RATES OF DUTY, ETC.: REFERENCE TO RETAIL PRICE INDEX

HC Deb 18 July 2000 vol 354 cc264-80

'In setting rates of duty, taxes, tax allowances, or tax credits by reference to a change in the Retail Price Index, there shall be used the actual change in the 12 months to the month preceding the announcement of the change.'—[Mr. Heathcoat-Amory.]

Brought up, and read the First time.

Mr. David Heathcoat-Amory (Wells)

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

Mr. Deputy Speaker

With this it will be convenient to discuss new clause 7—Timing of announcement of pensioner income tax allowances— 'In section 257C(3) Taxes Act 1988 add at the end "The order shall be made by 31st December following the preceding September referred to in subsection (1).".'.

Mr. Heathcoat-Amory

An important part of the budgetary process is the uprating of tax rates and associated matters and, at other times of the year, the uprating of benefits and pensions. New clause 2 seeks to bring some honesty and transparency into the process and into Government finances more generally. It would require the Government to do what the previous Government did, and base the uprating of taxes, allowances and tax credits, and, by implication, benefits and pensions, on a single backward-looking or historical basis—in other words, to treat all upratings in the same way. Not only is that right in principle but it gives additional certainty and precision, because people can see that the increased rates are based on an arithmetical index that is generally published and available.

6 pm

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

The right hon. Gentleman suggests that the Government should follow the practices of the previous Government. On a number of occasions, the previous Government froze the allowances altogether. Will he acknowledge that when he advocates that we follow their practices?

Mr. Heathcoat-Amory

Not only did we freeze some of the upratings but we reduced certain duties. In our last two Budgets, we froze the duty on alcohol and reduced it on spirits. We did that for sound reasons, and it is regrettable that the incoming Labour Government failed to follow that practice and uprated alcohol duties again. Now we hear that a main cause of disorder in all our streets is abuse of alcohol, some of it bought from illegal outlets and undoubtedly smuggled across the channel. The Government should have tackled the cause of that crime rather than trying to tackle its symptoms; they should have tackled the severe smuggling problem. So the answer to the Minister is that on occasions we froze some tax increases. I commend the practice to him.

The new clause ensures that where the Government increase taxes and benefits by reference to a prices index, they use a single historical one. I contrast that with what the Government are doing now. They pick and choose whether they use an historical or a projected index, purely for their own convenience. The most obvious example is the treatment of fuel duties. The basis of that treatment was changed in 1997 from an historical to a projected inflation assumption. That was a clear break with what had happened previously, probably caused by the fact that the Government sought to introduce an extra uprating. The Government introduced four upratings in three years before they finally came off the fuel duty escalator.

Mr. John Bercow (Buckingham)

Given that 29.5 per cent. of the price of a pint of beer, 50.5 per cent. of the price of a bottle of wine and 61.3 per cent. of the price of a bottle of whisky goes directly to Treasury coffers, can my right hon. Friend offer the House a guesstimate of how much lower those proportions would be in the happy event that new clause 2 had been passed at the beginning of this Parliament?

Mr. Heathcoat-Amory

My hon. Friend makes a good point, and most usefully broadens the debate. We are not discussing the increase in road fuel duty alone. As he has rightly spotted, the same system has been used to uprate tobacco and alcohol taxes in the Budget by far more than was justified. The figures are revealing. Fuel and alcohol duties increased by 3.4 per cent. immediately on Budget day. That was the anticipated inflation rate for the rest of the year. Curiously, that inflation rate does not appear anywhere in the Red Book, but that was undoubtedly the Government's estimate. By contrast, income tax allowances and tax credits, such as the tax credit for the disabled, all increased not by 3.4 per cent. but by between 1 and 1.5 per cent. That is all laid out on pages 138 and 139 of the Red Book.

So the Government took a high inflation figure when it suited them for revenue purposes, but when they gave away some money to working families or disabled people, or simply uprated personal allowances, they used a far lower figure. The net benefit to the Treasury was simply colossal. The Government notoriously used exactly the same methodology to uprate pensions by only 1.1 per cent., leading to the 75p per week insult to pensioners with which the country is so familiar.

Needless to say, there was not a word about the change in treatment of fuel duties in the Budget speech. The increases were all described as simply increases by the rate of inflation. Worse than that, when challenged, the Government denied it. I am glad that the Paymaster General is attending the debate. She will recall that this very issue was raised by my hon. Friend the Member for Arundel and South Downs (Mr. Flight), who is in his place now. On 6 April, he challenged her and pointed out that petrol duty had been raised by an inflation index of 3.4 per cent., whereas allowances had been raised by only 1.2 per cent.

The Paymaster General replied with a mixture of patronising my hon. Friend and being wrong. She said: I think that I am right in saying that the hon. Gentleman has never been in government, so I suppose he can be forgiven for not knowing how the tax system works. That was the patronising bit. The false and wrong statement was as follows: The methodology used for this year's increase is exactly the same as that which has been used in previous years. It is the same methodology that the Conservative Government used.—[Official Report,6 April 2000; Vol. 347, c. 1145.] That was flatly untrue. I have already described how in 1997 the incoming Labour Government changed the methodology from one based on an historical index to one based on a projected index. I should be grateful if the Minister would apologise for misleading the House.

Such examples show why people have lost faith in the Government and why the Government's assertions about taxes and benefits are simply not believed any more. Indeed, the contents of the memo leaked from No. 10, in which the Prime Minister whinges that no one believes him any more and he has lost touch with the instincts of the British people, are at least in part attributable to the fact that people have not been told the truth. When challenged, the Government flatly deny what is in fact the case. The practice of using two indexation procedures, simply for their convenience, has grown under this Government. I believe that that is not just wrong but probably illegal.

