Clause 22 — Non-Business Use of Business Property

Finance Bill – in the House of Commons at 6:00 pm on 13th May 2003.

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Question proposed, That the clause stand part of the Bill.

Photo of Stephen O'Brien Stephen O'Brien Shadow Paymaster General

Clause 22 is the primary legislation element of a matter that we considered under secondary legislation—the draft Value Added Tax (Supply of Services) (Amendment) Order 2003—last week. It was suggested in the debate that we might be putting the cart before the horse. The Minister and I went through the order at some length. I felt that we had some very serious issues to consider, in addition to the extraordinarily complex domestic and EU law implications involved. In the light of that discussion, we have been able to move some issues forward but, sadly, an awful lot have moved backwards.

I shall try to set the scene for this complex and important matter, which could have a serious effect on many people. We also need to have anti-avoidance in our minds at all times, however, and to decide where the legitimate line—the grey line, perhaps, between the black and white—is to be drawn. Discussion of clause 22 might seem like déjà-vu for the Minister and me, but the issues certainly merit the full consideration of the Committee of the whole House.

The members of the Committee who were present last week—including my hon. Friend Mr. Djanogly, who so ably delineated some of the points on that occasion—will know that the background to the measure is that when a business purchases an asset that is to be used for both business and non-business purposes, EU law provides that the input tax incurred on the purchase of that asset is deductible, but that the business must account for an output tax charge arising over the lifetime of that asset. This treatment is known as the Lennartz approach, after the Lennartz case, the details of which I shall ensure are placed on the record. The case is known as Lennartz v. München III, case C-97/90, reported in 1995, STC514. [Hon. Members: "Ah!"] I am delighted that so many Members immediately recognise the reference. No doubt a series of interventions will demonstrate their detailed knowledge of both the facts and the exceptionally complex and fascinating legal arguments involved in the case, which have ensured that I have not had too many hours' sleep recently.

There is an alternative approach—to apportion the VAT incurred and treat the part relating to non-business use as not being input tax, and therefore not being deductible. There is then no output tax on the non-business use. There is also no VAT in the event of a sale of the part of the assets allocated to non-business use.

Customs and Excise has presumably had to take counsel's advice on the view it has had to develop, which in itself presents us with serious issues. Following an earlier discussion about these matters, the Minister was kind enough to write me a letter dated 12 May, which I received last night. I thank him for ensuring that it was faxed to my office.

Customs and Excise takes the view that because buildings depreciate very slowly—say, over 40 years—and can be disposed of with exemption from VAT, the Lennartz approach provides an opportunity for delay and the avoidance of VAT payment. Clause 22—along with the statutory instrument that we were required to examine last week before considering primary legislation; the Government have yet to secure authority for it through the normal processes of the House—seeks to prevent the use of the Lennartz approach in the case of land and buildings where there is non-business use.

Non-business use includes private use by an individual; one can well imagine the circumstances in which that might take place. More important, it includes use by a charity. We are not talking just about the highly paid or sophisticated investor, but about charities trying to make good use of good will and the funds they have secured with the help of volunteers and hard work. Those charities now face a challenge.

Some education and grant-funded research is also regarded as non-business use. Therein lies one of the most telling problems that might affect people who will not expect to be hit—especially in university towns that are experiencing enough pressure as it is, given the Government's policy on tuition fees.

Photo of Jonathan Djanogly Jonathan Djanogly Conservative, Huntingdon

For the first time today, my hon. Friend refers to the serious impact on charities. Will not charities, more than many other institutions, want to adapt their premises over a period to change the use of those premises? Could not the Bill have dramatic implications for charities in that regard, and does it not constitute an attack on charities for that reason alone?

Photo of Stephen O'Brien Stephen O'Brien Shadow Paymaster General

My hon. Friend makes a very important point, and I hope that the Government will listen to it a little more keenly than they did in Committee last week. I know that they will feel that it is inappropriate to attack them for being hostile to charities, but we must measure them by their deeds, not their words. We have advanced our argument on why we consider this provision an attack on charities, educational establishments and grant-funded research establishments. It has been denied, yet the Government persist with the deed that gives rise to the initial complaint, so such an approach is appropriate.

