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§ Mr. Andrew Smith (Oxford, East)I beg to move amendment No. 86, in page 80, line 27, leave out '1996' and insert '2000'.
§ Madam SpeakerWith this, it will be convenient to discuss also amendment No. 82, in page 80, line 29, leave out from beginning to end of line 35.
§ Mr. SmithThe amendment seeks to put right the injustice which will otherwise be suffered by housing associations and universities—and, as a consequence, by tenants and students—as a result of the Government tightening the tax rules on deep discounted securities and qualifying indexed securities.
No one disputes the need for the general measure which the Government are introducing in this part of the Bill. It is, of course, wrong that financial institutions should receive the tax subsidy which they have been able to exploit simply through the way in which they structure their lending. What is at issue is the need for protection for the position of housing associations and universities, which, having undertaken borrowing in good faith on a perfectly prudent basis under the existing law, now face higher charges as the lending institutions pass on the higher costs arising from the tax change. Housing associations and universities are, in this sense, innocent victims of the more general and necessary change which the Government have made.
A number of hon. Members in the Chamber will recall that there were strong feelings on both sides of the Committee, and I recall that the hon. Member for Carshalton and Wallington (Mr. Forman) spoke with passion on the matter.
There is a strong feeling that something needs to be done on this subject. That housing associations and universities have a case was recognised by the Government. The Financial Secretary acknowledged that the original provisions of the Bill would cause "disruption"—as he described it—to the financial plans of the institutions affected, with consequent and avoidable damage to laudable objectives in social housing and higher education.
While resisting our amendment, which was seeking more sweeping exemptions for housing associations and universities, the Government tabled their own amendment to allow those bodies an additional year in which to rearrange their finances before the present favourable tax treatment is withdrawn.
Amendment No. 86 attempts to build on that Government indication of flexibility; it would simply extend the exemption period for a further four years, to five years in total, before tax treatment is changed in the case of loans to housing associations and universities.
1538 I stress that the exemption applies only to existing borrowings. Its cost to the Government would be small, when set against the substantial £100 million in savings they are making by closing the present loophole. It is even more modest when one takes into account the knock-on effects, such as housing benefit costs, and the effect on higher education institutions.
The gains to those institutions, from the additional flexibility in rearranging their affairs which we propose, and the gains to the tenants of the schemes affected, would be considerable. Equally, if no change is made, the effect on those schemes financed by such loans would be detrimental.
In a statement, the chairman of the Committee of Vice-Chancellors and Principals, Dr. Edwards, said:
We are very disappointed that the Government has seen fit at this stage to give universities only a year in which to reorganise their finances. If they are not able to do so at the same or better rates, student rents are bound to have to rise, since most schemes have been used to finance the building of student accommodation. This is a very poor signal to universities in terms of the Government's own policy on the private finance initiative. How can universities have sufficient confidence to enter into schemes involving private finance if the Government changes the rules so suddenly?That is the point. The rules have been changed suddenly.One understands why it is difficult to give full warning of that sort of tax change, but we are talking of institutions that entered prudently and in good faith into borrowing arrangements, in the interests of their tenants and students, under the injunction that the Government gave them to make sensible use of private finance.
The National Federation of Housing Associations also underlined the difficulties that the change would pose for its members:
We feel strongly that the government should recognise the legitimacy of housing association and university transactions when they were set up, and should at least consider an amendment at the Report Stage to allow a significant transitional period of up to 10 years. This would allow housing associations to choose the point in the economic cycle most appropriate to go for re-financing and thus minimise the detrimental effects particularly on rents.Those detrimental effects could otherwise be significant. Increases of between 14 and 38 per cent. were discussed in the original brief from the National Federation of Housing Associations, and universities have also forecast sharp increases. The London School of Economics has warned that the increase might be as much as £9 a week for those of their students accommodated in projects financed by the instruments, and Manchester has warned of a 7 per cent. increase in rents.We have tabled the amendment to extend the transitional period, providing, as the National Federation of Housing Associations said, the opportunity for institutions affected to pick the appropriate time in the economic cycle to rearrange their finances. The five-year period is sensible, it is more flexible than the one year by which the Government were prepared to extend the period, and it fits in neatly with the normal minimum holding requirements imposed by the Government on qualifying indexed securities for them to qualify for favourable tax treatment in the first place.
I will be honest: we suggested five years rather than 10, which some people might have preferred as a transitional allowance, precisely because we think it more likely that the Government will be induced to accept five years, having already been coaxed towards giving the one-year exemption.
1539 It is a good case, and I hope that the Government will accept it. It is a modest concession, but it is no doubt right in terms of natural justice, and it will make a big difference to those affected. I commend it to the House.
§ Mr. Nigel Forman (Carshalton and Wallington)I do not intend to press amendment No. 82, which stands in my name, at the end of this brief debate, for reasons that I shall explain. As I initially raised this issue in Committee, I shall take a few moments to remind the House of the slightly tortuous way in which the matter has developed, and how the university world arrived at the conclusions to which it now clings.
The clause, which brings qualifying indexed securities into the tax system and closes a loophole that was exploited largely by offshore associates of certain leading financial institutions, has had a bit of a chequered history, particularly in the course of the Standing Committee's debates on qualifying indexed securities.
To begin with, certain universities and housing associations discovered that some of their private borrowing for capital expenditure purposes using those instruments would be caught by the Finance Bill as it was then drafted, which would probably leave them with extra costs which they had not anticipated. They assumed that banks and other financial institutions would probably find ways to pass those costs on to them, and that the costs would not be absorbed by the intermediaries and financial institutions.
I took some trouble to draw that problem to the attention of my right hon. Friend the Financial Secretary, and he was kind, courteous and sympathetic enough to listen carefully to the arguments put at that time by me, the hon. Member for Oxford, East (Mr. Smith) and other Committee members. He showed his customary flexibility, and persuaded my right hon. and learned Friend the Chancellor to introduce a modest concession in delaying by one year the implementation of that measure, to give universities and housing associations the necessary breathing space in which to adjust to the new tax regime.
As luck would have it, however, the Committee of Vice-Chancellors and Principals and others clearly advised me and other Committee members at that stage that, although well meant by my right hon. Friend the Financial Secretary, the concession might end up doing the sector more harm than good. They told us that, in those circumstances, only a five or possibly 10-year delay in the implementation of that tax regime would do the trick for institutions that had become involved in what are, by any standards, complex instruments.
To have their full and desirable effect, those instruments must be left in place for a considerable period, because the capital expenditure which they are intended to help finance would be incurred over a considerable period.
In the light of that background, my amendment was designed to restore the wording of the clause to what it had been before my right hon. Friend's concession, so that it would have excluded universities from benefiting from the Government's concession of one year's breathing space.
1540 However, since I tabled that amendment, the plot has thickened, and the various interested parties in that complicated matter have reconsidered the balance of advantage and disadvantage in the existing arrangements. The financial institutions have apparently assured the university world that investors in qualifying indexed securities that are issued by universities are now prepared to clarify the terms of the deals into which they have entered in a direction favourable to the universities.
For that reason, I should place on record, for the avoidance of doubt, the press release that was issued today by the CVCP, which says about the apparent intellectual gymnastics that the issue has involved:
The CVCP has had confirmation from 9 of the 10 universities with QIS schemes that they do not now want to press for exemption from clause 81"—as suggested in my amendment No. 82.This was amended by the government at the Committee Stage, and gave universities (and Housing Associations) an extra year. The universities' decision follows discussions with the banks by the universities concerned and the negotiation of a concession by the banks over the increased charges which would have been involved in the one year extension.Ideally, those universities would like to see the government concession extended for a total of five years.That is the argument that the hon. Member for Oxford, East has made, which is covered in amendment No. 86.However, the CVCP does say in conclusion:
The CVCP is enormously grateful to all those MPs"—it is obviously referring to hon. Members on both sides of the House—
who have supported the principle of the universities' case in what is a very complex issue.That general thrust of argument to which I have just alluded—in other words, the present position—has been strongly supported in faxes that have been sent to me, in the past day or two, by University college, London, the university of Bristol, the university of Sheffield, the university of Aberdeen, the university of Durham, and, of course, the London School of Economics, which the hon. Member for Oxford, East specifically mentioned.All those institutions, I can confidently say, urge me and the House to support the position that has now been reached as a result of the Government concession, allowing that year's breathing space to remain, so that the institutions concerned may use that time to best effect to reorder their affairs, and perhaps to refinance some of their borrowing.
