. Some Labour Back Benchers are feeling very strongly the pressure being applied by pensioners. No doubt they will make known to the Government the dissatisfaction and unhappiness felt by pensioners at the weekend press reports about the Government abandoning the pensioner vote.

Where will that vote go? The Conservative party broke the link between pensions and earnings in 1981 and is unlikely to reap the harvest from pensioners. Clearly, my party will have to put up candidates throughout the United Kingdom.

During the Budget debate, I had the opportunity to touch on a number of issues. I described the effect on rural areas of increased petrol prices: I spoke about pensions, and I welcomed some of the provisions in the Budget, such as the policy for children. Today, therefore, I shall concentrate on three or four matters only.

Before I do so, however, I want to echo what some other hon. Members have said about the ridiculous size of the Bill. There are 558 pages, 150 clauses and 40 schedules. Schedule 6 alone covers 83 pages. It takes up about 4,000 lines and amounts to about 30,000 words. The Government say that that is not a problem, but it will be one in Committee: if only a minute is devoted to each line, consideration of the schedule would take up about 67 hours. Perhaps Labour Members want to spend their time in Committee like that, but I think that their enthusiasm will soon run dry.

We must think also of the people who have to live with the consequences of the Bill. There is a need for some stability and simplicity in the legislation, so that people can get their lives on a more even keel.

The hon. Member for Erewash presented the novel idea that interest rates have no bearing on the value of the pound. I am afraid that I do not entirely share that view.

Photo of Liz Blackman Liz Blackman Labour, Erewash

Will the right hon. Gentleman give way on that?

Photo of Mr Dafydd Wigley Mr Dafydd Wigley Plaid Cymru, Caernarfon

No, the hon. Lady was not all that generous about giving way. I shall not be either.

The value of the pound is a central question, and the indications following the Budget are that the pressure on interest rates will be upwards. The hon. Member for Erewash may disagree, but I believe that that will cause the pound to strengthen. There is no doubt that a high pound is bad for the Welsh steel industry, which is facing a difficult time in the coming months, but it is bad too for the motor industry and for other industries throughout the country.

The high pound also has a devastating effect on farming. Imports are being sucked in, and it is impossible for our farmers to export goods. It is also very detrimental for tourism, an industry that is important to me and to many other hon. Members. The Government must deal with the problem and not just shrug it off and pass it over to the Bank of England.

The transfer to the Bank of England of responsibility for the level of the pound is all very well, but that responsibility ought to cover levels of employment as well as inflation. Both elements are important, and they should be dealt with side by side. I know that that conviction is shared by Labour Members, and perhaps by some in the Opposition parties.

Earlier in the debate, Labour Members boasted that public expenditure now takes up a smaller proportion of gross domestic product than in the past. I would like public expenditure to rise—on pensions, transport and housing, for example. Everyone knows that there is a need for money to be spent on renovating houses. I do not therefore consider falling public expenditure to be especially commendable.

However, the burden must be spread fairly throughout the community. Conservative Members continually refer to the wealth-creation sector of the economy, as if only businesses create wealth. Everybody who is in work is part of the wealth-creating sector of the economy. It is no use saying that people working in the national health service are not part of the productive wealth of the economy because it is a service, so called—of course they are. They make it possible for other people to do their work.

Photo of Geraint Davies Geraint Davies Labour, Croydon Central

Will the right hon. Gentleman give way?

Photo of Mr Dafydd Wigley Mr Dafydd Wigley Plaid Cymru, Caernarfon

Let me finish my point first. A doctor in the private sector could be regarded as being in business and therefore wealth creating because he is paid out of profits, while a doctor in the public sector, who does not get paid in that way, could be regarded as a drain on the economy. That is clearly nonsense. We must consider the whole economy and everyone in it who is undertaking worthwhile work, whether it is productive or in the service sector, is part of that economy. It is not simply a question of the wealth-creating side of the economy in business, but of the whole economy, a fair burden of taxation and a fair level of expenditure on public services.

Photo of Geraint Davies Geraint Davies Labour, Croydon Central

My point was that real increases in public expenditure can occur at the same time as a proportion of gross domestic product rises because the economy is growing. By how much does Plaid Cymru want to increase income tax so that public expenditure is increased to the desired rate?

Photo of Mr Dafydd Wigley Mr Dafydd Wigley Plaid Cymru, Caernarfon

I will be coming on to that in a moment. However, I certainly would not have taken a penny off income tax at this time. That £2,600 million, or whatever such a move generates these days, would have been better used to help pensioners, transport and housing.

Photo of John Bercow John Bercow Shadow Minister (Education)

The right hon. Gentleman talked about his desire for increased expenditure on housing. What assessment has he made of the effect of the change in the rules on the use of capital receipts from the sale of council houses on the size of interest repayments on local authority debt?

Photo of Mr Dafydd Wigley Mr Dafydd Wigley Plaid Cymru, Caernarfon

That is one element, but a more fundamental question faces people who are waiting for renovation grants in the old industrial areas, not only in Wales, given the reduction in the money spent on housing by central Government. Obviously, there is an effect from the change mentioned by the hon. Gentleman in the funds that are available, but that is one among a number of elements which have undermined the rolling programme of house renovations. People in houses that are virtually unfit to live in may be waiting six, seven or 10 years, given the present level of expenditure, for renovation grants. They are often elderly people who do not, and will not, have the resources themselves. We need a new mechanism to bring finance into the housing sector, both public and private, to ensure that people have decent housing.

I shall turn briefly to regional policy. At the heart of what has been happening with interest rates and the higher level of the pound that has resulted has been the question of the differential heating up of the economy. There has been a problem in south-east England and no doubt in other parts of the country, such as south-east Wales. The economy in the Cardiff area may be heating up more than in other parts of Wales. That underlines the question of whether it is possible to have a mechanism, through taxation of some other means, to stimulate economic development in slow areas and damp it down in areas that are overheating.

There was an attempt to do that in the 1960s, although it was not altogether successful. However, it is worth revisiting some of the ideas, such as the regional employment premium and selective employment tax. I am not sure about the selective employment tax, because that ossified industries in one direction. [Interruption.] I see the Chief Secretary putting his thumb down.

Photo of Mr Dafydd Wigley Mr Dafydd Wigley Plaid Cymru, Caernarfon

Yes, it was the Wilson Government, from 1966 to 1970, who introduced those proposals. The regional employment premium was, in concept, a devaluation, because it resulted in more purchasing power in the region. If we are not to have the strong investment programmes that many of us would like, there must be some fiscal approach along these lines.

Within the rules of the European Union, if it is possible to have plus or minus 2 per cent. around value added tax rates, is it possible to consider having differential VAT rates as one way of stimulating the economy a little in some areas and damp it down in others? I believe that such a mechanism needs to be considered if we are to make progress. It is possible in areas with objective 1 status, some of which are lived in by the poorest people in these islands. I refer to Merseyside, South Yorkshire, Cornwall, west Wales and the valleys. It is possible to use operating aid—as has happened in other parts of Europe which have objective 1 assistance—to have a lower level of employers' national insurance premium as a mechanism with which to stimulate the economy in those areas. I know that the Department of Trade and Industry and probably the Treasury were looking at that idea last year, and I think that it was rejected. However, I believe that similar mechanisms should be considered if we are to avoid an even worse polarisation between areas doing relatively well and those in parts of Wales, the north of England and Scotland that are not doing so well. I hope that such mechanisms will be considered by this time next year, even if it is not possible to do so in the context of this Finance Bill.

How do we pay for such adjustments? If I want to spend more money in certain areas, I need to put forward funding proposals. For example, I would remove the cut-off on the top level of employee national insurance premiums. It is ridiculous to have a cut-off that means that the marginal rate, taking the combined rate of income tax and national insurance, for someone earning £10,000 is 32 per cent., whereas for somebody earning £28,000 a year, the rate is 22 per cent. That is not sensible, and a combined upper rate of 50 per cent. rather than 40 per cent. for those on higher earnings would be acceptable and would bring in resources. Such steps need to be taken.

The provisions for the climate change levy have been mentioned by a number of speakers and are clearly causing considerable worry. The measure will not achieve what it was meant to achieve. The levy is not a carbon tax, and it is too blunt an instrument to result in the benefits in climate change at which it should be aiming. A number of right hon. and hon. Members will have received a letter from the plastic industry saying that the measure's impact on electricity alone would cost the industry £60 million a year. We need to reconsider the issue. It will be a body blow to many companies, and they will not be able to change overnight.

Following the statement this afternoon by the Secretary of State for Trade and Industry, I asked what criteria would be used to decide on the exemptions of the combined heat and power projects from the climate change levy. He referred me to the Treasury Front Bench. I have looked carefully through schedule 6 and at paragraphs 20 and 21. All I can find is a provision in paragraph 20(1) stating: The Commissioners may by regulations make provision for giving effect to the exclusions and exemptions… There is no clarification on that issue.

Photo of Oliver Letwin Oliver Letwin Conservative, West Dorset

Does the right hon. Gentleman agree that the main deficiency of the climate change levy is that, for the first time in British taxation history, an arbitrary tax—the discounts for which will be decided by individual civil servants in negotiation with particular companies—has been introduced by a Government?