Some of us served on the 1998 Finance Bill. I have done more Finance Bills than I care to remember, and I certainly attended all the debates on that one. Under what became section 155 of the Act, the Treasury is committed by law to certain key principles in the formulation and implementation of fiscal policy. One of those key principles is transparency. I do not know what happens if the Government break one of their own laws—who gets arrested, or who is responsible for ensuring that an Act of Parliament is obeyed. That we can leave for another time, but the Government are building up a good deal of case law of instances in which they are in breach of section 155 of the Finance Act 1998.

The example of indexation subterfuges that are carried out and then denied comes in addition to other stealth taxes, and the House is familiar with many of them. The Select Committee on the Treasury, with its distinguished Labour Chairman and a Labour majority, drew attention in its report on the Budget this year to no fewer than five examples of a lack of transparency in the presentation of the national accounts. It pointed out that the Government used the term "tax burden" without making it clear that they were only talking about the direct tax burden. That conveniently omitted all the indirect taxes, which were increasing. The Select Committee asked that that be put right.

The Committee also drew attention to the rather propagandist little document that the Government published at Budget time, again at taxpayers' expense. It asked that in future such a document should be independently audited.

Mr. Bercow

Will my right hon. Friend confirm that the Select Committee's request was not spectacularly radical? It was merely asking the Chancellor to revert to the proper practice that was operated by Conservative Governments for 15 successive years, from 1981 to 1996.

Mr. Heathcoat-Amory

My hon. Friend is right. We are not asking for the impossible or the unusual. We are merely asking the Government to revert to previous practice.

I can give my hon. Friend another example. The Select Committee pointed out that the Government had dropped the previous practice of reporting on the effects of indirect taxes on households of various sorts. That was the subject of one of its recommendations. We all remember that in previous years that information was routinely published by Conservative Governments. However, it was dropped immediately and without explanation, because the results would be embarrassing. That is wrong, and conflicts with the Finance Act 1998.

My final example is the working families tax credit, which is now being treated as a deduction from taxation, although it is part of the sum of social security expenditure. That fact is confirmed half way down page 220 of the Red Book, admittedly in small print: income tax credits … score as public expenditure under national accounting conventions. Despite that, in every other reference to working families tax credit in all other documents, and elsewhere in the Red Book, it is wrongly, confusingly—and, in my view, deceitfully—described as a deduction from income tax.

I have provided some examples, and the new clause is designed to prevent the situation from becoming worse. It would require the Government, by law, to have one policy for uprating the various taxes and duties, and to stick with it. This is not simply a question of honesty in the presentation of the national accounts, important though that is. It is also about protecting the country from further damage. If the clause had been implemented last year, the Government could not have raised fuel duties or other indirect duties by 3.4 per cent. I will not say that they got away with it, because what they had done was discovered, but the 3.4 per cent. increase has made petrol and diesel in the UK the most expensive in Europe.

If by some lucky chance the new clause is accepted this evening, the Government could find a way of paying back at least the windfall element in the money that they have netted since the Budget. Revenue from road fuel comes from hydrocarbon duty and value added tax. The Government's latest excuse for the rise in petrol prices is that the world price of oil has risen. However, that, too, nets the Government a great deal of extra revenue. It is calculated that VAT on the higher oil price since Budget day is netting the Government an extra £150 million a year.

6.15 pm

That is bad for taxpayers, particularly for those who have to have cars. It is also bad for the haulage industry and for manufacturing. However, it is good for some. We are told that it is very good for the racketeers and paramilitary organisations in Northern Ireland. I have often asked the Treasury whether it has any estimates of the smuggling that takes place across the land border between Northern Ireland and the Republic—another EU member state. It always replies that it has no such estimates. That shows an extraordinary degree of complacency.

Some other people have been doing some work. The Petrol Retailers Association has noticed that official deliveries of petrol in Northern Ireland have fallen from more than 160,000 tonnes in the last quarter of last year to less than 110,000 in the first quarter of this year. More than that, it has counted that more than 70 petrol stations in Northern Ireland have closed as a result of the smuggling. It believes that this is providing funds for racketeering and paramilitaries of various sorts.

It is extremely disturbing that that should have been worked out by an outside organisation and not by the Government. I ask the Government and the Treasury, in all sincerity, to consider again the damage caused by the escalation in petrol prices. The Chancellor said this afternoon that he had come off the fuel duty escalator, but I have described a situation where he has done anything but that. There is no justification for the past increases and the extra budget that he has had in the past three years, which means that the cumulative effect will be even more damaging. In addition, he increased duty by 3.4 per cent. this year, which made a bad situation worse.

The new clause, which I commend to the House, is designed to put some honesty and transparency back into the method of calculating duty rates. It would be good for the country if it helped to unwind the entirely unjustified duty increase on 21 March.

Mr. Malcolm Chisholm (Edinburgh, North and Leith)

I shall make only two points given the pressure of business. The right hon. Member for Wells (Mr. Heathcoat-Amory) cannot get away with taking the high moral ground on such a spurious basis. First, we heard the nonsense about fuel duty. We have been hearing about it also in recent weeks from the Scottish National party in Scotland, and in a few minutes we may hear about it again from the SNP. There was a change because of the general election and a Budget soon afterwards.

As the right hon. Member for Wells knows, the last Conservative Budget in November 1996 used the September 1996 uprating. Therefore, in July 1997, the Labour Government had to use September 1997 in accordance with the fuel duty escalator.

Mr. Heathcoat-Amory

Why did they not use the prices index up to June 1997?

Mr. Chisholm

What they used was similar to that. September is the point that is always used for these indexes. It was natural to use September for the first Budget.

Secondly, the right hon. Gentleman has praised previous practice. He knows that there were two different upratings under the Conservative Government. There was one for the headline rate of inflation for pensions and similar benefits, whereas income-related benefits have always been the subject of the Rossi index, as he knows. It would have been far better if he had acknowledged that fact. Perhaps he has forgotten because there is complete confusion in the new clause, in which he asks for tax credits to be governed by the retail prices index, when income-related benefits have always been governed, even by Conservative Governments, by a different index.

