Orders of the Day — Finance (No. 2) Bill

– in the House of Commons at 2:30 pm on 24th April 2006.

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[Relevant document: Fourth Report from the Treasury Committee, Session 2005–06, HC 994 on the 2006 Budget.]

Order for Second Reading read.

Photo of Des Browne Des Browne Chief Secretary, HM Treasury, The Chief Secretary to the Treasury 3:39 pm, 24th April 2006

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

In the Chancellor's 10th Budget, my right hon. Friend set out our position of economic stability and growing economic strength: 54 quarters of consecutive growth, inflation at the 2 per cent. target, interest rates at sustained lows and growth of 2 to 2.5 per cent. above France, Germany, Italy and Japan. The Bill will maintain that position and strike the right balance between tax, spending and borrowing. It is part of the mechanism whereby we will deliver on the wider commitment and vision of a productive, enterprising, competitive Britain.

With the pace of world economic change accelerating, the pre-Budget report, the Budget and the Bill combine to strengthen Britain for the global opportunities ahead. Through those measures, we can lead the world in the new industries and technologies that increasingly shape our future, with more highly skilled jobs with higher wages; new choices for parents to balance careers and family life; investment and reform in public services, housing and our infrastructure; building on the climate change levy to meet the energy and environmental challenge; and securing fairness for each child by investing in every child. That is our vision—equipping Britain for the global challenges ahead; it is a vision of a modern Britain that leads in enterprise and prosperity because we lead in opportunity and fairness.

Photo of John Redwood John Redwood Conservative, Wokingham

Carbon emissions have been going up despite the Government's tax policies. Does the Chief Secretary think that with the changes in the Budget, they will go down?


Funny. As Cameron pointed out: Brown put a zero-rate tax on cars with low-CO2 emissions... none of which...

Submitted by Callum Wood. Continue reading

Photo of Des Browne Des Browne Chief Secretary, HM Treasury, The Chief Secretary to the Treasury

When I deal with the Bill's provisions I will come to our expectations in terms of carbon emissions, but I can reassure the right hon. Gentleman that our climate change levy and related policies on carbon emissions will ensure that we meet our Kyoto target and will make a significant contribution to the reduction of carbon emissions.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

I do not know whether my right hon. Friend is familiar with the document "Climate Change: The UK Programme 2006", published by the Department for Environment, Food and Rural Affairs. I am dismayed that less than 10 per cent. of the document deals with adaptation to climate change, on which the UK is significantly behind. It is all very well to go on about carbon emissions and so on, which is important, but the UK produces only 2 per cent. of greenhouse gases. We need to adapt our country to deal with rising sea levels and the other challenges caused by inevitable climate change.

Photo of Des Browne Des Browne Chief Secretary, HM Treasury, The Chief Secretary to the Treasury

I am grateful to my hon. Friend for setting the wider context for the debate in relation to climate change, and for indicating something that the House may already know: not only does the Treasury have responsibility, through provisions in the Finance Bill, for part of the programme addressing such issues, but that responsibility is shared across the Government, principally by my right hon. Friend the Secretary of State for Environment, Food and Rural Affairs and her ministerial colleagues in DEFRA. My hon. Friend is right to point out that only 2 per cent. of carbon emissions are produced in the UK. That was a significant part of the reason my right hon. Friend the Chancellor made the speech at the weekend to an international audience, explaining our international responsibilities for dealing with such issues, including protecting our environment from the effects of climate change.

I turn to the details of the Bill, and I will talk first about productivity and competitiveness. To raise our game as a nation we must meet the productivity challenge. The logic is simple. With the right long-term decisions Britain can lead in some of the fastest growing and highest value-added sectors—City and business sectors, education and health, creative and science-based industries. As my right hon. Friend pointed out, those once small sectors now cover a third of our economy and exports, and will soon see a much higher share of jobs and wealth.

The House will remember the cycle that ended in 1997, and productivity is estimated to have grown at a rate of 2.59 per cent. over the first half of the current economic cycle—higher than the growth of 2.04 per cent. over the previous economic cycle. After decades of being behind, Britain has caught up with Germany in productivity, is ahead of Japan and has halved the gap with France. We must not put that opportunity at risk.

Photo of Geoffrey Clifton-Brown Geoffrey Clifton-Brown Shadow Minister (Foreign and Commonwealth Affairs)

The Chief Secretary has just explained how well he thinks Britain is doing in terms of growth in the economic cycle, but will he explain why our balance of payments is getting so much worse month by month? What can be done to halt that trend?

Photo of Des Browne Des Browne Chief Secretary, HM Treasury, The Chief Secretary to the Treasury

Of course the hon. Gentleman recognises that we are a trading nation and that our ability to trade will significantly contribute to our future. If he had listened to the last few chapters—or rather, paragraphs—of my contribution, he would know that I have set out clearly which sectors we in government have identified as providing the growth in our trade, and I had not understood that there was any difference across the House on the sectors where growth and improved productivity are possible and ought to be encouraged. Indeed, I have shared television studios with the shadow Chancellor of the Exchequer when he has made the very same point.

Our duty is to support such growth for years to come, and the Bill delivers on that promise, by targeting support to the cutting-edge sectors of our economy, to the creative industries—to our athletes, indeed—and to business. It is both a flexible and a tailored response. It introduces and builds on generous film tax relief for the production of culturally British films, with an eye on the benefits that those films bring, by replacing the existing relief and providing a new foundation to ensure the proper taxation of film production companies in general.

We have extended the research and development tax credit, by which £1.8 billion of support has been already claimed by companies that undertake research and development, and to support our high-tech cutting-edge industries clause 29 will expand their qualifying costs. To bolster business, the Bill will introduce a temporary increase in the amount of first-year allowances for small enterprises, thus enhancing support for new investors and increasing first-year capital allowance from 40 to 50 per cent.

Photo of Stewart Hosie Stewart Hosie Shadow Spokesperson (Women), Shadow Spokesperson (Home Affairs), Shadow Spokesperson (Treasury)

The Chief Secretary mentions an increase in the R and D tax credit and the total sum awarded so far. However, in February 2005 the Paymaster General said that £670 million would be available for the R and D tax credit in 2004–05. When the Financial Secretary wrote to me in October last year, he told me that only £290 million had been allocated—so what confidence can we have that all the money set aside for the R and D tax credit will in fact go to that cause?

Photo of Des Browne Des Browne Chief Secretary, HM Treasury, The Chief Secretary to the Treasury

Of course the hon. Gentleman well knows that the Government make available resources for certain purposes, and that those are drawn down. I do not have the detail available to respond to his specific question about the numbers—I apologise to the House for that, Mr. Speaker—but I will seek to ensure that that issue is addressed before the debate is closed.

Photo of Chris Bryant Chris Bryant PPS (Rt Hon Lord Falconer of Thoroton, Secretary of State), Department for Constitutional Affairs

My right hon. Friend referred to the package of measures for the film industry. He will know that it is particularly important for the film industry to know some considerable time in advance what package of measures will be provided for it. When measures have changed suddenly in the past, British films have suddenly collapsed, so I wonder whether he will say how long-term he expects this set of measures to be.

Photo of Des Browne Des Browne Chief Secretary, HM Treasury, The Chief Secretary to the Treasury

I am sure that hon. Members on both sides of the House agree with the point that my hon. Friend makes. If people are to make long-term investments, they need a degree of long-term certainty, and I understand that these provisions are intended to be long-term.

Clause 91 also doubles the annual limit for investments under the enterprise investment scheme to £400,000. That will incentivise greater investment in small growth companies across our economy. We have boosted support for effective venture capital, too. Financial services in general and the City in particular are crucial sources of wealth and prosperity for the UK, and venture capital plays an invaluable role in investing in our businesses and promoting economic growth.

To ensure that the industry has a solid foundation for stable fundraising and continued growth, the Bill guarantees the rate of income tax relief for investments in venture capital trusts at 30 per cent. for the rest of this Parliament. The chief executive of the British Venture Capital Association, Peter Linthwaite, has backed that. He said that it means that we have

"listened to the BVCA about the important role VCTs play in bringing investment to the smaller, entrepreneurial sector of the market".

Enterprise, productivity and competition can be no better symbolised than by the Olympics and the Paralympics, which we have the honour of hosting in 2012. Those games will be a once-in-a-lifetime event for this country, and we can do our bit with the Bill by delivering on the commitments that we made as part of the original bid. Among other things, the measures exempt the London Organising Committee of the Olympic games from corporation tax and provide powers to ensure that the International Olympic Committee will not have a taxable presence in the UK.

Photo of Jeremy Wright Jeremy Wright Conservative, Rugby and Kenilworth

I have listened with interest to the variety of groups that the Chief Secretary has described as benefiting from the Bill. May I ask him about one that will not? Will he explain to the House why the Government concluded that pensioners needed £200 to help with their council tax last year, but not this year?

Photo of Des Browne Des Browne Chief Secretary, HM Treasury, The Chief Secretary to the Treasury

The hon. Gentleman will be aware, because it has been explained before in the House, that not only have this Government been significantly more generous in supporting local government than his party was at any time when it was in power—indeed, his party cut the support that it gave to local government—but we found additional support across Government for this year and next year, too. I was involved in that. As he will remember, the £200 was announced in two stages, in the previous pre-Budget report and the previous Budget. It was made clear that that payment was for 2005.

I want to mention not only competitiveness and productivity, but fairness, too. If Britain is to lead in the global economy, we must be not only a prosperous but a just society. That means helping those who can excel and offering a fair chance of a bright future to everyone. The Bill supports our sporting potential, but it also supports our giving potential. We are introducing measures, which are welcomed by charity representatives, to protect the integrity of reliefs for charitable giving and to assist greater collaboration by charities in trading companies.

This is all about fairness. On that theme, and following the Paymaster General's statement last July, the Bill also legislates to ensure that compensation payments paid by foreign banks to holocaust victims or their heirs are exempt from tax. Fairness is important in our society, so the Bill also legislates to clamp down further on tax avoidance and tax fraud—two activities that cheat the majority of our people who pay their fair share.

Photo of Peter Atkinson Peter Atkinson Conservative, Hexham

The Chief Secretary talks about fairness, but does he think that it is fair that the Inland Revenue should surcharge farmers who fail to pay their tax bill on time because they are owed so much money by the Department for Environment, Food and Rural Affairs?

Photo of Des Browne Des Browne Chief Secretary, HM Treasury, The Chief Secretary to the Treasury

I am unaware of any individual case in which that has happened to a farmer. If the hon. Gentleman brings that issue in respect of any individual farmer to the attention of my right hon. Friend the Paymaster General, I am sure that she will look at that case.

Photo of Tobias Ellwood Tobias Ellwood Opposition Whip (Commons)

May I just go back to the issue of the £200? I want to understand why it was necessary to give £200 to pensioners before the election but it is not necessary now, when gas prices—energy prices—have increased. If ever pensioners needed support, it is now.

Photo of Des Browne Des Browne Chief Secretary, HM Treasury, The Chief Secretary to the Treasury

The hon. Gentleman asks me why one should provide support for council tax. If there is to be consistency of argument, it hardly seems logical that support for council tax payers should be a reflection of the pressure of energy prices. The specific answer to his question is that there were a number of years of rises in council tax of about 7 per cent., and at the conclusion of that, among other things, the Government offered support to pensioner households. As I have explained already to Jeremy Wright, that support was first announced at £50 for households with pensioners in a certain age group, for 2005, and then increased to £200 in last year's Budget, because my right hon. Friend the Chancellor was able to find more resources for it.

Like all hon. Members, I have significant sympathy for those on fixed incomes who have to face the pressures that increased energy bills generate. However, it is unlikely that I, as a Minister, or any other Labour Member, will take any lessons from a party with such a record on VAT on energy and a lack of support for the steps that we have taken to help the poor. The answer to the hon. Gentleman's question is that year after year while we have been in power, we have supported pensioner households with specific payments to help them with their energy costs. We have given winter fuel allowances to households, and increased and maintained them. We indicated in the Budget that year on year, pensioners can look forward to such support.

Photo of John McFall John McFall Chair, Treasury Committee

If the Minister reads the very fine report by the Treasury Committee published today to assist the House in this Second Reading debate, he will note that paragraph 116 says, in bold:

"the rise in council tax over 2005–06 and 2006–07 is forecast to be the lowest since 1997."

No doubt that influenced the Treasury's thinking.

Photo of Des Browne Des Browne Chief Secretary, HM Treasury, The Chief Secretary to the Treasury

I am grateful to my right hon. Friend, as Chair of the Treasury Committee, for the report, which was published at 11 o'clock. I have a copy of it here. No doubt the fact that he has quoted part of it will give licence to many hon. Members to take advantage of the significant work that the Committee has done. He can look forward to the Government's response to the report being made in the normal manner. He is right to record that by dint of significant engagement with, and additional support to, local government, we have managed recently to sustain increases in council tax that reflect that support and indicate that there is now efficiency that was not there before.

I am sure that hon. Members on both sides of the House agree that we have a duty to act swiftly, yet proportionately, to prevent abuses due to avoidance and fraud. After all, as we all know, such tax avoidance can undermine the funding of public services and is unfair on those who pay their fair share. Minimising its impact on the majority of taxpayers is vital. However, fraud is a complex area and our response to it must be sophisticated. For example, on missing trader fraud, the Bill provides for a change in accounting procedures for certain goods in clause 19. It clarifies the power to inspect goods in clause 20. It will also enable Her Majesty's Revenue and Customs to target businesses' record-keeping requirements to help to identify fraud. On a matter that is more widely reported, clause 2 will make it harder for smugglers to source illicit cigarettes and hand-rolling tobacco.

The tax system will be significantly simplified for small businesses by replacing the starting and non-corporate distribution rates of corporation tax with a single banding for small companies set at the current small companies rate, which will allow small companies to spend less time dealing with their tax affairs and more time growing their businesses. As the Institute of Directors noted when it welcomed the announcement, that will also increase the fairness of tax treatment between small businesses that operate in different legal forms.

Fairness extends to a range of areas. For example, many employees have benefited from the home computer initiative exemption to get a computer in their homes for personal use. The initiative has worked well, but times have changed and are changing rapidly, so the Bill repeals that exemption for a loan of computers to employees for personal use. However, I make it clear that personal computers and mobile phones provided for business use are not affected by the change. If a person already has a PC, the arrangements will not be affected by the change.

We are making the change to reflect the reality on the ground. The cost of computers has fallen dramatically, and for the vast majority of those using the exemption, access to information technology has improved, too. In the interests of fairness, we must now target resources on those who need them most: the poorest groups in society, which cannot always access IT. That is why we are looking to build on the success of our UK Online centres, which now number more than 6,000 throughout the country; it is why the Department for Work and Pensions is examining how to improve access to IT for the elderly; and it is why we will continue to consider this area throughout the comprehensive spending review.

Fairness is also about giving a fair deal to hard-working families, which is why clause 156 raises stamp duty thresholds. That takes some 40,000 home buyers out of stamp duty each year and, when added to the doubling of the threshold last year, means that some 400,000 home buyers are now out of the stamp duty range.

Photo of Julia Goldsworthy Julia Goldsworthy Shadow Chief Secretary To the Treasury, Treasury

Does the right hon. Gentleman think it fair that the richest 20 per cent. pay less in tax as a proportion of their income than the poorest 20 per cent.?

Photo of Des Browne Des Browne Chief Secretary, HM Treasury, The Chief Secretary to the Treasury

I thank the hon. Lady for her question, and take this opportunity to welcome her to her position on the Front Bench. With respect, I think that crude assertions, drawing arbitrary lines in percentages and then making comparisons, does not assist us in deciding what is fair. [Interruption.] The shadow Chancellor says from a sedentary position, "They're your figures." It is irrelevant whose figures they are; I am referring to the comparison. It is not a test of fairness to produce two sets of figures and compare them. The operation of the tax system and the various means of support that the Government provide for many hard-working families contribute to the overall fairness of the system.

Measures in the Bill will also ensure continued fairness, innovation and a level playing field for the alternative finance arrangements used in particular by the Muslim community. With clauses 103 to 146, we are introducing real estate investment trusts to improve the efficiency of our residential and commercial property markets and to allow smaller investors to access property returns.

We have also acted to change part of the inheritance tax regime for trusts, specifically bringing accumulation and maintenance trusts and interest in possession trusts into the mainstream rules for other kinds of trusts. The Bill limits the scope for people to use trusts to avoid paying inheritance tax and reduces from 25 to 18 the age at which children gain access to trust assets. In effect, that continues our work to close loopholes in the inheritance tax and trust regimes and to ensure that people pay their fair share of tax, while protecting vulnerable people.

What the Bill does not do, however, is also clear. This measure is not retrospective, and we have provided a two-year transition period to give time to reorder financial affairs if needed. Only trusts with assets above the inheritance tax threshold will have to pay any charge under the revised rules, and no one who wrote a life insurance policy in trust before Budget day will have to pay a new inheritance tax charge as a result of these changes. On the point about reducing the relevant age for those trusts, let me just say this: on reaching their 18th birthday people can vote, fight for their country and even get their child trust fund, but as things stand they may not get their trust assets for another seven years. That is an anomaly, and the Bill fixes it.

Fairness is a matter for all parts of our economy and for all industries, so let me turn briefly to oil. Sustained increases in oil prices since spring 2004 have led to an upward shift in the medium-term outlook for oil prices. The same is true of a significant unforeseen economic rent from North sea oil and gas production. That is why we are introducing a package of measures to reform the North sea fiscal regime, including an increase in the rate of supplementary charge on profits from exploitation of our oil and gas reserves. That will ensure that the regime continues to strike the right balance between oil producers and consumers. Let me be clear on this: North sea oil is a critical sector for the UK, and it is only right and fair that we should all share in the profits of increased prices—producers and consumers alike.

I turn now to productivity, competitiveness and fairness. Building on the Budget and the pre-Budget report before it, the Bill targets support in a flexible way that is more responsive to our global economy. It also increases our support for the environment. Today, 98 per cent. of emissions occur outside Britain. Climate change is an enormous threat to Britain and to the world. It is complex but it is real, and all Governments must act. With the climate change levy we did just that.

As my right hon. Friend the Chancellor of the Exchequer said, the resulting climate change agreement and the carbon trust funded by it have reduced carbon emissions by a total 28 million tonnes. That is why we are already able to meet our Kyoto targets. What is more, in each of the next five years climate change measures will reduce emissions by more than 6 million tonnes. By 2010, that will amount to some 40 per cent. of our total carbon reductions. Given the climate change levy, more than 10,000 businesses have signed climate change agreements. Under the carbon trust, some 3,000 businesses have reduced their emissions. Enhanced capital allowances have underwritten investment in 13,000 energy-saving products.

Building on that, clause 172 will increase the rates in line with current inflation, introduced from 1 April next year. The Bill also amends the structure of company car tax and vehicle excise duty to strengthen existing incentives to use environmentally friendly vehicles.

Photo of Philip Davies Philip Davies Conservative, Shipley

We heard from the Chairman of the Select Committee, Mr. McFall, about the report issued today by that Committee. It includes a statement that in the context of trying to deal with climate change, the Government's position in not raising air passenger duty for the fifth year running is incoherent and unconvincing. Does the Chief Secretary accept that the Government are not making the fullest possible use of taxation mechanisms to deal with climate change?

Photo of Des Browne Des Browne Chief Secretary, HM Treasury, The Chief Secretary to the Treasury

I knew that the reference by my right hon. Friend Mr. McFall to his Committee's report would encourage others to trawl the report. I am not surprised that Philip Davies picked a headline from the report—the reference to air passenger duty. In due course, as I explained to my right hon. Friend, the Government will respond in the normal way to the report, dealing with matters in some detail. As for the cost of air transport, as the hon. Gentleman will know, a number of airlines have introduced fuel surcharges. For example, British Airways charges £8 for flights in Europe, which is equivalent to a 60 per cent. increase in air passenger duty. British Airways charges £35 for non-European flights. These charges have not had an appreciable impact on demand.

The Government keep all these matters under strict review. Standing at the Dispatch Box within hours of the report having been published, having had the opportunity of going through it only once, I do not accept that what is in the report is necessarily the proper interpretation of the evidence that the Select Committee heard. There is still room for the Government's response to the report, as the hon. Gentleman would expect.

It is correct that air passenger duty was frozen in the Budget, and has been frozen every year since 2001. Decisions need to be considered in the context of wider social and economic factors, such as the current volatile oil market and the experience of surcharges in relation to that volatile market that we have recently seen. The Government believe that the most effective approach to addressing the international challenge of aviation emissions is through a trading scheme. That is the Government's current view, and it has been in the public domain. The Government are continuing to press for the inclusion of aviation in the EU emissions trading scheme as soon as possible after agreement. The hon. Gentleman will have to wait further for a more detailed and comprehensive response to the Select Committee's helpful report.

The Government's approach to environmental matters has been welcomed by environmental organisations such as Greenpeace. The Green Alliance said that my right hon. Friend the Chancellor of the Exchequer

"has set the right direction of travel on climate change".

However, as the Chancellor has made clear, we need strong leadership to take the tough decisions required to tackle climate change.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

I am grateful to my hon. Friend for giving way again. He has set out the many laudable steps taken by the Government to deal with emissions of climate-changing gases, for example. What measures are there in the Budget for taxation to deal with the adaptation of the United Kingdom to climate change that is inevitable? What are the tax measures in the Budget and the Finance Bill in that regard?

Photo of Des Browne Des Browne Chief Secretary, HM Treasury, The Chief Secretary to the Treasury

I have to tell my hon. Friend that to my knowledge there are none; I think that that is the honest answer to his request. As I said to him earlier when he raised the same issue using a slightly more tangential approach, I accept that there are responsibilities beyond what can be done in the Finance Bill in response to environmental and climate change.

Photo of Doug Henderson Doug Henderson Labour, Newcastle upon Tyne North

May I suggest to my right hon. Friend that some of the provisions affecting research and development may well lead to measures to help to tackle emissions?

Photo of Des Browne Des Browne Chief Secretary, HM Treasury, The Chief Secretary to the Treasury

Of course, the provisions on research and development could lead to diverse approaches to scientific matters. There must be room for scientific developments to respond to the very challenge that my hon. Friend Rob Marris has drawn to the attention of the House. I am therefore grateful for the assistance of my hon. Friend Mr. Henderson in highlighting, if not a direct provision, that potential support in the Bill, for the benefit of our hon. Friend the Member for Wolverhampton, South-West.

The Bill provides a platform of stability, and is another step towards realising our vision of a productive, competitive, enterprising Britain, which leads the world in new industries, with better technologies, first-class education, effective environmental stewardship and more highly skilled jobs with higher wages, as I have said. The Bill provides new choices for parents, investment and reform in public services, and initiatives to meet the energy and environmental challenge. It secures fairness for each child by investing in every child, and equips Britain for the global challenges ahead. Our drive in government is to improve the UK's position as the best location for inward investment by strengthening our reputation as one of the world's finest locations for higher education, by promoting London as the world's leading international centre for financial and business services, and by investing in skills.

Only by working together can productivity and fairness advance, and in 2006 we have an opportunity—indeed, a duty—to achieve that goal. We have an opportunity to sustain long-term investment in public services and in infrastructure. We have a duty to meet the fiscal rules, to support the needs of business and to make necessary long-term investments. The Bill prepares us to take that opportunity and to fulfil our duty by supporting enterprise, productivity, innovation and business with stability and growth. The Chancellor set out a Budget for the future, and for a strong and strengthening economy. The Bill helps to makes it a reality, and I commend it to the House.

Photo of Theresa Villiers Theresa Villiers Shadow Chief Secretary to the Treasury 4:12 pm, 24th April 2006

I beg to move, To leave out from "That" to the end of the Question, and to add instead thereof:

"That this House
declines to give a Second Reading to the Finance (No. 2) Bill because the provisions contained in its two volumes and 475 pages increase complexity and instability in the tax system, discouraging business investment and damaging productivity and penalise hard-working prudent families seeking to provide responsibly for their future;
and because the provisions undermine attempts to improve IT skills by abolishing the UK's Home Computer Initiative, damage enterprise by abolishing the 0% rate of corporation tax, leave the UK with an ever-rising tax burden that damages its competitiveness and fail to prepare the country for the challenges and opportunities of the globalised world economy."

I am pleased to follow the Chief Secretary, who opened our debate. I look forward to working constructively with him and his team on this important Bill and welcome the contribution made by the Treasury Select Committee in a report that will help, I am sure, to inform our debate. We broadly support what the Government seek to do in a number of provisions, but of course we wish to examine the details in Committee. We will look positively at anti-avoidance provisions, but we will seek to ensure that they target genuine tax loopholes and do not involve excessive compliance costs and complexity. I welcome the Chief Secretary's confirmation that the Government wish to ensure that those provisions operate proportionately. In the past, that has not always proved the case, so we will endeavour to ensure that the Bill achieves that aim.

We welcome, too, the attempt in clause 19 to crack down on MTIC—missing trader intra-community—fraud, but we are concerned that the Bill does not include an implementation date,. Given the vast sums lost to the Exchequer as the result of such fraud, I hope that the Paymaster General will assure the House in her reply that the Government have received the necessary EU derogations or that they are confident that they will receive EU permission to put those proposals into effect. With certain reservations, we welcome part 4, which deals with real estate investment trusts. My hon. Friend Mr. Francois will expand on that topic in his winding-up speech.

Turning to the more controversial matters, in Finance Bill debates in the past nine years, it has almost become a ritual for the Opposition to express grave concern, not just about tax increases but about tax complexity. As we are about to embark on scrutiny of the Bill's two volumes, 181 clauses and 25 schedules, I imagine that this year will prove no exception. For example, Ernst and Young's Chris Sanger said of the Budget press notices:

"Confusion has been heaped on complexity. This is not the way to keep businesses in the UK or encourage them to invest here."

We have 23 clauses and two new schedules on film tax alone, on top of lengthy existing legislation. As Chris Bryant pointed out, this is a matter on which there have been repeated amendments to legislation over the past few years.

Photo of Chris Bryant Chris Bryant PPS (Rt Hon Lord Falconer of Thoroton, Secretary of State), Department for Constitutional Affairs

I am afraid that the hon. Lady cannot pray me in aid on this matter. The whole point is that the measures replace legislation that was not working and did not provide the stability that the film industry needs. If she is going to try to lecture Labour Members on support for the film industry, we will give it short shrift.

Photo of Theresa Villiers Theresa Villiers Shadow Chief Secretary to the Treasury

The point that I was making was that there has been significant instability in the film tax regime, which has made it extremely difficult for the film industry to plan, as the hon. Gentleman pointed out.

Photo of Chris Bryant Chris Bryant PPS (Rt Hon Lord Falconer of Thoroton, Secretary of State), Department for Constitutional Affairs

There was immense stability under the Conservative Government in support for the film industry, because there was none.

Photo of Theresa Villiers Theresa Villiers Shadow Chief Secretary to the Treasury

The hon. Gentleman cannot deny that there have been repeated amendments to the film tax regime over the past few years. We have seen the film tax regime used in large part for tax avoidance and it has had very limited success in supporting the film industry. We will be looking at the clauses to see whether we can make them more successful than the Government have so far been able to make such provisions.

It is not just the huge complexity of the tax system that is undermining our competitiveness, but the instability and unpredictability of the Chancellor in his nine years in office. If the hon. Member for Rhondda does not want to take my word for it, he should listen to the comments of Frank Haskew of the Institute of Chartered Accountants:

"The UK corporation tax system appears to be caught in a culture of endless change and increasing regulation that does not allow businesses to plan properly."

This stop-go approach has left us with what is basically continuing revolution in the tax system, making it much harder for businesses to plan for the future. That is damaging our competitiveness and it must be one reason why business investment and productivity growth have fallen significantly in recent years.

Photo of John Redwood John Redwood Conservative, Wokingham

Does my hon. Friend agree that the Irish example of "Keep 'em low and keep 'em simple" is the way to be inundated with new business and talented people, and it gets more tax revenue, because the rates are lower and the system easier?

Photo of Theresa Villiers Theresa Villiers Shadow Chief Secretary to the Treasury

Absolutely. The Irish economic example shows what can be done with a simplified tax system with competitive rates of tax.

Photo of Theresa Villiers Theresa Villiers Shadow Chief Secretary to the Treasury

No. I want to make some progress, but I promise that I shall give way later.

That instability is illustrated by a number of the Bill's more controversial clauses. Let us take clause 61, on the home computing initiative, which was announced with a fanfare in 1999, repackaged in 2004 because not enough people were using it and suddenly shut down in 2006 because too many people were using it. Many people will lose their jobs as a result of that change. According to the IT trade body Intellect, there are about 2,000 individuals working in this industry for whom Gordon Brown has just signed redundancy notes.

Photo of Michael Martin Michael Martin Chair, Speaker's Committee on the Electoral Commission, Speaker of the House of Commons

Order. When the hon. Lady is referring to a Member of this House, she must use the correct form of address—in this case the Chancellor of the Exchequer.

Photo of Theresa Villiers Theresa Villiers Shadow Chief Secretary to the Treasury

My apologies, Mr. Speaker.

It is impossible for businesses to plan sensibly for the long term if their whole business model becomes redundant overnight because the Chancellor suddenly changes his mind on a tax break. Even Government Departments have found it hard to keep up with the Chancellor on this one. Both the Department for Work and Pensions and the Department of Trade and Industry were in the process of rolling out the scheme for their employees when the axe fell. As recently as January, the Minister for Industry and the Regions said:

"HCI provides a great example of what can be done when the government and industry are working together to fulfil policy objectives."

Clearly, that Blairite endorsement did not go down too well with the Chancellor, but perhaps the nail in the coffin came when the Minister of Communities and Local Government heaped praise on the home computing initiative.

If we are to compete with China and India, and to do so successfully, as the Chief Secretary wishes, improving Britain's IT skills is crucial. We must embrace the digital age and ensure that IT skills permeate across the community.

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

I agree about the importance of IT. Does the hon. Lady think that iPods should be made available under that relief?