My hon. Friend the Member for Huntingdon, whose point is perfectly valid, is well regarded in his constituency for the work that he does on behalf of charities, not least the Thalidomide Trust. That puts me in mind of the fact that trustees may find themselves in the most desperate conflict in the light of this provision. Trustees have an obligation to deploy the assets entrusted to them for charitable purposes in the best possible service of those objectives, but potentially they will incur higher liabilities for doing so. If they are not allowed to do so because a serious tax consequence may result from the change envisaged under clause 22 in an effort to address the relief sought to overcome the Lennartz case, there is the potential for damage to charities.

If the Economic Secretary is going to persist in the arguments that he sought to deploy in Committee, let us park the issue of charities. But for the fact that the Government happen to have a majority at the moment, they would have experienced difficulties, given the comments made by certain of his colleagues in Committee. I am glad to say that they found the discussion interesting and persuasive, but I accept that a party system is in place and that their party currently enjoys just a few more votes than ours does; hopefully, that will not last for long.

Under the terms of the clause, private businesses will be obliged to use the second type of treatment, which I outlined, to deal with non-business use of land and buildings. So the problem is that, as I said, the principal taxpayers hit by this clause will be educational establishments and charities. They will suffer by taking all of the non-deduction for VAT upfront, significantly adding to their costs. However, the Economic Secretary said in Committee that in general, we do not have to worry about them because they have the 90 per cent. rule. It was Mr. Burnett who mentioned the example of a charity that moves from 50:50 use to 75:25 use, for which the 90 per rule does not apply. Through clause 22, the Government are seeking to deploy a remedy to Lennartz, which is applicable and is currently being marketed relatively widely in the City. Indeed, the Economic Secretary has referred to the need to find a remedy, because he was concerned that a legitimate tax-avoidance scheme already existed under the Lennartz precedent.

As we know, there are certain categories: tax planning, which is a wholly legitimate procedure that one would expect responsible people to adopt; tax avoidance, which is fine so long as it does not stray over the grey line into any form of illegality; and anti-avoidance. According to the Government, the difference between tax avoidance and anti-avoidance is that they are keen that there should be no avoidance of what they intended to raise under certain tax concepts. A further category is tax evasion, which we all revile and abhor. We certainly support the Government's efforts to deal with tax evasion issues, but this is not such an issue. They are seeking to remedy a scheme that is currently out there and being marketed. They want to make it part of their anti-avoidance package, but Lennartz currently already gives that authority. That will be important when we consider the powers that this Government believe they have to legislate to overcome Lennartz. There is severe doubt as to whether they have the authority to do that; they certainly cannot be sure that such authority will not be challenged in the courts. If such a challenge is made, we will be left with uncertainty. The one thing that we should not do is to produce law that we know is going to be challengeable, and which is subject to such uncertainty. The Economic Secretary has yet to answer those points, but because we discussed them in Committee I have the comfort, at least, of knowing that I could not have given him more notice of my argument. I shall therefore carry on with it.

From a practical perspective, the provisions in the clause will be difficult to implement. If we assume that buildings have a life of 40 years, how can we be sure about the relevant proportions of business use and non-business use throughout the 40 years? Should one use general projections or take the projections for the first five years and then have a review? Or will the provision for immediate use be set in stone? The main problem is how to predict the future. What will the trustees of a charity have to consider? What will be in their interest? In relation to the business element of the shared premises, it is impossible to predict the progress of a business over 40 years. In 1970, there were only six companies left of the 100 that formed the first FTSE list. Broadly speaking, businesses run on a 20-year cycle, so a 40-year provision is totally impractical.

Photo of John Gummer John Gummer Conservative, Suffolk Coastal 6:30 pm, 13th May 2003

Does my hon. Friend agree that one of the problems with property in this country is a degree of inflexibility in its use? The Government should be congratulated on trying to achieve some change to that, but the provisions will make that change more difficult to achieve, not easier. Of all countries in Europe, we need most to increase the flexible and imaginative use of the buildings that we have.

Photo of Stephen O'Brien Stephen O'Brien Shadow Paymaster General

My right hon. Friend and I had contact when he was a Minister and I was in a business related to building materials, and I am grateful for his remarks. There have always been advantages and disadvantages in the fact that our built environment—albeit much of it is beautiful, with many historic and cultural connections—has the longest demolition rate in the world. On average, it takes 997.6 years to demolish a building in this country. That is an extraordinary statistic, but it is true, because most buildings are remodelled rather than demolished. In contrast, in southern Ireland, most people build a new house next door to the old, which becomes the outbuildings. We have a different approach, and that is why flexibility is the key. My right hon. Friend puts his finger, as ever, on the salient and practical point, from the experience that he has had in government and in business.