Mr. Edward Davey (Kingston and Surbiton)

New clause 7 relates to the timing of the announcement of the increase in income tax allowances. It is a modest new clause, but it would provide real benefits to pensioners who pay income tax. At the moment, because of the problems that there have been with the announcement in the past two years, pensioners are effectively paying an interest-free loan to the Chancellor between April and May. The new clause would reduce the Inland Revenue's administration costs when it sends out the various codings. Perhaps the most important benefit that it would bring would be to end the confusion and anxiety felt by many pensioners when they receive their changed tax coding later in the year.

When the Budget was in March, the longstanding practice was for tax codings to be sent out to all income tax payers in January and February, based on the income tax allowance for that year. Then, after the March Budget, when the new income tax allowances had been announced, a new coding would be sent out to all taxpayers. That was the usual practice with which everyone became familiar, and it did not create a problem because it was done in time for the forthcoming financial year. But there has been a change which has gone unnoticed by many. When the Chancellor rightly aligned class 1 national insurance contributions with income tax, he decided that he would announce the following year's allowances in the November when he announced the changes to the national insurance system. The changes to the allowance for the following year for employed people—the non-pensioner income tax-paying community—were announced in November. The correct PAYE codes could be sent out in January and February, so there was no problem for them.

However, because pensioners do not pay national insurance contributions, the Chancellor has not announced in the pre-Budget report of the previous two years the increases in the pensioner allowances. Therefore, the tax codings for pensioners have gone out in January based on that year's level of allowances, and when the Chancellor has announced the increases in the pensioner income tax allowances in the following March Budget, another tax coding has had to be sent out, in the main just to pensioners. That has meant that pensioners, for the months of April and May, have paid too much income tax, and the extra bureaucracy from the Inland Revenue has caused them concern and anxiety. They have had to ask their tax advisers what on earth it is all about, and when it has been explained to them, they have been flabbergasted. They wonder why on earth the Government are behaving in such a way, why all that bureaucracy is being created and why, they, the pensioners, have to have too much tax deducted from them during the month of April.

New clause 7 would resolve that problem once and for all. It amends the famous section 257C of the Income and Corporation Taxes Act 1988, which was introduced by the Rooker-Wise amendment. The new clause would ensure that the announcement of the upratings for the income tax allowances was made by the latest by 31 December of the year before the tax year to which those upratings apply.

I raised the matter in the House in an Adjournment debate on 9 June 2000. The Paymaster General was kind in replying to that point and to others. She admitted that the Government recognised that this was an issue. She said: It is something that I should like to address. She went on: The hon. Gentleman made a point on coding notices. We are aware of that matter and are examining it. We have not yet found a solution to it, but we are still looking for one.—[Official Report,9 June 2000; Vol. 351, c. 617–18.] I was grateful for that positive reply from the Paymaster General.

New clause 7 is the solution to which the Government should be looking. The Minister may say that it would tie the Chancellor's hands, but it would not because the Chancellor would still be free in the March Budget and the future Finance Bill to announce changes over and above what was announced in December to the future uprating of income tax allowances, either up or down. The clause would not tie the hands of the Chancellor or restrict Parliament; it would simply make for good administrative practice. It would mean that low-income pensioners did not make interest-free loans to the Chancellor, which cannot be right.

I hope that the Minister will consider this minor administrative matter, which is important to tens of thousands of pensioners and possibly more. I tried recently to elicit how many by various parliamentary questions, but I was unable to obtain exact figures. However, many are affected by this. It cannot be right that we and other taxpayers are spending money on bureaucracy for something that is completely unnecessary and further disadvantages some of the most disadvantaged people in our society.

If the Government do not accept new clause 7 tonight, I hope that they will go away and make sure that the problem is addressed in the way in which the Chancellor makes future uprating statements for income tax allowances for the employed and for pensioners, and that they will provide statutory protection to prevent such a mistake from happening again.

Liberal Democrats have nothing against new clause 2. It is one way of changing the uprating of the allowances and duties. The Conservative Government had more than one way of doing that, and this Government have more than one way. There is nothing sacrosanct about any particular process for uprating allowances and duties, so Liberal Democrats have no problem in supporting the new clause. There is a genuine case for it in the sense that the uprating would be based on a reality—a figure which could be proved, analysed and agreed upon, rather than a forecast figure, which might not be the eventual inflation figure for that period. One need not waste a huge amount of time on it. It is a relatively simple measure concerning a technocratic issue.

The right hon. Member for Wells (Mr. Heathcoat-Amory) made a few political points, some of which were well made. There is no doubt that the two upratings in the Government's first year were rather stealthy. There is no doubt that pensioners think it rather odd that their pensions have gone up by 1.1 per cent. while fuel duty has gone up by 3.4 per cent. and council tax often by far more than that. People on incomes that are increasing only modestly are concerned. New clause 2 may be one mechanism by which to address that unfairness and ensure that people do not perceive that this Government or other Governments are treating them unfairly.

However, new clause 2 is only a tiny measure to get rid of that unfairness. What we really need are higher basic state pensions for the ordinary pensioner. Unfortunately, we did not see that in today's statement or last April, and that is a shame. It is about time that the Government addressed that issue, which is a matter of a great deal more substance than new clause 2. However, as I said, Liberal Democrats have no problem with it.

6.30 pm

Mr. Alasdair Morgan (Galloway and Upper Nithsdale)

I would like to speak briefly to new clause 2, specifically in relation to fuel duties. I am glad that you called me, Mr. Deputy Speaker, because I would have hated to disappoint the hon. Member for Edinburgh, North and Leith (Mr. Chisholm), who would not otherwise have had a chance to listen to the "usual nonsense", as he called it, from the SNP.

