Finance Bill

HC Deb 09 April 2001 vol 366 cc731-804

[Relevant documents: Minutes of Evidence from the Treasury Committee, Session 2000–01 on the 2001 Budget, HC 326-i to iv.]

Order for Second Reading read.

5 pm

The Chief Secretary to the Treasury (Mr. Andrew Smith)

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

Notwithstanding the gravity of the foot and mouth situation, it is good to move Second Reading at a time when the fundamentals of our economy are stronger than they have been for a generation. Because of our reformed monetary framework, tough fiscal rules and prudent choices, we now have the lowest inflation for 30 years, and it is the lowest in the European Union; the lowest long-term interest rates for 35 years; the highest business investment for 40 years, at over 14 per cent. of gross domestic product; the lowest unemployment since 1975, with more people in work than ever before—more than 1.1 million more than in 1997; and sound public finances, cutting free of the millstone of debt run up by the Opposition when they were in government.

The Government inherited a £28 billion deficit and debt at an unsustainable 44 per cent. of national income, but we have made the biggest net cash debt repayment in one year by any British Government at £34 billion, and have reduced net debt to below 32 per cent. of national income. Because we have cut debt and unemployment and achieved higher growth and earnings, we are freeing up resources for priority areas in a sustainable way.

Mr. Andrew Tyrie (Chichester)

Over the past four years, the Chief Secretary to the Treasury has made much about reduction in debt. Does he agree that debt reduction varies over the business cycle? Are the Government prepared to publish their cyclically adjusted estimate of debt reduction over the past 20 years?

Mr. Smith

I am happy to give the hon. Gentleman that information. However, if one looks at the projections of fiscal balances in the Red Book, one can see that cyclically adjusted, as well as unadjusted, we are well within our fiscal rules. Indeed, because we put those rules in place and stuck to them, we have reduced the debt to GDP ratio and, as I explained, released resources for priority services. The fall in debt charges alone has freed £7 billion compared with four years ago. The fall in spending on unemployment has freed about another £4 billion.

On that basis, we can plan ahead and invest for the long term in the nation's priorities: education, health, fighting crime, transport and science. Those are the priorities on which our future prosperity depends. The Bill builds on that strength and continues to deliver on our promises. The Budget of my right hon. Friend the Chancellor makes a clear choice about Britain's future and sets out a platform on which to build opportunity and prosperity for all. Like the Budget, the Bill takes a balanced approach, with stability as its foundation. Our hard-won economic stability enables us to deal with decades of underinvestment in public services, skills and infrastructure, and it is the basis for the success of Britain's businesses and a better deal for pensioners, children and families.

Maintaining and locking in that stability for the long term is at the heart of the Bill. We are taking a balanced approach, built around fairness, with support for children, hard-working families and pensioners; investment in our schools, hospitals and transport system; a sustainable environment; and higher productivity and enterprise, with employment opportunities and skills for all.

Following that balanced approach, this is a Bill for families and children and one that tackles poverty. We have made a clear choice to take account of the costs of children through the tax and benefits system and to help every child make the best start in life. It is a matter of choice that we have increased child benefit to £15.50, a rise in real terms of no less than 26 per cent.

Clause 52 proposes the children's tax credit at £10 a week, equivalent to a 2.5p cut in income tax for those families. From next year, it will be £20 a week for families in the year of a child's birth. A family who received just £11.05 per week under the last Government will receive £25.50 a week under this one. We are increasing maternity pay to £100 by 2003 and we will increase the payment period from 18 to 26 weeks, as well as introducing two weeks' paternity leave for new fathers.

The Bill takes further steps to make work pay. Twenty-five million taxpayers will gain from the widening of the lower 10p tax rate in clause 51, at a cost of £1 billion. Now, more of their income will be taxed at that lower rate, rather than at 22p. We have put up the working families tax credit by £5 and increased the minimum wage. Those two together mean that the guaranteed minimum income for families with children and with someone in full-time work will rise to £225 a week. That will make a real difference to families on modest incomes.

To ensure that pensioners share in the nation's rising prosperity, we are increasing pensions above inflation and above earnings by £5 a week for single pensioners and £8 a week for couples, with further rises of £3 and £4.80 next year. Because of the measures that we are taking this year alone, households will be, on average, £240 a year better off and families with children will be, on average, £420 a year better off. Two million of the poorest pensioners will be at least £800 a year better off.

Living standards for a typical family have risen by 10 per cent. since the last general election, with particular help going to the poorest and those who need it most. That is the measure of our commitment to building not only a strong economy, but a strong society—one that is making people better off.

Of course there is more to do. We must build the best possible environment for business to flourish and productivity to rise. Our ambition is to achieve a faster rise in productivity than our main competitors over the next decade. We want successful companies in all sectors to invest and expand. We have already created a more favourable company tax environment, with the lowest corporation tax rate ever in Britain and, overall, the lowest rate of any major industrialised country. We have reduced the long-term capital gains tax rate on business assets to 10 per cent.

Recent evidence of progress has been encouraging. In the last year, the economy has grown at 3 per cent. and manufacturing productivity by 4.4 per cent. Business investment grew by 2.4 per cent. last year and we are now investing at a rate of over 14 per cent. of gross domestic product—the highest level for 40 years.

In January, Arthur Andersen and the Brussels-based GrowthPlus organisation released their pan-European benchmarking study on the environment for entrepreneurship and concluded that the United Kingdom, ahead of Europe and the United States, is the country that provides the environment that is most friendly to entrepreneurship.

We still have some way to go and we have proposed further reforms to promote competition, investment, innovation and enterprise. To promote long-term investment and to protect investors, we will take forward Paul Myner's recommendations in the review of institutional investment; we will abolish the minimum funding requirement and, through tax and regulatory reform, we will make it easier for institutions to invest in venture capital. We are building a competitive and modern tax system for large firms, with changes to double taxation relief in clause 79 and the abolition of tax on most payments between companies within the UK tax jurisdiction in clauses 83 to 85.

Mr. Ian Taylor (Esher and Walton)

As I reflect on the Chief Secretary's investment calculations, I wonder what effect changes in the economic background since the Budget will have. For example, cuts in capital expenditure in the telecommunications industry are leading to considerable job losses, and there will be a knock-on effect from the United States. Does he have any post-Budget feel for the outcome in the UK over the year?

Mr. Smith

Yes. Information available since the Budget could not, of course, have influenced the figures in the Financial Statement and Budget Report. It is interesting and instructive, however, to examine the average of the independent forecasts, the most recent of which have been published since the Budget. Their growth predictions for the UK average 2.6 per cent., which is towards the upper end of the Budget prediction of between 2.25 and 2.75 per cent. To that extent, we have had some reassurance from the independent forecasters.

The hon. Gentleman mentioned external circumstances, and any slow-down in the United States would be a matter of concern. That, too, could not have been factored into the Budget predictions, but the general estimate is that a 1 per cent. slow-down in the United States would affect the UK export market by about 1 per cent. and would affect GDP by around 0.25 per cent. I hope that that answers his question.

Mr. Oliver Letwin (West Dorset)

Unless I misheard my hon. Friend the Member for Esher and Walton (Mr. Taylor), he was asking about investment rather than growth. It would be interesting to hear the Chief Secretary's latest analysis of that.

Mr. Smith

Prospects for investment are sound and in line with our forecasts. Recent trends have also been encouraging. We are not complacent, but the soundest basis on which we can attract and sustain investment is the platform of stability that the Government have put in place by applying and sticking to sound fiscal rules, by having sound money, by hitting our inflation target and by investing in skills and improving competition so that we have a successful and dynamic enterprise economy.

We are carrying that work forward in the Finance Bill. For large firms, for example, there will be the changes in double taxation to which I have already referred. We shall consult on a widely welcomed measure: the possible extension of the research and development tax credit to larger firms. We are also consulting in detail on relieving tax when companies sell substantial shareholdings. Since 1997, enhanced capital allowances and new tax credits to encourage research and innovation have already saved business more than £1 billion. Increasing research and development by large companies can have a big impact on the UK's long-term productivity.

The Bill will also improve the environment for small and medium-sized enterprises. Clause 62 doubles the value of share options that can benefit from tax relief through enterprise management incentives to £3 million. Clause 61 extends the right to benefit from that relief to all employees. Alongside the measures introduced in the Bill, we are reducing the burden of tax and regulation on small firms with a package of measures to cut the administrative burden of value added tax, and that, too, has been widely welcomed. We are simplifying small business corporation tax by making companies' annual accounts the basis for calculating tax, cutting at a stroke the need for a parallel paper chase.

The Bill will make the tax system more responsive to specific needs to benefit businesses, communities and people throughout Britain. In particular, it will help to ensure that areas left behind by rising prosperity are helped to catch up, with a package of six tax cuts, totalling £1 billion over five years, targeted on enterprise in our poorest areas.

We are also giving a boost to the British film industry by extending tax relief for British films for a further three years, under clause 72. We are reforming betting duty. In recognition of the importance of our national heritage, we are bringing in a scheme to reduce VAT on church repairs and making refunds available to national museums and galleries that allow the public free admission.

Mr. Michael Jack (Fylde)

The right hon. Gentleman mentioned further support for the British film industry. What rate of return has so far been received for the taxpayer's investment in that industry, and does it justify the additional help that will be given?

Mr. Smith

The industry's recent success—in awards as well as rewards and returns—fully justifies the steps that we have taken. Moreover, the fact that the extension was made possible was warmly welcomed not merely in the industry, but by commentators and more generally.

We are also initiating consultation on tax relief for community sports clubs, acknowledging their invaluable contribution to recreation and a strong society.

On skills, we recognise that today's economy demands more workers with higher skills and qualifications to fill new jobs. However, up to 30 per cent. of all employees do not have basic level 2 qualifications so, as well as the extensions to the new deal and the provision of training to people on benefits, we want to encourage companies and employees to upgrade their skills. To back up the tax relief that we already offer on employee training, we shall consider a new tax credit to support training. We are launching an independent study to enhance the supply of highly skilled scientists and engineers, who are also an important part of the work force for productivity and future growth.

Britain is already one of the best business environments in the world. We shall continue to look at new ways to help Britain's companies raise their productivity. The reforms that we are making through the Bill will make the environment for all businesses better still.

Moreover, following on from previous Budgets and the steps that we have taken to tackle climate change, improve air quality, promote lower emission fuels and renewable energy, and regenerate rundown areas, the Bill carries forward the Government's commitment to a sustainable environment. Clauses 1 to 3 effect our cuts in fuel duties for ultra-low sulphur petrol and ultra-low sulphur diesel and enable the Government to provide reliefs for pilot projects to develop more environmentally friendly fuels.

Clauses 8 to 14 increase to 1,549 cc the engine size below which the lower rate of car vehicle excise duty is paid, reform VED for goods vehicles, and implement the new exemption for tractors and agricultural machinery. Altogether, those measures are worth £1.6 billion a year to motorists—equivalent to a 4p pet litre cut in fuel duty for motorists—and £660 million to the haulage industry, which is equivalent to a 7p per litre cut in fuel duty for hauliers. The measures also promote less environmentally damaging fuels and vehicles.

The introduction of the aggregates levy in clauses 16 to 49 seeks, in a revenue-neutral way to promote the use of recycled aggregates and other alternatives to primary aggregates to reduce environmental impacts of quarrying such as damage to biodiversity, visual intrusion and nuisance to nearby communities.

Mr. David Heath (Somerton and Frome)

I am sure that the Chief Secretary is aware of the useful talks between his colleagues in the Department of the Environment, Transport and the Regions and the major quarry producers about creating a rebate scheme for companies that introduce environmentally friendly measures. Given that that is on-going, that it is referred to in the Red Book and that there is now no incentive for companies to introduce measures that would make their activities more environmentally responsible, would not it be more sensible to delay the introduction of the aggregates levy until the rebate is ready?

Mr. Smith

It would not be sensible to delay the levy, for the logical reasons that I am about to give, but the hon. Gentleman makes a good point about introducing more environmentally responsible quarrying methods, and we are attracted in principle to the approach that he advocates. Of course, some difficult definitions and criteria will have to be sorted out, but we shall continue to discuss that possibility.

It is important that we go ahead with the levy to provide an incentive to use more environmentally sustainable alternatives and, in a revenue-neutral way, to use the funds from the levy to cut employers' national insurance contributions and to establish the new sustainability fund, which will come into operation at the same time as the levy in April next year. As announced in the pre-Budget report, £35 million a year will be allocated to the fund and we shall consult further on the details of its operation.

The climate change levy and the landfill tax, dealt with in clause 102, together with the aggregates levy, demonstrate our readiness to provide incentives for the environmentally sustainable use of scarce resources. By bringing actual market costs more in line with real economic costs, economic instruments that allow those involved in environmentally damaging activities to respond according to their circumstances meet the public good as well as helping the environment. Attaching a price to environmental detriment creates a permanent incentive for innovation and investment in less polluting methods of production and encourages the consumption of cleaner products.

Revenues from new environmental taxes are being used to cut the rate of national insurance, rather than to boost the income of the Exchequer. That is not only economically rational, but environmentally responsible. Those Opposition Members who delight in opposing such measures are simply refusing to face up to the tough choices that are necessary if we are to take our environmental responsibilities seriously.

The Bill sets out a clear choice for Britain's future. This Government have built a platform of economic stability as a basis for future prosperity. The choice that we have made is to build on that stability. We have chosen more investment in our public services, not less. We have chosen sensible tax cuts for hard-working families, not underinvestment and cuts in our public services, which are the undeniable consequences of the policies—such as they are—of the Conservative party.

This is a Finance Bill for families and children, and it tackles poverty and unemployment in our poorest communities. It will help Britain's businesses grow. It will carry forward stability as the basis for a strong economy and a strong society. It represents the way to deliver opportunity and prosperity for all, and I commend it to the House.

5.23 pm

Mr. Oliver Letwin (West Dorset)

I must begin by congratulating the Chief Secretary, who managed to occupy almost 24 minutes of the House's time so elegantly and beautifully, while saying almost nothing at all. That was, of course, forced on him by the character of the Bill.

It is odd to debate Finance Bills on Second Reading. I suppose that we are forced to do so by the conventions of the House, but, of course, no hon. Member on either side of the House would deny the necessity of having a Finance Bill. The debate on Second Reading is intended to be about the principle of the Bill, so I suppose that perhaps we ought to—[HON. MEMBERS: "Sit down now."] Exactly, but this is not the Finance Bill that we should have liked, and I hope that the House will take my remarks in that light.

As always, I declare my interests as set out in the Register of Members' Interests but I have no idea how the remarks that I am about to make could possibly benefit them. None the less, I declare them all the same.

The background to the Bill is not quite as the Chief Secretary outlined it. It begins with a long record of taxation by stealth to pre-fund the rapid growth of expenditure. There has been a 3 per cent. increase in the tax burden measured as a proportion of gross domestic product, and that comes to about £30 billion a year. I apologise, Madam Deputy Speaker, for boring you by reminding you of the analysis that Her Majesty's Opposition have repeatedly made of that increase, but I shall outline that as a precursor to the latest developments.

Our complaints to date have been as follows. First, there has been no sign yet of any efficient expenditure. You may be aware, Madam Deputy Speaker, of the posters that have appeared in our streets which ask people why, given that they have paid the tax, they have not seen any extra policemen or received the operations that they expected and so on. There is sign of expenditure but no sign yet of efficient expenditure.

Secondly, we have repeatedly asserted that the rise in expenditure is ultimately unsustainable without a consequential increasing tax burden into the future. That would have the further consequence of decreasing the competitiveness of our economy.

Thirdly, we have made what I think is an undeniable argument; it is undeniable because I have not heard the Chancellor or his colleagues deny it. If expenditure is not to result in the inefficient rise in taxation in two or three years' time that the Government deny they will engage in, it must result in an inefficient cut in expenditure growth. We have said that and we have said it again, and I have been listening hard for Ministers to explain how they can increase expenditure at its current rate and then suddenly cut its growth and find that public services are delivered efficiently. As far as I know, that has never been achieved anywhere in the world and I would be surprised to find that it can be done here.

Mr. Edward Davey (Kingston and Surbiton)

I had understood that the Conservative party was in favour of the Government's spending proposals. Will the hon. Gentleman therefore explain whether the Opposition would cut expenditure inefficiently or raise taxes?

Mr. Letwin

I am surprised that the hon. Gentleman, for whom I have considerable admiration, has not attended to the interesting debate between the Government and ourselves. The Government claim that the Conservatives' policy is to reduce expenditure by 2003–04 by £16 billion, although the figure varies by the day. The actual policy is to reduce expenditure, compared with Government spending plans, by £8 billion, and that would reduce the rate of growth to a sustainable level.

I make my remarks only by way of background, because we have recently moved into a new phase. There has been a clear change in the mood with which commentators greet statements by the Chief Secretary and the Chancellor. Let us imagine moving forward to 2003, and ask ourselves whether we can be as confident as the Treasury once was that there will be no slow-down and that the economy will continue to grow with the abolition of the cycle that my hon. Friend the Member for Chichester (Mr. Tyrie) alluded to implicitly. The answer is that, without any forecasting, we cannot be as certain as we once were.

If there is a slow-down, we must then ask ourselves whether the Budget and the Finance Bill that embodies it—and previous Budgets and the Finance Bills that embodied them, and the next two Budgets—are as prudent as the Chancellor and Chief Secretary now imagine them to be.

The answer must surely be no. If there is a slow-down, all my arguments will have rather more force in three years' time. It will be all the more necessary to cut expenditure growth and the more inefficient not to do so. It will be truer that tax rises at that time will occur when the private sector can least afford them Alternatively, the Government could choose—I doubt that "Mr. Prudence Brown" would dream of doing so because he does not have this reputation—to allow for ballooning borrowing. That is an unenviable set of choices.

The Government have so constructed things at a time of great uncertainty that, if the worst predictions are to be proved true, they will be faced in three years' time with the prospect of raising taxes at the worst possible moment, cutting expenditure when it would be least efficient to do so, or with ballooning borrowing, which is never efficient.

The problem is not that the Bill aggravates the situation, which is why I congratulated the Chief Secretary; in truth, the Bill does not do much at all. The problem is that it does nothing to address the underlying problem that the Government have built up in successive Budgets and Finance Bills.

Ms Sally Keeble (Northampton, North)

In the scenarios that the hon. Gentleman paints for three years' time, he does not seem to hold out a hope that his party will be in government.

Mr. Letwin

Dear me; I shall pass over that comment in the spirit of last year's proceedings, in which we engaged in serious economic and fiscal debate. Conservative Members intend to keep the debate at that level. [Interruption.] I think that we had such a debate. I hope that the Paymaster General agrees, because we saved her from the disaster of a double tax relief regime that would have squeezed multinational companies out of the country for ever. The nation should be a little grateful to us. We were not alone in that. The Confederation of British Industry and many others also played a part. We helped her to become the saviour rather than the destroyer of British industry.

Let me deal with one item, which I am inclined to describe as the only real measure in the Bill. It took the Chief Secretary 19 minutes to reach it and he spent two and a quarter minutes on it. That is odd because it occupies 33 of the 108 clauses and is the only major new tax in the Bill. Why did he do that? He has the awesome might of the Treasury behind him. Presumably scribes have been working for weeks on his great speech. He could have mounted a defence of the magnificent new measure, but instead we got 19 minutes of silence on it, two and a quarter minutes of febrile meanderings and a complete refusal to deal with the serious matter raised the hon. Member for Somerton and Frome (Mr. Heath). As usual, the question was not quite on the mark because the problem is worse than it implied. Nevertheless, the Chief Secretary should have given a proper reply, but was unable or unwilling to do so.

Why so little attention to the measure? The reason must be that the aggregates tax is a text-book example of everything that is wrong with the Government's fiscal approach. It is, as the Chief Secretary suggested, like its famed predecessor, the climate change levy.

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

Good.

Mr. Letwin

That is the official view. That will not, however, be the opinion of most people who have to pay it. Moreover, the levy and the aggregates tax share the feature of the Holy Roman empire which was not holy, Roman or an empire: the climate change levy is not about climate change and the aggregates levy is not about aggregates.

Its first feature is that it is a tax, which marks it out as a true measure of the Government. It is, of course, a stealth tax. In fact, it is probably the stealthiest of taxes. If the aggregates tax were a tax on aggregates and calculated or designed to have the slightest effect on their extraction, it would at least be declaring what it was about. Its name would suggest that purpose. However, the Treasury has distinguished economists, including micro-economists, working for it. They know, and must have told Ministers many times, that an aggregates tax will have no such effect.

Instead, the tax will have two other effects. First, it will raise the amount that it costs to extract aggregates, and hence reduce the sum that people are willing to pay for the land from which the extraction occurs, so it is a tax on land. Secondly, it will raise costs at the other end, on production for construction, so it is a tax on construction. However, the Bill does not refer to a construction tax or a land tax. Why not? [Interruption.] My hon. Friend the Member for Chichester is right: because there are echoes of development land tax. The last thing that the Government want to do is admit that they are imposing a tax on land or construction, because those would be unpopular, so they have devised an immensely ingenious idea—they have gone to the middle of the value chain and called the levy an aggregates tax, which sounds like an environmental measure.

The Chief Secretary let the cat out of the bag, however. Why not delay the implementation of the tax until it has been redesigned by the ingenuities of the Financial Secretary, who managed so to contort himself that by the end all those affecting climate change do not pay any climate change levy, but everybody else does? He could have designed a system that would induce those who are affecting climate change to affect their production of energy. In due course, the Chief Secretary, the Financial Secretary or another member of the Government who is inclined towards prestidigitation could have come to the House and announced a weird and wonderful scheme that exempted from the aggregates levy those extracting aggregates in such a way that they ended up, nevertheless, extracting fewer aggregates. For the moment, however, we have a classic stealth tax. It is a tax on land and construction, so the Government want to introduce it before any of the things that I have described have happened.

The next element of stealth is a classic example of the Government's method of proceeding. I almost admire it and have grown almost to love it, but the nation will not admire or love it. The tax is introduced under the rubric that it is fiscally neutral. That is a wonderful phrase. Every time the Government introduce a tax, they say not only that it is environmentally beneficial when it is not, but that it is fiscally neutral. How is it fiscally neutral? There is an offset on national insurance contributions. That is the Government's favoured methodology.

If the Chief Secretary is willing to come to the Dispatch Box to contradict me and give the House an assurance, I will withdraw what I am about to say. Let him promise that in succeeding years there will not be a rise in that tax without an exactly concomitant decrease in national insurance contributions, and I will withdraw my assertion. I see no sign of movement. I predicted that I would see no such sign because it is precisely the Government's intention to create an addition to the tax base that will enable them in due course to extract more from their land and construction tax than they have relieved from national insurance contributions. When that happens, there will be few people in the House who will remember this debate because very few people want to attend a debate about so boring an item as the Finance Bill. The Chief Secretary did his best to make sure that the Members in the Chamber would leave so that they would not remember some years from now that he had not responded to my assertion.

The fact is that the tax is a device. As I said, I have come almost to love it because it is so widespread and so brilliant. Yet, oddly enough, it is now so transparent that it is not as brilliant as it once was. In due course, this land and construction tax will rise inexorably with little or no concomitant decrease in national insurance contributions. It is therefore a stealth tax in every dimension. It is stealthy because it is not about the item that it says it is about; it is stealthy because it is about other items that it does not say it is about; it is stealthy because it says it is fiscally neutral but it will actually go up; and it is stealthy because, in the end, this is a Government who depend on stealth taxes to raise large sums to fund ultimately unsustainable public expenditure programmes.