Photo of Theresa Villiers Theresa Villiers Shadow Chief Secretary to the Treasury

No, I do not believe that iPods should be available under that scheme. The way to deal with the matter is to tighten the definition in section 320 of the Income Tax (Earnings and Pensions) Act 2003.

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

The hon. Lady is interested in simplicity, so perhaps she will provide a simple definition of "computer".

Photo of Theresa Villiers Theresa Villiers Shadow Chief Secretary to the Treasury

I am not going to draft a definition on the hoof. If the Government were to postpone the abolition of the HCI, they could consult the industry and come up with a workable definition that would prevent those problems from occurring.

It is vital that we ensure that IT skills permeate our community, particularly in relation to the most disadvantaged. Some 300,000 low-income families have benefited from the HCI scheme, many of whom might have experienced difficultly in obtaining credit to buy a PC in the open market. Home computers can also make a huge difference in maintaining a good life-work balance—abolishing the scheme will hit young mums who want to return to work but who need the flexibility to work from home.

Why abolish the scheme at a time when the Government demand that more and more of their contact with citizens should take place digitally? On the very day when the end of the HCI scheme was announced, the Chancellor endorsed the Carter report's proposals to try to force people to file their tax returns electronically by bringing forward the date for filing a paper return to the immensely difficult deadline of 30 September. If the Government really believe that the scheme is being abused, we are happy to work with them on tightening it to prevent such abuse. We urge the Government not the abolish the HCI scheme.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

I have followed the hon. Lady's comments on this relatively minor area of taxation with interest. I sat through almost all the first day of the Budget debate, when I cannot recall Conservative Members mentioning the matter, which has suddenly become important to them. [Interruption.] Mr. Osborne says from a sedentary position that the matter was not mentioned in the Budget, but it was included in the press release notices, which were available immediately after the Budget and to which Conservative Members referred in the Budget debate. The topic has suddenly become important for Conservative Members.

Photo of Theresa Villiers Theresa Villiers Shadow Chief Secretary to the Treasury

I find it staggering that the hon. Gentleman has complained about our not mentioning something in the Budget debate when the Chancellor leaves out crucial aspects of the Budget year after year.

The pattern of instability in the Finance Bill recurs with clause 26, which abolishes the 0 per cent. rate of corporation tax. That made for a good headline on Budget day 2002, but it was scrapped four years later because people actually used the scheme. The Opposition, including my hon. Friend Mr. Hoban, warned at the time that it would encourage people to incorporate who might not otherwise have done so. We introduced suggestions to reduce that problem and achieve a more level playing field for incorporated and unincorporated businesses, but the Government now propose to abolish that scheme because people have done exactly as we predicted. As one commentator put it:

"Back in 2004, a zero corporation tax band was billed as a heartwarming aid for micro-business. Within months it was transformed in Treasury thinking into an evil tax-loophole that must be slammed shut".

We remain ready and willing to work with the Government to make the 0 per cent. rate work effectively to encourage enterprise, and we ask them to think again about its abolition.

Then we come to part 2 of schedule 21, which is the biggest U-turn of them all—self-invested personal pensions, or SIPPs. My hon. Friend the Member for Tatton was among many who pointed out the anomalies that would result if people could occupy properties purchased by their SIPP. Over-excited estate agents hailed SIPPs as property price Viagra, yet the Chancellor blithely continued on course until he suddenly woke up to the problem last December. In the meantime, thousands of pounds have been wasted in preparing for a tax regime that was suddenly scrapped at the last minute. In schedule 21, we are left with a proposed new structure of positively Byzantine complexity on top of the new framework only just introduced for A-day. Andy Bell of SIPP provider A J Bell says:

"Once again, when faced with a simple solution and a complex solution, the government has opted for the latter."

Some of the most controversial proposals in the Bill are those on trusts contained in clause 157 and schedule 20. The current rules treat gifts on trust in largely the same way as outright gifts, and tax them accordingly. The Chancellor proposes to place new penal inheritance tax charges of 20 per cent. on entry to a trust and 6 per cent. of the value of its capital every 10 years. Those new taxes will be levied on two types of trust: interest in possession trusts, such as those with a flexible life interest; and accumulation and maintenance trusts, which are generally set up by parents or grandparents for children. We believe that these new charges are unfair and we oppose them: first, because they are retrospective, as they will apply to existing wills and trusts unless their terms are changed before April 2008; and, secondly, because they are a new tax on hard-working, prudent families seeking only to plan responsibly for their future.

The Government would have us believe that this change will affect only 23,000 of the super-rich who are somehow using trusts as a way of getting out of paying their fair share of tax. The reality is very different. The wide-ranging coalition of experts and professionals who have come together to oppose the changes inform us that they will have an impact on millions of ordinary families. The Opposition are happy to work with the Government on measures to prevent trusts from being used for complex and artificial tax reduction schemes, but only a very small minority of trusts fall into that category, and the measures in the Bill will have little impact on them. As the professional groups point out, the vast majority of trusts that will be caught by schedule 20 are set up for reasons that have nothing to do with tax. They are set up for social and family reasons—for very human reasons—to provide responsibly for family members in a considered and flexible way and to help people to tackle some of the many complications of family life in modern Britain.

The proposals threaten to undermine the long-established principle that inheritance tax should not apply to transfers of property between husband and wife. Unless amended, they could give rise to many more instances whereby inheritance tax will apply in such situations. For example, a typical arrangement is for a husband in a second marriage to leave his property on trust to his widow for life, passing to the children of his first marriage on her death. That arrangement has nothing to do with tax, as under normal circumstances the property would be taxed on the second death—that of the widow. It is merely an attempt to divide property fairly and sensibly between family members and to provide for their different and sometimes competing needs.

Proposed new section 49A of the Inheritance Act 1984, which is set out in schedule 20(5), imposes the new charges on trusts with a life interest, except where a series of six stringent and opaque conditions are met. For most modern life interest trusts, those conditions will not be met, so the new inheritance tax charges would apply in the situation that I outlined. Ironically, many people who have just drawn up a will that they have made following a civil partnership will have to review and rewrite it, because setting up a trust for a surviving partner is an extremely common approach. It seems bizarre that, having only just granted the spousal exemption to civil partners, the Government should seek to undermine it a few months later.

The House should note that divorce settlements also frequently involve trusts, often set up by court order. Many of those will not meet the six conditions of new section 49A. Consequently, we face the chilling prospect of an inheritance tax bill being added to the many other costs and miseries associated with divorce.

Moreover, it sits oddly with a Chancellor who once prided himself on his reputation for prudence that he is taking measures that will put pressure on parents to pass significant wealth to teenagers well before they may be old enough to deal responsibly with the consequences of such a gift. Schedule 20(3) imposes the new IHT charges on accumulation and maintenance trusts unless all property in the trust passes outright to the beneficiaries when they are 18.

Those sorts of trust were first devised by a Labour Government—by Denis Healey and Joel Barnett in the 1970s. They were introduced not to help the super-rich—I do not think that either of those gentlemen were keen on helping the super-rich—but to allow ordinary families to provide for their children without giving them control over too much money at too early an age. Let us compare two cases that were raised with me. In one, the capital was transferred to a young adult who bought a fast car and crashed it with fatal results. In the other, a young adult became prey to a drug dealer at university, but the terms of a family trust enabled his relatives to prevent him from dissipating the assets that had been passed to him. Common sense is surely with Mr. Healey rather than the current Chancellor. Passing significant wealth to teenagers is not a great idea.

The third reason that we oppose the changes is because they could require millions of wills to be rewritten. A cautious estimate by the Society of Trust and Estate Practitioners suggests that 1 million wills would have to be reviewed and redrafted. Assuming a modest cost of £250 per will, that leaves an unnecessary bill of £250 million. The actual total could be considerably greater, with the huge and unnecessary legal bill, not to mention the prohibitively expensive High Court hearings that may be needed to vary thousands of existing trusts and divorce settlements.

Furthermore, Skandia Life said that 4.5 million people will need to review their life assurance policies because they are usually written in trust and could therefore fall foul of the new rules. The Chief Secretary suggested today that that anxiety is unfounded. Of course, I welcome his and the Treasury's indications that trusts in relation to life assurance, as well as those arising out of intestacy, will not be affected by the new rules. However, even though that last-minute assurance came too late for the paper copy of the explanatory notes, it was rushed into the electronic version. We want the assurances to be placed on the face of the Bill.

The great legal historian, Frederic Maitland, once described the trust as the

"greatest and most distinctive achievement performed by Englishmen in the field of jurisprudence".

The concept has been exported all over the common law world. Even civil law jurisdictions have started to incorporate similar concepts into their law. Much of that success flows from the genuine practical assistance that the trust concept can give ordinary families in juggling complicated lives and planning for an uncertain future.

A leading QC said of the Government's proposals that

"they are anti-family, they are illogical . . . they do not hit the rich so much as the aspirational classes".

Photo of Theresa Villiers Theresa Villiers Shadow Chief Secretary to the Treasury

Mr. Christopher McCall, for the hon. Gentleman's information.

I urge the Government to think again about schedule 20, just as I urge them to think again about the whole Bill. Much of the measure increases complexity and instability in the tax system, discouraging business investment and damaging productivity growth, both of which have slumped under the Chancellor's stewardship of the economy. Much of it undermines attempts to improve Britain's IT skills, which are vital in competing for high value jobs with India and China and the world's emerging economic giants. It leaves Britain with its highest tax burden ever, excluding North sea oil revenues, damages our competitiveness and fails to prepare our country for the challenges and opportunities of the 21st century globalised world economy.

Photo of John McFall John McFall Chair, Treasury Committee 4:33 pm, 24th April 2006

It is a privilege for the Select Committee on the Treasury to publish our report on the same day as Second Reading. The report was prepared under a restricted timetable and, as Chairman, I thank the Committee staff for their tremendous work in the past few weeks. I also thank those who appeared before the Committee—Treasury officials, outside experts, including Professor David Heald, who has been a constant source of advice during our inquiries, and, not least, the Chancellor.

Photo of Stephen Hesford Stephen Hesford PPS (Rt Hon Baroness Amos, President of the Council), Privy Council Office

Does my right hon. Friend regret, as I do, that all the hard work that the Select Committee put in and all the evidence that it heard were trashed yesterday in a Tory leak to The Times, which misrepresented the evidence that the Committee had heard and what it said about the Chancellor's golden rule?

Photo of John McFall John McFall Chair, Treasury Committee

My hon. Friend is talking about an article that appeared in the newspaper this morning, and I shall come to that subject later.

One of the issues that the Committee considered was energy prices. The rise in energy prices appears so far to be having muted second-round effects—in terms of increased demand for wages, for example—but we greatly welcome the Government's proposals to encourage an independent investigation into European gas markets and into energy markets in general. We would like the Government to provide an update of the outcome given in the 2006 pre-Budget report.

In regard to the energy market, we took evidence from the Governor of the Bank of England, which published its inflation report during our hearings. We asked the Governor about the lack of competition in European gas markets, and it is worth quoting his response:

"It is true that there is the inter-connector with Belgium through which it had been hoped that gas would flow into the United Kingdom when prices were higher here than on the Continent, but I am not sure whether it was entirely reasonable to expect that, given that the gas market on the other side of the Channel is not exactly reminiscent of the group of atomistic competitors of textbook theory".

I endorse that lucid academic comment, and urge the Government to seek the liberalisation of those energy markets, because the present situation is having a detrimental effect on United Kingdom business and UK consumers.

On consumer spending, the Committee noted:

"While the forecasts of the Budget do not suggest that consumer spending growth will reach the previously high levels seen in the recent past, several outside observers note significant downside risks to these forecasts. We recommend that the Treasury provide all necessary assistance to the Office for National Statistics in its task of understanding and measuring consumer spending, such as on services rather than retail sales, to help improve the quality of consumer spending forecasts."

There is an abundance of information on our manufacturing industry but very little on the retail and services sectors. Given that those sectors now account for 70 per cent. of gross domestic product, it is important that the collection of the relevant figures for those sectors improves.

The Committee also considered the labour market and migration, and noted the Home Secretary's statement about a points-based immigration system. It is important to underline the fact that this country needs skilled immigration. Among the successes of London that have been noted recently, particularly since the tragic events of 7 July last year, are the effect of its cosmopolitan nature and the way in which people come into the city and use it to work in. It is therefore important to consider immigration in that context. Economically, we need immigration. No expert commentator, including the Governor of the Bank of England, would appear before our Committee and say that we did not need immigration. We need appropriate immigration, however, and it is important that the system to be implemented by the Home Secretary should work well.

In the Budget the Government have recognised the need to encourage a higher rate of female labour participation. The Women in Work Commission has made more than 40 recommendations on this matter, and I hope that the Government will take them up. The economies in Europe that are doing well are those with labour market flexibility and a high participation rate of women in labour markets. The female employment rate in this country is nearly 70 per cent., but the Women in Work Commission's report suggests that, by increasing female labour mobility and participation, the economy could benefit by up to £23 billion, which is roughly 2 per cent. of GDP. Therefore, the provision of more funds to train women who have lower skills to get higher skills is important.

We also considered the golden rule, on which my hon. Friend Stephen Hesford intervened. I saw a biased report about that rule in the newspaper this morning. I hope that there has not been a leak from the Committee, but that newspaper report indicates that a vote had been taken about it in Committee. That account is very much to be regretted, because the Treasury Committee, which I have had the privilege to chair in both this and the previous Parliament, has largely produced unanimous reports. We investigate subjects deeply and spend a lot of time debating issues when compiling reports. I do not think that I am speaking out of turn when I say that we spent about three hours debating our Budget 2006 report to ensure that all members were as happy with it as they could be. I will bring that issue to the attention of fellow members.

The Committee's report noted the Treasury's projections showing that the Government are on course to meet the golden rule after the end of this economic cycle. However, we remain concerned that fiscal policy towards the end of a cycle might be constrained unnecessarily by spending levels or data classification from, say, 12 years earlier, at the start of a cycle. In particular, revisions to data might be held to require sudden and undesirable changes to tax or spending in the final years of the cycle, for the sole purpose of meeting the mechanical calculation implicit in the golden rule. We have said previously in reports, and will repeat in this one, that we remain of the view that it would be appropriate to review the fiscal rules, so that any improved formulation of the rule could be introduced at the start of the next economic cycle. The Governor of the Bank of England and others have said to us that a forward-looking approach to the golden rule should be adopted, focused solely on the sustainability of public finances. In many ways, that would take away the mechanistic element whereby the golden rule is considered over a fixed economic cycle. I note, however, that the golden rule has worked on that basis to date.

One of our expert witnesses, Robert Chote of the Institute for Fiscal Studies, made a point that is worth repeating. He cautioned:

"The Golden Rule at best was only ever a reasonable rule of thumb . . . The idea that over a period of seven or 12 years if you beat it by one billion that is terrific and if you miss it by one billion that is a disaster just is not sustainable on any analytical grounds."

Focusing on the future is therefore important. The advice received by the Committee has been helpful to us in reaching that view.

On the other fiscal rule, the sustainable investment rule, we know that the whole of Government accounts procedure will be introduced shortly. The sustainable investment rule will need to be considered in the context of the Government's balance sheet, to be prepared under the Government WGA programme. I know that Sir John Bourn and others have been discussing that with the Government, as the Public Accounts Commission, of which I am a member, regularly receives evidence from Sir John and his colleagues on that issue.

Like the Government, the Committee is also focusing on the comprehensive spending review. We welcome specifically the Government's decision to initiate a national debate as part of that review. It is important, however, that that debate is set in a context that allows an opportunity for full consideration of options and priorities, rather than simply providing an opportunity for Departments to canvass public support for their bids for increased expenditure. It is therefore important that departmental Select Committees of the House of Commons ensure that they are fully engaged with the process. As a first step, the Treasury Committee expects to hold an initial inquiry on the CSR, following the publication of the report, which we expect to be in mid-2006. To assist with the timely parliamentary scrutiny of matters arising from that report, we urge the Government to ensure that that document is published no later than June 2006, so that the Committee can get its teeth into it in July, before the recess. The debate can then continue when Parliament returns in the autumn.

As the Chief Secretary knows, the Select Committee looked closely at the issue of efficiency savings and the public sector work force, and the Government's targets in that regard. We welcome the contribution made by the recent National Audit Office study to understanding of the efficiency programme, but we should like future documents to contain further analysis of the programme as a whole, including an indication of the proportions of the overall reported savings that are attributable to central and local government and that are cashable and non-cashable, as well as an analysis of savings in relation to the themes identified in the Gershon review. I am thinking particularly of back-office functions, transactional services, procurement policy, funding and regulation, and productive time.

As for poverty and the tax system, we welcome the Government's contribution to the ending of the highest marginal deduction rates of 70 per cent. or more. Those affected have been reduced from 740,000 before the 1998 Budget to 240,000 under the 2006 system of tax and benefits, which is very welcome. Many of us who have been in the House for years became used to being told by pensioners that they were losing 100 per cent. as a result of being a few pence over the Government's limit. The elimination of that 100 per cent. is extremely important, but, as always, it is work in progress.

The number of households facing marginal deduction rates in the region of 60 to 70 per cent. has increased since 1997, and now appears to have levelled off at about 1.5 million. We recommend that the Treasury analyse the characteristics and income distributions of households facing such high marginal tax rates, and the extent—if any—to which they are discouraging people from entering the work force, working longer hours, or acquiring additional skills. We welcome the progress made so far, but there is more to be done.

The press and others have already taken up the Government's statements about environmental taxation. The Committee made clear its view that the Government's response was both incoherent and unconvincing. Why did we say that? Between 2000 and 2004, the annual number of chargeable passengers increased by 25 million, or 35 per cent. The emission of greenhouse gases has increased by 10 per cent., or 0.8 tonnes, and tax receipts for air passenger duty have decreased by 8 per cent. Theirs is an unconvincing environmental approach to taxation.

Last week, Professor David King spoke of a 3°C increase in temperature over 100 years, whose effect would be calamitous. He said that 400 million more people would face hunger as a result, while 3 billion more would risk flooding or no access to adequate water supplies. Cereal crops would be reduced by anything from 20 million to 400 million tonnes. This is the issue of today, as the Prime Minister said when he was in New Zealand. If I remember the transcript correctly, he said that the situation was worse than the Government expected it to be a year ago. Something must be done, but we should not kid ourselves: it is a hard decision for all politicians and all parties. It does not promote communion between us and our electorate, because people enjoy cheap flights, but we should bear it in mind that aviation is in many ways outwith the present scheme. It does not pay value-added tax or fuel duty, and is exempt from the climate change levy. So the situation has to change and the Government have to get a grip on this issue. The Treasury officials who came before the Committee said that they judge environmental taxes according to behavioural changes, but as we have said, the fact that there are now an extra 25 million passengers shows that the behavioural changes are going in the wrong direction. The officials seemed too clever to understand that point, but people realise that, as such changes show, the system is not working as well as it could.

The Government tell us that they want aviation emissions to be included in the EU emissions trading scheme. I agree entirely with that idea, but it is only a partial response to the problem. The current scheme applies from 2008 to 2012, and I am informed that any changes to it have to be in by 30 June and must be internationally agreed. So we are not going to get such agreement, and aviation will not be included from 2008 to 2012. I am told that there is a theoretical possibility that aviation could be included from 2010, but again, that is not going to happen; it will be kept out until 2012. The Government say that they are meeting their Kyoto targets, which is true, but Kyoto finishes in 2012 and the EU emissions trading scheme must be renegotiated from 2012 onward. So we may think that the current situation presents problems, but they will increase enormously from 2012.

So, be it at a domestic level—the Government have fallen behind on their domestic carbon dioxide emissions targets—or internationally, the situation regarding climate change is bleak. Whether or not the report's recommendation that the Government consider increasing air passenger duty is taken seriously, it highlights a problem that we all have to tackle, but which, sadly, we so far have not. We cannot simply continue with our current lifestyle, without making sacrifices to reduce carbon emissions. We have to strike a balance, and I hope that the Committee has helped to focus public debate on this issue.

The Committee also looked at changes to the tax treatment of trusts. The Committee and I have received quite a bit of correspondence from companies and individuals, mainly companies. The Committee said:

"We are concerned that a legitimate measure designed to reduce tax avoidance may penalise trusts established to protect family members and consider that the issue merits further consideration. We recommend that the Government provide detailed information about how it has arrived at its estimate that the new rules on the tax treatment of certain trusts will affect only a 'minority of a minority' of 100,000 discretionary trusts."

It would be helpful if that information were provided before consideration in Committee of clause 57 and schedule 20.

John Whiting, along with others—John is an expert on these matters and has been a solid friend to the Committee over the years—made the following reasonable point to the Committee:

"In future, we suggest that the Treasury considers the benefit of undertaking appropriate consultation on measures such as those changing the tax treatment of certain trusts, where there is a strong argument that people have been quite properly planning their affairs on the basis of explicit exemptions in tax legislation."

We are totally against tax avoidance, but there is a case for continued and enhanced consultation with the Government on this issue.

On additional payment to pensioners, as I pointed out in an intervention, the Committee noted

"that the rise in council tax over 2005–06 and 2006–07 is forecast to be the lowest since 1997 . . . .We welcome the guarantee of the higher winter fuel payment of £200 and £300 for the over-80s for the rest of this Parliament, alongside the support for insulation and central heating for pensioner households. In the light of continued volatility in energy markets and announcements of future gas and electricity price rises, we recommend that the Government re-assess the situation at the time of the 2006 Pre-Budget Report and take further action if necessary."

As a Committee, we were aware that the context of the Budget was the long-term challenges, both domestic and global, that face this country. In the domestic area, we took evidence on the education and skills agenda, the child poverty targets—on which the Government still have a bit to do—and the comprehensive spending review. The CSR is a very important review and my right hon. Friend the Chief Secretary confirmed that it is from a zero base. We examined three departmental budgets—International Development, Education and Skills, and Health. The increase for DFID, year on year, is 10.6 per cent. The DFES and the Department of Health have been singled out for extra increased expenditure. That means that some other Departments will get as little as 1.7 per cent., so it is important that the process is transparent so that parliamentarians may be assured that the Government's approach is proper and that every Department will get its fair share. In the context of the Budget, the sustainability of public finances is important, and we considered that issue time and again in our report.

In the global context, we are aware of the economic imbalances. Professor David Miles of Morgan Stanley has pointed out that the longer the US runs an extraordinarily large current account deficit, the more likely a potentially sharp adjustment becomes. If that happens, it will affect this country, so it is important that we play our part in the reform of global institutions. I was therefore delighted by some of the comments that my right hon. Friend the Chancellor made at the weekend about the International Monetary Fund. We are privileged to hear evidence from the Governor of the Bank of England on the IMF next Thursday, and my right hon. Friend will follow him in a couple of weeks.

The Committee is considering globalisation, because it has advantages—there is no doubt about that—but it also has drawbacks. It is important that this country has the appropriate policy responses to the issues of globalisation. The Committee therefore looks forward to working with the Government and others to consider those issues and to ensure that the challenges that this country faces, at both domestic and international levels, can be met and overcome.

Photo of Julia Goldsworthy Julia Goldsworthy Shadow Chief Secretary To the Treasury, Treasury 4:57 pm, 24th April 2006

I thank the Chief Secretary for his kind welcome, and congratulate the Chairman of the Treasury Committee on an excellent report and on his quiet, unassuming—but devastating—analysis of the Bill. For me, the Bill's significance lies mostly in what it omits, not what it includes. There were great opportunities in the Bill, but they have been wasted. Perhaps the Chancellor is becoming a little slapdash in his impatience to move next door in Downing street.

It is the Government's failure to act on the environment that is the biggest opportunity wasted by the Bill—a point already touched on by Mr. McFall. Last week, both the Chancellor and the Leader of the official Opposition made speeches about the importance of the environment. The Chancellor spoke of the "moral duty" of the developed world to tackle climate change and Mr. Cameron spoke of the need to reduce carbon emissions by a third. But the Chancellor's Finance Bill contains very few environmental measures and the Conservatives have made no hard and fast commitments to explain how they would achieve such cuts.

Photo of John Redwood John Redwood Conservative, Wokingham

How big an increase in tax would the hon. Lady's party place on flights and cars?

Photo of Julia Goldsworthy Julia Goldsworthy Shadow Chief Secretary To the Treasury, Treasury

My party has always been clear about the need for fairer, not higher taxation. Under this Government, we have seen a fall in the proportion of the tax take from environmental taxes, and that is not helping the environment.

Photo of Doug Henderson Doug Henderson Labour, Newcastle upon Tyne North

Following the question put by Mr. Redwood, can the hon. Lady tell us whether it would be fairer to increase taxes on gas-guzzling cars by 10 per cent.? If air travel cost 5 per cent. more due to environmental taxes, would that be fairer?

Photo of Julia Goldsworthy Julia Goldsworthy Shadow Chief Secretary To the Treasury, Treasury

We support aviation fuel duty and those increases would be fair, because the vast majority of gas-guzzling cars are expensive cars such as Ferraris that consume huge amounts of petrol.

If words are to have an impact, they must be followed by action, but so far we have seen little more than posturing. Indications from the public, however, are that they want action. A Guardian poll of 22 February found that 63 per cent. of respondents approved of green taxes to discourage behaviour that harms the environment. People accept that we will have to change, so why do we delay the inevitable? It seems that the Government have yet to come round to that way of thinking. The fall in green taxes as a percentage of our national tax take should be reversed if we are serious about tackling carbon emissions.

The headline issue in terms of environmental measures in the Bill, which was trumpeted in the Budget, related to changes to vehicle excise duty in clauses 13 to 15. However, the environmental impact of those provisions will be laughable. For many gas-guzzling cars, the new higher band will cost less than half a tank of petrol—a rise from £165 to £210 a year. The Energy Saving Trust calculated that the differential needs to be worth more than £2,000 to have an impact on behaviour. The changes proposed in the Bill fall far short of that.

My hon. Friend David Howarth received a written answer about the impact of the proposals on carbon emissions, which stated that the estimated carbon savings will be 0.06 metric tonnes of carbon emitted by 2010,

"though calculating this figure is complex and subject to a significant margin of error".—[Hansard, 28 March 2006; Vol. 444, c. 972W.]

Can the Minister tell us on what basis the Treasury judged the proposal a good idea? How many drivers of gas-guzzling cars will no longer purchase such cars as a result of the measures? Were they intended to be only an eye-catching initiative rather than actually having an impact on behaviour?

Another area where urgent change is needed is air passenger duty, which was highlighted by the right hon. Member for West Dunbartonshire, yet the Bill proposes no changes in the structure of that duty. It should rise by at least as much as inflation and should be replaced by a charge on aircraft movements, not on passengers. That will encourage more fuel-efficient aircraft and discourage half-empty planes. I urge the Government to accept the recommendation in paragraph 102 of the Select Committee report, which states:

"We recommend that the Government give urgent consideration to how it can best use the tax system to increase incentives to reduce the harmful environmental effects of aviation."

Although we support some of the environmental measures in the Bill, the Government need to take a more systematic and fundamental approach if they are significantly to change behaviour.

We support the revalorisation of fuel duty this year in line with inflation. Since 2000, when fuel duty began to fall, the rate of increase in greenhouse gases from transport has doubled. The revalorisation is not a rise in real terms, but merely halts the real-terms fall over recent years. Should not the Government have taken that opportunity to look at other options that will have a more direct impact on individuals' behaviour? Should not there have been a move towards road user charging, or at least a more detailed and serious Government investigation of that option?

Similarly, we support the revalorisation of the climate change levy in line with inflation—again because it halts real-terms cuts in the levy—but the Government should have looked at alternatives that might have a greater impact on behaviour and which are less complicated and cumbersome, such as a carbon tax. The introduction of the climate change levy was a welcome move in the right direction, but it is complicated. A carbon tax would be simpler and would reflect the importance of the principle that the polluter pays, but because of that it must be combined with energy efficiency measures and winter fuel payments for the elderly to ensure that vulnerable groups are not hit disproportionately hard. Although the Liberal Democrats are pleased that the Conservatives seem to be coming round to that point of view, I wonder whether they have grasped the fundamental point of the system. The Conservative leader seems to be proposing a carbon tax on general taxation, so there is no link to the polluter paying and I am not sure that he has thought through the consequences of his proposal. So at least the Bill may go some way towards halting the decline in revenues from green taxation as a proportion of the tax take, but it will not increase the tax take.


I hadn't realised that the streets of Falmouth were so overflowing with Ferraris.

Submitted by Sam Evans

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

The hon. Lady seems to be trying to have it both ways: she wants the proportion of general taxation raised from environmental taxes to rise, but she also wants behaviour to change. Surely, if behaviour changes and, for example, people take fewer flights or drive cars that are more fuel efficient, the proportion of taxation from environmental taxes will fall, and most hon. Members would regard that as positive. She seems to be having it both ways: she wants taxation to change behaviour, but taxation falls because behaviour changes, and she does not like it.

Photo of Julia Goldsworthy Julia Goldsworthy Shadow Chief Secretary To the Treasury, Treasury

But of course we need incentives to change. We are talking not about increasing the overall burden of taxation, but about trying to change behaviour.

Moving away from the environment, another key omission is the failure to address the ticking time bomb in our economy that is personal debt. The Chancellor made no mention of it in his Budget statement, nor is there any mention of it in the Bill, yet personal debt now stands at £1.2 trillion—roughly equivalent to the UK's gross domestic product—and the legacy could be a disaster for many families, as one fifth of household income is now used to service debt. That is back at the level it reached when the country crashed under the Tories in the early 1990s. The immediate signs of stress are clear—we are seeing rising bankruptcies and repossessions. What would counteract that is a network of advice centres, financial education in the curriculum, steps to prevent the mis-selling of mortgage payment protection insurance and action on non-income verified mortgages, for example.

More generally, instead of creating a simpler and fairer taxation system, the Bill creates greater complication, confusion and uncertainty for individuals and businesses. That has become the hallmark of the meddling Chancellor.