It is a serious matter that fuel duties have been put up by more than the real rate of inflation, particularly for my constituency, which has the third lowest level of income of all the Scottish constituencies, but about the third highest level of car ownership. That is not because the people in my constituency, being of average lower income, are perversely buying cars and luxury items. It is because the ownership of a car, or often two cars in a family, is essential to earning a livelihood.

Therefore, to increase one of the principal costs of car ownership by more than the real rate of inflation is insupportable. Because the tax, certainly in Galloway and in many other rural areas, is paid by those on lower incomes, regardless of what those incomes are, effectively it is a regressive tax which is being increased by more than the rate of inflation.

That would be bad enough if tax were the only influence on the price of petrol, but it is not. The right hon. Member for Glasgow, Anniesland (Mr. Dewar), then Secretary of State for Scotland, said in the Scottish Grand Committee last year: The oil price is likely to stay at about $10 to $12 a barrel—at least in the foreseeable future—[Official Report, Scottish Grand Committee,1 February 1999; c. 8.] This June, the oil price touched $31 a barrel. The right hon. Gentleman does not seem to have displayed great foresight. Perhaps it is as well that he is not in charge of Treasury forecasts.

In the light of that, perhaps the Government thought that they could get away with such increases and their mechanism for them when oil prices were very low, and they thought that they were likely to remain low. That is no longer the case. Petrol has gone up for other reasons; it has gone up because the price of oil has gone up. That is a very good reason why the Government should revisit the mechanism for taxing petrol. There are, therefore, three reasons why.

First, as I have said, the price of petrol is going up anyway. Secondly, as the right hon. Member for Wells (Mr. Heathcoat-Amory) said, as a result Government revenues elsewhere are going up. They are going up from VAT on oil; they are going up increasingly from the petroleum revenue tax. I think it is estimated that £20 billion over the next four years will be gained from the PRT. Lastly, as the right hon. Gentleman also said, the Government are suffering a severe loss of revenue because of above-inflation increases in the price of diesel fuel and petrol here while there is cheaper fuel elsewhere.

In my constituency, the nearest to Northern Ireland, we are very conscious that cross-channel hauliers—I am speaking about the north channel between Galloway and Northern Ireland—very often do not fill up in Galloway or in Northern Ireland, but fill up in the Republic, in places such as Dundalk. That means money lost to the Exchequer, because basically we are trying to be too greedy. The mark-up on what would be the retail price of petrol without the duty is, I believe, 333 per cent., which is fairly good by anybody's standards.

It is not just ordinary people who are paying the tax. It is also heaped on to the police, the fire service, the ambulance service and school buses. Every time we increase the tax by more than the real rate of inflation, the costs of all those essential services go up at the same time. That is insupportable.

The Chancellor has made much of the fact that he has done away with the automatic fuel escalator. I do not see that there is any point in doing away with an automatic escalator if what we get instead is a manual escalator. We need a much more sensible approach to the issue. I urge the Government to think again before it is too late for many businesses in the rural economy, and perhaps before it is too late for their majority at the next election.

Mr. Jack

I support my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory), who made a telling case for standardising indexation changes based on a retrospective look at the retail prices index. One feature that has not come out in the debate so far is the accuracy of the inflation forecast. If by chance inflation does not move ahead at the same rate as the forecast increase used for the various tax purposes that my right hon. Friend outlined, the Government have a windfall gain, but they do not give themselves an obligation to pay back to the taxpayer any of the extra money obtained through fortuitously lower inflation than forecast.

As has been said in the debate, the windfall gain in VAT receipts as a result of the rise in oil prices, with its knock-on effect on petrol prices, bears witness to the fact that the present Government enjoy using every opportunity to take the people's money and put it into the Treasury's coffers to do with it as they think fit. Therefore, in terms of safety and equity, my right hon. Friend is correct.

I should like to conclude by expressing a provocative thought. The whole question of uprating the Government's income is perhaps a disincentive to their making certain that they always make every pound of taxpayers' money work as hard as possible. The Government can simply say that they can guarantee that a certain amount of money will come in through uprating, but a company cannot assume that it will receive automatic price increases. A company will try extremely hard to make every penny work as hard as possible, because it cannot guarantee receipt of that extra income.

We have got ourselves into the way of thinking that the Government's position must always be protected. From the individual's point of view, I can well appreciate why indexation should continue to be a regular feature, because he or she has less room for manoeuvre; in the real world an individual may well not receive a pay increase, but he still has his taxes to pay. Therefore, some form of price index-insulated indexation is important to him if he is not to be worse off year on year in real terms. But the Government's automatic assumption that they will receive money through indexation perhaps makes them a bit sloppy around the edges when it comes to spending the public's money. That may be a feature that the House will return to when it debates today's statement by the Chancellor.

Mr. Timms

We have been over the ground covered by new clause 2 on a number of occasions. This is probably the third time that we have heard the speech of the right hon. Member for Wells (Mr. Heathcoat-Amory). I had hoped that he might have something different to say on this occasion, but I was disappointed. He made his points in the usual way.

I should like to set out the position again. It is standard practice for inflation increases in excise duties to be based on a forecast of September retail prices index figures, and for income tax allowances and pensions to be based on the previous September's out-turn figure for the retail prices index.

Mr. Jack

The Financial Secretary used the expression "standard practice". Why must it be the standard practice? Why could the hon. Gentleman not change the standard practice to a more equitable practice if he wished?

Mr. Timms

Of course, the practice could be changed, but I want to explain what the practice is. September is the date that has been used on both sides, in excise and in allowances, with a forecast in the case of excise duties and a look back at the previous year's figures in the case of allowances.

Mr. Alasdair Morgan

If that practice is followed, and if—heaven forbid—Treasury forecasters are always pessimistic, we shall continue to have an increase each year that turns out to be higher than inflation, and gradually the average prices index and the duty levels will diverge.

Mr. Timms

I am glad to be able to reassure the hon. Gentleman on that point. The duty increases since the election have been less than they would have been if inflation had been used. The duties being paid by the hon. Gentleman's constituents are less than they would be if we were to take up his suggestion.