The Bill contains no provisions that allow adjustment to the apportionment originally made. If the percentage of non-business use to business use changes downwards over the useful life of the building, it is conceivable that no deduction would be made for significant taxable use, especially in the event of the sale of a building. As a procedural point, Customs and Excise believes—it would have been helpful to have some advice—that it does not have to apply the reasoning in the Lennartz case, as there is provision to derogate, in local law, from the application of the article in the EU directive under which Lennartz was decided.

As I said in Committee, many advisers doubt whether that view is correct. The reason is that the UK provision derogates not only from the article under which Lennartz was decided, but from a further article that does not provide for derogation. The derogation can result in consequences that are disproportionate—that is the key word, because that is how the derogation works—to the aims of the directive. It is understood that Customs and Excise has obtained counsel's advice on whether it can implement clause 22.

Photo of Mr John Taylor Mr John Taylor Conservative, Solihull

On that important point, my hon. Friend gives me considerable cause for concern. If there is an absence of adequate clarity in the provisions that will guide the taxpayer and the duty payer in the next 12 months, will not the bravest and the richest face two or three years of litigation with the authorities? Does he agree that it is not as important that the law be fair as it is that it be certain?

Photo of Stephen O'Brien Stephen O'Brien Shadow Paymaster General

I pay tribute to my hon. Friend, whose legal expertise is well known to his many friends and colleagues in the House, and to a vast range of people outside. I would certainly defer to his insightful expertise. I would not be prepared to hazard an answer from the Dispatch Box to the technical and legal question whether, in a case brought by an individual or enterprise against the tax authorities, a provision could be voided for uncertainty. That is a legal principle, obviously known to the law, but I do not know whether such a case could be brought. My hon. Friend is right, in terms of fairness. We legislate for the people of this country, whether they be rich or people with normal income, taking the average of the population. The people involved may be charity trustees, doing good work, but the Bill would mean that they were suddenly caught up by the difficulty that has been described.

As has been stated, clause 22 seeks to address an opportunity to delay or avoid VAT. The arguments in favour are similar to those raised by the German Government in a case against a taxpayer, Mr Seeling. The Advocate General of the European Court of Justice has opined that the German approach is invalid.

As it happens, the Fourth Standing Committee on Delegated Legislation discussed these very matters on 7 May. Judgment on the Seeling case was due on 8 May. I suggested that it would be useful to adjourn our meeting, in the hope of greater elucidation from the judgment to be given the following day. The Minister declined my request.

Photo of Mr John Taylor Mr John Taylor Conservative, Solihull

It is not my intention to interrupt my hon. Friend's flow, but now that he has introduced the German case, will he tell us which jurisdiction was involved? Was it a Lander jurisdiction, a German national jurisdiction, or a European jurisdiction? While my hon. Friend reflects on that question, it is interesting for other hon. Members endeavouring to follow the matter to make a judgment about how persuasive we might find such a case. I suggest that a provincial German jurisdiction would not be persuasive in English courts, that a national one would scarcely be more persuasive, but that a European jurisdiction case may be imperative in our courts.

Photo of Stephen O'Brien Stephen O'Brien Shadow Paymaster General

That is the very point. Wolfgang Seeling was involved in a case against Finanzamt Starnberg. The court of first instance was the Bundesfinanzhof in Germany, but the case was referred to the European Court of Justice, and that is why it is on a par with the Lennartz case—the very case that has made the Government so concerned to find a remedy. The Government see a mischief that they want to cure, whereas I believe that they have seriously underestimated the uncertainty involved and the legal necessity to go down a different route.

I could spend a lot of time pretending to be a barrister. I am not one: I am simply trying to understand why the Government feel that there is such a great mischief to be sorted out. What really concerns me is that they have framed the whole matter in terms of anti-avoidance. It is as though I had some ghastly, guilty purpose in trying to stop the Government proposing what they consider to be an obvious anti-avoidance measure. The provision cannot be framed as anti-avoidance if it is based on an uncertain legal genesis and authority and, above all, if it is disproportionate. It is under that test that the Government are seeking derogation under the relevant EU directive.

