EARNINGS OF WORKERS SUPPLIED BY SERVICE COMPANIES ETC.

HC Deb 03 November 1999 vol 337 cc404-37

Lords amendment: No. 53, to leave out clause 70.

The Financial Secretary to the Treasury (Mr. Stephen Timms)

I beg to move, That this House disagrees with the Lords in the said amendment.

Mr. Deputy Speaker

With this, it will be convenient to take Government amendments (a) to (t) related thereto, Lords amendment No. 54 and Government amendments (a) to (t) related thereto, and Lords amendments Nos. 77, 85, 86, 90, 93, 94, 128 to 140 and 184 to 191.

Mr. Timms

The amendments restore to the Bill the clauses dealing with the avoidance of national insurance contributions through the use of personal service companies and similar intermediaries. There are also consequential amendments to ensure that the clauses are covered by the commencement powers provided in the Bill.

In the March Budget, my right hon. Friend the Chancellor announced his intention to tackle tax and national insurance avoidance through the use of intermediaries such as service companies. In such cases, a worker sets up a company to provide his or her services to a client in circumstances where, were it not for the service company, the worker would be an employee of the client. That allows the client to make payments to the company rather than the individual without deducting PAYE or national insurance. The worker can then take the money out of the service company in the form of dividends instead of salary; dividends are not liable to national insurance.

Therefore, it is possible for a highly paid office worker earning perhaps £1,800 a week to pay no national insurance contributions at all, while a nurse earning £300 a week pays £23.45 and her employer pays £26.53 in national insurance. A self-employed accountant making £480 a week would pay about £35 in national insurance, whereas people using service companies can pay nothing at all. That is obviously not right and we are sorting it out.

Mr. Ian Bruce (South Dorset)

I am sure that the Minister will come to the detail of how the Government amendments will amend the Bill as originally drafted. He has just said that the clauses are intended to cover the circumstances in which a person goes from being employed to being a limited company so as to avoid national insurance. Is that the only sort of person covered? We interpret the clauses as covering every single person in a one-man business.

Mr. Timms

I shall now explain how the measures will work and I hope that that will answer the hon. Gentleman's question.

The Chancellor's announcement made it clear that the principle behind the measure—that avoidance had to be stopped—was not for negotiation, but that we would hold consultations on the details of the measure to ensure that legitimate businesses were not damaged. Soon after the announcement, the Inland Revenue sent out more than 1,800 copies of an information pack setting out a basic mechanism for delivering the Chancellor's objective; there were two consultative meetings with 38 representative bodies to discuss the details of the proposals; and 1,700 written comments and suggestions were sent in. Not only did we give the representative bodies the opportunity to comment, but we responded to what they told us with the changes embodied in the Government amendments.

10.30 pm

Mr. Bercow

The hon. Gentleman justifies his position on the ground that the Government have consulted. Given that the tax law review committee of the Institute for Fiscal Studies has been considering the problem of the classification of self employment for the past three years, will the hon. Gentleman explain to the House why the Government did not have the decency and wisdom to await its recommendations before coming forward with this blunderbuss of a policy proposal?

Mr. Timms

I read that point in the Conservative central office brief as well. The hon. Gentleman asked why we did not wait longer, given that that committee has been considering the matter for three years. We need to make progress, because there is a serious problem. People can choose for themselves how much national insurance they pay or whether they pay it at all.

I have had an interesting e-mail correspondence with someone who works on that basis in a government agency. His service company receives £25,000 a year from the agency, and he pays himself a salary of £15,000 and a dividend of £10,000. That is how he splits up the payment that his company receives. No national insurance is paid on the dividend. That split between salary and dividend is entirely up to him. He can split the money up how he likes, and he can choose for himself how much he pays and by what route. That is absurd.

That person could equally well take the advice provided in the 22 October issue of Computer Contractor in an article entitled Make hay while the sun shines". The advice is: Review your present salary level. The optimum salary to draw this year is £4,335 which covers your personal allowance. It goes on: Beg, borrow or steal to avoid paying higher-rate tax this year. Next year you will not be able to avoid it. You should recognise your company for what it is, a tax haven. That is what we are changing in these proposals, and we are absolutely right to do so.

Mr. Malcolm Bruce (Gordon)

Many of my constituents will be extremely angry about the way in which the Minister has presented this case. Many of them are employed by oil companies and contractors, and have been forced to become self-employed contractors to maintain their livelihoods. Far from using this for tax avoidance, they are facing pay cuts. The Inland Revenue is capable, by negotiation, of discovering when people are using the system fraudulently. This legislation is quite unnecessary.

Mr. Timms

The hon. Gentleman is right. People were forced into this arrangement because of the strong tax incentive. We are happy for people to set up service companies, but we do not want the tax inducement in the system that forces people down that road. The hon. Gentleman is right to make the point that people have been forced into this arrangement against their will because the tax system has encouraged this practice.

Several hon. Members

rose—

Mr. Timms

I shall make some progress, and I shall give way in a couple of minutes.

There are good reasons for using service companies, apart from saving tax and national insurance contributions. They provide a flexible mechanism for supplying skilled personnel for short contracts, cut out paperwork for clients and allow workers to manage their careers more effectively. The changes that we are making to the mechanisms in the original proposals fully reflect that. These measures will deliver the Chancellor's objective of ensuring that people who work through service companies pay a fair share of tax and national insurance contributions while preserving the flexibility that is valuable in the modern employment market.

Mr. Swinney

The examples that the Minister gave are unrepresentative of the problem that the Government are trying to tackle. Some contractors may make a great deal of money, but they have to carry the strain during barren periods when there is no work in some sectors of the economy. That happens in the North Sea oil sector at certain times. The Minister should have given us representative examples, rather than the prejudiced views that we have heard tonight.

Mr. Timms

The position is exactly as I have described it. The arrangement allows people to decide how much they take in salary and how much they take in dividend, which means that they can choose how much national insurance they pay. That cannot be right: it allows blatant tax avoidance, and is an obvious loophole.

Mr. Michael Jack (Fylde)

Will the Minister give way?

Mr. Timms

I will not give way at this stage, but I will in a moment. I want to make some progress in presenting the case, because the changes that we are making are absolutely right.

The original proposals were subject to two complaints. The first was that a new burden was being imposed on the client to run PAYE and national insurance for his or her employee; the second was that there was a new and much tighter status test relating to the idea of control. The new proposal—the proposal that we are discussing—has only one feature. I have no objection to service companies, but the proposal requires service companies to pay a sensible salary to the person doing the work, rather than diverting the money into dividends.

Mr. Jack

So far, the Minister has used a broad brush and spoken in general terms when presenting his argument for reinstating this part of the Bill. He has just praised certain types of personal service companies. Will he tell us, in straightforward terms, how many are in his "good" category and are deemed all right, and how many are deemed not to be all right? Will he also tell us how much tax and how much national insurance is at risk? So far, he has given us no perspective enabling us to judge the merits of his case.

Mr. Timms

We do not know exactly what is happening in each of the companies concerned, but I can tell the right hon. Gentleman that large sums are at stake—certainly hundreds of millions of pounds. He said that I had spoken in general terms; let me give him the specifics. The modified proposals were published on 23 September in an Inland Revenue press release. They will place responsibility for complying with the new rules on the service company rather than the client. As I have said, clients will still have the option of continuing to hire workers through service companies on the basis of gross payment without the risk of a new tax or national insurance liability. The obligation to pay a fair share of tax and national insurance will still be there, but it will be an obligation on the service company, not the client.

Mr. Graham Brady (Altrincham and Sale, West)

The Minister says that there will be an obligation to pay a reasonable, or sensible, salary. How would he decide what constituted a reasonable salary in the case of Firsway Computer Services, a small company in my constituency that is currently making a considerable investment in equipment? Surely it is not possible to pay what the Minister happens to deem to be a reasonable salary if it is necessary to make an investment in the business.

Mr. Timms

In a moment I shall explain exactly how the calculation will be made.

Dr. Phyllis Starkey (Milton Keynes, South-West)

My constituency contains one very large information technology firm and a number of small consultancies. Can my hon. Friend confirm that his proposals will not put people running small service companies at a disadvantage in comparison with large consulting set-ups?

Mr. Timms

My hon. Friend has raised an important point, which she has raised with me before. I know that she takes a close interest in the subject. I can confirm that there will be no threat, and no bias towards larger firms at the expense of smaller firms. There has been some misunderstanding about that, but I can give my hon. Friend the reassurance that she seeks.

Mr. Bercow

rose—

Mr. Ian Bruce

rose—

Mr. Timms

I will not give way again, because I need to make progress if I am to answer some of the questions that Conservative Members have raised.

When it has been established that the new legislation applies to a worker, that person will be obliged to pay PAYE tax and class 1 national insurance on a minimum salary from the service company. The minimum salary is calculated by taking the money received by the service company from the client for the relevant job and deducting amounts for expenses paid by the company.

Those deductions are any expenses that an employee in the same circumstances would be entitled to claim as deductions for tax purposes—

Mr. Charles Wardle (Bexhill and Battle)

Will the Minister give way?

Mr. Timms

I will not for the time being.

Other deductions include any employer's contributions paid by the intermediary to an approved pension scheme on behalf of the worker, any secondary class 1 national insurance contributions paid by the intermediary in respect of the worker, plus a flat-rate allowance of 5 per cent. of the intermediary's receipts from relevant contracts. That deduction is to recognise the general and miscellaneous expenses associated with running a service company.

Sir Nicholas Lyell

rose—

Mr. Timms

I give way, but then I will need to make some progress.

Sir Nicholas Lyell

Constituents have made the point to me today that the 5 per cent. allowance has to cover training and that it is wholly inadequate to do that in, for example, the information technology sector, as I am sure the Minister would recognise if he studied the matter carefully. What does he have to say about that?

Mr. Timms

Why did the previous Government leave so many gaping tax loopholes? It is high time that the loopholes were plugged. That is what we are doing with the change. It is high time that the change was made.

Several hon. Members

rose—

Mr. Timms

I will not give way. I need to make some more progress.

Several hon. Members

rose—

Mr. Deputy Speaker

Order. The Minister has stated that he will not give way at the moment.

Sir Nicholas Lyell

Will the Minister give way?

Mr. Timms

I will not at the moment.

The rules that apply to everyone else, including people in the IT and engineering industries who do not work through service companies, are appropriate for IT consultants as well. Many IT consultants will be able to demonstrate that they would qualify to be treated as self-employed under the ordinary definition and therefore would not be affected by the legislation, but someone who works for a long period for a single client, sitting at a desk in the client's office, as part of a team consisting of a mixture of contractors and permanent employees, all doing identical jobs, should pay the same tax and national insurance as those permanent employees. It is wrong that the act of setting up a one-man company can enable—[Interruption.]

Mr. Deputy Speaker

Order. The hon. Member for Islington, North (Mr. Corbyn) is standing and shouting. The Minister has stated that he is not giving way at the moment.

Mr. Timms

It is wrong that that act should enable an individual to save over 20 per cent. in national insurance. That is the unfair competition that needs to be addressed and that we are addressing with the changes.

It has been argued that the proposals would favour big foreign firms over small United Kingdom businesses, but that is not true. Our proposals will prevent a form of avoidance that is only available to workers who control their own service companies and can use them to decide the form in which they take their income to minimise tax and national insurance.

Mr. Bercow

Will the Minister give way?