The Opposition have got excited about this matter on a number of occasions and have drawn attention to the fact that, this year, inflation increases for duties have been greater than for allowances and pensions. It is a matter of swings and roundabouts. Last year, the reverse was the case, and allowances and pensions went up by 3.2 per cent. while duties went up by 1.3 per cent. We heard nothing about stealth handouts in the debate at that time. In a era of stable inflation—the result of the extremely successful management of the economy that we have enjoyed over the past three years—things even out over time. As I have been able to point out, duties have increased by less than inflation over that period. All this fuss has been entirely misplaced.

Announcement of the personal allowance in November means that the latest practical reference point for income tax allowance indexation is September—the month preceding November would not work. It would be impractical—this is a suggestion in new clause 2—for the Budget to be early in the month. If the Budget were in early March, the new clause would require the duty increase to be the change in the RPI in the year to February, which would not even have been published by that time. It is an unworkable proposal.

Another difficulty with the proposal is that different indexation figures would be used for different allowances. Basic personal allowances would rise by the increase in RPI in the year to October, while the other allowances and the rate bands would rise in line with the RPI increase to February. That is just within the allowances. There is no sense in that.

I should remind Conservative Members that it was their Government who introduced the Income and Corporation Taxes Act 1988, which requires the use of the September RPI for income tax as opposed to the much more arbitrary and less satisfactory proposition that they are advancing today.

I noticed that, in response to my intervention, the right hon. Member for Wells was understandably shy when it came to talking about what the previous Government did with income tax allowances. The previous Government froze income tax allowances for 1993 and 1994; they did not uprate them at all. They also froze the basic rate limit, not just for those two years, but for 1990 and 1992 as well. As a result, they raised taxes by over £2 billion. The measures to freeze allowances and the basic rate threshold with effect for April 1993 and April 1994 brought in about £1.75 billion. The Chief Secretary responsible for that was the current shadow Chancellor. The Opposition are a great deal more vulnerable on this than the Government. The proposal is unworkable.

The right hon. Member for Wells or it may have been his hon. Friends in Committee—said that the Red Book does not mention the figure of 3.4 per cent. It does. It appears several times in table A.9 on page 146 and the figure 3.41 per cent. appears in table A.12 on page 148. It is always worth reading the Red Book. It is a practice that I commend to Opposition Members.

I was rather surprised by the fact that the right hon. Gentleman said that he had been unable to establish the figure for revenue lost through cross-border shopping and smuggling of oil in Northern Ireland. We have said on a number of occasions that we estimate that to be £100 million in 1998. That has been published in parliamentary answers and it was stated in Committee. We have published that figure on a number of occasions, and I am sorry that the right hon. Gentleman missed it.

6.45 pm

The hon. Member for Galloway and Upper Nithsdale (Mr. Morgan) raised concerns, specifically about fuel duty. I hope that he will be reassured by what I have said about the impact of the method used for inflation uprating of duties. He expressed particular concern, for reasons that I well understand, about the position of low-income constituents in areas such as his. They will benefit particularly from the changes that we have announced to vehicle excise duty. We have extended the threshold for the lower rate from 1100 cc to 1200 cc vehicles. His constituents will also benefit from the new arrangements being introduced from next year for lower rates of vehicle excise duty on fuel efficient cars. Those measures will be particularly welcome to the hon. Gentleman and his constituents.

Mr. Morgan

Will the Minister accept that those measures are much more likely to benefit those who can afford to buy new cars? People on low incomes tend to buy second-hand cars, often without a low engine size because such cars tend to be cheaper on the second-hand market.

Mr. Timms

The concession for vehicles of less than 1200 cc applies equally to new and old cars. I anticipate that the hon. Gentleman's constituents who are on a limited income and driving an inexpensive car will welcome those measures.

Mr. David Heath (Somerton and Frome)

I wonder whether the hon. Gentleman can help me with a query from a constituent who points out that the differential between unleaded petrol and leaded petrol was introduced as a perfectly proper environmental measure. Why is that differential maintained between unleaded petrol and lead replacement petrol? That affects people who own older cars, which may not be able to run on unleaded fuel.

Mr. Timms

The differential with lead replacement petrol is a reflection of the different costs in the production process. I should be happy to drop the hon. Gentleman a line setting out the details of that arrangement.

I am grateful to the hon. Member for Kingston and Surbiton (Mr. Davey) for his explanation of the new clause. I know that he takes a keen interest in the way that the tax system affects pensioners. As he said, my hon. Friend the Paymaster General had an opportunity to debate a wide range of issues of concern to pensioners with him in the Adjournment debate on 9 June and, in particular, to consider the proposals made by the low income tax reform group.

For reasons that he spelled out, the hon. Gentleman would prefer the Revenue to reflect in the PAYE codes on occupational pensions, which are issued in January and applied in April, the increased amount of state pension and the increased amount of allowances resulting from indexation. His proposal is that the Revenue would be able to do that if the Treasury order setting out index values of allowances were published by the end of December rather than on Budget day the following March. Publishing that order earlier would not have that effect because it is always possible for Parliament to override indexation, as it did in 1999 when pensioner allowances rose by up to £200 more than the indexation required.

Mr. Edward Davey

I understand that point, but surely in most years and in most circumstances there would not need to be a second tax coding because Parliament would usually go by the normal Rooker-Wise index.

Mr. Timms

I know that the hon. Gentleman feels strongly about this. My hon. Friend the Paymaster General gave him an assurance during the debate on 9 June that she would look into this matter. I know that she is doing so with great care and I hope that the hon. Gentleman will feel that he can accept that assurance and not press this issue.