Photo of Mr Dafydd Wigley Mr Dafydd Wigley Plaid Cymru, Caernarfon

Much work will be needed in Committee on the 83 pages of that schedule. The most worrying aspect of the tax is its impact, but there is also its uncertainty—for example, whether exemptions will be allowed or not. That is open-ended—to say the least. The matter will need clarification. People have a right to know not only who is administering the tax, but on what basis such taxation will be undertaken. We need some certainty in planning for the future.

The Chief Secretary to the Treasury would be surprised if I did not return to the point that I made earlier during an intervention on his speech: I referred to the way in European structural funding would be carried out. Understandably, in his reply, the right hon. Gentleman pointed out that the matter would be sorted out in the comprehensive spending review. I am sure that the Government have good intentions in that regard; we all look forward to its being sorted out during years 2 to 7 of their programme. However, that still leaves this year—2000–01 will not be covered by the CSR.

In Wales, £25 million was built into our budget for this year's spend, against a possible spend of up to £368 million. Clearly, that would not happen, but there is the expectation of a spend of between £50 million and £100 million. For example, a development fund could call up 7 per cent. of the total structural funds for Wales—£1.2 billion under objective 1—within the first two years; that would be about £40 million a year. That money could be available for small businesses in Wales. However, there is only £25 million in our budget, which has to cover not only the match funding but the European money itself; under the present mechanism, the European money goes to the Treasury. Yes, it is passed over when projects are developed, but the amount is knocked off the Barnett block. We gain with one hand, but we lose with the other so we are no better off.

This year, if we find that expenditure runs beyond that £25 million in our budget, will it be possible to go into the contingency reserve—not only for Wales, but for other areas that might be affected—to ensure that we do not lose out on the objective 1 programme? The Government have worked hard to obtain that programme for Wales; we certainly need it in areas of high unemployment and low per capita income. It would be a tragedy if we missed out. I hope that the Chief Secretary will reflect on that during the coming weeks, and that he will be able to give a positive response in due course—for this financial year and not just for the next.

Photo of Chris Leslie Chris Leslie Labour, Shipley 8:41 pm, 17th April 2000

Hon. Members have the opportunity on too few occasions to consider the broad sweep of economic and public finance policy. However, the Second Reading of the Finance Bill provides just such an opportunity. During the many hours of debate, I have been struck by the fact that Opposition Members have apparently forgotten some of the fundamental tenets of economic policy—one of which must surely be that, to spend money on public services, revenue must be raised.

The right hon. Member for Caernarfon (Mr. Wigley) and the hon. Member for Kingston and Surbiton (Mr. Davey) seemed to want to stop fiscal loosening. On the other hand, they said that we should spend much more money on pensioners and health, but failed to point out how on earth such measures would be funded. Such irresponsibility persuades no one of the merits of their case.

Conversely, the Conservatives suggest that, somehow, they can reduce taxation—to stop raising revenue—while magically continuing to maintain expenditure on vital public services. My constituents—indeed, the wider public—are neither stupid or naive; they will not be fooled by that poor arithmetic. They know about the basic sums in public finance and that, to pay for important services, we must have a secure revenue base.

Building on the progress that we have already made, the Finance Bill goes a long way towards securing a healthy set of public finances to pay for those important public services that we all need and that Labour Members are ensuring that we deliver, step by step.

I have a few brief observations on the Bill; the first focuses on the vital public service of health. The Budget measures on tobacco duty have come in for some criticism. However, I am proud to defend such measures, which use policy to target a demerit product—one that has a greatly adverse effect on our many constituents who smoke. The 5 per cent. real increase in tobacco duty will discourage people from smoking. Furthermore, that expenditure will bolster expenditure on the national health service—it will go towards the extra £2 billion allocated to the NHS during the financial year 2000–01. In my health authority area, the Bradford and Airedale hospitals will receive a 9.3 per cent. cash increase in one year. That is a massive increase; it will take local spending to £344 million.

All this will have a considerable impact. The money will not be set aside; it will be spent on cancer services, on reducing waiting times, on vital services provided by doctors and hospitals, and at the front line. The Bill well illustrates cause and effect—where the revenue is raised and the purposes for which it is spent.

The Bill will bring significant benefits to business. The 100 per cent. allowance for small firms for information technology will be broadly welcomed throughout industry, but there are also small but significant measures such as the abolition of stamp duty on intellectual property transactions and the simplification of the capital gains system.

These are important measures. While Opposition Members criticise the length of the Bill, we should be focusing on its outcome. That is what matters most, and I do not at all mind standing here, even though it might be a quarter to nine at night, enacting these measures and putting the Finance Bill on the statute book.

Many important measures in the Bill, such as the closure of several tax loopholes, illustrate the fact that the Government are anxious to achieve fairness across the board for taxpayers, and to ensure that a few people cannot get away with paying less than their fair share.

The other side of the coin is that the Bill provides a package of very significant new measures to help charitable giving, such as those making payroll deduction much easier and lifting the threshold on gift aid. Those measures will have a real impact.

I have heard criticisms tonight about the climate change levy, but we must not forget the wider environmental context in which these measures come into being. My mailbag does not contain as much criticism of the measure as do those of Opposition Members. However, people are writing to me about the floods in Bangladesh and Mozambique and the famine in Ethiopia—areas where adverse weather conditions have created devastation for very many millions of people—caused, we can now safely assume, by emissions of too much carbon into the atmosphere.

We must do something about that, and that is what the climate change levy is about. It is not imposed for and of itself. Moreover, it is revenue-neutral; the money is paid back through the national insurance system. I am glad that the Government have made concessions, especially to energy-intensive industries. The aim is to reduce our carbon emissions, meet our environmental commitments and, ultimately, do the right thing for the world. It is unwise to lose sight of those important aspects.

When the right hon. Member for Wells (Mr. Heathcoat-Amory) was criticising the Government on several grounds, he mentioned that an extra £2 billion was being spent on central Government administration. When I—from a sedentary position, I admit—balked slightly at the scale of his allegation, I was castigated for not referring to page 60 of Command Paper 4601, which he thought proved his case.

I have taken the liberty of referring to the Library and asking for an opinion on the matter. The figures in the document show that the right hon. Gentleman was referring to the cash figures, without taking into account inflation in wage costs. He tried to imply that we could consider the matter purely in cash terms. If we consider the figures in real terms, which we should all accept as the best way of measuring such matters—[Interruption.] That is interesting; Conservative Members seem to be suggesting that they do not believe that we should use real-terms figures to consider such matters. The figures for the final year of the Conservative Administration, when compared with the figures for central Government administrative expenditure projected for next year, show that the Labour Government will spend £137 million less in real terms.

Photo of Oliver Letwin Oliver Letwin Conservative, West Dorset

Will the hon. Gentleman read out what happened in cash terms under the Conservative Administration?

Photo of Chris Leslie Chris Leslie Labour, Shipley

I shall read out the fair terms, which are the real-terms figures. For example, in 1994–95, the figure was £15,000 million compared with £14,186 million for the financial year of 2001–02. That represents a reduction in real terms. It does Conservative Members no good at all to scrabble around to try to find ways to pay for their ridiculous tax guarantee, or spending cuts guarantee as it should be called. They suggest that somehow they can stretch expenditure to cover myriad issues. The hon. Gentleman suggested that they would not only spend on health and education, but that he wanted additional expenditure on defence and to prevent crime. Those areas make up 40 per cent. of public expenditure, yet he believes that we could see a real growth in expenditure on them above the rate of increase in the GDP. He believes that he can sustain such increases in expenditure while simultaneously reducing taxation. That is not feasible unless there are swingeing cuts in other services.

Photo of Oliver Letwin Oliver Letwin Conservative, West Dorset

Has the hon. Gentleman had the opportunity to look at the Red Book? If he has, has he noticed that that he has described precisely the oddity that the Chancellor of the Exchequer predicts?

Photo of Chris Leslie Chris Leslie Labour, Shipley

If the hon. Gentleman is suggesting that my right hon. Friend the Chancellor of the Exchequer is working in line with the Conservative party's distorted policy of a tax—or public service cuts—guarantee, he cannot have been paying too much attention. Given his suggestion that public expenditure should increase significantly in real terms and that tax should be reduced by enormous amounts, what would he cut? As he has said that he does not agree with borrowing, there would have to be cuts in international development aid, the transport budget, pensions, child benefits, disabled benefits and myriad other services.

Photo of Oliver Letwin Oliver Letwin Conservative, West Dorset

Is the hon. Gentleman now denying the proposition that the Chief Secretary has repeatedly made in the House: that, in the Chancellor's plans in the Red Book, tax will fall as a percentage of GDP for several years?

Photo of Chris Leslie Chris Leslie Labour, Shipley

The hon. Gentleman should realise that his proposal is for the lifetime of a Parliament, but I know that there is a rumour that the shadow Chancellor is considering changing that proposal so that it falls into line with the economic cycle. The hon. Gentleman is right in so far as the Government will reduce the burden of taxation, but we correctly consider such matters over cycles and by examining the needs and the demands of the public sector and what we need to spend. We are not driven by the ridiculous dogmatic guarantee that would set in concrete a notional level of revenue reduction regardless of economic circumstances. That would continually force enormous cuts in the public services that the Conservatives say are not crucial. However, many of my constituents would say that public expenditure on matters such as international development, agriculture and trade and industry is important. We all know that the Conservatives would cut that enormously.