On the measures for businesses, even the changes we broadly welcome bear the Chancellor's sticky fingerprints. For example, the changes to corporation tax outlined in clauses 24 to 26 will remove the zero starting rate of corporation tax. We hope that that signals the end of a long and meandering journey that the Chancellor has taken to end up virtually back where he started. In 1999, he introduced a 10 per cent. rate to encourage investment and enterprise. In 2002, he introduced the zero rate to provide further support to new and growing companies. In 2004, the zero starting rate was restricted to profits retained within the company. The 2005 pre-Budget report signalled the end of the zero starting rate. So we are back to where we were in 1998. Given that chain of unintended consequences, the Chancellor has effectively been forced to close a loophole that he created. We hope that that will be the end of a long run of uncertainty and complexity, but given the track record, what confidence can businesses have that that will be the case?

For some very small organisations, those changes will, yet again, create more complication. For example, many small clubs and societies that have taxable income from bank and building society interest will have to fill in corporation tax returns once again, even though very small amounts might be involved. That detail needs more discussion in Committee, but it shows how such changes have many unintended consequences and can often set off a chain reaction that prompts the need for further changes, and we end up in a downward spiral.

Of course, those changes to corporation tax will cross cut other changes proposed in the Bill, such as those to first-year capital allowances, thus continuing the pattern of small and short-term change. The key issue is whether the benefits of those changes are offset by the regulatory impact of uncertainty in the tax rates and the need for businesses to keep up with the changes.

Research from Manchester and Nottingham business schools indicates that, except for the most generous capital allowances, most capital investment tax advantages are investigated only after the decision to invest has already been made. It seems therefore that those short-term changes may not always change business behaviour and, more importantly, undermine confidence in the stability of the taxation system. So the general picture is one of complexity and uncertainty, and another problem is caused by the speed with which the changes are introduced and the fact that they are unexpected.

Clause 61, on the home computer initiative scheme, is an example of how proposals can be totally unexpected, by not just businesses but even departments. Research undertaken by the Home Computing Initiatives Alliance shows that more than 500,000 employees benefit from the scheme, of which more than 75 per cent. are lower paid.

Why was the scheme scrapped without any prior consultation or warning? Many businesses have already sunk costs preparing schemes for beyond 6 April. That is also true of the Department for Work and Pensions and the Department of Trade and Industry. In fact, I understand from the HCI Alliance that it went to see the Low Pay Commission and the DTI just a week before to investigate ways to help people on low incomes to access the scheme. From further discussions, it appears that the decision to scrap the scheme was taken only the day before the announcement was made. Will the Minister confirm that and explain the justification behind the decision? Were there any meetings across Departments to consider the implications? What notice was given to other Departments that the changes were about to take place?

I understand that the Government now intend to focus resources on those who are not in employment or do not have access to a computer through their employer, but, as yet, they have put forward no alternative proposals. As has already been mentioned, the explanatory notes state:

"There is also evidence to suggest the exemption has been applied beyond the scope of its original intention".

Reference is made to MP3 and computer consoles being obtained through salary sacrifice rather than borrowing. However, surely it would be possible to propose changes to the existing regime that would make it more affordable and attractive to those on lower incomes, while at the same time closing the loopholes that I have just mentioned. Is this a case of throwing the baby out with the bathwater? Those issues will be further explored in Committee.

Photo of Mark Francois Mark Francois Shadow Paymaster General

The hon. Lady will have heard from the speech by the shadow Chief Secretary, my hon. Friend Mrs. Villiers, that we do not believe that the scheme should be abolished, because of the good work that it has achieved and we intend to table amendments to that effect fairly shortly. May I take it from the remarks that the hon. Lady has made that, if we do that, in principle, we will have the support of the Liberal Democrats for our efforts to try to save that valuable scheme?

Photo of Julia Goldsworthy Julia Goldsworthy Shadow Chief Secretary To the Treasury, Treasury

We will certainly table amendments to that effect, as well, and I hope that the Opposition will work together to try to reverse the proposal in the Bill.

Turning to the impact on individual taxation, the picture is similarly depressing. We still see ever-greater complication and no serious moves to address the regressive nature of the taxation system. As was said earlier, the top 20 per cent. of people pay less as a proportion of their income in taxation than the lowest 20 per cent. That represents levels of inequality that are worse now than at any time under Thatcher or Major. Council tax, the most regressive form of taxation, which is unrelated to the ability to pay, remains. Among those struggling to pay it are pensioner households, which have been affected by the Chancellor's decision to end the rebate for pensioner households. That will make this year's council tax hikes even bigger for them.

Photo of Huw Irranca-Davies Huw Irranca-Davies PPS (Rt Hon Tessa Jowell, Secretary of State), Department for Culture, Media & Sport

Will the hon. Lady give us the figures for how many families have benefited from the working tax credit, which has been introduced to lift people not only above the poverty line, but well above it, and will she comment on the significant impact that that has had on many families in constituencies such as mine in Ogmore?

Photo of Julia Goldsworthy Julia Goldsworthy Shadow Chief Secretary To the Treasury, Treasury

The hon. Gentleman makes the point that I am trying to make, which is that there is incredible complexity and people do not understand. One of the biggest issues in my surgeries every single week is families who do not understand the letters that they are getting about tax credits or why the overpayment demands that they get vary by thousands of pounds.

Photo of Julia Goldsworthy Julia Goldsworthy Shadow Chief Secretary To the Treasury, Treasury

I would like to make some progress, if I may.

I want to turn to trusts and inheritance tax, which are covered by clause 157. Like the home computer initiative, those proposals caught the industry and individuals totally by surprise. At this stage, it is not exactly clear what the proposals are, since there seems to be a lot of debate between professionals and the Treasury about the number of individuals and wills affected and the amount of revenue that will be raised.

In some respects, the Treasury seems to contradict itself. On the one hand, it says that the changes will affect only a very small number of individuals and will raise a very small amount of revenue, yet, on the other hand, the change could not be put out to consultation prior to being announced, in case it had an impact on the market. How many people will be affected by the changes? How many people will have to go back and change their will or trust arrangements regardless of whether they are currently over the inheritance tax threshold? I urge the Minister to look at paragraphs 109 and 110 in the Treasury Committee report, which urge the Treasury to consider those issues prior to the Bill going to Committee.

The scheme also seems to create anomalies, rather than resolve them, and assumes that trusts are mainly used for tax avoidance. At the moment, the taxation of trusts mirrors the taxation of individuals. Income tax is paid on income from a trust, and people are treated as the owners of the trust asset for inheritance tax purposes. That logical system need not necessarily be changed because discretionary trusts are already subject to a different regime. The anomaly is that those who are richer and have the liquidity to give money before their death will be unaffected because the ruling that allows gifts to be made tax-free still remains, provided that they are given seven years before death. Whatever the actual impact of the measure, it is clear that the changes will not create clarity and simplicity to help the public's ability to understand their effect on them. Perhaps, as was the case for self-invested personal pensions last year, a lack of planning will result in significant unintentional consequences and might yet force embarrassing compromises from the Government.

To sum up, while the Government's macro-economic record to date has largely been one of stability, one of the fundamental reasons why that has been the case was that the Bank of England was given independence—that policy was called for by the Liberal Democrats. However, the Government tend to spoil their own narrative with endless hype and exaggeration, which becomes easier when they are responsible for marking their own exam papers when analysing their economic record.

The hallmark of the Chancellor's time in the Treasury has been vast over-complication and endless meddling with minutiae. Such tinkering creates instability because of the uncertainty with which the changes leave both individuals and businesses. What is the point of medium and long-term financial planning if tax incentives and implications are likely to change and every change proposed does not take place in isolation, but has cross-cutting effects and unintended consequences? Individual learning accounts, self-invested personal pensions and even the changes to corporation tax are classic examples of the Government creating problems for themselves by rushing through changes and not investigating the likely consequences, which have to be addressed after the changes have already been introduced, thus creating a cycle of complication and change.

The fundamental reason why we will vote against Second Reading is that the Government have missed the opportunity to address the key environmental issues that we face. Last week, at the most superficial level, the Chancellor and the Leader of the official Opposition showed willing to talk the talk, but the substance of the Bill, and the Conservatives' failure even to mention those issues in their opposition to the Bill, clearly indicate that they have no intention yet of walking the walk.

Photo of Doug Henderson Doug Henderson Labour, Newcastle upon Tyne North 5:17 pm, 24th April 2006

I draw the House's attention to my entry in the Register of Members' Interests. When I have the good fortune to catch the eye of the Chair on Second Reading of the Finance Bill, which I do most years in which I am eligible—I have been a bit more eligible in recent years than I used to be—I find myself to be a bit of a usual suspect. However, after listening to the excellent contribution made by my right hon. Friend Mr. McFall, and looking across to Mr. Redwood on the other side of the House, who will, I assume, hope to catch your eye, Madam Deputy Speaker, I have some consolation that I am probably not alone as a usual suspect.

We live in a world of ever-rapid change. Any of us who want to talk about economic issues in this country or elsewhere would be foolish if we were unrealistic about facing up to the changing international economic situation, which is often referred to as globalisation, that has made things very different for every country in the world. Globalisation is not a new phenomenon. Anyone who has read about the history of the 19th century will be aware of the challenge faced even then by British manufacturing industry and the excellent way in which the industry met it. The difference today is the speed with which change takes place.

I remember talking to the chief executive of a major industrial conglomerate in the textile industry some 25 years ago. He told me that he was still competitive because he had technology that others did not have, which allowed him to sell the relatively up-market products that people wanted to buy worldwide. He felt sorry for textile companies that did not have that technology.

The difference today is that nobody is protected from the transfer of technology. Technology transfers instantly, and any company or operation that thinks that it can continue to do as it did in the past without being aware of that international challenge has its head in the sand. As a nation we must take our head out of the sand. The only thing that matters now—I shall turn to this later in my contribution—is the application of human ingenuity and knowledge in doing something new or in doing it better. That is the challenge faced by every Chancellor in the world when drawing up a Budget.

In the past 12 months that situation has been additionally aggravated by the change in the world oil price. The increasing demand for energy from countries such as China and India puts pressure on an oil price already under pressure because of the political situation in the middle east. That carries an enormous potential threat to the stability of our economic community. We in this country face a further challenge in maintaining our competitiveness. I refer to the downturn in the rest of the European Union market—I use that term as shorthand because it is others as well—which is the biggest area for our exports. That makes it doubly difficult for us to face the global challenge and the energy challenge. We, of course, are not unique.

Against that background, we have a stable economy with considerable growth. I shall not endlessly quote the views of others to the House, but I want to repeat what was said by the Organisation for Economic Co-operation and Development, which is, as most economists in the world would accept, an independent, international body that looks objectively at economic situations. In October 2005 the OECD said:

"The UK is a leader in the quality of its monetary and fiscal policy frameworks among OECD countries. The Framework has played a key role in improving macroeconomic stability relative both to the past and to other OECD countries."

That is a telling analysis of the strength of the British economy.

I follow the exchanges across the House at Treasury questions, and I know that it is the job of Opposition Front Benchers to scoff at economic statistics offered in defence of the strong economy. However, I submit that if one takes the package of statistics a clear picture emerges. As my right hon. Friend the Chief Secretary said, in 2005 growth in the UK was higher than in any other major European country. We have had 54 quarters of constant economic growth. As we all know, inflation is the lowest it has been since the 1960s. Consequently, we now have the lowest interest rates for a generation, and they are not only low but stable, which is crucial not only for those who want to invest in our economy but for those who want to purchase houses or to consume.

We were warned when we introduced the minimum wage that employment would fall, and it is clear that that has not happened. There is greater employment in this country now than ever, and the pockets of severe unemployment, including those in my constituency, have been tackled by the Government's programme. Unemployment is less than half what it was in 1997. Schemes such as the new deal are making a major contribution in edging into employment people who previously were unable to take advantage even of an economic upturn. Our employment rate is higher than that in the United States, Japan, France, Germany, Italy and Canada. That means that people are better off, and that is the real experience of people out in the country. It does not mean that everyone is better off, but on average communities know that they are better off. Real living standards have risen over the past 10 years and the nation's ability to spend on both public welfare and public investment has increased over that period, and people know that.

Photo of Philip Dunne Philip Dunne Conservative, Ludlow

The hon. Gentleman's catalogue of achievements since 1997 prompts me to ask who he thinks is responsible for the increase in the unemployment count by close to 100,000 over the past 12 months. Is it the Chancellor of the Exchequer or is it someone else?

Photo of Doug Henderson Doug Henderson Labour, Newcastle upon Tyne North

There are cyclical trends within a pattern. Over the past 12 months, there has still been an increase in the number of jobs. Some of them have been filled, as my right hon. Friend the Member for West Dunbartonshire said, by migrants who have come to this country. That has meant that some people have lost out. I do not want to dwell on that. I am the rapporteur for one of the Council of Europe committees that deals with these issues, and I will be happy in another debate to discuss the rights and wrongs of this filling of jobs and the implications that ensue.

In the Budget, and in the provisions set out in the Finance Bill, the fiscal clauses underpin our ability to have both significant public and private investment.

Photo of Stewart Hosie Stewart Hosie Shadow Spokesperson (Women), Shadow Spokesperson (Home Affairs), Shadow Spokesperson (Treasury)

Investment in the Budget is predicated on a massive expansion of public-private partnership schemes. Does the hon. Gentleman really believe that an example such as the Edinburgh Royal hospital, where a hospital costing £184 million will cost the taxpayer £1.26 billion—all hidden off balance sheet—is a good deal?

Photo of Doug Henderson Doug Henderson Labour, Newcastle upon Tyne North

I am grateful to the hon. Gentleman for raising that issue. It shows that investment is going into the health service, which is improving people's lives. I will be happy to have a discussion on another occasion in the Chamber when the debate is more narrowly focused on how one arranges the sums involved in public finance. We all have views on that. However the sums are arranged, the evidence is clear: more resources are going into health and education. I will return to these issues.

It is important that both the private sector and the public sector have the necessary buoyancy to generate growth in the economy. In the private sector, confidence is crucial. That is not something that we can determine in this place, and it is not something that we can determine solely in this nation. However, we can make a contribution to building that confidence. Our interest rates are at an historically low level, and that is a significant factor in giving those who want to invest the feeling that the cost is such that that can be met by the rewards that are down the road.

Our tax rates are also important. I know that there has been a to-ing and fro-ing on the complexity of taxation. We would all want to see a simpler tax system, if that could be arranged, while still meeting the objectives of the system. However, there is confidence; people know roughly how much they will be expected to pay in income tax, depending on what they earn. Companies know roughly how much they will be expected to pay in corporation tax and other taxes, depending on their profitability. If anyone wants to have an argument with me about that, I will be happy to bring in some of the people whom I know in some financial institutions, who would be delighted to confirm what I say. [Interruption.] I nearly referred to my hon. Friend Rob Marris in the context of financial institutions. For example, I would be happy to bring into the debate those who give evidence to my hon. Friend's Committee, who would bear out what I say.

Public sector resources are crucial. The starting point has to be basic education. If we do not invest in basic education—nursery schools and primary schools—it does not matter what we do in secondary schools and higher education institutes. Without that initial investment, we will not have the people coming through who have the necessary and basic educational tools to take on a new challenge. I hope that every party represented in the House agrees that such investment in primary education is essential and a vital path for public sector investment to follow.

The resources available for public sector investment are extremely important. I have never said that the public sector should run manufacturing industry in a big way. I do not believe that that is an effective way of generating strength in the economy. However, the public sector has a role in nurturing the private sector and taking it through early days, particularly with small companies. There is a need to pump prime new technologies that have a major future.

Photo of Colin Breed Colin Breed Shadow Minister, Treasury

Does the hon. Gentleman agree that small business investment, including research and development, is extremely important? Tax credits provide incentives for research and development, but many small businesses find it difficult to obtain them and sometimes they cannot even carry the cash-flow implications of such investment. However, not enough small businesses take advantage of those tax credits. Does he have any ideas about how we can improve that situation?

Photo of Doug Henderson Doug Henderson Labour, Newcastle upon Tyne North

I have some ideas that I would be happy to discuss. I am not ducking the issue, but research and development assistance is not crucial. The ability to apply the results of research and development is often more important in the very small company sector. Someone who has conducted research and development at a local university may set up a small company with five or 10 people to create a product range. It is important that that company can use scientific development to innovate. If that is what the hon. Gentleman is suggesting, I agree.

Photo of Huw Irranca-Davies Huw Irranca-Davies PPS (Rt Hon Tessa Jowell, Secretary of State), Department for Culture, Media & Sport

Does my hon. Friend acknowledge the very good example set by the Welsh Assembly Government with Technium, which has taken up the tax credit initiative and built it into university-sponsored campuses, which take a product from research and development on to the shop floor? At the Sony Pencoed site, a large factory space is devoted to taking new, innovative products from research and development to the shop floor. That is a good example of the way in which the Government provide funding so that people can develop products from the idea stage and go into production.

Photo of Doug Henderson Doug Henderson Labour, Newcastle upon Tyne North

I agree. It is important that regional development agencies throughout Britain play a part in such initiatives. I regard such agencies as more broadly based financial and management consultants that can help small companies to move from the university desk to the factory floor.

We have always been a trading nation and, thankfully, we remain one today. The strength of our economy will be based on our future international competitiveness, and it will be founded on ever-higher skill levels, or it will not be founded at all. It depends on the adoption of new technology, not only in the crucial small company sector but in larger and medium-sized organisations, and on the provision of ever-greater added value to the various enterprises in which we engage. We have major strengths in the internationally traded economy. We are world leaders in pharmaceuticals, aerospace, engineering design and the financial services market.

Photo of Doug Henderson Doug Henderson Labour, Newcastle upon Tyne North

Indeed. We are at the cutting edge internationally in many other engineering processes. It is important that we consolidate and build on those industries. At the heart of my argument—in other circumstances, I would have been prepared to make it more briefly—is the belief that we must exploit new opportunities. Education is a strong export for this country. It is fashionable to say so, but I am not a newcomer to that view, as I have held it for a long time. I have close links with the University of Newcastle, as well as Strathclyde university in Glasgow, and I have discussed the issue with academics and others. Education offers us a major export opportunity. Some people say that we should not engage too much in the international educational market, because foreign students whom we educate will go back home and undercut us when they start in business. I do not believe that that is the case. If we are ahead of the game, that issue does not matter, because other people and their sons and daughters will come here. It is a strength of the British Council that it is more likely that those who have benefited from education and gone out into the bigger world will maintain any educational links they have had. There might be what we could call an international old boys' network. Such links are very important. People like to do business with people in whom they have confidence. If people have been in the same educational institution or nearby institutions, they will be given confidence in each other, even if they did not know each other previously.

Photo of Colin Breed Colin Breed Shadow Minister, Treasury

I entirely agree, and I support that view 100 per cent. The hon. Gentleman referred to globalisation. We know that universities outside Europe, especially in America, are scouring Europe for the best students and offering them riches beyond their wildest dreams to attract them. If we are to base our future economy on knowledge-based industries, ingenuity of design and so on, we will need the best people to come to us.

Photo of Doug Henderson Doug Henderson Labour, Newcastle upon Tyne North

I am sure that there are things on which the hon. Gentleman and I disagree, but we seem to have some points of agreement in this debate.

What has been done to improve the viability of education as an export? The basic argument is the same: investment in primary schools is what matters. In my constituency, we have two new primary schools, one in Westerhope and one in Gosforth. They are excellent examples of the best facilities from which young people can benefit. Investment in secondary schools will also show returns. As it happens, I do not agree with some of the structural arguments that the Government have put forward, but I agree on the emphasis on putting resources into secondary schools. The Chancellor said in his Budget speech that every school in the country should aim to have the same achievements, whether in the public or private sector. That can help to drive a great improvement in our people's ability to benefit from education throughout the community. Items in the Budget such as waiving further education fees for A-level students up to 25 years old are also an important development.

The second area in which there is scope for new opportunity is medical exports. As a nation, we are a world leader in many medical technologies and their application. We should be not only providing more opportunities for people to be treated in Britain, but driving the infrastructure that supports our health service. Biotechnology is a very important science in Newcastle. The University of Newcastle is a world leader in stem cell research—an area in which I believe many future medical advances will be based, dealing with a host of problems. There should be more investment in such research.

Some people say, "It is all very well having investment in stem cell research, including on academics, but what about everyone else?" There are opportunities for others. If we develop a personal DNA, as a lot of scientists and medical people suggest we should—

Photo of Doug Henderson Doug Henderson Labour, Newcastle upon Tyne North

We have all got one, but if we have cell resources based on the DNA, there will be a need for cell banks. I believe that such an industry can provide a lot of employment for areas such as mine in north-east England. It will not provide it for ever, because others in the world will soon be able to do the same thing, but it gives us the lead on which we can base future developments. As I said to my right hon. Friend the Chief Secretary, the Bill, and clause 28 in particular, help with many research, development and environmental issues, including in relation to the matters I have just mentioned. Clause 28 is a very important clause.

My final point concerns energy. I am a firm believer in a balanced energy policy and do not believe that one should have ideological views about the rights or wrongs of a particular energy source—it is sensible to have practical views about such matters, but it is not sensible to take an ideological view. We must ensure that we have security of supply and sufficient supply, which is the first challenge on energy policy. As other hon. Members have rightly said, the second challenge is controlling emissions. The third challenge concerns export capacity: some might say that we exported coal 150 years ago and ask what we can export now, but there are things that we can export, and I believe that the possibilities offered by new technologies should be emphasised.

Photo of John McFall John McFall Chair, Treasury Committee

My hon. Friend knows that the advent of China and India on the world stage means that carbon emissions will increase enormously. In his speech in New Zealand, the Prime Minister said that if Australia were to shut down for the next 10 months, its contribution to world emissions would be overtaken by new emissions from China. This country has the chance to export clean coal technology to China. If we get our act together, we can help ourselves, China and global emissions.

Photo of Doug Henderson Doug Henderson Labour, Newcastle upon Tyne North

In the north-east of England, we used to say that coal was king, but its crown is becoming tarnished. New energy technologies can be king in future, and they can provide the basis for exports. Specifically, there should be investment in geothermal technology, which I will not dwell on because I am sure hon. Members have other things to consider. Geothermal technology can enable huge savings in energy provision both at the micro level, which involves individual factories and even individual houses, and at a macro level, where power stations can be based on geothermal technology. Geothermal technology is not a new technology, but it is a developing technology, and we have got to do more on it.

Fuel cell technology has many applications from providing general electricity for general purposes to providing electricity specifically to power cars. There needs to be increased investment in the development of fuel technologies—I am not saying that measures have not been taken, but I am encouraging the Government to do more. The regional development agency in the north-east of England is already working on some of those projects, but it needs to be given a little bit more support to enable it to do more. Clause 28 could be used to provide such assistance, and £20 million for the enterprise capital fund, which addresses environmental issues, is a step, albeit a small step, in the right direction.

The venture capital proposals in clause 91 and schedule 10 also address those issues. Innovation does not happen without invention, and invention does not happen without education. The programme in the Budget to increase the number of science teachers by 3,000 and the relevant provision in the Bill are welcome, as is the funding of after-school science clubs. I hope that the after-school science clubs scheme will involve fun as well as learning, which will make it more successful, although I am sure that that will be the case given the enterprise displayed by our educational people.

As a nation, we need to concentrate on our economic strengths and make the necessary investments to enable us to meet our objectives in the future. The same is true for our region in the north-east, where we must concentrate on our strengths, of which clean coal technology is one. We must give organisations such as the RDAs and the universities more resources and support for the enterprising developments on which they are focusing, because we need to make sure that our system allows innovation to take place wherever new technology emerges.

This Finance Bill should get wide support from the House. It further extends the background against which our economic strength is based, and by using that economic strength we can meet our welfare and investment objectives. In the context of what I have said, I believe that the Bill can help the development and application of science, which is crucial to the future of our economic prosperity. We have invested through the Budget, and the Bill makes the necessary provisions for that to take place. We should ensure that we continue to invest in the years ahead.

Photo of John Redwood John Redwood Conservative, Wokingham 5:45 pm, 24th April 2006

I have declared in the Register of Members' Interests that I am a non-executive director in the service and manufacturing sectors, and a trustee of a pension fund.

This Budget is proposed by a Government who tell us that they are now enamoured of the idea of deregulation. Three cheers for that. We are grossly over-regulated throughout this country and economy, and it will be welcome indeed if the Government move on from fine words and good speeches to action. Unfortunately, we see a Finance Bill running to 475 pages, with 181 clauses and 26 schedules. Deregulation seems not to have figured prominently in its drafting. I hope that right hon. and hon. Members who are involved in the Committee stage may get to grips with some of the complexity and strike a blow for freedom and simplicity.

I shall give a little flavour of the Bill. If it is enacted in this form, pity the poor people who will try to make sense of their own pension provision. We see in paragraph 6 of schedule 21, in suggested new section 185B, what they have to do if they have thought about direct property investment for their pension fund. It tells us:

"For the purposes of section 185A(3) and (4) the amount of the deemed profits from the interest in the property for the tax year is—

DMV 10 x DTP DY where—

DMV is the deemed market value of the interest in the property for the year (see section 185C)"— a very helpful tip, I should have thought. It goes on:

"DTP is the number of days in the year for which the property is scheme-held taxable property, and

DY is the number of days in the year.

(3) In this Part"— in case one was muddled—

"'scheme-held taxable property' means property which is taxable property an interest in which is held by the pension scheme."

Things are far more difficult if one dares to take on a leasehold property—but the time and patience of the House probably do not permit me to go into the details. It is surely time the Government did better than this. They should take pity on people who are trying to save for their retirement in very difficult circumstances and give them something that they can understand. Is it reasonable to expect a free people to have to wade through that degree of complication, and can we expect them to do so without having to spend a lot of their hard-earned money on accountancy and legal advice to make any kind of sense of it?

I fear that the Government are in denial on the issue of productivity. Their own figures suggest that if one defines the cycle in a certain way and claims that the public sector figures are all wrong, productivity is doing a bit better than it was in the previous economic cycle. No reputable outside commentator or independent analyst believes that that is true. The latest figures show that in the past couple of years productivity performance has slowed down, not risen. Figures also showed—until the Government stopped compiling them—that the main problem with productivity stalling rests in the public sector: the area where the Government have most control and influence, and where they have been most generous.

The Government should be extremely alarmed about the decline in productivity in sizeable parts of the public sector and the slowing of the rate of growth in productivity across the public sector as a whole, on the old definition and the old figures. I am sure that they would love to come up with magic numbers that included a new quality variable that somehow miraculously implied that productivity had been going up after all. However, no one looking at the current crisis in the health service, with sackings, redundancies, huge deficits and great problems, can believe that productivity is advancing rapidly in that service. If it were, it would be a miracle.

Photo of Stephen Hesford Stephen Hesford PPS (Rt Hon Baroness Amos, President of the Council), Privy Council Office

I question the right hon. Gentleman's encapsulation of productivity—but if he is right, why has growth occurred year after year since the Government came to office? Next year's growth is earmarked to increase. Why is that happening against what he would have us believe is a background of declining productivity?

Photo of John Redwood John Redwood Conservative, Wokingham

There has been some growth in the economy, but I am commenting on productivity decline in the public sector and public services. The manufacturing productivity growth rate has been pretty good. Part of that is due to the enormous influence of the international market, which is competitive and forces companies to compete better. However, I am afraid that part of it is due to a large number of factory closures, of which Peugeot and Rover are some of the most public in recent months, which have closed down the less efficient capacity. The average efficiency of what remains therefore increases.

Approximately 1 million manufacturing jobs have been destroyed under the Government, partly because of tax and regulatory considerations and partly because of the international competitive climate. That raises the average productivity growth and overall productivity of the remainder. That is why I am concentrating not on manufacturing but on the public services and the public sector, where the productivity record, on the Government's figures—until they stopped producing them—was poor. It is obvious that the figures must be poor; otherwise the huge sums of money going into the health service and the education service would produce much better results, and not throw up such large deficits and redundancies.

Photo of Stephen Hesford Stephen Hesford PPS (Rt Hon Baroness Amos, President of the Council), Privy Council Office

The right hon. Gentleman is generous in giving way. Mr. Gauke, who is sitting behind him, raised the same issue in the Budget debate. However, he was good enough to accept that defining public sector productivity is difficult. If the right hon. Gentleman accepts that there is decent productivity in the private sector, does he agree that it is difficult to define productivity in the public sector? Perhaps his point is not well made.

Photo of John Redwood John Redwood Conservative, Wokingham

I do not agree. It is easy to calculate productivity in the public sector, and it always was done—until the Government did not like the answer. It is calculated in the same way as that in the private sector. If one gets more for the same amount of resources, productivity rises, whereas if one gets less for the same amount of resources, or if one puts in extra resources yet does not get proportionately more out, productivity falls. That is happening under this Government.

Photo of David Gauke David Gauke Conservative, South West Hertfordshire

Stephen Hesford referred to my comments in the Budget debate. I made the point that however one measures productivity in the public sector, the current record is abysmal.

Photo of John Redwood John Redwood Conservative, Wokingham

I am grateful to my hon. Friend for clarifying his point.

What should the Government do about the poor productivity record that now blights health, education and other leading services? I hope that they will take the Gershon work more seriously. Gershon was on to something, and it is a pity that so much of the study remains unimplemented.

When will the Government tackle the vast and bloated administration that remains in central Whitehall Departments and in quangos? When will they cut through the huge regional and national administrative overheads, and the comprehensive performance review and best value regimes that so blight local government and local service delivery? When will they get rid of regional and strategic health authorities and much regional government, which constitutes an unnecessary encumbrance, in England? When will they start using natural wastage in the administrative grades in the civil service to cut the numbers in a sensitive but sensible way? When do they intend to establish a target for a much smaller civil service, which delivers more with fewer people, rather than constant expansion every time a Minister introduces a new initiative? When will they procure things more intelligently? When will they cut through the huge army of private sector management consultants who receive generous contracts on practically everything of interest in the public services?

When will the Government get to grips with the bad managerial organisation, which one witnesses health authority by health authority, primary care trust by primary care trust, that led to recruiting people last year and firing them this year, and an army of spin doctors telling us that nothing is going wrong and that no nurse or doctor will lose their jobs, only for us to read in the press that nurses and doctors are losing their jobs? The mismanagement is grotesque, and an enormous waste of money. An analysis at the weekend suggested that only 13 per cent. of the additional money for the health service has bought additional capacity, and nurses and doctors who can carry out medical and clinical tasks. Is it not a pity that we did not get half that money to buy the additional capacity that we so badly need?