The Seeling case was decided in the European Court of Justice. After the discussion in the Delegated Legislation Committee—in which I had placed much reliance on what I thought would be the outcome—I was delighted to discover that Herr Seeling was vindicated and supported by the court. It is important to recognise that the Lennartz and Seeling cases cast a cloak of uncertainty over what the Government seek to do in clause 22.

Photo of John Gummer John Gummer Conservative, Suffolk Coastal

I still do not understand, either from the record of previous debates or from tonight's debate, what case the Government make for saying that those decisions are unsuitable. It is possible to suggest that what the courts have shown in both cases is perfectly reasonable. Some of my colleagues believe that anything that the European Court says is unreasonable, but I do not happen to take that view. If the court has made those decisions, the Government must explain why it is not reasonable to accept that judgment and allow it to work in this country. Secondly, they must explain how they see this as an avoidance measure and how their proposals will defeat avoidance. They seem to me to have done neither of those things.

Photo of Stephen O'Brien Stephen O'Brien Shadow Paymaster General 6:45 pm, 13th May 2003

My right hon. Friend will be aware that the Government say that an anti-avoidance measure is needed and that they suggest that the Customs and Excise arguments are based on article 6(2) of the directive, allowing a derogation. If that is so, we need to see the counsel's opinion received by Customs and Excise in order to satisfy ourselves about the genesis and effectiveness of what is a serious proposal.

Our concern is that a belief exists—I cannot tell whether it is correct, because I have not seen the evidence—that the Government think that there is a mischief to be remedied under the precedence of Lennartz, a European Court of Justice decision, which the Government clearly feel carries sufficient authority to make them propose domestic legislation to try to remedy the problem. I question whether they have the authority to do so because of EU law—complicated, not surprisingly—but various schemes are being marketed in this country which the Government believe are encouraging people to buy premises to use partly for business and partly for non-business purposes in order to delay or avoid paying VAT in a way that the Government believe is not genuine.

If the Government can demonstrate that that is a proper problem, we are with them 100 per cent. of the way. If, however, they cannot satisfy what, from my long ago legal training, I believe to be the Furniss v. Dawson test of substance over form, it is wholly right to examine the substance. The problem is that the Government have got the form wrong, let alone the substance—the evidence of which we have not seen. On the basis of the Seeling case, the position has become interesting.

Photo of Mr John Taylor Mr John Taylor Conservative, Solihull

In as much as my hon. Friend refers to the test of substance and form, might there also be some application of the test of dominant use? For example, to reduce the point to street level, in the case of a residence over a shop, would not Customs and Excise—the duty-charging authority—tend to consider dominant use in considering the apportionment? Or does my hon. Friend prefer his own test?

Photo of Stephen O'Brien Stephen O'Brien Shadow Paymaster General

To be frank, I care only whether the proposal is right or wrong in terms of process and law. No dominance test has been cited in any argument so far because we are dealing with apportionment. The issue is whether that is taken upfront, over the life period of premises during the course of a business, which will vary, or during the course of non-business use, which will also vary. All that is unpredictable, and all of it creates uncertainty. The Government are concerned that the situation is being used in order to be abused, which is why we must address the point.

Interestingly, the Government's position appears to be based on what they believe is their ability to derogate from article 6(2). It is somewhat disingenuous to dismiss the Seeling case, as they have tried to dismiss it, as an argument made only in the domestic courts of Germany. In fact, it is a decision of the European Court, which seems to confirm that if the ability to derogate is absent, clause 22 will be ultra vires under the article.

I accept that Seeling does not deal directly with the question of derogation. However, it confirms the following effect of the Community legislation, namely that it is not within a member state's gift to determine whether a taxable person applies article 6(2). That choice is afforded to the taxable person, not the taxing authorities. That is the important point. I refer the Minister to paragraphs 40 to 43.

We are not necessarily in the business of saying that the Government should be getting less than their due. We may argue about why they are raising the tax and about other aspects of their processes and their promises and further expectations, but we are not arguing that just because the tax authority ends up with less tax than it seeks it is not wholly legitimate in trying to remedy that. However, according to the judgment, that is no reason to apply the provision of the directive and interpret it differently. That is in paragraph 54.

The key question is whether there is a power of derogation from article 6(2). In that regard, it should be noted that the UK does not appear to have sought specific authority to derogate from article 6. Instead, it relies on the fact that article 6(2) provides sufficient authority for the derogation contemplated.