Mr. Timms

No, I will not.

It is not an issue for big companies that cannot be used by employees to manipulate the form of their income. Where there is evidence of tax avoidance by large companies, we are just as ready, unlike the previous Government, to act against that. The real competition that we should be concerned about is that between people who are employees and others doing substantially the same job, but using a service company to pay much less in tax and national insurance. That is unfair and we shall stop it.

The arguments in the other place against our proposals do not add up. There has been a well-funded campaign by a special interest group that is seeking to preserve its right to avoid tax—make hay while the sun shines. We are not going to back down; we owe it to the millions of taxpayers and contributors who are paying their fair share and who have to bear the burden when other people do not do so. I ask the House to support them, the motion and the Government amendments.

Mr. Trend

The Government try to be the little friend of all the world, but, tonight, they have voted against the disabled, war widows and the bereaved and, now, they are showing that they are no friends of entrepreneurs, or small business men.

The Government are trying to have it both ways. On Monday, the Chancellor of the Exchequer trumpeted a £40 million tax break for entrepreneurs, but, just two days later, the Government are supporting a £475 million tax grab on entrepreneurs. We have to judge the Government by what they do, not by what they say.

10.45 pm

The Government claim that their new stealth tax was designed to counter tax avoidance in the personal services sector. Let there be no misunderstanding about it: we clearly support efforts to tackle genuine tax avoidance. The Government say that there was general concern about the hiring of individuals through their own service companies in the interests of realising fiscal advantages. The Government's objective sounds whiter than white. But who are those wicked tax-dodging entrepreneurs?

Like other hon. Members, I have received considerable correspondence on the subject from constituents—all of them small business men of the kind the Prime Minister says he supports. One of them—the director of a small information technology consultancy business working within the mobile telecommunications industry—told me that forming his own business was a way in which he could progress and yet stay technologically up to date. He said that, if IR 35 is implemented, with the inherent possible risks of being out of work between contracts, there will be no point in continuing his business. Other constituents have written in the same vein.

Mr. Bercow

The message that my hon. Friend conveys to the House is one that will have been heard already today by many right hon. and hon. Members on both sides of the House—not least from Mr. Robert Evans, a distinguished entrepreneur from my own Buckinghamshire constituency, whom I had the privilege of seeing earlier today. Does my hon. Friend agree that, if the Minister is to justify his position that the provision will favour big companies over small, he should do the decent thing and issue today a list of the small companies that have supported his risible proposals.

Mr. Trend

My hon. Friend makes his own point extremely well.

If the Minister had met the hundreds of people involved in the issue who had the time and ability to come to the House today, he would have seen literally scores of people—honest, hard-working entrepreneurs—who were incredibly angry with the Government, who they feel have fingered them for a stealth tax. Those people are not artful tax dodgers, but decent, honest citizens who are using their initiative, expertise and hard work for career development and opportunities for increased remuneration—not at other people's expense, but from their own efforts. They may be ambitious, but what is wrong with that?

My constituents tell me that, without exception, if IR 35 is implemented, they may be forced to close the small specialist companies they have formed. The Government's proposed new stealth tax on the self-employed is calculated deliberately and viciously to penalise the very entrepreneurial society that the Government, with supreme hypocrisy, say they support. I should remind the House how the proposal came to be considered.

The proposal was first considered by the House on Report, on a night when the Government were trying to avoid another grief of their own making. The proposal then went off to another place. There, the original proposal was savaged, and then radically tinkered with. The new proposal, however, was just as half-baked as the original.

The Government said that they would consult on the proposal over the summer. However, there was no formal consultation document, no terms of reference, no invitation to explore alternative solutions, and no indication of the time scale of the consultation—all of which we should have expected to see in a matter of this importance.

Mr. Michael Fabricant (Lichfield)

Does my hon. Friend realise that the matter has an even longer history? Does he know that the Inland Revenue made the same proposal in 1983, but that it was rejected by the then Chancellor of the Exchequer as bad for business? Does he realise that it was proposed again, in 1987, but that it was rejected again, because it was realised that it would be bad for business? Only the current Government—who do not understand what business is all about—have accepted the recommendation from tax officials.

Mr. Trend

The Government's acceptance of the proposal demonstrates that they have not taken on board the detailed criticisms of the proposal's effects on the knowledge-based economy.

We should also note that, despite the changes made in the other place, the bottom line remains the same. The Red Book stated that, in the first year, the proposal would enable a tax grab of £475 million. Less than two weeks ago, the Inland Revenue told us that the new proposal would yield £475 million annually. Whatever else has changed, it is not the Treasury's sticky fingers. There have not been overall changes—merely changes within the group targeted by the Treasury.

Mr. Ian Bruce

The Government are saying that anyone who takes dividends must pay national insurance on them. Surely the logic of that argument must apply to the millionaire entrepreneur who gets millions of pounds of dividend income and perhaps pays himself only £20,000 or £30,000 a year. Surely the principle that the Government apply to the one-man business must apply to everybody else. Perhaps that is their final solution.

Mr. Trend

I agree with my hon. Friend. There is no telling where the proposals might lead. I shall come to his point in a minute.

The proposals deserve detailed examination. It is unjust to Members of Parliament that the proposals have never been given proper consideration. It is also unjust to those who work in the knowledge-based economy, who have been treated high-handedly. We shall seek to get the House to agree with another place in keeping the proposal out of the Bill altogether.

Mr. Wardle

Bearing in mind the facts that the proposals affect tax as well as national insurance contributions and that the Contributions Agency is to be transferred to the control of the Inland Revenue, should not the debate take place when we consider the next Finance Bill?

Mr. Trend

The Opposition have made that point frequently. Now that the Contributions Agency has been transferred, it seems more logical than ever that the issue should be dealt with in a Finance Bill. The Inland Revenue aspects of the proposal will have to be dealt with in that way, so we shall revisit the issue many times next year, I suspect.

There are several important points that the Government appear not to have understood. I shall attempt to explain them briefly. The first is the importance of outsourcing. Over the past 20 years it has become increasingly common for high-tech companies to outsource some of their requirements for engineers and computing professionals. That is particularly important in the oil and information technology sectors, where projects commonly last between six and 24 months. The skills required are often highly specialised, and a client may not have a full-time post for an engineer with a given skill. Under those circumstances it makes good business sense to use contract staff instead of taking on full-time employees and laying them off at the end of the project. That way of working has become popular because it is flexible and efficient. It has nothing to do with any tax advantages of using a corporate structure.

The second point is that contract staff are as likely to be employees of large consultancies as independents working through their own companies. If the reason for outsourcing were to disguise employment and avoid tax, we should not find large consultancies providing salaried staff as contractors. One would also expect that the fees paid to a disguised employee would be less than the market-rate salary for a genuine employee. If not, there is no saving to the client. In reality, the rates charged are several times the corresponding salary.

The third point is that profits can be made from knowledge. The difference between the fee and the consultant's salary represents the costs and profits of the company providing the contractor. To equate the fee with the consultant's salary is to make a fundamental economic error: it amounts to saying that there can be no profit in providing skills and knowledge, but that is what the knowledge-based economy is about.

The Government's assumption has been that the same amount is paid as a fee to a service company or directly as a salary. That would hold in the case of disguised employment, but it is not the case in the knowledge-based economy, where the fee is generally three to six times the salary. That must be evidence that a genuine business transaction is involved and that the arrangement is not to disguise employment. No client would pay such a premium simply to help a consultant to avoid tax.

There is a problem in trying to distinguish between an outsourcing contract entered into for genuine business reasons and one to disguise employment or avoid tax. The aim of the new proposals is to make that distinction by applying case law self-employment tests to any contract staff who work through their own companies or partnerships The Government want to apply those tests to each individual contract, leaving contractors uncertain about how much tax they will have to pay.

Contractors work as employees of their own companies, providing services to other companies. This outsourcing arrangement is the same as that where large consultancies are used, but small contractors are uniquely being told that 95 per cent. of their fee income will be treated as salary for tax purposes. The message is clear: "If you work, do not own your company; if you own a company, do not work." Bosses can make profits, but workers cannot.

My final point concerns fairness. The Paymaster General has stated in numerous letters to concerned business men that she wishes to see a fairer system. I am sure everyone in the House wants that. Independent consultants wish to be able to provide the same services on the same terms as the large consultancies—that is fair. They want to be free to use those profits in the same way as a large consultancy can use its profits—that is fair, too.

Those people do not wish to pay less tax than either an employee or a large consultancy and, in fact, they generally pay more tax than either. Lower overheads mean greater profits, which means more corporation tax paid, not less.

The Prime Minister, the Chancellor and other Ministers have repeatedly made statements about the importance of the knowledge-based economy and especially the IT sector. The contrast with these proposals is astounding.

The Prime Minister told this House only this afternoon that IR 35 would not drive legitimate businesses out of the country. But Richard Barron of the Institute of Directors has said that the Government proposals will hit a lot of legitimate businesses. The result will be less business being done in the UK. The Professional Contractors Group reports that, every week, more of its members are leaving the country because of IR 35. Is it not the case that, far from making Britain the enterprise centre of the new economy, the Government are engineering Labour's new brain drain?

We will never tolerate abuse of the tax and national insurance system. However, it appears that other tackling approaches to abuse of the system have not been adequately explored. This could be addressed through a properly conducted consultation process. The use of existing powers, together with a degree of self-regulation within the industry, could tackle any real abuse.

So little thought has gone into these proposals that one must wonder whether the Government have been less concerned with reducing disguised employment than with increasing disguised taxation. This would be a grave miscalculation.

The Secretary of State told the CBI conference: Entrepreneurs take risks in the face of uncertainty and open up new markets. Governments must not hinder them, but work to ensure the market functions properly and contribute to a strong, just and fair society. The Chancellor told the same conference that because we understand the importance of e-commerce we have set ourselves the task of making Britain by 2002 the most favourable environment in which to conduct e-commerce". How do the Government think British businesses are going to adapt to the e-commerce revolution when the consultants who put those systems in place have been driven out of business or left the country? Why do the Government think that entrepreneurs should take risks in the face of uncertainty and open up new markets? It is the Government who are hindering them. Never mind working to ensure that the market functions properly—the Government are not contributing to a strong, just and fair society. We cannot have a knowledge-based economy with an ignorance-based Government. I urge the House to reject this whole shameful package.

Dr. George Turner

Having worked closely with many in the IT industry over a long period, I can assure Ministers that they are right to look at a long-running scandal—the abuse that can be made of one-person companies to the detriment of the taxpayer and the general public. There has been a complete lack of intent in terms of looking at the way in which people have abused that privilege.

11 pm

Will my hon. Friend the Financial Secretary explain a little more clearly his thinking on the distinction between the employed and the self-employed? As I understand it, if people are considered as effectively self-employed in terms of their relationship with the company that they are working for, an entirely different set of rules from those that he announced earlier would apply.

That is an important point, because I cannot see how people can call themselves entrepreneurs if their conditions are essentially those of a company employee. The hon. Member for Windsor (Mr. Trend) seemed entirely to ignore that important distinction. The hon. Gentleman was correct, however, in saying that in many companies there will be peaks of demand for information technology skills that even large companies could not be expected to supply from their permanent staff, and that companies make up that skills shortfall in a mixture of ways.