Photo of Colin Breed Colin Breed Shadow Minister, Treasury

The right hon. Gentleman mentioned the Gershon report. I do not know whether his experience has been the same as mine, but substantial job reductions have occurred in jobcentres, yet because of the complexity of what has to be done, all that has simply created longer queues and piles more work. My constituents, and probably the right hon. Gentleman's, now have to wait much longer for their working tax credits to be understood, and in any crisis. Although a few jobs have been cut, no more efficiency has been achieved, and the brunt of the consequences is borne by the vulnerable people whom the Government aimed to help.

Photo of John Redwood John Redwood Conservative, Wokingham

The hon. Gentleman's analysis is not quite right. My local centre was closed and the service has subsequently been much worse. However, I do not believe that overall staff numbers or costs were reduced. I believe that they increased instead, because at the same time as closing small local offices, the Government expanded larger offices in big towns and cities and took on extra people, as well as spending a fortune on a computer system that clearly did not work well. That is a common theme of much of the so-called public sector modernisation that we witness. The IT debacles are enormous.

The main productivity problem in the country is public sector led, and the result of gross waste and mismanagement. It is high time the Government got on with what I believe the Treasury wishes to do—I encourage Treasury Ministers to do it—and started to control the massively wasteful over-recruitment in the administrative and bureaucratic parts of the public sector, cull the quangos, deal with the intermediary bodies that we do not need and ensure that the extra money is targeted on providing additional capacity in schools, hospitals and general practice surgeries, where it is clearly needed. We cannot afford to expand both that and bureaucracy, which appears to have been the Government's priority so far.

As the Treasury Committee points out in its report, the external trade balance does not provide an especially good picture. When the Chancellor was in opposition, he appeared to take great delight in any balance of payments figures that were adverse for the country, and believe that they were enormously significant. Now we hear almost nothing about those. It should worry the Government that the British economy is not as symmetrical or well balanced as it should be, so we are extremely dependent on imports, not only in manufacturing but in some services and commodities. That places enormous strain on the external trade balance, and on financing it. The Government need to think about that. They need to redouble their efforts to create a background for a more productive economy. That means lower taxes, less regulation and creating a climate that is far more favourable to enterprise.

The fall in business investment—or the failure of business investment to grow as quickly as many would like—is a matter for concern. I was glad that the Treasury Committee took evidence about it, but I would say that it underestimated the significance of the pensions crisis. Many companies simply do not have the cash to spend on the investment that they would like or that would be welcome, because after the taxman has taken his cut, the second most important claim is the pension fund contribution—and now the pension fund levy contribution, which they have to make under the new laws.

The Government would be wise to examine that and ask themselves, as I suggested in my Budget speech, whether the regulatory system can be amended and improved to get more accurate figures for the pension deficits. I believe that they are currently greatly exaggerated and that that increases the strain on payments into the funds and therefore on corporate cash flows, reducing the amount of new investment.

Labour Members who feel that the pensions crisis is simply the result of companies taking pension holidays at the end of the previous century are way off the mark. No fund could stop paying money into its pension pot unless it was fully funded. They stopped paying extra money in when they were fully funded because, under Treasury rules, they had to. The Treasury regulator said that they could not keep putting money into a pension fund to build up a bigger surplus, as that was against the rules of pension funds. That is quite right. The deficits subsequently arose and they are now exaggerated by the long bond rate, the discount rate and the other assumptions made in deficit evaluation, and they are producing unfortunate knock-on effects for business investment throughout the UK productive sector.

The Government have said that they wish the Budget to be green. Being green is now very popular among all the main political parties, and the Government are welcome to this exciting green party. The Budget measures do not quite live up to people's expectations in that regard, however, and we have already heard some criticisms of them. The Government would do themselves a lot of favours if they went in for friendly greenery. I am a great believer in friendly greenery, which involves giving people a tax break when they do the right thing rather than clobbering them with high taxes if they do the wrong thing. I know that the Lib Dems are in the clobbering camp. We tried to tease out of them earlier just how much they would clobber us for travelling by car or by plane. They were a little coy about that, but they seemed to want to clobber us more than anyone else did. They seem to take pride in being the biggest clobberers of them all—

Photo of John Redwood John Redwood Conservative, Wokingham

Ah, the biggest clobberer wishes to intervene!

Photo of Julia Goldsworthy Julia Goldsworthy Shadow Chief Secretary To the Treasury, Treasury

Would the right hon. Gentleman like to give some examples of how the Conservatives would achieve their plans to cut carbon emissions by one third?

Photo of John Redwood John Redwood Conservative, Wokingham

I am about to tell the House why I favour friendly greenery, but the hon. Lady seems to imply that she agrees with unfriendly greenery. We will all note that in the context of the forthcoming local elections.

The best friendly green policy that this country has seen was introduced by a previous Conservative Government, who offered a tax discount for people buying unleaded petrol at a time when there was far too much lead in the atmosphere as a result of the use of leaded petrol. The measure was universally popular: everyone wanted to buy the cheaper petrol, and that gave them a good feeling, because it was cheaper and because they were helping to clean up the atmosphere and not doing so much harm to the lungs of children who lived near main roads. That was an extremely good green policy.

I would suggest that we do rather more of that kind of thing. Why do we not have more incentives for people who wish to insulate their homes, put in a condenser boiler or buy a fuel-efficient car? The disappointing thing about the Budget is that although it starts to go in the right direction by introducing tax breaks for fuel-efficient cars, it has chosen a range for those tax incentives consisting of cars that cannot be bought in this country at the moment. That seems a bit of a pity—

Photo of John Redwood John Redwood Conservative, Wokingham

Well, it implies that the Government are relying on the stick rather than the carrot. I would ask the Government to amend the figures in Committee so that this policy can actually work. Why not allow people a tax break if they buy cars that are available in Britain at the moment, if they are fuel-efficient and friendlier on the old carbon?

It is a pity that when the Government get to inheritance tax in their blockbuster Bill, they do not do more to raise the threshold. I thought that, by cross-party agreement, inheritance tax was designed to deal with the super-rich leaving huge sums of money to their children or others, but it is now levied on most people in the south of England, and quite a few in the north, who are passing on their homes to their children. That was not the original intention, and the Government should recognise just how much house prices have risen by increasing the threshold, so that this is no longer a tax on those passing the family home on to other members of their family.

I hope that the Government will think again about some of the measures affecting trusts. The point was well made by my hon. Friend Mrs. Villiers when she said that many trusts were set up not in order to get round tax legislation in a legal way, but for perfectly good reasons relating to family circumstances such as divorce. It seems a great pity that such arrangements will now be caught by the legislation and will have to be re-examined at considerable expense, and perhaps reorganised—so I hope that the Government will think again.

If the Government want an enterprise economy, they would be wise to revise their ideas on the abolition of the zero per cent. rate of corporation tax. That was the only corporation tax rate that I ever liked or approved of, and it was a great pleasure when this Government introduced it. They ought now to try to find ways of bringing the other rates down closer to it, rather than abolishing the one good attractive rate that we have. Such measures will work, although they might take a little time. Offering a zero rate to people setting up new and small businesses is an extremely good idea. They need the money that their businesses generate for all the bills that they have to pay, and it is good for them to have that extra incentive. The Government would also be wise to reduce the incidence of capital gains tax, which can send out the wrong signals in an enterprise economy.

We live in a highly competitive world, as hon. Members on both sides of the House noted in the Budget debate, and again today. The Government need to realise that the point that we reached a few years ago, when we had relatively low tax rates, has now been overtaken by events in eastern Europe, Ireland and many parts of Asia. Tax rates are being driven down by the competitive process of the world economy, and if we do not match the better rates we will see more investment going abroad and more people closing their factories here and setting them up elsewhere. There is growing evidence that we do not have to be a low-wage society to do well in this world. The United States of America and Ireland are very successful economies, but they are clearly not low-wage societies. However, we do need to be a low-tax society to do well.

I urge the Government to live up to their rhetoric. They need to deregulate more, legislate far less, get rid of the great chunks of the Bill that are incomprehensible and not needed, and introduce lower tax rates for the enterprise sector. Then we might not need to worry quite so much about the productivity crisis in the public sector, because we would be generating more industrial and commercial activity elsewhere. I would also urge the Government to treat the productivity problem in the public sector very seriously indeed. It is already causing considerable political anguish in the run-up to the local elections, with the unfortunate stories about the sacking of nurses and doctors. These problems could be avoided if the Government were to get a grip on the cost of the bureaucracy.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West 6:06 pm, 24th April 2006

I should declare that, as well as being a member of the Transport and General Workers Union and the Law Society, I joined Greenpeace in 1975 and I am also a member of Friends of the Earth. I declare that interest because, as we can see from the Opposition amendment before us and from the Budget, environmental issues are very much de nos jours.

We should be more sophisticated in the way in which we talk about the environment. I seem to remember that the Green party got 15 per cent. of the vote in the 1994 European elections, but enthusiasm for green issues then seemed to ebb. These things go up and down.

As you might know, Madam Deputy Speaker, Birmingham airport now provides direct flights from the west midlands to Poland. I have been mulling over these issues for some time, and I took what turned out to be the inaugural flight on SkyEurope. It was very good going out, but a bit delayed coming back. However, I would recommend it as a way of visiting Poland. I got to Birmingham airport at 7 am on Wednesday just before Easter, and the place was packed. I started to reflect on what people actually do, in contradistinction to what they say. I suspect that this applies to most hon. Members, although there will be some exceptions. Most hon. Members to whom I talk socially take many flights—often cheap flights—during the year, and I suspect that most of them drive cars. Most probably, they drive thousands of miles a year, as I do myself. I drove about 4,000 miles last year. We need to be careful, given the measures that we propose, that we are not seen as hypocrites. We must not appear to be behaving like King Canute on these issues.

Global warming has been much talked about in this debate, and so it should be. I referred to it in two interventions on my right hon. Friend the Chief Secretary to the Treasury. Global warming is here to stay, and it is going to get worse. The United Kingdom emits roughly 2 per cent. of all greenhouse gases. If we halved that tomorrow, it would make hardly a dent in the problem. I stress that that is not to say that we should back off from the admirable efforts that the Government have made, in this Budget and previously, to cut the United Kingdom's contribution to greenhouse gas emissions. However, if the world's emissions went down by 1 per cent.—which would be the result of halving our 2 per cent. contribution—it would make almost no difference whatever to the effect within the United Kingdom.

I detect among many hon. Members—I include myself in this—and among people in our society some hypocrisy about what they do in their personal lives about carbon emissions and a tendency to behave like ostriches in relation to climate change. Most of what we hear about climate change relates to cutting the emissions of one relatively small emitter, which is important but would not stop the projected 1 m rise in sea levels by 2100, which is an awful lot for an island. By 2050, under global warming, average temperatures are projected to rise by 3.5°C. It is suggested that, if no steps are taken to halt climate change globally, the world could warm up by an average of 13°C over the next 1,000 years. That would give London the climate that Cairo currently has, although London would no longer exist as it would be under water.

Photo of Tobias Ellwood Tobias Ellwood Opposition Whip (Commons)

The hon. Gentleman must understand that, unless Britain sets an example, as it has done in many other areas, it is unlikely that countries such as China, Brazil, India and will follow suit. We must show what can be done and then export those ideas.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

I agree with the hon. Gentleman. I have stressed twice that we should carry on with our steps, which I have lauded the Government for taking. This country has done a good job and, in some ways, we do set an example, but we should not exaggerate our influence on the world stage in the example that we set when all kinds of people in this country are taking more cheap flights. The Treasury Committee report released today mentions that, between 2000 and 2004, the annual number of passengers liable to pay air passenger duty rose by some 25 million or 35 per cent. We therefore have to be careful. It is important to set an example and to try to cut emissions, but we must also consider the other side of the equation, which, as far as I can tell from the reply of my right hon. Friend the Chief Secretary, the Budget singularly fails to do. The other side of the equation is: what will be the effects on the United Kingdom of the global warming that we already know is coming?

Photo of John Redwood John Redwood Conservative, Wokingham

The hon. Gentleman is making an important point. Does he agree, for example, that we could polderise new land in the Wash, and out of the profits from creating extra land, partly for development, build a much better sea defence? That would be a good scheme to introduce ahead of the kind of things about which he is worrying.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

It is a rare occasion on which I agree entirely with the right hon. Gentleman, who makes a thoughtful suggestion. I do not want to stray too far from the Budget, Madam Deputy Speaker, but what the Treasury does with regard to green taxes tends to permeate our society and other Departments. The report published last month under the auspices of the Department for Environment, Food and Rural Affairs, "Climate Change: The UK Programme 2006", in a summary on page 130 says:

"The Government will take action to develop a comprehensive and robust approach to adaptation in the UK through the Adaptation Policy Framework; publish revised and expanded climate change scenarios for the UK in 2008; monitor and develop the knowledge on climate change impacts and adaptation through UKCIP."

Publishing estimates and scenarios and developing the knowledge base are laudable, but that is not concrete action. The Budget does not start to address the things that we can do about the impacts, such as polderisation, if that is a word.

On page 130, paragraph 7, the report continues:

"Some of the most widely expected adverse impacts in the UK include: an increased risk of flooding and coastal erosion; increased pressure on drainage systems; possible increased winter storm damage; habitat and species loss; summer water shortages and low stream flows; increased subsidence risk in subsidence-prone areas; increasing thermal discomfort in buildings; and health issues in summer."

Those examples are vague, but research is laudable. However, we do not even have a grasp on what will happen, in spite of years of knowledge about climate change. I was taught about climate change and greenhouse gases when I went to university in 1973, so it is not new. We still do not know—we are still doing research on it—whether we will get a Newfoundland climate, which is pretty awful, or a Mediterranean climate, which might or might not be pleasant in this country; it will not be pleasant if half the country is flooded.

The green taxes in the budget and the steps being taken by Government address only half the equation, which is a huge problem about which the House ought to be honest to itself.

Photo of Tobias Ellwood Tobias Ellwood Opposition Whip (Commons)

I hope that the hon. Gentleman will concede that the big EU bus was parked outside No. 10, and the keys given to us, for six months. On top of that, we were responsible for hosting the G8 summit, which is exactly where these issues should have been addressed to tackle the monumental challenge that the entire world faces.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

We are all prisoners of what we read and hear and talk about with people, but I do not hear this subject talked about much. I am open to correction, but I do not recall another Member making quite a long speech—as I have done for almost 10 minutes so far—on what society should do about the effects of climate change. I do not hear that debate going on in our society. I have the honour to represent an urban seat, and I do not hear from rural Members on the subject. I heard a little at DEFRA questions last week about the hosepipe ban in the south-east. I am not a scientist, but I suspect that the hosepipe ban and the worst drought in the south-east in living memory might be connected to climate change. When will society and Government start to talk about what they will do about the effects of climate change? If I am right that the matter is not debated in the House or elsewhere, that is an appalling indictment of all Members on both sides of the House—I can make enemies of everybody, I suppose.

I stress with some passion that society ought to have that debate. We need to discuss the taxation regime, whether it is tax breaks for polderisation, research or life sciences developing new plants that can grow in this country with longer daylight hours—one cannot just transfer Mediterranean plants, because the daylight configuration is different further north. From the little information that I have—I always stand to be corrected, especially on this matter—this society and Government, through our tax regime in the Budget and elsewhere, appear to be doing almost none of that, except for the general research and development tax breaks introduced in recent Budgets, including this one, which I welcome, especially as a west midlands Member, in the hope of a positive effect on manufacturing.

In terms of where the world is going, and our country within it, we are not doing a whole lot about the effects of climate change. Mostly we appear to be saying, "We'll do a bit of research." I plead with the Government, through the Treasury, which has a huge say because it controls the purse strings, to consider the matter again and speed things up. Neither I, as a Wolverhampton Member—nor you, Madam Deputy Speaker, representing a west midlands seat—want Birmingham to become the capital of the United Kingdom because London no longer exists, as it is under water because of climate change. That could happen. As I understand it, the Thames barrier, just a few kilometres down the river from where we are now, is being used more frequently, year on year, than when it was initially built to deal with climate change. I do not know which Government commissioned it, but it was a far-sighted piece of work. We need to do more of that sort of thing and we should change our taxation regime to do it.

Photo of Huw Irranca-Davies Huw Irranca-Davies PPS (Rt Hon Tessa Jowell, Secretary of State), Department for Culture, Media & Sport

My hon. Friend is making a thoughtful and insightful contribution. Does he acknowledge that that cause and effect is exactly the reason that the Severn barrage, which was ruled out three and a half years ago because of cost and ambition, is now very much on the cards, not only because of the energy that it could create but because of the environmental safeguards that it could introduce along the Severn estuary, which has the second highest tidal drop in the world?

Madam Deputy Speaker:

Order. I respect the passion about climate change and its impact, but I hope that hon. Members will relate their comments directly to the Finance Bill.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

I am grateful for your assistance, Madam Deputy Speaker. I was relating my comments partly to the Bill and partly to the Opposition motion, which suggests that the Bill is not an adequate response to the challenges that we face in this globalised world. I apologise if I strayed too widely, but I will, if I may, respond briefly to my hon. Friend's intervention. I believe that the bay of Fundy in Nova Scotia is No. 1 in tidal terms, but we should consider the implications of the Severn barrage for electricity generation and the like.

As for the specific taxes that are or are not in the Budget, I think we should look at airport passenger duty, but there is a difficulty, to which I adverted earlier. A number of Members—I was one over Easter—take cheap flights. It ill behoves us to say that because we are on £60,000 a year, or more in the case of Ministers, we will put up the price of flights so that other people cannot fly everywhere and ruin the environment, although Members are likely to go on doing so, whether or not they have to save for their holidays. We have to be rather careful about stuff like that, because it could undermine support for the environmental, green taxation regime on which a consensus may emerge in the House. I hope that it does.

Julia Goldsworthy was coy about some issues. I should like to know whether she, like me, favours a swingeing top band for vehicle excise duty. I am not sure where the top band should start. Perhaps it should begin with carbon dioxide emissions of 250 g per kilometre, involving a fine of, say, £2,000. Would the hon. Lady care to say whether she or her colleagues would support such a swingeing top rate? She referred to it, but did not say whether she would support it. [Interruption.] The hon. Lady is still making up her mind, with assistance from Chris Huhne.

Photo of Huw Irranca-Davies Huw Irranca-Davies PPS (Rt Hon Tessa Jowell, Secretary of State), Department for Culture, Media & Sport

No doubt my hon. Friend will have read the academic tome by Jost Krippendorf entitled "The Holiday Makers." It suggests that the best solution is to remain at home and spend the money that we would have spent on holidays on improving the quality of life there. Does my hon. Friend believe that the Liberal Democrats, or anyone else, would win an election on that basis?

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

It is probably a long time since I have heard of the book.

My hon. Friend made a light-hearted point. He is right: we can take pot shots at each other. The House will not be surprised to learn that, later in my speech, I shall take pot shots at the Opposition, which I can do with great delight and sometimes with effect, but there is a broader issue. We are not going to persuade ourselves or our constituents who can afford holidays to stay at home. I will not stay at home for my holidays if I can possibly afford not to, so why should I bid others do so?

The difficulty is that people conduct their lives according to certain patterns. They should be able to go on holiday and, if they want to go elsewhere, they should be able to do so. If we were to stop them, we would do so by means of swingeing tax increases that are unrealistic in our society for the foreseeable future. We must therefore take a different view in the context of our tax regime. We must think about what we do, vitally, in this country to cut emissions, but also about what we do to grapple with the effects of climate change.

We should consider a swingeing top rate for vehicle excise duty, and a future rate for vehicles that have not yet been built. We should take account of the effects of the tax on the behaviour of manufacturers as well as that of consumers. That has been attempted in the United States, with some success in California in terms of total fleet emission requirements for manufacturers. Unfortunately, the federal Government bottled it by, for instance, excluding sports utility vehicles and pick-up trucks, which are big sellers in the United States. However, California had some success with a fleet average to leverage on manufacturers. I hope that future Finance Bills will consider similar action and that negotiations will begin with vehicle manufacturers.

I have said enough about the environment. I want to say a little about the trusts regime. It has been difficult for those of us who support the broad direction of Government policy to grasp fully the effects of the change in the tax regime for accumulation and maintenance trusts. I am not an accountant but a solicitor and I have not done trust work, apart from a little, probably 20 years ago. According to my recollection—I thought that it was still the case—discretionary trusts attracted a 10-year anniversary charge, which I believe used to be 10 per cent. That may have been done away with, but I suspect that the regime still exists.

That tax has applied to trusts for many years and I think it has been supported on all sides. The difficulty on this occasion is that the Government have not given clear enough information on how many people might be affected by the changes to the accumulation and maintenance trust tax regime that are proposed in the Bill. I would welcome more clarity.

A point raised with me by a constituent—a good point, which I have not seen raised elsewhere—is that a number of people will have made wills and will no longer have the mental capacity to change them in the light of the changed legislation, particularly those with Alzheimer's or other kinds of dementia. That will constitute a difficulty unless there is another option. There is an arrangement which has existed for many years—I am not sure whether it has existed since the Wills Act 1837, but it has certainly existed for a long time—whereby up to two years after a death, the beneficiaries can effectively rewrite the will. People who have died in the past six weeks may have been caught by that, so the practice may be going on at this moment.

We need more clarity. If it is simply a question of taxing the rich, to put it in crude terms, it will not surprise the Minister to learn that I am broadly in favour of that: I think it is a pretty good idea. If it spreads much more widely, however, I might like to have another think about it.

The speeches of the two spokeswomen for the Opposition parties bemused me somewhat. Let me take them seriatim. As far as I could tell, Mrs. Villiers, the shadow Chief Secretary, concentrated on four main issues. Many of us were told that when we made speeches, or wrote essays, pamphlets or books, a strong focus was important. The four issues on which the hon. Lady chose to focus did not surprise me, but they did disappoint me.

First, the hon. Lady talked about tax complexity, which she linked with instability and unpredictability. If a tax regime is broadly similar and continues, as has been the case with ours, there are people who are paid a great deal to find the loopholes in it. When they have done so, the answer is either to plug the loopholes or to make fundamental changes in the regime. Broadly, the Government have tended to plug the loopholes. We have a broad base of stability and predictability for our tax regime, but when loopholes are plugged the process tends to become lengthy and somewhat complex.

It is all very well for Members to go on about simplicity and getting rid of complexity, and about how many pages there are in the Bill, the explanatory notes and all the other accompanying documents. We are talking about a holy grail that will never be attained. People talk about the need to cut the amount of regulation—I shall say something about that later—but year in year out, Governments of both colours produce about 3,000 statutory instruments because we live in a complex society.

The hon. Lady attacked the Government for tax complexity, and then said that that would lead to instability. Paradoxically, in the view of some Members, the stability that we have leads to complexity. The Government and the Chancellor have made an ideological or political decision to go around trying to plug loopholes rather than making huge fundamental changes. I support that approach. Yes, it will lead to some complexity, but I think that the instability for which the hon. Lady also castigated the Government is a worse option.

Photo of Stephen Hesford Stephen Hesford PPS (Rt Hon Baroness Amos, President of the Council), Privy Council Office

I was going to make the same point, but does my hon. Friend agree that it goes further? What my right hon. Friend the Chancellor is trying to do, for the sake of fair taxation, is create certainty rather than the uncertainty that would allow tax lawyers and tax accountants to attack what the Government are trying to do, and attack our revenue base.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

I entirely agree with my hon. Friend. Plugging loopholes may lead to lengthier Finance Bills, but it also leads to more certainty and—on occasion—to more simplicity, because then there is no way round the tax: one engages in a series of transactions, and one pays the tax.

Surprisingly, given her past as an MEP, the hon. Member for Chipping Barnet extolled the virtues of Ireland's economy, as other Members have done, including Mr. Redwood. In doing so, they somehow overlook the massive transfer of funds through the European Union—some of those who have argued how wonderful Ireland is do not actually agree with our being in the EU—and do not mention the huge capital flows into Ireland, which have brought about success. Such success is a wonderful thing. I support the UK's membership of the EU and a 25-state EU that includes the Republic of Ireland. Ireland has benefited greatly from the EU and it has dealt wisely with the structural funds transferred to it, but to describe it as a low-tax economy that is so successful that it now has a higher gross domestic product per capita than the UK is to overlook the factor to which I refer. Moreover, its GDP per capita is in fact still lower than the UK's.

The second point made by the hon. Member for Chipping Barnet, on which I intervened, concerned the home computing initiative. That seems to have become a big deal, and I am happy for the Government to look at it again. To judge by the tenor of her remarks, she, like most people, seems not to regard it as a point of principle—the initiative is worth some £150 million, which is a relatively small amount—yet it is a quarter of her critique, as shadow Chief Secretary to the Treasury, of the Government's Finance Bill. I can understand why: there is not a lot else that she can have a go at the Government about.

The third leg of the hon. Lady's argument involved having a go at the Government on self-invested personal pensions. The Government got wrong their "second home" provision, and I and other Members—some of whom are here today—said so. Many of us in this life like to have things both ways, myself included. We and the Opposition said to the Government, "We think you've got it wrong". So the Government did quite a lot of research and talked to a number of people and said, "You may have a point: perhaps the provision does need some fine tuning." Then, the Opposition weighed in and gave the Government a kicking for listening. That is having it both ways. That is politics.

Photo of Stewart Hosie Stewart Hosie Shadow Spokesperson (Women), Shadow Spokesperson (Home Affairs), Shadow Spokesperson (Treasury)

The hon. Gentleman gives two interesting examples. However, an entire industry was set up to deal with SIPPs and the second property issue, and almost an entire industry was set up to deal with tax-free home computers. The BBC reported the possible loss of 2,000 jobs in connection with the latter, and that the SIPPs provision could cost tens of millions—if not hundreds of millions—of pounds. So it was not simply a case of making a mistake and correcting it; the situation was rather more significant than that, was it not?

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

I understand the hon. Gentleman's point. I am simply trying to make the broad point that if a Government listen—as they should—there will sometimes be costs. The alternative was for the Government to proceed with an idea that many people, including me, had reservations about. They could have said, "We don't want to be caught doing a so-called U-turn." They could have taken the view that they did not want to have to say, "We're sorry that you had to spend hundreds of millions of pounds"—to use the hon. Gentleman's figures—"trying to avoid tax. We are now changing the provision." So the question is: should the Government clam up and do absolutely nothing, or should they say, "We've listened and perhaps we will make a change"?

If the Government are not listening, what is the point of our being in this Chamber today? Not all my comments about the Government are positive. If we say, "The Government never listen, so why have the debate?", or, "The Government listen, and when they do we are going to give them a kicking", that is the end of public debate. It is monstrous.

Photo of Christopher Huhne Christopher Huhne Shadow Secretary of State for the Environment, Environment, Food & Rural Affairs

As the hon. Gentleman well remembers, there were extensive debates on SIPPs during last June's consideration of the previous Finance Bill. The issue is not whether the Government listen, but how long they take to listen and to take these matters on board. I am afraid that the reality is that Treasury Ministers were extremely deaf not just to the protests made by Opposition Members, but to the hue and cry in the City of London. Any Minister who had kept their ear to the ground would have been aware of what they were walking into and would have performed the U-turn much more rapidly.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

I remember having the great pleasure of serving on the Committee that considered that Finance Bill, and the Government did listen. What do we get from the Opposition? One can never tell what the Liberal Democrats' policy is from one week to the next, and the same is true of the flip-flop Conservatives.

Photo of Christopher Huhne Christopher Huhne Shadow Secretary of State for the Environment, Environment, Food & Rural Affairs

Will the hon. Gentleman at least recognise that we tabled an amendment that the Chancellor finally accepted, almost word for word, after the pre-Budget report? Under the arcane rules of the House, because that amendment raised revenue, we were not allowed to debate it other than in a circumlocutory manner. The reality is that we were right about the amendment that we tabled and argued for in June, and it was not until October that the hon. Gentleman's friends on the Treasury Bench finally got round to admitting as much.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

It takes some people longer to listen and learn than others. The hon. Gentleman's party has been trying to get the electorate to listen and learn for the past 70 years and still has not succeeded, so these things can take time. The same point may also apply to his future leadership hopes; perhaps the membership of his party will listen a little more carefully next time.

The fourth leg of the argument advanced by the hon. Member for Chipping Barnet concerned trusts, to which we have already referred. I hope that the Government will look at that issue again, because I would like greater clarity. The tenor of her remarks suggested that she wanted to defend the rich. There is a lot to be said for the rich, but we do not need to defend them too much in terms of trusts taxation, because they can afford to employ a whole team of people to defend themselves. However, we do need the Government to clarify whether the provision applies to just the very rich. [Interruption.] Mr. Heath tempts me to mention the opening passage of "The Short Happy Life of Francis Macomber", by Ernest Hemingway. The character Julian says, "The rich are very different from me and you", to which the other character replies, "Yes, they have more money." That is always the way. They also have more power, but Hemingway, who came from a nice middle-class background and—like me—had a doctor for a father, did not mention that. He should have.

The contribution of the hon. Member for Falmouth and Camborne was a bit vague. The hon. Member for Eastleigh referred to the Liberal Democrats tabling amendments to Finance Bills in Committee, and occasionally—when they are allowed to—they do table concrete amendments. However, the hon. Lady employed a device that many Members—including, I freely confess, me, on occasion—have used. When the Member concerned asks a question, the listener assumes that they know which policy the Member supports. However, on examining the question—I say this as a lawyer—it is clear that it is simply an open question. For example, the hon. Member for Falmouth and Camborne talked about a possible charge on aircraft movements, but she did not say whether she supports such a proposal. I am happy to take an intervention on that point.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

I would rather take an intervention from the hon. Member for Falmouth and Camborne than from her puppet-master.