When I examined other statements on expenditure made by the Conservative party, I noticed that it had made significant new spending—and not just tax reduction—commitments. For example, the Conservative Front-Bench spokesman on education wants to reinstate the assisted places scheme, albeit in a new form, which would cost many millions of pounds. The Conservatives want to restore the married couples allowance. Their home affairs spokesman wants to increase the police fund grant by about 6.1 per cent. They want to increase funding for ambulance services: the Conservative Whip here now, the hon. Member for Beverley and Holderness (Mr. Cran), has said in the past that he wants greater expenditure on ambulance services in his area. The shadow transport team wants higher spending on train station car parks, and has even spoken of free shares for all who live in London under the privatisation of London Underground.

All those commitments have implications for public expenditure. People will not believe that the Conservatives could deliver their promises while simultaneously reducing taxation, without resorting to borrowing and adding to the national debt. That was their strategy during the 1980s, and we experienced the consequences of that.

Photo of Edward Davey Edward Davey Opposition Whip (Commons), Shadow Spokesperson (Treasury), Liberal Democrat Spokesperson (Treasury), Liberal Democrat Whip

Does the hon. Gentleman share my concern that the Conservative Front-Bench spokesmen do not appear to know whether their tax guarantee is a guarantee to reduce taxes over the lifetime of a Parliament, or over an economic cycle? Would he care to comment on that?

Photo of Chris Leslie Chris Leslie Labour, Shipley

For once, I agree with the hon. Gentleman. The Conservatives' confusion is somewhat disturbing, even though it is also quite hilarious from our point of view. It demonstrates how there is no chance that the Conservatives will be trusted by the electorate, who will not have the wool pulled over their eyes. The electorate know about the balance of public finances and they know the difference between a realistic pledge and an unrealistic one. It is all very well for the Conservatives to give guarantees, but it is a sorry sight for voters to see the Conservatives trying to wriggle out of those guarantees only months later.

My constituents will benefit significantly from the Budget and the Bill. We shall be able to deliver results locally. Progress will accelerate on a new road scheme worth £60 million in my constituency: the Bingley relief road. Thanks to the Government, there will be new school buildings at Cullingworth school, Beckfoot school, Bingley grammar school and Salt grammar school, paid for out of public funds. There will be new train rolling stock with extra carriages so that people are not crammed together at peak times. There will be a new accident and emergency wing at Bradford Royal infirmary. All those important local services will be delivered, thanks to the Government's careful and prudent management of the public finances.

The Government have focused on stability and on ensuring that we get the fiscal balance right, while targeting assistance through tax cuts. They have always borne in mind the fact that a responsible Government have to balance revenue against expenditure. That is what my constituents want. I hope that the Bill receives the support of the House.

Photo of Andrew Tyrie Andrew Tyrie Conservative, Chichester 8:58 pm, 17th April 2000

Originally, I was going to say something about macro-economic policy and take only an oblique look at the fiscal measures. However, having had a good look at the Bill over the past 48 hours, I have decided to spend some time talking about the climate change levy.

Without a shadow of a doubt, the levy is the most astonishing measure that I have ever seen in a Finance Bill. Set out over the 83 pages of schedule 6. it is a most unusual provision. No clear explanation has been provided of why the measure has been introduced, nor of how it is to be applied. It is a poorly designed levy and poorly thought through. What was the ostensible reason for the levy, and what is it designed to achieve? I can only assume that it has been introduced because the Government have swallowed whole every assertion made by those who argue that we must act now to arrest climate change.

I have asked the Library whether, since the general election, the Government have produced a study setting out their view of the conclusions of the Kyoto summit, the extent to which they agree with them or the extent, perhaps, to which they feel that we should go further. The Government have published nothing on those lines. Nor have they called together a group of scientists to publish an independent report, as far as I know.

I do not know whether climate change is a serious problem. However, over the past 48 hours, I have started to read up about it again. With the Finance Bill, we could find ourselves at the start of what will amount to a fundamental alteration of the shape of the economy to take account of climate change without many of the basic questions about it being answered. I shall ask a few of those questions now.

My interest in these matters was first triggered 10 years ago when I went to a lecture by Sir John Mason, the head of the Meteorological Office, who more or less destroyed the argument that climate change was occurring as a consequence of carbon dioxide emissions. Since then, he has modified his views somewhat, but, apparently, he still holds to many of his basic points. As I have said, I do not know the answers to these matters, but as I think that they are pertinent to schedule 6, I shall ask six or seven basic questions and make some brief allusions to them. I urge the Government to produce a thorough study of these matters before putting the Bill on the statute book.

Let us try a really basic question. Is global warming occurring? That might be thought a most absurd question because the answer is so obvious. Over the past 20 years, statistics have shown that the surface temperature of the planet has risen between 0.3 and 0.8 points of a degree celsius. However, reading over the weekend, I discovered that satellite measures of the temperature of the earth show no rise. There are many scientists who think that such measurements are more accurate than terrestrial measures. Balloons called radiosonde are also used to measure temperature. They, too, have failed to find any increase in global temperature over the past 20 years. If I had to guess, I would say that the planet probably is increasing in temperature, but I really do not know.

I shall try another basic question. Has the planet been warmer than it is now? I quickly discovered that it has been much warmer. In the middle ages, grapes were apparently cultivated along the south coast to produce wine. There is overwhelming evidence to suggest that this part of the world, and probably the whole world, has been warmer than it is now. It was probably warmer in Roman times. There was also a mini-ice age in the 17th century.

Even if the earth is warming, is that necessarily bad? I have seen no convincing evidence to suggest that it is. It is clear that there will be a distributional effect from one region to another. However, it is not clear that, overall, the earth will be worse off if temperatures rise.

Will warming lead to more unstable weather? The Deputy Prime Minister has been unequivocal about that. He has stated that we can expect extreme weather events to become more frequent…as temperatures rise. When I read the evidence of the experts at the Intergovernmental Panel on Climate Change, I discovered that some of them strongly disagree with that view. They think that increases in temperature will lead to a smaller differential between the poles and the equator and that that will reduce extreme weather events. Again, I do not know whether that is true. I merely beg right hon. and hon. Members to read some of the literature that is available, which is by no means clear cut on these matters.

Photo of Andrew Love Andrew Love Labour/Co-operative, Edmonton

I thank the hon. Gentleman for giving way. Is he disagreeing with the right hon. Member for Wells (Mr. Heathcoat-Amory) who, in his speech this afternoon, committed the Opposition to the Kyoto targets?

Photo of Andrew Tyrie Andrew Tyrie Conservative, Chichester

Commitments, once made, should be honoured. The Kyoto targets are probably quite manageable, possibly without a levy, as several Labour Members have said this evening. The question that I am raising is whether the general philosophy behind the objective that the levy is designed to achieve is right. I am not suggesting for a moment that I have the answers. I am suggesting that we should not rely exclusively on work done by a United Nations working group. There should be intensive study and debate on climate change by the Government before we fundamentally change the structure of British industry to take account of it, which is the long-term implication of a levy.

I shall ask a few more questions, to which I also do not know the answer. If there is global warming, is it caused by human activity—in other words, is it anthropomorphic? The former Economic Secretary was clear about that. She said unequivocally: We cannot doubt that climate change is the result of human activity.—[Official Report, 20 July 1999: Vol. 335, c. 1040.] She was presumably referring to the only solid statement made on the matter by the IPCC, which noted in its report: Observations suggest a discernible human influence on climate change. That is rather weak wording on which to base a drastic change of economic and industrial policy.

As far as I can tell from the literature, there is no clear evidence that humans are the exclusive or even the major cause of climate change, if indeed it is taking place. There are many learned tracts suggesting that variations in radiation from the sun are the main cause of variations in the weather. Moreover, a good number of models are being developed suggesting that climate change is endogenous to the planet.

Photo of Kali Mountford Kali Mountford Labour, Colne Valley

The hon. Gentleman is advancing an extraordinary thesis, which I have not often heard before. What amount of evidence would satisfy him that measures are necessary? Even if he has doubts, is it not reasonable to err on the side of caution, before we lose atolls, islands and icebergs all over the world?

Photo of Andrew Tyrie Andrew Tyrie Conservative, Chichester

The hon. Lady mentions icebergs. The evidence that the polar ice caps are disintegrating in the long run is weak. Sir John Mason made it clear in his lecture that he found the evidence extremely unreliable. If I had time, I would read his lecture out to the House.

I suggest to the hon. Lady and to the House that we need to think carefully about these issues, before making drastic changes. I have not yet been convinced that the right course is to try to lower CO2 emissions to the point at which the models would start to predict that the earth was no longer warming. There may be other courses of action that we should take. I shall come on to those in a moment.

It is clear that the planet has changed temperature many times, both up and down, well before any power stations were built, so we know that climate change can take place endogenously, as I suggested.