There is a worse problem. It is parallel to what happened last year with the brilliant device of double tax relief, the proposals on which had to be withdrawn. The Government have made an error, which I suppose comes from haste, and they—and more to the point, the nation—will come to rue that error. For a long time, we in this country have taxed natural resources in public ownership. The petroleum revenue tax is the classic example. None of us on either side of the House has an objection in principle to such a tax.

I am sure that the Chief Secretary advisedly used the term "taxing the use of natural resources". I am sure that he or the person who wrote his speech meant that term, but a precedent is being set which I doubt the Chief Secretary or the Chancellor intended. If they did intend it, they are a great deal less benign than I am inclined to give them credit for being. So far as I am able to determine, there has never been a tax on privately owned natural resources. This is a departure. We are talking about land that, in most cases, is in private ownership. A private operator comes along and extracts natural resources, having paid a market price for the land, so that it can deliver a product to private sector users engaged in construction. At no point in the chain are we dealing with a national resource in the sense of one that is in public ownership. The tax that is being applied is therefore an intervention in the marketplace. Once one starts down that route, there is no limit.

The following are not covered by the tax: coal, lignite, slate, shale, soil, vegetables and organic matters, anhydrate, ball clay, barytes, calcite, china clay, feldspar, fireclay, flint, fluorspar, fuller's earth, gems, gypsum, metal ore, potash—we do not have much of that in the UK—rock phosphates, sodium chloride, talc, spoil and waste by-products, by-products of continental shelf drilling, spoil from roads, stone used for dry-walling, armourstone, rock and stone not crushed.

I hesitate in reading out the list, because I see the Financial Secretary's eyes lighting up. He no doubt has it in mind to introduce a series of fiscally neutral measures, taxing each and every one of those commodities in due course. With the aggregates tax, he and his colleagues have opened the barriers to exactly such taxation. I said that they did not mean to do so, and I hope that that is true. It is a horribly inefficient and complicated way of extending our tax base. It involves a new series of taxes, each with its own complexities.

Mr. Patrick McLoughlin (West Derbyshire)

I am interested in all the exemptions from the tax that my hon. Friend outlined. I thought that the Prime Minister and the Secretary of State for Trade and Industry had given an undertaking that they would do everything possible to avoid red tape and complication. Surely my hon. Friend has got the exemptions wrong and the tax is straightforward, or we do not have joined-up government.

Mr. Letwin

I have terrible news for my hon. Friend. Those are not the exemptions; those are merely the matters that are not covered by the present tax. We have not even seen the exemptions—they are not in the document. The exemptions are yet to come; that is the purport of what the Chief Secretary told those on the Liberal Benches. We are to be presented in due course with a scheme of bewildering complexity produced by the genius of the Financial Secretary. I hazard a guess that the scheme will exempt one class, which will be exactly the class of those who extract aggregates. If that does not happen, I will buy the Financial Secretary a lollipop, even in these hard times.

I hope that I have said enough to suggest to the House that the Opposition are not wholly in love with the aggregates tax. Indeed, we shall oppose it. We shall scrutinise it in Committee in the detail that it deserves.

Mr. Andrew Smith

Will the hon. Gentleman tell us what he and his party will do to tackle the environmental damage and costs of quarrying?

Mr. Letwin

As the Chief Secretary is doing nothing through the tax to tackle the environmental damage caused by quarrying—the tax will not affect the extent of quarrying in the United Kingdom—that is a question for the Department of the Environment, Transport and the Regions. It is a serious question, but his tax does not affect it. As I pointed out, the tax is a tax on land and on construction. It will not affect by one jot the amount of aggregates extracted in the UK.

I move on to two items that are not in the Bill and on which I hope that we can reach agreement in Committee. When we dealt with double tax relief and the control of foreign companies last year—at exhaustive length, as I think that the Paymaster General would agree—and in subsequent statements, the Government made clear two things, both of which I had hoped would be reflected in the Bill, but are not. Although these are properly matters for the Committee stage, I flag them up now so that the Government have the maximum amount of notice of what we shall be banging on about. I make no apologies for banging on at great length about these matters.

First, when the splendid resolution on onshore pooling was brought back into the Bill, it was a specific concern to many of us and to a number of major UK multinationals that here might be a problem for those who were forced by the provisions to restructure so as to achieve a flatter structure of subsidiaries, whose subsidiaries were currently held indirectly, in particular in the United States, Japan and Germany.

The problem arises when a UK-based multinational plc holds a low-tax subsidiary which is itself the owner of a high-tax subsidiary or vice versa, and when, in order to achieve the onshore pooling effect, it is necessary to sell the subsidiary of the subsidiary to the UK multinational plc, in order that it should be the direct owner so that the onshore pooling can occur. The Paymaster General will recognise that that is the effect of the Finance Act 2000. During consideration of that legislation, we pointed out that, for some existing UK plcs, the restructuring exercise could produce uncovenanted tax costs in overseas jurisdictions where capital gains can be crystallised by the mere act of reselling holdings within a group structure. I think that the Paymaster General promised that she would consider the matter. I suppose that she might have done so, but it has not been dealt with. The Bill contains no transitional provisions to accommodate the difficulty, but such measures should exist and the Opposition will table amendments accordingly.

Secondly—

Mr. Brian H. Donohoe (Cunninghame, South)

Secondly?

Mr. Letwin

I mean secondly only in respect of the small area about which I am speaking: items that are omitted from the Bill.

Secondly, when the original proposals were made on double taxation relief and control of foreign companies, it was promised that those components would be accompanied by a third measure to allow either exemption or roll-over relief for companies that were disposing of substantial shareholdings. Indeed, I believe that that promise was sustained throughout the long saga of the revision of the double taxation relief proposals. I described a moment ago the manoeuvre in question, which is necessitated by the requirement to establish a flatter structure of holdings.

It would be sensible if companies that were forced into that position by the DTR and CFC provisions could claim either exemption from capital gains tax at the time they sold or restructured their holdings within the group, or a roll-over relief that allowed them to continue indexation—bearing it in mind that it is indexation, rather than tapering, that still goes on in the business world. Alas, that promise appeals to have disappeared into a long-grass Green Paper—if Green Papers can be composed of long grass—and is not contained in the Bill, but the Opposition and British business believe that the Bill should contain such provision. Again, we will table amendments accordingly.

I fear that the most astonishing omission from the Bill is neither those tidying manoeuvres nor the others that we shall suggest in a constructive spirit in Committee.

This debate is occurring after a pretty harrowing 90 minutes, in which hon. Members interrogated the Minister of Agriculture about what is probably the worst crisis to have hit the British countryside in the past four years. It is certainly a crisis that will lead to very significant difficulties for many of the constituents of hon. Members on both sides of the House, so one would have expected the Bill to contain serious measures to alleviate it. Of course, it could not contain all the measures that are needed, as many fall outside its scope, but one would have expected it to deal with the tax side. I do not refer to our £500 million interest-free loan scheme—a proposal that could not be accommodated within the Bill, although it could and should be implemented by the Treasury—but there are other such omissions.

In particular, we desperately need measures to refund VAT input charges much more rapidly than usual. I shall explain that point a little more, although I think the Paymaster General will have taken it on board with lightning alacrity, given her great knowledge of the VAT system. Usually, when hoteliers or farmers who have a bed-and-breakfast proposition, or whatever else, come to Customs and Excise and find that at the end of a three-month accounting period the VAT input charges that have been paid on consumables exceed the VAT output charges that they have levied on their customers—the problem being that there were no customers—they have a right to claim a refund.

There is no debate about that arrangement, as it is part of the ordinary workings of VAT, but there is a problem. The Paymaster General will be aware of the difficulty, although I think that most of us will be more aware of it as ordinary citizens and constituency Members of Parliament. The fact is that Customs and Excise is jolly slow at making such payments. The Paymaster General shakes her head, but she stands in danger of being sent copies of all the documents that we have accumulated in respect of cases of slow payment by Customs and Excise.

It is clear that there ought to be a rapid refund scheme, which should automatically ensure that people receive a quick refund of, say, a month's worth of VAT input if they qualify for relief.

The Paymaster General (Dawn Primarolo)

If the hon. Gentleman has examples of cases of Customs and Excise not responding as quickly as it should have, I sincerely hope that he will send them to me—however great their number—so that I can chase them up.

Mr. Letwin

We certainly will, but let me tell the Paymaster General some sad news. I am surprised that she is not already aware of it. I am not saying that Customs and Excise has not been acting at its usual pace; I am saying that it has acted at precisely its usual pace.

I do not know whether the Paymaster General has had any dealings with Customs and Excise as a customer, so to speak, as opposed to in her capacity as a Minister, but I assure her that the speed with which it responds to requests for money back is not as great as the speed with which it responds to requests from her private office. The pace is, in fact, rather slow. In the normal course of events, that is not a problem: things are settled in time, and interest is paid. The Conservative party proposes that there should be symmetry in the interest charged on late payments in one direction or the other, but we shall let that be for the moment. At least there is an interest charge, and, as I have said, in normal times the problem is not so great. Today, however, having to wait for even a couple of months could mean the difference between life and death for some small businesses. Payment should be made on the nail—on the day.

Mr. Andrew Smith

That being the case, why has the hon. Gentleman not sent in the examples?

Mr. Letwin

Because we are not long past the date of first accounting. We are dealing with the problem today, and today is April the something or other—the ninth. We are eight days past the accounting period. The problem is that nearly all the companies with which we are dealing—sole traders—will have been dealing on a three-month basis. If they have a month's or six weeks' worth of VAT output zero and a large amount of VAT input and put in a claim, in the near future we shall hear complaints that they have not received an input refund, believe me.

Mr. Donohoe

Can the hon. Gentleman tell us just how many examples he has been given? He said earlier that he had been given examples; now he is saying the opposite.

Mr. Letwin

What I said was that the Paymaster General stood in danger of being given each example.

Mr. Donohoe

How many?

Mr. Letwin

None—because we have come to the end of the three months. [Interruption.] Oh dear; I hope that we can raise the intellectual level of the debate. We are dealing with a problem that will have begun to occur in the last eight days. We have been dealing with a foot and mouth crisis that has been worsening over the past six to eight weeks. People will have made their three-month returns. I guarantee to the Paymaster General that if no steps are taken, we shall see a flood of complaints about late repayment.

It should, incidentally, be no problem for the Paymaster General to agree to our proposed amendment if it is really true that, as she and her colleagues seem to be claiming, there is no delay. Why not make the arrangement automatic? If there is no problem, let us solve it—that is, let us ensure that there cannot be a problem.

The second difficulty arises on the Inland Revenue side—the income tax side. There are two particular problems in this connection. The first concerns those with tied accommodation: we think especially of tenant farmers. There is an oddity in that the Inland Revenue treats the second house owned by such a tied-accommodation dweller as a principal residence for the purpose of not levying capital gains tax. That is a long-established principle in law. Unfortunately, when the working families tax credit was melded into income tax and when—I take it—people's arrangements were moved from the Department of Social Security to the Inland Revenue following the legislation, that principle was not applied. People in tied accommodation who need the working families tax credit now cannot receive it, because they have a second house that is not treated as a principal dwelling for that purpose. A simple amendment will suffice, and we will table one. I hope that we can reach agreement on it, because it is urgently necessary.

Dawn Primarolo

Is the hon. Gentleman saying that second accommodation that generates income takes people beyond the WFTC limits?

Mr. Letwin

It may or may not be generating income; the capital sum alone would take people beyond those limits. A wealth test, rather than an income test, is causing the problem. Where there is sufficient income, we are much less worried. The problem arises when there is not sufficient income, and people who would otherwise qualify for the WFTC are excluded by the wealth test.

The second problem on that front involves farmers, hoteliers and other sole traders who, in July, will make corporate income tax payments that they will not eventually be due to pay. There will be an adjustment in due course, but it will be of little benefit to someone who becomes bankrupt and cannot reclaim the money because he or she is not in business. We need a scheme—again, we shall table an amendment on which I hope we can reach agreement—to allow automatically for an early provisional claim. It is the wording of the relevant Act—the Taxes Act 1988—that is causing the problem, and we hope that our amendment will solve it. That too is urgently necessary.

Finally—I appreciate that the House will be longing for me to finish—[HON. MEMBERS: "No, no."] Kind though that is, I am sure that my hon. Friends are, in fact, longing for me to finish, and I shall.

Let me end by saying that there is another absence from the Bill, less immediately important than others but structurally more important. We need—in this Bill, or in the next Finance Bill or the one after that—to see the vast changes in tax structure, and the great tax reductions, that Conservative Members have advocated. We need to see, from 2003, a removal of tax from savings and dividends for basic and starting-rate taxpayers; we need to see a significant increase in the limits on approved share options for small and medium-sized enterprises; we need to see a considerable rise in pensioners' age-related allowances; we need to see the introduction of transferable allowances for married couples, the exemption of widowed parents' allowances from tax, and the increasing of a much-restructured child tax credit by £200 for children under five.

Those are measures for which we have been calling. They are measures that need to be installed in a Finance Bill. What better opportunity could there be than that provided by a Bill as empty as this—and, we hope, subsequently to be denuded of the ludicrous aggregates tax?

Mr. John Bercow (Buckingham)

Does my hon. Friend recall that, according to the last Labour party manifesto, how and what Governments tax send clear signals about the economic activities that they wish to encourage or discourage, and the values that they seek to entrench in society? Can my hon. Friend tell me, on the basis of that commitment by the Labour party, why it has chosen in government to punish families, savers and motorists?

Mr. Letwin

I can only assume, using my hon. Friend's impeccable logic, that those are the activities that the Government wish to discourage; but, as that would be to discourage nearly everything that goes on in the United Kingdom, I am driven to the conclusion that it is by mistake that the Government are taxing them. We hope to save them from that mistake, in part by introducing measures that will relieve some of the people described by my hon. Friend, and in particular will give people a major new set of incentives to save and provide for themselves over their lifetimes. That is another urgent necessity if we ate to avoid a society that depends increasingly on the very means-tested benefits that the Chancellor of the Exchequer has misguidedly extended so far.

Mr. Oliver Heald (North-East Hertfordshire)

Does my hon. Friend shire my concern that the savings ratio has plummeted under this Government? Does he agree that the removal of the taxes to which he has referred would give a much-needed boost to the savings sector? What are his views on the steady decline that we have seen, and what are the likely consequences?

Mr. Letwin

My hon. Friend is, of course, right. He need not consult my views, however: paltry as they are, they do not bear comparison with the grand majesty of the Treasury's own views. The Treasury has said—perhaps the Chancellor failed to read the Red Book at this point, and allowed the Treasury to speak for itself—that if the savings ratio remains as low as it is at present, it is a very worrying sign for the economy. So it is: but we are not concerned just with the savings ratio in any given year.

As my hon. Friend knows, what we are concerned with is the long-term culture of saving, or the long-term absence of a culture of saving. That has the most profound effects. It is not something that affects only the availability of domestic capital. I was interested to see that the Chief Secretary failed completely to answer a question about gross fixed domestic capital formation. Either he does not have any idea what the trend is or, as I suspect is more likely, he has an idea but does not want to tell us.

That is not the only way in which the savings culture, or an absence of it, has an effect. Much more profoundly, it has an effect on the relationship of the individual with the state and with society at large. If an individual is given insufficient incentives to save as he goes through life, it is inevitable that at some stage, if his income is low, he will be cast on to state benefits. In many instances, that is degrading for the individual. Much more important, it creates a dependency that institutionalises a huge fiscal problem.

As benefits extend to almost 50 per cent. of the population, and as we go through the cycles that Ministers so grandly think that they have abolished, we shall increasingly see fiscal accounts being shot to hell by increased expenditure on means-tested benefits. That is to no one's benefit. It seems nice to the individual who is receiving the benefit but it does not seem nice when the individual is paying tax to support the benefit, or engaging in the borrowing that will lead to the tax to support the benefit.

There is a serious problem, and the Government or the Treasury are aware of that. What are the Government doing to cure it? The answer is nothing. What are the Opposition proposing to cure it? The answer is much. That is why we shall advance the tax measures that I have described.

The Bill contains almost nothing except one nasty and classic example of a stealth tax, which we shall oppose. The Bill fails to contain the very things that it needs to contain, such as urgent measures to deal with foot and mouth, long-term strategic measures to deal with the failures of our tax system and a remedy to the problems that arose in the course of the previous Finance Bill. One could not produce a Finance Bill that does less or does it worse than this one.

6.2 pm

Mr. Denzil Davies (Llanelli)

The hon. Member for West Dorset (Mr. Letwin) seemed to say at the beginning of his speech that he did not see much point in considering the Finance Bill on Second Reading. I do not know whether he was saying that. Most of us would wish to have the debate; otherwise, he would lave been deprived of 39 minutes of a rather rambling but no doubt intellectual speech. That would be to do him an injustice.

The hon. Gentleman rambled from the aggregates tax eventually to savings. His treatment of savings was extremely simplistic. There is much evidence that the savings ratio decreases when people are confident about the economy. [Interruption.] People may be confident of their jobs, confident of growth and confident in the Government. He suggested that there will not be capital for investment because the savings ratio is low. The United States has a low savings ratio, but it manages to provide considerable capital—partly through the stock market—for the investment that he wishes to see.

Mr. Letwin

If there is an excuse for considering the Finance Bill on Second Reading, to hear the right hon. Gentleman is possibly it.

First, does the right hon. Gentleman recognise that I was referring to domestic sources of savings? I take his point that one can call on external so trees, but those are difficult in terms of the exchange rate. Secondly, does he accept that if the savings ratio remains low despite the lack of confidence that is beginning to emerge, there is genuinely a worrying trend?

Mr. Davies

I do not think that there is a lack of confidence. If people were less confident about the economy, they would probably save more. These things happen from time to time. There is no correlation between a bad economy and low savings. People do not save when they are confident. They seem to save more when they are less confident. That seems to be the history of this difficult subject, which the Treasury and many economists have considered over the years.

The purpose of a Finance Bill is to provide the legislative means to put into effect the taxation changes, about which we heard about from my right hon. Friend the Chief Secretary, that are announced in the Budget. It is necessary to have a Finance Bill to put most of them into effect. There are clauses that provide for a reduction in fuel duties and a reduction in vehicle excise duties. There is the welcome increase in the children's tax credit and the increase in family tax credit. There are small but extremely helpful changes to VAT, which I believe are welcomed by businesses, especially small businesses.

There is also the welcome way in which my right hon. Friend the Chancellor of the Exchequer provided income tax relief by extending the threshold on the 10p lower rate rather than providing relief on the basic rate. As my right hon. Friend the Chief Secretary said, that relief provides in a full year about £1 billion extra assistance for those who pay tax at the lower rate.

I move on to table A.11 of what my right hon. Friend referred to as the Red Book. It is no longer the Red Book, but I do not want to be pedantic. Perhaps it is a book of many colours. The tax reductions that are given legislative form by the Bill amount to perhaps slightly more than £3 billion in this financial year. That is not an insignificant amount to put back into the economy when the outlook for the global economy—I do not think that there is any dispute about this—is looking less certain.

Such a sum, together with the public expenditure increases for the next three years announced in the autumn by my right hon. Friend the Chancellor, should, apart from the intrinsic merits of spending that money, provide a welcome cushion for the British economy if the world economy, especially the economy of the United States, slides into recession. It is to be hoped that it will not, and that there will be merely a slow-down. The tax reductions, which amount to about £3 billion, and public expenditure will obviously help to cushion a global recession or slow-down, if there is one.

Those of us who are not directly concerned with business and commerce do not always realise the pressure that the global economy and global competition now put on domestic industry, especially manufacturing industry. That pressure also bears on some sectors of service industry that have to compete internationally. To maintain profit margins, costs must continually be kept down or cut and prices not be increased. Indeed, prices often must be reduced. That places tremendous pressure on industry and businesses.

As I see it—perhaps I should not say this—the problem is becoming not rising inflation but a falling rate of inflation. If the trend continues, there could be a fall in the general level of prices. That would take us into deflation, as may have happened in Japan over the past few years, where inflation has probably settled at zero.

I must be careful what I say because my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon), like me, was around in the 1970s, when inflation was high. Having been around at that time and in the early 1980s, when inflation was also high, I do not find an inflation rate of 1.9 per cent. worth worrying about. I worry slightly that perhaps we should have a higher rate of inflation. I do not know how the harmonised European figures are meant to apply to Britain, but they suggest that our inflation is about 1 per cent.

I am not particularly worried about a rate of inflation of 1 per cent. As someone who was around in the 1970s, I am amazed at how rapidly over a fairly short time—10 or 15 years—the level of inflation has fallen from the high levels of the 1970s to 1 per cent. or 1.9 per cent. Many people will claim credit for that, but most is claimed by that worthy group of people known as the central bankers, who could be described as the high priests of monetary policy. The past 10 years constitute the decade of the central bankers, who have peddled their ability, expertise and prudence in monetary policy. They maintain that its mysteries are best left to the high priests because they approach such matters with clean hands, unsullied by the grubbiness and self-seeking of democratic politics and politicians.

As I have said that I do not worry about inflation, I might as well say that I do not believe central bankers. I do not believe that central banks or monetary policy had much to do with the sharp fall in inflation in the past 10 to 15 years. It was caused mainly by forces that are outside monetary policy. Many factors contribute to intense global competition. They include the reduction in tariff barriers—in many cases, their elimination—and the working through the system and elimination of controls and regulations, which perhaps date from the second world war. We are now in a position that is similar to that before the first world war. There is complete freedom of movement of capital, and money can move quickly and easily from country to country. There has been an immense advance in technology, which is easily transferred to developing countries. That enables them to compete with countries that are described as more developed than they are.

The fall of the Berlin wall, the break-up of the Soviet system and the intensification of competition that that caused also affected the global economy. Countries that were on the other side of the iron curtain are now trading in the same way as western countries. All those factors have driven down costs and prices through the intensity and universality of competition.

The fall in inflation therefore has little to do with central bankers and monetary policy. Indeed, my impression is that central bankers are, to use an American phrase, behind the curve. The Federal Reserve and the European central bank are behind the curve. Indeed, our much revered Monetary Policy Committee seems to take decisions on last month's figures and not on what it believes might happen in future. The Federal Reserve is not merely behind the curve; although it is supposed to be independent of Government, it is not independent of Wall street. Mr. Dow Jones frightens the living daylights out of Alan Greenspan, who is the Caiaphas of the high priesthood of central bankers.

We get wonderful language from the Federal Reserve; some time ago, the chairman criticised Wall street for irrational exuberance. Let us leave aside the philosophical question of whether exuberance can be rational. Given that it was irrational, rational language, debate and argument from the chairman of the Federal Reserve would do no good. It did not. He was frightened to do anything because he did not want to upset Wall street. He was following the bubble upwards, and presumably hoping that it would burst itself so that the Federal Reserve would not get the blame for the consequences, which are now occurring.

The asset bubble, whether comprising shares in America, property in Japan and, on a lesser scale, property and shares in Britain, appears, paradoxically, to be a consequence of low inflation. Investors and managers have never adjusted to a world of low real income returns, and they therefore look for bubbles and capital assets to supplement or prove their existence.