Photo of Christopher Huhne Christopher Huhne Shadow Secretary of State for the Environment, Environment, Food & Rural Affairs

The hon. Gentleman should be aware, given that it has been mentioned in the House many times, that we back reform of air passenger duty, so that it is levied not per passenger but on the movement of each aircraft. That would provide the incentive to ensure that, when an aircraft takes off, it is full rather than half empty.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

Well, I am grateful for that clarification, because that was not apparent from the hon. Lady's speech. I apologise to the hon. Gentleman and others for not having picked up on that in the course of many, sometimes turgid, debates in this House.

The hon. Lady said that her party supports the climate change levy, but it is a bit complicated. However, she did not say how her party would simplify it. She talked about starting from the principle that the polluter pays, but was vague about how that would be achieved. So much of the Liberal Democrat approach to green taxes, including vehicle excise duty, is a bit vague.

Photo of Christopher Huhne Christopher Huhne Shadow Secretary of State for the Environment, Environment, Food & Rural Affairs

It cannot be said that we are unclear on the matter of green taxes. My own speech in the Budget debate made it clear that we were in favour of reversing the fall in real terms in green taxes under this Government. Green taxes were 3.6 per cent. of GDP in 2000, but that has fallen to 3 per cent. The Bill will do nothing to reverse that downward trend, but it is important to do so, because it is essential to have an ongoing tax to encourage an ongoing change in behaviour. That is the answer to the hon. Gentleman's earlier point about behavioural change.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

The hon. Gentleman puts his point more lucidly, perhaps, than the hon. Lady, but it is still a little vague. Perhaps he could give her a copy of his speech, so that she can be clearer next time. The hon. Lady mentioned the law of unintended consequences, and we should indeed beware of it. However, I caution the Liberal Democrats to beware of it when it comes to their intended levy on aircraft movements instead of individual passengers. It is possible that that could lead to jumbo jets flying around with four people on board—

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

Well, I do not think that it is.

Photo of Christopher Huhne Christopher Huhne Shadow Secretary of State for the Environment, Environment, Food & Rural Affairs

The hon. Gentleman should be aware that our proposal is that the duty per aircraft movement would be scaled according to the size of the aircraft. I assure him that when he takes off in his 737 it will be subject to a lower duty than a jumbo jet.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

I do not actually own a 737, but I do not know whether the hon. Gentleman does—

Photo of John Redwood John Redwood Conservative, Wokingham

The Liberal Democrats have revealed more than they meant to reveal. It sounds as though they are saying that green taxes have to rise by at least 25 per cent., so we can now work out the figures and what that would mean for petrol, car ownership and aircraft movements.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

We are teasing out some clarity. We have learned that the levy on aircraft movement would depend on the size of the aircraft, but I did not hear that in the fairly long speech by the hon. Lady.

Photo of Doug Henderson Doug Henderson Labour, Newcastle upon Tyne North

Has my hon. Friend drawn the same inference as I have on the question of air movement taxes? Were it to discourage an operator from flying less full planes, the reality would be that areas such as Lerwick, Stornoway, Inverness, St. Ives or Newquay—whatever the airport in Cornwall is called; I have been there and it is a nice airport—and others would receive a much poorer service than they do at present. Such a tax would discriminate especially against rural and sparsely populated communities—[Interruption.]

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

I agree, but the Liberal Democrats are saying no. So what will the tax do if it will not discourage aircraft movement? They are trying to have it both ways.

The law of unintended consequences may also apply to road user charging. Supporters of a per mile or per kilometre charge need to be careful about the psychology of some people—including me. If I paid by the mile, I might think that as I was doing my bit for green taxes I might as well drive a few more miles. The unintended consequence might be that people drive more miles. If the response from the Liberal Democrats would be to jack up the price, I am sure that that would be really popular with their rural constituents.

The hon. Lady also talked about personal debt. I do not know how to say this without sounding patronising, but I was around in the early 1990s, when she was quite a lot younger. The present low interest rates and economic stability mean that the ability of people to service their debts is completely different now. One cannot simply say that the gross amount is similar and that we will therefore have a crash like we did in the early 1990s.


Supporters of a per mile or per kilometre charge need to be careful about the psychology of some people—including me. If I paid by the mile, I might think that as I was doing my bit for green taxes I might as well drive a few more miles.

The only man on the planet who thinks that a "pay for what you use" charge encourages more consumption than a flat-rate "all you can eat" charge.

Submitted by Sam Evans

Photo of Christopher Huhne Christopher Huhne Shadow Secretary of State for the Environment, Environment, Food & Rural Affairs

The hon. Gentleman does not appear to be aware that the debt service levels, including both interest payments and capital repayments, are nearly back to the same level as they were at the beginning of the 1990s. So my hon. Friend Julia Goldsworthy was correct in her point and the hon. Gentleman is misinformed.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

Not at all. The hon. Gentleman carefully qualifies his point with the adverb "nearly", which his hon. Friend did not do, and that makes the difference. It is necessary to be more exact when making such claims.

The hon. Lady also claimed that the rising number of bankruptcies was evidence of her point. Bankruptcy is very sad in most cases, but she failed to mention that the Government have made it easier and more attractive to declare bankruptcy. I leave aside the issue of whether that was a desirable change, but it has been followed by—I posit that it is cause and effect, but I cannot demonstrate it empirically—a rise in the number of bankruptcies. That is more likely to be the driver in the rise in the number of bankruptcies than the level of personal debt.

Photo of Julia Goldsworthy Julia Goldsworthy Shadow Chief Secretary To the Treasury, Treasury

What about repossessions, which are also increasing significantly?

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

If someone declares bankruptcy, their house will be repossessed. It is quite simple.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

Well, some people have been queuing up to do that.

We have heard talk of regulation and the taxation burden. I have here the "Burdens Barometer 2006" from the British Chambers of Commerce. As hon. Members will see, it is a long list of 69—

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

Order. The use of visual aids is not encouraged in the Chamber, partly because it makes it difficult for the Official Reporters to understand what the hon. Gentleman is talking about.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

The document is about 80 cm long and 20 cm wide, and printed with a list of 69 so-called burdens. I shall go through them, so that the Official Reporter has a chance to understand my point about the desire for simplification and reduction of the regulatory burden, which has been expressed forcefully, especially by the Conservative party.

From the titles of the regulations, hon. Members will get some idea of whether they are what many of us would see as a good thing or are a burden on business. The first is the

"Data Protection Bill (Implementing the Data Protection Directive)".

Could be good, or could be bad. Second are the Groundwater Regulations 1998. They are probably a good thing, because they are about the purity of water—farmers would probably like them, although they were the polluters in some cases. Next is the Employment Relations Bill. Well, that will get a thumbs up on this side of the House, but it probably gets a thumbs down from the Conservatives. The Liberal Democrats are probably still deciding, even though it was introduced six years ago. Next come the working time regulations. Again, they probably get a thumbs down from the Conservatives, who do not like people having paid time off for their holidays. Fortunately the Government will, I hope, extend that right for a further eight days in the course of this Parliament, pursuant to our manifesto, so those regulations would probably get a thumbs up on this side of the House.

Next we have the Fire Precautions (Workplace) (Amendment) Regulations. They sound good to me and not like too much of a burden. Next on the list is

"National Insurance: Service Provision through Intermediaries".

I am not sure about that, but if anyone can tell me what it is about, I will gladly take an intervention.

Next on the list is the Tax Credits Act 1999 and "accompanying regulations (working families tax credit)". That would get the thumbs up from Labour Members. I am not sure about either of the main Opposition parties, or indeed the nationalist parties although Stewart Hosie will no doubt intervene if appropriate.

Photo of Huw Irranca-Davies Huw Irranca-Davies PPS (Rt Hon Tessa Jowell, Secretary of State), Department for Culture, Media & Sport

One unintended consequence of the tax credits legislation is that 700,000 children have been lifted out of poverty.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

I am not sure that I agree; I suspect that the Chancellor intended that very good consequence.

Here is another burden:

"The Transnational Information and Consultation of Employees Regulations 1999 (European Works Councils).

They get a thumbs up from Labour, but not from the Conservatives. I am not sure about the Liberal Democrats. They might like to intervene to tell me, or they can write to me afterwards—answers on a postcard—[Interruption.] They have run out of ideas.

Next on the list is the Education (Student Loans) (Repayment) Regulations 2000. I suspect that it is probably a good thing to get people to repay their debts, although the Liberal Democrats may have a different view.

I would hope that the Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000 would receive a thumbs-up from both sides of the House, although the Stakeholder Pension Schemes Regulations 2000 might be more controversial. I am not sure whether that would get a thumbs-up from the Opposition.

No. 12 on the list are the Wireless Telegraphy (Licence Charges) (Amendment) Regulations 2000. If that is the measure whereby the Chancellor raised £23 billion through an auction, it was jolly good for our finances. Indeed, I think that my right hon. Friend is thinking of doing the same thing again, on a lesser scale. I hope that it raises half as much money.

Next comes the Regulation of Investigatory Powers Bill, parts 1 and 3. I do not think that is unnecessary regulation; nor are the Pesticides (Maximum Residue Levels in Crops, Food and Feeding Stuffs) (England and Wales) (Amendment) Regulations 2000.

The next one is topical:

"The Vehicle Excise Duty (Reduced Pollution) (Amendment) Regulations 2000, pursuant to the EU pollution directive 98/69/EC.

That is not a burden, nor are the Water Supply (Water Quality) Regulations or the police powers to close disorderly licensed premises under the Criminal Justice and Police Act 2001 or the Biocidal Products Regulations 2001. I am not a scientist, as I said earlier, but I suspect that those regulations are probably a good thing.

As someone who eats eggs and fish but not meat, I cannot comment on the Processed Animal Proteins (England) Regulations 2001.

Photo of Mark Francois Mark Francois Shadow Paymaster General

We all know that the Government are short of speakers in this debate, but as the hon. Gentleman continues ad nauseam with his list, will he let the House know how many of the measures he is reading out are actually in the Bill that we are supposed to be debating?

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

In this part of my remarks, I am referring to the amendment selected for debate, which the hon. Gentleman signed. Unless he is withdrawing his name, or the amendment, I shall continue. I am speaking to the amendment, which states—to paraphrase somewhat—that the Government have over-regulated the economy and messed it all up. That will be news to the 2.4 million more people who have jobs.

Next on the list are the Disability Discrimination (Providers of Services) (Adjustment of Premises) Regulations 2001; the Proceeds of Crime Bill; the Maternity and Parental Leave (Amendment) Regulations 2001; the Building (Amendment) Regulations 2001 and the Building (Approved Inspectors etc.) Regulations 2001; the Electricity and Gas (Energy Efficiency Obligations) Order 2001 and the Undertakings on Supermarket/Supplier Relations (Code of Practice). They all sound quite reasonable.

As someone who spent three years driving a bus, I support the Public Service Vehicles (Conditions of Fitness, Equipment, Use and Certification) Regulations 2002, which are just over four years old. I commend them to the House. The British Chambers of Commerce may see the Occupational Pension Schemes (Minimum Funding Requirement and Miscellaneous Amendments) Regulations 2002 as a burden on business, but I think that they are a jolly good thing.

Next is the Industrial Training Levy (Construction Board) Order 2002. The Budget and the Bill refer to training, and the Government are committed to it and have done much to promote it, so the order is of considerable help.

Another topical measure in terms of green taxes is the Aggregates Levy (General) Regulations 2002.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

Here is another stunning one: the Employment Act 2002. That is a pretty good Act and I like it. I was a member of the Standing Committee.

The Control of Asbestos at Work Regulations 2002 are next on the list. I worked for many years as a trade union solicitor and still have links to the firm—Thompsons—for which I worked. My interest is registered. Thompsons gives money to my constituency Labour party. If Members say that those regulations are an unnecessary burden on business, they are entitled to their opinion, but most people, especially those dying nasty deaths from mesothelioma, would disagree. We need to control asbestos at work.

Photo of Christopher Huhne Christopher Huhne Shadow Secretary of State for the Environment, Environment, Food & Rural Affairs

The hon. Gentleman's list is fascinating, but does he realise that it is not enough merely to say that the objective of a piece of legislation or regulation is desirable and thus to argue that the measure is proportional to the problem? Gerrit Zalm, the Netherlands Finance Minister who, from our sister party in the Netherlands, the VVD, oversaw a major aspect of deregulation, claims that the objectives being met by regulation were retained but that there was substantial simplification of the national framework for regulations precisely because an independent body vetted whether regulations met their purpose. Reading out a list of desirable objectives is not enough to prove that the measures are sensible.

I would like to mention—

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

At one level, I agree with the hon. Member for Eastleigh, but it is not sufficient for the British Chambers of Commerce simply to publish a list of figures under three columns of administrative costs in millions, recurring costs in millions and total costs by July 2006 in millions in a document, whose tenor is that those regulations are undesirable. That may not be their view, but that is the tenor of the document, which lists 69 items and is about 80 cm long. That is the other side of the coin in respect of the point that the hon. Gentleman made.

Photo of Huw Irranca-Davies Huw Irranca-Davies PPS (Rt Hon Tessa Jowell, Secretary of State), Department for Culture, Media & Sport

My hon. Friend will be aware of the report from the Organisation for Economic Co-operation and Development, which rates the UK as having the lowest barriers to enterprise in any major economy, low rates of business taxation, strong incentives to reward business investment and—pertinently—a good regulatory record that compares well internationally. What does he make of that?

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

Just as the precise contents of the book to which my hon. Friend referred earlier had slipped my mind, it has slipped his mind that I included many of the points that he has just made in my speech on the Budget. I entirely agree with him about the OECD's assessment. I have had considerable affection for that body for several years because one of my cousins, Stephen Marris, was its chief economist. He was preceded by my Canadian compatriot, Sylvia Ostry.

Members will be relieved to hear that I have reached No. 32 in the list of 69 alleged burdens on business: the Flexible Working (Procedural Requirements) Regulations 2002. Procedural requirements might be over-egging things a bit, but not flexible working. Members on both sides of the House would support that. Indeed, the hon. Member for Chipping Barnet prayed it in aid for "mums at home" in respect of the home computing initiative, so I hope that we can all agree on those regulations.

The Dangerous Substances and Explosive Atmospheres Regulations 2002 might be controversial but they sound good to me. The Sale and Supply of Goods to Consumers Regulations 2002 may be over-regulation; they may be a burden on business by stopping a retailer ripping us off as consumers or ripping off our constituents, but they sound pretty good to me.

Another one, which is close to my heart as a former trade union employment solicitor, is the Control of Substances Hazardous to Health (Amendment) Regulations 1988—some people call it COSHH, using the capitals—which was introduced pursuant to a European Union directive. There may be an argument that the Animal By-Products Regulations 2003 represent over-regulation, because we had some previous animal regulations, to which I referred, but I cannot quite put my finger on. I concede that that is possibly over-regulation. The list then refers to regulating insurance mediation—not even regulations.

Photo of Julia Goldsworthy Julia Goldsworthy Shadow Chief Secretary To the Treasury, Treasury

If the hon. Gentleman thinks that the current system of regulation is perfect in the list that he is going through, why have the Government proposed the Legislative and Regulatory Reform Bill?

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

First, I have not said that the current situation is perfect. Indeed, the hon. Lady perhaps picks a slightly unfortunate point on which to intervene, as I had just said that the Animal By-Products Regulations 2003 might possibly involve over-regulation because of the previous animal regulations, which I still cannot find on the list. No doubt, someone who has been listening attentively can point it out.

Secondly, on the Legislative and Regulatory Reform Bill, I would refer the hon. Lady to the remarks that I made during the debate on the Second Reading of that Bill before a House that had in it about a third of the number of the hon. Members who are here now, when David Howarth spoke very well.

Moving along the list, it refers to regulating mortgages—again, not regulations. Regulating mortgages is a burden on business, according to the British Chambers of Commerce, but it does not sound like undue regulation to me. I suspect that the majority of hon. Members have either had a mortgage or still have one. Some hon. Members have two mortgages, and I believe that other hon. Members have six or seven, but I am not sure.

Then there is the Water Environment (Water Framework Directive) (England and Wales) Regulations 2003. Again, it is possible that that is a duplication that we did not need, given that the Groundwater Regulations 1998 came earlier. I have lost my place. [Hon. Members: "Hesitation!"] Hesitation? [Hon. Members: "Repetition!"] If there is repetition, it would certainly suggest that we do not need some of the regulations in the list, but I am not yet sure about that. The list refers to the Child Trust Fund Bill—

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

Order. The hon. Gentleman has been speaking for quite a long time and has been more or less in order. The items that he is referring to are not repetitive, but his argument is becoming a little repetitive.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

I am grateful to you for that indication, Mr. Deputy Speaker.

In round terms, there are another dozen items on the list that the British Chambers of Commerce appears to say are unnecessary and burdensome restraints on the freedom to do business in the United Kingdom, and I agree to the extent that they are restraints on the freedom of business conduct in the United Kingdom. There are also restraints in the Bill. Many of those restraints are very desirable, and we should have them in a civilised society. We can and should debate whether we have too many restraints, but the implication of that list of 69 regulations or measures—some of the items were not even regulations—is that we are all over-regulated. I am glad when I get into a motor vehicle that it has things like seat belts and airbags fitted and so on. I am glad that we have the kind of regulations that are in the Bill to stop people using tax loopholes.

The right hon. Member for Wokingham talked about the idea that we can have a high-wage economy with low taxation. He cited Ireland—I have already made my remarks on Ireland—and the United States of America. He may well be absolutely right; I do not know enough about the tax regime in America, but I do know that, contrary to what many people believe, its regulatory system is quite burdensome on business, given its 52 jurisdictions, with the District of Columbia and the Federal Government. We would find some of its regulations byzantine. However, we can also have a relatively—I stress the word "relatively"—high-tax economy with high wages. We see that most notably—

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

Indeed. To simplify, Sweden, Denmark and Norway, which is, of course, not a member of the European Union—I am open to criticism, because I do not know all those countries intimately—all have high-wage, high-social- safety-net, high-taxation economies, and what do we find? On the UN's happiness index—I hope that hon. Members will forgive me, but I do not know exactly how that index is created by the UN—those countries, presumably on the basis of how happy people are there, come out higher on the smileometer than we do and higher than countries that have that wonderful, low-tax regime, because they have a social security net, which certainly all Labour Members and, I hope, all other hon. Members wish to see.

We must bear it in mind that the measures in the Bill—they are broadly decried by the two main Opposition parties, both of whom, I am saddened to know, have said they will vote against the Bill—are intended to make us more of a caring society, where we have continuing opportunity, prosperity, economic stability and dignity of work for those who can work. We are continuing to lay down the seedcorn for the future, by educating our young and giving them skills, as well as making training available to older people, particularly those who are not currently in work. That is the way we will counteract globalisation.

When I set it out in three sentences like that, I agree with the House that it sounds quite platitudinous. Often the simple things in life—the right things to do in life—are platitudinous. If one said, "I think that people should show respect for other people", I suspect that all right hon. and hon. Members would put up their hands and say, "Oh, yes, you should show respect for other people"—something that I passionately agree with—but it does sound platitudinous. However, the platitudes are sometimes worth saying. They do not come out of thin air, and simply talking the talk, as it is now called, is not sufficient.

The building blocks of a modern civilised society, as most hon. Members would call it, do not drop out of the sky. Unfortunately, some electors seem to think that they do, but they come about because of political decisions taken for ideological reasons by the Government, as manifested in things such as the Budget. That is not to say that the Budget and the Finance No. 2 Bill are perfect, but they are a concrete realisation of ideological positions taken by a majority of hon. Members. Unless there is such a concrete manifestation, it all remains talk. To talk is cheap, as we all know—although with the amount that we get paid, one could argue that it is expensive—and it must be put into action.

The Opposition are simply taking a few pot shots at the Bill, by saying, "Oh, we're not going to vote for it", knowing full well that, on past trends, it is very likely to pass tonight, because, fortunately, the Labour party, of which I am a long-standing member, has a majority. That is a cop-out by Opposition Members. The Bill is not perfect, but it contains a large number of measures that are steps forward on the road to building the kind of—for shorthand—Scandinavian economy and society that I should like to see in the United Kingdom; a route on which the Government have been engaged for the past nine years, and long may they continue on it.

Photo of George Young George Young Chair, Standards and Privileges Committee 7:08 pm, 24th April 2006

It is not so much a pleasure as a relief to follow Rob Marris. The beginning of his speech was very moving, when he spoke about green issues and the environment, and he carried the House with him in his remarks at the inception of his speech. With respect, he began to lose the House, as he plodded through a rather tedious list of regulations, but as he and I are both members of Friends of the Earth, I will spare my criticism of him. I was going to say that, as he exhibited some independence of thought, I wish that he might serve with me on the Standing Committee, but having listened to him speak for an hour, I am not quite so sure that I want to spend the next two months closeted in a Standing Committee with him. My remarks will last a small fraction of the time of the hon. Gentleman's.

It is some 10 years since I last spoke on a Finance Bill. As I was the then Financial Secretary to the Treasury, the Finance Act 1996 has my fingerprints all over it. I think that the Paymaster General served on that Standing Committee. It was the only Finance Bill that I had anything to do with. I was appalled by the complexity and the length of the Bill. For three months, I had a good understanding of what it was all about. That information has now sadly decayed. However, I recall some gentle banter from Labour Members about the size and complexity of the Bill. I revisited it: it had 408 pages. In the intervening 10 years, matters have deteriorated: the current Bill has 475 pages and the language is even less comprehensible than it was 10 years ago. I was relieved to find one clause that I could understand without turning to the explanatory notes. It was the last clause—clause 181—which states:

"This Act may be cited as the Finance Act 2006."

I want to focus my brief remarks on an area of the Bill that no one else—apart from, very briefly, the Chief Secretary—has touched on: clauses 103 to 146, which set up the real estate investment trusts or REITs. I refer to my interest in the register as a director of McCarthy and Stone, which builds retirement flats, which could end up within a REIT.

The first question that I want to ask the Government is: why has this modest reform taken so long? When we left office some 10 years ago, most of the spadework for REITs had been done. We consulted the Council of Mortgage Lenders, the British Property Federation and the City and the response was positive. There was all-party support for that sensible fiscal reform. There were models for it in other parts of the world. Indeed, this country had pioneered investment trusts and a REIT is, in effect, an investment trust for property. The transplant should have been straightforward and yet it will be nearly 10 years—1 January 2007—before we get the first REIT. I hope that whichever Minister makes the winding-up speech will have a plausible story to explain to the House why the reform has taken so long.

The second issue that I want to raise about REITs is more fundamental. There is a shortage of good housing in this country. Every constituency MP must know that there are people who need decent homes. The original thinking behind REITs was to promote investment in residential property. I remember because I was Housing Minister at the time the debate got under way in the mid-1990s. What we wanted was a vehicle to enable institutions and private investors to invest in property for rent, in the same way as they could invest in shares through an investment trust. At that stage, the vehicle was not called a REIT; it was called a HIT—a housing investment trust.

HITs were envisaged as the last stage of a series of reforms to promote the increased supply of good quality rented housing. We introduced assured shortholds to put tenancies on a viable basis. Once we had that underpinning the private rented sector, there was going to be a new fiscal framework to get serious, respectable, long-term institutional funds into property for rent. If quoted companies invested in rented property, that would bring institutional funds into a market that needed—and still needs—more supply, and private investors could buy shares in those companies. Also, institutions that find it difficult to get exposure to residential property in their portfolio would be able to do that through REITs.

The clauses contain the necessary changes to introduce that measure and I welcome that—it avoids double taxation. However, something has happened in the intervening period that I find very worrying. Instead of housing investment trusts, they are now real estate investment trusts. As I will show in a moment, the emphasis is very much on commercial property and the original idea, if not abandoned, is certainly no longer centre stage. There was never an equivalent argument for REITs for commercial property, compared with residential property. If one wants to invest in commercial property, there are listed property companies and one can do that with great ease. There is no shortage of institutional capital to invest in shops and offices, whereas in many parts of the country, as I said, we need more good quality new accommodation for rent.

Photo of Stephen Hesford Stephen Hesford PPS (Rt Hon Baroness Amos, President of the Council), Privy Council Office

I am somewhat confused by the point that the right hon. Gentleman is making. In terms of commercial property versus residential property, in my constituency, there has been a five-year fight to prevent McCarthy and Stone from developing a certain plot, because it is inappropriate development. Many of my constituents see McCarthy and Stone, and other companies like it, building property simply on a speculative basis. Many of those properties are built and remain empty for years after. I am surprised that he is speaking for a vehicle that would increase development, because I understood that his party's view is that the south-east should not be concreted over.

Photo of George Young George Young Chair, Standards and Privileges Committee

The hon. Gentleman has misunderstood the argument that I was trying to make. I believe that there is a shortage of good quality accommodation and I want to see more investment in it. I was trying to take the House through the original thinking behind housing investment trusts. The argument that I was developing was that what had been perceived initially as a vehicle for investment in residential property has now become a vehicle for investment in commercial property, where the underpinning argument of the need to increase supply is not so strong.

There was a warning signal two years ago when the then Financial Secretary, speaking about REITs, said:

"As I understand it, most of the underlying assets in the trusts will be commercial property rather than domestic housing, thus to the extent that REITS are successful and they promote the construction and development of commercial property, the impact on residential housing may be negative".

That was a rather worrying speech. She went on to refer to the comments of the British Property Federation, which said:

"The introduction of a UK REIT would provide a suitable, stable, relatively high-yielding savings and pensions orientated product enabling private investors to access the attraction of commercial property on a diversified basis".

The discussion paper on REITs, which was published a year ago, states:

"The Government is committed to reforms of the property market where they support the objective of raising productivity in the UK economy".

It continues:

"Such reform would be of particular benefit to the commercial property market".

Housing hardly gets a mention in the post-Budget comment on REITs. The Deloitte's Budget report states:

"The regime now proposed is significantly more flexible than the original proposals. It is likely to mean that the major listed UK property companies will convert to REIT status".

Those are not companies that happen to invest in housing. Googling away, I came across a comment from Property Secrets, which states that the Budget was

"a mixed bag with REITS bringing some cheer to the property industry".

The article continues:

"Property companies were delivered a surprise bonus".

It states that shares in property companies soared after fresh proposals on REITs.

I want the Government to tell me that they do not see the measure as simply a vehicle for investment in commercial property, with existing companies reversing into a new vehicle. I hope that they share my hope—and that it is shared by Stephen Hesford—that the measure will unlock serious, respectable, long-term money for investment in quality accommodation for rent.

I want to make one final point on REITs. When the concept was originally considered, there was concern that it should not simply be a new vehicle for existing property. Consideration was given to a requirement that, in order to qualify for a REIT, one would have to add to supply. Within the property market, there is a real risk that if one acts solely on the demand side, without doing anything about supply, one just pushes up the prices. The removal of double interest tax relief is a good example. I would be interested to know whether the Government have thought of there being a requirement to act on the supply side, as well as introducing this new vehicle on the demand side.

I just want to touch briefly on other subjects, including inheritance tax. I suspect that we have all had e-mails from constituents who are concerned at what they have read. The Sunday Times yesterday estimated that families will be forced to spend £340 million to rewrite their wills, even though the Government will raise only £15 million. I worked out that the Government will get more money from the VAT on the solicitors' fees from the people who have found out that they do not have to change their wills, than the £15 million that they will get from those who are caught by the measure.

Most people may not be affected, but they have to check. Indeed, before speaking in this debate, I had to contact my solicitor to see whether the modest arrangements that I have made for Lady Young were affected and whether I had an interest. Talking about the change, my solicitor said

"it was a bolt out of the blue, particularly as there had been lengthy consultations on other (minor) changes to the trust legislation. Many of the wills I have drafted will require review in the light of the law as is proposed, despite the Treasury claiming that a very small percentage of people are affected. I do not think that you are directly affected by the proposed changes."

We need to spend more time in Committee on that, but it appears to have caused a disproportionate amount of grief and ill will for a small amount of revenue. I thought that the Select Committee dealt with the matter rather tactfully in the report that came out today when it said:

"We are concerned that a legitimate measure designed to reduce tax avoidance may penalise trusts established to protect family members and consider that the issue merits further consideration."

It rightly says that the Government should provide more information.

The Chief Secretary said in his speech that it was an anomaly that 18-year-olds were not entitled to access trust money when they were 18. That might be his view, but many other people have a slightly different view about handing large sums to people when they are 18. The Government are basically saying that the Chief Secretary's interpretation of the responsibility of adolescence is that which should prevail and that anyone with a different view will be penalised for it.

Let me say a word on clause 13, which is on vehicle excise duty. The vehicle that brings me to the House each day is powered by an alternative fuel, but in addition to my bicycle, I own a band B car that will incur a reduced VED of £30. I share an interest in cycling with the hon. Member for Wolverhampton, South-West, whom I occasionally see at the bicycle shed.

If there is to be the administrative complication of a multi-rate VED, the differentials should be wider than they are at present. Clause 13(3) sets out three new rates for band G vehicles of £200, £210 and £215. Given that the total annual cost of running a band G car is presumably a five-figure sum, it is frankly absurd to have a VED rate with calibrations of £5. The market is not that sensitive, and the calibrations should be more widely spaced to justify the complication.

There is also an issue for farmers, and I say that as a rural Member. Some farmers in my constituency have to navigate unmade roads and need a band G car not to drive their children to school in west London, but to earn a living. If we are to have multiple grades and give out signals to deter unnecessary use, we need to think about farmers.

My hon. Friend Mrs. Villiers made a point about complexity in her excellent speech from the Front Bench. I disagree with the hon. Member for Wolverhampton, South-West because I think that the system is now so complicated that it is unstable. It is unsustainable to go on year after year with Finance Bills such as this, and we need a simpler system. I was interested to read what the Institute for Chartered Accountants said about our system:

"The UK tax system is spiralling out of democratic control . . . This compounds the complexity of a system which has developed in such a way that even highly numerate taxpayers are struggling to understand the tax implications of their actions."

My party has a clear strategy on that. We have set up a commission to introduce not only lower taxes, hopefully, but simpler, fairer and flatter taxes.