Companies look to larger companies to supply consultants with wide experience to lead teams involving a mixture of permanent employees and the people whose position we are discussing. It is clear that it is in the interests of good IT that we do not prevent that happy mixture from continuing. The Government must ensure that no unfair advantage is taken of the simple basis of setting up a company. I think that the measures are designed to do that.

We must also ensure that we understand how important training is to those who want to work in that environment. The Government should carefully consider allowing those who can make a good case to the effect that they are providing a service of the kind that I have described to charge the appropriate training to their company. Appropriate training in this area is very expensive and is highly unlikely to be fundable by taking a few percentage points off the fee income that would properly be attracted under good working relationships.

We must ensure that, in protecting those who are genuinely using a company to invest in their own training and education and seeking to profit from it, we do not also allow through the large number of people who, as I know for a fact, have historically exploited the existing regime. I hope that we will continue to consider the issue sensitively, especially when there is doubt about whether someone has self-employed or employed status. We should in particular give sympathetic consideration to genuine expenditure on training.

Dr. Vincent Cable (Twickenham)

Several veterans of the debate six months ago are present, including the Minister, but what has happened since is a gradual growth of awareness about what the measure will achieve. Some of us are beginning to receive postbags comparable to those on fox hunting and the issue is arousing real and strong feelings.

In order to take the debate forward, I shall address some of the arguments that the Government have advanced tonight. There are three arguments for what the Government are trying to do. One is revenue, the second is stopping what they regard as tax avoidance, and the third is fairness—the idea that nurses and computer consultants should be treated on the same basis.

On the revenue argument, when this debate started, we were talking about large sums of money. Some £450 million would be generated and would be spent on good causes such as schools and hospitals, and other things of which we all approve. The Inland Revenue has subsequently revised its estimate to more than £200 million, but that is also probably an exaggerated sum. One reason for that is that the contributory principle cuts both ways. If people do not pay national insurance contributions, they do not get the benefits, but if they are forced into being employees they become eligible for contributory benefits. Many of the people in that category have said clearly that if they are made redundant under the new regime, they will start to claim benefits. The loss to the Treasury will become substantially greater.

The other reason why the Treasury estimates are almost certainly exaggerated is that economic leakages will occur. That will happen in two obvious ways. First, some individuals will simply move somewhere else. The profession is very mobile and, as my hon. Friend the Member for Arrogate and Knaresborough (Mr. Willis) has pointed out in the past, several companies are moving to Frankfurt because of the new regime. It would not take an enormous flood of companies to do the same to cut the dividend tax revenue, and the value added tax that goes with it, to the point where all the supposed benefits of the measure would be lost.

The other channel through which loss will occur is that of end-users who cease to become competitive. Given the high pound, margins are very fine and the market is very competitive. Countries such as India are moving into the market, and they have good people and low costs. Work will be lost at the margin and revenue will be lost to the Treasury. The Treasury should supply a revised estimate of the real revenue from the measure. As a hint, perhaps it could draw upon the regulatory impact assessment that the Inland Revenue has done, which is parked in an obscure corner of its website, and which suggests that the loss of revenue will be substantial. The revised figure should take the leakages into account.

Mr. Fabricant

The hon. Gentleman said that leakages could occur in two ways, but there is a third way. Because software can be transmitted by e-mail, some individuals are planning to do their work in the United Kingdom but invoice from countries in the European Union, such as Holland. That will mean that we will lose VAT and the direct taxes, and other countries will gain. The Treasury has not done its homework.

Dr. Cable

I am sure that there will be other leakages.

Mr. David Heath

There is yet another form of leakage, in that businesses will cease to trade. The people who are engaged in those one-man consultancies are often in their late 40s and early 50s and are precisely the people who find it most difficult to re-enter the employment market. Instead of contributing to the Exchequer, they would become a drain on it.

Dr. Cable

I am sure that we could go on all night adding more channels for loss of revenue.

The second issue is that of avoidance. Ministers seem to have a caricature picture of many people who do ordinary nine-to-five jobs in IT companies, are paid substantial salaries, have a Porsche in the company garage and have some clever accountant to fix the tax system so that they do not have to pay NICs. That is a grotesque distortion of what happens. The strength of feeling has been summarised by my hon. Friend the Member for Gordon (Mr. Bruce). People really resent being characterised in that way. Many people who work as one-person companies have no choice but to work in that way, as many contracts issued in that business are issued only to people who are limited companies.

The irony is that some genuine tax avoidance problems exist. The Minister knows one of them, the Friday night-Monday morning problem, very well. That practice—when a person resigns from a company on Friday and signs up with it again on Monday—is an example of genuine avoidance. It is common in the industry, but the Bill does nothing to prevent it.

Mr. Wardle

Does not the hon. Gentleman agree that most sensible small business people will turn to the Inland Revenue for advice? Does he not agree with the tax experts in the Institute of Chartered Accountants, who say that the Inland Revenue's advice will not be fully operational until next year and that a backlog for that advice is therefore likely to build up? Should not the Government walk before they try to run?

Dr. Cable

A great deal of technical detail remains to be resolved, covering such matters as the definitions of schedules D and E, and the problem of expenses. I shall turn to those matters later, but the mass of detail, involving thousands of contracts, is too great to be sorted out in the next four months.

As for fairness, superficially, the question is plausible and reasonable: why should a nurse earning £20,000 a year be in a less advantageous position than a computer software contractor earning the same amount? That possibility sounds terribly unfair, but the two people are not in comparable positions, as the single-person company has no job security or contributory benefits.

The credibility of the fairness argument was destroyed by a cynical action that the Government took a couple of weeks ago, when they agreed to a loophole found by a delegation of City lawyers and accountants. Will the Minister confirm that, as a result, the City's six biggest accountancy firms, and its leading law firms, will now be exempted from the provisions of IR 35, even though the small computer consultants will still have to pay? If the fat cats are to be exempt from IR 35, it totally invalidates the moral basis of the argument about unfairness.

Mr. Edward Davey (Kingston and Surbiton)

A constituent of mine, Mr. Richard Hider, is a civil engineer with his own service company. His earnings tend to be less than £40,000 a year, which is a relatively modest income for a consultant. Does not my hon. Friend agree that it is totally unfair that the Inland Revenue should be looking to impose a tax hike of thousands of pounds on a person who earns such a modest income? Where is the fairness in that?

Dr. Cable

My hon. Friend is right, but it is revealing that interventions with further examples should be coming only from Liberal Democrat and Conservative Members. No Labour Member wants to intervene to deny what has been said.

Mr. Bercow

Such is the hon. Gentleman's concentration on his speech that he may not have noticed the ministerial reaction to the important point that he has just made. The hon. Gentleman is right to say that no contradiction to his point has been forthcoming, but is he aware that both the Minister and his Parliamentary Private Secretary, the hon. Member for Gedling (Mr. Coaker), have been looking elsewhere in pursuit of inspiration and advice?

Dr. Cable

I thank the hon. Gentleman for that. The Government's central case has been unravelling by the day. What is so fundamentally wrong with IR 35? First, it betrays a complete inability to understand how new types of flexible employment are evolving in high-technology industries. The Government have been very good at the rhetoric of high tech—at handing out free laptop computers, and so on. It is not hardware but software that lies behind knowledge-based industry. The basis of that software is people, and we must understand how people work in industry. Much project work—in offshore oil and in the computer industry—requires flexibility, often meaning that someone works simultaneously for several employers. The tax system must reflect that, but it does not at present.

11.15 pm

The proposal will do serious long-term damage to a major British industry. I hope that the Minister will mention the Government's regulatory impact assessment in his reply, because I understand that it says that the proposal will seriously damage competitiveness among many companies struggling to operate. If I am wrong, I should be happy to be contradicted, but I understand that the Government's own evidence suggests that there is a serious problem.

Much of our argument has been about general principle, but several interventions have made it clear that the small print is often crucial. What will make the proposal lethally rather than mildly damaging will be the way in which the Government deal in practice with details such as the split between schedules D and E. Many provisions could do a lot of damage if the Inland Revenue treats them unimaginatively.

The control test is an example of that. If there is close supervision, for example, a person cannot be regarded as being self-employed, but many computer contracts require close supervision. In other cases, the application of standard tests would suggest that exemption cannot be gained for self-employment if the work is not finished, but the software industry often involves work that is being constantly adapted.

Mr. Richard Allan (Sheffield, Hallam)

Does my hon. Friend share my concern about the use of the tools test? Contractors in the IT industry often have to invest heavily in computer equipment that they use at home to gain skills and conduct research, but which they do not take to work because they can use on-site equipment. None the less, they are using off-site tools to gain the skills that they need.

Dr. Cable

That point is fundamentally correct. Many tests were devised in a pre-computer age, some of them in the 19th century. Applying them unimaginatively and mechanically, as both I and the industry fear the Inland Revenue will, will do immense damage.

My final point relates to how expenses will be allowed for. Most people who work in the industry are staggered that the Government should imagine that the operating costs of running a one-person company are 5 per cent. of turnover. In most cases, it is probably about 20 per cent. once normal business administration, training and other things have been taken into account. The 5 per cent. figure is absurd and entirely disconnected from reality.

Mr. Fabricant

Does the hon. Gentleman realise that the movement to schedule E will mean that an individual trader who travels around the country to try to win a contract may stay overnight in an hotel and spend a fortune on an internal flight but will be unable to charge that against tax? That will hit smaller businesses even if it might be absorbed by the larger ones.

Dr. Cable

The hon. Gentleman has opened up a whole new area relating to treatment of expenses. Many people in the oil sector—there are a few in the Chamber—have to commute to Norway, running up expenses that a sensible tax regime would allow for, but for which ours does not.

The Government's idea is badly conceived and it will do a great deal of damage. We will join the rest of the Opposition in flatly opposing it.

Sir Nicholas Lyell

I am glad to follow the hon. Member for Twickenham (Dr. Cable). I was encouraged to see the Minister's body language earlier, but was deeply depressed by his answer to my question on training. The 5 per cent. allowance is plainly inadequate in a knowledge-based economy, particularly in information technology. I spoke this afternoon to a constituent who has worked in the sector for 14 years, has not switched into it overnight and spends much more than 5 per cent. of earnings on training. Yet that expenditure simply is not allowed for.

The Government's policy is a very serious mistake. I am encouraged because I think the Minister—whom I have seen frequently recently in Committee—is considering the matter carefully. I am convinced that the Inland Revenue has got it wrong.

I can speak openly about my constituent, Mr. Norman Silvain, who runs a small public limited company in the chartered accountancy sector that employs 12 people, because his views are entirely on the public record. He has told me straight that the Professional Contractors Group has clearly demonstrated the flaws in the Inland Revenue argument. I saw Mr. Silvain today, and he has set out those flaws on paper. I shall write to the Minister outlining Mr. Silvain's arguments, and I will expect a blow-by-blow reply. If that response is not convincing, I hope that the Government will get the message and change their policy.

That largely sums up my argument. Constituents who have written and spoken to me are genuinely offended by the notion that they are fly-by-night tax avoiders. They are not. As the hon. Member for Twickenham (Dr. Cable) said, that is a caricature. Although consultation on the proposal lasted for some months, it has not proved satisfactory in depth or detail. The Government have not taken the care to listen to thoroughly responsible small entrepreneurs who know what they are taking about. They have to deal with these matters day by day, and most of them grant themselves realistic salaries on which they pay perfectly proper amounts of PAYE tax.