Let us now make a few assumptions. Let us suppose that there is global warming, which is a reasonable assumption. Let us suppose that we are causing it, which looks a little less reasonable; that we are causing it through carbon emissions; and that it is resulting in a great deal of net harm to the planet. We ought to examine all those assumptions carefully.

The next question, which again does not seem to have been asked by the Government, is: should we adapt to the change in climate or should we try to reverse it? As I mentioned, the main effect of a change in the climate is likely to be distributional—it impoverishes some areas and enriches others. There is a deal of evidence to suggest that an increase in the temperature of the planet will increase overall precipitation, and therefore increase the overall fertility of the inhabited areas of the globe, even though there will be some land loss, as the hon. Lady suggested when she envisaged sea levels rising.

I do not know the answer to all those questions; I am not an expert. However, it is worth asking whether we should respond to such an event by accepting that some land loss will occur and deciding to build better sea defences, or by trying to devise some distributional mechanisms whereby the impoverished regions benefit from the areas that are enriched by global change. We should also consider whether it is worth trying to change the climate of the planet. That is a big undertaking, which we need to be clear that we need to achieve.

If we conclude that we want to change the temperature of the planet, it is important that most of us are on side and working on the same project. There is a major problem with the CO2 emissions project. Although the Chinese have signed up to Kyoto, it is widely argued that they are not likely to implement it; the United States, which is responsible for the most CO2 emissions, has not even agreed to sign it. Upwards of half of the total global emissions of CO2 are from those two large countries, which do not seem to support the policy. It is dangerous to take such a step almost alone. As in other matters, Britain will honour its commitments more vigorously than many other countries that have signed agreements.

The Bill introduces a massive new tax; in the long term, the Government plan to restructure British industry. If they are not planning to do that, they are not tackling the problem but paying lip service to it. Therefore, one can assume that the measure creates a new tax base on which the Government clearly intend to build in the long run.

I implore the Government to establish a high- powered committee, possibly a royal commission, to examine urgently the issues that I have raised, and to develop a British, considered view of global warming and ways in which to tackle it. No British Government have done that, but such action is urgently required.

We have accepted too many arguments on the nod, without further careful examination. I stress that I do not claim that global warming is a load of nonsense. I genuinely do not know the answers to the questions that I have posed, but I believe that we should work on the best evidence available before implementing the tax. That is the biggest single reason for my caution about the levy.

Let us consider the levy in detail. What does it propose? It does not directly affect carbon emissions. It is a downstream levy because the Government want to avoid a direct effect on consumers. It is an energy, not a carbon tax. Its guns are therefore pointing in the wrong direction. It will damage several successful industries, including British Steel. Brian Moffatt said: It will close plants, which will be replaced by inefficient plants in other parts of the world. In other words, net global CO2 emissions from the steel industry are likely to increase as a result of the proposals.

Let us consider the liquid petroleum gas industry; the Calor gas industry. It will be badly hit, despite being the most CO2 friendly industry in the sector. It would be replaced by burning hydrocarbon oils; CO2 emissions will consequently increase.

The list of potentially affected industries is endless. Several have already been mentioned. They include the renewables industry, aluminium, glass—the hon. Member for Barnsley, Central (Mr. Illsley) mentioned the effect on the glass industry in his constituency. In my constituency, I have a horticulture industry, which would be badly hit. It is ironic that the levy will hit those industries that are most exposed to international competition. It is therefore likely that we will force the industries offshore, and the net effect on global CO2 emissions will be zero or even negative. Eastern Europe, which has inefficient plants for a wide variety of industries, will benefit from that.

Most extraordinary of all, the tax will be collected unlike any other, without a degree of certainty and on the basis of negotiation. It is discretionary and subject to what are described in schedule 6 as "umbrella agreements". There is no precedent for such negotiations on the collection of a tax or for empowering civil servants to negotiate with firms and agree their tax liabilities. Nor should politicians have that power. Therefore, I am deeply concerned about the Bill on that point of principle.

Altogether, the structure of the tax is a right mess. In fact, I have not seen such a right mess since I looked at the poll tax in about 1985. I do not know whether we need the tax to fulfil the Kyoto targets, but my guess is that we probably do not, given that the Government have shown the common sense today to drop the gas moratorium. If more is needed—I said that we should fulfil our international obligations—we could think of far better ways, far less damaging to British industry, than the Government's extraordinary proposals.

I said that I would say a few words about macro-economic policy, and there will be only a few, given the time available. I want to make two points by asking questions. First, is fiscal policy tight enough to enable monetary policy to be relaxed? Everyone feels that, if we could engineer it, we should like some relaxation. That is the current mantra. I am not entirely convinced, but there is a case for it. If looser monetary conditions were achieved, the exchange rate could fall and the imbalance between the service and manufacturing sectors would be easier to handle.

My right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) argued in his first speech after the Budget that the Budget was tight. In his second, he argued that it was loose. He was more or less right the second time; it represents a loosening of policy. I cannot help feeling a resonance from events in the late 1980s when I was in the Treasury. What do we have? A brittle stock market, a bit of a housing boom after a long period of growth and some talk from the Government about how to end the business cycle—the end of boom and bust. There was talk of that then, but there is more now. I regret that Nigel Lawson let that phrase slip on one occasion, although he quickly tried to back-track later. Labour has not yet realised that it will have to do that. There was a debate about whether fiscal policy was too loose. We were addressing exactly those questions in the late 1980s. The situation is not so primed for as big a boom and bust, but several of the conditions are evident right now.

No Government can afford to ignore the value of the exchange rate for ever—at least, no Government of a small or medium-sized country. At any rate, it is extremely difficult to manage an economy without giving some consideration to the exchange rate. I am sure that, sooner or later, the Government will realise that they will want to tighten fiscal policy to get the exchange rate to an appropriate level and to enable the Monetary Policy Committee to find the room to make the necessary changes to interest rate policy that would enable the exchange rate to fall.

Photo of Andrew Tyrie Andrew Tyrie Conservative, Chichester

I give way to the hon. Gentleman for a second time.

Photo of Andrew Love Andrew Love Labour/Co-operative, Edmonton

I thank the hon. Gentleman for giving way again. How does he square the fiscal tightening of which he talks with the Conservative amendment and the tax guarantee about which Conservative Members talk so much?

Photo of Andrew Tyrie Andrew Tyrie Conservative, Chichester

I do not have the amendment in front of me, but the Red Book suggests a loosening of policy. If anything, fiscal policy should be tightened. If the hon. Gentleman will forgive me, in my remaining minute I shall not go into the territory of the tax guarantee, although I am fascinated by tax guarantees and would love to debate them on another occasion.

I want to make another brief point by asking a question. Could the announced spending increases be sustained in the event of a downturn in economic activity? That is the other big question about the Budget and there are two pointers as to why that might not be the case. The first is the growth forecast. The whole Red Book is based on a forecast of above-trend growth, followed by our slipping back to trend growth; nowhere is there even the hint of an idea that we might be below trend.

Some Front Benchers are mathematicians, and will know that trends are averages: there must be a period a bit below the trend for there to be a period a bit above it. The Government's, it appears, is a unique trend, in that there is never anything below the line. That is a problem for the Government. If there is any downturn below trend, the numbers in the Red Book simply will not add up.

The second factor that should be taken into account in an assessment of whether the spending can be afforded is the net borrowing figure. [Interruption.] If the hon. Member for Nottingham, North (Mr. Allen), who is grunting on the Front Bench, looks at page 146 of the Red Book, he will see that the rise in net borrowing is very fast over the planning period. That, I think, gives cause for concern.

The structure of the economy is still sound, but it is slowly being chipped away. The Chancellor has taken risks, partly for electoral purposes. He is fuelling the beginnings of a political cycle with his fiscal policy, and in that sense he is undermining the good work that he did when he tried to dissociate politics from the business cycle by making the Bank of England independent.

Photo of Mr Howard Flight Mr Howard Flight Conservative, Arundel and South Downs 9:21 pm, 17th April 2000

I am sure that all Members will join me in welcoming the tremendous improvement in the performance of the UK economy since 1992. As I think everyone knows, and as the Prime Minister has implicitly admitted, this is essentially the result of the supply-side reforms of the 1980s, the development of a venture capital industry, the return to entrepreneurship, and the key measures introduced by the Thatcher Administration.

Photo of Geraint Davies Geraint Davies Labour, Croydon Central

Is the hon. Gentleman aware that between 1990–91 and 1996–97 net debt as a percentage of gross domestic product grew from 27 to 44 per cent? Am I not right in saying that if the Tories ever returned to office with their tax guarantee, all that would happen would be more and more borrowing, more and more debt, and the indebtedness—again—of the British economy?

Photo of Mr Howard Flight Mr Howard Flight Conservative, Arundel and South Downs

It is about time that the hon. Gentleman matured a little. I was referring to the growth rates that have been achieved and the new industries that have developed. Indeed, comments made by the Prime Minister—the leader of the hon. Gentleman's own party—underline much of what the Government have done and most of the reasons why Labour has changed its spots so dramatically.

What has happened in this country and in America, and to a lesser extent in Europe, has been very much the result of supply-side improvements.

Photo of Mr Howard Flight Mr Howard Flight Conservative, Arundel and South Downs

No. [Interruption.] I ask the hon. Gentleman not to interrupt. I said that I would not give way.