Even if we accept that the central bankers managed to decrease inflation from very high levels, once it is down to 1 per cent. or 1.5 per cent., they are out of a job. Central bankers are not needed when we approach zero inflation because they cannot do much. A 0.5 per cent. or 1 per cent. cut in interest rates when rates are 5 per cent. and inflation is 1 per cent. or 1.5 per cent. is hardly likely to have an effect. We fear that global competitive pressures will push prices down, and no amount of interest rate reductions by central bankers will have much effect.

Mr. Letwin

The right hon. Gentleman is presenting an interesting argument. To the extent that falling prices are generated by competition and technology rather than excessive monetary restraint, why does he believe that that is bad?

Mr. Davies

It is not bad up to a point, Lord Copper. However, it is bad when inflation reaches zero and general prices start falling. I believe that capitalism needs some inflation. A deflationary position, whereby general prices fall, creates enormous problems for businesses and manufacturing industry, especially in Britain.

Mr. Edward Davey

If growth in the real economy is strong and unemployment is down, does it matter if monetary variables are falling?

Mr. Davies

It matters if prices fall. A good example is the steel industry. The problems in the steel industry in south Wales are created by the falling international price of cold-rolled coil. It has fallen to a point where it is not possible for the British steel industry to make a profit in many areas of Britain. Somebody else may make a profit somewhere else in the world, but not the British economy. Japan has a different sort of economy, but it showed the dangers of general price deflation.

We are therefore back to good old fiscal policy.

Mr. Letwin

indicated dissent.

Mr. Davies

I can understand why the hon. Gentleman shakes his head because he is a creature of the 1980s fashion that fiscal policy is bad and monetary policy is good. He now nods, but in economics, fashion changes, and it is beginning to change now. Fiscal policy is again beginning to become more important than monetary policy.

I welcome the Bill for two reasons: the merits of the different tax changes, and because some money, including public expenditure money, will be put back into the economy. Four years ago, we handed over monetary policy to the Bank of England, but perhaps fiscal policy will come into its own again. Monetary policy will not solve the real problems in the world economy: falling prices, with which the Federal Reserve, the European central bank and the Bank of England cannot deal.

I am glad that the Chancellor introduced the Bill, that he has not put all his trust in central bankers and that perhaps fiscal policy will again become fashionable.

6.19 pm

Mr. Edward Davey (Kingston and Surbiton)

It is a privilege to follow the right hon. Member for Llanelli (Mr. Davies), but I must take issue with some of the economic points that he made. The previous group of academics to claim that monetary policy was ineffective were extreme right-wing economists who believed in the hypothesis of rational expectations and that macro-economic policy had little effect on the actions of private agents in the economy. It is unusual to hear someone from a different wing of the political spectrum presenting the same argument. Although I agreed with the right hon. Gentleman that, in certain circumstances, fiscal policy can be effective, nowadays monetary policy undoubtedly has by far the greater impact, particularly in the short and medium terms, on the economy—it has the greatest impact on aggregate demand in the economy.

The right hon. Gentleman gave an interesting historical analysis of economic trends, but I refer him to periods in the early 20th century and in the 19th century, in this country and other advanced industrialised economies, when prices fell during strong economic activity. The idea, therefore, that one cannot have both deflation and strong economic growth does not hold up to historical analysis. It is to be welcomed when prices fall. My constituents certainly like to see prices go down when they go into shops to buy the services and goods that they need.

The Finance Bill is unusual compared with other Finance Bills, for three reasons. First—it is quite a serious reason—there is no report from the Select Committee on the Treasury to accompany the Second Reading debate. In the past—I checked the record—the Select Committee has published a report, which helped proceedings in the debate. The reason we do not have a report is, I believe, that there is some disunity among members of the Select Committee, which I regret. We felt that the report would probably not be unanimous. There was no report last year; that has been repeated this year. However, we have the benefit of the evidence—to which I shall return, because there are some interesting nuggets there for colleagues to consider.

Secondly, the Finance Bill is relatively short compared with previous ones, at least in the recent past. This time last year, we were dealing with a Finance Bill with 558 pages which ended up having 597 pages. However, this Bill is still far too long. It is 292 pages long—much longer than most Finance Bills, even in the 1980s. That worries me. If the Government are trying to sweep up before a general election and not put a heavy Finance Bill before the House, and they still come up with a Bill of 292 pages, I am extremely worried for the future. It should have been a very short Bill.

Either Ministers are intent on continuing to hound business and the private sector with too much tax legislation, or they are not in charge of their civil servants, who are putting forward far too many schemes, which Ministers are not throwing out. Nevertheless, the Finance Bill is unusually short compared with recent attempts.

Thirdly, as the hon. Member for West Dorset (Mr. Letwin) said, the Bill is relatively uncontentious. Most of its contents, with the except on of the aggregates levy, are relatively uncontentious, but we will judge the Bill not just by its contents, but by how it deals with the wider issues that are affecting this country—the big picture issues.

Before I come to those, I want to relate a serious matter to the House. I hope that Treasury Ministers will go away, check the record and have an answer ready for the winding-up speeches. I believe that the Chancellor of the Exchequer misled the Select Committee on the Treasury when he gave evidence on 20 March. He was being questioned by the hon. Member for Bury St. Edmunds (Mr. Ruffley) about the tax burden; it is something to which he returns assiduously. In reply, the Chancellor said: The facts in the Red Book are accurate; but I am pointing out to you that, as far as the inherited situation was concerned, the tax burden was due to rise to 38 per cent. He was referring to the Conservative figure published in the November 1996 Red Book.

I was interested in that, so I asked the Chancellor to confirm that the 38 per cent. figure was calculated on the same basis as the figures in the Red Book". The Chancellor replied, "Yes." I went back to him again and asked: On exactly the same basis? He replied, "Yes." However, I have checked with the House of Commons Library and it appears that the 38 per cent. figure was calculated on a different basis from the figures that appear in the Red Book.

In November 1996, when the Conservative Government said that the tax burden was due to rise to 38 per cent.—I think that it was 37.9 per cent. to be precise; perhaps it was 38 per cent. in the following year—the European system of accounts 1995 was not operating. The ESA 1995 was introduced in 1998 by the Office for National Statistics. If we recalculate the figures in the November 1996 Red Book and adjust the tax burden figures, we get a very different tax burden—it is considerably lower. The reason why it is lower is that, under the ESA 1995, money GDP was raised by around 2 per cent; so the figure that the Chancellor quoted to the Select Committee was not calculated on exactly the same basis as the figures that appear in the current Red Book. I hope that Ministers will check that and apologise to the House if I am right.

Mr. Deputy Speaker (Mr. Michael Lord)

Order. I appreciate that these are complicated matters and that they are, to some extent, matters for debate, but I think I heard the hon. Gentleman say that the Chancellor had misled the House or the Committee. He should not use those words.

Mr. Davey

Of course I withdraw those words if they were incorrectly used, but I understood that there was, shall we say, a discontinuity between the words in the record and the analysis that I was offering the House. I hope that Ministers can try to correct it.

I go on to the big picture and how we should judge the Bill. The Liberal Democrats believe that the Bill fails to provide the extra resources needed for our schools, hospitals, police and pensioners. My hon. Friend the Member for Truro and St. Austell (Mr. Taylor) set out those needs on 13 March in the House. I shall not repeat everything that he said, but he made some pertinent remarks, particularly about schools, hospitals and pensioners, why they need extra resources and why the Budget and the Bill fail to provide those extra resources.

In my constituency, class sizes in secondary schools have gone up to record levels—levels not seen since 1973. Despite some increase in capital spending, for which I give the Government credit, there is still a huge backlog of repairs. I give one small example to Ministers. In St. Mary's primary school, Chessington, three outside classrooms are still extremely cold in winter and far too hot in summer, and they still do not have lavatories. They are not yet included in any refurbishment plan, for replacement by permanent modern buildings. There is therefore still a backlog of repairs.

There is a huge teacher shortage in my constituency, too. Whether we talk to a primary or a secondary head teacher, the message is still the same. They are having real problems recruiting staff. That means that there are sometimes no teachers in front of classes.

In my constituency, there is a huge problem with hospital bed shortages. In recent months, there has been a large increase in admissions to the accident and emergency unit. The hospital authorities have tried their best. They have put beds in seminar rooms and closed the day surgery in order to use the beds for overflow from A and E, but there has still been a huge increase in the number of overnight stays. They have gone to a hospital nearby, Tolworth hospital, and, following some suggestions from me and others, managed to open a ward temporarily. They did that because they needed intermediate care beds. In my constituency, nursing homes have closed and the number of care beds has reduced significantly. That has caused a huge problem for the hospitals. We need to tackle those bed shortages. Recently—I think last week—the British Medical Association produced a survey to that effect.

There are huge shortages of general practitioners and a lack of medical students applying to train in consultancy and general practice. Those are the problems. It is interesting to note that one of the key problems generally in the public sector is a shortage of staff. Whether it is in the health service, schools, police or other public services, there is a significant shortage. The Budget contains some measures to deal with those problems, but it does not go far enough, particularly in relation to London and the south-east, where the problems are particularly acute.

As my hon. Friend the Member for Truro and St. Austell said, in this Parliament, private sector wages have increased by an average 15 per cent. whereas public sector wages have increased by only 10 per cent. Therein lies a huge problem. Until we tackle it and make it clear that we value our public sector workers and provide them not only with financial rewards but with status, those shortages will continue to undermine attempts to modernise our public services.

The Bill also does not provide the resources necessary to ensure fairness to pensioners. Although there have been increases in the minimum income guarantee, as we know, many people do not claim the guarantee. The latest figures show that more than half a million pensioners who are entitled to the minimum income guarantee do not claim it. That fact demonstrates the problem with the Government's overall strategy for tackling pensioner poverty. If Ministers continue solely down the route of means testing and do not increase the basic state pension, pensioners will continue falling through the holes in the safety net and not receive the money that they desperately need.

Hon. Members talk about prices decreasing, but many pensioners face increasing bills. Their council tax bills, for example, are certainly not being reduced. In just three years—since 1998, when they started running Kingston council in my constituency—the Conservatives have pushed up the average yearly council tax bill from £700 to £950. Pensioners in my constituency have to pay those tax increases on low increases in the basic state pension.

Mr. Howard Flight (Arundel and South Downs)

Is not the increase in Kingston's council tax due to changes in the sums provided by central Government? I think that the hon. Gentleman will find that real spending levels are much the same.

Mr. Davey

I am grateful for the hon. Gentleman's intervention. He is indeed right that part of the increase is due to the Labour Government's failure to provide a decent grant settlement to the royal borough of Kingston. I have to tell him, however, that it is due also to the incompetence of the current administration, which has wasted money and failed, for example, to collect parking charges to which it was entitled.

Mr. Deputy Speaker

Order. We are going rather wide of Second Reading of the Finance Bill.

Mr. Davey

I am grateful for your warning, Mr. Deputy Speaker.

I was describing how the Finance Bill does not deal with the needs of pensioners. Pensioners in my constituency tell me that they are also worried that, should they become frail in their later years, they will not receive personal nursing home care. The Government have not provided any measures in the Bill to ensure that personal care is free for elderly people in nursing homes. I believe that that is a major error. The Bill does not provide the necessary funds.

When the Chancellor did appear before the Select Committee on the Treasury, I was very worried because, in his evidence, he seemed rather complacent about some of those issues. I asked him three times to provide figures on health spending, particularly the Government's average spend, in this Parliament and in the previous Parliament, on the national health service as a percentage of national income. He told me twice that he was about to give me the figures, but of course failed to do so. However, the figures show that, on average, in the previous Parliament, 5.5 per cent. of national income was spent on health, whereas, in this Parliament, 5.4 per cent. is being spent on it. In this Parliament, therefore, the average resources that the Government are providing for the health service have decreased. I think that the Chancellor's failure to defend his record on health spending said it all.

The Chancellor was also rather economical with the truth on education spending. Although he told us his plans for the future and the figures that he hopes to deliver, as we have seen before he often does not meet his spending targets or spend the money that he says he will spend. He did not reassure us.

Mr. Donohoe

Can the hon. Gentleman give us one example of the Chancellor not delivering on his promises?

Mr. Davey

Indeed I can. In evidence to the Treasury Committee, Treasury officials told us that, this year, based on their initial assessment of spending plans, spending Departments are already underspending by £1 billion.

That is a concrete and classic example in which the Chancellor promised us that he would spend a certain amount but Departments are not spending it.

The Chancellor failed to examine his own record on education and admit that, on average, under his stewardship in this Parliament, we have spent less on education as a proportion of national income than was spent in the previous Parliament. Liberal Democrat Members therefore very much regret this Budget and its accompanying Finance Bill. Although it is not what the people of this country want, the Chancellor has chosen to put tax cuts before spending increases. Some people believe that, by putting tax cuts before investment and public services, new Labour is acting more like the Conservatives.

The Bill fails to address another big picture issue which, to his credit, the hon. Member for West Dorset has started to address—the economic consequences of foot and mouth. It is a major issue both for the individuals, regions and sectors affected by it and for the economy as a whole. The outbreak is devastating for those individuals and their livelihoods. In the past few weeks, the House has heard many examples demonstrating that fact.

We also know that foot and mouth is proving to be highly damaging to certain regions and sectors. The House may be surprised, however, to learn of the effects of the outbreak on businesses in my constituency, which has some farms although not very many. One example demonstrates the knock-on effects of foot and mouth. I quote it not to belittle the effects of the outbreak on the tourism and agricultural sectors, but to demonstrate the breadth of its knock-on effects.

The example is a shop in my constituency called Kosmic Kites, in Surbiton. This month, in a letter to me, its proprietor Mr. Paul Hankin wrote: I write out of desperation, as my Business appears to be falling apart due to Park and Public land closures … My shop has been trading for 9 years, last year was the most successful so far, and all the signs were that 2001 would be even better"; but since Park closures my takings have fallen by 85 per cent. That business, which was built up over years, is not in one of the sectors that we usually associate with damage from foot and mouth, but it is still being severely damaged by the outbreak. It demonstrates the seriousness of the situation.

There is a wide variety of assessments and forecasts of the effects of foot and mouth. Very recently, the Centre for Economics and Business Research argued that it would result in a 1 per cent. decrease in GDP, costing the economy up to £9 billion. However, that may have been one of the more exaggerated and alarmist forecasts. Other forecasts have said that the effect on GDP could be as low as a 0.1 per cent. However, I have read various analysts' forecasts, and the most persuasive one comes from Goldman Sachs. Although Goldman Sachs states that it is difficult to make an estimate—because of factors and uncertainties regarding the length of the outbreak; a substitution effect in which people spend money in shops and urban areas rather than in the countryside; whether people will go on foreign holidays or delay domestic holidays; and the short, medium and long-term effects on the public's perception of visiting the countryside—it predicted that, this year, foot and mouth would have a 0.3 per cent. negative effect on growth. However, its more extreme forecast suggests that GDP will be affected by as much as 0.6 per cent. If that worst scenario materialised, an awful lot of jobs and businesses would be lost. Foot and mouth is having a major effect, and it could have a disastrous effect on economic growth this year.

Clearly it is the Government's job to take action on foot and mouth. I think that everyone will agree that disease control is a public good that cannot be left to the private sector. The control of disease has benefits for the whole of society, and the Government have a duty to act to control it.

An interesting paper by David Harvey, from the Centre for Rural Economy, was published last month, entitled "What Lessons from Foot and Mouth? A Preliminary Economic Assessment of the 2001 Epidemic". It is necessarily very preliminary. It says that the benefits of being free of the disease are probably worth £1.2 billion a year. There is a huge economic benefit to getting rid of the disease quickly, so the Government must do everything that they can.

The Government have introduced business rate relief on loans to those who are struggling, but we feel that they should go further. I hope that they will seriously consider some of the proposals from the hon. Member for West Dorset on VAT, for example, in a cross-party way. The Liberal Democrats intend to make other proposals. For instance, it would be possible to extend carry-back of trading losses from one year to three, to help businesses now by allowing them to offset current losses against profits made two or three years ago so as to get a tax repayment in the coming year. It is about the timing of relief against losses. The Bill gives us an opportunity to help to tackle the financial problems that businesses face because of foot and mouth.

A macro-economic issue that is no longer entirely in the Government's hands, but is important in tackling the economic consequences of foot and mouth and dealing with the problems caused by the slowdown in the United States of America, is the policy on interest rates and the exchange rate.

Mr. David Heath

Does my hon. Friend agree that my hon. Friend the Member for Northavon (Mr. Webb) was right to say earlier today that there is a strong argument that the compensation payments given to farmers whose stock is culled to allow them to restock later should not be treated as a liquid asset for either taxation or benefit purposes, because that militates against sole traders in desperate straits getting the support that they need?

Mr. Davey

Yes. That is pertinent to this debate, because we could use the Bill to introduce measures to tackle the problem. I hope that the Paymaster General will respond to that point.

The US slow-down, combined with foot and mouth, has had a serious effect on aggregate demand. We look forward to the Monetary Policy Committee reducing interest rates. I support an independent central bank, and believe that its independence should be guarded jealously, but it is right for us, as constituency Members, to send signals that we believe that the economic situation on the ground is deteriorating significantly enough to warrant interest rate changes.

Monetary policy needs to be directed towards helping agriculture, manufacturing and tourism, which were already suffering before foot and mouth and the US slow-down. The high exchange rate was already hitting those sectors extremely hard. Some of the weakest sectors in our economy are being hit yet again. The simplest and quickest way to relieve these problems would be for the committee to take action on interest rates, and we hope that that would also affect the pound.

This is not the Bill that Britain needs. It does not secure the finances that our public services need; it puts tax cuts before investment in our health service, schools and police; and it fails to deliver imaginative proposals to deal with the foot and mouth crisis. We needed a different Budget to tackle large class sizes, long waiting lists, police shortages and pensioner poverty. The Liberal Democrats will continue to campaign until we get those changes.

6.45 pm

Mr. David Borrow (South Ribble)

I am very pleased to be taking part in this debate. I look back to Finance Bills since 1997. In April 1997, people in my constituency asked me how a Labour Government could deliver better public services and pensions, when the Conservative Government had been running a deficit of more than £20 billion a year, costing each man, woman and child £500 a year. They were sceptical about the notion that, in those circumstances, a Labour Government could hope to boost public services, improve the lot of pensioners and look after the disabled.

I remember many a time on the doorstep explaining to people that the Government's strategy was to reduce the cost of failure by reducing unemployment and getting more people into work, so that more were paying taxes and fewer claiming benefits. That strategy, based in large measure on the new deal and on careful management of the public finances in the first two years, has delivered what we promised four years ago.

Unemployment has dropped by about 500,000 or 600,000 and the number of people employed has increased to a record level, by 1.2 million. That in itself has transformed the public finances and made the space to provide extra resources for public services. The fall in unemployment in just about every constituency has been mirrored in mine, where the rate is now about 1.5 per cent. In 1997, 1,534 people in South Ribble were unemployed; by this February, the figure had dropped by 42 per cent., to 883.

Last Friday, I attended a business breakfast at Runshaw college in my constituency, where the Under-Secretary of State for Education and Employment, my hon. Friend the Member for Barking (Ms Hodge), was guest speaker. It was the 13th business breakfast that I have attended since being elected. The basis for the discussions was not the problems that were raised in the past about how companies would survive and how we could avoid making people redundant; the focus was on how to ensure that we have a sufficiently educated, skilled and trained work force to do the jobs that need doing.

The problem for many companies in my constituency is in recruiting the skilled work force that they want. We need to invest in education and training through greater public investment, rather than looking for more tax cuts in the immediate future, which would do nothing to help to provide the work force that companies in my area need.

Two major manufacturing companies in my constituency have greatly increased their work force since 1997. One might be surprised that either of them, especially Leyland Trucks, was able to do so. In 1997, Leyland Trucks employed 600 people making trucks. Given the weakness of the euro in the past few years and the trading position, the market is difficult, but the company has increased its work force to 1,000 in four years and achieved success in the climate created by the Labour Government in that period. Schwann's Pizzas has benefited from major investment and increased its work force considerably; it is probably now the third largest employer in my constituency.

My answer to people who talk about whether the Government have spent enough on public services and whether they should spend more is that we need to get the fundamentals right. We must ensure that people have jobs and that companies prosper if we are to make space in the public finances for further investment.

I listened with interest to the hon. Member for Kingston and Surbiton (Mr. Davey), who talked about the Labour Government's failure to invest in services. Since Christmas, I have visited more than 20 schools in my constituency. The head teacher of virtually every school had the same message: investment is coming through to education; there are more classroom assistants and computers; extensions are being built; and modernisation is taking place in many schools.

I shall give a few examples of the new buildings and extensions that I have seen in the past few weeks. Tarleton high school has had a major extension and benefited from more than £0.5 million of investment in its new Ribble building. When I visited Little Hoole county primary school a couple of weeks ago, a new classroom was being built. A week ago last Friday, I visited St. Catherine's Roman Catholic primary school and had the pleasure of cutting the first sod prior to a two-classroom extension. Last week, I visited the Church of England primary school in Tarleton, which had just completed the erection of a new classroom. A couple of months ago, I visited Cop Lane Church of England primary school in Penwortham, which has a new hall. Those small schools have received major investment and can see the difference that a Labour Government make through investment.

Mr. Jack

Will the hon. Gentleman give way?

Mr. Borrow

I am always happy to give way to the right hon. Gentleman.

Mr. Jack

If life is so good, will the hon. Gentleman explain why pupil numbers are now at 1,800 in Lancashire's largest comprehensive school in my constituency, which desperately needs a new school hall because only 350 pupils can take school dinner at one time? Can he also explain why the head teacher tells me that he does not have sufficient resources to introduce the new sixth-form curriculum properly?

Mr. Borrow

The answer to that—which also applies to Woodlea primary school and Balshaw's high school in my constituency, where major investment is still needed—is that, after 18 years of a Conservative Government who did not invest in school buildings, there is a huge backlog of building work and repairs. My constituents, like those of the right hon. Gentleman, need the continuation of a Labour Government, who are pledged to maintain investment in education.

Let me turn to a different area—health, which has already been mentioned. The four hospitals that serve my constituency—Ormskirk and District general hospital; Southport general infirmary; Chorley and South Ribble district general hospital; and the Royal Preston hospital—have all had major investment in the past four years. I am arguing strongly for further major investment in Chorley and South Ribble district general hospital, because the Government have allocated more than £1 million of investment in renal services for the north-west. South Lancashire, which includes South Ribble, has the worst renal services provision in the north-west. Together with my colleagues in south Lancashire, I am making a strong argument for investment in Chorley and South Ribble district general hospital so that it can set up a dialysis unit. If we are successful, that major investment will have resulted from the fact that the Labour Government have a proven Budget approach over the past four years, have got the economy going well and have created space in the public finances to invest in improved public services. We should all welcome that.

A few moments ago, I mentioned the business breakfast that I had at Runshaw college, a further education college in my constituency. Bernard O'Connell, who runs the college, told me that it was receiving significant new investment and would shortly open a second campus in the constituency of my hon. Friend the Member for Chorley (Mr. Hoyle). I was told that the new campus would be dedicated solely to mature students and that the college was seeking to expand the number of graduates whom it educates from 300 to 1,000. Again, that fits in with the need, which I mentioned earlier, for better education and training for the work force in my area if we are to compete successfully in a competitive economy, which my constituents wish to do.