As the Minister will understand well, derogations are not unrestricted; they are not a means whereby tax authorities can deny taxable persons the treatment that the Community legislature intended. Furthermore, the derogation in article 6(2) is a simplification, not an anti-avoidance measure. Derogations for anti-avoidance purposes need to be sought specifically under the procedures provided for by article 27 of the sixth VAT directive, but the Government have not done that. They have placed their whole argument on anti-avoidance. They have tried to distinguish article 6(2) from all the arguments that I have made, which are taken from the whole legislative proposal, yet they have not even applied for derogation for anti-avoidance purposes under article 27 of the sixth VAT directive.

It is thus possible that the derogation power in the article is limited and not as wide as the Government propose. The derogation under article 6(2) that member states may derogate from the provisions of the article provided that such derogation does not lead to distortion of competition—a point that was also made—could be interpreted in two ways.

The first interpretation is that any derogation is to be construed narrowly; for example, Advocate General Jacob's opinion in Kühne at paragraphs 19 and 20. On such a narrow construction, it could be argued that the derogation permitted to member states is not to apply a charge for private use where, by allowing no private-use charge to be made, there was no distortion of competition. That means that derogation is not applicable to the recovery by the taxpayer of the input VAT, but only to the recovery by the Government on any private-use element.

The alternative and perhaps broader view was expressed by the same Advocate General in Lennartz at paragraph 75. That broader view suggests that an input tax restriction could be justified where the goods are to be put to private use in certain circumstances, but that such an input tax restriction cannot prevent input tax deduction on a genuine business expenditure. It follows that even on that wider view there is a need to provide a mechanism whereby increased proportions of business use, after the initial apportionment, could be recognised as giving rise to recoverable VAT.

Accordingly, one could argue that, whether one takes the stricter or the wider view, the initial deduction would still be required to be allowed by the member state in situations where the relative proportions of taxable and non-business use varied over time, where the private-use charge reflected the variable use over time. It should also be noted that the derogation within article 6(2) is subject to the provision that such derogation does not lead to distortion of competition; whether there is any such distortion should be determined on a case-by-case basis and should refer to an actual distortion of competition rather than a theoretical one.

As I hope the Minister realises, I have tried not to be too slothful since our discussion on 7 May. What came out on 8 May was a one and a half page synopsis—my best attempt—of a long judgment, but it was a genuine attempt to understand, given that, critically, I asked in the Standing Committee for a copy of the counsel's opinion to Customs and Excise, as that is the whole driving force behind the advice given to Ministers on the clause and the statutory instrument that we debated in the Standing Committee.

I have had a letter—I am glad to have been accorded such courtesy by the Economic Secretary—which says that counsel's opinion is internal advice, and its disclosure is therefore governed by the code of practice on access to Government information. We know that the Attorney-General made legal advice known in advance of the engagement in the Iraqi war. While that was seen as reasonably exceptional, it was by no means breaking with all precedent.

It is therefore a precedent that, for the greater benefit and understanding of the House, in passing legislation, it is found to be uniquely helpful to have legal advice—I do not think that I am making up precedent as I go along—that that is where the legal precedent for that request comes from. Although we explored at length Upstairs why this loophole, as the Government see it, is being closed, it is similar to, if not precisely the same as, the tax opportunity and—many would argue—loophole in the arrangements for the Labour party headquarters purchase in Old Queen street. My right hon. Friend the shadow Chancellor, who is in his place, has written to the chairman of the Labour party about that, and I gather that he has only just received a reply; he had certainly not received one when he raised the issue on 7 May. That begs questions as to why we are addressing this issue but not that.

I dealt with this matter at length Upstairs, and although it is tempting to rehearse it in the Committee of the House, it is more important that I have had a response, as I am trying to move the argument on. I have had a response from the Economic Secretary—[Interruption.] It takes time to go through such complicated matters, and I am sorry if the hon. Gentlemen's attention is flagging. We are here to scrutinise legislation and not to put in place bad law that is ill thought through and will not provide a remedy. For once, that is the purpose for which both he and I have been elected: to do our job and to scrutinise the Government's business.

Photo of Mr John Taylor Mr John Taylor Conservative, Solihull

Will my hon. Friend reassure his colleagues that he will resist with all his force anyone who has the impertinence to tell him not to do his job properly in scrutinising this legislation with the care that he has been showing? In light of the fairly recent House of Lords case of Pepper v. Hart, which permitted their lordships, on a disputed point about the interpretation of a statute, to call for the Hansard to enable them to see what Members have said in the Chamber and in Committee, is there not an analogy by which we should press for a change in the convention and have access to the legal advice to the Government?