The Chancellor has made an ill-conceived attempt to take credit for the good performance of the UK economy and for what we all hope will continue to be good growth rates during forthcoming years. He is also unwise to believe that he has abolished the business cycle, for reasons that have been illustrated by recent events in the stock markets, and also for reasons given by my hon. Friend the Member for Chichester (Mr. Tyrie).

I feel that the general thrust of the Budget is somewhat mistaken. The International Monetary Fund has said that it is uncomfortable about the Government's decision, at this stage in the cycle, to increase fiscal expenditure by some £4 billion over 2001–02, and by £15 billion by 2003–04. The IMF is saying implicitly that the Government run the risk of creating a return to boom and bust. That, too, was mentioned by my hon. Friend the Member for Chichester.

I am, however, more worried by the fact that the overall thrust of the current Administration continues to be more Government involvement, more Government expenditure and higher taxes to finance this. In July 1998, the Chancellor lectured us about the great virtues of prudence and said that he would stick to his three-year spending targets, but, as my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) said, he has thrown that out of the window with the current Budget without a by-your-leave.

I also point out to the hon. Member for Shipley (Mr. Leslie) that the last Conservative Administration did freeze Government expenditure: it was at £13.3 billion in cash terms in 1994–95 and £13.29 billion by 1997–98. It has increased by £2 billion in cash terms since then.

Photo of Chris Leslie Chris Leslie Labour, Shipley

Will the hon. Gentleman give way?

Photo of Mr Howard Flight Mr Howard Flight Conservative, Arundel and South Downs

No, I will not. We have debated the issue.

Photo of Chris Leslie Chris Leslie Labour, Shipley

Will the hon. Gentleman admit that, when looking at central Government expenditure, it is better—he should suggest it to the right hon. Member for Wells (Mr. Heathcoat-Amory)—to use real terms than cash terms? They show that the present Government are reducing those costs.

Photo of Mr Howard Flight Mr Howard Flight Conservative, Arundel and South Downs

It is rational to look at both, but the point that I was making was that in the last three years of the previous Administration, there was prudent economy in managing Government expenditure: we held the sum in cash terms.

The truth, as the electorate is becoming increasingly aware, is that the Government have put up taxes by the equivalent of 8p on income tax. The average family is paying some £13 a week, or £670 a month, more. Perhaps they would not mind if the delivery of services improved, but, as women in our community in particular are well aware, class sizes and waiting lists are up, police numbers are down and crime is rising. It is the failure to deliver which we attack and over which the Administration are increasingly being rumbled.

The pledge was simple: taxation was not going to be increased at all; education and health were going to have a lot more spent on them and to be greatly improved; and the economies were going to come from reductions in the social security budget. The reality is that the latter is going up by some £30 billion over the current Parliament.

Both the Chancellor of the Exchequer and the Chief Secretary to the Treasury have continued to reveal a somewhat compulsive addiction to presenting incomplete data—and indeed, on some occasions, perhaps unwittingly, an addiction to misrepresenting data—and to hiding fiscal nasties as far as possible from Parliament. It is no accident that the director general of the British Chambers of Commerce commented on the recent Budget: It is becoming incredibly difficult for Business to match the Rhetoric with the Reality. The Budget is again full of stealth taxes. There are the double tax treaty treatment of proposals relating to mixer companies, the further increase in stamp duty, and the new car tax, which is almost impossible for anyone to understand but adds significantly to taxation where employers provide cars. There are the coming aggregates tax, the climate levy tax and the extra duty on tobaccoes and fuel.

The biggest of the lot is not even in the Bill: IR35, which is budgeted to add some £900 billion of revenue. [HON. MEMBERS: "£900 billion?"] Would that the Government were so lucky—I mean £900 million of revenue. There are also national insurance contributions applying to venture capital companies on the exercise of employee share options.

The Government have taxed pensions, business, insurance contracts, the self-employed and enterprise. As the hon. Member for Kingston and Surbiton (Mr. Davey) has pointed out, through their changes to the capital gains tax regime they have created something that is impossibly complicated for ordinary citizens to deal with. Allegedly, the Government are providing incentives to companies to make available shares to individuals who work in those companies, which Conservative Members welcome greatly, but the tax effects of the Bill as it stands are mind-blowingly complicated for such individuals.

Photo of Barry Gardiner Barry Gardiner Labour, Brent North

Does the hon. Gentleman not accept and welcome the fact that capital gains tax has been cut to the lowest level not only that this country has ever seen but in the western economy? Does he not recognise that the simplicity of planning over a four-year cycle—knowing that capital gains tax will be at 10 per cent. after four years—is welcomed by businesses up and down the country?

Photo of Mr Howard Flight Mr Howard Flight Conservative, Arundel and South Downs

Germany has no long-term capital gains tax and the rate in the United States is lower. I certainly welcome the cuts, but my criticism was of the complications.

I turn to the change in the double taxation treaty. The last time that the issue was raised, I felt that the Chief Secretary cast an improper slur on Mr. Peter Wyman. It has emerged since that the mean of the forecasts of all the leading accounting firms is that the tax will raise at least £3 billion as it stands and make the United Kingdom the least attractive place among the main economies of the world to base multinationals headquarters.

Is the Paymaster General aware that a main story in The Times tomorrow is that Allied Zurich plc will be moving its headquarters from the UK and that there will be a loss of £100 million of taxation to the Revenue as a result? I would be interested to hear what the Government have to say to that.

More particularly, and following Dame Sheila Masters' comments, we would like to know whether the Government will stick with the proposals or whether, as virtually all industry, accountants and so forth have advised, they will be going back to the drawing board. If they do not do so, they will simply succeed in driving multinationals from this country. Indeed, almost as if we are returning to the days of Harold Wilson and the brain drain, this Government seem determined to drive small businesses out of the country with IR35, and large businesses out of the country with the double taxation proposals.

I turn to fuel duty and allowances. At the most recent Treasury Question Time, I asked the Paymaster General why the inflation indexation applying to fuel was 3.4 per cent. but for pensions and allowances it was only a 1.2 per cent. She responded—I felt slightly patronisingly—that as I had not been in government, I would not understand such things. The truth is that, right down to the last Conservative Budget, the same inflation base was used for both allowances and the fuel escalator. It is only as a result of this Administration increasing the duty on fuel four times over three years that they have moved the inflation index for fuel to the forecast rate. Indeed, I discovered another stealth tax in that, where the forecast has proved to be larger than the actual, no adjustment has been made in the following year's duty.

There have been four increases in stamp duty for properties worth more than £250,000 over the past three years. As my right hon. and learned Friend the Member for Rushcliffe pointed out, that is a virtual tripling and quadrupling of stamp duty. The Government no doubt like to think that that is a pleasant major stealth tax on the well-off, but I remind them that £250,000 is the average price for a normal, family semi-detached home in London. The duty is an unfair tax on people in the south-east, who may have to move because of their job. It will discourage older people from vacating larger properties, thus adding to the demand for more houses on greenfield sites. It is similarly a burden on business.

Photo of Andrew Love Andrew Love Labour/Co-operative, Edmonton

Does the hon. Gentleman accept that the increase in stamp duty for houses worth more than £250,000 applies to only 4 per cent. of residential property?

Photo of Mr Howard Flight Mr Howard Flight Conservative, Arundel and South Downs

The main point is that the tax covers businesses, but as I pointed out and as the hon. Gentleman is no doubt aware, the cost of an average, perfectly unfancy family home in London is now around such a price.

Opposition Members welcome the Government's proposals to increase the tax breaks on giving to charities. However, the value of those proposals is a good deal less than the full cost to charities of the abolition of advance corporation tax, which will come into effect in 2004. Additionally, the Government have failed to deal with the major problem of value added tax paid by charities.

We broadly welcome the Government's venture capital and enterprise measures. It is a pity, however, that the impact of those measures is substantially undone by measures in other spheres, particularly IR35.

I should like to tell the Paymaster General of the case of one of my constituents and the reason why IR35 is not merely a tightening-up on tax avoidance arrangements. My constituent is typical of the 60,000 information technology subcontractors who have been persuaded to subcontract at the prompting of the main company for which they work. His complaint is that the limit on expenses will cost him an extra £5,000 annually. He has annual revenues of £60,000, and his legitimate expenses—depreciation, accounting, travel and supplies—amount to £11,000 per annum. At the 5 per cent. limit, he is permitted only £3,000 per annum of tax-deductible expenses. He will therefore have to find £8,000 of expenses out of after-tax income. That has to be wrong. No other business structure is obliged to meet bona fide business expenses out of after-tax income.

My many right hon. and hon. Friends on both sides of the House—for Caernarfon (Mr. Wigley), for Wells (Mr. Heathcoat-Amory), for Rushcliffe, for Kingston and Surbiton, for Fylde (Mr. Jack) and for Barnsley, Central (Mr. Illsley)—have all criticised the crackpot climate change levy proposals. The crucial point is that the levy will tax energy, not carbon. The levy is not a necessary environmental tax, but simply an excuse for raising revenue.

The Budget's measures on transport expenditure are likely to prove inadequate, especially with the approval to introduce 44-tonne lorries, and particularly in the south-east.