I did not hear from the Chief Secretary any vision of how to get out of the mess that we are in. When the Paymaster General winds up the debate, I hope that she will be able to say something about where the Government are going on this. Do they see no exit route from this series of Finance Bills and a bewildering system whereby not just the very rich and devious, but ordinary people, get caught up in the machinations of the tax system? It would be helpful if she would share with the House her thinking on the long-term strategy of how we introduce into this country a more sustainable, simpler and more comprehensible tax system than that which we are debating today.

Photo of Stephen Hesford Stephen Hesford PPS (Rt Hon Baroness Amos, President of the Council), Privy Council Office 7:23 pm, 24th April 2006

I should make a declaration to the House: this is the second Finance Bill on which I have spoken. I spoke on Second Reading of the Finance Bill last year, and a rude awakening came my way as a result of my speech. I thought that if one made a Second Reading speech on such a Bill, the normal course of things was that one went on to the Standing Committee, but I did not. What I said on that occasion clearly did not entirely meet with the House's approval. However, "If at first you don't succeed, try, try again," so this is my second attempt at speaking on a Finance Bill.

I said last year, as did Rev. Ian Paisley—I do not know whether he served on the Standing Committee either—that I was not an expert on these matters. I certainly give the same caution today. I spoke on measures in the Budget during the Budget debate. However, as that speech is on record I will not trespass on the House's attention by talking about those measures tonight. Instead I shall try, within order, to talk about the complex issues before us.

The shadow Chief Secretary, Mrs. Villiers, made an interesting speech similar to that made by her hon. Friend Mr. Hammond on last year's Finance Bill.

Photo of Theresa Villiers Theresa Villiers Shadow Chief Secretary to the Treasury

No, it was not the same speechwriter; I wrote my own speech.

Photo of Stephen Hesford Stephen Hesford PPS (Rt Hon Baroness Amos, President of the Council), Privy Council Office

That is excellent, but the hon. Lady might have written the other one, too.

Photo of Stephen Hesford Stephen Hesford PPS (Rt Hon Baroness Amos, President of the Council), Privy Council Office

I congratulate the hon. Lady on her industry.

The effect of the two speeches was the same. The hon. Member for Runnymede and Weybridge said last year that the Opposition welcomed many measures in the Bill, but would still vote against it—and the hon. Member for Chipping Barnet used exactly that phrase. The core of the speech did not become clear to me, or, as he made clear in his inimitable way, to my hon. Friend Rob Marris. As a result of my hon. Friend's performance, I may not be needed on the Standing Committee again, because all the vacancies will be filled by one person. I look forward to his performance in due course.

Photo of Stephen Hesford Stephen Hesford PPS (Rt Hon Baroness Amos, President of the Council), Privy Council Office

Surely not. I look forward to my hon. Friend continuing.

The hon. Member for Chipping Barnet did not tell us what she supported. She seemed to be using one of those throwaway phrases that seem convenient for the Opposition but are, in fact, very destructive. I urge Mr. Francois, who will wind up the debate for the Opposition, to find a constructive element. What measures in the Bill does the Conservative party support? If Conservative Members are honest with themselves, and, more particularly, with the House, they will say that there is a good deal in the Bill that they support. However, for tactical reasons, they do not want to admit that. If there are a good number of measures that they support, their reasoned amendment becomes less reasoned—opposition for opposition's sake.

I made an intervention on Mr. Redwood when he was talking about productivity. Mr. Gauke also intervened during the same passage of that speech. The right hon. Member for Wokingham accepted that productivity in the private sector was reasonable—I am paraphrasing him, so those were probably not his precise words—but said that that was not his point. He did not criticise private sector productivity when I put to him next year's putative growth rate, which will go up to about 2.75 per cent., which is above trend. He said that there was a problem with productivity in the public sector. I put to him the point, which he did not deal with, that it is very difficult to measure productivity in the public sector. The hon. Member for South-West Hertfordshire accepted that point in an earlier debate.

What point was the right hon. Gentleman making? I suppose that it may have been a cheap political point. He spoke of the crisis in the NHS—a phrase that I reject out of hand as a cheap, unsupportable gibe—but seemed to contradict himself by encapsulating in the crisis the idea of job losses in the public sector. I do not say that such job losses are an easy thing to deal with; we have all read the facts in the newspapers and heard them on the news, and we all have our own views on the matter. According to the right hon. Gentleman's own logic, however, if there are job losses in the public sector, that means by definition that the public sector is becoming more productive because there are fewer people working in it. I therefore have no idea what exact point he was making.

The right hon. Gentleman accepted that private sector productivity was good—I agree—but then confused his argument by pointing to the very fact that makes public sector productivity more likely than not. It seemed to me that the convoluted and overtly political point that he was making damaged his argument. It was rather cheap, and it is also rather representative of the poor arguments being made by the Opposition. Returning to my original point, is this opposition for opposition's sake, or are there serious issues to be discussed here?

That may become clearer in Committee, when the Bill will be looked at in detail, clause by clause. On Second Reading we are dealing with the principle. It seems to me that the principle governing this Bill, and many of the Bills that my right hon. Friend the Chancellor has brought to the House, is that it reverses the unfortunate, and sometimes tragic, history of the Treasury. I am talking about what is known as the dead hand of the Treasury. Traditionally, the Treasury was the Department that simply said no—"No, no, no." The Chancellor has made it clear that the Government cannot allow that, and now the Treasury has been part of the engine for reform. I welcome and applaud that, and I think that this Bill is an example of it.

I shall pick out a few clauses that show how the Treasury has ceased to be a dead hand and become an engine for change. Labour Members would certainly argue that we are in government precisely to be an engine for beneficial change. There are four areas in which the Bill makes such changes. The first three are social measures, deregulation and what I will simply call business-friendly measures, and anti-tax avoidance measures, which in an intervention I called fair taxation. It is only right that those subject to regulation by the Finance Bill should pay as the democratically elected Government say they should, rather than avoiding their social and economic responsibility as corporate or private citizens. The final category is that of green measures, about which many right hon. and hon. Members have spoken.

Health having been my main policy interest since I entered Parliament in 1997, I think that one of the major clauses is the one dealing with tobacco duty—clause 1. That might seem a routine Budget measure, but if we look at a range of Budgets, we see that it is not. Raising tobacco duty sends out the right message about tobacco consumption, as it is designed to do. It runs in parallel with a Department of Health measure, the White Paper "Smoking Kills", which sets out the number of avoidable deaths from smoking-related diseases per year. When the White Paper was being drafted, that figure was about 120,000, and I am happy to say that it is beginning to decline. It declines not by accident but through the Government expressing their will and taking a lead, and through the public being willing to follow that lead.

Making cigarettes more expensive and raising from 16 to 18 the age at which people can buy cigarettes—a measure that I understand is coming on stream—is all part of the direction of travel of social change and reform. It is effective in preventing children from starting smoking, which is the key. Evidence is beginning to emerge that such measures are effective, and I welcome that. We are also helping those who want to quit to do so.

Photo of Philip Dunne Philip Dunne Conservative, Ludlow

In view of the hon. Gentleman's valiant attempt to use excise duties as a means to introduce his specialist subject, the health service, does he agree that it was a considerable disappointment and surprise that the Chancellor, in his Budget speech, did not once mention the NHS?

Photo of Stephen Hesford Stephen Hesford PPS (Rt Hon Baroness Amos, President of the Council), Privy Council Office

If we are trading cheap remarks, I suppose that I could say to the hon. Gentleman that he has only just come into the Chamber and has not had the courtesy to take part in the debate. [Interruption.] Well, I must be blind then, because I have been sitting here.

Another measure dealing with smoking is the Health Bill, which has been through this House. The banning of smoking in public places, with its aim of employee protection, received overwhelming support in the House. It is another weapon in the armoury in the fight against smoking. I, and no doubt many right hon. and hon. Members, would like to see an anti-smoking ethos rather than a smoking ethos embedded in our society.

Clause 2 deals with a related but different issue—evasion of the duty on tobacco products. It has two consequences, and perhaps the House agrees with that. It is an anti-avoidance measure. It raises revenue on a product that revenue should be paid on. It also seeks to cut off an area of criminality. According to Her Majesty's Revenue and Customs figures, it is estimated that currently one in six cigarettes and half of all rolled tobacco consumed in this country is illegal. That cannot be right. The practice is dangerous and wrong, and duty should be paid, as it is by law-abiding citizens. As I understand it, the purpose of clause 2 is to oblige tobacco manufacturers to cease to produce tobacco in a way that facilitates smuggling.

It is rather surprising to come to terms with the fact that major international companies—major plcs—would do something that they know, or suspect, has the effect of facilitating smuggling. In a previous Parliament I was a member of the Health Committee, which, for obvious reasons, undertook a major inquiry into tobacco products. One of the outstanding things to emerge from that inquiry was the connection between tobacco production, marketing and the moving around of tobacco products. That facilitated smuggling. I would like to think that the Bill is dealing with that issue.

On the back of the Health Committee report in 1999, the DTI started an investigation into several major UK and other national tobacco manufacturers, known as "big tobacco". I welcome clause 2. It is estimated that if the anti-avoidance scheme comes into operation it will prevent big tobacco from making between £33 million and £55 million a year by unjust enrichment, and by not complying with duties.

I shall briefly mention clause 13. I welcome my right hon. Friend the Chancellor of the Exchequer making vehicle excise duty a green issue, so the gas guzzlers pay, to encourage the use of smaller cars.

Photo of Rob Flello Rob Flello Labour, Stoke-on-Trent South

I offer my humble apologies for not being in the Chamber earlier to listen to a fascinating debate; I was detained elsewhere. I would like to take up the point about unjust enrichment and the tobacco companies making profits, on which no duty is paid. Does my hon. Friend agree that the situation is perverse, in that people become ill through the use of tobacco products and then use the national health service, which illegally imported tobacco deprives of funding? Therefore, there is a double whammy in terms of people suffering and having to use the NHS when there is not the money to support their treatment.

Photo of Stephen Hesford Stephen Hesford PPS (Rt Hon Baroness Amos, President of the Council), Privy Council Office

I agree. My hon. Friend makes the point and the House has heard it: there is that unholy link between evasion and cost. There is a willingness to deal with a product that inflicts costs on society, but not a willingness to pay the associated dues.

The Finance Bill is complex, and deals with what might be considered arcane issues. Clause 17 deals with value added tax on buildings and land. Such small measures are precisely the sort of provisions set out in what has been criticised as an over-lengthy Bill—but they are measures to which the Chancellor should be directing his attention. I understand that clause 17, in a small way, rests in the category of business-friendly deregulation. It defines the law governing VAT on certain land transactions, making a complex area more business-friendly and more easily understood. I understand that the business community has gone out of its way to welcome the clause; I too welcome it.

I do not agree that this is an over-lengthy Bill. It is clear to me that there are many measures within it worthy of mention; I will not detain the House by detailing them all, but I shall pick out three or four, and I am sure that other hon. Members could pick out other provisions at their leisure. For example, clause 19 is an anti-VAT fraud measure. Missing trader intra-community fraud is, I understand, a significant VAT avoidance fraud. It is highly sophisticated, and a well- organised criminal attack on VAT. The clause seeks to remove that criminal activity. I welcome that, and support the provision.

Clause 25 comes under my heading of business-friendly deregulation. It simplifies corporation tax for small businesses without, as I understand it, placing any additional burden on small businesses to access that element of deregulation.

Clause 28 is also a business-friendly tax measure. It is designed to reduce tax on research and development costs. It will reduce the tax element on R and D in a particular industry that has significance in the area that I represent—the pharmaceutical industry, which is one of our major manufacturing industries. It remains in the UK because of the climate that my right hon. Friend the Paymaster General and others have gone out of their way to create and facilitate. The clause is an additional small measure that helps a business-friendly climate for the pharmaceutical industry to continue.

There is clearly a benefit for our constituents. They may not understand what large companies do or even know their identity, but such companies have a beneficial effect for every constituent who is represented in this place. I am talking about new cancer drugs coming on stream. Some such drugs are being developed in Liverpool, just across the water from my constituency. A number of my constituents work in the pharmaceutical industry, and they do a very good job in producing those new products.

I ask, rhetorically, why clause 28 has not been presented to the House before. It is about tax relief for costs incurred by pharmaceutical companies in recruiting volunteers for trials. That seems to be an eminently suitable measure, which will encourage research and development.

Chapter 3, which consists of clauses 31 to 53, deals, as other hon. Members have said, with film financing. The Opposition have a different view about how the provisions will work and why they have been included, but they rewrite the relevant taxation so that it is business-friendly for the film industry. I certainly support the Chancellor's aim of encouraging a vibrant British film industry; small-scale independent companies that air their films on Channel 4 will benefit, as will large- budget films.

Clause 62 is a social measure that falls within the four parameters that I set at the beginning of my speech.

Photo of Stephen Hesford Stephen Hesford PPS (Rt Hon Baroness Amos, President of the Council), Privy Council Office

My hon. Friend is anticipating me by referring to the fact that that small provision exempts from taxation facilities provided by companies that offer eye tests for people who work with visual display units. That is an eminently sensible social measure.

Finally, clause 172 deals with the climate change levy, about which many right hon. and hon. Members have spoken in detail. I welcome the fact that the Chancellor has included an uprating in the Bill, which makes the climate change levy more effective, keeping pace with the cost of fuel and so on. However, two political points need to be made. First, as was said in the Budget debate, Opposition Members do not support the levy, which is surprising. As I said at the outset, we need to identify the issues on which we can all agree. Opposition Members do not agree with the levy on principle, and they do not agree with the uprating.

Photo of David Taylor David Taylor Labour, North West Leicestershire

The building materials industry in my constituency does not oppose the principle of the climate change levy, but it is concerned about the fact that it continues to be ratcheted up. It believes that a climate change agreement with more substantial penalties for breaches would be more effective, both fiscally and economically.

Photo of Stephen Hesford Stephen Hesford PPS (Rt Hon Baroness Amos, President of the Council), Privy Council Office

My right hon. Friend the Paymaster General has heard my hon. Friend's suggestion, so I am sure that she will take it into account.

There is a second, equally sharp divide between the Government and the Opposition. My right hon. Friend the Chancellor of the Exchequer introduced the climate change levy in 2000. It is not something that he thought up in the summer as part of a leadership election campaign. It is not something that he thought up after the manifesto for the 2005 election was written, only to reject it because he thought he had to appeal to a different audience. In contrast to the Leader of the Opposition, he embraced such policies at the beginning of the century by introducing a measure that, year on year, has helped us to meet the Kyoto targets. If the Opposition abolished the climate change levy I do not know how they would make good the deficiency. They criticise us for not making progress on climate change, but I have yet to hear how they would do so. The levy is an extremely effective measure that is responsible for removing 28 tonnes of CO 2 emissions a year, so I am delighted that it is uprated in the Bill.

Record numbers of my constituents are in work, and their wages are higher than they were when we came to power. More of my constituents own their own homes than was the case in 1997. The Bill introduces green and social measures, as well as fiscal responsibility, fair taxation and business-friendly measures. My constituents will benefit from it, as they have done in previous years from previous Finance Bills.

Photo of Peter Viggers Peter Viggers Conservative, Gosport 7:56 pm, 24th April 2006

I am grateful for the opportunity to contribute to our debate. It has gradually become apparent to me in the past hour or two that, amazingly, a Government with a large majority do not have Members who wish to speak up for the Bill in the House of Commons. I am aware of the parliamentary in-joke that the best way of keeping a secret is to make a speech on the subject in the Chamber between 7 and 9 pm, but it is surprising that the Government do not have Members who are anxious to support them. Personally, I am not surprised, because this is a nasty little Budget implemented by a huge, horrid Finance Bill of 475 pages. That does not include the explanatory notes, which comprise about 600 pages.

That represents a continuation of Government practice. They are good at spending taxpayers' money, but not so good at recognising the need to encourage and stimulate efforts to create wealth in our community. I am not surprised that Stephen Hesford was concerned about productivity in the public sector. We can measure productivity in the private sector and we are concerned about it. Given all the money that is spent on the public sector—millions of pounds have gone in—and given that there is reorganisation after reorganisation, with hundreds of skilled workers being laid off and national health service waiting lists increasing, Government Members had to fight hard to say that public sector productivity is good. However, we can measure what goes in and we can see what comes out or what is achieved, so we know that that is not the case.

Overall, the world is doing very well, with dramatic growth, but our comparative position is less good. Globalisation is of massive benefit worldwide, and allows low-wage economies to manufacture, produce and distribute goods cheaply, so that they and their markets benefit. Transport improvements and low agricultural costs provide worldwide easy access to food markets, so that good, cheap food can be readily distributed. The availability of tourism leads to the sharing of benefits and access to capital markets means that London has benefited enormously as the leading market in many financial operations, including foreign exchange. It is therefore not surprising that the International Monetary Fund global growth forecast has just been upgraded from 4.3 per cent to 4.9 per cent. next year. This year, growth is 4.8 per cent., and last year it was 5.3 per cent. Internationally, the signs are extremely good.

Photo of David Taylor David Taylor Labour, North West Leicestershire

The hon. Gentleman is describing globalisation as an unalloyed good, in a way, but does he accept that it is grinding into poverty many countries in the least well-off quintile of countries on the globe in the absence of fair trade, rather than the free trade that often exists? Does he accept that there are constraints and caveats in respect of what he has said about globalisation?

Photo of Peter Viggers Peter Viggers Conservative, Gosport

It is interesting that the hon. Gentleman referred to less-developed countries. China's growth has been 9.5 per cent. in the past year and India's growth has been 7.3 per cent., while sub-Saharan Africa has had two years of growth rates above 5 per cent. This year, the growth rate in sub-Saharan Africa is 6 per cent., which is the best for 30 years. It is possible for growth to be shared and spread.

I take the point that there are many countries whose populations have not benefited immediately from globalisation, but I maintain that one of the main reasons they have not shared in the benefits is that their Governments are corrupt and fail to allow the benefits to be shared. I do not believe that protectionism is the answer. I believe in fair trade and the growth of trade, and I urge that more effort be devoted to ensuring that the benefits are shared well among the populations in less-developed countries. That means bringing pressure to bear on their Governments, many of whom are seriously corrupt and remove prosperity from those countries.

Compared with that worldwide prosperity, what is our position—the position about which the Chancellor of the Exchequer preens himself so much, with glutinous self-satisfaction? Last year, our growth rate was 1.8 per cent., and this year may be as much as 2.5 per cent., but there are some bad signs around. Unemployment is up by a quarter percentage point to about 5 per cent., and business investment, which is a key number,

"has been very weak in the last year or two and weaker than we had expected and weaker than we find it entirely easy to explain".

That is a quotation from the Governor of the Bank of England, speaking, I think, to the Treasury Select Committee. Business investment has not been good. The situation in this country is not as good as in much of the rest of the world, because the Chancellor of the Exchequer and the Government fail to realise the key importance of the private sector and the growth-making part of the economy.

Has the Chancellor done everything wrong? Of course not. He has done four things right. First, he set up the Monetary Policy Committee to set interest rates, and it has been very successful in holding down interest rates in this country. Secondly, he has not joined the euro. Increasingly, the inflexibility of the euro has been unhelpful to its members. For example, Italy's unit labour costs have risen by 20 per cent. relative to those of Germany, while its exporters are more vulnerable to low-cost producers. Last week, the Lex column of the Financial Times said:

"Italy's departure from the European Monetary Union has a very low probability", but it went on to talk about what would happen if Italy were to come out of the European monetary union. The collapse of the euro cannot be utterly and completely ruled out.

The third thing that the Chancellor has got right is following for his first few years the public spending plans of the former Chancellor of the Exchequer, my right hon. and learned Friend Mr. Clarke. Fourthly, the Chancellor promised independence for the Office for National Statistics, which I think would be very beneficial. I have myself seen from within the Treasury the way in which statistics can be used selectively by many people, including the Treasury.

What has the Chancellor got wrong? Here, there is a much longer list. The first thing that he has got seriously wrong is a high level of taxation. If we look at the European model of taxation and its lack of growth, and at the social costs of employment in much of Europe, we can see that that economy has failed to grow because it has not had the flexibility and freedom of much of the rest of the world. Taxes and red tape are the things for which this Chancellor of the Exchequer will be remembered. The tax to GDP ratio is forecast to stabilise at about 38.7 per cent. from 2007 onwards. That is quite high. The Treasury Committee was told in evidence that in 1997 the UK would have been about

"a third of the way up a table comparing tax across the industrialised nations", and now we are approaching halfway, so we are over-taxed.

That is unhelpful, but perhaps even more damaging than over-taxation is insidious Government intrusion through micro-management and means-testing. A very great deal of the Bill is micro-management and the piling of detail upon detail. No wonder there is incompetence in the national health service, for example, when reorganisation follows reorganisation. Scarcely is one structure in place before it is reorganised again. I maintain that Government intrusion is, if anything, even more damaging than high levels of taxation.

That follows when a Government have very little experience or understanding of business or management. I drove the Financial Secretary to distraction during the Budget debate, when he screamed at me that I was criticising charity workers. I am not criticising any part of our community—teachers, charity workers, people who care for the elderly, Members of Parliament or members of the armed forces—when I say that the fact is that they do not add to national growth. What the Government should do, but do not do, is recognise the unique contribution made by those who contribute to national growth.

The third major blunder made by the Chancellor—he was told at the time, but ignored it and carried on—was to sell gold. He sold 395 metric tonnes to raise $3.5 billion, and the current value of the gold that was sold is $7.9 billion—a loss of $4.4 billion. He was told at the time that it was a bad mistake by many people, including me, but he did it anyway.

The fourth blunder is in pensions. Some people lay all the responsibility with the Chancellor of the Exchequer, but I do not think that that is fair. The main fault in pensions is longevity, on which the actuarial profession was asleep on watch and failed to realise that it was using outdated models and that pension funds would not match their requirements. The second reason for failure in pensions is stock exchange weakness. Thirdly, there were changes in pension funding and accountancy requirements, and in long-term bond interest rates. Fourthly, it was of course the Chancellor of the Exchequer who, instead of seeing that the pensions industry was facing a major problem, came blundering in with the £3 billion a year net impost on pension funds from 1997 onwards. He has caused what must be described as a pension crisis.

The fifth area in which the Chancellor of the Exchequer has got it wrong and there is a mistake in the Bill is environmental taxes, which have fallen as a proportion of overall tax in every year since 1999 except 2002. In 1999, environmental taxes amounted to 9.8 per cent., while in 2004 they amounted to 8.3 per cent. Tax receipts from air passenger duty have fallen from £931 million to £856 million, while chargeable passenger miles have increased by 35 per cent., at a time when greenhouse gas emissions have increased by 10 per cent. That is another mistake.

My final point is about trusts. What on earth has the Chancellor been playing at? There was a brief reference in the Budget, but when we get to the Finance Bill, we see clause 157, as implemented by schedule 20, which is 18 pages long. The Chancellor says that he is seeking to prevent tax avoidance in accumulation and maintenance trusts, and in interest in possession trusts. He said that that is a tiny proportion of the top 1 per cent. and that it is expected to raise £15 million a year. In trying to reassure people on that point, a Treasury official stated:

"no one who wrote a life insurance policy into trust before Budget Day will have to pay an inheritance tax charge."

There is massive uncertainty as to how many trusts will be involved.

Many years ago, I was a solicitor. I am still a solicitor by qualification and still on the solicitors' roll, although I would not dare to conduct a legal action because I am rusty. When I wrote wills, with the exception of the occasional kindly, elderly person who wanted to make a special gift to a home of some kind, every single one included a trust. The standard procedure is that one leaves one's money to one's wife, husband or partner, or, failing that, to one's children. If one is predeceased by one's children, then the money is distributed per stirpes, and the child who has been left an orphan shares a proportion of the benefit of the money left, which means that a trust is invented. In almost every case, the testator, on advice, wants to leave the money to the young person so that it is inherited at 25, not 18.

When the Chief Secretary discussed his vision of when adulthood starts, he pointed out that people can serve their Queen when they are 18. I know, because I have been there and done that, but the fact is that there is a big difference between succeeding to funds at 18 and succeeding to funds at 25. For instance, if one examines insurance rates for motor vehicles, the insurance rate for under-25s is much higher than other rates, because insurance companies know that younger people live a different kind of lifestyle and that, when they reach the age of 25, they tend to mature and adopt a rather more mature lifestyle.

The Government are wrong to say that inheritance must take place at 18, because the law will mean that the only way in which to avoid taxation is to allow beneficiaries to take control at the age of 18. I see that as a malicious attempt to prevent inheritance which will ensure that inheritance will be squandered. In my experience—this point does not apply to my family, because we do not have that kind of money—more young lives are damaged, sometimes irreparably, by the receipt of money at the age of 18 than they are when money is received later in life. Far more young people go wrong because of too much money rather than not enough money.

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

As the hon. Gentleman said, one can serve one's country in the armed forces at the age of 18, when one can also get married, start a business and vote. Insurance policies are but one example of what people can inherit, and many people who are younger than 25 inherit outside a trust. Will he adduce examples and evidence on those who inherit at 18, 19, 20, 21, 22, 23, 24 or 25, which, I believe, is the age of Julia Goldsworthy? Is he suggesting that 25 is an inappropriate age, and where is the evidence suggesting otherwise?

Photo of Peter Viggers Peter Viggers Conservative, Gosport

The argument is subjective—I believe one thing and the right hon. Lady believes something else—but I know from my experience that 18 is too young an age at which to inherit and that 25 is a more mature age. When I was in private practice, I used to discuss those issues. The point about insurance premiums on vehicles is important, because it is a clear and objective statement by insurance companies that they regard hazards to younger people as being much greater than those faced by others.

Photo of David Gauke David Gauke Conservative, South West Hertfordshire

Why should it not be for the parent or grandparent to decide the age rather than for the Government? It is not the Government's decision to make.

Photo of Peter Viggers Peter Viggers Conservative, Gosport

My hon. Friend has wide experience in such matters, and he has made an effective point for which I am grateful.

Although the Paymaster General has sought to clarify the rules proposed in the Finance Bill, I put it to her that they are currently unclear. The Treasury may think that the rules are clear, but the profession—those who write insurance policies and those who write wills and trusts—does not know exactly what to expect. Much more clarification is required before the Standing Committee reaches clause 157 and schedule 20. The Treasury Committee has also made that point, and, regardless of what else they do, I hope that the Government accept it. The Government say that the measure will provide £15 million a year, but by my understanding every will must be rewritten, so it is essential that the matter is clarified.

In conclusion, this is a nasty little Budget that will be implemented by a horrid, huge Finance Bill.

Photo of Richard Taylor Richard Taylor Independent, Wyre Forest 8:16 pm, 24th April 2006

About two hours ago, I was despairing at ever being called to speak in this debate. In the 61st minute of the contribution by Rob Marris, I finally heard something that I agree with—he said that the Finance Bill is not perfect.

Like other hon. Members, I welcome some aspects of the Bill, such as the increase in tobacco duty, the measures to address tobacco smuggling, the clampdown on intra-community fraud, the independence of the Office for National Statistics and, as long as they are as fair to our industries as they are to industries on the continent, the measures to control emissions. However, I bemoan the complexity of the Bill, which will make me vote against Second Reading because I am not that confident that the Standing Committee will make it, in the word of the hon. Member for Wolverhampton, South-West, "perfect".

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

I invite the hon. Gentleman to join the Committee, in which case he could try to keep us in order and see that we properly scrutinise the Bill.

Photo of Richard Taylor Richard Taylor Independent, Wyre Forest

I am grateful to the right hon. Lady for that offer, which I shall consider, but I suspect that my name will need to be put forward by someone else.

I am delighted that hon. Members on both sides of the House have mentioned the national health service, because I was wondering how I could drag the NHS into this debate. Mr. Henderson has mentioned more investment in medical technology. For example, there is a complete lack of proton beam therapy for spinal tumours in this country, and we are still sending people to Boston in the States, to Paris and to Switzerland.

Mr. Redwood mentioned NHS deficits, and an example was mentioned to me today. As a consequence of NHS deficits and the mismanagement of Herceptin, a cancer network in the midlands has had to freeze the use of one of its four linear accelerators for the treatment of cancer to reserve money for Herceptin.

I am going to speak mostly about clause 157 and schedule 20. I am not as fortunate as Sir George Young, in that I have to declare an interest because I am sure that a trust that I have set up is caught by the Bill.

I do not regard myself as one of the super-rich—I am an inhabitant of middle England in every sense of the term—yet I believe that I am caught by this provision. Those of us who saw the list of the 1,000 super-rich in The Sunday Times yesterday and were appalled that such a high proportion of them made their money in the gambling industry have no objection to such people being caught for extra taxation.

An accountant who is a constituent of mine wrote to me on behalf of a large number of clients of his firm, many of whom are also my constituents. Many hon. Members made his point very well, but I will quote him because he puts it so succinctly:

"These proposals will force my clients either to rearrange the perfectly legitimate steps they have taken to safeguard their children's futures (with all the costs that this will entail), or, they will be forced to distribute trust funds to their children at 18—providing them with access to significant funds at an early age."

I agree with Mr. Gauke, who intervened on Peter Viggers to say that this is a family decision and that parents and grandparents should know at what age they think that their children and grandchildren can take on this large responsibility.

I wrote to my constituent for details, and he told me that 35,000 clients of this particular group are likely to be caught by the provision. When I asked whether they were the sort of people who are the middle rich from middle England, he said:

"Such a client might typically own a house worth say £400,000 and have other assets amounting to a further £400,000—hardly in the category of the super rich but nevertheless faced with a significant potential IHT liability. His/her income upon retirement is likely to be modest compared with income whilst in work."

He went on:

"My point is that the creation of trusts of this nature is sensible and legitimate tax planning and not primarily tax avoidance and is carried out by a large section of the population who have prudently saved throughout their lifetime as surely they should be encouraged to do."

It is the retrospective nature of this threatened legislation that makes it so extraordinarily difficult. Julie Morrison of Ernst and Young writes:

"The Chancellor has spoken of alleviating the inheritance tax burden for middle-income families yet is penalising those who thought they had a secured a future for their family. The measure is retrospective for many trusts, laying to waste . . . carefully laid plans".