If you are interested in specifics, Mr. Deputy Speaker, because it is a complicated matter, I should say that the lending institutions have apparently confirmed that, in the event that the year's breathing space remains, the same beneficial borrowing rate would apply to those instruments for the extra period of grace that is now on offer, until 30 March 1996.
At the least, that welcome development would remove the financial disadvantage to universities that was threatened before the concession was made, and would provide some extra time in which they might consider the options for closing down QIS instruments and refinancing their university borrowings in other ways.
To end on a general note, some universities, as my right hon. Friend the Financial Secretary knows, have been landed in that process in something of an unfortunate muddle, and placed at potential financial hazard by the vagaries and complexities of that piece of tax legislation.
1541 The legislation has been necessary, as the hon. Member for Oxford, East said, to close a loophole that needed closing—no one disputes that. However, something that I previously mentioned in the House has been at work—the law of unintended consequences. It has certainly applied in this case.
Virtuous and desirable changes in tax law, designed to tackle the problems thrown up by the affiliates and associates of some of the most prominent lending institutions, have had, or appear to have had, undesirable effects on two sectors of considerable interest to the House—the higher education world and the housing world. The hon. Member for Oxford, East was right to mention the end users—students and tenants.
It is a great pity that the law of unintended consequences should work in that way, because clause 81 in its original form was well directed at the problem. However, the way in which the Government could best make it up to those two sectors—were they minded to do so in future—would be to bear in mind the fact that the private finance initiative, to which the hon. Member for Oxford, East referred, is a worthwhile way forward for many parts of the public sector.
If my right hon. Friend the Financial Secretary is prepared, as I hope he is, to cling to the strong statement he made in his recent excellent speech to the Adam Smith Institute—on, I think, 27 March—I trust that he will bend every effort to ensure that the general climate within which public sector institutions seek to use private borrowed money is improved in every sensible way.
I shall quote one paragraph from my right hon. Friend's excellent speech:
The Government's commitment to the private finance initiative is absolute. Our aim is to make the PFI the procurement route of choice for all projects. In a few years' time people will wonder how it could ever have been otherwise. To drive that aim forward the Chancellor announced that in future the Treasury would not approve any capital projects unless private finance options had been explored.I say amen to that, as does the higher education sector.I hope that one practical consequence of the long-running and slightly complicated debate that the House and the Committee have had on the issue will be that, over the coming months, there will be opportunities for university finance officers, and perhaps housing association finance officers, to have detailed discussions with Treasury and Revenue officials to look at the robustness of any future funding arrangements that they may think of as replacements for qualifying indexed securities in due course.
§ Mr. Geoffrey Hoon (Ashfield)I have listened to the hon. Gentleman's thoughtful comments. Can he satisfy the House and say that, as part of the need to promote such arrangements between the public and private sector, perhaps the most significant necessary aspect is a consistency of tax treatment? Does he feel that, in their approach to such matters, particularly in relation to longer-term considerations affecting housing associations and universities, the Government have shown the necessary consistency in their treatment?
§ Mr. FormanI certainly believe that the maximum possible stability for the tax regime in such matters is highly desirable. In defence of my right hon. Friend the Financial Secretary, may I say that I have seen copies of correspondence—not private—between him and the 1542 university world, in which he made it crystal clear in one paragraph that, under our system, it is certainly unusual, if not practically impossible, for any Treasury Minister to give guarantees about tax decisions in a future Budget? I am afraid that that must remain the position under our quaint and familiar constitution.
In a spirit of helpfulness, I am trying to suggest to the Financial Secretary—I hope that he can follow up my suggestion, perhaps in answer to the debate and subsequently—that it may be possible to inject slightly greater certainty and stability. If that is not done, the desirable thrust of the policy of involving private finance in public sector capital projects, particularly in the two sectors that we have mentioned, will be undermined to some extent. No one on either side of the House would wish that to happen.
A constructive approach of that sort in future would help the Government and the House to restore the credibility of the approaches taken by my right hon. Friend the Financial Secretary and my right hon. and learned Friend the Chancellor to private finance. It would also lend support to the clear statement of intent that I quoted in Committee—I will not repeat it today—which was drawn from the Department for Education's document "Education means Business".
I thank my right hon. Friend the Financial Secretary for his sympathetic efforts to assist us. I underline the importance in such sectors of the greatest practical degree of tax regime stability. At the conclusion of the debate, I shall not press my amendment to a vote.
§ Mr. Michael J. Martin (Glasgow, Springburn)I also urge the Minister to support the views of my hon. Friend the Member for Oxford, East (Mr. Smith). In my constituency, there are at least half a dozen community-based housing associations, as well as housing co-operatives which borrow money and are involved in joint ventures. The dedicated men and women who become involved in those committees increasingly do so after a day's work and after looking after their families, and they do an excellent job for the community.
If it had not been for the community-based housing associations in my constituency, many of the beautiful old Glasgow tenements would have been destroyed and lost for ever. Instead, there are thriving communities in tenements which have existed for many years but have now been totally refurbished inside and out. The back courts are marvellous. When the Prince of Wales was writing his book about architecture, he drew attention to some of the community-based housing association tenements in my constituency.
The big concern now is that the joint ventures with the banks and building societies mean that rents will increase. If the Minister is not prepared to promise some help today, the rents will increase further.
The Minister should know that, in at least one community-based housing association in my constituency, through no fault of the committee, 75 per cent. of the rental income is spent on administration. That is a terrible state of affairs. The association is not shrinking from the circulars produced by Scottish Homes stating that we should become involved in more joint ventures. The joint ventures in Glasgow have led to the creation of some lovely buildings, including a building that won an award for the city.
1543 If tenants have to face rent increases every year, many tenants will be forced to consider leaving the homes that they fought to get modernised and the communities in which they fought to stay. The Minister may say, "Why don't they buy their houses?", but he will know that, in the housing association movement, more and more tenants are being required to sign what are known as assured tenancy agreements, which deny them the right to buy.
I shall not get into a debate about whether anyone should buy a house or continue renting, but if people do not have that option, and if a husband and wife both work and receive no housing benefit, there will come a point when those couples realise that it is not financially worth their while staying, and will decide to move to other accommodation. That is moving away from exactly what we have all been promoting in previous debates—family values, and communities staying together.
What is the point of community-based housing associations fighting to get property modernised so that they can keep everyone together, when the rents force people out? I do not want to see that. I am sure that the Minister does not want to see that, and I hope that he agrees to this small concession.
§ Mrs. Helen Liddell (Monklands, East)I wish to take up the time of the House only briefly, primarily because of my concern about certain aspects of the Government's position on universities.
Last Friday, as a member of the court of the university of Strathclyde, I had cause to discuss with the principal and the chairman of that university the capital funding difficulties that universities are currently experiencing. I think that it is widely recognised on both sides of the House that universities—indeed, the whole higher education sector—experience periods of considerable financial difficulty.
This aspect of the Finance Bill was introduced initially for the quite laudable motive of closing tax avoidance loopholes. I believe that the legislation was aimed initially at the trading subsidiaries of banks, which were taking advantage of the laws that then existed to defer and minimise taxation on interest. However, I am concerned that the universities will suffer disproportionately as a result of the new clause. As the hon. Member for Carshalton and Warrington (Mr. Forman) pointed out, the one-year period may not be long enough to allow universities to seek alternative arrangements.
We should give our higher education institutions greater opportunities to concentrate on educational merit and on the pursuit of excellence. They should spend less time dealing with the niceties of financial management. I recognise that that is perhaps a utopian ideal, but university principals and chancellors are concerned that they are spending increasing amounts of time meeting financial arrangements.
Many principals and chancellors have spent a fair amount of time trying to honour the Chancellor of the Exchequer's requirement to seek assistance through the private finance initiative. They are doing their very best in the circumstances. However, they are deeply concerned about the impact of the clause-particularly as it relates to student accommodation.
1544 Those hon. Members with student and student family constituents know that students are currently suffering particular difficulties. Recent events involving the Student Loans Company Ltd. have shown that many families experience great difficulty in assisting young people in higher education. All of us who do not have silver spoons in our mouths and who experienced higher education know how difficult it is to finance young people through university.
If universities are forced to build new student accommodation, and consequently increase the rent in that accommodation, it stands to reason that that higher cost will be passed on to students at a particularly difficult time in their careers. There is no reason why we should take a partisan approach to the matter before the House this evening. We must find an opportunity to reduce the impact on those sectors—the universities and the housing associations, as my hon. Friend the Member for Glasgow, Springburn (Mr. Martin) pointed out—which have been caught in the trap.