Let me touch briefly on the comments on pensions made by the hon. Member for Kingston and Surbiton. In 1997, his party's manifesto, in a similar fashion to those of the Conservative and Labour parties, pledged to increase the basic pension by the rate of inflation. However, the Liberal Democrat manifesto added that, if extra resources were available, they should be targeted on the poorest pensioners. The Government have done that through the minimum income guarantee. Occasionally, it would be nice if Liberal Democrat Members congratulated the Government on finding those extra resources to ensure that, as from this month, a single pensioner in my constituency will have a minimum income of more than £92, compared with £68 four years ago. That significant change has been brought about only by the fact that we have a Labour Government.

A few moments ago, I mentioned that one argument that we had in 1997 was about the new deal, a programme opposed by both Opposition parties. Even for a constituency such as mine, which has low unemployment, the new deal is a not insignificant factor in its development. A new partnership has been set up in Leyland to create a Tesco store that which will employ about 300 people. The partnership involves Runshaw college, the Union of Shop, Distributive and Allied Workers, Tesco and the local authority. It will mean that 300 people will be taken off the long-term unemployed register, trained at Runshaw college and, at the end of their training, provided with jobs at the new Tesco store, when it is built. Three hundred jobs out of an unemployment total of 885 will virtually wipe out any remaining unemployment in South Ribble. The partnership seeks to train and develop those with the lowest employment skills, so it is targeting those who most need that. As I said, my constituency has skills shortages, but it needs schemes to bring people without skills into the labour market.

A significant amount of the discussion at the business breakfast on Friday morning was about the measures that the Government need to take, not simply to reduce the number of unemployed but to bring people into the employment market in the first place. We discussed a range of measures that were needed to provide better child care support and better help for disabled people to bring into the labour market those who are currently excluded from it. When there is a tight labour market, we need to look at ways in which we can give people who feel that they cannot get a job the right training and education to go for those jobs, and receive the right back-up.

I welcome the measures to reduce VAT on church repairs. I have received representations from my constituency, in particular from St. Andrew's church in Leyland. Those concerned will be pleased by the Government's response.

I also wish to refer to the welcome measures to introduce a tax credit for the development of vaccines, particularly in connection with TB and the AIDS epidemic. That is a useful development. When I was in Uganda last summer, I saw the impact of the Government's debt relief proposals, through the heavily indebted poor countries programme, on improving education and health provision in that country. That is particularly important in assisting in the battle against AIDS.

The Bill mentions discussions with pharmaceutical companies about making drugs available more cheaply to the developed world. It has long been my view that, when drugs are developed by major pharmaceutical companies, they are targeted at the developed world. The business plan assumes that the companies can make a profit and cover their costs on the basis of charging high prices in North America and western Europe. Those companies should be able to supply drugs at cost price to the poorest countries of the world, without provision for the cost of development. They would not be selling the drugs to those countries at a market price—the same price at which they would sell them in western Europe or North America.

South Ribble is a semi-rural constituency and I have raised with MAFF and the Treasury the issue of the climate change levy and its effect on the horticulture industry. I recognise that we have won half the battle by getting a 50 per cent. discount. I recognise also that Ministers are unlikely to agree to an increase in that 50 per cent. discount at this time. However, the big increase in gas prices has added a burden to the horticulture industry. Ministers must closely monitor the situation, given those factors and their effect on the glasshouse industry. While the 50 per cent. discount was welcome, it may not be sufficient to ensure that the industry can compete with others in western Europe.

Last Friday, I attended a meeting of Labour party members with the Minister of State, Cabinet Office, my right hon. Friend the Member for Makerfield (Mr. McCartney), and we discussed the foot and mouth outbreak. Many of the people who were there remember the devastation of the closures of pits, steelworks and shipyards and, in my constituency, the collapse of Leyland motors and the high level of unemployment that resulted. They remember also the failure of the then Conservative Government, during the late 1980s and early 1990s, to do anything to alleviate those difficulties or to assist the dozens of small firms in my constituency who suffered as a result of the collapse of major employers.

At that point, it did not seem to be part of the Tory agenda to assist individuals and companies in distress. That may be the Conservative way. Whatever failure occurred under the previous Government, the Labour Government should be prepared to use the prudently managed public finances of the past four years to assist the rural economy and those areas—particularly Cumbria—that are suffering greatly. That does not require an amendment to the Bill, but a willingness to use part of the Budget surplus to assist the rural economy.

7.5 pm

Mr. Ian Taylor (Esher and Walton)

The hon. Member for South Ribble (Mr. Borrow), who came in at the last general election, did not pay due tribute to the fact that economic growth in this country—which has delivered some of the benefits that the Government have attempted to give to his constituency—actually started before 1997. There was a pre-1 May 1997 history and, in terms of economic growth, the Government took over considerable benefits.

The Government are near the end of their first term. To be truthful, I see this Finance Bill as a fag-end Bill. It has none of the gusto and excitement of a Government who expect to be re-elected, yet many Labour Members think that that is a possibility. However, it does not show any of the radical drive and determination that would make the House sit in awe, saying, "My goodness—what a Government! What are they going to do in the next Parliament if they get back in?"

This is a tired Finance Bill, very much lacking in ingenuity. That is, of course, why most of this Second Reading debate has been about anything other than the Finance Bill. Hon. Members have talked about the economy, or about what the Bill might have contained had the Conservatives had the opportunity to write it. I know that your generosity of spirit is enormous on these occasions, Mr. Deputy Speaker, and I hope that it will extend to me as well.

There was controversy in each of the Finance Bills that I have experienced after coming to the House in 1987. This is the least controversial of them all. However, some of the policies behind it—the Government's policy on tax and spend and their broader macro-economic judgment—involve some interesting and controversial issues.

The Government had the real misfortune, as the Chief Secretary said in response to my intervention, of having written the Budget before the economic climate began to change. The foot and mouth problem is immense, and I do not blame the Government for not taking that into account in their economic judgment. Nevertheless, it needs to be considered in terms of the tax and spend measures announced in the Budget, and particularly in terms of whether the fiscal balance reflected in the Finance Bill is the right one.

Economic confidence in the United States has almost fallen off the cliff, which is obviously having a big effect on US growth projections. That is bound to have a knock-on effect on us. The United States has been living beyond its means for a long time. We tend to be tolerant about that, because the US economy has undoubtedly been successful. However, its deficit and its desire to suck in funds from the rest of the world to cover economic difficulties could be put at risk during this year.

If American interest rates fall and the Fed decides, for domestic reasons, that it must cut interest rates, there could be a point at which—even if the dollar is regarded as a safe haven at a time of economic concern—investors in the United States may hold back or withdraw.

In those circumstances, the Americans would suddenly find that they had to put their own house in order. They would also find that the rest of the world would be that much more sympathetic if the American Government stopped behaving as if "America First" were the only policy that they could adopt. President George Bush has had an inauspicious beginning to his period as President. As a Conservative, I am almost tempted to say, "Come back Al Gore, all is forgiven" but I will suspend judgment. However, I should draw attention to the fact that the American President has decided that the word "compassionate" never appeared in his manifesto.

Other factors affect the domestic economy. The Chancellor will have carefully to reconsider some of his assumptions. For example, a rise of £5.7 billion in corporation tax revenues is predicted in the coming year. However, such buoyancy of corporation tax revenues may be delayed, or a thing of the past. Most of the companies now reporting are certainly reporting sharply lower profits.

In the overall Budget, there is always too little emphasis on the state of our home market, by which I mean not the United Kingdom, but the European Union. The 2000 trade figures from the Office for National Statistics should always be borne in mind when we discuss our domestic position. Some 57 per cent. of UK goods exports go to the EU, and only 16 per cent. to the United States. Some 54 per cent. of those exports go to eurozone countries, and more than half our total trade in goods is with the eurozone, while the United States accounts for 14 per cent. More than half our total trade in goods and services is with the EU.

It is highly significant that the 12 countries in the euro represent, in population and in other ways, 80 per cent. of our home market. That sector of our home market has a single currency, and a higher-than-tolerable sterling value causes difficulties for our jobs market and results in decline in our manufacturing base. The good news in the constituency of the hon. Member for South Ribble is welcome, but if we do not soon resolve the imbalance between sterling and the euro in our home market, our manufacturing industry will suffer even more. According to figures that I have seen, 83,000 jobs have been lost since the euro was introduced through direct or indirect association with investments from eurozone countries. That is serious, and we should watch the position closely.

The Budget statement did not draw much attention to that situation, and nor did it assess our position against the convergence criteria that the Chancellor has set for the euro. Perhaps we shall hear more about that on the first day after the general election.

The factors that depress domestic demand are important. The Institute for Fiscal Studies has said that if spending is to grow by more than GDP growth beyond 2003–04, further increases in taxes will be required. We heard earlier about the difference between monetary and fiscal policy, but fiscal policy is very important in a single monetary zone.

In both the single currency zone that is the United Kingdom and in the European monetary zone, Governments must recognise the importance of fiscal policy levers. Any party that wants to be in government must accept that the overall burden of taxation must sometimes go up and sometimes go down. There is no magic about the percentage of GDP that a Government should take in taxation at any given time: the point is whether the figure taken is the right one when the economy is expanding or contracting. We hear too much cant from both sides of the House about that. Everyone now accepts that we have given independence to the Bank of England, and we shall possibly give it in the end to the European central bank, too. We must understand that fiscal policy needs to be a good deal more energetic than it has been in the past.

Other factors will affect the Chancellor's ability to adjust taxation. We are increasingly realising the problems that arise from lack of tax harmonisation within the European Union. I am not, incidentally, arguing that there should be such harmonisation: I have already said that fiscal judgments should be made by Governments nationally, so that they may adjust to the economic circumstances of the time. My point is that there is a problem with holding the opposite view; if all judgments are made in isolation from what is going on in the rest of the home market, we shall have massive difficulties.

Excise duties provide an illustration Mon of that point. Smuggling is one of our major growth industries. In brewing, the volume of smuggled beer equals the output of at least three British breweries. The figures are extraordinary. The cigarette industry also has huge smuggling problems, which the Government have not reflected in the Finance Bill. They have fiddled with excise duties but not tackled the fun fundamental problem of how to stop smuggling if there is a financial incentive for doing it.

Another matter for consideration in the European Union is value added tax. The Daily Telegraph today carries a story suggesting that there is a European Commission threat to our VAT flexibility. I am afraid that the story is yet another that has much more to do with that newspaper's policy objectives than with news reporting. In reality, the agreement on VAT—that there should be a minimum rate of 15 per cent. unless there is some dispensation—was made under the previous Conservative Government, who were much more shrewd than the reporters of The Daily Telegraph seem to recall.

There are many aspects for consideration within our home market. Perhaps because the Government do not want to be too exposed on the European issue, they constantly hold back from explaining to the British people the full facts of life. I admit that the Front Benchers of my own party sometimes do the opposite by increasing people's worries about the European Union, but I have never been entirely in line with their contemporary policy on Europe. Both sides must observe our competitive position in the EU while trying to ensure that we do not get so far out of line—as, for example, on excise duties—as to cause ourselves the kind of internal damage that arises from losses to the Treasury from smuggling.

The European central bank also needs to get its act together. Much more attention should be paid than seems to be paid by the current president of that bank to changing economic conditions. I hope that there will be an interest rate cut. However independent the ECB is, there is no reason why the UK Parliament should not send it a signal that it should cut its rates. We have no official Government or central bank representation on the ECB because we have not yet joined the euro, so I must hope that the voice of a humble Back Bencher—and an Opposition one at that—may be heard.

Let me turn to the detail of the Finance Bill. The climate change levy is touched on, somewhat abstrusely, in clause 103. I wish that that had been examined in much more detail. I shall not go into the arguments about its overall purpose: there is no doubt that reducing emissions is a vital objective. Whether that is best done, however, by giving incentives for technological adaptation or by a levy is a matter on which I am much more comfortable with my own party's policy.

I want to mention Air Products, a company in my constituency. Incidentally, and just to raise a competitive edge, I should point out that the chief executive of British Oxygen is a constituent of mine, but now I want to discuss the position of Air Products. The Government simply have not listened to the arguments of the industrial gases industry about the unfair and damaging impact of the levy. The separation of air into oxygen, nitrogen and argon by cryogenic distillation is the most energy-intensive process in the country. It is much more so than chlorine production and aluminium smelting, but they have been exempted from the levy. The process does not pollute the environment, so it is not covered by the regulations that the Government have insisted on as the criteria to define those processes that are eligible for an 80 per cent. discount.

Air Products challenged the Government by arguing that air separation is a chemical process, as defined in paragraph 17(a) of the eligibility table in paragraph 51 of schedule 6 of the Finance Act 2000, and that it should thus be allowed to enter the Chemical Industries Association agreement for the 80 per cent. discount. The company has provided written independent expert opinion from a professor of chemical engineering at Bath university that supports that interpretation.

The interpretation has been rejected and may be subject to a legal challenge, but I ask the Government to understand the consequences. Air Products has had to announce to its customers that, from 1 April, it will make a surcharge to recover the cost of the levy. That will have a further impact on the international competitiveness of industries such as chemicals and steel, and will add inflationary costs to the domestic sector in the food industry, in which liquid nitrogen is, of course, used for freezing, and in hospitals in respect of oxygen. I visited Air Products recently to open a combined heat and power plant—that is a small way in which the company can try to reduce its costs. However, I urge the Government to be realistic about the issue; the knock-on effect for companies that use materials such as those provided by Air Products will be very serious indeed.

I have no interest in Air Products other than the fact that it is a constituency company. I have some separate business interests that are in the Register of Members' Interests. Given that the Finance Bill affects any company, I make that declaration for the avoidance of doubt.

I have some comments on something that is close to the heart of the Paymaster General: IR35. [Interruption.] Perhaps it is close to some other part of her anatomy, but if it is not her heart, I do not want to speculate too much.

There is still confusion about IR35 in the industry. The Government have done many good things—stimulating entrepreneurial spirit, trying to make the economy capable of accepting the inward investment of high-tech companies, and stimulating the high-tech industry itself over a longer period—so why oh why is IR35 still a blight on the landscape and causing confusion? The court case last week may have pleased the Inland Revenue in some ways, but it certainly added to the confusion. It took an 88-page document from the High Court even to try to clarify the existing position.

Dawn Primarolo

I am sure that the hon. Gentleman appreciates that in the case that was resolved last week, the court ruled in favour of the Inland Revenue on every count and leave to appeal was refused. It is important that proper dialogue now takes place. I hope that he and other hon. Members will support me in that. We have already written to the main body, the Professional Contractors Group. IR35 is the law of the land, but discussions about its implementation and the advice that is given would benefit enormously from the positive engagement of those who are still unhappy with it. I hope that he will agree and encourage others to engage positively with the Government on the matter.

Mr. Taylor

The Paymaster General is her usual winning self; I could not possibly refuse that encouragement. I hope that the PCG takes up her offer.

There is definitely a need, however, to achieve a clearer understanding, in all circumstances, of what constitutes an employee. Accepting that IR35 is the law of the land, it would none the less be better if we could obtain that clarification. There is frustration out there—in what are broadly described as the knowledge-based industries—that IR35 is still a problem. I have heard the Government referred to as a sales prevention agency; they are certainly a job confusion industry when it comes to IR35. The Minister of State, Home Office, the hon. Member for Hornsey and Wood Green (Mrs. Roche), rightly talks about changing immigration qualifications to bring in skilled workers, but many skilled workers in this country think that it might be easier to get jobs abroad. I stress that, even if the court was clear on the matter, some of the applications of IR35 regulations are less clear to people working in the industry. The Paymaster General should continue to be concerned about that.

I wish that the Chancellor had made better provision for inheritance tax. That may be a sensitive issue for Labour Members, but the inflation adjustment of the allowance for inheritance tax is not sufficient and needs radical review. Many people from all walks of life, in my constituency and elsewhere, feel trapped by the measure. It is important to send a signal that the trickle-down of wealth from one generation to the next is worth while. We should share that aim throughout the House; it is not something to be penalised. As always, the people who are most adept can better protect themselves from the ravages of inheritance tax than those who find, too late, that they have been caught by it.

I do not think that the Government have yet woken up to the fact that the damage that they did to pension funds through the changes to advance corporation tax continues to accumulate. All the good work—although I do not necessarily endorse the details—in encouraging people to take out pensions, such as the stakeholder pensions that have just come in, could be undermined by the apparent attack on pension funds.

This afternoon, I recalled that I had been rather far-sighted on that issue. I put the first question to the new Prime Minister after the last general election. I asked him whether pensioners would suffer damage from changes in advance corporation tax which he might propose."—[Official Report, 21 May 1997; Vol. 294, c. 703.] He did propose those changes and pensioners suffered. The reality is that they are still suffering and the Government have not made up for the damage that was done.

On a related point, the Government could have taken up the constructive proposals on annuities that were aired because they would have benefited many pensioners.

I do not have time to go into many other small points. However, I increasingly come across a serious issue when I talk to pensioners in my constituency and elsewhere: it is one thing to bring in tax credits, but it is altogether different when the means-testing and all the other aspects—the reliefs, the clawbacks and the tapers—become so complicated that only professional advisers are capable of explaining them. Many people who should benefit from measures introduced by the Government simply do not have access to professional advisers, or have never taken professional advice; they may be reliant on citizens advice bureaux and similar organisations. I notice that Help the Aged described the system as "massively complex" and said that it involved "endless form filling". Will the Government please think about that?

The issue is serious. I do not necessarily attack the Government's right to use means tests, although I do not think that they are the correct way forward. However, introducing means tests creates obstacles for the people one most wants to help. So often, the people at the bottom of the pack are hit hardest. It is good that the lowest rate of income tax is 10p, but many people do not benefit from that because they pay no tax at all—they rely on benefits. I hope that the Government will take that on board.

In short, the Bill is a missed opportunity for a Government who want to appear radical and who expected further years in office. They could have taken up the constructive suggestions made by the shadow Chancellor to relieve savers from income tax, which would have been hugely beneficial, but which will now have to await the return of a Conservative Government. They could have given even more targeted help to pensioners. The Government could have helped those who are distressed by their great difficulty in understanding the tax system to obtain the benefits to which they feel that they are entitled.

Overall, I am worried about the Government's economic judgment. I am concerned that their public expenditure plans may require much more boosting from an increase in taxation than would be wise. The Government have more homework to do. On the specific issues that I raised, I hope that there is still time for amendments to be tabled in Committee. If they are drawn up in the terms that I have suggested, I am sure that they will be greeted with acclamation on the Conservative Benches.

7.30 pm

Mr. Brian H. Donohoe (Cunninghame, South)

This has been a popular Budget, and I am sure that the Finance Bill will deliver. About 42 per cent of the population believe that the proposals are good for them personally, but, perhaps more important, 52 per cent. believe that the proposals will be good for the country. Furthermore, 55 per cent. of the population think that the Chancellor is doing his job properly, although listening to the Opposition, people would not think that that was so.

The Government have done a great deal to help my constituents, and the Budget will deliver more for them. We have already heard about the proposal on the minimum wage, which is very important indeed—£4.10 is more than half as much again as those involved in the low-wage economy would have dreamed of in my constituency. Many of my constituents will benefit enormously from the increase in the minimum wage, but there is a problem: some charlatans in my constituency—and, I am sure, elsewhere—do not pay the minimum wage. I ask my colleagues to consider further policing of the minimum wage.

When a young trainee hairdresser in my constituency asked for the minimum wage, she was told that she would no longer have a job if she expected that increase. That is despicable, and the Government should ensure that that is not allowed to happen again.

In my constituency, 1,400 young people have benefited from the new deal, and more than 750 of them have entered full-time employment. Some 2,800 of my constituents have gained from the working families tax credit, which guarantees those in full-time work up to £214 a week.

The Budget behind the Bill builds on the progress that the Government have made since 1997. Under the children's tax credit, the hard-working families in my constituency receive £10 a week, and 20 for the first year of a child's life. It is good that those policies have been introduced in my constituency. There has been a £5 increase in the working families tax credit, which will guarantee £225 a week by October. The 10p tax band has been extended. Maternity leave has been increased from 18 to 26 weeks, and maternity pay will increase from £60 to £100 by 2003.

Most important, the Budget and the Bill will restore hope in my constituency, which the Conservative party neglected for a generation. In fact, a clear indication of just how well the Budget has been received is that the post offices in my constituency are now paying out almost a quarter more again than in previous weeks. That is a success in itself.

In 1993, more than 4,650 people were unemployed in my constituency. In the 1980s, the figure was even worse. The Tories have absolutely no idea of the misery caused by unemployment. We have heard about constituencies with unemployment levels as low as 1 per cent., but some areas of my constituency have unemployment levels of more than 50 per cent. and three generations of some households have not worked. That problem is being addressed for the first time in a generation, but the policies are still not penetrating my constituency as they should. For example, unemployment there is still 3 per cent. above the national average.

I have heard people argue that there is a north-south divide. That is certainly true, but there is also an east-west divide. The east of Scotland is overheating and there has been substantial job drift from west to east. Unemployment levels are 40 per cent. in some parts of my constituency, but across the whole constituency it is 8 per cent. However, it is as low as 1 or 2 per cent. in the east of the country.

Something must be done, and more would be achieved by targeting public sector jobs, which are at our disposal, to the west of Scotland. Those jobs could include the armed forces jobs that are out for tender at present. I understand that about 5,000 will be created in a new training college, which the Army will set up, and that it has been argued that it should be based in the east of the country, but I would argue forcefully that it should be set up in the west.

In summary, the Government understand that the economy is based inside society itself and that we are talking about people, not just numbers. Number crunching is all very well, but the people whom I represent understand the issues only on the basis of the food that they have on the table. Prudence is sensible. A stable economy is essential—it is good for business and for the families in my constituency. It is certainly not pap, as some might say. Clearly, because of that success, for the first time in many years we can afford to rebuild the society in which we live.

The base work has been done, and we now have record spending on education and health in and around my constituency and record investment in young people. For the first time in a generation, pensioners have been helped in a way that they understand. Of course, all that would be destroyed if the Conservative party were to return to power at the general election, as it has already committed itself to saving about £16 billion on public spending. Those cuts would most affect those who need the help most in my constituency.

7.37 pm

Mr. Michael Jack (Fylde)

I listened with keen interest to what the hon. Member for Cunninghame, South (Mr. Donohoe) said, and I take issue with the figure of £16 billion in cuts because—I am sure my hon. Friends on the Front Bench would be only too pleased to give him chapter and verse—the figure is not £16 billion. Although we on the Conservative Benches accept our responsibilities, we have learned to use public finance better than the Labour Government have—hence, the fact that we can deliver expansion across the board in many public services, such as education and health, and we can do so with better value for money. At the outset, I remind the House that I have made certain business declarations in the Register of Members' Interests. I have no clear idea whether the Bill affects those interests; none the less, I thought it right to put that declaration on record.

The first thing that I observed is that this year the Finance Bill costs £14.70 for 291 pages—not such good value as Harry Potter and certainly not so exciting. In fact, the Financial Times managed to use the wonderful headline, "Concise Finance Bill aims to avoid controversy". I am delighted that the Paymaster General and the Chief Secretary are still here, especially the Paymaster General because she has the job of steering through the House what is—according to the Financial Times—an uncontroversial Bill. She knows, of course, that she will be in for an easy time.