Photo of Stephen O'Brien Stephen O'Brien Shadow Paymaster General

I would not want to stray into the highways and byways of Pepper v. Hart, as it may come to a request for the Hansard of the Fourth Standing Committee on Delegated Legislation on 7 May to understand what was placed on the record about the extraordinary arrangements that led to the acquisition of the Labour party's new headquarters in Old Queen street. We should move on before we stray down byways on which I would properly expect to be called to order.

What we were concentrating on is that I have asked for the counsel's opinion that is underpinning the Government's whole approach. I have understood from a clear letter that that will not be forthcoming, and although the Economic Secretary's reaction that he would look into the matter seriously and check the vires was proper, and he was clear about that in Committee, he has refused to provide that counsel's opinion. The real problem is that we have now had the result of the Seeling case, and he has given me no countervailing opinion as to why this issue is distinguishable from the remedy—and the mischief that he is trying to remedy—in the clause, and why Seeling came out in favour of my arguments rather than in support of his.

Furthermore, the Economic Secretary was quick to suggest, in his defence of what I believe is an ill-considered and ill-thought-out proposal in clause 22—which has a strange alliance with the arrangements that the Labour party employed for its headquarters—that there were not that many advisers. Perhaps I was making them up. However, since the discussion on 7 May, I dare say that he has also had the opportunity—certainly his advisers will have done—to check out the websites. I have been contacted by a number of people who have said that they are glad that the arguments have been raised, because they reflect their concerns. The Institute of Chartered Accountants, the Chartered Institute of Taxation and the Law Society's tax committee have all given a great deal of thought to the issue, and they are very concerned.

I do not believe that we have taken a shotgun approach, which is what was expected after the Budget and what the Minister tried to suggest. This is thought-through professional advice, and the grapeshot is turning into rifle and rapid fire.

Photo of Jonathan Djanogly Jonathan Djanogly Conservative, Huntingdon 7:00 pm, 13th May 2003

I have also received a copy of the letter, and I thank the Minister for that. I do not have it in front of me, but I seem to recall that the reason why counsel's opinion was not provided had to do with the fact that it discussed tax avoidance schemes. Presumably, those who wish to use them should not see the advice. However, surely the whole purpose of this provision is to review the anti-avoidance scheme. To that extent, in the spirit of co-operation and with the aim of doing what the clause is intended to, we should see that advice.

Photo of Stephen O'Brien Stephen O'Brien Shadow Paymaster General

I am grateful to my hon. Friend. He served on that Committee and made a valuable contribution. He has clearly been persuaded by the arguments.

It is important to recognise that the Institute of Chartered Accountants has said:

"In accordance with the rules laid down in article 17 of the sixth directive, the court further stated that"— this relates to the Lennartz case—

"a rule or administrative practice imposing a general restriction on the right of deductions in cases where there is limited but none the less genuine business use constitutes a derogation from article 17 of the directive and is valid only if the requirements of article 27(1) or article 27(5) of the directive are met. This clause"— clause 22—

"therefore appears contrary to EC law. In our view, the intention of this provision, namely the denial of initial input tax recovery can only be achieved if derogation under article 27(1) is sought and granted. Until such time, this clause may result"— as rightly pointed out by my right hon. and hon. Friends—

"in further litigation, creating uncertainty and costs for both taxpayers and customs, with the end result likely to be that this clause is held to be illegal. Surely we should not be party to such an attempt by the Government. They have not yet put up a sufficient case or defence for it. Unless and until a derogation has been obtained, the clause should be removed from the Finance Bill."

That is the institute speaking.

In conclusion—I know that this will be a relief to some—this is an important issue that should be placed on the record. I repeat that we are not anti-avoidance, but anti-uncertainty. We have moved from the serious issue of trying to analyse the mischief and the remedy that the Government proposed to finding that they seem not to want to provide us with the basis upon which they have introduced these provisions. However, we have countervailing legal precedent.

We are compelled to vote against clause stand part, because it is a matter of authority, proportionality and the absence of the advice to enable proper scrutiny of an argument that has been fully made. We have a duty to prevent uncertainty and to stop legislation appearing in a Finance Bill, of all Bills, that could make it void on the ground of illegality. That is the last thing that we should allow. It is our first duty to prevent it.