My right hon. Friend the Member for Wells and my hon. Friend the Member for Ludlow (Mr. Gill) rightly criticised the tobacco duty increase, which will simply increase bootlegging. I commend to the House, in the recess, a read of Parson Woodforde's diary, which described an entirely similar phenomenon in the 18th century, when coffee was overtaxed and people's integrity was undermined by coffee smuggling.

More seriously, the tobacco duty increase bears hardest on the least fortunate members of society. I should perhaps declare an interest in the matter and in the Bill as a whole, both personally as a smoker and as a director of companies. Hon. Members will know that, although some people can buy cigarettes or wine abroad, single parents and many others who smoke and are at the bottom of society will suffer most from the increase.

Rarely has a Chancellor been in such a strong position to present his last Budget, or last Budget but one, before a general election. It is surprising that this Budget has been a relative flop. It has been criticised by business and by the International Monetary Fund. It has also been resented by ordinary citizens, who are now aware that their mortgage interest relief at source and married couples allowance are going as their new tax codes are being introduced. People are increasingly aware that they are paying £670 a year more in tax.

As the director general of the Confederation of British Industry commented: This is not the Budget for Business that we were hoping for.

The head of the Federation of Small Businesses commented: Overall this was a Social Budget and a lost opportunity for small business.

The Chancellor has sidelined over 80 per cent. of small firms by ignoring the unincorporated self-employed sector. I believe that the Budget reveals Labour's visceral response towards both the self-employed and pensioners. The Government think that, politically, neither of those groups is on their side, and, therefore, that neither of those groups is to be helped.

The real criticism—this is where my right hon. Friend the Member for Wells and I began—is that the Government have loaded taxes and regulations on the economy. Their regulations cost business £5 billion per annum and there will be £30 billion of extra taxation on business over the Parliament, as well as higher taxation on average families. But the Government have failed to deliver in the key service areas of health and education for which they were elected. That is why the House should refuse to give the Bill a Second Reading.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury) 9:40 pm, 17th April 2000

This has been an interesting debate. I congratulate my right hon. Friends the Members for North Durham (Mr. Radice) and for Llanelli (Mr. Davies) and my hon. Friends the Members for Wimbledon (Mr. Casale), for Shipley (Mr. Leslie) and for Erewash (Liz Blackman) on their contributions, which I shall attempt to cover, as well as those of the right hon. and learned Member for Rushcliffe (Mr. Clarke), the right hon. Members for Fylde (Mr. Jack) and for Caernarfon (Mr. Wigley), and the hon. Members for Kingston and Surbiton (Mr. Davey), for Ludlow (Mr. Gill) and for Chichester (Mr. Tyrie).

My hon. Friend the Member for Shipley dealt effectively with the comments of the right hon. Member for Wells (Mr. Heathcoat-Amory) about Government spending on administration. My hon. Friend made it clear that administrative costs last year accounted for 4.1 per cent. of total Government spending, compared with 4.4 per cent. in 1996–97.

The purpose of the debate is to deal with the measures in the Bill. I shall try to respond to the concerns that have been expressed. My hon. Friend the Member for Wimbledon talked about fairness in the tax system and the need to create a platform of economic efficiency and success on which to build social progress and stability. He highlighted the enterprise agenda in the Bill and echoed again that full employment is possible and we can deal with the structural unemployment that we inherited from the previous Government.

My hon. Friend the Member for Barnsley, Central (Mr. Illsley) made several points, some of which I shall return to. He will not be surprised to hear that I did not always agree with him. I shall deal in particular with his points about the smuggling of tobacco and alcohol. I remind him and the House that the Government have announced that we will spend another £209 million over three years and that there will be nearly 1,000 more staff tackling the issue. We are dealing with smuggling on three fronts: first, we are improving our intelligence collection and targeting those who finance smuggling; secondly, we are targeting those who transport the goods into this country; thirdly, we are targeting the gangs who distribute the products. My hon. Friend focused on duty, but the problem is far worse than that. The systematic criminal activity of smuggling goods into this country that do not carry the cost of duty means that whatever we do with our duty rates, we will still have to tackle the serious problems of smuggling. Hon. Members should not underestimate the problems of that systematic criminal activity.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

I shall give way to the hon. Gentleman before I move on to his points about climate change.

Photo of Andrew Tyrie Andrew Tyrie Conservative, Chichester

Does the Minister accept that the most intelligent thing to do is to accept that the Government are creating a criminal class through the huge differential? The answer is to reduce the differential and kill off the smuggling. The Government would probably get an increased yield in the long run as a result.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

I do not think that the hon. Gentleman heard what I said, so I will repeat it. The problem is with goods on which no duty has been paid, smuggled in from beyond the European Union, at a price that we simply could not compete with, by systematic, organised criminals, not Jack-the-lads. The hon. Gentleman does the cause no good by continuing to peddle a simplistic answer to what is a very serious problem in all our communities.

Several hon. Members have spoken about the climate change levy. The hon. Member for Arundel and South Downs (Mr. Flight) seems a little confused—I hope that he will not take that as patronising, as I would not dream of patronising him—about exactly what happens with the levy. The levy package will cut CO2 omissions by at least 5 million tonnes by 2010. He said that it raised taxes, but in fact it is revenue neutral. All the proceeds will be recycled back to business. The package will be broadly neutral for the manufacturing sector, too. There will not be a transfer to the service sector, as some have suggested today.

The hon. Gentleman should say whether, in opposing the climate change levy, his party is opposing the employers national insurance contribution cut that will result from these measures.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

No, because I want to answer the points made by others who have been in the Chamber for the whole evening.

The hon. Member for Arundel and South Downs should be clear about what is in the Bill. He referred to the aggregates levy, as did others. They are wrong in thinking that it is in the Bill. It is a future consideration.

My right hon. Friend the Member for Llanelli talked about group relief, the European Court of Justice rulings and the changes in the Bill. There are two separate rulings: ICI-Colmer and another case, the name of which has just slipped my mind. The ECJ ruled, in relation to the single market, that double tax relief had to apply to branches. That means that it would be backdated for six years in the case referred to, because the ECJ has ruled that it would apply for the whole time.

I will look closely at what my right hon. Friend said. He also referred to profit and loss for branches. That was not covered in the ECJ ruling and would not be backdated for six years. That is a change that the Government have chosen to make.

Photo of Mr Denzil Davies Mr Denzil Davies Labour, Llanelli

My point—my hon. Friend has half answered it—was that it is possible to claim back for six years, but will the claiming back be restricted to residents within the European Union?

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

It applies not to residents but to companies. We are talking about branch relief. There is a difference, and my right hon. Friend spoke very particularly about the difference of residence and whether one must be in the European Union to qualify. The changes that we have made are part of the package of improvements that we are making in this year's Budget.

I want to speak about double taxation relief and the controlled foreign company measures to which several hon. Members have referred. Budget 2000 introduces changes to the corporate tax rules covering the treatment of foreign profits, including limiting the use of so-called mixer companies to shelter low-tax foreign profits from UK tax. Multinationals will no longer be able to use offshore structures to mix foreign tax rates of, say, 60 per cent. and 5 per cent. when they bring foreign profits into the UK as dividends. Currently, they do that to shelter low-taxed foreign profits from UK tax. That means that the Exchequer underwrites the cost to business of investing in countries that have not reduced their taxes to the UK level. Companies would not be able to get relief for higher foreign tax if they held overseas subsidiaries directly from the UK.

The reality is that companies have been attracted to the UK in recent years primarily as a result of the climate of economic stability that the Government have fostered through the low corporate tax rates and, most recently, by the abolition of advance corporation tax, which has made the UK a much more attractive location for companies that have activities outside the UK. The problem for international business and UK companies investing abroad is not the abolition of mixer companies, but that the tax rates in countries in which they are investing, including Germany, the US and Japan, are higher—

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

No. The hon. Gentleman can sit down to allow me to make my points. He will have plenty of time to debate these points with me, in Committee and in the House again.

In some cases, the taxes are much higher, but changing the rules for mixer companies will get rid of the subsidy that the UK taxpayer provides for those other tax systems. The use of mixer companies has made UK investors more or less indifferent to the high tax rates in countries in which they invest, and we need to change that focus to ensure that we receive the correct amount of tax.

The fundamental point is that the Government do not believe that companies should be able to roll up profits offshore, in many cases out of the reach of any normal tax system. This is not about competitiveness, but about fairness. Opposition Members wish to focus only on that one issue. They do not wish to consider the wider issues of double taxation relief, but that is only one of the considerations that companies take into account when considering where to set up their groups. The changes to the double taxation relief need to be considered with the other elements of the tax and non-tax environment.

Other elements within the tax environment consist of taxation of capital gains made by companies on selling their subsidies and the tax relief for interest on loans to fund overseas investment. The changes made to the double taxation relief system may tighten the rules in that area, but when the proposals in the Budget are taken into account, the UK will remain competitive in the future in the international arena.