I was interested in Ernst and Young's comments on its web page. That is the place to go these days for up-to-date, incisive, interesting and exciting comment. It said: Budget rehash fails to excite. The Bill illustrates one of the problems with the Chancellor's announcing and reannouncing recycled ideas, which are then not exciting in the Budget or the Finance Bill because we can all search back through two or three copies of the Red Book to find some explanation of what appears in the Bill—for example, the aggregates tax.

Ernst and Young makes an interesting point when it says: the Chancellor's speech rehashed old announcements. He clearly isn't too interested in the business vote. I am sure that those on the Treasury Bench would disagree with that, but that is the perception of those on the outside.

Ernst and Young makes another equally perceptive comment about the Chancellor. Of the Chancellor, the company states: From a personal tax point of view, we think he has yet again yielded to compulsion to tweak things. This Chancellor cannot let go without making minor changes; I shall come on to one of them later in my remarks. Ernst and Young asks whether voters will be enthused by this approach—I suspect that they will not.

The aggregates tax has been mentioned. My former tax adviser in the Treasury, Mr. Edward Troup, considered the layout and format of the Bill and wrote in the Financial Times: Take land remediation—giving a tax reduction for cleaning up contaminated land. That takes up 14 pages of the bill. You do have to wonder whether all this effort is worth the benefits that will come from it. That is an interesting point when we consider the amount of legislation that is afforded to descriptions of the aggregates tax. As my hon. Friend the Member for West Dorset (Mr. Letwin) said in his sage remarks, we are searching for the purpose of that.

If the Government are genuinely concerned about the exploitation of aggregate materials from land-based sources, why did they not seek to sit down with the aggregates extraction industry to try to negotiate a binding compact with it to reduce the amount of material that was taken from virgin sources and to encourage the recycling of previously used materials?

Dawn Primarolo

My hon. Friend the Financial Secretary engaged in exactly such discussions with the industry before the aggregates tax was introduced.

Mr. Jack

I am grateful to the Paymaster General for that clarification, but that is exactly the kind of discussion that resulted in the climate change levy. The Financial Secretary may have held the discussions, but we still have the tax.

If the Government are genuinely concerned about environmental matters, why do the clauses that deal with this matter not comment on the effect of aggregates extraction on the marine benthos? If the Financial Secretary, who is now fingered with the tax, had cared to consider the effect on grounds used for fish spawning and examined the discussions about aggregates extraction from mid-channel sites, he might have thought that protection of the spawning grounds of fish, such as sole, was an important issue.

If the tax were genuinely environmentally oriented, I would have expected marine-derived aggregates to be affected, but they are not. The tax is restricted solely to land-based extraction, which gives the lie to the Government's line that the tax is a great environmental measure. With the climate change levy and the landfill tax and no corresponding reduction in national insurance charges, the aggregates tax takes it place on the growing list of nice little earners.

I am sorry that the hon. Member for South Ribble (Mr. Borrow) is no longer here, because he and I would have shared common cause over the impact of the climate change levy on the horticulture industry. Those on the Treasury Bench were kind enough to listen patiently and assiduously to my remarks in the debates on the Finance Bill last year, but the problems have not gone away. The cost of energy to the horticulture industry has risen and the Government have done nothing in the climate change levy to recognise the fact that it is a carbon-neutral industry.

Much has been made of the missed opportunities in the Bill. The Paymaster General has taken a close personal interest in the exercise of rewriting our tax law, and the Bill is a missed opportunity in that regard. I have held discussions with the Confederation of British Industry, the Institute of Chartered Accountants in England and Wales and the British Chambers of Commerce and they all continue to express concern about the complexities in our tax system. In the same way that the tax law rewrite exercise was established, the Bill could have contained a clause or two that would have established a study to consider simplification of the tax system.

Mr. Letwin

As one would expect, my right hon. Friend is making an interesting speech. Does he agree that, if the Government were genuinely concerned about the complexity of the tax system, it is unlikely that they would be introducing new taxes?

Mr. Jack

My hon. Friend makes the point. This is not the time or the place to have the broad argument about the way in which new taxes are introduced or about the type of Bill that we need, but such issues should have been addressed. If the Chancellor were trying to carve out a reputation for himself as a reformer, he and the Government would get to grips with the complexity of the tax system. Comments about simplification—particularly from the Chartered Institute of Taxation—abound on the site of accountingweb.co.uk and those arguments are well known to the Financial Secretary and the Paymaster General. I do not need to repeat them, but it is sad that the Bill fails to deal with such issues.

I am glad that the Bill introduces changes that deal with employee share ownership and the enterprise management investment scheme. I welcome them and the fact that the Chancellor has seen fit to put right some of his over-indulgence in the tax take on items such as fuel. We sometimes forget that we are talking about the people's money and the use to which a Government put it. Whether the tax take is set at the right level is a matter for the debates on the Budget and the Finance Bill. Conservative Members have illustrated the rising tax burden under this Administration and we have suggested ways in which we can deal with that problem.

Other right hon. and hon. Members have referred to the national crisis that has resulted from foot and mouth disease. It has implications for the farming economy, the rural economy and food industries. A call has been made for proposals to try to tackle the economic consequences of this dreadful disease, and I wish to suggest several measures that the Bill could introduce. For example, one clause deals with the enterprise investment scheme and new clauses could touch on the venture capital trust scheme, which is the other issue that I wish to mention.

The enterprise investment scheme and the venture capital trust scheme are financial vehicles that aim to encourage investment in sectors of higher than normal risk. They do so by providing the investor with income tax relief at 20 per cent. on the amount invested. They deal with capital gains made under the investment and also allow for the losses incurred to be deployed in other areas of financial activity.

There is a problem, however. The qualifying conditions of those two financial schemes and the corporate venturing scheme—which is the third strand of help for rural Britain—prevent them from being used to help land-based industries. They expressly rule out agriculture and horticulture as qualifying trades. I can understand that when the schemes were originally devised, there may have been extremely good reasons for those conditions, particularly in the light of the old business expansion scheme. There was also the worry about investing in land when the existing inheritance tax proposals were already fairly generous in respect of people buying farms as a means of securing capital wealth for future generations in their families.

We now face a national emergency, and, if we want to encourage more new investment of a slightly riskier nature, I ask the Paymaster General to consider amending the qualifying provisions to allow either of the two schemes to be used for the benefit of agriculture, the food industry, tourism and rural Britain. If the Treasury is concerned about the extent of the impact of removing the qualifying conditions, it is possible to draft the Bill so that the beneficial amendments that I have suggested are restricted to the areas affected by foot and mouth.

What enterprises would benefit from the changes? Farmers could use the rural development plan and work together to establish new cattle-breeding enterprises to overcome the strictures of foot and mouth, for which they might seek outside capital. The enterprise investment scheme and the venture capital trust scheme could open up the flows of capital that they need. Farm-based food businesses, tourism and other rural industries could also be encouraged, perhaps by taking advantage of the farm business tenancy arrangements that enable tenant farmers to create new business on their enterprises. Tenant farmers will be hardest hit by foot and mouth. They have no asset base to fall back on and would benefit from my proposals.

Corporate venturing is designed in a similar mode to the enterprise investment scheme. It enables people from the world of corporate business to invest so that they gain a tax advantage in the financial vehicles that I have outlined. The food industry and supermarkets have a role if they truly want to invest in and sustain Britain's rural economy. By amending the qualifying conditions in the corporate venturing scheme, the Treasury could induce a new flow of money to be made available to those two schemes to act as vital seedcorn capital.

I make those suggestions because of way in which the state aid rules limit the amount of public finance that can be used to help the process of recovery in Britain's rural economy. I hope that I have illustrated, in a simple and straightforward way, that three existing tax vehicles could be modified to help the rural economy at a vital time.

The hon. Member for Kingston and Surbiton (Mr. Davey) referred to roll-over losses. If a farmer makes losses for six consecutive years, there is a presumption that the farm is not being run on a commercial basis and further losses cannot be used by the farmer to offset against other income. Given the problems that farming faced before foot and mouth and those that it will face in the recovery period when we get on top of the disease, we should consider those arrangements. Bearing in mind the rarefied circumstances of the disease, trading in those tax losses might also be considered as a way to help the enterprises derive other revenue, or at least to enable the losses to be used against other ventures in which farmers might become involved if they use any of those three schemes. We need a more creative approach to the tax mechanisms.

I asked the Chief Secretary about the film industry partly because I wanted an economic justification for additional help, but also because it inspired the way in which I thought about the issue. The film industry, which has not had the problems of foot and mouth, is receiving extra help because it is a creative industry, just as the Government have maintained the extra-statutory concession that enables theatre "angels" to move losses from one west end venture to another. The same creativity must be used if the tax system is to assist our rural economies.

I was intrigued to discover that we are to give VAT relief on children's car seats as part of the Government's package to help families. I sought a justification for that, but could find nothing in the press release REV/C&E 3. It merely says that the VAT will be reduced from 17.5 to 5 per cent. I wanted further information and tabled a question to the Department of the Environment, Transport and the Regions, asking the Secretary of State how many child road deaths had been caused by defective child car seats in the past three years. I did that because the Red Book justifies the relevant clause by saying: Around 6,000 children under eight years old are killed or injured each year on Britain's roads. I thought that defective car seats might be responsible, but the Red Book gives a further piece of advice. It says: It is vital that child car seats are correctly fitted and used to help protect children from harm when travelling by car. That is true, but hardly borne out by the facts issued by the Department of the Environment, Transport and the Regions.

In clause 94, proposed new paragraph 7(2) of schedule A1 states; The following are 'children's car seats'", and the definition includes the combination of a safety seat and a related wheeled framework", so the measure is a way to reduce the cost of children's buggies. Every manufacturer of buggies will add a few straps and claim that they are a new car safety seat. I alight on this aspect of the Bill because I can find no justification for it. Indeed, it falls into the same category as further help for the film industry, which the Chief Secretary could not justify.

I am mystified. What is the Government's strategy on VAT? We recently learned of the extra losses in revenue from VAT, but the Government are cutting it further. When the local Blind Society recently asked me why VAT could not be reduced on aids for the visually impaired, I was left struggling for an answer. Children's car seats—cheap buggies—can have a totally unjustified reduction in VAT, but the aid that makes life bearable for the visually impaired has to bear its full weight. We are owed an answer to that.

Clause 81 deals with life assurance. As the Financial Secretary courteously dealt with my question on that last year, will he this year see whether it is possible to make the capital gains tax changes in life assurance policies so that the holders of those financial assets will have the same benefits that have been visited on those who hold assets outside them? It is high time that the corporate rate was brought up to date.

I mentioned the climate change levy, which is dealt with in clause 103, in the context of the horticulture industry. I note with interest that although clause 100 relates to the landfill tax, it fails to make a corresponding reduction in national insurance charges.

I think we all feel a bit odd about the Bill because we were not expecting to be here debating it. We thought that we would be out on the streets arguing about its content, where there would be more raw meat for us to get our teeth into. However, we are discussing it and have to take note of the missed opportunities. Bearing it in mind that foot and mouth is the nation's main problem, I hope that by our making positive suggestions, the Bill might be modified so that it can benefit rural Britain.

7.59 pm

Mr. Jim Cunningham (Coventry, South)

I shall begin by asking a question that Opposition Members have not answered tonight: do they propose to make £16 billion of cuts if they come to power? Perhaps the key to the answer lies in the fact that they have performed a U-turn. Proposals for cuts were certainly being touted some time ago, but the suggested figure was £8 billion. Now they say that they will make Whitehall so efficient that they will save all that money without making cuts in services. The Opposition should not be ducking and weaving because it is not only the House but the country that is entitled to an answer.

The point has been made that the Chancellor is not interested in business. If that is so, why has he made allowances on VAT for small businesses and cut corporation tax? Those are not the acts of a Chancellor who is not interested in business. According to the Opposition, the Budget is not interesting, perhaps because interest rates and inflation are low. It might be more exciting for them interest rates and inflation were high, and perhaps that is what they would like. Low interest rates and inflation help to foster competition and to create jobs. Low interest rates affect people who under the previous Government would have suffered negative equity—a little thing that the Opposition forget.

I welcomed the introduction of the minimum wage and I welcome also the increase in the basic rate. The Government should be proud of that, and both the introduction of the minimum wage and the increase should excite some Members. I welcome, too, the reduction in youth and adult unemployment because under the previous Government there were between 3 million and 4 million in unemployment, and it was the scourge of young and middle-aged people throughout the country. Ageism was dragged into the argument as a form of selectivity for jobs. People have never really understood what that was all about.

I understand why my hon. Friend the Paymaster-General introduced the 1R35 rules, but I also accept the point made by the hon. Member for Esher and Walton (Mr. Taylor). There have been abuses of the rules, as I am sure he agrees, but my hon. Friend should do everything in her power to reach agreement on the matter. Several constituents have approached me about it, and we must consider the definition because I am concerned about the possibility of individuals losing their jobs or contracts. I have raised the matter a number of times with my hon. Friend. I agree with the hon. Member for Esher and Walton that everything must be done to encourage both sides at least to get talking to try to resolve the issue.

In Coventry, we have had bad news today that Marconi will shed jobs, but I do not know the exact figure yet. We know that Marconi will also increase the number of jobs in Coventry, but I do not know whether that will be a restructuring exercise or something else, because the company has said that it is considering restructuring worldwide. I do not want to be alarmist, but we must be vigilant. I must once more highlight the fact that several months ago, Rolls-Royce said that it was to restructure, with jobs in Coventry going to Canada. However, through the good offices of my right hon. Friend the Secretary of State for Trade and Industry, discussions are taking place between the trade unions and Rolls-Royce's management to try to save as many jobs as possible. Although we feel reasonably confident that things are going well, it is worth while now and again pointing out blips that affect us as constituency MPs, and I have highlighted two in particular.

I welcome the cuts in fuel duty, which demonstrate that at least the Government listen to the public on that matter, as they always have. The question was whether they should introduce a mini-Budget and erode confidence or wait for the proper time to make changes. I welcome, too, the help given to hauliers and the environmental rebate scheme that has been introduced to the tune of £35 million. I welcome the tax help given to companies such as Rolls-Royce for research and development.

Under the previous Government, 47p in the pound was going to pay off interest on Government debt. We have got that figure down to 16p in the pound, and the money saved is being ploughed into services. I hope that the Opposition are listening because they could avoid the charge that they will make £16 billion of cuts by being creative.

I welcome the financial measures to help disabled people, which have not had much mention today or in earlier Budget debates. The disabled person's tax credit must be welcomed because over the years we have had many debates about how we should help people with disabilities. I welcome also the guaranteed minimum income of £250 a week for families with a provider or other adult who is disabled. That should be applauded, but it has not been highlighted.

The charge that the Chancellor does not do much for business can be answered by the fact that many small businesses with a turnover of more than £100,000 per annum will not pay VAT. If that is not a measure that helps small businesses, I do not know what is. Recently, however, my attention has been drawn to retention payments. I would not claim to have great Treasury experience, but I know that the issue affects small businesses who employ only a few people as well as larger businesses. Of course, it may take them years to get retention payments back, and many have a small cash flow, which can present major problems. I hope that Ministers will consider whether something can be done to help small businesses on that matter.

We must welcome the Government's news that over the next five years there will be a 50 per cent. increase in NHS funding. I have not heard the Opposition say very much about that tonight. One of the big problems facing the NHS, as we all know, is recruitment. The Government have made available £135 million for that, and we must applaud it.

I want to draw the Government's attention to a matter that has been raised with me by pensioners and groups representing the elderly—the worry about how they will finance community care for themselves. We know about the cost of caring for elderly people in residential homes. I hope that my hon. Friend the Paymaster General will say something about that because in some areas people who run such homes are going out of business. I do not expect any ready-made answers tonight, but the matter should be considered.

Another area that concerns me personally, because I have experience of it, is the need to restore dignity to public services. We could do a lot more about that. I have said that before, but it is always worth saying it again. I refer in particular to local government, because in the past it has spent its fair share of time being the whipping boy on which we blame every ill in society, from cuts to legislation that affects the delivery of services. I do not need to go through every aspect of that legislation because most hon. Members will know what I am referring to.

I am glad that my right hon. Friend the Secretary of State for Education and Employment has started to take action to improve education by reducing class sizes. We must review teachers' salaries and do more to encourage more people into the profession, as Ministers are doing. We must ensure that teachers feel that they are doing a full-time job and that—to return to the dignity of public service—the public once again respect their teachers.

I have two universities in my constituency, so it would be remiss of me not to raise issues affecting students. The House must consider the Cubie report and how soon its recommendations can be implemented, although that will obviously not be during this Parliament. My hon. Friends should consider other ways of ensuring that students do not end up with massive debts when they leave university, which remain a millstone round their neck when they get a job.

Universities are looking at various devices to raise resources. Laptops have been an issue recently in Coventry—anyone who did not have a laptop might not get a place at a certain university there. There has also been the suggestion of top-up fees, although I know that my right hon. Friend has set his face against that. We must be vigilant about such matters in the next Parliament.

A further matter of concern is the plight of mature students who want to go into the medical profession and take night school courses, but find those difficult to sustain because of their lack of income. I hope that Ministers, especially my right hon. Friend the Secretary of State for Health, will look into that.

The Government have done much that we should welcome. We welcome the £200 winter fuel allowance, which was a major step. We welcome pension increases, although some pensioners are still pressing for a link with earnings. No doubt we shall return to that debate in future. The Government have done much, and we want to do more, in relation to concessions for pensioners on public transport.

An issue that concerns me in Coventry is the amalgamation of schools that is currently taking place. To some extent, that can result in school closures. The formula is under review, and I hope that the review will be speeded up. More flexibility in the formula is needed so that schools in my constituency can be kept open, and the buildings can be used for other community or medical purposes. There is much to welcome in what the Government have done for the national health service, the education service and small businesses. The Opposition may find the Budget dull, but it gives people confidence to know that inflation is low and that interest rates are low, which helps investments and avoids negative equity.

8.14 pm

Mr. Robert Walter (North Dorset)

I draw the House's attention to my entry in the Register of Members' Interests—not that I think that the Bill will make any difference, although my right hon. Friend the Member for Fylde (Mr. Jack) had some interesting proposals, which would have made a slight difference. Alas, he is no longer a Treasury Minister.

Introducing the Bill, the Chief Secretary spoke of a balanced approach, and made quite an issue of that. In a number of areas, the Bill and its proposals present a precarious balance, especially in respect of excise duties, where the balance is still tipped in favour of the criminal and foreign business, and against the law-abiding, otherwise successful British business.

Since the implementation of the single market, the failure of Government to recognise the enormous divergence between excise duties in Britain and those in the near continent has encouraged the smuggler and damaged British business. In my North Dorset constituency, three pubs have closed in the past two months. That had nothing to do with foot and mouth, although that is having a devastating effect on pub takings. It had much to do with business rates, council tax increases and the minimum wage. Most of all, the availability of cheap booze, both legally and illegally acquired, has brought about the closure of The Silent Whistle at Shillingstone, The Sir Winston Churchill at Wimborne and The Damoury Arms in Blandford.

I am grateful to Mr. David Woodhouse, the managing director of Hall & Woodhouse, an extremely successful independent family brewer in Blandford, for providing me with up-to-date data on the subject. As a premium beer producer, the firm has just won the Tesco "Beer of the Year" competition with a new brew, "Golden Glory", which goes on sale next month. Mr. Woodhouse faces the possible closure of more pubs in the future. Outside the House, I mentioned to my hon. Friend the Member for West Dorset (Mr. Letwin), the shadow Chief Secretary, a pub in his constituency, which is under serious threat.

The Government will claim that they have not increased beer duty this year. However, the problem has not gone away. The problem is the fact that beer is significantly cheaper in France and, in a single market, the population will seek to arbitrage the difference if there is an economic benefit to be gained. Let us consider the price advantage of duty-paid imports of beer from France.

Many factors affect the net profitability of duty-paid imports: the type of beer imported—whether it is canned or bottled, whether it is premium or standard beer, and whether it is a French or a UK beer; the destination in the UK to which the beer is being taken; the capacity and type of transport being used; and the type of operation—whether it is a smuggling gang, a lone bootlegger or just a home shopper. I shall deal in a moment with those three very different but not untypical types of importer, all of whom have a similar net profitability, which is estimated to be about 8p a pint.

Since the start of the single market, four major factors have changed that price advantage. There have been changes to the rate of UK beer duty—thankfully, no change in the upward direction this year; changes to French beer duty, which has gone up, and exchange rates; higher ferry fares, following the end of the duty-free allowances in July 1999; and the recent increasing success of Her Majesty's Customs in deterring smugglers from using their Transit-style vans, thereby increasing confiscation rates.

Data for the past five years indicate that volumes have borne a close relationship to the net price advantage. The exception was in 1999, when smuggling volume was particularly high, but that was probably distorted by those stocking up for the millennium celebrations. In the first three years after the single market was established, volumes were lower than might be expected, which probably reflects the time taken by importers and suppliers fully to recognise and exploit the financial opportunities.

Many factors have altered the profitability of personal imports of beer from France to the UK over the past decade. The rate of UK beer duty was increased by a penny a pint in 1993, 1995, 1998, 1999 and 2000. The change of the duty system in July 1993 meant the equivalent of a further penny on a pint.

On the other side of the equation, France increased its rate of beer duty in 1995. The abolition of duty-free sales in July 1999 resulted in increased ferry fares, which raised the cost of the average day trip by about £10. For the average day tripper, that was the equivalent of about 7p a pint. As I mentioned in recent years, Customs and Excise has deployed increased resources at Dover to stop and confiscate a fair proportion of the larger vehicles, such as the Transit vans used by smugglers. That has forced many smugglers to use smaller and less conspicuous vehicles. It has also added to the smugglers' costs over the past four years. It has been estimated that their costs have increased by about 9p a pint.

Does that mean that the Government are winning this war? I should like to demonstrate that they are not winning it. The spectrum of duty-paid beer imports covers a wide range of importers and products. I should like to give three short examples. Although they relate to different types of enterprise that involve the importation of widely different loads and types of beer, I want to show that the net profit in each case is less than 8p a pint.

My first example is that of the genuine personal shopper and day tripper. Although the indicative limit that is imposed by the customs is 110 litres of beer per head, most people bring back far less. The average quantity brought back by legal shoppers is about 10 litres per head. My example assume s a load of 13 cases of been, which can be packed relatively easily into the boot of a family saloon car, but represents slightly more than six months' average consumption for a UK adult. Although most of the gross profit of such an exercise is spent on travel, the day tripper makes a small saving and has a free day out in Calais. He would bring back bottles of beer at 86p a litre, which he can buy at Tesco or Sainsbury's in Calais. As he is bringing back 13 cases, he will have bought about 78 litres. That represents a saving on Tesco's prices here of about £66, which consists essentially of duty. The ferry will have cost about £40, and let us say that his petrol will have cost £15, if he was travelling from London. That produces an overall saving of £11 on an investment of £122, which is a net saving of 7.7p per pint.

Let us now consider the more serious side of the equation, and turn to the criminal fraternity. I want to speak about those who are in the business of bootlegging and smuggling. My second example is that of the bootlegger who sees the financial opportunity of smuggling. He buys the cheapest possible beer and fills his estate car with as much as it can hold—usually about 60 cases. He will not use a Transit van, because of the risk of being obvious to Customs as he comes back through Dover. The weight of 60 cases of beer is almost a tonne—a load that makes the car illegal and potentially dangerous. Our bootlegger then sells his cheap beer to his friends and neighbours when he gets back, but to do so he must offer better value than the traditional source, which is the supermarket. To beat that competition, he must undercut the supermarket price by at least a third, so he is unlikely to achieve a profit of more than about £5.50 a case.