For example, my constituent Mr. Silvain pays himself a salary which, as I understand it, is approximately 50 per cent. of his company's gross earnings after he has paid his employees. He has to take account of pensions, national insurance, health insurance and training costs. His salary is entirely justifiable and it is on the record. The Inland Revenue and the Minister are not doing justice to the argument with their caricatures.

We seriously doubt that the Government will do anything more than pay lip service to business. However, the Opposition's objective tonight is not to make party political points but to persuade the Government to listen carefully and to rethink this measure, which they have got wrong at present.

Mr. Ian Bruce

I hope that I can be as brief as my right hon. and learned Friend the Member for North-East Bedfordshire (Sir N. Lyell). At the outset, I must declare that I advise the Telecommunications Managers Association, a number of whose members certainly work through limited companies. Some will be caught by this measure and some will not.

I want to address the unfairness of the Government's proposal, which will catch only a small number of people—and certainly not the fat cats that Labour said in its manifesto it would pursue. I also have a limited company and I am not caught by the Government's proposal, although I am probably a fat cat. Perhaps the Government should rethink their measure in light of that missed opportunity.

The Minister had a short—he is still a young man—but distinguished career in the computer industry. Therefore, unless he suffers from amnesia—I know that the Government Whips are very good at giving Labour Members amnesia—he knows what we are talking about. If an entrepreneur starts up a company employing 100 people, makes £1 million a year and pays himself most of that amount in dividend—because his accountant tells him not to pay it in salary—why should he not have to pay national insurance when the one-man band is compelled to do so under the Government's proposal?

The only logical step for the Government to take is to move to a single tax system that includes national insurance and everybody paying the same amount. After all, nobody is getting contributory benefits any more. The Government wiped that out: if people have more than £8,000 in the bank, the benefits that they expected to accrue from paying national insurance are no longer available.

The real illogicality of this proposal is that it catches the person who has worked for a single employer for a long period. A person who has had three employers or who can show that not more than 50 per cent. of his or her work has come from any one source will be excluded from these requirements. Certainly, the mixed business in my limited company would allow me, because I am not employed by any other person, to ensure that I was fireproofed against these measures.

I have started two groups of companies, and on both occasions I began as a one-man band. One of the companies grew to employ 30 people. The other—my present company—employs only my wife and me, so it is not caught by the proposals. However, my first company, with 30 permanent employees and as many as 200 temporary employees, would never have got off the ground if, as the Government now propose, every penny that came into the company had to be paid to me in a salary on which I had to pay national insurance. I did not pay myself for the first three years; I had to live off the company's earnings because I put all the money back into the company to create employment for others.

IBM got rid of many of its staff, telling them, "You must go off and become limited companies." In the main, the individuals who had a single client in IBM thought that that was not a long-term solution and felt that they had to go and find other clients. These measures would stop them doing that because they would be unable to invest time and money in building up another client base.

People in employment agencies will face difficulties. The scientific and computer industry contains many limited companies that use employment agencies to find them work. How will the measures affect that situation, in which there are, so to speak, three in the bed? The amount that agencies charge is significant and it is certainly not 5 per cent. of the companies' earnings.

I shall give an example, because most hon. Members have not had the experience of being, effectively, a one-man company, as I have. Should we say to people who are employed by one individual that because 50 or 100 per cent. of their salary is given to them in expenses, they should pay national insurance on that? The costs of MPs' offices, housing allowances, car expenses allowances and all the benefits of this place mean that we probably cost 300 times our salary, so should we now have to pay national insurance on that sum? It appears, from what the Government have said, that people who exploit labour and who have many employees will not pay national insurance on their dividends, and only the one-man businesses will be kicked into touch.

The Minister has the Treasury breathing down his neck. I know that he is mathematically competent; he was the treasurer of Pitcom, which means that he is also technologically competent. He will know that people who move from being an employee on a Friday to being a limited company on Monday have their total take-home pay doubled over that weekend because the company loses all its costs of sickness pay, holidays and so on. They pay themselves twice the original hourly rate, and sometimes much more.

We can calculate that such people move from a position of paying 22 per cent. tax on their marginal income and 40 per cent. on their extra income to a position in which that 40 per cent. tax rate applies to all the income that they draw from the company. Even if those people do not pay a penny in national insurance, the tax take will go up, not down. If the Government force those individuals to go back to being employed, the tax man's share will go down, not up.

When people are setting up a limited company, we should try to get them to roll over money into investing in the employment of other people, such as a secretary. The Government's proposals are wrongheaded and do not add to the Treasury take because they would put off many companies from investing in employees. The companies would probably go offshore because the internet allows anybody to work anywhere these days, and probably to pay their taxes anywhere.

Dr. Julian Lewis (New Forest, East)

In support of my hon. Friend's remarks, may I give him the example of Mr. Simon Scantlebury in my constituency? In July, he told me: As a freelance licensed member of a national organisation, I pay nearly £30,000 in Income Tax and National Insurance. If I am forced to work as an employee, my umbrella organisation will fold. Age 61, I will become unemployed. No doubt you agree this is extremely unsound economics!

11.30 pm

Mr. Bruce

I hear what my hon. Friend says and I am glad that he related to me his constituent's case, but that individual case is multiplied by hundreds of thousands.

Are we attacking only those people? Will the plumber with 1,000 clients a year not be caught by the provision, simply because he does not have to pay himself a salary? He can pay himself dividends as well.

The Minister has given the House only 24 hours' notice of the changes that he asks us to make. The new proposals are as badly thought out as the original ones. I appeal to him, at this late stage, to withdraw them and, if necessary, to bring them back in the Finance Bill next year, when we may consider the entire matter again.

Mr. Jack

I hope that I have commanded the Minister's attention because, having been the last Financial Secretary in the last Government, I do know a little bit about how Ministers receive advice from the Inland Revenue about tax avoidance. I take issue with the Minister's comment that the last Government did nothing about tax avoidance. They did a great deal about it. However, the difference between our approach and his is that we checked our facts, and we dealt in law with obvious tax avoidance when we were convinced of the case.

The one thing that the Minister has not done tonight is to lay before us a clear set of reasons for his continued wish to restore clause 70 to the Bill. He could not give me an answer to the factual questions. He could not tell us of the analysis that he must have received from the Inland Revenue to determine his course of action. Just how many people does he believe are avoiding their proper national insurance and tax? We have heard nothing of that. How many examples can he cite of people who have, so to speak, done the Friday to Monday change that other hon. Members have mentioned—people who may well be genuinely taking advantage of the tax system to the disadvantage of the rest?

The Minister has done nothing to put the matter in perspective, and I am afraid that he looks like a Minister who has forgotten the meticulous way in which, as a Back Bencher, he used to question Treasury Ministers. He used to seek out the facts and get detailed information out of the Treasury. Since he has donned the clothes of ministerial office, that meticulous and forensic approach has gone out of the window, and he has bought straight into the typical Inland Revenue broad-brush estimating, whereby staff take a limited sample, multiply it by the largest number that they think of when they get up the next day, give it to the Minister and say, "This is roughly where we are."

In a telling speech, the hon. Member for Twickenham (Dr. Cable) questioned the amount of revenue that was at risk. Will the Minister give us the facts? How much national insurance is at risk? How much tax is at risk? How have the calculations been made? I, for one, notice a lack of thoroughness.

I feel strongly about the subject because many of my constituents work for British Aerospace or for the Benefits Agency—in the latter case, a Government agency. As the Secretary of State for Social Security—who is in his place on the Treasury Bench—knows, that agency relies heavily on people who are flexible, in the form of being personal service companies, to do its business at an economic rate. Tonight, the Minister has put forward a proposition that will affect the Government. It will make the Government's business more expensive to do, and yet we hear no analysis on that point.

I have a constituent, Mr. Ian Shearer, who is a very interesting man. He and I have differed politically on many issues. For example, he very strongly opposed the sale of British Aerospace Hawk aircraft to East Timor. However, when it came to his personal position, he was very quick off the mark in seeking my assistance in making representations on IR 35.

Mr. Shearer said in a letter to me, "I am not a dishonest man; I want to pay my tax and my fair contribution. But in my business, as a personal service company, I bear the risk for my pension, sickness and unemployment, periods when I am not in work, and my training, equipment and investment. I cannot guarantee that I will be in continuous employment."

Mr. Shearer has all the characteristics of somebody in self-employment. As the hon. Member for Twickenham pointed out, Mr. Shearer may nevertheless have to work for quite long periods under contract—as he does for the Benefits Agency. The very nature of the information technology business requires him to trade in that way. When I asked him whether he felt that the Minister's revised proposals had done anything to redress the impact on his business and the loss of at least 10 per cent. of his income, he was sceptical, to say the least.

I held further consultation on the matter with the Institute of Chartered Accountants in England and Wales because I wanted sound advice—more than the Minister has received. I asked whether it felt that the Minister's revised proposals had done the trick. The answer was no. The institute made a very interesting point: a sole trader running a corner shop who can, under such circumstances, make exactly the same decisions on salary and dividend as a personal service company, remains unaffected by the Minister's proposals.

In contrast, somebody trading entirely legitimately as a personal service company is affected in a way that suggests almost a witch hunt in Government circles against such individuals. The Inland Revenue's pursuit of that group of people is taking place against an unproven factual background.

Is it not interesting that, for its new friends in big business, perhaps in the world of property, Labour is quite happy to condone, for example, the sale of a building after the formation of a company whose sole asset is that building in order to get around some of the problems on stamp duty—we hear nothing from the Minister about that—but, when it comes to individuals making their living as personal service companies, providing flexibility to the aerospace industry and the Benefits Agency, the Government want to do them down? The case is unproven. The Minister should withdraw the proposal and go back to the drawing board.

Mr. Allan

When discussing taxation, we must remember that there is a balance to be struck between stifling industry and fairly raising revenue. It is very much the Liberal Democrat view that the proposals strike the wrong balance, and stifle industry.

We must also always consider in detail the impact in the real world of the proposals that we debate, rather than discussing their virtues in principle in a virtual world. The examples given in the debate show many of the potential real-world impacts of the proposals.

I am particularly concerned about the test to determine whether someone is an employee or a contractor. In the information technology sector particularly, many people will fall foul of that test, but should not. The requirement that somebody should be an employee rather than a contractor may end up killing some of the most successful, most entrepreneurial businesses.

The right hon. Member for Fylde (Mr. Jack) referred to Government contracts. I listened to the views of some contractors earlier, who threw out a challenge: will the Government employ all people on such contracts on the same terms once the new proposals come into force? Unfortunately, my suspicion is that much of that work will go elsewhere.

The new system will be bureaucratically burdensome and more expensive, so Government agencies will contract overseas, especially in developing areas such as India, rather than use UK-based contractors, as they would have previously. Will the Minister assure those who work for the Benefits Agency or under the many other Government contracts that they will continue to enjoy favourable conditions under IR 35?

I am particularly concerned about the many thousands of ordinary people who have micro-businesses, many of which, we must remember, grow into larger businesses. Over time, they may employ 30, 40, 50 or 100 people. Microsoft started as a three-man business in the United States. We have similar businesses that have grown into enormous corporations. People were given their first break on contracts, they developed the software skills and went on to become major earners in the UK and abroad.

I am particularly concerned about the age group to which my hon. Friend the Member for Somerton and Frome (Mr. Heath) referred—the older people who have gone into the IT business. That has been a tremendous opportunity for them to retrain, set up a small service company and get into the IT business.