I was much taken with the point that we must allow those organisations to choose a suitable time in the financial cycle to enter the market and raise finance. If we force them to raise funds quickly, they will have no choice in the matter. I can see a situation emerging in which the universities will be frightened away from the private finance initiative and perhaps from further capital expenditure because of the stresses that are put upon them. That will mean that less student accommodation will be built, and that many students will be forced into the private rented sector.
Many of us have children who are approaching student age, and we would rather see them accommodated in university halls of residence in an environment where they were more likely to be supervised and where their transition from school to university would be made easier. Many of us have very bad memories of the private rented sector.
Some families in this country are sufficiently concerned about the kind of environment in which their student children are likely to live that they are taking out mortgages, which are placing them under enormous financial pressure. They are trying to buy accommodation, so that their children can have some security as they enter university.
Many young people in my constituency are entering university for the first time in their families' histories. Their families are deeply concerned about the kind of university environment that their children will encounter, and they would rather see them living in university accommodation.
I am convinced that, if the Government think through the amendment, they will see the logic of extending the period to five years. I echo the point made by my hon. Friend the Member for Oxford, East, that the amendment seeks to look at a period of only five years, not 10, to make it less unpalatable to the Government.
I cannot believe that right-minded Members, on both sides of the House, would wish to see universities put into a less favourable situation. Many universities are trying to do their best in creating an environment of excellence. Indeed, many are so concentrating on the capital requirements that they will have to meet in the next few years that they are having to think less about the money that will be put into teaching and into research funds.
It is unacceptable, as we reach the turn of the century, when we should look to improve the excellence in our institutions of higher education, that we are putting this unexpected burden on them. It is not a dramatic 1545 amendment. Indeed, all the Opposition's amendments are moderate, and this is no exception. Common sense should apply, and we should ensure that the universities and housing associations are not disadvantaged unwittingly by this aspect of the proposed legislation.
§ Mr. Clive Betts (Sheffield, Attercliffe)In Committee, we had a good debate on the clause and how it affects—in some ways inadvertently—both housing associations and universities. I do not think that it was the Government's prime intention in drafting the clause to attack and single out those two institutions for penalties under the new arrangements. Every hon. Member who spoke in Committee accepted that there was a misuse of qualifying indexed securities and deep discount securities by associates of banks, which, effectively, had been set up to gain tax advantages that the Government had never intended should be available to banks in the first place. Associates were set up to gain tax advantages that would not have been available to the banks themselves.
I listened with interest to the hon. Member for Carshalton and Wallington (Mr. Forman), who said that he would not press his amendment because he accepted that if he removed reference to universities and other such institutions, effectively they would not benefit from the concessions that the Government were going to make. I accept the logic of that argument but do not understand why the hon. Gentleman did not go on to say why he was not prepared to vote for the Opposition's amendment, which was moved by my hon. Friend the Member for Oxford, East (Mr. Smith). All that it was seeking to do was to extend the concession for a further four years to allow the deliberations and consultations to which the hon. Gentleman referred, between the banks, universities and other higher education institutions, to take place in perhaps a rather more relaxed atmosphere over a longer period.
Although I can understand that nice noises might be made behind the scenes by the banks to the universities to which they have lent money and which have issued such securities, my worry is that the banks will not come out of the negotiations without an element of profit for themselves. Perhaps they would be prepared to terminate the arrangements in a way that would be less costly to the universities and, indeed, if similar discussions take place, to the housing associations as well. Almost certainly, the costs involved in entering into new arrangements and getting out of the current arrangements will be greater than if the institutions had been able to continue with their QISs and deep discount securities for a number of years under the current arrangements with the tax reliefs that are available.
In other words, even with the Government's concession—even if they allow a breathing space for one year, as a result of which there will be negotiations on new arrangements between the current lenders and the current borrowers, or with new lenders—the costs for the institutions are likely to rise. The problem will then be that inevitably the costs will be passed on to the people who live in the properties that are being built as a result of the security arrangements. I do not understand why the hon. Member for Carshalton and Wallington did not accept that it would be much better for those institutions if they could have five years' breathing space rather than one. That seemed to be the logic of what he was saying. Perhaps he might like to reflect on whether there is still some merit in supporting the Opposition's amendment.
§ Mr. FormanI am grateful to the hon. Gentleman for giving way, just so that I can tell him what was going through my mind when I argued my case. My right hon. Friend the Financial Secretary did very well in his reconsideration in Standing Committee, to be able to offer one year's breathing space. If the hon. Gentleman reflects on it, it is perhaps unrealistic to expect five years, bearing in mind the fact that that would take us well into the next Parliament.
§ Mr. BettsThere are, perhaps, many Conservative Members, although they are not in their places, who would willingly commit this Parliament to measures that go well into the next Parliament and would commit the future Labour Government to things that they may not want to do.
It is worth going through some of the reasons why housing associations—the area in which I am most interested—are caught in their current position. I do not think that that was the Government's primary intention, and I, like other Opposition Members, accept that the intention was to stop tax abuses by associates of banks. We support that and do not in any way want to undermine it. The arrangements for housing associations have great merit, one of which is that they are long term. By its very nature, building homes is a long-term venture and one needs long-term funding arrangements. To have to scrap one's arrangements and within a year renegotiate alternative arrangements naturally puts the borrower at a distinct disadvantage. The properties are already there. Those involved have to fund them somehow. They are not entering into funding negotiations with free hands, for a new estate of houses. The houses are already there. They need the funding to continue to pay for their properties. That puts them at a distinct disadvantage. Long-term arrangements are important to organisations in that position.
I refer to an important comment that was made earlier by my hon. Friend the Member for Ashfield (Mr. Hoon) about the nature of private sector finance. Many organisations—many are local authorities—that have tried to get involved in those arrangements will say that the greatest problem has nothing to do with ideology or negotiations between the public and private sector—where there is a proper and understood level playing field, and where organisations can sit around a table and come to arrangements to their mutual advantage—but is uncertainty. Most of that uncertainty is created not by the markets but by Government.
Those institutions do not know from one year to the next what the Government's taxation policy will be. They do not understand from a local government perspective, or, indeed, from a housing association perspective, what their vires will be. Will they have powers to do things or will they not? Governments so often change their position on those matters that it is difficult not only for the public sector but for the private sector, if they want to enter into negotiations and make arrangements of a long-term nature, to do so when they are not sure of the position that their partners will be in vis-à-vis Government policy at any one moment. That is a real problem. When the Government change their position from year to year, the financial forward plan for private and public partnerships is undermined and simply does not get off the ground in any meaningful way. That issue comes up time and again, 1547 and the accountants involved in such ventures warn how the Government operate. I hope that the Government will learn a few lessons from that in future.
Associations have also entered into various deals; in many cases, the deals are index-linked, which suits housing associations, because their rental stream tends to go up over time as inflation takes it upwards. It is sensible to link the rental stream to a form of borrowing that is also index-linked. It is good planning and sound common sense. There are tax advantages, which, of course, make the deals attractive, but their very nature is attractive to organisations seeking to invest in a product with a long life and with an income stream that rises on a similar basis to the cost of their borrowing. Initially, tax advantages accrue to associates of banks. When they reach deals with housing associations, at least the majority of those advantages tend to be passed on to the associations and their borrowers.
In Committee, the Financial Secretary said that—although, superficially, many such deals were index-linked, the accumulated interest being paid and taxed only after a discount for inflation—a number of side deals were done. A "shadow" arrangement operated, allowing the interest rate that would otherwise have been charged—perhaps a rate linked to LIBOR, the London inter-bank offer rate—to be assessed and the difference to be paid back to the lenders. They would receive a return as if they were conducting a straightforward deal, but the deal was dressed up to enable tax reliefs to accrue.
I agree that that happens in many deals, but the Government are not seeking to outlaw such arrangements. They do not wish to abolish QISs and deep discount securities, or to abolish the tax reliefs that are available in conjunction with side deals. They merely wish to abolish such deals when they are conducted by associates of banks. Their stated policy is to encourage the development of a bond market with other institutions, and, presumably, to encourage the practices to which I have referred: that is how institutions enter the market, make profits and make their lending attractive to organisations that wish to borrow. As I said, the Government do not oppose the side deals in principle; they oppose them only when they are conducted by associates of banks.
It is not the banks that will suffer as a result of the Government's proposals, however; it is the housing associations that will suffer. Most of the deals, while giving associations the benefit of tax relief while they exist, also include clauses stating that the associations—and, of course, universities—must pick up the costs if a deal is unravelled or tax relief is not available.