Nevertheless, the bootlegger will expect to make from his beer a profit of about £50 on a trip. He will probably supplement that gain by trading in tobacco and cigarettes, about which I shall speak more in a moment. Of course, he runs the risk of vehicle confiscation and imprisonment, but he will probably not factor that risk into his calculation, on the assumption that it only ever happens to somebody else. His arithmetic is likely to be as follows: he buys the cheaper beer for £3.70 a case, probably from Eastenders in Calais. He fills up his D-reg Volvo or Peugeot estate with 360 litres of beer, T, or 60 cases. The average UK price is probably about £8 a case, but he will sell the cases on at £5.50 each, making a gross profit of £1.80, or £108 for the trip. After he has taken out his travel costs, he will have made a profit of £48 on an investment of £282, with a margin of 7.6p a pint.

Now for the real criminal: Mr. Big. My third example is the organised gang of criminal smugglers. They are remotely controlled by Mr. Big, who hires drivers to import his beers in Transit vans, or, increasingly, in pick-up trucks. The beers will usually be English brands, as they can be resold in the UK without arousing suspicion. They might have been legally exported to French shed warehouses, of which there are many within striking distance of Calais, Cherbourg and so on. To maximise the load, the smuggler will probably bring back 12-litre cases of cans, which weigh less than glass. His pick-up truck will have been fitted with specially stiffened springs to enable it to carry a load of more than a tonne. The observations of the Brewers and Licensed Retailers Association suggest that 90 cases would be a typical load for such an operation.

Mr. Big may run a fleet of up to a dozen such vehicles, with arrangements for transfer on to a lorry near Dover for onward transportation to the midlands and the north. With a fleet of that size, he would expect probably to lose a vehicle a week to confiscation by Customs. Such losses will be built into his calculations. As he is dealing in UK brands, the saving is essentially the duty difference between the UK and French rates. The beers will be distributed via a large network of cornershop off-licences, van sales on housing estates and so on, but the retailers will need a reasonable incentive to risk their licences by selling illegally imported beers, so there is an estimated sales cost of, say, £2 a case.

The criminal in question will be bringing in more than 1,000 litres of beer in his pick-up—or 90 cases—and saving duty of about 50p a litre. Obviously, he will have ferry costs and he will have to pay the driver and perhaps a mate, which will probably add another £60. He has probably built into his costs a premium for losing the occasional vehicle—perhaps one in 20—of about £75, and there will also be sales costs. That means a net profit of about £145 to £150 a trip. On an investment of £1,300 or £1,400, that is a profit of about 7.5p a pint.

So, it is clear that, for beer, the margin remains. That margin is revenue lost to the Treasury. It is the criminal smuggler who is in business, but it is my business men, my brewer, whom I mentioned, and my publicans who are losing money and, in some cases, going out of business. The margin is not the 26p duty differential between Britain and France. As my figures demonstrate, the margin—the bootlegger's margin—is less than 8p a pint.

On Friday I spoke to another publican in my constituency, Mr. Charlie Hancock, who runs the Fleur de Lys in the village of Cranborne. His concern related to tobacco duty. Five years ago, his off-sales of liquor and tobacco amounted to about £1,000 a week, three quarters of which were accounted for by cigarettes and tobacco. They are now virtually zero. The story is repeated in pubs, off-licences, convenience stores and village shops in my constituency and, indeed, throughout the country.

Mr. Jim Cunningham

The hon. Gentleman speaks of what was happening five years ago. Would he like to tell us what was happening seven years ago, under the previous Administration? What he has described is nothing new. I recall that the then Paymaster General was asked to investigate, and did not exactly deliver.

Mr. Walter

The hon. Gentleman rightly points out that the problem is not particularly new. I referred to what was happening five years ago because that was the example given to me by the publican. The revenues on tobacco duty that the Treasury is receiving are at best static, and fell dramatically in the last full financial year—1999–2000—as a result of smuggling.

Mr. Letwin

The point that my hon. Friend has just made is seminal. We argued year after year that the time would come when there was a crossover, and revenues would decrease. The constant refrain from the Government was that that would not happen for years, if ever. Now here we are, in the year in which it has happened.

Mr. Walter

My hon. Friend is absolutely right. Let me return for a moment to beer duty. Figures for which I asked the House of Commons Library show that, in real terms, the Treasury take from beer duty has not really moved in the past 10 years, although consumption of beer, wines and spirits has increased significantly. As my hon. Friend has pointed out, the Treasury take from tobacco duty has fallen, despite all the evidence that tobacco consumption has risen in the intervening period, while duties have risen as well.

May I now return to my publican in Cranborne, a delightful village? The villagers have not stopped smoking; that is not the reason for the fall in his off-sales. The problem is that the villagers now have another source, a man who can get whatever they want—cigarettes or tobacco—and at a fraction of the price. What has been the Government's response? Even in this Finance Bill, it has been simply this: blindly to increase the duty on cigarettes by 6p a packet, and to continue to line the pockets of the bootlegger.

Since May 1997, the price of a typical packet of cigarettes in the United Kingdom has risen from £3.12 to £4.22. That is more than three times the rate of inflation. From each of those packets the Chancellor collects £3.37 in excise duty and VAT—80 per cent. of the retail price, and a much higher amount than is collected in any other European Union country. In fact, United Kingdom cigarette taxation is the highest in the world.

The Chancellor lost potential tax revenue—excise duty and VAT—of almost £5 billion between 1997 and 1999, not because less tobacco was smoked but because the smuggling of cigarettes and hand-rolling tobacco has accounted for an ever-increasing share of the total market. As I have said, UK tobacco consumption has increased since 1997, following 25 years of substantial decline.

There is a root cause of all this: the exceedingly high and ever-rising level of tobacco taxation. The Government have estimated that in 1999–2000 total cigarette consumption was around 76 billion, of which 13.6 billion—18 per cent.—were smuggled. The Tobacco Manufacturers Association has estimated consumption in 1999 to be 84 billion, of which 21 billion were non-UK duty paid, and 17 billion—about 20 per cent. of cigarette consumption—were smuggled. Total consumption of hand-rolling tobacco, the equivalent of some 21 billion cigarettes, had doubled since the opening of the single market, and nearly 80 per cent. of that consumption was non-UK duty paid.

Liz Blackman (Erewash)

Is the hon. Gentleman aware that the tobacco industries of countries such as Spain and Italy, where tobacco duty is considerably lower than in the United Kingdom, are being undercut by non-EU tobacco that is not subject to any duty? The logic of his argument would seem to be that he wants tobacco duty to be cut. Given the examples of Spain and Italy, his argument does not stack up.

Mr. Walter

Illegal imports into Spain and Italy, especially of counterfeit tobacco products, are another problem and the subject of another debate.

It has taken the Chancellor almost two years to take steps to attempt significantly to curb tobacco smuggling. His steps have been too little and too late. Over about three years, the extra financial resources made available to Customs and Excise have amounted to less than £300 million, compared with an admitted tax loss of at least £5 billion. The Tobacco Manufacturers Association anticipates that in the year 2000 the tax loss as a result of smuggling will be about £4 billion.

Even by the Treasury's reckoning, the measures that have been introduced are designed only to contain smuggling at a level of slightly below 20 per cent. of the market. Although the seizures of smuggled tobacco products in the UK are running at a higher level than they were in 1999, Customs and Excise still believes that what it knows about smuggling is only the tip of the iceberg. The industry believes that the iceberg is significantly larger than the Government admit. Whichever view we take, it is clear that the more effective policing of smuggling will not by itself be an adequate remedy. The root cause is tax, and that issue must be tackled as well.

In August 1999, the Chancellor commissioned a report from Martin Taylor on tobacco smuggling, and he claims to have implemented its recommendations. A recent Treasury Select Committee report deplored the manner in which the Government published only snippets of Mr. Taylor's advice that support the new strategy for dealing with tobacco smuggling. The Government refused to publish in any form Mr. Taylor's advice in full.

Mr. Letwin

My hon. Friend is developing a powerful argument. Does he agree that if what the hon. Member for Erewash (Liz Blackman) said was material, the Government would have had no trouble in publishing the full text of Martin Taylor's observations? Mr. Taylor would have acknowledged that the duty differential was not the cause of the problem. The Government's extreme reluctance to publish suggests that Martin Taylor was aware that the duty differential had a serious effect on the smuggling problem.

Mr. Walter

The reports that I have of the contents of Martin Taylor's report—I do not know whether I quote accurately because we have not seen the report—suggest that it would not be possible to halt tobacco smuggling into the United Kingdom without cuts in the high level of UK tobacco taxation.

In his pre-Budget statement in 1999, the Chancellor stated that he would form his Budget judgments on the appropriate level of tobacco duties, taking into account a wide range of factors. In his Budget this year, the right hon. Gentleman had the opportunity to demonstrate that even if he considers tobacco taxation to be a morality issue, he none the less recognises that the policy that he has pursued so far has not worked.

The Chancellor has seen revenue from tobacco taxation reduce. He has failed to reduce tobacco consumption, contrary to the Government's health policy targets. He has increased the level of criminality with the increased number of smugglers. Most important, he has failed to protect children, who potentially are the targets of indiscriminate selling by illicit traders.

The Chancellor should launch a full and independent review of the UK's tobacco market, the extent of illicit market penetration and the Government's tobacco taxation policy and its fit with other policy objectives. Such a review should be undertaken urgently and published. That would make it clear that a market, a significant proportion of which is in the hands of criminals, is out of control. Such a market cannot be regulated to control under-age smoking or fulfil the Government's health objectives.

The figures for liquor and tobacco suggest a law of diminishing returns. At a time of increasing consumption, the tax revenue is static or, in the case of tobacco, declining. That is nonsense.

8.40 pm

Mr. Eric Illsley (Barnsley, Central)

I shall make a few short comments on the Bill. Some relate to those of the hon. Member for North Dorset (Mr. Walter) on smuggling, which I have raised in such debates in the past. He described it in considerable detail.

I warmly welcome much of the Budget. Many of the Bill's provisions are welcome in my constituency, especially the assistance for families and children, such as the working families tax credit and the children's credit. The reductions in fuel duties are also welcome. However, in the debates that we have conducted on fuel duty in the past few months, insufficient attention has been paid to oil companies' profiteering. We are debating differences of 1p or 2p in fuel duties while oil companies register record profits and the oil-producing countries meet to try to restrict oil production even further so as to increase those already obscene profits.

Although I warmly welcome much of the Budget, many of its benefits for my area will be eclipsed by one or two other matters that the Chancellor could have tackled. I pay tribute to him for his excellent stewardship of the country's finances, to which the moneys that we can provide for education and health are a testament. However, in the next few weeks, my area will suffer because of our local government settlement, which has again left us several million pounds short of our budget target. We are used to that predicament, because it began in 1990 under the present system for local government finance. My area was one of 20 that were capped by the previous Government when they introduced the poll tax and the standard spending assessment formula. The latter has always worked against my area, and the problem is therefore historical. If one starts from a low base, one will always be at the low end of the scale.

Benefits such as the tax credits and lower tax starting rate for people on low incomes—there are quite a few of them in my constituency—could be overshadowed by the fact that the local authority has to cut services or introduce charges for them because of the shortfall in its budget. It is saddening that, despite the excellent Budget and interesting Finance Bill, we face cuts in our local government budget for a different reason. That takes a little of the gloss off the Budget.

My local health authority is one of the lowest funded in the Trent region and the country. It has a shortfall of approximately £3 million, which will prevent it from fulfilling many of the important targets that the Secretary of State for Health has imposed on it. We have considered tobacco smuggling, about which I shall speak shortly. My area has high rates of lung cancer stroke and heart disease. Reducing tobacco consumption is therefore vital. The explanatory notes to the Bill state: Smoking is the single greatest cause of preventable illness and premature death in the UK. Tobacco use is detrimental to health with significant wider social costs. The Government is committed to reducing smoking". I sign up to that and agree that, as well as educational programmes, one way of achieving that is to increase duty to dissuade people from smoking—basically, to make it too expensive. However, as the hon. Member for North Dorset pointed out clearly and in considerable detail, that policy has been undermined to some extent by the number of cigarettes brought in from abroad.

There are areas in my constituency where retailers, tobacconists and newsagents cannot se11 legal cigarettes. The amount of smuggling that goes on in those areas makes it unprofitable for them to continue selling certain types of cigarette, if not all cigarettes. When I go out and about in my constituency, retailers tobacconists and newsagents constantly complain that they cannot sell cigarettes in their area.

The hon. Gentleman went into great detail on the revenue losses and all the rest of it. I do not want to follow him down that path, but newsagents and tobacconists in my area can point to the points of delivery. Articulated lorries bring in a huge number of smuggled cigarettes. They are brought to one central point: an entrepreneur, for want of a better word, brings in the tobacco. He then sells on to a network of "runners". They will purchase the packs of cigarettes and sell them to an even wider distribution network. By using that system, the penetration within the local area is extremely deep, covering huge areas.

Last year, I raised the matter in the equivalent debate. A few months ago, a retail trade magazine decided to publicise smuggling to draw more attention to it and to reduce it in its own way. It was aimed not at those in the example that I have just quoted, but at newsagents and tobacconists who were selling smuggled tobacco: legitimate traders who had decided that the only way to make money from selling tobacco products was to go the way of the smugglers and to sell the stuff more cheaply from their own shops.

Jane Griffiths (Reading, East)

Does my hon. Friend share my concern that legitimate, law-abiding newsagents, tobacconists and off-licences in my constituency who do not wish to sell smuggled and contraband goods are being intimidated into doing so, with threats of damage to their property and sometimes threats to their children?

Mr. Illsley

My hon. Friend has anticipated my next point. I am grateful for her intervention because it emphasises the point that I am about to make. The retail magazine in question decided to draw attention to the issue of legitimate traders selling contraband goods at a lower price. Members of Parliament—I am sure that many colleagues took part—were invited to go to newsagents who had volunteered to take part in the scheme and who had, in so doing, allowed their names to be published in the magazine.

On the day that I visited one particular newsagent, I was surprised to pull up outside his shop at the same time as the local constabulary and the local press. I went into the shop and found out that, that morning, the newsagent had received an anonymous message on an answering machine telling him that, if he went ahead with the promotion to reduce the number of smuggled cigarettes by drawing attention to the problem, he would face the problems that my hon. Friend the Member for Reading, East (Jane Griffiths) has outlined. He was frightened out of going ahead with the idea that the magazine had promoted. The publicity event at which that newsagent and I were to speak to the local press had to be cancelled because he was so afraid of the consequences of going through with it. He felt that way not because of the criminal element to which the hon. Member for North Dorset referred, but because of a semi-criminal element among his fellow retail newsagents and tobacconists.

As my hon. Friend the Member for Reading, East said, newsagents and tobacconists seem to be in a catch-22 situation: either they stop selling cigarettes or choose to sell smuggled cigarettes, or perhaps they are forced to sell smuggled cigarettes because their colleagues want to do so. It is a difficult situation.

As the hon. Member for North Dorset said, the retail price of a packet of cigarettes is about £4.20, whereas a packet of smuggled cigarettes typically costs £2. Additionally, all brands are available from those who will take the risks associated with smuggling. However, I must tell my hon. Friend the Member for Erewash (Liz Blackman) that I am not sure that reducing our tobacco duty to bring it into line with other European countries' is the answer to the problem. As she said, sales of cheaper European cigarettes are undercut by even cheaper eastern European cigarettes.

We have to pay more attention to the issue. We have either to try harder to prevent smuggling by providing more money for that effort or to re-examine tobacco duties within the overall European context. Hand-rolling tobacco is one of the biggest earners for smugglers, as the price paid for it here is very substantially more than that paid in the rest of Europe.

Dr. George Turner (North-West Norfolk)

Does my hon. Friend accept that, in the long term, if the Government are to achieve their health objectives, they will have to accept a reduction in revenues from tobacco duty? Is it not therefore logical for the Government to attack the smuggling problem rather than to reduce the price of cigarettes? As we know, cigarette pricing is one of the greatest influences in encouraging people to stop smoking.

Mr. Illsley

I do not disagree with my hon. Friend. We have to find solutions other than reducing tobacco duty to tackle the smuggling problem. Although we can consider that option, as I said, the idea is to increase the duty to try to stop people smoking, and perhaps to prevent young people from taking up the habit by pricing them out of the market. However, I am worried that that policy is being defeated by the general availability of very cheap cigarettes. There is no easy answer to the problem; if there were one, I am sure that previous Governments or the current one would have found it.

People in my own area have health problems such as heart disease and lung cancer that are caused primarily by smoking. I should like extra resources to be provided to stop smuggling and for education programmes to appeal to young people not to smoke. As I am sure my hon. Friends will agree, banning tobacco advertising is a step in the right direction.

I am the honorary adviser to the Northern Licensed Victuallers Association, which has made representations to the Government on alcohol smuggling. The hon. Member for North Dorset dealt in great detail with alcohol smuggling. Contraband alcohol is often sold in legitimate retail outlets by publicans, licensees or off-licensees. In the past, however, wholesale licences were one way of stopping such sales. Wholesalers had to have a wholesale licence to operate, but would lose their licence and have to cease trading if they were found to be selling contraband alcohol. I again suggest that Ministers consider that approach. I know that it was abolished a few years ago, but perhaps that measure could be revived to combat smuggling.

The climate change levy is referred to only briefly in the Bill. The levy, along with the 80 per cent. rebate for the integrated pollution prevention and control industries, is administered by the Treasury, but much of the detail of how to qualify for rebate and exemption is dealt with by the Department of the Environment, Transport and the Regions.

I am sorry that the hon. Member for Esher and Walton (Mr. Taylor) is no longer here, because I agree with what he said about certain processes being exempt from the levy. He referred to air separation. That industry supplies gases for industrial use, but it is also a process in itself. Certain glass furnaces in my constituency are fuelled by an oxygen process, but following the climate change levy negotiations they no longer qualify for a rebate. The gas consumption of a glass furnace also increases with its age, so a furnace that qualifies for an 80 per cent. rebate today may fall foul of the targets some years down the track, at a point in the cycle where the company cannot afford to refurbish it.

I hope that the Government will bear those difficulties in mind in future years when they consider the rate of the levy and the exemptions. They should be aware of how the levy works in practice and how it affects air separation companies, for example. The hon. Member for Esher and Walton mentioned the British Oxygen Company, which has a plant in my constituency. Glass companies are also very concerned about these issues.

8.57 pm

Mr. Nick St. Aubyn (Guildford)

I was interested to hear the hon. Member for Barnsley, Central (Mr. Illsley) setting out his latest criticisms of the climate change levy, an earlier complex stealth tax that we were given too little time to consider in the previous Session. He told us of some of the many problems that it is causing. We shall no doubt hear a similar story in a year or two if the aggregates tax goes ahead. The problem with stealth taxes is that no one, not even in the Government, understands them. It is only later, when they hit people between the eyes, that the problems become apparent.

Mr. Illsley

In my defence, I should say that I raised the issue of the climate change levy more than 12 months ago, not only in meetings with Ministers but in debates on industry. Many of the fears of industries such as the glass industry were allayed by the 80 per cent. rebate.

Mr. St. Aubyn

The hon. Gentleman was brave enough to defy the Millbank thought police and give his own view. I congratulate him on that, but the Government cannot have listened to him, because there are still problems, as he said, that are a great worry to business. The same will be true of the aggregates tax and all the other stealth taxes.

The problem lies not only in understanding the stealth taxes but in quantifying them. A year ago, the Chancellor predicted how much he would raise in revenue in the year now ending. According to his estimate in this year's Budget, he has raised £8 billion more than he expected to raise just 12 months earlier. That shows how inaccurate Government forecasts are from one year to the next.

Mr. Letwin

Is my hon. Friend aware that, if one looks at the figures for the public sector net cash requirement and the repayment of the public sector debt, over the last two years, the forecasting error of Her Majesty's Treasury is some £55 billion, which is the single largest forecasting error in British economic history?

Mr. St. Aubyn

I am grateful to my hon. Friend. I was not aware of that fact, but I do know that the Government are hopelessly off-target when they try to project what is happening to our economy and even what is happening to their own finances.

Mr. Michael Jabez Foster (Hastings and Rye)

rose—

Mr. St. Aubyn

I shall give way in a moment.

The Government preen themselves on the fact that, this year, there has been a substantial debt repayment. However, over the next few years, their own predictions forecast massive borrowing nearly twice the size of that repayment. Indeed, given their forecasting error, according to my hon. Friend the Member for West Dorset (Mr. Letwin), it could be several times as big. With their stealth taxes and lack of clarity, the Government have created a far more volatile situation for tax collection and the economy as a whole.

That is why we shall take no lectures from the Government when, for example, we announce that we are concerned about the history and performance of the tobacco tax regime. I welcome the comments of my hon. Friend the Member for North Dorset (Mr. Walter), as we know that the amount raised by tobacco tax has gone down. When we call for a review of that area of policy, we should be mindful of the fact that, under the previous Chancellor, the Conservative Government undertook a review of alcohol taxation. Following that review, we decided to have lower rates of alcohol tax.

The Government's policy on alcohol of duties has been influenced by the previous Government's review, and it is significant that, in the current Parliament, the take from alcohol duties has been sustained; in fact, it has gone up by nearly 10 per cent. By contrast, the Government have ratcheted up the rate of tobacco duty and receipts from tobacco duties have declined significantly. Therefore it is not enough for the Government to say that any discussion of a review of tobacco taxes would inevitably mean less money for our schools and hospitals, because their strategy on tobacco tax has failed. Their aggregate levels of tax are so volatile and their predictions so uncertain that they cannot possibly argue that a small change in one area of tax policy would have consequences for spending on our schools and hospitals.

That brings me to a much more important point. The Conservative Opposition have identified savings that might be made in the running of government, which add up to £8 billion a year without affecting a single penny of the money spent on our schools and hospitals.

Mr. Letwin

I am sorry to interrupt my hon. Friend again, but he has reminded me of something. He may recall otherwise, but I believe that a member of the Treasury team said that the purpose of raising tobacco duties would be, by hypothecation, to raise more funds for the health service. Does he remember that and does he think that, mysteriously, the Government should now be cutting health expenditure if that were a genuine promise?

Mr. St. Aubyn

My hon. Friend is obviously more willing than I am to embarrass the Government at this stage of the proceedings. He is right; we were told that the additional duty would go directly into the health service. I agree that we are now told that, despite the fall in the take from tobacco duty, the Government can still afford to increase spending on health, education and other key areas. The Government themselves have detached the debate about the optimum rate of tax on tobacco from the debate about how much we spend on our school is and hospitals.

We have identified £8 billion of savings. The Chief Secretary has studied those savings carefully and I thank him for doing so. I am sure that he agrees that we have identified £8 billion of savings that will not affect schools and hospitals.

Mr. Andrew Smith

indicated dissent.

Mr. St. Aubyn

I shall gladly give way to the Chief Secretary if he can tell me which part of the £8 billion that we shall save will affect our schools and hospitals. I am sorry that the Chief Secretary is not willing to engage in debate. We must assume that the £8 billion of savings that we have identified will not affect our schools and hospitals.