At a younger age, I found myself in a similar situation. I read an advertisement in The Guardian which asked, "Are you a useless arts graduate? Would you like to learn a profession?" It was an advertisement to study for an MSc in IT. I did the MSc and spent several years contributing to the UK economy. At the end of that period, I was on contracts that varied from day to day and were renewed monthly. Had I stayed longer—had I not stumbled into this job—I would have moved into a service industry and would have hoped to be successful there too. That is the spirit that we are stifling.

At the beginning of the debate, the Minister spoke about motivation. He was wrong to quote one article from one magazine that conveyed a negative view, rather than quoting from the many hundreds and thousands of letters that we receive from contractors, telling us what their motivation was.

One of my constituents wrote: In freelance consultancy, if I do a good job then I will be rewarded by getting repeat work and possibly more money. Conversely, if my work is not up to scratch then I can be asked to leave. Freelance consultancy has given me the opportunity to work for myself and has proved a great boost to my confidence and self-esteem. That is the attraction for most contractors—the opportunity to run their own businesses. It is about the entrepreneurial spirit, not the sordid tax avoidance that the Minister presented to us. I accept that there are cases in which that is evident, but it is incumbent upon the Inland Revenue to root out such cases and produce regulations to catch the culprits, not to produce a broad, sweeping net.

Mr. John Burnett (Torridge and West Devon)

Does my hon. Friend agree that the test has always been whether a contract is a contract of service or a contract for services? The Inland Revenue has always focused on the badges of a trade. Does my hon. Friend agree that the Inland Revenue is giving Ministers outdated and destructive advice about the badges of a trade and a contract for service?

Mr. Allan

My hon. Friend leads me neatly on to the point with which I intended to conclude—how we decide whether someone is an employee or not. I have referred to the issue of tools, which are essential to the IT industry. Everyone must pay his gate shilling every year to have the latest upgrade of software, in order to remain competitive.

A service provider must have sophisticated computer equipment at home costing many thousands of pounds, if he wants to compete in the IT industry. He does not take that equipment to work, but it is essential to his work. He may end up on the same bench as employees, working on the same machines as employees, but the services that he is providing are utterly dependent on what he does at home, outside the workplace, when he is in employment and working at night—many of those people work extremely long hours, not nine to five—and in the periods between employment, when he builds up and retrains in his skills.

Tools are fundamental. Any notion of a small percentage is ridiculous, given the cost of computer equipment, which a service provider must buy every year to remain at the cutting edge. Training is also fundamental. The service provider may work at the same bench as his employees, but he is employed because of his specialist skills. Another constituent who is a document imaging processing technician wrote to me, telling me about his training. He had a four-year degree, a one year masters degree, and spent seven years on his PhD.

Services consultants get their jobs because of what they carry in their head. That is fundamental to a knowledge-based industry. They get the work because of their 12 years of training. It is not apparent when they sit at the same bench as someone else, but it is the reason why they got the contract. That must be recognised in the rules. I see no sign of it in IR 35, as implemented in the Bill. I hope that the House will throw it out tonight in order to give the Government a chance to think again.

Mr. Peter Brooke (Cities of London and Westminster)

I shall be brief. Unlike many of my colleagues and those on the Liberal Benches who have spoken out of anger, I speak out of sorrow. I am unusual in the House in that when I was in the private sector, I created a company in an activity that was not being practised in the United Kingdom before. I can therefore lay some claim to having planted an acorn that has become an oak.

11.45 pm

I remember 40 years ago, when we were building that business in the 1960s, the ball and chain fastened around our ankles by the selective employment tax introduced by the then Labour Government and the obligation to pay out all our profits in dividends unless we could prove to the Inland Revenue that we needed to retain them in the business: those forces held back the growth of our business. The industry in which I was engaged now carries out hundreds of millions of pounds worth of work in this country; the company in which I worked employs 50 times as many people as it did when we started out and its volume is a thousand times greater. However, although our productivity and growth is thus demonstrated, there is no question but that we were slowed down by Labour legislation that showed no understanding of the activities in which we were engaged. That is why I speak in sorrow.

I have total confidence that the Government will modify the legislation when they see the damage it causes. I simply regret the opportunity cost to our economy until they realise the error of their ways.

Mr. Fabricant

The Minister was disingenuous, saying that the Government are closing a loophole that the previous Conservative Government had overlooked. As I said earlier, the Inland Revenue proposed the package of measures twice before, and twice before the Conservative Government rejected it because we knew that it would be bad for British industry. Now, the Labour Government have reintroduced a measure that has previously been rejected because they do not understand industry.

Hon. Members from both main Opposition parties have spoken of constituents whom we have met today. Over the past two and a half weeks, I have received via the internet 2,600 letters from people all over the country expressing opposition to the measure. My right hon. Friend the Member for Cities of London and Westminster (Mr. Brooke) is absolutely right to say that the Government will have to change the legislation later, because it is not only the software industry and training consultants that will suffer, but freelance journalists too. Mark my words, once freelance journalists realise that they are being hit hard in the pocket, they will write about it and the Government will start to change direction, as they always do when they think that they are becoming unpopular.

The change to schedule E will mean that small, entrepreneurial companies will suffer, because small companies have to go out to seek business. Large companies that do that can charge expenses against tax, but small companies will now be unable to do so. A small company cannot afford to spend £240 travelling to Aberdeen to win a contract, but, having failed to win it, be unable to charge that expense against tax because it is precluded by schedule E. That is not only wrong and unfair, but crippling to smaller businesses. The Secretary of State shakes his head, but what did he do before becoming a Member of Parliament? He was not in business, so he does not speak from experience. He has simply become a Labour apparatchik imposing a measure similar to the selective employment tax, which was imposed by previous Labour Administrations and which destroyed businesses.

Mr. Nicholas Winterton (Macclesfield)

I agree with every word my hon. Friend has so far uttered and with the views expressed in this debate by other right hon. and hon. Friends and Liberal Democrat Members. Does not such a debate make the people of this country consider the relevance of the House of Commons, when the argument is so clearly overwhelming, but the Government, for party political reasons, ill-advisedly refuse to change their view?

Mr. Fabricant

My hon. Friend is absolutely right—the Government are merely dupes of the Inland Revenue. Twice the Inland Revenue came up with the scheme and twice it was rejected by a Conservative Government; but, because they are desperate to make hundreds of millions of pounds from small business men—small business men who should be able to become large business men—the Labour Government have accepted the scheme.

I started as a small business man: my business ended up operating in 48 countries worldwide and employing hundreds of people in the United Kingdom, each of whom paid tax. If this legislation had been in place when I started my business, it would never have got off the ground. Entrepreneurs are the future of Britain. The Government have shown their true colours. They will stifle entrepreneurs at birth, and they should be ashamed of themselves.

Mr. Timms

I have listened with great interest to all the points made by Opposition Members. Not one of those who spoke against these changes addressed the central issue. The present arrangement allows people to choose how much national insurance they pay, or whether they pay it at all. They can choose how much they take in salary, and how much in dividend. No one can defend that arrangement, and no one has attempted to do so. That is the position that we are in, and it is the basis on which Computer Contractor advised people, in its most recent issue, to take a salary equal to the lower limit of personal allowance.

Miss Anne McIntosh (Vale of York)

Will the Minister give way?

Mr. Timms

I shall not give way at the moment.

That state of affairs is not defensible. No Government can stand back and allow that situation to continue. The country will want to know why the Tory party is a soft touch on tax avoidance.

Several hon. Members

rose—

Mr. Timms

I am not giving way.

The opportunities for avoiding national insurance contributions are plain for all to see. I accept that many people do not take the opportunity to avoid paying their national insurance contributions. We have heard about some of them, and I have been in discussion with someone in that position. The opportunity to avoid paying national insurance is available for anyone who wishes to take it. That is clearly not right, so we need to make these changes.

I emphasise that, under our proposals, people are free, as they have been in the past, to establish service companies. All that has changed is that those service companies must pay their proprietors a sensible salary so that the national insurance that is due from them is paid.

The Government have been and will continue to be vigorous in promoting enterprise. My right hon. Friend the Chancellor spoke earlier this week about enterprise management incentives, which have been widely welcomed. Everyone must pay their fair share. That is the basis on which our economy works, and it is right that everyone should contribute. All of us have the right to services and benefits as a result of our payment of tax and national insurance. We also have a responsibility to pay our fair share, and these new arrangements will provide for that.

The hon. Member for Twickenham (Dr. Cable) asked me for some figures. The estimate of the revenue at stake has not changed: it is about £220 million into the national insurance fund, and £255 million in income tax. Our position on that has remained consistent. We estimate that the number of individuals who will be affected is about 100,000.

The hon. Member for Lichfield (Mr. Fabricant), in an earlier intervention before his entertaining contribution towards the end of the debate, which the House will have enjoyed, asked about the expenses that people can claim. The proposal in the 23 September press release is that they can claim the expenses that an employee in the same circumstances would be entitled to claim as deductions for tax purposes; so the hon. Gentleman is mistaken on that point.

Sir Robert Smith (West Aberdeenshire and Kincardine)

Do the figures given by the Minister mean that 100,000 people will have to pay an extra £4,700 in tax?

Mr. Timms

As I have made clear, there are substantial opportunities for avoiding national insurance, and people are freely being advised to take those opportunities. Any responsible Government would act to close the loophole, and that is what we are doing. It should have been done years ago, but we are doing it tonight, and it is absolutely the right thing to do.

Mr. Fabricant

rose—

Miss McIntosh

rose—

Mr. Timms

I will give way to the hon. Member for Vale of York (Miss McIntosh), who has been trying to intervene for some time.

Miss McIntosh

I am grateful to the Minister for giving way, but he does not seem to appreciate the depth of feeling in the country against IR 35, which is reflected in the amendment.

Is it normal procedure for a Government to indicate a substantial change of policy through an Inland Revenue press release? Some of my constituents feel that they have been dealt with in an underhand manner, by stealth. A tax has been imposed on them, and the only notification that they had came in a press release.

Mr. Timms

The proposals published on 23 September have been received extremely well around the country. They have been widely welcomed, not least by the Chartered Institute of Taxation and the Professional Contractors Group. The debate has continued, but as I say, the changes have been widely welcomed.

I defy the hon. Lady, or any of her hon. Friends, to defend the arrangement left by the last Government whereby people can choose how much national insurance they pay, or whether they pay any at all. That is the central issue in the debate, and those who have spoken against the proposals have not addressed it. No one has sought to defend the present position, because it is indefensible. That is why we are making the changes that we are making tonight, and we are doing absolutely the right thing.

The hon. Member for Windsor (Mr. Trend) suggested that some other way of making the changes was available. I should be interested to know what proposals he has. The current position has existed for years; the last Government had 18 years in which to tackle it, and conspicuously failed to do so. That is why we need to take action now.

The right hon. Member for Fylde (Mr. Jack), a distinguished former Treasury Minister, raised a number of points. Let me tell him that all Governments, including his, want to tax genuine small businesses differently from employees. The employment status tests are the agreed and long-established way of making that distinction, and will continue to be used in that way for the purpose of this measure. That is absolutely right.