The Government should question the morality of the penalty that they are imposing. I understand that, in the case of housing associations, all such deals must receive consent from the Housing Corporation. Every deal has been approved by a quango: Government appointees have vetted those deals and given them their blessing. I think it wrong for housing associations to enter into such deals—deals that the Government support in principle, despite their reservations about the involvement of associates of banks; deals that have been approved by the Housing Corporation.
Indeed, I understand that some of those deals have been approved by the Treasury. I consider it questionable, halfway through a deal that has been approved by the 1548 Treasury, to change the ground rules—in effect, retrospectively—so that the tax reliefs on which the borrowers were counting are no longer available: in fact, to tear up the deal.
I understand and support the Government's main intention, but I feel that the organisations involved need a longer breathing space. Will the Government consider allowing five years for the continuation of arrangements entered into before the Budget announcement? I am not talking about new arrangements. Perhaps a longer period could be allowed in the case of deals that currently involve more than five years, which is the minimum in many cases. It is the minimum in the case of QISs, for instance, to make the deals worth while. Organisations need time to think about their future, to begin negotiations with banks and other institutions and perhaps to seek opportunities for the development of alternative markets as other institutions enter the field. The deals involved are complicated, and unravelling them overnight would be damaging.
We have cited rent levels in the past. Increases have been assessed by various organisations, which have produced figures ranging from £14 to £40 a week in the case of schemes caught by the arrangements that I have described. The amount depends on the finances of the organisations involved, and the way in which the deals were structured. If the Government are concerned about losing their own tax income, however, I think that what I said in Committee is still pertinent. The Nationwide building society, which produced some assessments for me, concluded that, as 78 per cent. of housing association tenants are in receipt of housing benefit and as the full cost of any rent increase resulting from the unscrambling of deals would fall on the Exchequer rather than the tenants, the Government will not gain the full benefit of any tax returns by reducing tax reliefs connected with the schemes.
The Nationwide's calculations show that in the case of 78 per cent. of tenants, the Government would lose £23 a year as a result of the difference between the tax savings and the extra benefit that they would have to pay out. Of course, in the case of tenants not in receipt of housing benefit, the Government will gain the full impact of the extra income tax that they receive, but at the expense of a widening of the poverty gap—at the expense of those who must pay the full amount of rent.
Let me return to the issue of other financial institutions. The Government seem to be saying that if other institutions wish to enter the market and issue securities, it will be possible for housing associations and, indeed, universities to switch their borrowing to those institutions—building societies, perhaps—and enter into arrangements, through QISs and discount securities, allowing them to gain the benefits that they currently gain from schemes involving associates of banks.
As has been pointed out to me by people involved in such markets, however, the problem is that they take some time to develop. It takes time for those in the other financial institutions that I mentioned to understand fully the way in which housing associations work, and to feel that they understand that well enough to lend on the basis on which banks have been prepared to lend on the past.
Associates of banks, and banks themselves, are currently the main lenders in the market. I suggest that, if other institutions were as willing to lend, they would already be in the market and lending. The five-year period proposed by my hon. Friend the Member for Oxford, East would allow a little extra time—in regard to existing 1549 schemes—for other institutions to enter the market and offer alternatives to housing associations and universities, which could accept them on the same or similar terms to their current arrangements with associates of banks, which would have to be terminated on their current terms.
The problem at present is that those involved in the markets do not understand the nature and operations of housing associations because they have not lent to them regularly. It is therefore difficult to secure sufficient private sector funds to cover the cost of a scheme. As I pointed out in Committee, the cost of building most rented accommodation is not reflected in the valuation of such property when it is first built: the open-market valuation is likely to be only about 75 per cent. of the building cost.
Banks, because they understand housing associations, are currently prepared to lend on the basis of a fairly advantageous valuation-to-debt ratio, but many other institutions that do not know as much about housing associations are prepared to lend only on a ratio of around 150 per cent.—sometimes even higher. If the valuation-to-debt ratio on which the other institutions are prepared to lend is higher than 150, because of the relatively low ratio of valuation to building cost, the amount of the building cost that institutions are prepared to advance will be less than 50 per cent.
As we all know, one of the Government's policies in the past few years has been to reduce the amount of housing association grant that they pay on schemes, thus implicitly telling associations to increase their private finance. If the only institutions that can enter into such arrangements are not prepared to lend as much as banks—if they are prepared to lend less than 50 per cent. of the cost of building properties—that, along with the reduction in HAG, means that there may well be a gap in the funding arrangements for new housing schemes. If that gap exists, not only will rents will go up, but new schemes will not be built. That is a problem.
We are saying that there is a real difficulty for housing associations. We accept the main thrust of what the Government are trying to do, and that associates of banks have been manipulating securities for their own advantage. We want to close tax loopholes. We do not want to be seen to be stopping the Government in trying to achieve that. However, if the consequence is that housing association rents will rise steeply and that, at the same time, other institutions will have insufficient time to come into the market and start lending to associations so that there is no funding gap between HAG and private finance, would not it be better for the Government to stop, reflect and give a little more breathing space?
5 pm
My hon. Friend the Member for Oxford, East made a good case. He did not seek to undermine the impact of what the Government are trying to achieve, or to allow new schemes to get off the ground with associates of banks using the arrangements that have been available in the past. The Government should recognise that it is wrong to say to housing associations, in the middle of those arrangements, that they have only one year and that, in that year, they must either pick up the full cost of changes in the tax position under schemes' penalty clauses, or go around looking for another borrower, who may not be available on anything like the same advantageous terms.
1550 The proposal will cost housing associations and their tenants dear. A bit of reflection and a small extension of the period during which the pre-Budget arrangements may continue would be of enormous benefit and would lead to little cost to the Exchequer. I hope that the Financial Secretary will give serious consideration to that.
§ Mr. HoonI shall endeavour not to repeat the many excellent points made by my hon. Friend the Member for Sheffield, Attercliffe (Mr. Betts). He has clearly shown the essential problem addressed by amendment No. 86—the difficulty faced by housing associations and universities in adjusting to the new tax regime that was established by the Government amendment, which was accepted in Committee.
The position was well set out by the Financial Secretary in Committee. Essentially, we are dealing with a relatively small number of institutions that have taken advantage of a tax position created by the Government. About a dozen housing associations have borrowed about £150 million, and a dozen universities have borrowed about £300 million. Each of those institutions acted in good faith on the basis of tax arrangements in force at the time.
The hon. Member for Carshalton and Wallington (Mr. Forman) fairly accepted that, if we are to promote arrangements between the public and private sectors, consistency of tax treatment is essential. That is precisely what the Financial Secretary said repeatedly in Committee. He said that the Government wanted
to encourage private borrowings by universities and housing associations. That is the thrust of our policy.I should grateful if, in reviewing the thrust of Government policy over a considerable period, he made it clear whether he really believes that the consistency advocated by the hon. Member for Carshalton and Wallington has been borne out in the way in which the Government have treated, in particular, housing associations and universities.The nature of those two institutions dictates that what they do is in the longer term. Universities do not build student accommodation simply for this year and the next. They build such accommodation over a prolonged period. That must also be the case with housing associations, whose primary focus is aimed at providing accommodation for families and for people who are not in a position to buy their own accommodation. Such work cannot be turned on and turned off as easily as the Government might suggest.
If that in any way suggests that I am being critical of the Government's position, I should emphasise how much I agreed with the Financial Secretary in Committee, when he said:
I see some force in the argument that the immediate commencement envisaged in the Bill, backdated to the Budget, could cause disruption to the short-term financial plans of the institutions and a consequent risk of avoidable damage to our objectives both in social housing and higher education.That is right. That is why he fairly delayed the implementation of the Government's original proposal until 1 April next year.That was a concession. I am not arguing against that, but consistent with the Financial Secretary's comments in Committee, I wonder whether, on reflection, he feels that 1551 the concession is sufficient to allow housing associations and universities to adjust their finance. I should be grateful if he dealt with that point. In Committee, he said:
That will give them a breathing space in which to reconsider their financial arrangements and, if they wish, to unwind the borrowings caught by the clause.What investigations have he and the Government made of the practicalities of unwinding financial arrangements for long-term capital commitments in a relatively short time? I seriously wonder whether it is practically possible to unwind financial arrangements in the way that he suggested in Committee. That could not be done without a considerable cost to both housing associations and universities.Labour Members have said that their concern is the cost to students and to housing association tenants in the form of higher rents. I hope that the Financial Secretary did not make those comments off the cuff to get out of the difficulty in Committee, but that the Government have investigated the ability of both housing associations and universities to unwind borrowings caught by the clause. If not, I assume that the Financial Secretary will accept the logic of what he said previously—that it is right that universities and housing associations should be given a proper period in which to adjust their borrowings.