Mr. Heathcoat-Amory

The Minister started by saying that we had debated these matters before, but we have raised them again because we still have not got any answers. I will make a deal with him—I shall stop raising the subject if he starts giving some answers. The debate that we have just had illustrates my point because, for example, the Minister did not apologise on behalf of the Paymaster General for the flat untruth of her assertion that the previous Government had indulged in the same subterfuge.

The fact is—I note that the Minister did not disagree—that we had an historical system for uprating all the allowances and duties. It was the incoming Labour Government who changed the rules to uprate according to a forward-looking estimate of inflation. That is why fuel duty and other indirect taxes went up by 3.4 per cent. this year, instead of increasing by the pension increase index of 1.1 per cent. I ask the Minister to correct that example of a Treasury Minister misleading the House. That is a serious enough point to draw the Minister into a late intervention, and I will give way to him if he will now agree that that was an example of a Minister giving an incorrect reply. The fact that he will not do so only confirms our allegation that no one believes what this Government say about taxes any more. It is no good the Prime Minister saying that he now wants a lot of eye-catching initiatives instead of policies, when he has already lost the trust of the House and of the wider public. The Government cannot even admit it when they have made a mistake.

The Minister then boasted that there was no problem because the Government had achieved what he called low and stable inflation. If that is the case, why are they putting up alcohol and road fuel duties by nearly 3.5 per cent., when they have an inflation target of 2.5 per cent.? I do not call that either low or stable.

The Minister also said that the figure of 3.4 per cent. appears in the Red Book so it is not a secret. I never said that it was. We spotted quickly the divergence and that the Government were putting up allowances by only 1.1 per cent. and all other duties by nearly 3.5 per cent. My point, which I repeat, is that the issue of inflation and the inflation index is discussed in no fewer than three places in the Red Book but at no point in those discussions does the figure of 3.4 per cent. appear. The Minister cannot contradict that point.

Mr. Nicholas Soames (Mid-Sussex)

Does my right hon. Friend agree that, with that eagle-eyed clarity and persistence that led him to seek out that figure, he has also drawn other inconsistencies in the Red Book to the attention of the House?

Mr. Heathcoat-Amory

That was a typically sagacious intervention by my hon. Friend, who is clearly on form at an early point in our proceedings. We have said enough to demonstrate beyond doubt that on this issue we are right—and I include my hon. Friend in that observation. We are on the side of right and truth and it is the Government who have made a mistake. We shall divide the House on the issue.

Question put, That the clause be read a Second time:—

The House divided: Ayes 168, Noes 319.

Division No. 275]	[6.54 pm
AYES
Allan, Richard	Burnett, John
Amess, David	Burns, Simon
Arbuthnot, Rt Hon James	Burstow, Paul
Baldry, Tony	Butterfill, John
Ballard, Jackie	Cash, William
Beggs, Roy	Chapman, Sir Sydney (Chipping Barnet)
Beith, Rt Hon A J
Bell, Martin (Tatton)	Chidgey, David
Bercow, John	Chope, Christopher
Beresford, Sir Paul	Clappison, James
Bottomley, Peter (Worthing W)	Clarke, Rt Hon Kenneth (Rushcliffe)
Bottomley, Rt Hon Mrs Virginia
Brake, Tom	Clifton-Brown, Geoffrey
Brand, Dr Peter	Collins, Tim
Brazier, Julian	Cormack, Sir Patrick
Breed, Colin	Cotter, Brian
Brooke, Rt Hon Peter	Cran, James
Bruce, Ian (S Dorset)	Curry, Rt Hon David
Bruce, Malcolm (Gordon)	Davey, Edward (Kingston)

Davies, Quentin (Grantham)	Madel, Sir David
Davis, Rt Hon David (Haltemprice)	Major, Rt Hon John
Donaldson, Jeffrey	Malins, Humfrey
Dorrell, Rt Hon Stephen	Maples, John
Evans, Nigel	Mawhinney, Rt Hon Sir Brian
Ewing, Mrs Margaret	May, Mrs Theresa
Faber, David	Moore, Michael
Fabricant, Michael	Morgan, Alasdair (Galloway)
Fallon, Michael	Norman, Archie
Fearn, Ronnie	Oaten, Mark
Flight, Howard	O'Brien, Stephen (Eddisbury)
Forth, Rt Hon Eric	Ottaway, Richard
Foster, Don (Bath)	Paice, James
Fox, Dr Liam	Paterson, Owen
Fraser, Christopher	Portillo, Rt Hon Michael
Garnier, Edward	Prior, David
George, Andrew (St Ives)	Randall, John
Gibb, Nick	Rendel, David
Gidley, Sandra	Robathan, Andrew
Gill, Christopher	Robertson, Laurence
Gillan, Mrs Cheryl	Roe, Mrs Marion (Broxbourne)
Gorman, Mrs Teresa	Ross, William (E Lond'y)
Gorrie, Donald	Rowe, Andrew (Faversham)
Green, Damian	Ruffley, David
Greenway, John	Russell, Bob (Colchester)
Gummer, Rt Hon John	St Aubyn, Nick
Hague, Rt Hon William	Sanders, Adrian
Hamilton, Rt Hon Sir Archie	Sayeed, Jonathan
Hammond, Philip	Shepherd, Richard
Hancock, Mike	Simpson, Keith (Mid-Norfolk)
Harris, Dr Evan	Smith, Sir Robert (W Ab'd'ns)
Harvey, Nick	Soames, Nicholas
Hawkins, Nick	Spelman, Mrs Caroline
Hayes, John	Spicer, Sir Michael
Heald, Oliver	Spring, Richard
Heath, David (Somerton & Frome)	Stanley, Rt Hon Sir John
Heathcoat-Amory, Rt Hon David	Streeter, Gary
Hogg, Rt Hon Douglas	Stunell, Andrew
Horam, John	Swayne, Desmond.
Howard, Rt Hon Michael	Syms, Robert
Howarth, Gerald (Aldershot)	Tapsell, Sir Peter
Hughes, Simon (Southward N)	Taylor, Ian (Esher & Walton)
Jack, Rt Hon Michael	Taylor, John M (Solihull)
Jackson, Robert (Wantage)	Taylor, Sir Teddy
Jenkin, Bernard	Thomas, Simon (Ceredigion)
Johnson Smith, Rt Hon Sir Geoffrey	Tonge, Dr Jenny
	Townend, John
Keetch, Paul	Tredinnick, David
Kennedy, Rt Hon Charles (Ross Skye & Inverness W)	Trend, Michael
	Tyler, Paul
Key, Robert	Tyrie, Andrew
King, Rt Hon Tom (Bridgwater)	Viggers, Peter
Kirkbride, Miss Julie	Waterson, Nigel
Kirkwood, Archy	Webb, Steve
Laing, Mrs Eleanor	Whitney, Sir Raymond
Lait, Mrs Jacqui	Whittingdale, John
Letwin, Oliver	Wigley, Rt Hon Dafydd
Lewis, Dr Julian (New Forest E)	Wilkinson, John
Lidington, David	Willetts, David
Lilley, Rt Hon Peter	Willis, Phil
Livsey, Richard	Wilshire, David
Lloyd, Rt Hon Sir Peter (Fareham)	Winterton, Mrs Ann (Congleton)
Loughton, Tim	Winterton, Nicholas (Macclesfield)
Luff, Peter	Yeo, Tim
McIntosh, Miss Anne	Young, Rt Hon Sir George
MacKay, Rt Hon Andrew
Maclean, Rt Hon David	Tellers for the Ayes:
Maclennan, Rt Hon Robert	Mr. Peter Atkinson and
McLoughlin, Patrick	Mr. Stephen Day.