Photo of Michael Howard Michael Howard Shadow Chancellor of the Exchequer

On a point of order, Sir Michael. My point of order relates to the timetabling of the Bill. My hon. Friend Mr. Flight set out earlier today why we need proper scrutiny and debate in the Committee considering this Bill. It is now abundantly clear from our proceedings that such scrutiny cannot occur in the time allowed.

The Order Paper lists 10 clauses and three schedules due for debate today. The Committee has not had an opportunity to debate all those measures, and that state of affairs was caused by the Government's decision to limit debate on one of the longest-ever Finance Bill's to just seven days in Committee and then to guillotine that debate.

Among the vital issues that we will not have time to scrutinise are many of the details of the new tax on leases, in particular how it is to be implemented. That issue is of huge concern to business, not least because for some small firms it could lead to a 10-fold increase in their tax bill. The manner in which the tax is being introduced, with details still unclear and a consultation process that was curtailed, has been described by the Law Society as "astonishing". It wanted the measure to be deferred to 2004. That is what our amendment would do, but it will not be discussed in Committee.

Yesterday, Clare Short warned of

"increasingly poor policy initiatives being rammed through Parliament".—[Hansard, 12 May 2003; Vol. 405, c. 38.]

That is precisely what is happening with this Finance Bill. Are there any steps at all, Sir Michael, that you can take to secure a real opportunity for the House to consider such important matters?

Photo of Kenneth Clarke Kenneth Clarke Chair, Tax Law Rewrite Bills (Joint Committee), Chair, Tax Law Rewrite Bills (Joint Committee)

Further to that point of order, Sir Michael. May I urge you to consider whether the Procedure Committee should become involved? Perhaps you could advise the Speaker on that. The issues raised go beyond the important events of today and yesterday, and I fully support what my right hon. and learned Friend Mr. Howard said.

I am a member of the Joint Committee that is considering the future of the House of Lords. One of the very few matters on which that Committee remains unanimous is that this House should retain sole charge of issues of taxation and finance. Finance Bills have only recently been guillotined or timetabled. There is no tradition of that or of filibustering them. They have usually been handled by agreement. However, it seems that large sections of the Bill will not be debated on the Floor of the House. The Committee is timetabled, so they will almost certainly not be debated Upstairs. So whole sections of the Bill will be passed without a word of debate or scrutiny. People will draw comparisons between what we do in this House and the scrutiny that the House of Lords gives to Bills on non-finance matters. It is time that we reconsidered our procedures and re-established some of the old conventions, which used to give this House some authority in such matters.

Photo of Michael Jack Michael Jack Conservative, Fylde

Further to that point of order, Sir Michael. May I ask whether you have seen any examples in the debate so far of Members who have spoken out of order or of unnecessary time wasting on which the Chair has had to comment?

Photo of Eric Forth Eric Forth Conservative, Bromley and Chislehurst

Further to that point of order, Sir Michael, and in particular the point of order raised by my right hon. and learned Friend Mr. Clarke. You will be only too aware, Sir Michael, as I am sure the House is, that even in normal circumstances when the Government arbitrarily restrict the debate on other Bills in this House, voters and the public at large can expect at the very least that the other place might step in and use its latitude to provide proper scrutiny when we have been unable to do so thanks to the Government's actions. However, we cannot rely on that for this Bill.

Surely it is doubly incumbent on the House, yourself, Sir Michael, and the House authorities to ensure that we discharge our responsibility in giving this Finance Bill—indeed, all Finance Bills—the most thorough scrutiny. We are being denied that opportunity, as today has proved beyond all doubt. What can be done to protect us, the House and, indeed, the taxpayer from this Government tyranny?

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

Further to that point of order, Sir Michael. The House needs to be reminded of a number of things. The two days of debate on the Floor of the House for the Finance Bill were agreed through the usual channels. All the matters for debate today were nominated by Her Majesty's Opposition and the minority parties—15 by the Conservatives and seven by the Liberal Democrats and nationalists. The record shows that when the timetable was discussed earlier, it took precisely two minutes to agree it for today and tomorrow, and there was no Division.

Opposition Members were in complete control of today's timetable yet, on clause 1, they spoke for one hour, 37 minutes, with no vote. They chose to discuss all the clauses in the Bill. If they knew that they needed to spend a long time on each one, why did they nominate all of them for debate?