That proper period was touched on in Committee by the hon. Member for Carshalton and Wallington, who was challenged by my hon. Friend the Member for Attercliffe to explain why he was not able today to support the thrust of the Opposition amendment. The hon. Gentleman intervened on the Financial Secretary in Committee and made it clear that
a year's breathing space … is not adequate to deal with the situation.I was delighted to discover that he had made his position so clear in Committee. I hope that, in considering the amendment, he will accept that perhaps five years is a more sensible period in which to allow housing associations and universities to adjust their arrangements. If he does not accept the amendment's logic, he will be forced to vote for the year's grace that he said would be inadequate. I hope that, being a man of great consistency, he will follow through his position in Committee and support the amendment.In the context of that debate, I hope that the Financial Secretary will think carefully about the matter. During the debate, he said that he saw no technical difference between the borrowings of housing associations and universities, and any other borrowing caught by clause 77. I hope that, in considering the matter fairly, as I am sure he will, he will recognise that, although technical differences may not exist, there are practical consequences for both housing associations and universities.
I hope that the Financial Secretary will not rely on the point that he went on to make in Committee, that housing associations and universities should have been on notice that they borrowed those moneys under arrangements that might be changed. He said:
That might have flashed up some warning signals to the housing associations when they entered into such an agreement that there was a possibility that the tax regime would change, with the result that they would have to bear the costs."—[Official Report, Standing Committee D, 21 February 1995; c. 426-27.]1552 Of course, that is precisely what has happened and it has happened because the Government sought to change the rules, originally retrospectively for housing associations and universities. However, I am pleased that the Government at least thought that the retrospective element should not apply in this instance.The type of comment that I have just cited is most unhelpful in promoting arrangements between the public and private sectors. It is precisely such observations that cause nervous anxieties among those who are contemplating entering into such financial arrangements. If bodies think that, when the Government change the rules, they will say that they—the bodies—should have been on notice that the rules could change, it is less likely that any arrangements will be entered into. I hope that the Financial Secretary will not press the argument too far.
Clearly, we all agree that arrangements between the public and private sectors are necessary. It is also necessary that they should be fair and sensible and not "tax driven and artificial", an expression that the Financial Secretary used repeatedly in his defence of the change. However, as he is a fair-minded man, I hope that he will recognise that the changes should not have adverse, short-term consequences for institutions such as universities and housing associations. I hope that he will also recognise that if he accepted amendment No. 86, he would be providing a proper period in which such institutions could adjust their finances and make proper provision for the people whom they serve.
§ Mr. Gerry Sutcliffe (Bradford, South)We are not arguing about a matter of principle, because we agree with the Government's proposals to close the loopholes, but difficulties arise for bodies such as universities and housing associations during the transitional period. The Government are suggesting 12 months, whereas we feel that five years would be more advantageous.
Universities in particular are having difficulty with funding and have had to reduce the number of courses. The university of Bradford is having tremendous problems reassessing the courses that it provides, and I imagine that others face the same difficulties. The Minister said in Committee that the Government were not attacking universities or housing associations, but, ultimately, the costs will have to be picked up by students and tenants.
The difference between the Opposition and the Government centres on the period that we consider reasonable for such institutions to be able to develop a way out of the problem. A breathing space of 12 months is inadequate, as my hon. Friends said so eloquently. I hope that the Financial Secretary will reconsider.
Housing Corporation funding for small housing associations has been reduced and many of them are in difficulties. If the Government are interested in efficiency and cost, I should have thought that they would try to support such organisations. The case for the amendment has been well made, and I hope that the Financial Secretary will take on board what has been said and stretch the breathing space to a more reasonable period.
§ Ms Margaret Hodge (Barking)I have a number of non-pecuniary interests that I must declare at the outset. I chair Circle 33, one of the major housing associations in London, and I am also on the governing body of the 1553 London School of Economics and that of the university of London. I must apologise for not having heard some of the earlier contributions.
This is a sensible amendment that should be accepted by the Government because it would achieve their purpose of ensuring that we get effective private finance into some of the projects undertaken by public sector institutions. I think that the Government are cutting off their nose to spite their face in this instance, because their proposals will have a detrimental effect on their pursuit of their objective.
Had the Government consulted rather more widely, they might have avoided the adverse impact that their proposals will have on a number of higher education institutions and housing associations. Housing associations and universities have used these instruments to borrow, not to avoid taxation liabilities but to pursue their perfectly legitimate objectives. I hope that the Financial Secretary will accept that.
When housing associations first used these instruments in about 1989, they sought permission from the Government's own agency—the Housing Corporation—in the form of a section 9 consent. Instead of legislating retrospectively, it would have been appropriate for the Government to tell the Housing Corporation at that point that they thought that these forms of deep discount securities and loans were not appropriate.
5.15 pm
With his previous hat on, I think that the Financial Secretary will remember that, at that time, the Housing Corporation undertook a thorough investigation. Indeed, I should be surprised if he were not party to that investigation into the structure of the loans when housing associations first entered into them. Having given consent only four or five years ago and allowed housing associations to enter into such loans, it is not good practice for the Government now to cause housing associations additional financial problems by stopping them having the advantages provided by the loans.
Also at that time, other public bodies examined the nature of these loans. The Department of Health considered some of those where housing associations were working with health authorities, and the Treasury ensured that it was happy with the way in which the loan structures were established. At that point, no one said that such schemes were wrong or accused housing associations or universities of avoiding tax. However, by changing retrospectively the tax liabilities of such organisations, the Government are ending up with private bodies meeting public purposes.
The LSE, with which I am connected, has, through deep discount and qualifying index securities, raised about £30 million of which it has spent £16 million on new residences and £14 million on purchasing and refurbishing academic buildings. If higher education institutions cease to have the tax advantages that they currently enjoy, they will no longer be able to supply the student bed spaces that are absolutely crucial for people attending courses in inner London.
Since 1989, the housing associations have used about£130mllion: £80 million through deep discount loans—the Treasury would now lose the interest on the tax—and £50 million through qualifying index securities.
1554 Housing associations and higher education institutions should have sufficient time to unravel their loans if they are not to suffer an adverse impact from the early introduction of the Government's proposals. I think that all parties agree with the attempt to get private finance into public bodies, and I should be astounded if the Financial Secretary were to reject such a reasonable amendment.
§ The Financial Secretary to the Treasury (Sir George Young)This has been a thoughtful debate and it follows an equally thoughtful debate in Committee on the equivalent of clause 81.
There is a measure of agreement among all parties. No one is arguing that housing associations and universities should be caught as from Budget day, which is the case with every other borrower affected by clause 81, and no one has argued today that housing associations and universities should be wholly exempt for ever and a day.
The debate has focused on whether the concession already announced by the Government—to postpone the impact until April next year—is the right one or whether we should have agreed to the longer one proposed by the hon. Member for Oxford, East (Mr. Smith), which expires in the year 2000. The hon. Member for Barking (Ms Hodge) said that we should have consulted, but as I think that I explained in Committee, if one is looking at anti-avoidance—this is an anti-avoidance measure—it is, by definition, difficult to consult in advance.
My hon. Friend the Member for Carshalton and Wallington (Mr. Forman) made a thoughtful speech. I pay tribute to his work as an intermediary between the Committee of Vice-Chancellors and Principals and the Government, for his active interest in the subject and for the positive proposals which he has put to the Government to take some of the tension out of the change which is now under discussion.
I take very much to heart what my hon. Friend said about the private finance initiative. I was interested to see, as I am sure was he, that the university of Lancaster has recently launched £35 million of 30-year debenture stock, which is to be listed on the stock exchange. Press reports show that it will pay interest at a fixed rate on a quarterly basis, that it is a public issue to a range of subscribers and that it is otherwise on quite straightforward terms. That is exactly the grain of what my hon. Friend talked about: genuine private finance initiative.
The features of the university of Lancaster launch are very different from those that we have discovered in clause 81. I take very much to heart what my hon. Friend said about—where it is reasonable so to do—promoting certainty and stability. If one is to do that, the designers of the schemes will equally have to put their cards on the table. If the Government proceed with the policy of pre-transaction rulings, an element of certainty will be injected.
I welcome what the hon. Member for Glasgow, Springburn (Mr. Martin) said and I join him in paying tribute to those who work for housing associations.