The background is simple. The relief for foreign tax extended to overseas companies mergers is part of the double taxation relief. Allowing foreign tax to be carried backwards and forwards for use in another year is also part of the double taxation relief. The Government are legislating for a number of practices to improve the transparency and certainty of the relief, as companies requested. The other changes, to which Opposition Members never wish to refer, make up the complete package, including the reduction in the corporation tax rates, the abolition of advance corporation tax, the extension of the group rules, and the abolition of stamp duty on sales of intellectual property to boost research and development to create an environment favourable to the innovation and invention of our companies. These provisions represent a broader rationalisation and modernisation of the double taxation reliefs, and Opposition Members should look at them carefully before making wild accusations about how much money is going to be saved. The hon. Member for Arundel and South Downs could not even tell the difference between £900 million and £900 billion—but I am not surprised at that.

I shall turn briefly to the question of what is known as IR35, which covers people using service companies. The House must be clear that we are not talking about entrepreneurs or employers. We are talking about employees who want a better deal from the tax system than their status says they are entitled to. Opposition Members must say why a nurse should pay more national insurance on her income than an IT specialist who uses a service company to reduce his income before making those payments.

Our intention is not to prohibit service companies—nor to touch those who work legitimately through them. We want to make it clear that people who are really employees but who seek to disguise their employment status through a service company should pay the correct amount of national insurance and tax. That is what every hon. Member in the Chamber does, and all the 26 million employed people in the tax system do.

Opposition Members continue to try and make it sound as if the people at whom the Bill is targeted are to be denied what other people get, but it is not possible for people simply to say, "I want to be self-employed." The rules on terms and conditions in the tax system dictate whether a person is categorised as self-employed or as an employee. Opposition Members argue for a 5 per cent. reduction in payments for training costs. The implication is that only employees in service companies are so entitled, and that ordinary employees are not.

There have been endless statements in support of the Government's action in bringing forward these proposals. There has been a vocal and effective campaign against them but, as The Daily Telegraph stated on 3 April: Many…people were merely taking advantage of a loophole in the tax rules. They were by most normal definitions employees but found a legitimate way of reducing their tax. That is what IR35 seeks to deal with.

An article in Scotland on Sunday on 2 April stated: Every bar-room regularly knows at least one smart kid with a six figure income who has slashed his tax bills simply by calling himself self-employed and charging for his work through a personal service company. Such practices cannot be allowed to continue.

As I said to the hon. Member for Kingston and Surbiton, the Liberal Democrats advocate that everyone else's tax must go up by 1p in the pound; he must therefore explain why he believes that those few people who use service companies should be allowed to pay less tax than anyone else simply because that is what they want to do.

The Bill is about business and jobs, which will benefit from our commitment to enterprise. The Bill contains a number of measures to promote enterprise and help business—cuts in capital gains tax, research and development tax credit, the permanent 40 per cent. allowance for small and medium-sized companies, the new all-employee share ownership plan, the enterprise management incentive and the corporate venturing proposals.

The Bill promotes enterprise and fairness. It looks to the future, whereas the Conservative party is still locked in the past. Conservative Members have put forward no coherent proposals this evening: there is no indication that they have an understanding of what the problem is, let alone a glimmer of what the solution should be.

The Bill shows that this Government are keeping their promises where the previous Government broke theirs. Labour is standing for the many, as we deliver sound public finances, lower inflation, high living standards, help for poorer families and pensioners, and employment for opportunities for all, while the Conservative party continues to make reckless pledges that sacrifice future security. I commend the Bill to the House.

Question put, That the amendment be made:—

The House divided: Ayes 136, Noes 342.