The Bill is still amendable. When I moved the timetable motion earlier, I said that I would use my best endeavours to ensure that there was a proper debate on its provisions. However, I can only act in good faith, and it was in good faith that I made an agreement with Mr. Flight, and transferred two schedules planned for debate on the Floor of the House into Committee. In good faith, we discussed the two days scheduled for debate through the usual channels. In good faith we agreed that timetable, as the record shows, in two minutes with no Division—that is how the Opposition parties dealt with this matter. What else can I do, Sir Michael, but act in good faith if Opposition Members bring the House into disrepute?

Photo of Michael Lord Michael Lord Deputy Speaker (Second Deputy Chairman of Ways and Means)

No, I have heard enough from Members on both sides of the House to deal with the point of order.

I understand Members' concern about the time allowed for debate today but, given the programme motion, which was agreed by the whole House earlier today, the Committee has no alternative but to conclude the proceedings as set out in the Order Paper and I, as the Chair, have no alternative but to obey the wishes of the House. Let us now move on.

Photo of John Gummer John Gummer Conservative, Suffolk Coastal

On a different point of order, Sir Michael.

The Second Deputy Chairman:

Is it an entirely different point of order?

Photo of John Gummer John Gummer Conservative, Suffolk Coastal

It is as different as it could be.

The Second Deputy Chairman:

If it is an entirely different point of order, I would just tell the right hon. Gentleman that we are nearly out of time. This all takes time out of the debate.

Photo of John Gummer John Gummer Conservative, Suffolk Coastal

Would it be possible for you, Sir Michael, and the Speaker to prepare a note to be issued by the Speaker's Office so that on occasions when our constituents ask why parts of any Bill have not been discussed we can give them an explanation?

The Second Deputy Chairman:

The right hon. Gentleman is returning to the point of order with which we have already dealt.

The Second Deputy Chairman:

No, I am sorry, I am not taking any more points of order.

Question put, That the clause stand part of the Bill:—

The House divided: Ayes 304, Noes 168.

Division number 192 Finance Bill — Clause 22 — Non-Business Use of Business Property

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No: 168 MPs

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Question accordingly agreed to.

Clause 22 ordered to stand part of the Bill.

Photo of David Wilshire David Wilshire Conservative, Spelthorne

On a point of order, Sir Michael. There are now four clauses and three schedules that have not been debated. That leaves this House with only one way to show its disapproval of this action—to vote against the proposals because we have not considered them. Last night, when this happened during Northern Ireland business, there was a programme motion and every clause was voted against. I understand from the Clerks that tonight, by rigging the wording of a programme motion, the Government are going to try to deny us the right to express a view on those four clauses and three schedules by insisting that they be rolled up and voted on en bloc. Is that not an even worse abuse of democracy?

Photo of Michael Lord Michael Lord Deputy Speaker (Second Deputy Chairman of Ways and Means)

I have to say to the hon. Gentleman that last night's business was guillotined, which is different from today's business. The matter that we are dealing with is provided for in the Sessional Order relating to Bills that are programmed. The two are dealt with in different ways.

It being more than six and a half hours after the commencement of proceedings on the programme motion, The Second Deputy Chairman of Ways and Means, pursuant to Order [this day], proceeded to put forthwith the Questions necessary for the disposal of the business to be concluded at that hour.

Motion made, and Question put, That clauses 42 and 56, schedule 5 and clause 57 stand part of the Bill:—

The Committee divided: Ayes 309, Noes 163.

Division number 193 Finance Bill — Clause 22 — Non-Business Use of Business Property

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No: 163 MPs

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Question accordingly agreed to.

Amendment proposed: No. 72.—[Dawn Primarolo.]

Question put, That the amendment be made:—

The Committee divided: Ayes 305, Noes 163.

Division number 194 Finance Bill — Clause 22 — Non-Business Use of Business Property

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Question accordingly agreed to.

Motion made, and Question put, That schedule 6, as amended, schedule 19, and clause 124 stand part of the Bill.

The Committee divided: Ayes 300, Noes 158.

Division number 195 Finance Bill — Clause 22 — Non-Business Use of Business Property

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Question accordingly agreed to.

To report progress and ask leave to sit again.—[Mr. Jim Murphy.]

Committee report progress; to sit again tomorrow.