§ Mr. FormanI apologise to my right hon. Friend for not intervening with my usual speed. He has just mentioned the possibility of the Government proceeding on the basis of pre-transaction rulings. So far as I understand the view of the university world, such an 1555 approach would be very helpful. If he can build on that, it would go some way towards meeting the concerns which have been expressed by all hon. Members.
§ Sir George YoungWe have already made some progress with post-transaction rulings and we have it in mind to issue—we hope—a consultative document on pre-transaction rulings later this year.
The hon. Member for Springburn, as I said, paid tribute to those in his constituency who work for housing associations and I join his tribute. I also recognise the good work done by many universities, which hon. Members have mentioned.
On the private finance initiative, I refer my hon. Friend the Member for Carshalton and Wallington to an article in the Financial Times for the weekend of 25 and 26 March, because it is exactly in line with what he was advocating. It said:
Other universities are still likely to follow"—the university of Lancaster—as continued expansion in student numbers puts pressure on them to borrow for capital projects.There is reference to some 12 other universities which are still considering taking part in the initial launch. The move that my hon. Friend advocated is now under way and the Government will certainly play their part in accelerating it.Clause 81 is directed at a growing trend for lending by banking groups to be packaged as a bilateral issue of debt securities, which are structured, often in a highly artificial way, to secure a tax advantage. The advantage goes to the lender, but part of the benefit passes to the borrower in the form of a reduced cost of borrowing. The clause removes the tax advantage. Although the first-round effect is to increase the tax liabilities of the lenders, the terms of the deals, to which the hon. Member for Sheffield, Attercliffe (Mr. Betts) referred, are such that they trigger off increases in the borrower's costs to compensate the lenders.
Perhaps I should explain briefly how the mischief that concerns us works in practice. Suppose a borrower wishes, for example, to borrow £30 million. The borrower issues a zero coupon bond, having a nominal value of £340 million, redeemable in 20 years' time. Instead of offering that issue to the market at large, the borrower issues the whole of it to a purpose-built subsidiary of a bank. The issuer gets an annual tax deduction for its accruing interest obligations, but the holder only pays tax, if at all, when the discount is realised at the bond's maturity or sale. The tax deferral substantially reduces the holder's effective charge, bringing it below the cost of conventional lending.
In addition, in many of the cases that we have seen, side agreements exist between the issuer and the bank, which allow for the bond to be redeemed on terms quite different from those specified in the terms of the issue. In practice, those side agreements convert the borrowing into London inter-bank offer rate-linked loans and thus conventional bank lending is dressed up in a complex package designed solely to secure a tax advantage that it was never intended to enjoy.
A wide range of borrowers, including housing associations and universities, have used the techniques addressed by the clause. We received a number of representations, which were discussed at length in Committee, that those particular institutions should be 1556 made a special exemption to our proposal. I saw representatives of universities and housing associations and had constructive meetings with them, but we saw no case for exempting them totally, because the techniques used by those institutions are essentially the same as, and just as artificial as, those used by other borrowers.
I am afraid that it is not a justification for borrowers to say that those particular tax-driven loans should be excused because the funds have been applied to further public policy objectives; rather, it is the contrary. Such institutions already receive substantial support from public funds. It is essential that that should be controlled and allocated between institutions in a disciplined way and not topped up on a self-service basis by recourse to tax-motivated borrowing structures.
Moreover, failing to act now to close that particular avenue would have given rise to very substantial Exchequer costs, running into hundreds of millions of pounds over time, as universities and housing associations would have every incentive to arrange more and more of their borrowings in that way.
We did, however, see force in Committee in the argument that an immediate commencement, as in the Bill as first drafted, would disrupt the short-term financial plans of housing associations and universities and so risk avoidable prejudice to our own objectives. So, we suggested that the start date for our proposal should be deferred to 1 April 1996 in the case of pre-Budget borrowing for housing associations and universities. I am grateful to my hon. Friend the Member for Carshalton and Wallington for explaining why, on reflection, the amendment in his name does not secure any particular advantage for universities.
I shall now turn to amendment No. 86, moved by the hon. Member for Oxford, East. Even if the commencement were deferred for much longer, as the Opposition propose, the significant Exchequer costs would very often go largely as a windfall gain to the banks concerned, rather than increasing the resources available to serve our housing or higher education policies. We estimate that the cost of the amendment would be about £25 million in aggregate, but the housing associations and universities would in total gain much less. I believe that that can only reinforce the case for rejecting such a change. Such an extended deferral would be unjustified on balance, even if the fruits of it flowed through wholly to the borrowers. It makes no sense to do so if they would go to any substantial extent as a benefit to bankers.
I shall deal with the point made by the hon. Member for Attercliffe who asked why we were just blocking deals for subsidiaries of the banks. If one looks at the history of the qualifying investment securities rules, one sees that they were designed for genuine public issues to the market. If the hon. Gentleman reflects on the side deals, which are a feature of the transactions that we have been discussing, he will conclude that it would be scarcely practicable to issue those artificial side agreements in cases of public issues. It is practicable only when the issue is on a bilateral basis, such as those caught by clause 81. The banks are obviously the main candidates for such deals, but of course we shall look at the matter again if other institutions start using the technique.
§ Mr. BettsDoes the Financial Secretary accept that housing associations have tried—as in the case of Lancaster university, which has been successful—to go to 1557 the markets for resources in the way that he identified as a possibility, but that the markets have not been secure about lending to housing associations? They simply do not understand the workings of housing associations and universities as well as the banks. It will take some time to build up confidence and an understanding of housing association finance, and it is that period of time which we are trying to buy through the amendment.
§ Sir George YoungI am not sure that I buy that argument. As the hon. Gentleman will know, many building societies, for example, lend substantial sums to housing associations. It is not the case that only the banks understand how housing associations work.
As I was saying, I looked with some sympathy at the problems that confronted housing associations and universities. The concession that the Government have offered is reasonable. There are sound arguments for not going to 2000, not least because the benefit would not go primarily to the universities or housing associations, but would be secured as a windfall gain to the banks. On the basis of those arguments, I invite the House to reject the amendment.
§ Mr. Andrew SmithThe significant aspect of the Financial Secretary's reply was the fact that, although he tried to argue that the housing associations and universities and their tenants would receive less benefit than the banks, he did not attempt to quantify the difference, which suggested to me that he was not altogether confident of his argument.
We have had a good debate, and I am grateful for the contributions by the hon. Member for Carshalton and Wallington (Mr. Forman) and my hon. Friends the Members for Glasgow, Springburn (Mr. Martin), for Monklands, East (Mrs. Liddell), for Sheffield, Attercliffe (Mr. Betts), for Ashfield (Mr. Hoon), for Bradford, South (Mr. Sutcliffe) and for Barking (Ms Hodge), who all showed an excellent appreciation of the importance of the issue both to tenants of housing associations and to university students in affected schemes.
The Financial Secretary said that we had had a reasonable debate, and indeed it was reasonable. I, too, acknowledge the contribution made by the hon. Member for Carshalton and Wallington. Even he did not argue against our amendment. He said that perhaps he could see why the Government were not prepared to accept it, but I have little doubt that, left to his own devices, he would have wanted to vote with us.
The debate has been reasonable, and the amendment is reasonable; the only thing that the Government have not given us is a reasonable conclusion. Those who, as a consequence, suffer rent increases, whether in housing association properties or in university accommodation, will know exactly who to blame.
§ Question put, That the amendment be made:—
§ The House divided: Ayes 256, Noes 283.