Division No. 169][10 pm
AYES
Ainsworth, Peter (E Surrey)Chapman, Sir Sydney (Chipping Barnet)
Amess, David
Ancram, Rt Hon MichaelClappison, James
Arbuthnot, Rt Hon JamesClarke, Rt Hon Kenneth (Rushcliffe)
Baldry, Tony
Bercow, JohnCollins, Tim
Beresford, Sir PaulCormack, Sir Patrick
Body, Sir RichardCran, James
Boswell, TimDavies, Quentin (Grantham)
Bottomley, Peter (Worthing W)Davis, Rt Hon David (Haltemprice)
Bottomley, Rt Hon Mrs VirginiaDay, Stephen
Brady, GrahamDorrell, Rt Hon Stephen
Brazier, JulianDuncan Smith, Iain
Brooke, Rt Hon PeterEmery, Rt Hon Sir Peter
Bruce, Ian (S Dorset)Evans, Nigel
Burns, SimonFaber, David
Cash, WilliamFabricant, Michael
Fallon, MichaelNicholls, Patrick
Fight, HowardNorman, Archie
Forth, Rt Hon EricO'Brien, Stephen (Eddisbury)
Fowler, Rt Hon Sir NormanOttaway, Richard
Fox, Dr LiamPage, Richard
Gale, RogerPaice, James
Garnier, EdwardPaterson, Owen
Gibb, NickPickles, Eric
Gill, ChristopherPortillo, Rt Hon Michael
Gillan, Mrs CherylPrior, David
Gorman, Mrs TeresaRandall, John
Gray, JamesRedwood, Rt Hon John
Green, DamianRobathan, Andrew
Greenway, JohnRobertson, Laurence
Grieve, DominicRoe, Mrs Marion (Broxbourne)
Hague, Rt Hon WilliamRuffley, David
Hamilton, Rt Hon Sir ArchieSayeed, Jonathan
Hammond, PhilipShephard, Rt Hon Mrs Gillian
Hawkins, NickShepherd, Richard
Heald, OliverSimpson, Keith (Mid-Norfolk)
Heath, Rt Hon Sir EdwardSoames, Nicholas
Heathcoat-Amory, Rt Hon DavidSpelman, Mrs Caroline
Hogg, Rt Hon DouglasSpicer, Sir Michael
Horam, JohnSpring, Richard
Howarth, Gerald (Aldershot)Stanley, Rt Hon Sir John
Hunter, AndrewSteen, Anthony
Jack, Rt Hon MichaelStreeter, Gary
Jackson, Robert (Wantage)Swayne, Desmond
Jenkin, BernardSyms, Robert
King, Rt Hon Tom (Bridgwater)Tapsell, Sir Peter
Taylor, Ian (Esher & Walton)
Kirkbride, Miss JulieTaylor, John M (solihull)
Laing, Mrs EleanorTaylor, Sir Teddy
Lait, Mrs JacquiTredinnick David
Lansley, AndrewTrend, Michael
Leigh, EdwardTyrie, Andrew
Letwin, OliverViggers Peter
Lewis, Dr Julian (New Forest E)Walter, Robert
Lidington, DavidWaterson, Nigel
Lilley, Rt Hon PeterWells, Bowen
Lloyd, Rt Hon Sir Peter (Fareham)Whitney, Sir Raymond
Loughton, TimWhittingdale, John
Lyell, Rt Hon Sir NicholasWiddecombe, Rt Hon Miss Ann
MacGregor, Rt Hon JohnWilkinson, John
McIntosh, Miss AnneWilletts, David
MacKay, Rt Hon AndrewWilshire, David
McLoughlin, PatrickWinterton, Mrs Ann (Congleton)
Madel, Sir DavidWinterton, Nicholas (Macclesfield)
Malins, HumfreyYeo, Tim
Maples, JohnYoung, Rt Hon Sir George
Mates, Michael
Maude, Rt Hon FrancisTellers for the Ayes:
Mawhinney, Rt Hon Sir BrianMr. Geoffrey Clifton-Brown
May, Mrs Theresaand
Moss, MalcolmMr. Peter Atkinson.
NOES
Adams, Mrs Irene (Paisley N)Bell, Stuart (Middlesbrough)
Ainger, NickBenn, Hilary (Leeds C)
Ainsworth, Robert (Cov'try NE)Benn, Rt Hon Tony (Chesterfield)
Allan, RichardBennett, Andrew F
Allen, GrahamBenton, Joe
Anderson, Donald (Swansea E)Bermingham, Gerald
Anderson, Janet (Rossendale)Best, Harold
Armstrong, Rt Hon Ms HilaryBetts, Clive
Ashton, JoeBlackman, Liz
Atherton, Ms CandyBlears, Ms Hazel
Austin, JohnBlizzard, Bob
Ballard, JackieBoateng, Rt Hon Paul
Barnes, HarryBorrow, David
Barron, KevinBradley, Keith (Withington)
Bayley, HughBradley, Peter (The Wrekin)
Beckett, Rt Hon Mrs MargaretBradshaw, Ben
Begg, Miss AnneBrake, Tom
Beith, Rt Hon A JBrand, Dr Peter
Bell, Martin (Tatton)Breed, Colin
Brinton, Mrs HelenGerrard, Neil
Buck, Ms KarenGibson, Dr Ian
Burden, RichardGilroy, Mrs Linda
Burgon, ColinGodsiff, Roger
Burstow, PaulGoggins, Paul
Butler, Mrs ChristineGolding, Mrs Llin
Byers, Rt Hon StephenGordon, Mrs Eileen
Cable, Dr VincentGriffiths, Jane (Reading E)
Caborn, Rt Hon RichardGriffiths, Win (Bridgend)
Campbell, Mrs Anne (C'bridge)Grocott, Bruce
Campbell, Rt Hon Menzies (NE Fife)Grogan, John
Hain, Peter
Campbell, Ronnie (Blyth V)Hall, Patrick (Bedford)
Cann, JamieHamilton, Fabian (Leeds NE)
Casale, RogerHancock, Mike
Caton, MartinHanson, David
Cawsey, IanHarman, Rt Hon Ms Harriet
Chapman, Ben (Wirral S)Harvey, Nick
Chaytor, DavidHeal, Mrs Sylvia
Chidgey, DavidHealey, John
Chisholm, MalcolmHeath, David (Somerton & Frome)
Clapham, MichaelHenderson, Doug (Newcastle N)
Clark, Rt Hon Dr David (S Shields)Henderson, Ivan (Harwich)
Clark, Paul (Gillingham)Hepburn, Stephen
Clarke, Charles (Norwich S)Heppell, John
Clarke, Eric (Midlothian)Hesford, Stephen
Clarke, Rt Hon Tom (Coatbridge)Hewitt, Ms Patricia
Clarke, Tony (Northampton S)Hill, Keith
Clelland, DavidHodge, Ms Margaret
Clwyd, AnnHood, Jimmy
Coaker, VernonHoon, Rt Hon Geoffrey
Coffey, Ms AnnHope, Phil
Cohen, HarryHopkins, Kelvin
Coleman, IainHowarth, Alan (Newport E)
Colman, TonyHowells, Dr Kim
Connarty, MichaelHughes, Ms Beverley (Stretford)
Corbett, RobinHughes, Kevin (Doncaster N)
Corbyn, JeremyHumble, Mrs Joan
Cotter, BrianHurst, Alan
Cousins, JimHutton, John
Cox, TomIddon, Dr Brian
Crausby, DavidIllsley, Eric
Cryer, Mrs Ann (Keighley)Jackson, Ms Glenda (Hampstead)
Cryer, John (Hornchurch)Jackson, Helen (Hillsborough)
Cunningham, Jim (Cov'try S)Jenkins, Brian
Darvill, KeithJohnson, Alan (Hull W & Hessle)
Davey, Edward (Kingston)Jones, Rt Hon Barry (Alyn)
Davies, Rt Hon Denzil (Llanelli)Jones, Helen (Warrington N)
Davies, Geraint (Croydon C)Jones, leuan Wyn (Ynys Môn)
Davis, Rt Hon Terry (B'ham Hodge H)Jones, Ms Jenny (Wolverh'ton SW)
Dean, Mrs JanetJones, Jon Owen (Cardiff C)
Dismore, AndrewJones, Dr Lynne (Selly Oak)
Dobbin, JimJones, Martyn (Clwyd S)
Donohoe, Brian HKaufman, Rt Hon Gerald
Doran, FrankKeeble, Ms Sally
Dowd, JimKeen, Alan (Feltham & Heston)
Dunwoody, Mrs GwynethKeetch, Paul
Eagle, Angela (Wallasey)Kemp, Fraser
Eagle, Maria (L'pool Garston)Kennedy, Rt Hon Charles (Ross Skye & Inverness W)
Ellman, Mrs Louise
Ennis, JeffKennedy, Jane (Wavertree)
Etherington, BillKhabra, Piara S
Fearn, RonnieKidney, David
Field, Rt Hon FrankKing, Andy (Rugby & Kenilworth)
Fisher, MarkKing, Ms Oona (Bethnal Green)
Flint, CarolineKirkwood, Archy
Flynn, PaulKumar, Dr Ashok
Follett, BarbaraLadyman, Dr Stephen
Foster, Rt Hon DerekLepper, David
Foster, Don (Bath)Leslie, Christopher
Foster, Michael J (Worcester)Levitt, Tom
Foulkes, GeorgeLewis, Ivan (Bury S)
Gapes, MikeLewis, Terry (Worsley)
Gardiner, BarryLinton, Martin
George, Bruce (Walsall S)Livsey, Richard
Lloyd, Tony (Manchester C)Raynsford, Nick
Llwyd, ElfynRendel, David
Lock, DavidRobinson, Geoffrey (Cov'try NW)
Love, AndrewRoche, Mrs Barbara
McAvoy, ThomasRogers, Allan
McCabe, SteveRooker, Rt Hon Jeff
McCafferty, Ms ChrisRooney, Terry
McCartney, Rt Hon Ian (Makerfield)Ross, Ernie (Dundee W)
Rowlands, Ted
McDonagh, SiobhainRoy, Frank
Macdonald, CalumRuane, Chris
McDonnell, JohnRuddock, Joan
McFall, JohnRussell, Bob (Colchester)
McGuire, Mrs AnneRussell, Ms Christine (Chester)
McIsaac, ShonaSalter, Martin
McKenna, Mrs RosemarySanders, Adrian
Mackinlay, AndrewSarwar, Mohammad
Maclennan, Rt Hon RobertSavidge, Malcolm
McNamara, KevinSawford, Phil
McNulty, TonySedgemore, Brian
MacShane, DenisSheerman, Barry
Mactaggart, FionaSimpson, Alan (Nottingham S)
McWilliam, JohnSingh, Marsha
Marsden, Gordon (Blackpool S)Skinner, Dennis
Marsden, Paul (Shrewsbury)Smith, Rt Hon Andrew (Oxford E)
Marshall, David (Shettleston)Smith, Angela (Basildon)
Marshall, Jim (Leicester S)Smith, Rt Hon Chris (Islington S)
Martlew, EricSmith, Miss Geraldine (Morecambe & Lunesdale)
Maxton, John
Meacher, Rt Hon MichaelSmith, Jacqui (Redditch)
Meale, AlanSmith, John (Glamorgan)
Merron, GillianSmith, Llew (Blaenau Gwent)
Michael, Rt Hon AlunSmith, Sir Robert (W Ab'd'ns)
Michie, Bill (Shef'ld Heeley)Snape, Peter
Michie, Mrs Ray (Argyll & Bute)Soley, Clive
Miller, AndrewSouthworth, Ms Helen
Mitchell, AustinSquire, Ms Rachel
Moffatt, LauraStarkey, Dr Phyllis
Moonie, Dr LewisSteinberg, Gerry
Moore, MichaelStevenson, George
Moran, Ms MargaretStewart, David (Inverness E)
Morgan, Ms Julie (Cardiff N)Stinchcombe, Paul
Morris, Rt Hon Ms Estelle (B'ham Yardley)Stoate, Dr Howard
Strang, Rt Hon Dr Gavin
Morris, Rt Hon Sir John (Aberavon)Straw, Rt Hon Jack
Stuart, Ms Gisela
Mountford, KaliStunell, Andrew
Mudie, GeorgeSutcliffe, Gerry
Mullin, ChrisTaylor, Rt Hon Mrs Ann (Dewsbury)
Murphy, Jim (Eastwood)
Oaten, MarkTaylor, Ms Dari (Stockton S)
O'Brien, Bill (Normanton)Taylor, David (NW Leics)
O'Hara, EddieTaylor, Matthew (Truro)
Olner, BillTemple-Morris, Peter
Öpik, LembitThomas, Gareth (Clwyd W)
Organ, Mrs DianaThomas, Gareth R (Harrow W)
Osborne, Ms SandraTimms, Stephen
Pearson, IanTipping, Paddy
Pendry, TomTodd, Mark
Perham, Ms LindaTonge, Dr Jenny
Pike, Peter LTouhig, Don
Plaskitt, JamesTrickett, Jon
Pollard, KerryTurner, Dennis (Wolverh'ton SE)
Pond, ChrisTurner, Dr Desmond (Kemptown)
Pope, GregTurner, Dr George (NW Norfolk)
Pound, StephenTwigg, Stephen (Enfield)
Powell, Sir RaymondTyler, Paul
Prentice, Ms Bridget (Lewisham E)Tynan, Bill
Prentice, Gordon (Pendle)Vis, Dr Rudi
Prescott, Rt Hon JohnWard, Ms Claire
Primarolo, DawnWatts, David
Prosser, GwynWebb, Steve
Purchase, KenWicks, Malcolm
Quinn, LawrieWigley, Rt Hon Dafydd
Radice, Rt Hon GilesWilliams, Rt Hon Alan (Swansea W)
Rammell, Bill
Williams, Mrs Betty (Conwy)Wright, Anthony D (Gt Yarmouth)
Willis, PhilWright, Dr Tony (Cannock)
Winnick, DavidWyatt, Derek
Winterton, Ms Rosie (Doncaster C)
Wood, MikeTellers for the Noes:
Woodward, ShaunMr. Mike Hall and
Worthington, TonyMr. David Jamieson.

Question accordingly negatived.

Main Question put forthwith, pursuant to Standing Order No. 62 (Amendment on second or third reading), and agreed to.

Bill accordingly read a Second time.

Motion made, and Question put forthwith, pursuant to Standing Order No. 63 (Committal of Bills),That Clauses Nos. 1, 12, 30, 31, 59, 102, and 113 be committed to a Committee of the whole House.That the remainder of the Bill be committed to a Standing Committee.That when the provisions of the Bill considered, respectively, by the Committee of the whole House and by the Standing Committee have been reported to the House, the Bill be proceeded with as if the Bill had been reported as a whole to the House from the Standing Committee.—[Dawn Primarolo.]

Question agreed to.

Committee tomorrow.