We have identified savings in other areas by managing the business of government better than this Government have done. That is why we can talk about measures such as abolishing the basic rate of tax on savings. We feel that it is unfair that people who, out of their earned and taxed income, have put money aside should then find that their reward—the interest on those savings—should be taxed again before they receive it. That has had something to do with the fact that the amount of savings in our economy—the savings ratio—has declined savagely since the Government took office.

It is striking that, at a time when the Government are preening themselves about the amount by which they are repaying Government debt, consumer debt has gone through the roof. Economists are worried by the prospect of debt repayment being a real constraint on consumers in the coming years. That is one of the reasons why they raise questions about the Government's sometimes absurdly confident assertion that they have abolished the economic cycle and boom and bust. That claim becomes hollow to anyone in farming or tourism, or in the other, smaller industries that support those two sectors. They know all about boom and bust under this Government. That goes to show that no Government—even one as intent on central planning as this one—can prevent the hiccups and surprises that different sectors of the economy throw up from time to time.

The Conservative party will not only abolish the basic rate of tax on savings, but will help married couples and take 1 million pensioners out of tax altogether. Above all, we must have a less complex tax system, and it is that aspect of the Bill that I find particularly objectionable. The Bill piles on the complications in our tax system. For example, there are 22 rates of company car tax; there are different rules depending on whether one takes out a mini-ISA or a maxi-ISA; the Government have introduced the working families tax credit, the children's tax credit and changes to child benefit, and baby bonuses are to be introduced.

All of those clawbacks, reliefs and tapers add to a complex system. Witnesses to the Treasury Select Committee have made it clear that the trouble with complex allowances and incentives is that, if no one understands them, they will not incentivise anybody. That is why the waste in administration dwarfs any potential gain at the micro level in the economy by stimulating people to do whatever civil servants and the Government decide is the latest fad.

Mr. Tom Levitt (High Peak)

The hon. Gentleman tells us that tax credits are a waste of time, yet they are the very elements of the Government's policy that are tackling poverty—particularly by giving those on the lowest wages an incentive to stay in work. His party has said that it will scrap those tax credits. What will he do for the lowest paid?

Mr. St. Aubyn

We find complex tax credits and incentives to be self-defeating. They become so specific and obscure that no one understands them. A third of those entitled to the minimum income guarantee for pensioners have yet to take it up. What good is that? Pensioners do not understand why they should fill out a 48-page form in which they are asked such absurd questions as whether they are on strike or whether they are expecting a baby.

Mr. Flight

Might I point out that 500,000 parents have failed to take up the children's tax credit because that is so complex?

Mr. St. Aubyn

I am grateful to my hon. Friend.

At the beginning of winter, 1 million people who were entitled to winter fuel payments from previous winters still had not received their money.

Mr. Levitt

rose—

Mr. St. Aubyn

I shall give the hon. Gentleman another chance.

Mr. Levitt

First, the hon. Gentleman is criticising a children's tax credit that has existed for only three days. Secondly, is he aware that the take-up of working families tax credit is far higher than it was for family credit? His party's past policies relied on people not taking up their credits. We want people to take them up.

Mr. St. Aubyn

The working families tax credit is so complicated that the Government are reforming their own system. That says all that need be said about the complexity of their policies.

The Finance Bill gives us the aggregates tax, which my hon. Friend the Member for West Dorset has brilliantly exposed as an appalling example of the worst evils that stealth taxes bring to bear. That raises a fundamental issue. Are we to achieve a tax base through a series of insidious, invidious and stealthy measures, as has been the Government's systematic approach over the past four years? Alternatively, are we to develop a tax system based on rates that businesses and people accept are broadly reasonable? Under such a system, people could spend more of their time generating new business and paying their tax along the way, rather than having to employ an army of accountants to figure out the Government's latest wheeze and how to get round it.

We believe, fundamentally, that an internationally competitive economy needs a clear and simple tax system, in which the burden is reasonable. Quite apart from the fact that taking money from people who live and work in our country is a drain on the growth of our economy, if those people feel that the system is unreasonable, not knowing how the money is being taken but realising that it has been, the brightest and best will have a massive incentive to make their way elsewhere in the world where the climate is far more friendly.

That is an underlying reason why the Government's strategy, as exemplified by the aggregates tax, is leading us down a treacherous path. The Government will wake one day to find their economic forecasts as unreliable and unsustainable as their tax forecasts have proved to be over the past four years.

I have many constituents—perhaps more than most Members—who are consultants. They have followed with great interest court proceedings against the Government over the infamous IR35. While the Government won that case, it was extraordinary—unprecedented, I—believe—that anyone was allowed to bring a case in an English court of law against the Government on a tax measure. Although the case was lost, I believe that those who brought it won the principle and the argument. In particular, they exposed a disgraceful practice that the Inland Revenue intended to employ.

The Revenue was not going to apply the mutuality of obligation test—a critical test of whether someone is employed or self-employed. It appears that the Revenue told its staff that that test was not to be mentioned unless the taxpayer mentioned it first. That is a fundamental breach of duty. If we must have the hugely complex tax system that the Government have given us, Inland Revenue civil servants should, at least, give the taxpayer a level playing field. They should bring their expertise to bear fairly on the points brought before them. The Revenue should not hold cards up its sleeve to try to deceive taxpayers into putting themselves into a category in which they pay far more tax than they were intended to pay in reason or in what the House agreed to.

I hope that there will be sufficient opportunity in Committee to investigate the Government's proposals in more detail. It is clear, however, that they have set a course on which, given the chance, they will continue. If they return after a general election, there will be more stealth taxes, more complexity and far more barriers to business. At a time when the world economy is, at the very least, uncertain, that is the last recipe that we need if our country is to survive as the type of prosperous economy that the Government inherited four years ago.

9.14 pm

Mr. John Grogan (Selby)

One of the mantras of the long-serving 19th-century Tory Prime Minister, Lord Liverpool, was a warning to his colleagues not to interfere with what he described as the "people's pleasures". During the past hour, we have heard powerful speeches about cigarettes and beer from the hon. Members for Guildford (Mr. St. Aubyn) and for North Dorset (Mr. Walter) and from my hon. Friend the Member for Barnsley, Central (Mr. Illsley), so it would be wrong to let the few minutes of the debate available for my speech pass without some reference to clause 6, which, to all intents and purposes, abolishes the existing duty on betting—another of the people's pleasures.

It is proposed that, from next January, duty will no longer be levied on bets, but that there will be a tax of 15 per cent. on bookmakers' gross profits. That is a great step forward.

At this point, I should declare an interest: I am still buying drinks with my modest profits from a bet on Red Marauder on Saturday. It followed a win on Papillon last year. Like many punters, I look forward to tax-free bets next year. Indeed, the only possible argument for the Prime Minister delaying the general election until next May is that we could all place tax- free bets on that possibility. That may, of course, not be the overwhelming argument.

The views of the industry are revealing. John Brown, chairman of William Hill, who is to be credited with coming up with many of the ideas that influenced the Chancellor, said: This is great news for the British punter, for UK plc and the Treasury … The punter wins, because this will make it possible to offer deduction-free betting for the first time since betting shops were introduced. The Treasury wins, because we will be able to repatriate our offshore operations, enabling the taxman to share in all the profits we make on our international business. UK plc wins, because we have a real opportunity to be the world leaders in online betting.

I shall briefly consider those three propositions. It is worth remembering that 50,000 people work in the betting industry, which is valued at between £6 billion and £7 billion. The forecasts for the development of e-betting show that it is not a future aspect of e-commerce; it is very much with us at present. A recent report from Merrill Lynch stated: UK gambling is poised to enter a golden era of long-term structural growth". The global online market is set to soar to £123 billion by 2015.

The changes that the Chancellor is making to betting duty, combined with the strengths of the industry in this country—of integrity, which is recognised worldwide; of an IT infrastructure; and of a skilled work force—mean that the UK can look forward to being a dominant force in the industry. It is encouraging that William Hill, Coral and Ladbroke have all said that they will abandon their offshore operations and come back to the UK. The Tote is abandoning plans to set up in Malta. The industry has great prospects.

There are great prospects also for an increase in the Chancellor's tax take. He is taking a bit of a punt—a bit of a gamble; Treasury predictions are that if there is no increase in betting, the tax take could fall by about £150 million over the next two year—about a third of the current rate. However, all the predictions are that, as in Ireland, with a reduction in duty there will be a considerable increase in betting turnover and that, within a few years, the Treasury will take more in revenues than under the current system. Indeed, if it persisted with that system, given the threat of offshore betting, there is every likelihood that its take would decrease over the coming years, thus reducing the amount of money to be spent on schools and hospitals.

Finally, the measure will be good news for punters. Obviously, there must be an infrastructure to deal with problem gamblers. One should never forget that gambling causes a great deal of misery for some people and the industry must always be aware of that.

Ultimately, of course, we must all remember—even those of us who won on the grand national—that the bookmakers win. The effect of the Chancellor's measures would be that, if one started off with £100 to bet on horses or on football, the current tax take would allow one to make £460 of bets before all the money was lost. Under the Chancellor's new measures, that amount will increase to £700, but the bookmakers will get the whole £100, either way. However, I commend this neglected measure to the House.

9.20 pm

Mr. Howard Flight (Arundel and South Downs)

The House has had an interesting debate on what is a tired and dull Finance Bill; it is hardly the radical, vote-winning stuff that we expected in an election year. The main measure is the new stealth tax—the aggregates tax. As my hon. Friend the Member for West Dorset (Mr. Letwin) said, that tax was not even mentioned in the Chancellor's speech. As with IR35, the defining measure of a stealth tax is whether the Chancellor mentions it in the Budget speech. Of course, there was no mention there of the 33 clauses that comprise the Budget's main new tax.

There are 292 pages of further tax complication. As various hon. Members have said, the volatility—nay the inaccuracy—of economic forecasts should cause the House to worry about the Government's economic judgment as we enter an economic period more difficult than the past eight years have been. When the Chief Secretary opened the debate, I could not help but think that his speech was motherhood and apple pie. Like the Budget and the Finance Bill, it had been drafted before the American economy started to go off a cliff and before stock markets fell seriously. We are likely to experience the knock-on effects in Britain. I do not know whether the Chief Secretary has seen the national institute figures for the first quarter, which came out at the end of last week. They estimate that growth will be only 0.3 per cent., and that growth for the year will be about 1 per cent. That still trails behind euroland and is hardly 2.6 per cent., but he confidently glossed over the fact in his speech.

The Chief Secretary concentrated on the progress of economic events that had broadly been forecast in 1996 by the then Conservative Chancellor, except that taxation has been some £28 billion per annum higher—about 3 per cent. of gross national product. I cannot resist referring to the Chief Secretary's comment, with which all Conservative Members agree, that a healthy economy and good investment require sound money. I assume that that was his code for saying that he cannot, therefore, support the euro, given that it is such a weak currency.

My hon. Friend the Member for West Dorset gave a splendidly cogent tour de force of the Bill and its background. We all know that there have been four years of taxation by stealth to build up the necessary surpluses, allegedly, to sweeten the electorate in an election year. The disappointment has been the fact that there has been little sign of the delivery of additional Government expenditure to date.

Dr. George Turner

The hon. Gentleman says that there has been no delivery. In Norfolk, the capital input from Government was £4 million in the final years of the previous Conservative Administration; it is nearly £30 million this year. Delivery is under way.

Mr. Flight

I thank the hon. Gentleman for that intervention; he makes my point. It is no good talking about the money—whether that point is true or false—because the question is about delivery. The hon. Member for Kingston and Surbiton (Mr. Davey) also said that actual expenditure on health and education was higher as a proportion of national income under the previous Administration than under this Government.

The main task of my hon. Friend the Member for West Dorset was to expose the 33 clauses that deal with the aggregates tax. It is not, in fact, a tax on aggregates, but a land tax. As the Chief Secretary's comments suggested, it echoes the development land tax. The aggregates tax and the climate change levy—which is also purely a tax-raising measure—are the two main politically correct stealth taxes. The Government have not set in stone the promise that tax revenues will be offset by alleged reductions in national insurance.

Both taxes are designed to raise revenue and clothed in language that pleases the politically correct, but neither will benefit the economic life of our country. The climate change levy will severely damage manufacturing industry and the aggregates tax will put up the price of roads, housing and everything else that is built.

My hon. Friend hoped that the Government would at least accept amendments to measures outstanding from the previous Finance Bill, such as the new onshore pooling arrangements, the new arrangements for controlled foreign companies and fair taxation arrangements for restructuring. He also pointed out that, surprisingly, there was nothing in the Bill to deal with foot and mouth problems, but he has given clear notice of the issues on which we shall look to table amendments. Problems need to be anticipated. We should not just wait for things to happen, because the farming industry and related sectors are suffering from this terrible crisis.

The right hon. Member for Llanelli—[Interruption.] I apologise for my pronunciation—and I am a quarter Welsh, too. The right hon. Member for Llanelli (Mr. Davies) made an interesting speech. It is true that a lower rate of saving is partly a function of economic confidence, but it is usually a function of declining disposable incomes. The one statistic that has been glossed over is the fact that there has been a near halving of disposable income growth after tax in recent years. People have borrowed to finance consumption even though they have tried to keep up their gross savings.

The right hon. Gentleman echoed the worry that, in the current climate, there is the risk that people will seek to rebuild their savings too quickly and will cut their consumption substantially. That will cause economic volatility, so he argued in favour of fiscal management and he has a perfectly fair point. Monetary management is still necessary. We should never forget that the Federal Reserve's failure in the 1930s to keep up the money supply led to the great depression. The cause was monetary not fiscal.

The hon. Member for Kingston and Surbiton clearly asserted himself as a man of the 1980s, or perhaps the 1990s. He saw monetary policy as all important and attached less importance to the scope of fiscal policy. He said that the Chancellor had misinformed the Treasury Committee about the figures for taxation. The hon. Gentleman pointed out that the changes to European Union definitions meant that the 38 per cent. figure was roughly equivalent to 36 per cent., so it was not correct of the Chancellor to claim that there had been no change in the proportion of gross national product taken in taxes. Even if people are not aware of the specific figures, they are well aware of the fact that there has been a massive rise in the tax take as a result largely of the stealth taxes that have been inflicted upon us.

Mr. Levitt

Surely the rise in the tax take can be explained by the fact that fewer people are unemployed, so more people are working and paying tax, and by the economy's success, which means that more people are paying higher rate tax.

Mr. Flight

We could debate that at length, but the hon. Gentleman knows that corporation tax is the biggest source of increased tax revenue. That is due only in part to the growth of the economy; the substantial reason for its increase is the introduction of tax liabilities, the quarterly payment and the failure to reduce the thresholds. As usual, we have had the fine spin. It told us that corporation tax rates have been reduced, but the net effect of the policies has been to increase them greatly. The key point is that the tax take is up by £28 billion, which is substantiated in all quarters and by the Red Book. Any assertion by the Government that they have not upped taxes or increased them as a proportion of national income is manifestly wrong.

The hon. Member for Kingston and Surbiton also said that spending on health and education as a percentage of national income is lower under this Administration than under the previous Government.

The hon. Member for South Ribble (Mr. Borrow) began by suggesting that his constituents had been sceptical of the Labour Government's ability to increase public spending. That is hardly surprising given the poor delivery in recent years. I advise him to be a little sceptical of the Chancellor's promises. It is clearly impossible to maintain an increase in public spending of 3.7 per cent. per annum for long without increasing taxes substantially. If the electorate are foolish enough to return this Government, they will face either a spending cut or much higher taxes.

My hon. Friend the Member for Esher and Walton (Mr. Taylor) came out with some splendid phrases. He described the Finance Bill as tired, which explained why much of the debate centred on other subjects. He said that the Government had the misfortune to draft their Budget prior to the major change in global economic circumstances in the past two or three months. In particular, he said that they should be wary of the buoyancy of corporation tax, which they predict will rise by £5.7 billion in a climate in which corporate profits are under pressure. He also alluded to our economy's problems being a result of the euro's acute weakness and the lack of confidence in it. However, he did not refer to the German poll in which 75 per cent. of people wanted to keep the deutschmark.

Mr. Ian Taylor

My hon. Friend is immensely perceptive, but I am not sure that that is exactly what I said. The euro has been a stable and strong economy if one has regard to the internal effect of the store of value of money and the level of inflation. Of course there have been problems on the external exchanges. The strength and volatility of sterling is a major issue for the Government and the country.

Mr. Flight

I think that the euro is a currency, not an economy. If my hon. Friend spoke to any of his friends in Germany and France, they would be concerned about it being weak among the major currencies, when it should be a relatively strong reserve currency. For better or worse, the relative weakness of the euro against the dollar, with sterling in the middle, has been the problem for us.

My hon. Friend was the first to say how the high levels of tax on tobacco, alcohol and fuel have led to a massive increase in smuggling. He also referred to the common-sense argument, which prevailed in the past, that it is unwise for taxation of such staples in this country to be hugely different from that in adjacent European countries. Indeed, as Labour Members will note, under the 18 years of Conservative Government the differences were much smaller than they are today.

My hon. Friend also referred to clause 103, which makes certain amendments to the climate change levy. He put it politely when he said that he had some support for the objective but doubted the means of achieving it. He referred in particular to the damage that will be done to the industrial gases industry. He also highlighted the continuing problems of IR35. If I understood the Paymaster General correctly, the measure having been passed, she is now inviting everyone to come to see her to achieve a sensible resolution of tilt many outstanding problems. It cannot be the Government's aim for the surviving high-tech economy in this country to be damaged by a foolish tax regime.

Attention was also drawn to the lack of anything in the Bill to implement the recommendations of the McDonald report and to end the obligation to buy an annuity at the age of 75. The Governor of the Bank of England has made it clear that he views long-term interest rates as artificially low in the yield curve owing to the distortions created by the obligation to buy an annuity. The volume of money coming on to the market from money purchase pension schemes is rising by 20 per cent. per annum, and it was about £9 billion last year. The Government have boasted of the gilts that they have bought in, but even they can see that soon there will not be enough gilts to go round to finance the annuities market.

McDonald's recommendations contain nothing that would cause a loss of revenue or constitute an additional cost, as has been asserted in recent replies, and the members of the McDonald committee will respond strongly to the Government's misapprehensions. Above all, those reaching retirement age strongly object to being obliged to subsidise Government borrowing by being forced to buy annuities at artificially low rates of interest. The effect is to lock them into bad value for the whole of their retirement.

The hon. Member for Cunningham, South (Mr. Donohoe) gave loyal support to his Government. In essence, he said that the Chancellor and the Budget were wonderful. He usefully drew attention to the problems caused by the different levels of prosperity in east and west Scotland, and sought more policing of the minimum wage legislation.

My right hon. Friend the Member for Fylde (Mr. Jack)—[Laughter.] There is something wrong with my pronunciation. I come from south of Watford. He pointed to the Chancellor's inability to resist the temptation to tweak the figures and echoed the criticism made by my hon. Friend the Member for West Dorset of the aggregates tax. My right hon. Friend usefully made the point that if the Government were seriously concerned about the environment, they would do something to protect fish spawning grounds in the mid-channel. Nothing in the aggregates tax addresses marine extraction; indeed, one of its effects will be to increase marine extraction.

My right hon. Friend referred to the iniquities of the climate change levy and the damage that it will do to the horticultural industry, which is dear to my heart. Given the considerably greater efficiency of that industry compared with most of its European competitors, there is no logic in that measure.

On another subject dear to my heart, my right hon. Friend welcomed the employee share ownership measures and the reforms of the enterprise management incentive scheme and venture capital trust rules. As I recollect, those changes adopt most of the recommendations made by the Opposition in the Standing Committee that considered last year's Finance Bill. My one plea is for those provisions to be made simpler. Such schemes are for small, unquoted companies. The legislation is so complex that those businesses will say that they cannot afford the lawyers necessary to explain and implement it. They need simpler legislation that works, not something that may be a wonderful deal, but is too complicated.

I remind the hon. Member for Coventry, South (Mr. Cunningham) that the Conservatives are modestly committed to paring back the Government's £72 billion spending commitments by a mere £8 billion, not £16 billion. I am sure that he will be pleased to know that all our sampling has told us that the Labour poster about the cuts has done us, not the Government, a great deal of good.

My hon. Friend the Member for North Dorset (Mr. Walter) made a valuable contribution by pointing out in considerable detail how excessive taxation of alcohol and tobacco has led to massive smuggling, reduced tax revenues by £5 billion and corrupted large numbers of citizens. That has all happened before. Historians among us may have heard of Parson Woodforde, a country clergyman who, like every other respectable member of society, used to buy his coffee from the smuggler. Over-taxed coffee had turned everyone into a coffee smuggler. The law of diminishing returns has not only reduced Government revenues, but vastly increased smuggling, which the Government are unable to tackle. I am sure that, had he been here, the Chancellor would have enjoyed my hon. Friend's contribution.

Many of my hon. Friend's comments were echoed by the hon. Member for Barnsley, Central (Mr. Illsley), who gave a frank and decent commentary on the Budget and expressed concern that the benefits to his constituency would be damaged by the local government settlement and the lack of health funding.

Finally, the hon. Member for Selsby—[Interruption.] The hon. Member for Selby (Mr. Grogan) gave us a fascinating exposition of clause 6. Would that the Government had followed the political incorrectness of clause 6 and acknowledged the realities of the world with the climate change levy and the aggregates tax. We welcome clause 6, which brings sanity to an industry and increases revenue. If the Government applied the same logic to IR35 and everything else, the Budget would be popular.

9.42 pm

The Paymaster General (Dawn Primarolo)

I thank my right hon. Friend the Member for Llanelli (Mr. Davies) and my hon. Friends the Members for South Ribble (Mr. Borrow), for Cunninghame, South (Mr. Donohoe), for Coventry, South (Mr. Cunningham), for Barnsley, Central (Mr. Illsley) and for Selby (Mr. Grogan) for their contributions. I particularly congratulate my hon. Friend the Member for Selby on his excellent gain on Saturday. I understand why he can speak so eloquently about the reform of betting tax.

I also thank the hon. Members for West Dorset (Mr. Letwin), for Kingston and Surbiton (Mr. Davey), for Esher and Walton (Mr. Taylor), and for North Dorset (Mr. Walter), the right hon. Member for Fylde (Mr. Jack), the hon. Member for Guildford (Mr. St. Aubyn) and, finally, the hon. Member for Arundel and South Downs (Mr. Flight), who described the hon. Member for Kingston and Surbiton as a man of the 1980s. If I remember correctly, the hon. Member for Kingston and Surbiton would have been about 15 years of age at the beginning of the 1980s. I know that Liberal Democrats mature quickly, as they must because of the short tenure of their position in the House, but I do not believe that they mature that quickly.

The debate has been good humoured. We were entertained particularly by the closing remarks of the hon. Member for Arundel and South Downs. In the short time left to me, I shall answer the various points that have been made. Several hon. Members raised issues connected with foot and mouth disease and suggested measures that could be taken. I shall deal with those remarks towards the end of my speech.

The hon. Member for West Dorset commented on double taxation relief. I remind him that the changes announced when the pre-Budget report was published will enable companies to obtain relief for tax suffered of up to 45 per cent. in lower-tier subsidiaries. That and other changes will ensure that many companies do not need to restructure to obtain the relief. Of those that decide to restructure to optimise their tax position, many will be able to do so without a foreign tax cost. The hon. Gentleman will no doubt be aware that one of the reasons for multinationals' use of offshore holding companies is precisely to avoid tax on capital gains in respect of the sale of subsidiaries. He should be aware that companies that are setting up activities overseas for the first time will now be able to do so without the complications and costs that are involved in using an offshore holding company.