My hon. Friend the Member for North-West Norfolk (Dr. Turner)—who has explained to me that he has had to leave the Chamber—asked me about the distinction between self-employment and employment. The conventional distinction will be used to decide whether the new rules apply to service company workers. That means that the same criteria will be applied in the same way as they always have been in the past. There is no intention of applying the rules in any different way. They are well established and well understood; they are flexible; they take account of the whole pattern of a worker's engagement, so that a skilled worker who works for many different clients can be treated as one who is self-employed.

Today, the Inland Revenue sent out to representative bodies—the Professional Contractors Group and others, including those in the information technology industry—a draft guidance paper to clarify the way in which the criteria will apply to a typical situation involving a service company. That is the consultation. As always, we are determined to get the decisions right and we shall listen to the responses that we receive, but those criteria and guidelines will make the distinction as clear as it possibly can be, and will simplify the issues that service companies have to face.

It being Twelve o'clock, MR. DEPUTY SPEAKER put the Question already proposed from the Chair, pursuant to Order this day.

Question put, That this House disagrees with the Lords in the said amendment:—

The House divided: Ayes 345, Noes 203.

Division No. 287]	[12 midnight
AYES
Abbott, Ms Diane	Cranston, Ross
Adams, Mrs Irene (Paisley N)	Crausby, David
Ainger, Nick	Cryer, John (Hornchurch)
Alexander, Douglas	Cummings, John
Anderson, Donald (Swansea E)	Cunliffe, Lawrence
Anderson, Janet (Rossendale)	Cunningham, Rt Hon Dr Jack (Copeland)
Armstrong, Rt Hon Ms Hilary
Atherton, Ms Candy	Cunningham, Jim (Cov'try S)
Austin, John	Curtis-Thomas, Mrs Claire
Barnes, Harry	Dalyell, Tam
Barron, Kevin	Darling, Rt Hon Alistair
Battle, John	Darvill, Keith
Bayley, Hugh	Davey, Valerie (Bristol W)
Beard, Nigel	Davidson, Ian
Beckett, Rt Hon Mrs Margaret	Davies, Rt Hon Denzil (Llanelli)
Bell, Stuart (Middlesbrough)	Davies, Geraint (Croydon C)
Benn, Hilary (Leeds C)	Dawson, Hilton
Benn, Rt Hon Tony (Chesterfield)	Denham, John
Bennett, Andrew F	Dismore, Andrew
Benton, Joe	Dobbin, Jim
Bermingham, Gerald	Donohoe, Brian H
Berry, Roger	Doran, Frank
Best, Harold	Dowd, Jim
Betts, Clive	Drew, David
Blackman, Liz	Eagle, Angela (Wallasey)
Blears, Ms Hazel	Eagle, Maria (L'pool Garston)
Blizzard, Bob	Edwards, Huw
Boateng, Paul	Efford, Clive
Borrow, David	Ellman, Mrs Louise
Bradley, Keith (Withington)	Ennis, Jeff
Bradley, Peter (The Wrekin)	Etherington, Bill
Bradshaw, Ben	Field, Rt Hon Frank
Brinton, Mrs Helen	Fisher, Mark
Brown, Rt Hon Nick (Newcastle E)	Fitzsimons, Lorna
Brown, Russell (Dumfries)	Flint, Caroline
Browne, Desmond	Flynn, Paul
Buck, Ms Karen	Follett, Barbara
Burden, Richard	Foster, Rt Hon Derek
Burgon, Colin	Foster, Michael Jabez (Hastings)
Butler, Mrs Christine	Foster, Michael J (Worcester)
Byers, Rt Hon Stephen	Foulkes, George
Caborn, Rt Hon Richard	Gapes, Mike
Campbell, Alan (Tynemouth)	George, Bruce (Walsall S)
Campbell, Mrs Anne (C'bridge)	Gerrard, Neil
Campbell, Ronnie (Blyth V)	Gibson, Dr Ian
Caplin, Ivor	Gilroy, Mrs Linda
Caton, Martin	Godsiff, Roger
Cawsey, Ian	Goggins, Paul
Chapman, Ben (Wirral S)	Golding, Mrs Llin
Chaytor, David	Gordon, Mrs Eileen
Church, Ms Judith	Griffiths, Jane (Reading E)
Clapham, Michael	Griffiths, Nigel (Edinburgh S)
Clark, Rt Hon Dr David (S Shields)	Griffiths, Win (Bridgend)
Clark, Dr Lynda (Edinburgh Pentlands)	Grocott, Bruce
	Grogan, John
Clark, Paul (Gillingham)	Gunnell, John
Clarke, Charles (Norwich S)	Hain, Peter
Clarke, Rt Hon Tom (Coatbridge)	Hall, Mike (Weaver Vale)
Clarke, Tony (Northampton S)	Hall, Patrick (Bedford)
Clelland, David	Hamilton, Fabian (Leeds NE)
Clwyd, Ann	Hanson, David
Coaker, Vernon	Harman, Rt Hon Ms Harriet
Coffey, Ms Ann	Heal, Mrs Sylvia
Coleman, Iain	Healey, John
Colman, Tony	Henderson, Doug (Newcastle N)
Cook, Rt Hon Robin (Livingston)	Henderson, Ivan (Harwich)
Cooper, Yvette	Hepburn, Stephen
Corbett, Robin	Heppell, John
Corbyn, Jeremy	Hesford, Stephen
Corston, Ms Jean	Hewitt, Ms Patricia
Cousins, Jim	Hill, Keith

Hinchliffe, David	Marshall-Andrews, Robert
Hodge, Ms Margaret	Martlew, Eric
Hoey, Kate	Maxton, John
Hood, Jimmy	Meacher, Rt Hon Michael
Hope, Phil	Meale, Alan
Hopkins, Kelvin	Merron, Gillian
Howarth, Alan (Newport E)	Michie, Bill (Shef'ld Heeley)
Howarth, George (Knowsley N)	Milburn, Rt Hon Alan
Howells, Dr Kim	Miller, Andrew
Hoyle, Lindsay	Moffatt, Laura
Hughes, Ms Beverley (Stretford)	Moonie, Dr Lewis
Hughes, Kevin (Doncaster N)	Moran, Ms Margaret
Humble, Mrs Joan	Morgan, Ms Julie (Cardiff N)
Hurst, Alan
Hutton, John	Morgan, Rhodri (Cardiff W)
Iddon, Dr Brian	Morley, Elliot
Illsley Eric	Morris, Ms Estelle (B'ham Yardley)
Ingram, Rt Hon Adam	Morris, Rt Hon John (Aberavon)
Jackson, Helen (Hillsborough)	Mountford, Kali
Jamieson, David	Mudie, George
Jenkins, Brian	Mullin, Chris
Johnson, Alan (Hull W & Hessle)	Murphy, Denis (Wansbeck)
Johnson, Miss Melanie (Welwyn Hatfield)	Murphy, Jim (Eastwood)
	Murphy, Rt Hon Paul (Torfaen)
Jones, Rt Hon Barry (Alyn)	Naysmith, Dr Doug
Jones, Mrs Fiona (Newark)	Norris, Dan
Jones, Helen (Warrington N)	O'Brien, Bill (Normanton)
Jones, Jon Owen (Cardiff C)	O'Brien, Mike (N Warks)
Jones, Dr Lynne (Selly Oak)	O'Hara, Eddie
Jones, Martyn (Clwyd S)	Olner, Bill
Jowell, Rt Hon Ms Tessa	O'Neill, Martin
Kaufman, Rt Hon Gerald	Organ, Mrs Diana
Keeble, Ms Sally	Osborne, Ms Sandra
Keen, Alan (Feltham & Heston)	Palmer, Dr Nick
Kelly, Ms Ruth	Pearson, Ian
Kemp, Fraser	Pendry, Tom
Kennedy, Jane (Wavertree)	Perham, Ms Linda
Khabra, Piara S	Pickthall, Colin
Kidney, David	Pike, Peter L
King, Andy (Rugby & Kenilworth)
King, Ms Oona (Bethnal Green)	Plaskitt, James
Kumar, Dr Ashok	Pollard, Kerry
Ladyman, Dr Stephen	Pond, Chris
Lawrence, Ms Jackie	Pope, Greg
Laxton, Bob	Pound, Stephen
Lepper, David	Powell, Sir Raymond
Leslie, Christopher	Prentice, Ms Bridget (Lewisham E)
Levitt, Tom	Prentice, Gordon (Pendle)
Lewis, Ivan (Bury S)	Primarolo, Dawn
Lewis, Terry (Worsley)	Prosser, Gwyn
Liddell, Rt Hon Mrs Helen	Purchase, Ken
Linton, Martin	Quinn, Lawrie
Lloyd, Tony (Manchester C)	Radice, Rt Hon Giles
Lock, David	Rammell, Bill
McAvoy, Thomas	Reed, Andrew (Loughborough)
McCabe, Steve	Roche, Mrs Barbara
McCafferty, Ms Chris	Rooker, Jeff
McCartney, Rt Hon Ian (Makerfield)	Rooney, Terry
	Ross, Ernie (Dundee W)
McDonagh, Siobhain	Rowlands, Ted
Maodonald, Calum	Roy, Frank
McDonnell, John	Ruane, Chris
McFall, John	Ruddock, Joan
McGuire, Mrs Anne	Ryan, Ms Joan
McIsaac, Shona	Sarwar, Mohammad
McKenna, Mrs Rosemary	Savidge, Malcolm
Mackinlay, Andrew
McNulty, Tony	Sawford, Phil
MacShane, Denis	Sedgemore, Brian
Mactaggart, Fiona	Shaw, Jonathan
McWalter, Tony	Sheldon, Rt Hon Robert
Mallaber, Judy	Shipley, Ms Debra
Marsden, Gordon (Blackpool S)	Simpson, Alan (Nottingham S)
Marsden, Paul (Shrewsbury)	Singh, Marsha
Marshall, David (Shettleston)	Skinner, Dennis
Marshall, Jim (Leicester S)	Smith, Rt Hon Andrew (Oxford E)

Smith, Angela (Basildon)	Touhig, Don
Smith, Rt Hon Chris (Islington S)	Trickett, Jon
Smith, Miss Geraldine (Morecambe & Lunesdale)	Turner, Neil (Wigan)
	Turner, Dennis (Wolverh'ton SE)
Smith, Jacqui (Redditch)	Turner, Dr Desmond (Kemptown)
Smith, Llew (Blaenau Gwent)	Twigg, Derek (Halton)
Snape, Peter	Twigg, Stephen (Enfield)
Soley, Clive	Tynan, Bill
Spellar, John	Vaz, Keith
Squire, Ms Rachel	Walley, Ms Joan
Starkey, Dr Phyllis	Ward, Ms Claire
Steinberg, Gerry	Watts, David
Stevenson, George	White, Brian
Stewart, David (Inverness E)	Whitehead, Dr Alan
Stewart, Ian (Eccles)	Wicks, Malcolm
Stinchcombe, Paul	William, Rt Hon Alan (Swansea W)
Stoate, Dr Howard
	Williams, Alan W (E Carmarthen)
Strang, Rt Hon Dr Gavin	Williams, Mrs Betty (Conwy)
Straw, Rt Hon Jack	Wills, Michael
Stringer, Graham	Winnick, David
Stuart, Ms Gisela	Winterton, Ms Rosie (Doncaster C)
Sutcliffe, Gerry	Wise, Audrey
Taylor, Rt Hon Mrs Ann (Dewsbury)	Wood, Mike
	Woolas, Phil
Taylor, Ms Dan (Stockton S)	Worthington, Tony
Taylor, David (NW Leics)	Wray, James
Temple-Morris, Peter	Wright, Anthony D (Gt Yarmouth)
Thomas, Gareth (Clwyd W)	Wyatt, Derek
Thomas, Gareth R (Harrow W)
Timms, Stephen	Tellers for the Ayes:
Tipping, Paddy	Mr. Graham Allen and
Todd, Mark	Mr. Robert Ainsworth.