1561| Division No. 127] | [5.30 pm |
| AYES | |
| Abbott, Ms Diane | Anderson, Ms Janet (Ros'dale) |
| Adams, Mrs Irene | Armstrong, Hilary |
| Ainger, Nick | Ashton, Joe |
| Ainsworth, Robert (Cov'try NE) | Austin-Walker, John |
| Allen, Graham | Banks, Tony (Newham NW) |
| Alton, David | Barron, Kevin |
| Anderson, Donald (Swansea E) | Battle, John |
| Bayley, Hugh | Golding, Mrs Llin |
| Beith, Rt Hon A J | Gordon, Mildred |
| Bell, Stuart | Graham, Thomas |
| Benn, Rt Hon Tony | Grant, Bernie (Tottenham) |
| Bennett, Andrew F | Griffiths, Nigel (Edinburgh S) |
| Benton, Joe | Griffiths, Win (Bridgend) |
| Bermingham, Gerald | Grocott, Bruce |
| Berry, Roger | Gunnell, John |
| Betts, Clive | Hain, Peter |
| Blair, Rt Hon Tony | Hall, Mike |
| Blunkett, David | Hanson, David |
| Boateng, Paul | Hardy, Peter |
| Bradley, Keith | Harman, Ms Harriet |
| Bray, Dr Jeremy | Harvey, Nick |
| Brown, Gordon (Dunfermline E) | Henderson, Doug |
| Brown, N (N'c'tle upon Tyne E) | Heppell, John |
| Burden, Richard | Hill, Keith (Streatham) |
| Caborn, Richard | Hinchliffe, David |
| Callaghan, Jim | Hodge, Margaret |
| Campbell, Mrs Anne (C'bridge) | Hoey, Kate |
| Campbell, Menzies (Fife NE) | Home Robertson, John |
| Campbell-Savours, D N | Hoon, Geoffrey |
| Canavan, Dennis | Howarth, George (Knowsley North) |
| Cann, Jamie | Howells, Dr. Kim (Pontypridd) |
| Chidgey, David | Hughes, Robert (Aberdeen N) |
| Chisholm, Malcolm | Hughes, Simon (Southwark) |
| Church, Judith | Hutton, John |
| Clapham, Michael | Illsley, Eric |
| Clark, Dr David (South Shields) | Ingram, Adam |
| Clarke, Eric (Midlothian) | Jackson, Glenda (H'stead) |
| Clarke, Tom (Monklands W) | Jackson, Helen (Shef'ld, H) |
| Clelland, David | Jamieson, David |
| Coffey, Ann | Janner, Greville |
| Cook, Frank (Stockton N) | Jones, Barry (Alyn and D'side) |
| Cook, Robin (Livingston) | Jones, Ieuan Wyn (Ynys Mon) |
| Corbett, Robin | Jones, Jon Owen (Cardiff C) |
| Corston, Jean | Jones, Lynne (B'ham S O) |
| Cousins, Jim | Jones, Martyn (Clwyd, SW) |
| Cunliffe, Lawrence | Jones, Nigel (Cheltenham) |
| Cunningham, Jim (Covy SE) | Jowell, Tessa |
| Dafis, Cynog | Kaufman, Rt Hon Gerald |
| Dalyell, Tam | Keen, Alan |
| Darling, Alistair | Kennedy, Jane (Lpool Brdgn) |
| Davidson, Ian | Khabra, Piara S |
| Davies, Bryan (Oldham C'tral) | Kilfoyle, Peter |
| Davies, Rt Hon Denzil (Llanelli) | Lestor, Joan (Eccles) |
| Davies, Ron (Caerphilly) | Lewis, Terry |
| Denham, John | Liddell, Mrs Helen |
| Dewar, Donald | Litherland, Robert |
| Dixon, Don | Lloyd, Tony (Stretford) |
| Dobson, Frank | Llwyd, Elfyn |
| Donohoe, Brian H | Loyden, Eddie |
| Dowd, Jim | Lynne, Ms Liz |
| Dunnachie, Jimmy | McAllion, John |
| Dunwoody, Mrs Gwyneth | McAvoy, Thomas |
| Eagle, Ms Angela | McCartney, Ian |
| Eastham, Ken | Macdonald, Calum |
| Etherington, Bill | McFall, John |
| Ewing, Mrs Margaret | McGrady, Eddie |
| Fatchett, Derek | McKelvey, William |
| Field, Frank (Birkenhead) | Mackinlay, Andrew |
| Flynn, Paul | McMaster, Gordon |
| Foster, Rt Hon Derek | McNamara, Kevin |
| Foster, Don (Bath) | MacShane, Denis |
| Foulkes, George | McWilliam, John |
| Fraser, John | Madden, Max |
| Fyfe, Maria | Mahon, Alice |
| Galbraith, Sam | Mandelson, Peter |
| Galloway, George | Marek, Dr John |
| Gapes, Mike | Marshall, David (Shettleston) |
| Garrett, John | Marshall, Jim (Leicester, S) |
| George, Bruce | Martin, Michael J (Springburn) |
| Gerrard, Neil | Martlew, Eric |
| Gilbert, Rt Hon Dr John | Maxton, John |
| Godman, Dr Norman A | Meacher, Michael |
| Godsiff, Roger | Meale, Alan |
| Michael, Alun | Sedgemore, Brian |
| Michie, Bill (Sheffield Heeley) | Sheerman, Barry |
| Michie, Mrs Ray (Argyll & Bute) | Sheldon, Rt Hon Robert |
| Milburn, Alan | Shore, Rt Hon Peter |
| Miller, Andrew | Short, Clare |
| Mitchell, Austin (Gt Grimsby) | Simpson, Alan |
| Moonie, Dr Lewis | Skinner, Dennis |
| Morgan, Rhodri | Smith, Andrew (Oxford E) |
| Morley, Elliot | Smith, Chris (Isl'ton S & F'sbury) |
| Morris, Rt Hon Alfred (Wy'nshawe) | Smith, Llew (Blaenau Gwent) |
| Morris, Estelle (B'ham Yardley) | Smyth, The Reverend Martin |
| Morris, Rt Hon John (Aberavon) | Snape, Peter |
| Mudie, George | Soley, Clive |
| Mullin, Chris | Steel, Rt Hon Sir David |
| Murphy, Paul | Steinberg, Gerry |
| O'Brien, Mike (N W'kshire) | Stevenson, George |
| O'Brien, William (Normanton) | Stott, Roger |
| O'Hara, Edward | Strang, Dr. Gavin |
| Olner, Bill | Straw, Jack |
| O'Neill, Martin | Sutcliffe, Gerry |
| Orme, Rt Hon Stanley | Taylor, Mrs Ann (Dewsbury) |
| Parry, Robert | Taylor, Matthew (Truro) |
| Pearson, Ian | Timms, Stephen |
| Pendry, Tom | Tipping, Paddy |
| Pickthall, Colin | Touhig, Don |
| Pike, Peter L | Trimble, David |
| Pope, Greg | Turner, Dennis |
| Powell, Ray (Ogmore) | Tyler, Paul |
| Prentice, Gordon (Pendle) | Vaz, Keith |
| Prescott, Rt Hon John | Walker, Rt Hon Sir Harold |
| Primarolo, Dawn | Walley, Joan |
| Purchase, Ken | Wardell, Gareth (Gower) |
| Quin, Ms Joyce | Wareing, Robert N |
| Randall, Stuart | Watson, Mike |
| Raynsford, Nick | Wicks, Malcolm |
| Redmond, Martin | Wigley, Dafydd |
| Reid, Dr John | Williams, Alan W (Carmarthen) |
| Rendel, David | Wilson, Brian |
| Robinson, Geoffrey (Co'try NW) | Winnick, David |
| Roche, Mrs Barbara | Wise, Audrey |
| Rogers, Allan | Worthington, Tony |
| Rooker, Jeff | Wray, Jimmy |
| Rooney, Terry | Young, David (Bolton SE) |
| Ross, Ernie (Dundee W) | |
| Ross, William (E Londonderry) | Tellers for the Ayes: |
| Rowlands, Ted | Mr. John Cummings and |
| Ruddock, Joan | Mr. Stephen Byers. |
| NOES | |
| Ainsworth, Peter (East Surrey) | Boswell, Tim |
| Aitken, Rt Hon Jonathan | Bottomley, Peter (Eltham) |
| Alexander, Richard | Bottomley, Rt Hon Virginia |
| Alison, Rt Hon Michael (Selby) | Bowden, Sir Andrew |
| Allason, Rupert (Torbay) | Bowis, John |
| Amess, David | Boyson, Rt Hon Sir Rhodes |
| Ancram, Michael | Brandreth, Gyles |
| Arbuthnot, James | Brazier, Julian |
| Arnold, Jacques (Gravesham) | Bright, Sir Graham |
| Arnold, Sir Thomas (Hazel Grv) | Brooke, Rt Hon Peter |
| Ashby, David | Brown, M (Brigg & Cl'thorpes) |
| Atkins, Robert | Browning, Mrs Angela |