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

I am listening carefully to the hon. Gentleman's argument. He seems to be saying that those who made plans not to pay inheritance tax as the rules require should be allowed not to pay that tax, whereas the vast majority of people pay it if they are liable, although only about 6 per cent. of estates pay it over the threshold of £285,000. I do not know how many of his constituents have assets of £800,000—the figure that he quoted—but why does he think that that amount should be sheltered from inheritance tax?

Photo of Richard Taylor Richard Taylor Independent, Wyre Forest

I intend to explain why and where these people should be taxed. I object to the fact that the retrospective nature of the provision means that people have not taken it into account.

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

As the hon. Gentleman will know, inheritance tax is paid only on death, so the idea that it is retrospective—that we are going back to people who have already died—is clearly preposterous. The Bill is clear in terms of the protection that it offers. I put it to him again: why does he believe that £800,000 or more should be sheltered from inheritance tax?

Photo of Richard Taylor Richard Taylor Independent, Wyre Forest

I do not think that the Minister quite understands what I mean by retrospective—perhaps I put it badly. One needs to be able to change something that one has done in the knowledge that the rules were in a certain form. The fact that having to do that now will cost a great deal of money—a great deal more than will be raised—makes it undesirable, to say the least.

Photo of Rob Flello Rob Flello Labour, Stoke-on-Trent South

When, in my dim and shady past, I was a tax adviser, it was commonplace for the legal profession, with whom we worked, to say that clients should review their wills every couple of years anyway and rewrite them if necessary, which is what happened regularly. Does the hon. Gentleman recognise that scenario?

Photo of Richard Taylor Richard Taylor Independent, Wyre Forest

Yes, people do keep their wills up to date, and this will force them to do so.

I am an avid supporter of a tax-funded NHS. I am not altogether surprised by the Chancellor's lack of mention of the NHS in the Budget, because having put so much extra money into the NHS, there is a tacit admission that the deficits are in large part due to mismanagement by the Department of Health. If it was my decision, I would abolish some of the charges in the NHS.

Photo of Rob Flello Rob Flello Labour, Stoke-on-Trent South

Today, the Audit Commission issued a public interest report saying that in my part of the country, the mismanagement was very much a local issue and nothing to do with the Department of Health.

Photo of Richard Taylor Richard Taylor Independent, Wyre Forest

There was probably local mismanagement in some areas, but the larger problem arises centrally as a result of the top-down reforms and changes that have been repeatedly inflicted on the NHS and, in many cases, not costed accurately.

I was about to revert to the Paymaster General's point and outline some ways in which the middle rich should pay more. It is ridiculous that they receive the winter payments, which they do not need. Postmen know exactly what is in the mail that they deliver and my postman made wry comments that made it clear that he did not believe that I deserved my winter payments. It is ridiculous for the super-rich and the middle rich to receive free prescriptions for which they could pay. In the public meetings during the Health Committee inquiry, it was clearly told that the only way effectively to replace the money that would be lost through banning prescription charges was increased taxation. Increasing income tax would be the only genuinely fair method.

I should like to take hon. Members a little way back in history. Political historians and some people of my age will remember Stafford Cripps, Clement Attlee's extreme left Chancellor of 1947–50. They may remember that, when he was ambassador to Russia, Churchill wrote to Stalin of him:

"His chest is a cage in which two squirrels are at war, his conscience and his career".

I wonder whether there are squirrels at war in our current Chancellor. I shall not guess about that because it may be unparliamentary. However, when Stafford Cripps rejoined the Labour party and was appointed Chancellor, he instituted a capital levy, which hit the super-rich. I do not suggest that we should return to that, but perhaps it would be more acceptable than the back-door, backdated proposal, which may hit surviving spouses or partners with a triple whammy of unexpected tax unless their spouse or partner is among those who are aware and can make the changes.

If an unacceptable loophole for the middle rich is perceived, by all means close it. However, I plead with the Government not to make such action retrospective. I join other hon. Members in appealing for an increase in the threshold for inheritance tax commensurate with the rise in house values.

Photo of Jeremy Wright Jeremy Wright Conservative, Rugby and Kenilworth 8:31 pm, 24th April 2006

I want to start by accepting the invitation of Stephen Hesford and by being as positive as I can, at least at the outset of my hopefully brief contribution. I shall consider aspects of the Bill that I welcome and believe to be positive.

The Government have shown their intent to penalise, through vehicle excise duty, vehicles that are the most heavily polluting—a worthwhile aim. It is also worth while to pursue a 0 per cent. rate for the least polluting vehicles. It would be an even more generous offer if any such vehicles were available but, none the less, I commend the intent.

Like the hon. Member for Wirral, West, I welcome the news that the Government intend to tackle the serious and growing problem of intra-EU missing trader frauds. I approach the matter from a former legal perspective, and I have seen first hand the way in which those frauds have grown. It is important that the Government take action to make such fraud less attractive and feasible. I am glad that they are attempting to do that.

I also welcome the Government's attempts to support research and development, which is so important. I accept that the tax relief offered to those who conduct such activity is welcome. However, tax relief on research and development and aspects thereof is valuable only if the financial benefit that can be gained is not outweighed by the administrative effort necessary to obtain it. Ministers know that a great deal of time is already lost, and that there is already huge pressure on those who conduct research and development to complete all the administration involved. Not only are domestic rules to blame. For example, the European clinical trials directive must accept much of the blame. However, the Government can do more, not only by offering greater, but— crucially—simpler tax relief.

What is true for research and development also applies more generally and I revert to the theme that many hon. Members have raised. The tax system that the Chancellor created is buckling under the weight of its refinements. The system's complexity goes beyond simply causing inconvenience. It now risks damaging the welfare of not only our businesses but the most vulnerable in our society. Businesses, especially small businesses, in my constituency—and, I suspect, those of many other hon. Members—spend far too much of their time trying to calculate their financial obligation to the state. That time could be spent much more profitably on generating wealth and employment which would go towards the sustenance of the state in any case.

I am glad to see the Paymaster General in her place this evening, because she is the Minister responsible for the Government's efforts to assist the most vulnerable people in the tax system through tax credits. I cannot be the only Member of the House whose postbag is full of complaints from those who have been overpaid, underpaid or in some other way wrongly paid through the tax credit system—indeed, I know that I am not; I recall Julia Goldsworthy saying that she had a similar problem. The problem is that the mistakes that the system has made cannot be corrected, sometimes for months or even longer, because even those employed by the Government to run the system cannot find their way through the maze of rules and regulations that the Government have created. The difficulty experienced by my constituents is that the complexity of the system is not helping those who most need its help.


The Government have shown their intent to penalise, through vehicle excise duty, vehicles that are the most heavily polluting. That is a worthwhile aim. It is also worth while to pursue a 0 per cent. rate for the least polluting vehicles.

It's almost entirely pointless. The VED (ranging from 0 to 200 quid) is insignificant when compared to the difference in the cost to by fuel for an economical car and a gas-guzzler. If you want to tax pollution, you can easily do so by increasing the tax on fuel - someone with a Toyota Prius who drives around on pointless journeys all day is far worse for the environment than someone with a big old Jaguar on his drive who walks and cycles.

Submitted by Sam Evans

Photo of Sally Keeble Sally Keeble Labour, Northampton North

Does the hon. Gentleman not recognise that the tax credit system has taken millions of children out of poverty and made it possible for many women to go back to work? Will he not also acknowledge that the Chancellor's Budget proposals will take away some of the difficulties that the system has encountered?

Photo of Jeremy Wright Jeremy Wright Conservative, Rugby and Kenilworth

I recognise the Government's intent in establishing the tax credit system. However, I am afraid that the Chancellor cannot resist the inclination to add layer upon layer of complexity to everything that he does. That is why the Government's very worthwhile intent—I entirely accept the hon. Lady's point on that—is being consistently undermined by what they are actually engaged in doing.

I shall give the hon. Lady an example. I have a constituent who has contacted me a number of times. She is being repeatedly overpaid by the tax credit system, and she has repeatedly contacted the tax credit offices to tell them that that is happening. Their response is to say, "We know you're being overpaid repeatedly, but we can't fix the system so that you will stop being overpaid repeatedly." That ridiculous state of affairs, of which the Government should be thoroughly ashamed, has been brought about by an over-complex system. My constituents would have been delighted to see a simplification of the tax regime in the Finance Bill. Instead, however, it is once again being made more complicated.

But the situation is even worse than that. Despite the Bill's 475 pages, 181 clauses and 25 schedules, certain measures are still missing from it, including any genuine attempt to assist first-time buyers. I am sorry to have to tell the Government that an increase in the stamp duty threshold from £120,000 to £125,000 will do precisely nothing to bring the dream of home ownership any nearer for those I represent in Rugby and Kenilworth.

There is no mention in the Bill of what the Government are going to do about NHS deficits, or about restoring incentives to save for one's retirement, which is a huge problem entirely of the Government's own making, as my hon. Friend Peter Viggers has already made clear. Nor is there any mention of an extra £200 to assist pensioners, as I pointed out earlier in an intervention on the Chief Secretary. Pensioners' need for Government support has not changed; in fact, it has grown in relation to assistance with paying their council tax. All that has happened is that the Government's need for pensioners' support has changed this year, compared with last year, and the Government have quite cynically removed that assistance from them. There has been no credible explanation for that decision.

I agree wholeheartedly with the hon. Member for Falmouth and Camborne that the Budget presented an opportunity to assist first-time buyers, pensioners and even the NHS. It was certainly an opportunity to make the tax system and the tax benefits system simpler, and thereby more effective. In every respect, however, it was an opportunity missed.

Photo of Stewart Hosie Stewart Hosie Shadow Spokesperson (Women), Shadow Spokesperson (Home Affairs), Shadow Spokesperson (Treasury) 8:39 pm, 24th April 2006

We have heard again about the Bill's length, which, at 475 pages, is no doubt to give the impression of action on tax and the economy. Many of its clauses, however, do nothing of the sort. Many clauses tinker round the edges of issues rather than addressing them fundamentally, others are simply damaging and unnecessary, and at least one is at odds with what the Chancellor said only a few short months ago and shows confusion in the heart of the Treasury.

I will deal first with clauses 6 and 7 on hydrocarbon oil duty. For the consumer, in the real world, fuel prices are rising inexorably. In parts of Scotland, a litre of diesel or unleaded has now crashed through the £1 barrier. Surely that was the time to introduce a sensible fuel price regulatory system, which would be sufficiently sensitive to moderate fuel prices at the pump at times of high world oil prices, rather than simply to increase oil duties as normal, notwithstanding that the rises will not come into effect until September.

Along with the expected and unfettered rise in fuel duty, car owners will be affected by the changes in clause 13 to vehicle excise duty. The Scottish National party broadly welcomes changes that make vehicles with heavy CO 2 emissions more expensive to run, particularly if they offer a real disincentive to unnecessary use of such vehicles. At the top end of the scale, however, there is almost no disincentive whatever. The other side of the argument is that the Treasury must surely recognise and understand the massive difference between a working four-wheel-drive vehicle taking animal feed up a snowy field in late spring to early lambs and a "Chelsea tractor" sitting outside a posh flat in Kensington. I hope that the Government will at some point accept an amendment that will force them at least to report on the Bill's impact on working vehicles, whether four-wheel drives on hill farms or Land Rovers or other four-wheel-drive vehicles used, for example, in mountain rescue.

Clause 26 removes the small companies relief. Corporation tax was charged at 0 per cent. up to £10,000. At £10,000, there is marginal relief at 19 400ths up to £50,000 at which the business rate of 19 per cent. applies. The small business rate applies up to £300,000, with marginal relief up to £1.5 million, calculated at 11 400ths. Clause 26 abolishes the starting rate. The policy is described on page 190 of the Red Book as "tackling tax motivated incorporation", and will cost £50 million this year but produce revenue for the Government of £390 million in 2007–08 and £530 million the year after. It might be a positive disincentive to incorporation—the reason why the 0 per cent. rate was introduced in the first place—but I suspect that it will also feel like a disincentive to start and incorporate any business taken alongside the additional burdens of the higher business rate in Scotland and, for many small businesses, rocketing fuel costs.

Clause 30, however, on first-year allowances for small enterprises, appears to assist and provide an incentive for small companies. It was first announced in the pre-Budget report in 2005, and increases the rate from 40 per cent. to 50 per cent. for one year from April 2006. In December, the Chancellor estimated that 4.2 million businesses would benefit. However, the Red Book shows the estimated cost to be nothing for this year and £60 million for 2007–08, with a yield of £15 million in 2008–9. For 2007–08, if there is a cost of £60 million, and assistance to the value of £60 million, the average benefit to the 4.2 million businesses would be £14.28. I wonder what might be the cost of a small business's accountant achieving additional relief of some £14.

Clause 61 has been mentioned by many Members, and is described in the lobby briefing as repealing

"the exemption for computer equipment made available to employees for private use".

That brief sentence masks the report on the BBC on 26 March suggesting that some 2,000 people could lose their jobs after the Government pulled the plug on the scheme. Perhaps Labour thinks that 2,000 lost jobs are a price worth paying for the £300 million that the Chancellor will claw back over the next three years.

Talking of clawing back money, North sea oil has been a honeypot for the Government. Clause 149, entitled "Attribution of blended crude oil," will take another £200 million out of the North sea over the next three years. That is an extraordinary move, following the £2 billion tax take announced in the pre-Budget report—extraordinary because on 30 March, a week after the Budget, the Paymaster General told me in a written answer that in the pre-Budget report of 2005 the Chancellor had announced a package of measures for the North sea and that

"As part of this announcement the Chancellor committed to no further increases in North sea taxation for the lifetime of this parliament."

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

I think that the hon. Gentleman is confusing two issues. I should be happy to write to him in more detail, but the commitment to which he refers relates to the level of taxation. Clause 149 is a protection measure, relating to money that should be collected but will not be unless we prevent the operation of a particular mechanism. The answer that I gave the hon. Gentleman holds true. I have been absolutely direct with the House and with him. This is a protection measure of the kind that we constantly introduce in all parts of the tax system to ensure that we collect money for which the House has legislated.

Photo of Stewart Hosie Stewart Hosie Shadow Spokesperson (Women), Shadow Spokesperson (Home Affairs), Shadow Spokesperson (Treasury)

I hear what the Paymaster General says. I am certain that she is saying it with a straight face, and believes what she is saying. However, as I said earlier, she told me that

"the Chancellor committed to no further increases in North sea taxation for the lifetime of this parliament." —[Hansard, 30 March 2006; Vol. 444, c. 1112W.]

I am sorry, but I believe that changes in the blended oil regime for North sea oil made a week before I received that answer represent a change in the oil taxation regime.

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

I realise that the hon. Gentleman may have misunderstood what was said to him, but I object in the strongest possible terms to the implication that the answer that he received from me was not correct. It was. It is not my fault that the hon. Gentleman does not understand all the details in the clause, and I will definitely write to him at length explaining them.

Photo of Stewart Hosie Stewart Hosie Shadow Spokesperson (Women), Shadow Spokesperson (Home Affairs), Shadow Spokesperson (Treasury)

I understand why the Paymaster General is being so defensive. I may have inferred something slightly different from what she meant. According to the standard English that I was taught at school, however, a change in the blended oil regime means a change in North sea taxation. I suspect that we shall have to agree to differ.

This Finance Bill follows the Chancellor's 10th Budget, and like others it has failed to rise to the challenges facing not just the United Kingdom economy in general but the Scottish economy specifically. I say that not least because we have experienced three full quarters of falling manufacturing growth. That recession in Scottish manufacturing—the loss of 100,000 Scottish manufacturing jobs—and the loss of 1 million manufacturing jobs in the UK have not been addressed to any significant degree in the Budget, or in the Bill. There has not been a single measure designed to give Scotland a much-needed competitive edge, and indeed the tax proposals will leave thousands of small Scottish businesses worse off.

In the small print of the Bill are an additional £33 million in taxes on the profits of Scotland's small and medium-sized businesses, which leave them lagging further behind competitors elsewhere in Europe. The modest changes in research and development provision, although welcome, do nothing to reverse a fundamental imbalance. While the UK spends some 1.1 per cent. of gross domestic product on R and D, the figure in Scotland is half that. Given that our major competitors spend more than 2.5 per cent., our position is terrible.

The Bill was designed to bail out the Chancellor once again. It contains new laws to put into effect the £2 billion raid on the North sea that was announced in the pre-Budget report and an additional £200 million through the change in the blended oil regime, and it will leave future jobs, new exploration and new development in the North sea sector hanging in the balance.

Let me make a final point about fuel. The high cost of fuel that is being paid by our businesses is forcing companies in my constituency to add surcharges of 25, 26 and 27 per cent. on goods as they leave the factory gate. People in my constituency on low and modest wages are paying gas and electricity increases many times the official rate of inflation. In short, when it comes to fuel, the Chancellor has grabbed more money from the North sea. The Government have made some attempt to deal with climate change through the change in vehicle excise duty, but they are doing absolutely nothing to defend business by moderating the cost of energy, and doing nothing to assist those on low and modest wages through the—

Photo of Robert Smith Robert Smith Shadow Spokesperson (Business, Innovation and Skills), Shadow Spokesperson (Energy and Climate Change)

I thank the hon. Gentleman for giving way and I declare my interest in North sea oil and gas, as listed in the Register of Members' Interests. On the Chancellor and the high cost of energy, only last weekend he was lecturing other countries on the need to increase production to tackle the world's energy problems. What kind of example is he setting, however, through the long-term investment signals that he is sending to, and the way in which he is treating, his home base?

Photo of Stewart Hosie Stewart Hosie Shadow Spokesperson (Women), Shadow Spokesperson (Home Affairs), Shadow Spokesperson (Treasury)

There was a real irony in the Chancellor calling on the world to increase gas and oil supplies, particularly given that the measures announced last year and in this Finance Bill put at great risk not only the taking of heavy oil from the central North sea and the development of the known fields west of Shetland, but future exploration in the very deep waters west of Scotland. In short, when it comes to oil and energy, this is a bad Bill and yet another missed opportunity.

Photo of David Gauke David Gauke Conservative, South West Hertfordshire 8:51 pm, 24th April 2006

I want to discuss the Bill's reforms to group relief—a subject that has not been touched on today. Even the hon. Members for Wolverhampton, South-West (Rob Marris) and for Wirral, West (Stephen Hesford) failed to address it, which is somewhat remiss of them. I suspect that it has not been mentioned because it is highly technical and complex. Schedule 1, which contains the amendments to group relief, consists of 14 pages and is highly complex.

However, the substance of the changes to group relief are not particularly controversial, so far as one can see, and it is less important to highlight what they are than it is to highlight why we are making them. The simple explanation for the changes is the judgment of the European Court of Justice in the case brought by Marks & Spencer, in which it was determined that UK group relief provisions for corporation tax purposes were in breach of European law. It is worth focusing on that case for a moment. Traditionally, UK group relief rules allow profits and losses made by UK resident subsidiaries in the same group to be offset against each other, so that the tax result mirrors the group's overall results. Until now, the rules have not allowed losses made by overseas subsidiaries to be offset against UK profits.

Let us continue with the M&S example. If it establishes a UK subsidiary that makes a loss, the loss can be offset against another UK subsidiary that is making a profit. However, losses incurred by a French subsidiary would not be available to offset against profits made by the UK subsidiary. M&S claimed that the UK group relief rules, by restricting the ability to offset profits and losses to UK residents alone, are contrary to the freedom of establishment principle under EU law. In other words, the UK tax system should provide tax relief for failed overseas business ventures.

The ECJ determined in favour of the taxpayer—M&S—subject to one very important proviso: that any cross-border loss relief be guaranteed to the taxpayer only where it can be proved that there was no possibility of making use of the losses in the jurisdiction in which they were incurred. I make no criticism of M&S for bringing that case. It has a duty to its shareholders to minimise its tax payment, and there is nothing wrong with going to the ECJ. However, we are implementing today a substantial change to our direct taxation as a consequence of an ECJ judgment, not of a decision taken by this House or by UK courts.

Nor is that a unique example; there are a number of such cases dating back to 1996. Perhaps the first such case was ICI v. Colmer, which concerned consortium relief. More famous and significant were cases involving Hoescht and Metalgesellschaft, which determined that, for advance corporation tax purposes, groups with a UK parent company should not be treated differently from those with an EU parent company. The fact that ACT has been abolished, perhaps in part as a consequence of this judgment, does not mean that the case is meaningless. As well as being an important case in principle, the cost of repaying overpaid corporation tax in the Hoerscht and Metalgesellschaft cases, and similar cases, is likely to run to billions. Estimates of £3 billion to £5 billion are regularly quoted.

The ECJ judgment in the Lankhorst-Hohorst case, on Dutch and German thin capitalisation rules, has also imposed a substantial administrative burden on UK companies. The ECJ held that it was illegal to have thin capitalisation rules with regard to overseas group companies, but not group companies in the same jurisdiction. Thin capitalisation rules protect corporation tax revenues from flowing out of one country in the form of excessive interest payments being made intra-group to an overseas group company. As a consequence of the judgment, if one wishes the same rules to apply to overseas group companies as to UK group companies, one has to introduce what are effectively thin capitalisation rules for UK companies. That was done in the Finance Act 2004, which requires all transactions with group companies to be transacted on an arm's length basis or at least evidence to be produced to show that that was the case. If that cannot be done, the transactions are taxed accordingly.

The process has not finished. Earlier this month, the Advocate General opined on the BAT group case on franked investment income. The Treasury estimates that if the ECJ confirms the Advocate General's opinion—as it usually does—the decision could cost the UK £7 billion. At an earlier stage of the process is the Cadbury's case, which may result in a substantial review of the UK's controlled foreign companies rules.

Why are those cases important? First, they can be expensive. It is not always possible to measure accurately the precise cost of a judgment, but an analysis by Alistair Craig of Ernst and Young—I recommend that hon. Members read his paper on EU law and British tax, published by the Centre for Policy Studies—gives the possible cost of the various judgments that I have mentioned at somewhere between £7.5 billion and £11.5 billion. As I mentioned earlier, the franked investment income case may cost an additional £7 billion.

When the Government came to power in 1997, many of the fiscal problems of this country were to be resolved by removing loopholes. Indeed, the hon. Member for Wolverhampton, South-West mentioned loopholes earlier. I think that sometimes the term "loophole" can be a little misleading, and one man's loophole is another man's low tax environment. However, the ECJ is creating a series of substantial loopholes in the British corporation tax system.

The second problem is the administrative difficulties, because the Government are inevitably required to ameliorate the effects of the judgments and that, in itself, causes difficulties for British business. For example, as I mentioned and as a consequence of the Lankhorst-Hohorst judgment, the Finance Act 2004 introduced thin capitalisation rules requiring all UK companies to demonstrate that all transactions with fellow UK companies in the same group are on an arm's length basis. The administrative cost to UK businesses of that requirement has been considerable.

In many cases, such as the provisions contained in schedule 1, the complexity of our tax system has been considerably increased by the changes required by ECJ judgments. Today, many Members have spoken about complexity, much of which we can put at the Chancellor's door, but in some instances it is created by the ECJ.

A third concern is that we are moving towards the harmonisation of our taxation system to change it so that it complies with ECJ judgments, and the effects could be broader than the initial facts or the case being addressed. For example, if the Advocate General's opinion is upheld—as it usually is—in the BAT group case, it will no longer be possible to tax the dividends of overseas subsidiaries differently from UK subsidiaries. In most European jurisdictions, dividends from all subsidiaries are tax-exempt under what is described as the participation exemption. In the UK, we do not have a blanket exemption but we have a right to a tax deduction for interest on borrowings by a parent company in respect of a subsidiary. Those two different approaches are fundamentally incompatible—trying to operate them together would be wide open to abuse—so a key aspect of our corporate tax structure will have to be reformed. Presumably, we will have to use the participation exemption, but we will no longer be able to permit a deduction for interest on borrowings by a parent company in respect of a subsidiary.

That may be a good thing. I am not qualified to decide, but it is arguable that our tax structure, not just our tax rates, may give us a competitive advantage, which could be lost as a consequence of the ever-creeping Europeanisation of our tax structure. Certainly, the CBI tax committee has warned that the consequences of the BAT group case could blunt the appeal of the UK as a location for holding companies.

Most important of all is the constitutional point. In clause 27 and schedule 1, we are legislating on a matter relating to direct taxation and amending our law not as a consequence of anything determined by a UK court or because of the views of Members. That is not an uncommon experience for the House. However, one of the few areas where there is near unanimity on European matters is direct taxation. It is a line in the sand, we are told. Nobody is advocating harmonisation of direct taxation, be it of its rates or of its structure. None the less, that is precisely what is happening. Tax harmonisation has little or no support in the House.

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

The hon. Gentleman is making a thoughtful speech on important aspects of taxation and I would like to make two points. First, I remind him that his party, when in power, committed the then Government and successive Governments to the current regime. Secondly, I am glad that he acknowledged that important point about maintaining the competitiveness of the UK's tax system, but before he concludes his remarks can he offer us any thoughts about how exactly that might be done?

Photo of David Gauke David Gauke Conservative, South West Hertfordshire

I am grateful to the Paymaster General for her complimentary remarks. It is not the first time that she has made such remarks; it appears to be habit-forming and, as I have said before, I fear that it may have consequences for my career.

I acknowledge that in some cases the judgments of the ECJ relate to the single market. I do not want to argue the historical point. I am not pointing the finger at the Government for introducing legislation or signing treaties that may have caused the problem, but political society as a whole has not addressed it and given it the profile that it should have received. I am trying to highlight the concern, but as a country our options for addressing it are somewhat limited. We should consider amending treaties. We may need to consider taking a tougher line at intergovernmental meetings. We must always bear in mind the consequences to our tax system when we evaluate our relationship with the EU.

My concern this evening is simply to highlight that issue, which does not receive the attention in the House or outside that it should. We are talking about very large sums of money. We are talking about a cost to the Exchequer of £7 billion. We have rightly argued about the proposals on trusts, which the Treasury estimates will cost about £15 million, and about the home computing initiative. We are talking about relatively small amounts of money in those cases, but large sums are being lost to the Exchequer and large administrative burdens are being placed on British industry and business as a consequence of such judgments. There is a need for a greater awareness of what the ECJ is doing to our corporate tax system. The effect is substantial and very concerning, and it is highly regrettable in my opinion that we are losing the ability to legislate for ourselves the corporate tax system that should apply in the United Kingdom.

Photo of Sally Keeble Sally Keeble Labour, Northampton North 9:05 pm, 24th April 2006

As a member of the Treasury Committee, I should like to join my right hon. Friend Mr. McFall in paying tribute to the staff who prepared our inquiry and report at very short notice. In the brief time that I have this evening, I want to deal with two general issues and then two very specific ones, one of which has not been dealt with before.

I completely disagree with Peter Viggers, who also serves on the Select Committee, about the overall approach to the Budget and the Bill and about the management of the economy in general. Having heard what he said, I wonder whether he was at the same Select Committee inquiry as the one that I attended. The overwhelming consensus of all the witnesses was that our economy has been remarkably stable. Indeed, that is stated in the introduction to the Select Committee's report, which no one demurred from at all.

The overwhelming consensus was also that that stability is the envy of the world—certainly, it has been very well recognised internationally—and that the stability and success that we have achieved is largely owing to the stewardship of the economy by the Government and, in particular, the Chancellor. Some of the protestations from Opposition Members were driven by envy of a Government who have succeeded in managing the economy well for the same period that the Conservative party managed to precipitate two of the most disastrous recessions that this country has ever seen. Indeed, the Chancellor recognised some of the challenges that we face in this economy—certainly, those of increasing productivity and tackling poverty—and measures to tackle those problems are clearly set out in the Budget.

Quite a number of hon. Members have talked about the trust fund proposal. I completely disagree with Mrs. Villiers, who said that it was a tax on the aspirational classes. My constituents are second to none in their aspirations. Indeed, an awful lot of them moved to Northampton to have a better life, to do better for themselves and their families, to find jobs and to get better houses. I have not heard any of them remotely say that they feel that that proposal will affect their ability to provide better for their children's future.

My constituents rightly understand that their aspirations for their children are well-served by the Government in providing for education services, in increasing children's chances of university education and in ensuring that they have the prospect of finding decent jobs. They obviously want to ensure that their children's financial future is safeguarded by raising the inheritance tax threshold. The Government have certainly made some progress in that respect. I am very pleased that the level is above the average value of houses in my constituency, but I should like it to be moved higher.

I want to deal with two issues that have not been dealt with before. The first relates to clauses 54 to 58, which deal with charities. I have a particular interest in that because I was deputy chair of a commission of inquiry that was set up by the Association of Chief Executives of Voluntary Organisations, which was very much concerned about the income and funding for charities and their tax treatment. Some of the proposals in the Bill are good; some seem to be not quite so good. I hope that my right hon. Friend the Paymaster General will be able to comment a bit more on those. I am sure that they will also be dealt with in Committee.

Clause 54 relates to charities' dealings with major donors. As I understand it, it is largely a way of cutting down on tax avoidance. I trust that it will be presented and implemented in that way. Will my right hon. Friend confirm that? Clause 55 is a bit more complex and deals with non-charitable spending. It is a means of restricting tax relief. It serves the dual purpose of providing more flexibility and introducing measures to deal with tax avoidance. I very much welcome the flexibility, especially where it seems to allow charities more leeway in managing their finances when they hit financial difficulties. I assume that that will be more carefully explored in Committee. I ask my right hon. Friend to look very carefully at the implementation of that.

Some of the charities that will be affected by the proposals are extremely small, because the Bill proposes the lifting of the de minimus £10,000 level. The regulations are complex, so I hope that my right hon. Friend will ensure that those small organisations can deal with those difficult issues.

Clause 56 removes the risk that charities with trades that are only primary purpose could lose tax relief on the whole trade if the non-charitable part of the business is large. That touches on some issues that came up in the scrutiny Committee of the earlier Charities Bill. As I understand it, the provision would affect, in particular, those charities that support their charitable purpose with a business that is run purely as a business. We had the good example of a museum that also had a conference centre and used the income from the conference centre to support the museum. Will my right hon. Friend say whether that will be the impact of the clause and whether it will give the help to those innovative charities that I expect and hope it will?