NOES
Ainsworth, Peter (E Surrey)	Chidgey, David
Allan, Richard	Chope, Christopher
Amess, David	Clappison, James
Ancram, Rt Hon Michael	Clark, Dr Michael (Rayleigh)
Arbuthnot, Rt Hon James	Clarke, Rt Hon Kenneth (Rushcliffe)
Ashdown, Rt Hon Paddy
Atkinson, David (Bour'mth E)	Clifton-Brown, Geoffrey
Atkinson, Peter (Hexham)	Collins, Tim
Baker, Norman	Colvin, Michael
Baldry, Tony	Cormack, Sir Patrick
Ballard, Jackie	Cotter, Brian
Beggs, Roy	Cran, James
Berth, Rt Hon A J	Cunningham, Ms Roseanna (Perth)
Bell, Martin (Tatton)
Bercow, John	Curry, Rt Hon David
Beresford, Sir Paul	Davey, Edward (Kingston)
Blunt, Crispin	Davies, Quentin (Grantham)
Body, Sir Richard	Davis, Rt Hon David (Haltemprice & Howden)
Boswell, Tim
Bottomley, Peter (Worthing W)	Day, Stephen
Bottomley, Rt Hon Mrs Virginia	Duncan, Alan
Brady, Graham	Duncan Smith, Iain
Brake, Tom	Emery, Rt Hon Sir Peter
Brand, Dr Peter	Evans, Nigel
Brazier, Julian	Ewing, Mrs Margaret
Breed, Colin	Faber, David
Brooke, Rt Hon Peter	Fabricant, Michael
Browning, Mrs Angela	Fallon, Michael
Bruce, Ian (S Dorset)	Fearn, Ronnie
Bruce, Malcolm (Gordon)	Forth, Rt Hon Eric
Burnett, John	Foster, Don (Bath)
Burns, Simon	Fowler, Rt Hon Sir Norman
Burstow, Paul	Fraser, Christopher
Butterfill, John	Gale, Roger
Cable, Dr Vincent	Garnier, Edward
Campbell, Rt Hon Menzies (NE Fife)	George, Andrew (St Ives)
	Gibb, Nick
Canavan, Dennis	Gill, Christopher
Cash, William	Gorman, Mrs Teresa
Chapman, Sir Sydney (Chipping Barnet)	Gorrie, Donald
	Gray, James

Green, Damian	Paterson, Owen
Greenway, John	Pickles, Eric
Grieve, Dominic	Prior, David
Gummer, Rt Hon John	Randall, John
Hamilton, Rt Hon Sir Archie	Redwood, Rt Hon John
Hammond, Philip	Rendel, David
Hancock, Mike	Robathan, Andrew
Harris, Dr Evan	Robertson, Laurence (Tewk'b'ry)
Harvey, Nick	Ross, William (E Lond'y)
Hawkins, Nick	Ruffley, David
Heald, Oliver	Russell, Bob (Colchester)
Heath, David (Somerton & Frame)	St Aubyn, Nick
Heath, Rt Hon Sir Edward	Salmond, Alex
Hogg, Rt Hon Douglas	Sanders, Adrian
Horam, John	Sayeed, Jonathan
Howard, Rt Hon Michael	Shephard, Rt Hon Mrs Gillian
Howarth, Gerald (Aldershot)	Shepherd, Richard
Hughes, Simon (Southwark N)	Smith, Sir Robert (W Ab'd'ns)
Hunter, Andrew	Smyth, Rev Martin (Belfast S)
Jack, Rt Hon Michael	Soames, Nicholas
Jackson, Robert (Wantage)	Spelman, Mrs Caroline
Jenkin, Bernard	Spicer, Sir Michael
Jones, Nigel (Cheltenham)	Spring, Richard
Keetch, Paul	Stanley, Rt Hon Sir John
Kennedy, Charles (Ross Skye)	Steen, Anthony
Key, Robert	Streeter, Gary
King, Rt Hon Tom (Bridgwater)	Stunell, Andrew
Kirkbride, Miss Julie	Swayne, Desmond
Kirkwood, Archy	Swinney, John
Lait, Mrs Jacqui	Syms, Robert
Lansley, Andrew	Tapsell, Sir Peter
Leigh, Edward	Taylor, Ian (Esher & Walton)
Letwin, Oliver	Taylor, John M (Solihull)
Lewis, Dr Julian (New Forest E)	Taylor, Matthew (Truro)
Lidington, David	Taylor, Sir Teddy
Lilley, Rt Hon Peter	Thompson, William
Livsey, Richard	Tonge, Dr Jenny
Lloyd, Rt Hon Sir Peter (Fareham)	Townend, John
Llwyd, Elfyn	Tredinnick, David
Loughton, Tim	Trend, Michael
Luff, Peter	Tyler, Paul
Lyell, Rt Hon Sir Nicholas	Tyrie, Andrew
McAllion, John	Viggers, Peter
MacGregor, Rt Hon John	Walter, Robert
McIntosh, Miss Anne	Wardle, Charles
MacKay, Rt Hon Andrew	Waterson, Nigel
Maclean, Rt Hon David	Webb, Steve
McLoughlin, Patrick	Wells, Bowen
Madel, Sir David	Welsh, Andrew
Maples, John	Whitney, Sir Raymond
Mates, Michael	Whittingdale, John
Maude, Rt Hon Francis	Wigley, Rt Hon Dafydd
Mawhinney, Rt Hon Sir Brian	Wilkinson, John
May, Mrs Theresa	Willetts, David
Michie, Mrs Ray (Argyll & Bute)	Willis, Phil
Moore, Michael	Wilshire, David
Moss, Malcolm	Winterton, Mrs Ann (Congleton)
Nicholls, Patrick	Winterton, Nicholas (Macclesfield)
Norman, Archie	Woodward, Shaun
Oaten, Mark	Yeo, Tim
O'Brien, Stephen (Eddisbury)	Young, Rt Hon Sir George
Öpik, Lembit
Ottaway, Richard	Tellers for the Noes:
Page, Richard	Mrs. Eleanor Laing and
Paice, James	Mr. Keith Simpson.

Question accordingly agreed to.

Lords amendment disagreed to.

MR. DEPUTY SPEAKER then put the remainig Questions required to be put at that hour.

Amendment proposed to the words so restored to the Bill: (a), in page 74, line 36, leave out "in any specified circumstances".—[Mr. Kevin Hughes.]

Question put, That the amendment be made:—

The House divided: Ayes 344, Noes 166.

Division No. 288]	[12.13 am
AYES
Abbott, Ms Diane	Corston, Ms Jean
Adams, Mrs Irene (Paisley N)	Cousins, Jim
Ainger, Nick	Cranston, Ross
Alexander, Douglas	Crausby, David
Anderson, Donald (Swansea E)	Cryer, John (Hornchurch)
Anderson, Janet (Rossendale)	Cummings, John
Armstrong, Rt Hon Ms Hilary	Cunliffe, Lawrence
Atherton, Ms Candy	Cunningham, Rt Hon Dr Jack (Copeland)
Austin, John
Barnes, Harry	Cunningham, Jim (Cov'try S)
Barron, Kevin	Curtis-Thomas, Mrs Claire
Battle, John	Dalyell, Tam
Bayley, Hugh	Darting, Rt Hon Alistair
Beard, Nigel	Darvill, Keith
Beckett, Rt Hon Mrs Margaret	Davey, Valerie (Bristol W)
Bell, Stuart (Middlesbrough)	Davidson, Ian
Benn, Hilary (Leeds C)	Davies, Rt Hon Denzil (Llanelli)
Benn, Rt Hon Tony (Chesterfield)	Davies, Geraint (Croydon C)
Bennett, Andrew F	Dawson, Hilton
Benton, Joe	Denham, John
Bermingham, Gerald	Dismore, Andrew
Berry, Roger	Dobbin, Jim
Best, Harold	Donohoe, Brian H
Betts, Clive	Doran, Frank
Blackman, Liz	Dowd, Jim
Blears, Ms Hazel	Drew, David
Blizzard, Bob	Eagle, Angela (Wallasey)
Boateng, Paul	Eagle, Maria (L'pool Garston)
Borrow, David	Edwards, Huw
Bradley, Keith (Withington)	Efford, Clive
Bradley, Peter (The Wrekin)	Ellman, Mrs Louise
Bradshaw, Ben	Ennis, Jeff
Brinton, Mrs Helen	Etherington, Bill
Brown, Rt Hon Nick (Newcastle E)	Field, Rt Hon Frank
Brown, Russell (Dumfries)	Fisher, Mark
Browne, Desmond	Fitzsimons, Lorna
Buck, Ms Karen	Flint Caroline
Burden, Richard	Flynn, Paul
Burgon, Colin	Follett, Barbara
Butler, Mrs Christine	Foster, Rt Hon Derek
Byers, Rt Hon Stephen	Foster, Michael Jabez (Hastings)
Caborn, Rt Hon Richard	Foster, Michael J (Worcester)
Campbell, Alan (Tynemouth)	Foulkes, George
Campbell, Mrs Anne (C'bridge)	Gapes, Mike
Campbell, Ronnie (Blyth V)	George, Bruce (Walsall S)
Caplin, Ivor	Gerrard, Neil
Caton, Martin	Gibson, Dr Ian
Cawsey, Ian	Gilroy, Mrs Linda
Chapman, Ben (Wirral S)	Godsiff, Roger
Chaytor, David	Goggins, Paul
Church, Ms Judith	Golding, Mrs Llin
Clapham, Michael	Gordon, Mrs Eileen
Clark, Rt Hon Dr David (S Shields)	Griffiths, Jane (Reading E)
Clark, Dr Lynda (Edinburgh Pentlands)	Griffiths, Nigel (Edinburgh S)
	Griffiths, Win (Bridgend)
Clark, Paul (Gillingham)	Grocott, Bruce
Clarke, Charles (Norwich S)	Grogan, John
Clarke, Rt Hon Tom (Coatbridge)	Gunnell, John
Clarke, Tony (Northampton S)	Hain, Peter
Clelland, David	Hall, Mike (Weaver Vale)
Clwyd, Ann	Hall, Patrick (Bedford)
Coaker, Vernon	Hamilton, Fabian (Leeds NE)
Coffey, Ms Ann	Hanson, David
Coleman, Iain	Harman, Rt Hon Ms Harriet
Colman, Tony	Heal, Mrs Sylvia
Cook, Rt Hon Robin (Livingston)	Healey, John
Cooper, Yvette	Henderson, Doug (Newcastle N)
Corbett, Robin	Henderson, Ivan (Harwich)
Corbyn, Jeremy	Hepburn, Stephen