NOES
Ainger, Nick	Ashton, Joe
Alexander, Douglas	Atkins, Charlotte
Allen, Graham	Austin, John
Anderson, Donald (Swansea E)	Barnes, Harry
Anderson, Janet (Rossendale)	Barron, Kevin

Battle, John	Dean, Mrs Janet
Bayley, Hugh	Denham, John,
Beard, Nigel	Dismore, Andrew
Begg, Miss Anne	Dobbin, Jim
Benn, Hilary (Leeds C)	Doran, Frank
Benn, Rt Hon Tony (Chesterfield)	Dowd, Jim
Benton, Joe	Drew, David
Bermingham, Gerald	Dunwoody, Mrs Gwyneth
Berry, Roger	Eagle, Angela (Wallasey)
Betts, Clive	Eagle, Maria (L 'pool Garston)
Blackman, Liz	Edwards, Huw
Blears, Ms Hazel	Ellman, Mrs Louise
Blizzard, Bob	Ennis, Jeff
Boateng, Rt Hon Paul	Field, Rt Hon Frank
Borrow, David	Fisher, Mark
Bradley, Keith (Withington)	Fitzpatrick, Jim
Bradley, Peter (The Wrekin)	Flint, Caroline
Bradshaw, Ben	Flynn, Paul
Brinton, Mrs Helen	Foster, Michael Jabez (Hastings)
Brown, Rt Hon Nick (Newcastle E)	Foster, Michael J (Worcester)
Brown, Russell (Dumfries)	Fyfe, Maria
Browne, Desmond	Gardiner, Barry
Buck, Ms Karen	Gerrard, Neil
Burden, Richard	Gibson, Dr Ian
Burgon, Colin	Gilroy, Mrs Linda
Butler, Mrs Christine	Godsiff, Roger
Byers, Rt Hon Stephen	Goggins, Paul
Caborn, Rt Hon Richard	Golding, Mrs Llin
Campbell, Mrs Anne (C'bridge)	Gordon, Mrs Eileen
Campbell, Ronnie (Blyth V)	Griffiths, Jane (Reading E)
Campbell-Savours, Dale	Griffiths, Nigel (Edinburgh S)
Cann, Jamie	Grocott, Bruce
Caplin, Ivor	Grogan, John
Casale, Roger	Gunnell, John
Caton, Martin	Hain, Peter
Cawsey, Ian	Hall, Patrick (Bedford)
Chapman, Ben (Wirral S)	Hamilton, Fabian (Leeds NE)
Chaytor, David	Hanson, David
Chisholm, Malcolm	Heal, Mrs Sylvia
Clapham, Michael	Healey, John
Clark, Rt Hon Dr David (S Shields)	Henderson, Doug (Newcastle N)
Clark, Paul (Gillingham)	Henderson, Ivan (Harwich)
Clarke, Charles (Norwich S)	Hepburn, Stephen
Clarke, Eric (Midlothian)	Heppell, John
Clarke, Rt Hon Tom (Coatbridge)	Hesford, Stephen
Clelland, David	Hewitt, Ms Patricia
Clwyd, Ann	Hinchliffe, David
Coaker, Vernon	Hodge, Ms Margaret
Coffey, Ms Ann	Home Robertson, John
Cohen, Harry	Hood, Jimmy
Coleman, Iain	Hope, Phil
Colman, Tony	Hopkins, Kelvin
Connarty, Michael	Howarth, Alan (Newport E)
Cook, Rt Hon Robin (Livingston)	Howells, Dr Kim
Cooper, Yvette	Hoyle, Lindsay
Corbett, Robin	Hughes, Kevin (Doncaster N)
Corbyn, Jeremy	Humble, Mrs Joan
Corston, Jean	Hurst, Alan
Cousins, Jim	Hutton, John
Cox, Tom	Iddon, Dr Brian
Crausby, David	Illsley, Eric
Cryer, Mrs Ann (Keighley)	Jackson, Ms Glenda (Hampstead)
Cryer, John (Hornchurch)	Jackson, Helen (Hillsborough)
Cunningham, Rt Hon Dr Jack (Copeland)	Jenkins, Brian
	Johnson, Miss Melanie (Welwyn Hatfield)
Cunningham, Jim (Cov'try S)
Curtis-Thomas, Mrs Claire	Jones, Rt Hon Barry (Alyn)
Dalyell, Tam	Jones, Mrs Fiona (Newark)
Darling, Rt Hon Alistair	Jones, Helen (Warrington N)
Darvill, Keith	Jones, Ms Jenny (Wolverh'ton SW)
Davey, Valerie (Bristol W)
Davidson, Ian	Jones, Jon Owen (Cardiff C)
Davies, Geraint (Croydon C)	Jones, Dr Lynne (Selly Oak)
Davis, Rt Hon Terry (B'ham Hodge H)	Jones, Martyn (Clwyd S)
	Jowell, Rt Hon Ms Tessa
Dawson, Hilton	Keeble, Ms Sally