We hear a lot from the Opposition about unnecessary burdens and complexities. Under the previous Tory Government, however, the UK company investing abroad was forced to use an offshore holding company or be disadvantaged by the tax system. The new system ensures direct investment that is not penalised. I am sure that we will return to that matter in Committee.

The hon. Member for West Dorset expressed regret that the Government have not introduced a relief in the form of deferral or exemption. I am sure that British business deeply regrets the fact that the previous Government did nothing about that throughout their 18 years in office. The matter is currently subject to detailed consultation. I recall that the previous Government were not especially keen to consult people on business tax issues, but this is an important issue. Anyone with the best interests of British business at heart will want to ensure that the reform serves the competitive position of the UK for some years to come. Business has shown a strong desire to engage in discussions on the matter, and the Government have said that we plan to be committed to introducing legislation in the Finance Act 2002.

My hon. Friend the Member for South Ribble answered eloquently the points that were made by the hon. Member for Kingston and Surbiton. He is to be congratulated on the 13 business breakfasts that he has attended and on telling the House about all the matters that were debated during them. He is also to be congratulated on having visited 20 schools in his constituency since Christmas. Clearly, he can testify to the fact that the money is coming through in terms of investment and buildings. He also made a special plea about the research and development tax credit on vaccine development. I paid close attention to his points about consultation.

The hon. Member for Escher and Walton—[HON. MEMBERS: "Esher."] I am sorry, it is catching; I am sure that Front-Bench Members will continue to prompt me. The hon. Gentleman expressed regret that this was the least controversial Finance Bill, and went on to say that it was therefore of no benefit. Presumably, the Bill is not controversial because the Opposition agree with many of the measures that it contains. It is rather odd to hold the view that Finance Bills are good only if they can cause huge rows across the Floor of the House, instead of concentrating on whether they benefit our communities.

For instance, the hon. Gentleman did not comment on the children's tax credit or its extension in 2002 in respect of the baby tax credit. Neither did he refer to the extension of the working families tax credit, the reduction on duty for ultra-low sulphur diesel and petrol, the green technology challenge fund, changes in vehicle excise duty, the package of VAT measures to help small and medium-sized companies or the VAT reduction for museums and galleries. All those issues are relevant and important to the people who watch the proceedings of this House.

No Conservative Member who suggested that this was not a good Finance Bill pointed out that the Government were tackling climate change and improving air quality, or that they had put together a package to regenerate our towns and cities and to protect the countryside. Nor did any Conservative Member mention the VAT reforms in respect of housing for which the empty homes campaign had lobbied so long and hard. All those moves will immediately benefit the community, but Conservative Members say that the Bill is not relevant and does not matter. That just shows how out of touch they are with the priorities of people outside and what those people want to be changed.

The right hon. Member for Fylde made a number of comments about foot and mouth, to which I shall return; but for some reason he specifically alighted on the subject of VAT on children's car seats. Perhaps I can help him a little. In 1999, more than 1,000 children were killed or seriously injured while travelling by car. If children are to be protected, it is vital that they sit in children's safety seats that are appropriate to their age, weight and height, meet the latest safety standards and are correctly fitted each time they are used. Some parents currently use second-hand car seats that may or may not meet the latest safety standards. We therefore considered it right to cut VAT on brand-new, better-quality car seats by some £15. I am sure that that has given the right hon. Gentleman more of an answer than he received in response to his parliamentary questions, but if he wants more detail I shall be happy to give it to him.

The hon. Member for West Dorset referred specifically to tobacco receipts. The fall in revenue receipts in 1999–2000 was due primarily to changes in the timing of the Budget and changes in duty rates. The revenue receipts for 2000–01 have exceeded the Revenue's forecast.

There are a few points that need to be made again. The vast majority of cigarettes that are smuggled are smuggled from beyond the European Union: they come from places where there is no duty on such products. The Government have clearly stated that they will not allow criminals to dictate either our tax or our health policies—of which tax is the prime mover.

The hon. Member for Arundel and South Downs spoke of harmonising duty rates. I remind him that harmonisation with French duty rates would cost £1.5 billion. A man who describes a reduction of £8 billion or £16 billion in public expenditure as necessitating merely a pruning, rather than a cutting, of public services needs to be more careful about making such sweeping statements.

The Government's strategy of using £209 million over three years to clamp down on smuggling is having results. In the first nine months of this year, 2.1 billion cigarettes did not reach the United Kingdom, or were prevented from being circulated in the United Kingdom, and 6,700 vehicles were seized from people trying to smuggle products into this country. Smuggling of tobacco products is a terrible scourge of our community: it undermines legitimate trade, increases criminality—as was pointed out by my hon. Friend the Member for Barnsley, Central—and denies the Exchequer he money to which it is entitled. It also undermines our health policy. The Government's tactics are the right way to deal with smuggling.

Mr. St. Aubyn

Will the Paymaster General give way?

Dawn Primarolo

My time has been shortened because the hon. Member for Arundel and South Downs spoke for longer than had been agreed. I will say what I want to say about foot and mouth disease, and I will return to the hon. Gentleman if there is time.

The hon. Member for West Dorset asserted that Customs and Excise was not paying back input VAT quickly enough and that that was causing problems. When he was pressed, he said that problems might be caused in future. The tax authorities are required to repay within 30 days, and the arrangements that the Government have put in place will ensure that the return is made as quickly as possible. If he has examples of cases where that is not occurring, he must surely bring them to the attention of the authorities.

The hon. Gentleman referred also to the working families tax credit and those who are in tied accommodation and have a second home, and the capital value of the second home counting towards the capital that is held as a family, which means that they were not entitled to the tax credit. The situation is slightly more complex than that for people who are in tied accommodation. However, there are ways in which the situation can be dealt with. A great deal of information is being given to communities that are suffering from the economic effects of foot and mouth, whether in tourism, the food industry or farming. The latest information about people's rights to receive benefits comes from the Benefits Agency. I understand that the leaflet is about to go on to the internet. It is being circulated to the communities to which I have referred.

The right hon. Member for Fylde asked a series of questions about our enterprise investment schemes, venture capital schemes and venture capital trusts. In particular, he asked that further consideration be given to the qualifying conditions. He was generous in saying that he did not expect a response immediately from me this evening, and I am grateful for that. I will consider carefully what he said. I think that he acknowledged that the Government were not in a position to give blanket exemptions in major parts of the tax system.

The right hon. Gentleman mentioned roll-over relief for agriculture. The Government extended it to six years in December 2000. Again, I will pay careful attention to his arguments. Where help already exists within the tax system or through sensitive application of the system, we can help communities. I am sure that all hon. Members would expect us to do so. As part of that, the Treasury, Customs and Excise and the Inland Revenue have been working hard to identify ways in which the Government can offer practical help to businesses in rural areas that are being damaged by the outbreak of foot and mouth. They will continue carefully to examine all the suggestions that are coming forward.

We want rural businesses to survive, and to survive the outbreak. They need to continue to generate jobs and prosperity for our communities. However, the Government have done a great deal, including many things for the non-farming business community in rural areas: there are powers to grant hardship rate relief, the introduction of a small firms' loan guarantee scheme, and the work that the Inland Revenue and Customs and Excise can do to give as much help as they can to local communities. An emergency helpline operates seven days a week from 7 am to 12 pm. The very companies that the hon. Member for West Dorset said could be anticipating problems should be contacting that helpline before problems occur, not afterwards. In those ways, we shall be able to ensure that we are giving the maximum help that we can to the communities that are affected.

The Bill contains support for families and for pensioners. It sets out clearly a choice for Britain's future. The Government are building on a platform of economic stability as a foundation for future prosperity. We have made the choice to build on that stability. We have chosen to invest more in our public services, not less. We have made sensible tax cuts for hard-working families. There will not be under-investment and cuts in public services, which are the undeniable consequences of the Conservative party's policies.

The Finance Bill is a measure for families and children, and it will tackle poverty and unemployment among our poorest communities. It is a Bill for companies; it will help Britain's businesses grow and secure a long-term rise in prosperity for all. I commend it to the House.

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

The House divided: Ayes 319, Noes 175.

Division No. 183]	[10 pm
AYES
Abbott, Ms Diane	Anderson, Janet (Rossendale)
Adams, Mrs Irene (Paisley N)	Armstrong, Rt Hon Ms Hilary
Allen, Graham	Ashton, Joe
Anderson, Rt Hon Donald (Swansea E)	Atherton, Ms Candy
	Atkins, Charlotte
	Austin, John

Bailey, Adrian	Denham, Rt Hon John
Banks, Tony	Dismore, Andrew
Barnes, Harry	Dobbin, Jim
Barron, Kevin	Dobson, Rt Hon Frank
Battle, John	Donohoe, Brian H
Bayley, Hugh	Doran, Frank
Beckett, Rt Hon Mrs Margaret	Dowd, Jim
Benn, Hilary (Leeds C)	Dunwoody, Mrs Gwyneth
Benn, Rt Hon Tony (Chesterfield)	Eagle, Angela (Wallasey)
Bennett, Andrew F	Eagle, Maria (L'pool Garston)
Benton, Joe	Edwards, Huw
Bermingham, Gerald	Efford, Clive
Berry, Roger	Ellman, Mrs Louise
Best, Harold	Ennis, Jeff
Betts, Clive	Etherington, Bill
Blackman, Liz	Field, Rt Hon Frank
Blears, Ms Hazel	Fitzpatrick, Jim
Blizzard, Bob	Fitzsimons, Mrs Lorna
Boateng, Rt Hon Paul	Flint, Caroline
Borrow, David	Flynn, Paul
Bradley, Keith (Withington)	Follett, Barbara
Bradley, Peter (The Wrekin)	Foster, Rt Hon Derek
Bradshaw, Ben	Foster, Michael Jabez (Hastings)
Brinton, Mrs Helen	Foster, Michael J (Worcester)
Brown, Rt Hon Gordon (Dunfermline E)	Foulkes, George
	Fyfe, Maria
Browne, Desmond	Gapes, Mike
Buck, Ms Karen	George, Rt Hon Bruce (Walsall S)
Burden, Richard	Gerrard, Neil
Burgon, Colin	Gibson, Dr Ian
Caborn, Rt Hon Richard	Gilroy, Mrs Linda
Campbell, Alan (Tynemouth)	Godman, Dr Norman A
Campbell, Ronnie (Blyth V)	Godsiff, Roger
Campbell-Savours, Dale	Golding, Mrs Llin
Cann, Jamie	Gordon, Mrs Eileen
Caplin, Ivor	Griffiths, Jane (Reading E)
Casale, Roger	Griffiths, Nigel (Edinburgh S)
Caton, Martin	Griffiths, Win (Bridgend)
Chapman, Ben (Wirral S)	Grocott, Bruce
Clapham, Michael	Hain, Peter
Clark, Rt Hon Dr David (S Shields)	Hamilton, Fabian (Leeds NE)
Clark, Paul (Gillingham)	Healey, John
Clarke, Charles (Norwich S)	Hendrick, Mark
Clarke, Eric (Midlothian)	Hepburn, Stephen
Clarke, Rt Hon Tom (Coatbridge)	Heppell, John
Clelland, David	Hewitt, Ms Patricia
Clwyd, Ann	Hill, Keith
Coaker, Vernon	Hinchliffe, David
Coffey, Ms Ann	Hodge, Ms Margaret
Cohen, Harry	Hoey, Kate
Coleman, Iain	Hood, Jimmy
Colman, Tony	Hoon, Rt Hon Geoffrey
Connarty, Michael	Hope, Phil
Cook, Frank (Stockton N)	Hopkins, Kelvin
Cooper, Yvette	Howarth, Rt Hon Alan (Newport E)
Corbett, Robin	Howells, Dr Kim
Corbyn, Jeremy	Hoyle, Lindsay
Corston, Jean	Hughes, Ms Beverley (Stretford)
Cousins, Jim	Hughes, Kevin (Doncaster N)
Cox, Tom	Humble, Mrs Joan
Crausby, David	Hurst, Alan
Cryer, Mrs Ann (Keighley)	Hutton, John
Cryer, John (Hornchurch)	Iddon, Dr Brian
Cummings, John	Illsley, Eric
Cunningham, Rt Hon Dr Jack (Copeland)	Jamieson, David
	Jenkins, Brian
Cunningham, Jim (Cov'try S)	Johnson, Alan (Hull W & Hessle)
Dalyell, Tam	Johnson, Miss Melanie (Welwyn Hatfield)
Darling, Rt Hon Alistair
Darvill, Keith	Jones, Rt Hon Barry (Alyn)
Davey, Valerie (Bristol W)	Jones, Helen (Warrington N)
Davies, Rt Hon Denzil (Llanelli)	Jones, Jon Owen (Cardiff C)
Davies, Geraint (Croydon C)	Jones, Dr Lynne (Selly Oak)
Davis, Rt Hon Terry (B'ham Hodge H)	Jowell, Rt Hon Ms Tessa
	Joyce, Eric
Dean, Mrs Janet	Kaufman, Rt Hon Gerald

Keeble, Ms Sally	Plaskitt, James
Keen, Alan (Feltham & Heston)	Pollard, Kerry
Keen, Ann (Brentford & Isleworth)	Pond, Chris
Kemp, Fraser	Pope, Greg
Kennedy, Jane (Wavertree)	Pound, Stephen
Khabra, Piara S	Prentice, Ms Bridget (Lewisham E)
Kidney, David	Prentice, Gordon (Pendle)
Kilfoyle, Peter	Prescott, Rt Hon John
King, Andy (Rugby & Kenilworth)	Primarolo, Dawn
King, Ms Oona (Bethnal Green)	Prosser, Gwyn
Kumar, Dr Ashok	Quinn, Lawrie
Ladyman, Dr Stephen	Rapson, Syd
Lammy, David	Raynsford, Nick
Laxton, Bob	Reed, Andrew (Loughborough)
Lepper, David	Robertson, John (Glasgow Anniesland)
Leslie, Christopher
Levitt, Tom	Robinson, Geoffrey (Cov'try NW)
Lewis, Terry (Worsley)	Roche, Mrs Barbara
Linton, Martin	Rooker, Rt Hon Jeff
Lloyd, Tony (Manchester C)	Rooney, Terry
Lock, David	Rowlands, Ted
Love, Andrew	Roy, Frank
McCabe, Steve	Ruddock, Joan
McCafferty, Ms Chris	Russell, Ms Christine (Chester)
McCartney, Rt Hon Ian (Makerfield)	Ryan, Ms Joan
	Salter, Martin
McDonagh, Siobhain	Sarwar, Mohammad
Macdonald, Calum	Sedgemore, Brian
McDonnell, John	Shaw, Jonathan
McFall, John	Sheerman, Barry
McIsaac, Shona	Sheldon, Rt Hon Robert
McKenna, Mrs Rosemary	Short, Rt Hon Clare
Mackinlay, Andrew	Simpson, Alan (Nottingham S)
McNulty, Tony	Skinner, Dennis
MacShane, Denis	Smith, Rt Hon Andrew (Oxford E)
Mactaggart, Fiona	Smith, Angela (Basildon)
McWalter, Tony	Smith, Rt Hon Chris (Islington S)
McWilliam, John	Smith, Miss Geraldine (Morecambe & Lunesdale)
Mahon, Mrs Alice
Mallaber, Judy	Smith, Jacqui (Redditch)
Mandelson, Rt Hon Peter	Smith, John (Glamorgan)
Marsden, Gordon (Blackpool S)	Smith, Llew (Blaenau Gwent)
Marsden, Paul (Shrewsbury)	Soley, Clive
Marshall, David (Shettleston)	Southworth, Ms Helen
Marshall, Jim (Leicester S)	Spellar, John
Martlew, Eric	Starkey, Dr Phyllis
Maxton, John	Steinberg, Gerry
Meacher, Rt Hon Michael	Stevenson, George
Meale, Alan	Stewart, Ian (Eccles)
Michael, Rt Hon Alun	Stinchcombe, Paul
Michie, Bill (Shef'ld Heeley)	Stoate, Dr Howard
Milburn, Rt Hon Alan	Strang, Rt Hon Dr Gavin
Miller, Andrew	Straw, Rt Hon Jack
Mitchell, Austin	Stringer, Graham
Moffatt, Laura	Stuart, Ms Gisela
Morgan, Ms Julie (Cardriff N)	Taylor, Rt Hon Mrs Ann (Dewsbury)
Morley, Elliot
Morris, Rt Hon Ms Estelle (B'ham Yardley)	Taylor, David (NW Leics)
	Temple-Morris, Peter
Mountford, Kali	Thomas, Gareth R (Harrow W)
Mowlam, Rt Hon Marjorie	Timms, Stephen
Mudie, George	Tipping, Paddy
Mullin, Chris	Touhig, Don
Murphy, Denis (Wansbeck)	Trickett, Jon
Murphy, Jim (Eastwood)	Turner, Dennis (Wolverh'ton SE)
Naysmith, Dr Doug	Turner, Dr Desmond (Kemptown)
O'Brien, Bill (Normanton)	Turner, Dr George (NW Norfolk)
O'Brien, Mike (N Warks)	Turner, Neil (Wigan)
Olner, Bill	Twigg, Derek (Halton)
O'Neill, Martin	Twigg, Stephen (Enfield)
Organ, Mrs Diana	Tynan, Bill
Osborne, Ms Sandra	Vis, Dr Rudi
Pearson, Ian	Walley, Ms Joan
Perham, Ms Linda	Ward, Ms Claire
Pickthall, Colin	Wareing, Robert N
Pike, Peter L	Watts, David

White, Brian	Woodward, Shaun
Wicks, Malcolm	Woolas, Phil
Williams, Rt Hon Alan (Swansea W)	Worthington, Tony
	Wright, Anthony D (Gt Yarmouth)
Williams, Alan W (E Carmarthen)	Wright, Tony (Cannock)
	Wyatt, Derek
Wills, Michael
Winnick, David	Tellers for the Ayes: Mrs. Anne McGuire and Mr. Mike Hall.
Winterton, Ms Rosie (Doncaster C)
Wood, Mike

NOES
Ainsworth, Peter (E Surrey)	Davey, Edward (Kingston)
Allan, Richard	Davies, Quentin (Grantham)
Amess, David	Donaldson, Jeffrey
Ancram, Rt Hon Michael	Dorrell, Rt Hon Stephen
Arbuthnot, Rt Hon James	Duncan, Alan
Ashdown, Rt Hon Paddy	Duncan Smith, Iain
Atkinson, David (Bour'mth E)	Emery, Rt Hon Sir Peter
Atkinson, Peter (Hexham)	Evans, Nigel
Baker, Norman	Fabricant, Michael
Baldry, Tony	Fallon, Michael
Beith, Rt Hon A J	Fearn, Ronnie
Bercow, John	Flight, Howard
Beresford, Sir Paul	Foster, Don (Bath)
Blunt, Crispin	Fowler, Rt Hon Sir Norman
Body, Sir Richard	Fox, Dr Liam
Boswell, Tim	Fraser, Christopher
Bottomley, Peter (Worthing W)	Garnier, Edward
Bottomley, Rt Hon Mrs Virginia	Gibb, Nick
Brady, Graham	Gidley, Sandra
Brand, Dr Peter	Gill, Christopher
Brazier, Julian	Gillan, Mrs Cheryl
Brooke, Rt Hon Peter	Gray, James
Browning, Mrs Angela	Green, Damian
Bruce, Malcolm (Gordon)	Greenway John
Burns, Simon	Grieve, Dominic
Burstow, Paul	Gummer, Rt Hon John
Butterfill, John	Hague, Rt Hon William
Campbell, Rt Hon Menzies (NE Fife)	Hamilton, Rt Hon Sir Archie
	Hammond Philip
Cash, William	Hancock, Mike
Chapman, Sir Sydney (Chipping Barnet)	Harvey, Nick
	Hawkins, Nick
Chidgey, David	Hayes, John
Chope, Christopher	Heald, Oliver
Clappison, James	Heath, David (Somerton & Frome)
Clarke, Rt Hon Kenneth (Rushcliffe)	Heathcoat-Amory, Rt Hon David
	Hogg, Rt Hon Douglas
Collins, Tim	Horam, John
Cormack, Sir Patrick	Howard, Rt Hon Michael
Cotter, Brian	Howarth, Gerald (Aldershot)
Cran, James	Hughes, Simon (Southwark N)
Curry, Rt Hon David	Jack, Rt Hon Michael

Jackson, Robert (Wantage)	Robinson, Peter (Belfast E)
Jenkin, Bernard	Roe, Mrs Marion (Broxbourne)
Johnson Smith, Rt Hon Sir Geoffrey	Ruffley, David
	Russell, Bob (Colchester)
Jones, Nigel (Cheltenham)	St Aubyn, Nick
Key, Robert	Sanders, Adrian
King, Rt Hon Tom (Bridgwater)	Shephard, Rt Hon Mrs Gillian
Kirkbride, Miss Julie	Shepherd, Richard
Kirkwood, Archy	Simpson, Keith (Mid-Norfolk)
Lait, Mrs Jacqui	Smith, Sir Robert (W Ab'd'ns)
Lansley, Andrew	Soames, Nicholas
Leigh, Edward	Spelman, Mrs Caroline
Letwin, Oliver	Spicer, Sir Michael
Lewis, Dr Julian (New Forest E)	Spring, Richard
Lidington, David	Stanley, Rt Hon Sir John
Lilley, Rt Hon Peter	Streeter, Gary
Livsey, Richard	Stunell, Andrew
Lloyd, Rt Hon Sir Peter (Fareham)	Swayne, Desmond
Loughton, Tim	Syms Robert
Luff, Peter	Taylor, Ian (Esher & Walton)
McCrea Dr William	Taylor, Rt Hon John D (Strangford)
MacGregor, Rt Hon John	Taylor, John M (Solihull)
McIntosh, Miss Anne	Taylor Matthew (Truro)
MacKay, Rt Hon Andrew	Taylor, Sir Teddy
Maclean, Rt Hon David	Thomas Simon (Ceredigon)
McLoughlin, Patrick	Tonge, Dr Jenny
Madel, Sir David	Tredinnick, David
Malins, Humfrey	Trend, Michael
Maples, John	Tyler, Paul
Mawhinney, Rt Hon Sir Brian	Tyrie, Andrew
May, Mrs Theresa	Viggers, Peter
May, Mrs Theresa	Walter, Robert
Moore, Michael	Waterson, Nigel
Moss, Malcolm	Webb Steve
Norman, Archie	Wells, Bowen
Oaten, Mark	Whitney, Sir Raymond
O'Brien, Stephen (Eddisbury)	Whittingdale, John
Öpik, Lembit	Widdecombe, Rt Hon Miss Ann
Ottaway, Richard	Wilkinson, John
Page, Richard	Willetts, David
Paice, James	Willis, Phil
Paterson, Owen	Wilshire, David
Pickles, Eric	Winterton, Mrs Ann (Congleton)
Portillo, Rt Hon Michael	Winterton, Nicholas (Macclesfield)
Prior, David	Yeo, Tim
Randall, John	Young, Rt Hon Sir George
Redwood, Rt Hon John
Rendel, David	Tellers for the Noes: Mr. Stephen Day and Mr. Geoffrey Clifton-Brown.
Robathan, Andrew
Robertson, Laurence (Tewk'b'ry)

Question accordingly agreed to.

Bill read a Second time.