Heppell, John	Marsden, Gordon (Blackpool S)
Hesford, Stephen	Marsden, Paul (Shrewsbury)
Hewitt, Ms Patricia	Marshall, David (Shettleston)
Hill, Keith	Marshall, Jim (Leicester S)
Hinchliffe, David	Marshall-Andrews, Robert
Hodge, Ms Margaret	Martlew, Eric
Hoey, Kate	Maxton, John
Hood, Jimmy	Meacher, Rt Hon Michael
Hope, Phil	Meale, Alan
Hopkins, Kelvin	Merron, Gillian
Howarth, Alan (Newport E)	Michie, Bill (Shef'ld Heeley)
Howarth, George (Knowsley N)	Milburn, Rt Hon Alan
Howells, Dr Kim	Miller, Andrew
Hoyle, Lindsay	Moffatt, Laura
Hughes, Ms Bevetley (Stretford)	Moonie, Dr Lewis
Hughes, Kevin (Doncaster N)	Moran, Ms Margaret
Humble, Mrs Joan	Morgan, Ms Julie (Cardiff N)
Hurst, Alan	Morgan, Rhodri (Cardiff W)
Hutton, John	Morley, Elliot
Iddon, Dr Brian	Morris, Ms Estelle (B'ham Yardley)
Illsley, Eric	Morris, Rt Hon John (Aberavon)
Ingram, Rt Hon Adam	Mountford, Kali
Jackson, Helen (Hillsborough)	Mudie, George
Jamieson, David	Mullin, Chris
Jenkins, Brian	Murphy, Denis (Wansbeck)
Johnson, Alan (Hull W & Hessle)	Murphy, Jim (Eastwood)
Johnson, Miss Melanie (Welwyn Hatfield)	Murphy, Rt Hon Paul (Torfaen)
	Naysmith, Dr Doug
Jones, Rt Hon Barry (Alyn)	Norris, Dan
Jones, Mrs Fiona (Newark)	O'Brien, Bill (Normanton)
Jones, Helen (Warrington N)	O'Brien, Mike (N Warks)
Jones, Jon Owen (Cardiff C)	O'Hara, Eddie
Jones, Martyn (Clwyd S)	Olner, Bill
Jowell, Rt Hon Ms Tessa	O'Neill, Martin
Kaufman, Rt Hon Gerald	Organ, Mrs Diana
Keeble, Ms Sally	Osborne, Ms Sandra
Keen, Alan (Feltham & Heston)	Palmer, Dr Nick
Kelly, Ms Ruth	Pearson, Ian
Kemp, Fraser	Pendry, Tom
Kennedy, Jane (Wavertree)	Perham, Ms Linda
Khabra, Piara S	Pickthall, Colin
Kidney, David	Pike, Peter L
King, Andy (Rugby & Kenilworth)	Plaskitt, James
King, Ms Oona (Bethnal Green)	Pollard, Kerry
Kumar, Dr Ashok	Pond, Chris
Ladyman, Dr Stephen	Pope, Greg
Lawrence, Ms Jackie	Pound, Stephen
Laxton, Bob	Powell, Sir Raymond
Lepper, David	Prentice, Ms Bridget (Lewisham E)
Leslie, Christopher	Prentice, Gordon (Pendle)
Levitt, Tom	Primarolo, Dawn
Lewis, Ivan (Bury S)	Prosser, Gwyn
Lewis, Terry (Worsley)	Purchase, Ken
Uddell, Rt Hon Mrs Helen	Quinn, Lawrie
Linton, Martin	Radice, Rt Hon Giles
Lloyd, Tony (Manchester C)	Rammell, Bill
Lock, David	Reed, Andrew (Loughborough)
McAllion, John	Roche, Mrs Barbara
McAvoy, Thomas	Rooker, Jeff
McCabe, Steve	Rooney, Terry
McCafferty, Ms Chris	Ross, Ernie (Dundee W)
McCartney, Rt Hon Ian (Makerfield)	Rowlands, Ted
	Roy, Frank
McDonagh, Siobhain	Ruane, Chris
Macdonald, Calum	Ruddock, Joan
McDonnell, John	Ryan, Ms Joan
McFall, John	Sarwar, Mohammad
McGuire, Mrs Anne	Savidge, Malcolm
McIsaac, Shona	Sawford, Phil
McKenna, Mrs Rosemary	Sedgemore, Brian
Mackinlay, Andrew	Shaw, Jonathan
McNulty, Tony	Sheldon, Rt Hon Robert
MacShane, Denis	Shipley, Ms Debra
Mactaggart, Fiona	Simpson, Alan (Nottingham S)
McWalter, Tony	Singh, Marsha
Mallaber, Judy	Skinner, Dennis

Smith, Rt Hon Andrew (Oxford E)	Touhig, Don
Smith, Angela (Basildon)	Trickett, Jon
Smith, Rt Hon Chris (Islington S)	Turner, Neil (Wigan)
Smith, Miss Geraldine (Morecambe & Lunesdale)	Turner, Dennis (Wolverh'ton SE)
	Turner, Dr Desmond (Kemptown)
Smith, Jacqui (Redditch)	Twigg, Derek (Halton)
Smith, Llew (Blaenau Gwent)	Twigg, Stephen (Enfield)
Snape, Peter	Tynan, Bill
Soley, Clive	Vaz, Keith
Spellar, John	Walley, Ms Joan
Squire, Ms Rachel	Ward, Ms Claire
Starkey, Dr Phyllis	Watts, David
Steinberg, Gerry	White, Brian
Stevenson, George	Whitehead, Dr Alan
Stewart, David (Inverness E)	Wicks, Malcolm
Stewart, Ian (Eccles)	Williams, Rt Hon Alan (Swansea W)
Stinchcombe, Paul	Williams, Alan W (E Carmarthen)
Stoate, Dr Howard	Williams, Mrs Betty (Conwy)
Strang, Rt Hon Dr Gavin	Wills, Michael
Stringer, Graham	Winnick, David
Stuart, Ms Gisela	Winterton, Ms Rosie (Doncaster C)
Sutcliffe, Gerry	Wise, Audrey
Taylor, Rt Hon Mrs Ann (Dewsbury)	Wood, Mike
	Woolas, Phil
Taylor, Ms Dan (Stockton S)	Worthington, Tony
Taylor, David (NW Leics)	Wray, James
Temple-Morris, Peter	Wright, Anthony D (Gt Yarmouth)
Thomas, Gareth (Clwyd W)	Wyatt, Derek
Thomas, Gareth R (Harrow W)
Timms, Stephen	Tellers for the Ayes:
Tipping, Paddy	Mr. Graham Allen and
Todd, Mark	Mr. Robert Ainsworth.

NOES
Allan, Richard	Cotter, Brian
Amess, David	Cran, James
Arbuthnot, Rt Hon James	Cunningham, Ms Roseanna (Perth)
Ashdown, Rt Hon Paddy
Atkinson, Peter (Hexham)	Curry, Rt Hon David
Baker, Norman	Davey, Edward (Kingston)
Ballard, Jackie	Davies, Quentin (Grantham)
Beggs, Roy	Day, Stephen
Bell, Martin (Tatton)	Duncan, Alan
Bercow, John	Duncan Smith, Iain
Beresford, Sir Paul	Emery, Rt Hon Sir Peter
Blunt, Crispin	Evans, Nigel
Boswell, Tim	Ewing, Mrs Margaret
Bottomley, Peter (Worthing W)	Faber, David
Bottomley, Rt Hon Mrs Virginia	Fabricant, Michael
Brady, Graham	Fallon, Michael
Brake, Tom	Fearn, Ronnie
Brand, Dr Peter	Forth, Rt Hon Eric
Brazier, Julian	Foster, Don (Bath)
Breed, Colin	Fraser, Christopher
Brooke, Rt Hon Peter	Garnier, Edward
Browning, Mrs Angela	George, Andrew (St Ives)
Bruce, Ian (S Dorset)	Gibb, Nick
Bruce, Malcolm (Gordon)	Gill, Christopher
Burnett, John	Gorman, Mrs Teresa
Burns, Simon	Gorrie, Donald
Burstow, Paul	Gray, James
Cable, Dr Vincent	Green, Damian
Campbell, Rt Hon Menzies (NE Fife)	Grieve, Dominic
	Hammond, Philip
Canavan, Dennis	Hancock, Mike
Cash, William	Harris, Dr Evan
Chapman, Sir Sydney (Chipping Barnet)	Harvey, Nick
	Hawkins, Nick
Chidgey, David	Heald, Oliver
Chope, Christopher	Heath, David (Somerton & Frome)
Clarke, Rt Hon Kenneth (Rushcliffe)	Heath, Rt Hon Sir Edward
	Horam, John
Clifton-Brown, Geoffrey	Howarth, Gerald (Aldershot)
Collins, Tim	Hughes, Simon (Southwark N)
Colvin, Michael	Hunter, Andrew

Jack, Rt Hon Michael	Ross, William (E Lond'y)
Jackson, Robert (Wantage)	Ruffley, David
Jones, Nigel (Cheltenham)	Russell, Bob (Colchester)
Keetch, Paul	St Aubyn, Nick
Kennedy, Charles (Ross Skye)	Salmond, Alex
Key, Robert	Sanders, Adrian
King, Rt Hon Tom (Bridgwater)	Shepherd, Richard
Kirkwood, Archy	Simpson, Keith (Mid-Norfolk)
Laing, Mrs Eleanor	Smith, Sir Robert (W Ab'd'ns)
Lait, Mrs Jacqui	Smyth, Rev Martin (Belfast S)
Lansley, Andrew	Spelman, Mrs Caroline
Leigh, Edward	Spicer, Sir Michael
Letwin, Oliver	Spring, Richard
Lewis, Dr Julian (New Forest E)	Stanley, Rt Hon Sir John
Lidington, David	Steen, Anthony
Lilley, Rt Hon Peter	Streeter, Gary
Livsey, Richard	Stunell, Andrew
Lloyd, Rt Hon Sir Peter (Fareham)	Swayne, Desmond
Llwyd, Elfyn	Swinney, John
Loughton, Tim	Syms, Robert
Luff, Peter	Tapsell, Sir Peter
MacGregor, Rt Hon John	Taylor, Ian (Esher & Walton)
McIntosh, Miss Anne	Taylor, Matthew (Truro)
Maclean, Rt Hon David	Thompson, William
McLoughlin, Patrick	Tonge, Dr Jenny
	Trend, Michael
Maude, Rt Hon Francis	Tyler, Paul
Mawhinney, Rt Hon Sir Brian	Tyrie, Andrew
May, Mrs Theresa	Viggers, Peter
Michie, Mrs Ray (Argyll & Bute)	Wardle, Charles
Moore, Michael	Webb, Steve
Nicholls, Patrick	Welsh, Andrew
Norman, Archie	Whittingdale, John
Oaten, Mark	Wigley, Rt Hon Dafydd
O'Brien, Stephen (Eddisbury)	Wilkinson, John
Öpik, Lembit	Willetts, David
Page, Richard	Willis, Phil
Paice, James	Winterton, Mrs Ann (Congleton)
Paterson, Owen	Winterton, Nicholas (Macclesfield)
Pickles, Eric	Woodward, Shaun
Prior, David	Yeo, Tim
Randall, John	Young, Rt Hon Sir George
Redwood, Rt Hon John
Rendel, David	Tellers for the Noes:
Robathan, Andrew	Mr. David Wilshire and
Robertson, Laurence (Tewk'b'ry)	Mr. Jonathan Sayeed.

Question accordingly agreed to.

Government amendments (b) to (t) to the words so restored to the Bill agreed to.