| Atkinson, David (Bour'mouth E) | Bruce, Ian (Dorset) |
| Atkinson, Peter (Hexham) | Budgen, Nicholas |
| Baker, Rt Hon Kenneth (Mole V) | Burns, Simon |
| Baker, Nicholas (North Dorset) | Burt, Alistair |
| Baldry, Tony | Butcher, John |
| Banks, Matthew (Southport) | Butler, Peter |
| Banks, Robert (Harrogate) | Carlisle, John (Luton North) |
| Bates, Michael | Carlisle, Sir Kenneth (Lincoln) |
| Batiste, Spencer | Carrington, Matthew |
| Bellingham, Henry | Carttiss, Michael |
| Bendall, Vivian | Channon, Rt Hon Paul |
| Beresford, Sir Paul | Chapman, Sydney |
| Biffen, Rt Hon John | Clappison, James |
| Bonsor, Sir Nicholas | Clarke, Rt Hon Kenneth (Ru'clif) |
| Booth, Hartley | Clifton-Brown, Geoffrey |
| Coe, Sebastian | Howard, Rt Hon Michael |
| Colvin, Michael | Howarth, Alan (Strat'rd-on-A) |
| Congdon, David | Howell, Rt Hon David (G'dford) |
| Coombs, Anthony (Wyre For'st) | Howell, Sir Ralph (N Norfolk) |
| Coombs, Simon (Swindon) | Hughes, Robert G (Harrow W) |
| Cope, Rt Hon Sir John | Hunt, Rt Hon David (Wirral W) |
| Cormack, Sir Patrick | Hunt, Sir John (Ravensboume) |
| Couchman, James | Hunter, Andrew |
| Cran, James | Hurd, Rt Hon Douglas |
| Currie, Mrs Edwina (S D'by'ire) | Jack, Michael |
| Curry, David (Skipton & Ripon) | Jenkin, Bernard |
| Davies, Quentin (Stamford) | Jessel, Toby |
| Davis, David (Boothferry) | Johnson Smith, Sir Geoffrey |
| Day, Stephen | Jones, Gwilym (Cardiff N) |
| Devlin, Tim | Jones, Robert B (W Hertfdshr) |
| Dicks, Terry | Jopling, Rt Hon Michael |
| Dorrell, Rt Hon Stephen | Kellett-Bowman, Dame Elaine |
| Douglas-Hamilton, Lord James | Key, Robert |
| Dover, Den | King, Rt Hon Tom |
| Duncan, Alan | Kirkhope, Timothy |
| Duncan-Smith, lain | Knapman, Roger |
| Dunn, Bob | Knight, Mrs Angela (Erewash) |
| Durant, Sir Anthony | Knight, Greg (Derby N) |
| Eggar, Rt Hon Tim | Knight, Dame Jill (Bir'm E'st'n) |
| Elletson, Harold | Knox, Sir David |
| Emery, Rt Hon Sir Peter | Kynoch, George (Kincardine) |
| Evans, David (Welwyn Hatfield) | Lait, Mrs Jacqui |
| Evans, Jonathan (Brecon) | Lang, Rt Hon Ian |
| Evans, Nigel (Ribble Valley) | Lawrence, Sir Ivan |
| Evans, Roger (Monmouth) | Legg, Barry |
| Evennett, David | Lennox-Boyd, Sir Mark |
| Faber, David | Lestor, Joan (Eccles) |
| Fabricant, Michael | Lidington, David |
| Fenner, Dame Peggy | Lightbown, David |
| Field, Barry (Isle of Wight) | Lilley, Rt Hon Peter |
| Fishbum, Dudley | Lloyd, Rt Hon Sir Peter (Fareham) |
| Forman, Nigel | Luff, Peter |
| Forsyth, Rt Hon Michael (Stirling) | Lyell, Rt Hon Sir Nicholas |
| Forth, Eric | MacKay, Andrew |
| Fowler, Rt Hon Sir Norman | Maclean, David |
| Fox, Dr Liam (Woodspring) | McLoughlin, Patrick |
| Fox, Sir Marcus (Shipley) | McNair-Wilson, Sir Patrick |
| Freeman, Rt Hon Roger | Maitland, Lady Olga |
| French, Douglas | Malone, Gerald |
| Fry, Sir Peter | Mans, Keith |
| Gale, Roger | Marland, Paul |
| Gallie, Phil | Marshall, John (Hendon S) |
| Gardiner, Sir George | Martin, David (Portsmouth S) |
| Garnier, Edward | Mellor, Rt Hon David |
| Gillan, Cheryl | Merchant, Piers |
| Goodlad, Rt Hon Alastair | Mills, lain |
| Goodson-Wickes, Dr Charles | Mitchell, Andrew (Gedling) |
| Gorman, Mrs Teresa | Mitchell, Sir David (NW Hants) |
| Gorst, Sir John | Moate, Sir Roger |
| Grant, Sir A (SW Cambs) | Monro, Sir Hector |
| Greenway, Harry (Ealing N) | Montgomery, Sir Fergus |
| Greenway, John (Ryedale) | Needham, Rt Hon Richard |
| Griffiths, Peter (Portsmouth, N) | Nelson, Anthony |
| Hague, William | Neubert, Sir Michael |
| Hamilton, Rt Hon Sir Archibald | Newton, Rt Hon Tony |
| Hamilton, Neil (Tatton) | Nicholls, Patrick |
| Hampson, Dr Keith | Nicholson, David (Taunton) |
| Hannam, Sir John | Norris, Steve |
| Haselhurst, Alan | Onslow, Rt Hon Sir Cranley |
| Hawkins, Nick | Ottaway, Richard |
| Hawkstey, Warren | Page, Richard |
| Heald, Oliver | Paice, James |
| Heath, Rt Hon Sir Edward | Patnick, Sir Irvine |
| Heathcoat-Amory, David | Patten, Rt Hon John |
| Hendry, Charles | Peacock, Mrs Elizabeth |
| Heseltine, Rt Hon Michael | Pickles, Eric |
| Higgins, Rt Hon Sir Terence | Porter, Barry (Wirral S) |
| Hill, James (Southampton Test) | Porter, David (Waveney) |
| Hogg, Rt Hon Douglas (G'tham) | Portillo, Rt Hon Michael |
| Horam, John | Powell, William (Corby) |
| Hordem, Rt Hon Sir Peter | Rathbone, Tim |
| Redwood, Rt Hon John | Tapsell, Sir Peter |
| Renton, Rt Hon Tim | Taylor, Ian (Esher) |
| Richards, Rod | Taylor, John M (Solihull) |
| Riddick, Graham | Taylor, Sir Teddy (Southend, E) |
| Rifkind, Rt Hon Malcolm | Temple-Morris, Peter |
| Robathan, Andrew | Thomason, Roy |
| Roberts, Rt Hon Sir Wyn | Thompson, Sir Donald (C'er V) |
| Robertson, Raymond (Ab'd'n S) | Thompson, Patrick(Norwich N) |
| Robinson, Mark (Somerton) | Thomton, Sir Malcolm |
| Roe, Mrs Marion (Broxbourne) | Thumham, Peter |
| Rowe, Andrew (Mid Kent) | Towned, John (Bridlington) |
| Rumbold, Rt Hon Dame Angela | Townsend, Cyril D (Bexl'yh'th) |
| Sackville, Tom | Tracey, Richard |
| Scott, Rt Hon Sir Nicholas | Tredinnick, David |
| Shaw, David (Dover) | Trend, Michael |
| Shaw, Sir Giles (Pudsey) | Trotter, Neville |
| Shephard, Rt Hon Gillian | Twinn, Dr Ian |
| Shepherd, Colin (Hereford) | Vaughan, Sir Gerard |
| Shepherd, Richard (Aldridge) | Waldegrave, Rt Hon William |
| Shersby, Michael | Walden, George |
| Sims, Roger | Walker, Bill N Tayside |
| Skeet, Sir Trevor | Waller, Gary |
| Smith, Tim (Beaconsfield) | Wardle, Charles (Bexhill) |
| Soames, Nicholas | Waterson, Nigel |
| Spencer, Sir Derek | Watts, John |
| Spicer, Sir James (W Dorset) | Wells, Bowen |
| Spicer, Michael (S Worcs) | Whitney, Ray |
| Spink, Dr Robert | Whittingdale, John |
| Spring, Richard | Widdecombe, Ann |
| Sproat, lain | Wiggin Sir Jerry |
| Squire, Robin (Hornchurch) | Wilkinson, John |
| Stanley, Rt Hon Sir John | Wilshire, David |
| Steen, Anthony | Winterton, Mrs Ann (Congleton) |
| Stephen, Michael | Wolfson, Mark |
| Stem, Michael | Wood, Timothy |
| Stewart, Allan | Yeo, Tim |
| Streeter, Gary | Young, Rt Hon Sir George |
| Sumberg, David | Tellers for the Noes: |
| Sweeney, Walter | Mr. Derek Conway and |
| Sykes, John | Mr. David Willetts. |
§ Question accordingly negatived.