Keen, Alan (Feltham & Heston)	Powell, Sir Raymond
Keen, Ann (Brentford & Isleworth)	Prentice, Ms Bridget (Lewisham E)
Kelly, Ms Ruth	Prentice, Gordon (Pendle)
Kennedy, Jane (Wavertree)	Primarolo, Dawn
Khabra, Piara S	Prosser, Gwyn
Kidney, David	Purchase, Ken
Kilfoyle, Peter	Quin, Rt Hon Ms Joyce
King, Andy (Rugby & Kenilworth)	Quinn, Lawrie
Kumar, Dr Ashok	Radice, Rt Hon Giles
Ladyman, Dr Stephen	Rammell, Bill
Lawrence, Mrs Jackie	Rapson, Syd
Laxton, Bob	Reid, Rt Hon Dr John (Hamilton N)
Lepper, David	Rooker, Rt Hon Jeff
Leslie, Christopher	Rooney, Terry
Levitt, Tom	Ross, Ernie (Dundee W)
Lewis, Ivan (Bury S)	Rowlands, Ted
Lewis, Terry (Worsley)	Roy, Frank
Liddell, Rt Hon Mrs Helen	Ruane, Chris
Linton, Martin	Ruddock, Joan
Lloyd, Tony (Manchester C)	Russell, Ms Christine (Chester)
Lock, David	Ryan, Ms Joan
McAllion, John	Salter, Martin
McAvoy, Thomas	Sarwar, Mohammad
McCabe, Steve	Savidge, Malcolm
McCafferty, Ms Chris	Sawford, Phil
McDonagh, Siobhain	Sedgemore, Brian
McDonnell, John	Shaw, Jonathan
McFall, John	Sheerman, Barry
McGuire, Mrs Anne	Sheldon, Rt Hon Robert
McIsaac, Shona	Shipley, Ms Debra
McKenna, Mrs Rosemary	Short, Rt Hon Clare
Mackinlay, Andrew	Simpson, Alan (Nottingham S)
McNamara, Kevin	Skinner, Dennis
McNulty, Tony	Smith, Miss Geraldine (Morecambe & Lunesdale)
MacShane, Denis
Mactaggart, Fiona	Smith, Jacqui (Redditch)
McWalter, Tony	Smith, John (Glamorgan)
McWilliam, John	Smith, Llew (Blaenau Gwent)
Mahon, Mrs Alice	Snape, Peter
Marsden, Gordon (Blackpool S)	Soley, Clive
Marsden, Paul (Shrewsbury)	Southworth, Ms Helen
Marshall, David (Shettleston)	Squire, Ms Rachel
Marshall, Jim (Leicester S)	Steinberg, Gerry
Martlew, Eric	Stevenson, George
Meacher, Rt Hon Michael	Stewart, David (Inverness E)
Meale, Alan	Stewart, Ian (Eccles)
Merron, Gillian	Stinchcombe, Paul
Michael, Rt Hon Alun	Stoate, Dr Howard
Michie, Bill (Shef'ld Heeley)	Strang, Rt Hon Dr Gavin
Miller, Andrew	Straw, Rt Hon Jack
Mitchell, Austin	Stringer, Graham
Moffatt, Laura	Sutcliffe, Gerry
Moonie, Dr Lewis	Taylor, Rt Hon Mrs Ann (Dewsbury)
Moran, Ms Margaret
Morley, Elliot	Taylor, David (NW Leics)
Morris, Rt Hon Ms Estelle (B'ham Yardley)	Temple-Morris, Peter
	Thomas, Gareth (Clwyd W)
Morris, Rt Hon Sir John (Aberavon)	Timms, Stephen
	Todd, Mark
Mountford, Kali	Touhig, Don
Mudie, George	Trickett, Jon
Murphy, Rt Hon Paul (Torfaen)	Truswell, Paul
O'Brien, Bill (Normanton)	Turner, Dennis (Wolverh'ton SE)
O'Hara, Eddie	Turner, Dr Desmond (Kemptown)
Olner, Bill	Turner, Dr George (NW Norfolk)
O'Neill, Martin	Turner, Neil (Wigan)
Organ, Mrs Diana	Twigg, Derek (Halton)
Osborne, Ms Sandra	Tynan, Bill
Palmer, Dr Nick	Vis, Dr Rudi
Pearson, Ian	Walley, Ms Joan
Pickthall, Colin	Ward, Ms Claire
Plaskitt, James	Wareing, Robert N
Pollard, Kerry	Watts, David
Pond, Chris	White, Brian
Pope, Greg	Whitehead, Dr Alan
Pound, Stephen	Wicks, Malcolm

Williams, Rt Hon Alan (Swansea W)	Worthington, Tony
	Wray, James
Williams, Alan W (E Carmarthen)	Wright, Anthony D (Gt Yarmouth)
Williams, Mrs Betty (Conwy)	Wright, Tony (Cannock)
Wills, Michael	Wyatt, Derek
Winnick, David
Winterton, Ms Rosie (Doncaster C)	Tellers for the Noes:
Woodward, Shaun	Mr. Mike Hall and
Woolas, Phil	Mr. Robert Ainsworth.

Question accordingly negatived.