Clause 57 improves the arrangements made for subsidiary companies of a charity to donate their profits to parent charities using gift aid. When a subsidiary decides to give its money to more than one charity, it will still be able to gain the tax exemption. Charities play an incredibly important role in our society and the Government have always been keen to support them. The ability of charities to operate effectively obviously depends to a great extent on their being able to raise their funds through voluntary activity and also, of course, on having a tax regime that is supportive of them and is comprehensible and easy for them to implement. I hope that my right hon. Friend will give some reassurances on that in her winding-up speech and also provide some indication of whether the Government will look more favourably in general at the tax treatment of the charities and voluntary organisations that perform such an important role in our society.

My second small point relates to clause 61 and the home computer exemption. I am not sure whether the matter has already been raised. I take on board all the points about the change to the price of computers and the fact that many people have them now, but the measure has been extraordinarily popular in my constituency. The Communication Workers Union has started a petition to support the retention of the tax relief because many local people were using it to buy computers. I ask the Government to look again at the measure. They should not assume that just because computers have become cheaper and more people have them, the measure, which is small, does not still serve a useful function in our society.

I support the Bill in almost all its details. It is part of one of the cornerstones of the Government's success: the fine management of the economy, which has served my constituents well and allowed them to enjoy a decent quality of life and realise their aspirations for their children. I am sure that the Bill will be welcomed and sent on its way by the House tonight.

Photo of Philip Dunne Philip Dunne Conservative, Ludlow 9:15 pm, 24th April 2006

I remind the House of my declaration in the Register of Members' Interests. I also apologise to you, Madam Deputy Speaker, for being unable to attend the entire debate, because I had Select Committee and other parliamentary duties this evening.

I welcome the Chief Secretary back to the Chamber, and would like to pick up on three of the issues on which he spoke at the start of the debate: the focus of the Bill on productivity, fairness and anti-avoidance. He will not be surprised to learn that I will take an approach somewhat different from his.

Several of my hon. Friends, not least my right hon. Friend Mr. Redwood, spoke about productivity. I raised the issue in last month's debate on the Budget and pointed out that despite the Chancellor's claims, productivity growth in this country is clearly on a declining trend. Over the past 12 months it has grown by a mere 0.4 per cent., which is substantially below the trend under this Government, and even more substantially below that under the previous Government. It is not clear from my reading of the Bill how productivity will be enhanced. It will certainly not be enhanced in the oil industry, which is being clobbered by extra taxation measures, in the financial services industry, where the trust sector is being clobbered, or in the public sector.

The former BBC economics correspondent Jeff Randall wrote a rather interesting article in The Daily Telegraph immediately after the Budget. He commented:

"With government spending, as a percentage of Britain's output, rising from 37.5 per cent. in 2000 to a forecast 45.7 per cent. in 2007, there has been a tidal shift of resources into the low-productivity public sector."

That is evident, and the article is a graphic description of what has gone on under this Government. It is a rather sad legacy of our Prime Minister that NHS productivity may well rise in the coming year as a result of the substantial job losses about which we read every day in the press. The Royal College of Nursing predicted a 13,000 increase in unemployment in the NHS, which will probably have the perverse effect of increasing productivity in that segment of the public sector.

Let me turn to the subject of fairness. I was struck by the Chief Secretary's use of the fairness argument to justify several of the more controversial measures in the Bill. He specifically cited fairness as a reason for introducing IT access for the elderly. He used as an example the Department for Work and Pensions' measures to improve such access. I presume that he was referring to access to benefits and pensions. I ask him, or the Paymaster General in her winding-up speech, to inform the House how the Government reconcile that with the fact that in 2003 the DWP introduced the Post Office card account, providing technology to replace the physical pension book—a good thing—yet now, barely three years later, it is deciding to terminate that account, which has proved so popular that more than 4.3 million people, many of them pensioners, have one.

Clause 61, which has been touched on by many Members, deals with the home computing initiative. The withdrawal of this initiative, too, was described by the Chief Secretary as fair. The initiative was a very welcome and well-received Government tax relief measure—no great surprise, then, that it is being scrapped by the Bill. It helped households on low incomes, it helped those who were out of work gain access to work, and it helped those in rural areas such as my constituency to gain access to jobs remote from home. The success of the initiative in my area is shown by the fact that last year Shropshire was declared the leading county in the country for home working, in part thanks to that Government initiative, which is now being scrapped.

Fairness was also used as an argument to justify the proposed inheritance tax changes to trusts in clause 157 and schedule 20, but the retrospective nature of those changes is contrary to fairness. The reduction from 25 to 18 in the age limit for accumulation and maintenance trusts has nothing to do with fairness at all, and everything to do with the politics of envy, I regret to say. The financial literacy of 18-year-olds is not the same as that of 25-year-olds. Some commentators have described the measure as a charter for drug dealers. That may be pushing things a bit far, but removing prudent financial oversight from young people, some of whom in their maturing post-school years may fall easy prey to those who seek their wealth, does not seem to me to be an act of fairness.

It is also claimed that this is an anti-avoidance measure, as though the trusts concerned had been set up explicitly to avoid paying tax. In many cases—the vast majority, I would argue—that is not the case. As many commentators have pointed out, the Government seem to have little understanding of the extent or purpose of these trusts. The Chairman of the Treasury Committee rather helpfully pointed that out in the report published earlier today, quoting the letter that the Paymaster General, no less, was rushed into publishing in The Times in a panicky response to the general public outcry about this aspect of the Budget. Paragraph 106 of the report refers to the Paymaster General arguing that the new rules would affect only a small number of trusts, saying:

"We estimate that there are about 100,000 discretionary trusts and only a small minority of those are accumulation and maintenance trusts of the kind that are caught by this Budget measure. Of that small minority of accumulation and maintenance trusts, only those containing assets above the inheritance tax threshold will be caught, so it is a minority of a minority."

Since that letter was written, most commentators of whom I am aware have rather graphically illustrated the fact that the problems posed by the measure range much more widely than the Government seem to understand.

We heard earlier from my hon. Friend Peter Viggers, who practised as a solicitor for many years, that most wills are written in trust. Husbands and wives, in both pre-nuptial and divorce situations, find their assets written in trust. Orphans have their assets written in trust. Recipients of compensation also have their assets written in trust. We have heard this evening about the life insurance sector.

We will look forward to ascertaining in Committee precisely how the Government intend to exclude life insurance policies from the proposed legislation. All these measures could catch many people. This is an attack not on a small minority of a minority, but on the vulnerable and aspirational, and it is happening at a time when inheritance tax is being abolished in many of our competitor economies. This is not the time to seek, through some rather vindictive measures, to tighten the net under the guise of anti-avoidance while seeking to spread the net much more widely than ever before.

I shall speak briefly about some of the green proposals in the Budget, which the Chancellor of the Exchequer has chosen to trumpet throughout the globe. I would like to bring to the attention of the House one specific example, which illustrates the Government's incompetence in implementing some of their proposals. One of my constituents, Mr. David Luckhurst, runs his own small business, which is called Solar Dawn Renewables, of Lydbury North in my constituency. It installs heating systems with solar power generation on a domestic scale. Mr. Luckhurst was developing his business well under the Clear Skies renewable energy grants system, which the Government set in place. He hoped that it would be replaced in an orderly and efficient manner by the low-carbon buildings programmes grants, which had yet to be launched. They were announced in November 2005, allocating a further £30 million over three years, which was a welcome development, if modest.

At that time, before the moneys were allocated between householders, communities and manufacturers, £1.5 million of the £30 million was taken out of the fund to make up a shortfall in the predecessor Clear Skies programme. When the remaining Budget was allocated, £10.5 million was given to what is known as stream 1: householders—domestic users—and non-profit community organisations such as registered charities, community groups and schools, which received the balance of £4 million. Another £18 million was allocated to larger-scale projects known as stream 2. That included £6 million for retrofit and £12 million for new build and refurbishment of businesses, building developers, energy service companies and public sector entities.

In the Budget, in March, the Chancellor of the Exchequer announced a further £50 million for the low-carbon buildings programme,

"with the aim of encouraging manufacture at a higher scale leading to lower costs. This will help fund the installation of microgeneration technologies in a range of buildings including schools, social and local authority housing, businesses and public buildings"— all very noble.

There are still no details of exactly how the £50 million is to be allocated. All the indicators are that businesses will be the main beneficiaries. Yet there are small accredited firms, such as that run by my constituent, which are more or less entirely dependent on the custom of householders, and the so far patchy grants system has been making their survival in business extremely difficult, although both the Government and the Opposition have been trying to encourage such activity to improve energy efficiency and reduce reliance on fossil fuels.

Applications were deferred, on the basis that Clear Skies was to be replaced. Then the new programme was delayed. Now the DTI is saying that householders can register for application forms from today—more than a month after the Budget announcement. It seems that none of the applications will be processed until the beginning of next month—a month and a half after the Budget announcement.

To add to the complexity—the Government do not like to do anything simple if they can complicate things—there are now strings attached to grant applications. Householders are eligible for a grant only if they have previously installed other energy-efficiency measures, including loft and cavity wall insulation, low-energy light bulbs and heating controls. Those are all useful measures, but they should have been made criteria before now, so that householders knew what contract they were expected to enter into before they received the grant.

Small businesses that produce the microgeneration technologies that everyone in the House wants to expand throughout the country rely on the grant funding for their businesses to flourish, but they have become increasingly vulnerable following a downturn in orders as a result of the Government's stop-start policy making. I hope that the Paymaster General, if she is paying attention, will be able to provide reassurance that the grants under the new low-carbon buildings programme will be processed as quickly as possible to prevent small businesses in that sector, such as the one owned by my constituent, from being pushed further into the red, as they are the very organisations that the Government should encourage if they are serious in their commitment to reduce carbon emissions.

Photo of Mark Francois Mark Francois Shadow Paymaster General 9:31 pm, 24th April 2006

It is a genuine pleasure to sum up our thoughtful debate on behalf of Her Majesty's Opposition. In the time available, I shall do my best to deal with the points made by the participants in our proceedings.

The Chief Secretary had a gentler run-out than he did in the debate on the Budget resolutions. He raised a number of issues and said that the Government offered potential. However, he did not say a great deal about the Government offering potential to pensioners—I promise that I will say more about that later. Interestingly, he said, "It's not a test of fairness to take two sets of figures and compare one set with another." I thought that Chief Secretaries did that all the time, not least when they attempt to discuss departmental spending limits in the run-up to a comprehensive spending review. I am delighted that the right hon. Gentleman has found a new way of doing so, and we look forward to seeing the results.

My hon. Friend Mrs. Villiers gave a very good, detailed speech outlining our critique of the Bill. She criticised the instability of the tax regime caused by the constant change and tinkering in which the Chancellor loves to indulge. She suggested a measure to save the home computing initiative by working co-operatively—again, I shall say more about that later, and I would very much appreciate it if the Paymaster General attempted to take some of my points on board.

My hon. Friend filleted the Government's case on trusts and took it to pieces. We look forward to her doing so again in Committee, both on the Floor and upstairs. Mr. McFall, the Chairman of the Select Committee, made a timely contribution, given the publication of today's report. He said that the Committee had concluded that it may be appropriate to review the operation of the fiscal rules. That is right and timely, not least as an economic commentator recently stated that the Chancellor had moved the goalposts on the golden rule so often that they were

"barely still on the pitch."

The Chairman of the all-party Select Committee expressed reservations about the Government's proposals on trusts—a theme that cropped up in speeches by Members on both sides of the House—which they should reconsider.

Julia Goldsworthy spoke on behalf of the Liberal Democrats. I, too, welcome her to her new responsibilities, but may I offer her a tip? She lectured the House about posturing, but there is delightful irony in being lectured on that subject by a Liberal Democrat. [Hon. Members: "Hear, hear."] That proposition has support from three quarters of the House. We look forward to engaging in debate with her at close quarters in Committee, and we will see how much posturing takes place there.

We then heard from Mr. Henderson, for whom I have a particular affection, as he spoke just before me when I made my maiden speech in this place some five years ago. He described himself as one of the usual suspects in Finance Bill debates, which is right. He also rightly sounded an important warning about globalisation and the need to maintain competitiveness in the face of rapid economic and technological change. Given that need, it makes little sense to hinder the spread of computer literacy by abolishing the home computing initiative, as his Government currently propose, and I hope that we may yet have his support for trying to save the scheme.

My right hon. Friend Mr. Redwood spoke, as ever, very knowledgeably on these matters. He noted the declining productivity growth in recent years. He is absolutely right, as productivity growth is now a fifth of its level when the Government came to office in 1997. That is especially worrying as it is the Chancellor himself who described such growth as a fundamental yardstick of economic performance. My right hon. Friend hit the nail squarely on the head.

We then heard a contribution from Rob Marris. What can I say about that? If I may say so, perhaps more briefly than he did, and being serious for a moment, he began making a very thoughtful speech. He spoke with some passion on the environment and the threat posed to all of us around the globe by climate change. As my right hon. Friend Sir George Young said, the hon. Gentleman had the House with him on that issue. It was the other 55 minutes where it went a little wrong. I understand that he is keen to serve on the Committee. I cannot tell him how much we are looking forward to that. I really cannot. He may know that, during debates in the Committee last year, there was a move in all parts of the House to form a group called "Friends of Rob Marris", whose basic intention was to persuade him to get out more. We shall see how we do.

My right hon. Friend the Member for North-West Hampshire focused on a number of subjects, including real estate investment trusts. He rightly criticised the Government for their delay in introducing the proposals—an issue to which I shall return later. Not least because of his background in housing, I look forward to enjoying his contribution to our debates in Committee on that subject.

Stephen Hesford asked what aspects of the Bill we supported. I shall not disappoint him, if he waits a few minutes, as I shall go through them with him. He said that last year he made a speech that was too critical of the Government, so he suspected that he would not serve on the Committee. Having heard his contribution this evening, I look forward to joining him upstairs.

Photo of Mark Francois Mark Francois Shadow Paymaster General

Gladly, providing that the hon. Gentleman is quicker than he was earlier.

Photo of Stephen Hesford Stephen Hesford PPS (Rt Hon Baroness Amos, President of the Council), Privy Council Office

The hon. Gentleman misquotes me. I did not say that I had made a speech that was too critical of the Government. I said just that I had made a speech that did not find favour with the usual channels.

Photo of Mark Francois Mark Francois Shadow Paymaster General

I am sure that the whole House will appreciate that extremely important nuance.

My hon. Friend Peter Viggers pointed to a number of deficiencies in the record of the Government and the Chancellor. He was particularly critical of the Government's proposals on trusts—the theme arose again—and he deployed some of his previous legal expertise in drumming his point home. I welcome his contribution on that point, not least as he serves on the Treasury Select Committee.

Dr. Taylor yet again managed inventively to bring the NHS into this debate, on which I congratulate him—it is more than the Chancellor managed to do. The hon. Gentleman was also concerned about trusts, so they featured in yet another contribution, this time from an independent Member of the House. He said that the proposals impact not on the super-rich, but on ordinary aspirational families. I agree, and I will have more to say about that in a moment.

My hon. Friend Jeremy Wright welcomed the intention to tackle MTIC—missing trader intra-community fraud—which I hope will find favour with the hon. Member for Wirral, West. He also criticised the operation of the tax credits system—something over which the Paymaster General and I have crossed swords on many occasions, as we will no doubt do in future.

We then heard from Stewart Hosie, who speaks on these matters for the Scottish National party. He mentioned several issues in his contribution, including clause 61, which concerns the proposed abolition of the home computing initiative, and I hope that he will support our amendments to try to save the scheme.

My hon. Friend Mr. Gauke displayed his considerable legal knowledge and his impressive pronunciation of certain German court cases, which I shall not attempt to replicate. In particular, he focused on the proposals in the Bill to address the implications of the judgment in the M&S case. He clearly knows a lot about that subject, and we look forward to enjoying his expert contribution in Committee.

Ms Keeble is also a member of the Treasury Committee. She suggested that the Government should re-examine their proposals to abolish the home computing initiative, and I welcome that contribution. She is right, and I hope that Ministers heed her wise advice.

The final Back-Bench contribution came from my hon. Friend Mr. Dunne, who also expressed reservations about the abolition of the HCI scheme. Indeed, he also expressed concern about the abolition of trusts, which is a point that we have heard again and again from both sides of the Commons, so Ministers are advised to take note.

Turning to the hon. Member for Wirral, West, we welcome some parts of the Bill—for instance, we welcome in principle the proposals relating to the Olympics and part 4, which provides for the introduction of real estate investment trusts, which is an initiative that we have been pressing the Government to adopt for some time. We look forward to exploring the precise detail of the Government's proposals in the 43 clauses in part 4 both on the Floor next week and subsequently upstairs in Committee. Suffice it to say at this juncture, although the concept is welcome if not overdue, it will be important to get the regime right before it comes into force, and to do so in such a way that it is not likely to be subject to substantial revision thereafter. In short, we cannot allow REITs to become another SIPPs.

There are a number of other aspects of the Bill about which we have greater concern. To begin with, there is the proposed abolition of the home computing initiative, which is presaged by clause 61. The Chancellor himself first facilitated the HCI back in Budget 1999 with the intention of promoting the spread of IT skills among our population, which was a laudable aim. The HCI scheme was subsequently endorsed by a variety of bodies, including the DTI, the CBI and the TUC.

The Minister of Communities and Local Government said this about the HIC scheme to his own regional press:

"As technology and IT-based business becomes an ever-bigger part of our regional economy, it is vital that the workforce develops the skills which will keep us competitive. That process should begin in the home so that everyone has the opportunity to become comfortable and competent with computers. That is why the Government is offering tax breaks which reduce the cost of computers to employees while saving money for their employers."

The general secretary of the TUC essentially agrees with him. On 19 January this year, which was the second anniversary of the HCI scheme, Mr. Brendan Barber issued a press release stating that

"experience has shown that when a business implements an HCI scheme, demand for learning services and training rises significantly."

It is difficult to mistake the meaning of that press release.

The DTI was also particularly keen to foster the HCI scheme. In fact, it was still promoting the scheme on its departmental website when the Treasury announced that the scheme had been scrapped. The DTI said—this has since been removed from the website—that

"The real beauty of HCI schemes is that they have the potential to improve performance in almost every area of the organisation. As well as traditional drivers—reducing costs, increasing profitability—they can also contribute to more recent imperatives such as corporate responsibility, individual learning and workplace development".

That is a good argument for keeping the scheme. Will the Paymaster General explain to the House in her winding-up speech the degree of consultation that took place between the Treasury and the DTI before the scheme was scrapped, because I suspect that there was not much?

The measure has proved popular, with some 500,000 people taking advantage of the scheme to, in effect, hire a computer via their employer to help to improve their IT skills as part of a modern, knowledge-based economy. According to the HCI Alliance, 60 per cent. of participants are in blue-collar industries and 75 per cent. pay the standard rate of tax or lower. We believe that the scheme is worth while and that the Government should retain it, not abolish it, and we will table amendments to that effect. If the Government still argue that there have been abuses of the scheme that need to be addressed, we are genuinely willing to work with them, with the industry and with users to try to produce a revised framework that would allow users to continue to benefit while protecting revenue appropriately. I sincerely hope that the Government will be minded to take up that offer during the Bill's progress through the House, and we will listen very carefully to what the Paymaster General says when she winds up.

Then there are the measures in the Bill that will increase the tax burden on small companies, including the proposal in clause 26 to abolish the zero starting rate of corporation tax, which was, again, introduced by the Chancellor, this time back in 2002. The Treasury will now ask even new companies to pay 19 per cent. straight off instead. The Government have billed that as an anti-avoidance measure, but it is still a revenue-raising initiative. The Treasury's Red Book points out that the change, which is euphemistically described as "tackling tax motivated incorporation", is set to raise a net £870 million from small companies in the years 2006–07 to 2008–09 inclusive. With measures like that, it is no wonder that the Minister for Higher Education and Lifelong Learning admitted in The Sun on 28 March:

"We are probably about at the limit of what people are prepared to pay to improve public services."

I think that he is right, and that small companies are probably at about that limit as well.

I turn to the attack on trusts contained in part 6, about which we have heard a great deal in this debate. One thing that we have learned about the Chancellor in recent years, be it in his Budget speeches or in his associated Red Book, is that one must always read the small print—not least in the subsequent Finance Bill. Nowhere is that more true than in the proposals relating to trusts. This is not just an issue of retrospective legislation—that is usually a matter of some controversy and, as we have heard, it will be in this case—but of the very considerable uncertainty, doubt and worry that has been caused to many families by the proposed change. Graham Serjeant, the economics editor of The Times, said of the new regime:

"The proposals combine malice, prejudice and miscalculation."

This not about combating tax avoidance, as the Government like to claim—it smacks of the politics of envy, and it is exactly the sort of measure that middle England could expect more of were the Chancellor ever to succeed to the premiership. We will want to explore the precise detail of what the Government have in mind in relation to all this, although in fairness the shadow Chief Secretary has done that commendably already, and to seek to ameliorate its worst effects on hard-working and aspirational families.

This Bill will increase the tax burden, including on our small businesses, and reduce, rather than enhance, our competitiveness, but it is deficient in other respects as well. Despite being a major piece of financial legislation, it does precious little in part 7 to address the problems in our pensions industry following the Chancellor's £5 billion-a-year smash-and-grab raid. It also comes as small comfort to pensioners who took advantage of Labour's £200 council tax discount just prior to the general election, only to see it removed in the 2006 Budget once the votes had been safely counted. When the Chancellor first brought the measure in, The Sun responded on the following morning with the headline, "Beware the bribes of March". It was indeed a one-off bribe, and we hope that the electorate will reflect on it at the ballot box on 4 May this year.

Britain needed a Finance Bill this year that boosted our competitiveness in an increasingly fierce global economy, rewarded enterprise, helped to stimulate growth, and provided a successful financial climate for genuine reform of our public services rather than financial chaos and 7,000 redundancies in the NHS. However, the House has been presented instead with a detailed and complicated measure—as ever from the Chancellor—that discourages business investment, does little to boost productivity, penalises families that seek to plan for their future and that of their children and betrays pensioners while failing to do anything practical to avert the mounting financial crisis in the NHS.

For those reasons, hon. Members should decline to give the Bill a Second Reading. I urge them to vote for our amendment instead.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury) 9:50 pm, 24th April 2006

On the whole, the debate has been good and instructive, with hon. Members making positive contributions. I congratulate the hon. Members for Chipping Barnet (Mrs. Villiers) and for Falmouth and Camborne (Julia Goldsworthy) on their first major speeches from the Front Bench. I genuinely look forward to our debates in Committee, if only because all three political parties will be led by women. Let us hope that we can convince both hon. Members of the virtues of the Bill.

Although Mr. Francois knows it as well as I do, I must tell other hon. Members who are not veterans of Finance Bill debates that my hon. Friend Rob Marris was only warming up this evening. How much I look forward to his contribution in Committee! Let me say to him, in the friendliest way, that brevity would help.

The Government believe in a modern and fair tax system that keeps pace with a changing world and, as my hon. Friend Mr. Henderson so eloquently summarised, encourages work and savings, ensures that everybody pays their fair share and delivers world class public services. The Bill contains measures that help the Government to achieve those objectives.

My right hon. Friend Mr. McFall, who chairs the Treasury Committee and introduced and highlighted parts of its report, reflected on several matters and common themes with the Government. Of course, we shall respond to the Committee in the usual way. However, like the Bill, he went on to focus on measures to support productivity, enterprise and competition, to help the environment and to ensure that the tax system is fair. He referred to targeted measures to tackle tax fraud and avoidance and market distortions, and to ensure that the tax system can respond to the challenges of globalisation—a point echoed by many hon. Members.

Like my hon. Friend the Member for Wolverhampton, South-West and other hon. Members, my right hon. Friend the Member for West Dunbartonshire also spoke about the specific challenges to the environment. It is important to remind hon. Members that CO 2 levels will be 15 to 18 per cent. lower in 2010 than in 1990. Greenhouse gases will be 23 to 25 per cent. lower in 2010 than the base year levels. Business sector emissions will be 33 per cent. lower and domestic sector emissions will be 16 per cent. lower than the base levels in 2010. As hon. Members repeatedly pointed out, we have to ensure that we make genuine progress by 2020, that we have a long-term goal of reducing CO 2 emissions by 60 per cent. by 2050, and that that is based on a range of measures to tackle the emissions problem.

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

No, the hon. Gentleman was not present in the debate. If he serves on the Committee, he can join in at that point.

My right hon. Friend the Member for West Dunbartonshire and several other hon. Members mentioned air passenger duty. My right hon. Friend knows that the decision on air passenger duty is influenced by environmental concerns. It must also be considered in the context of wider social and economic factors, as the Chancellor said in evidence to my right hon. Friend's Committee. The aviation industry has been badly affected by 9/11 and by the present volatility in the oil market, and the Government believe that the most effective approach to dealing with aviation emissions is to ensure that the European emissions trading scheme is in place by 2008. In these debates it amazes me how quickly hon. Members and spokespersons for other parties rush to make commitments on which they will never have to deliver. They do not therefore have to consider the issues in the round. That said, I take on board the points that my right hon. Friend made.

The hon. Member for Chipping Barnet spoke about complexity, and I have listened with interest to the debate on the perceived complexity in the Bill. Its measures are designed to be as simple as possible while protecting revenue, encouraging growth and enterprise, and addressing market failures. Complexity is a notion that the Government take seriously, but the tax systems in the modern world are inherently complex, reflecting the complex economic and social realities with which we live.

My hon. Friend Stephen Hesford focused on deregulation. He will be aware that recent research carried out by KPMG found that the UK tax system imposes administrative burdens equivalent to about 0.4 per cent. of gross domestic product, which compares favourably with the rate in other countries. For example, it is lower than in either the Netherlands or Sweden. In answer to the point made by Sir George Young, however, Her Majesty's Revenue and Customs has been set challenging targets to reduce that burden even further. Over the next five years it will reduce the time spent dealing with forms by 10 per cent., and with inspections by 15 per cent. My hon. Friend the Member for Wirral, West listed the deregulation measures in the Budget.

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

No, I will not.

The size of the Bill was also discussed. The Government have a strong record of engaging with business and we intend to continue that dialogue. In that context, a large proportion of the measures in the Bill follow extensive consultation with business, to ensure that the legislation is modernised to effect the changes that the business environment needs. Those measures include the research and development tax credits, the new film tax credits and the creation of the real estate investment trusts—

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

No, I will not give way to the right hon. Gentleman. Is that clear?

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

I am not sure, Mr. Speaker, which part of the word "no" the right hon. Gentleman is struggling with.

Many hon. Members, including the hon. Members for Chipping Barnet and for Gosport (Peter Viggers), my right hon. Friend the Member for West Dunbartonshire and my hon. Friend the Member for Wolverhampton, South-West, referred to trusts, in particular two types of trust—the accumulation and maintenance trust and the interest in possession trust. There is no clear rationale for privileging those trusts.

It has been clear for some time that wealthy individuals are using trusts primarily to shelter their wealth from inheritance tax. The Government believe that it is unfair for people to gain such an advantage, and we have therefore taken action to ensure that inheritance tax exemptions apply only when trusts are set up to cater for certain prescribed circumstances. Those are, broadly, when they provide for bereaved minors, for the disabled, or for only one beneficiary. In other cases, the normal charges for trusts will apply, preventing them from being used as shelters.

There has been a great deal of speculation in the media that this measure will affect millions of people. Much of that speculation is groundless and has raised people's fears unnecessarily. For the avoidance of doubt, however, and in response to several issues raised this evening, I want to confirm a number of points about trusts.

Life assurance policies that were placed in trust before 22 March 2006 will continue to be regarded as being in pre-Budget trusts. My hon. Friend the Member for Wolverhampton, South-West asked two specific questions. First, he asked whether discretionary trusts still have a 10-year anniversary charge. The answer is that existing tax regimes for discretionary trusts remain, including the 10-year provision. His second question related to wills, for example, in relation to an individual who has Alzheimer's. Wills can still be changed up to two years after death by using a deed of variation, which still applies in that case. When someone dies without having made a will, their bereaved spouse or civil partner will continue to get the spouse relief. Spouse relief will continue to be due when an "interest in possession" trust is set up under a will giving a life interest to a bereaved spouse or civil partner, where someone takes the asset outright.

The hon. Member for Gosport referred to the use of trusts at the age of 18 or 25. Using trusts beyond the age of 18 will still be possible—the Government are just bringing those into the mainstream tax rules at 18. All the organisations quoted, including the Legal and General, say that the tax charge is not enough to stop people setting up a life insurance policy. The Government therefore reject statements that the provision might affect millions of people. We recognise how important trusts are, but we believe that the tax system should not apply artificial incentives for setting them up.

Many Members referred to the home computer initiative and to clause 61, which removes the tax exemption. With effect from 6 April, a tax charge will arise on computer equipment made available by employers to their employees for private use. It will not, however, change the position for an employee who has been provided with computer equipment solely for business purposes and where private use is not significant.

Mr. Gauke raised specific points relating to European Court of Justice rulings. In addition to what I have already said, I reassure him that we will continue to defend UK tax law against challenges before the ECJ. We will keep the tax regime under review. There are good grounds to defend UK tax law consistent with our objectives. We have every reason to believe that we will continue to be able to do that.

My hon. Friend Ms Keeble asked a series of questions with regard to charities. She sought an assurance with regard to specific clauses. I reassure her that the three measures to defend charitable reliefs against misuse do precisely that—the rules are targeted on areas of misuse, and charities using the reliefs correctly will not be affected. To give her further reassurance, the Charity Finance Directors Group has said that it believes that it is essential that the charity brand is protected and not tainted by association with tax avoidance schemes. The Charities Tax Reform Group strongly welcomed the introduction of measures to prevent the exploitation of tax reliefs for charities by donors of large amounts, to their benefit. [Interruption.] [Hon. Members: "Give way."] I can tell by the noise in the Chamber, as I am sure that you can, Mr. Speaker, how riveted Members are by discussion of the Finance Bill. I therefore look forward to seeing them all in Committee.